The Reverend Doctor John K. Williams has been a teacher and currently does free-lance writing and lecturing from his base In North Melbourne, Victoria, Australia. History has dealt unkindly with King Canute. For many he has become the very symbol of a pretentious ruler’s folly. What, after all, could be more absurd than a monarch attempting to stem the tide by sitting on a beach and raising his royal hand? The original legend, however, testifies to the wisdom of this sadly maligned monarch. The king was surrounded by courtiers given to extolling their ruler’s powers in grandiose terms. To demonstrate their foolishness and to illustrate how limited his powers were, King Canute engineered the confrontation between a royal edict and the laws of nature governing the rise and fall of the tides. The courtiers, not their ruler, were the fools. Indeed, it is probably because rulers with the good sense to recognize their limitations are so rare that the story of King Canute ordering the tides to stand still has been so unfairly distorted over the centuries. A leap from King Canute to contemporary critics of a free market economy might seem, prima facie, a leap bringing envy to the heart of a Rudolf Nureyev. So let me state my thesis boldly and baldly: contrary to the diagnoses of the bedside attendants of an allegedly dying capitalist economic system, no radical surgery is called for. What we confront is not market failure but government failure: specifically, a failure of governments to acknowledge, as did King Canute, what they in fact cannot do. The Death of Capitalism Capitalism has been a long time dying. As noted by two Australian defenders of the free market in a free society, Greg Lindsay and Gary L. Sturgess, “Utopian socialists pronounced it dead at birth, and during the nineteenth and twentieth centuries death notices have, with boring frequency, been posted by Karl Marx and his lesser imitators.” Some critics cited malnourishment as the cause of death, capitalism allegedly being less efficient than centrally planned economic systems. Other critics cited obesity and a consequent strain on the system’s heart, capitalism allegedly, like the sorcerer’s apprentice, having unleashed forces beyond control which produced a bloated affluence. According to some, capitalism had fulfilled its function, having ushered in a “post-scarcity” age. In the gentle words of Ecclesiastes “For everything there is a season . . . . , a time to be born, and a time to die,” hence, having overcome the problem of scarcity, the time for a dignified death had arrived. Others suggested that, greedily gobbling up finite resources, capitalism’s demise was due to the imminent worldwide scarcity it itself had brought about. The disenchanted ex-Marxian philosopher Jean Francois Revel puts it well:
This paper is from an address at the Fall meeting of The Board of Trustees and guests, Foundation for Economic Education, November 18,1983.
History has dealt unkindly with King Canute. For many he has become the very symbol of a pretentious ruler’s folly. What, after all, could be more absurd than a monarch attempting to stem the tide by sitting on a beach and raising his royal hand?
The original legend, however, testifies to the wisdom of this sadly maligned monarch. The king was surrounded by courtiers given to extolling their ruler’s powers in grandiose terms. To demonstrate their foolishness and to illustrate how limited his powers were, King Canute engineered the confrontation between a royal edict and the laws of nature governing the rise and fall of the tides. The courtiers, not their ruler, were the fools. Indeed, it is probably because rulers with the good sense to recognize their limitations are so rare that the story of King Canute ordering the tides to stand still has been so unfairly distorted over the centuries.
A leap from King Canute to contemporary critics of a free market economy might seem, prima facie, a leap bringing envy to the heart of a Rudolf Nureyev. So let me state my thesis boldly and baldly: contrary to the diagnoses of the bedside attendants of an allegedly dying capitalist economic system, no radical surgery is called for. What we confront is not market failure but government failure: specifically, a failure of governments to acknowledge, as did King Canute, what they in fact cannot do.
The Death of Capitalism
Capitalism has been a long time dying. As noted by two Australian defenders of the free market in a free society, Greg Lindsay and Gary L. Sturgess, “Utopian socialists pronounced it dead at birth, and during the nineteenth and twentieth centuries death notices have, with boring frequency, been posted by Karl Marx and his lesser imitators.” Some critics cited malnourishment as the cause of death, capitalism allegedly being less efficient than centrally planned economic systems. Other critics cited obesity and a consequent strain on the system’s heart, capitalism allegedly, like the sorcerer’s apprentice, having unleashed forces beyond control which produced a bloated affluence. According to some, capitalism had fulfilled its function, having ushered in a “post-scarcity” age. In the gentle words of Ecclesiastes “For everything there is a season . . . . , a time to be born, and a time to die,” hence, having overcome the problem of scarcity, the time for a dignified death had arrived. Others suggested that, greedily gobbling up finite resources, capitalism’s demise was due to the imminent worldwide scarcity it itself had brought about. The disenchanted ex-Marxian philosopher Jean Francois Revel puts it well:
The most active department of socialist thought for the past century can be seen as an undertaking establishment that keeps itself occupied, indeed over-employed, fidgeting over the details of capitalism’s funeral arrangements. All is ready for the imminent delivery of the mortal remains. A cloud of witnesses goes to and fro, bringing news from the bedside, where the patient is forever about to expire, to the public outside, where the socialist funeral procession awaits only the final signal to get under way.
Inasmuch as Revel uses the word “capitalism,” I have also used it. The late Leonard Read, in company with many scholars, tended to avoid the word: it has so many connotations that it can jeopardize rather than facilitate communication. In The Fontana Dictionary of Modern Thought two definitions of capitalism are proffered: one in terms of the private control of means of pro duction and objects of consumption in markets which “are free in the sense that, subject to the constraints of law” individuals are “at liberty to enter or depart, to expand or contract, and . . . to buy or not to buy”; the other in terms of a “set of arrangements in which one class, the capitalists or bourgeoisie, owns the factories and other tools of production, while a second class, the work ers or proletarians, possesses only its labour power . . . .”
I do not wish to invest much time debating definitions. I merely suggest that a consideration of the complex economic and political structures constituting mercantilism, the economic and political system Adam Smith so vigorously attacked, leads one, by contrast, to think of the capitalist era in terms of free domestic markets, free international trade, an absence of government patronage, and a society of contract as against a society of status and fixed relationships. I further submit that, unlike socialism, capitalism is not to be thought of as an ideology. The British historian and ex-editor of the New Statesman Paul Johnson makes this point tellingly: “I do not believe,” he writes, “that capitalism is an ideology at all. Socialism is, because socialism is an intellectual artifact. Capitalism . . . is an absolutely natural human development which inexorably follows from the fact of establishing the principle of freehold property . . . . Capitalism is merely a demonstration of the human spirit at work in industrial society.”
It is also, in this context, important to note that, although it is certainly no accident that capitalism and classical liberal democracy entered human history at about the same time and on the same part of the globe, the existence of a free market is not a sufficient condition for the existence of a free society. Essentially free market economies both can and do exist in authoritar ian regimes. What is clear is that without economic liberty, political liberties are difficult to win and even more difficult to maintain. The most that can be said, I suggest, is that while liberal democracies are essentially capitalistic, not all essentially capitalistic nations are democracies. Economic liberty is a necessary, but not sufficient, condition for political liberty.
Is Capitalism Failing?
Is capitalism faltering? Are those who assume that capitalism is dead or dying to be heeded? Are we to take seriously the confident prophecies of Marxian Adventists that the great and final capitalist cataclysm is at hand?
I submit that comparable questions as to the present well-being of socialist regimes must clearly be answered in the negative. Western intellectuals returning from pilgrimages to the U.S.S.R. and proclaiming that the socialist millennium had arrived are, fortunately, an endan gered and almost extinct species. Student radicals of the silly 60s and 70s who made China their ideal have had to cope with the revelation that Mao Tse-tung’s Dazhai commune was a fraud, propped up by handouts and garbed by falsified statistics. The general consensus of Western Marxians would seem to be that all purportedly Marxian States actually existing are aberrations of “authentic” Marxist-Leninist principles. While doctrinaire socialists provide compelling evidence for T.S. Eliot’s claim that humankind “cannot bear very much reality,” one cannot totally ignore the reality of chronic food shortages and a dearth of consumer goods in Soviet Russia, Eastern Europe, Cuba and African States which, once enjoying thriving agricultural bases, listened to Western intellectuals, collectivized these in the name of “agrarian reform,” and are now dependent upon foreign aid for the most basic of foodstuffs.
Grim reality, however, can be “accommodated.” As a churchman I am both saddened and bewildered by clerical colleagues who sincerely yearn for a day when the hungry are fed, the naked are clothed and the impoverished of the earth raised up from their misery, yet who treat with an irrational abhorrence the very system that, to date, has done best what they value most. The very notion that the miserable failure of socialist regimes to satisfy the material needs of their people might testify not to the indifference or incompetence of central planners but to the inherent limitations of central planning, is, it would seem, for many literally unthinkable. The suggestion that maybe, just maybe, empirical facts have confirmed the conclusion of Ludwig von Mises’ argument that economic calculation in a socialist State is literally impossible, falls, unfortunately, upon deaf ears. For these people know that capitalism is dead or dying, and they are quick to proffer evidence for this seemingly unshakable conviction. What evidence do they cite?
The most obvious and probably most widespread symptom of capitalism’s death or terminal illness today referred to is the current recession. Recently I squirmed my way through a sermon delivered by an Episcopalian bishop I greatly admire. According to him, however, one with eyes to see can look at the queues of men and women desperately seeking employment in capitalist nations and not perceive that capitalism’s days have ended. Anyone whose eyes do not weep when they behold the human misery this system generates, is without a heart.” I must admit that I felt like weeping—weeping over a good and intelligent man’s economic ignorance. He unintentionally atoned for this ignorance, however, by later giving expression to a significant half-truth: “Governments have discovered,” he observed, “that they are unable to create full employment.”
In one sense he was in error: governments have, in our century, provided full employment for the unhappy occupants of Auschwitz and the Gulag Archipelago. In another sense, however, he was correct: governments literally cannot simultaneously tolerate the use of coercion by privileged workers to prevent downward movements of real wages in some areas of employment; stimulate demand for labor sufficient to prevent involuntary unemployment; and avoid inflation and the further misallocation of resources, including labor, such inflation generates.
A Scenario for Disaster
Lord Keynes’ insistence that government could, by regulating aggregate demand through monetary policy, control employment, and the effective capture by trade unions of legalized power to force individuals to withhold their labor from potential employers, have together cre ated a scenario for disaster, a disaster as inevitable as the rise and fall of the tide. Yet what is being considered is the result of a departure from the economic and political structures defining the free market in a free society, and should lead us to challenge this departure from the rules rather than the rules themselves. The locus of our present problems is found not in any market failure, but in governments which, unlike King Canute, do not recognize their limitations and foster, rather than discourage, the false beliefs of their fawning admirers.
Such a response, however, today invites and usually receives a rebuttal referring to technological change. An Australian politician, Mr. Barry Jones, has argued in a quite fascinating volume entitled Sleepers, Wake! that “the ‘post-industrial revolution’ is . . . a fundamental break with previous economic history” and that “the adoption of new technology (involves factors which) have no precedent in economic history.” While not echoing the confident 1949 prediction of Norbert Wiener that developed nations faced “a decade or more of ruin and despair” as cybernation and automation decimated employment opportunities, Mr. Jones clearly is convinced that what an Australian newspaper called “the computer holocaust” marks the end of the free market in a free society. What he at least argues, many simply assert.
Past Evidence of the Fear of Technological Change
It is salutary to note in this context that advocates of what one might call the “discontinuity thesis vis à vis modern technology” themselves display, in their fear of technological change, a quite remarkable continuity with the past. In the late 1700s the loom and spinning jenny were perceived as omens of impending disaster. In the 1870s and 1880s mechanization signalled the last days. In the early 1900s electrification was hailed as a sure and certain sign that capitalism faced its final judgment.
I have no doubt that modern technology will result in massive changes in employment patterns. I do doubt, however, that our situation is without precedent. It is not so long ago that the vast majority of men, women and children worked long hours to eke out a bare living from the soil. Had those people been informed that one day in the United States of America a mere four per cent of the working populace would produce sufficient food to feed an entire nation and a great deal of the rest of the world as well, they would have anticipated a future characterized by massive involuntary unemployment. Yet the seemingly random acts of people “chanced” upon new activities which became components of economic exchange. No “experts,” however clever, could have anticipated that many ladies would discover in the act of painting other ladies’ toenails one such activity! The greater one believes the impact of modern technology upon employment patterns will be, the more vital becomes the existence of an economic system dependent upon the liberty of the masses to experiment. Only thus can the probability of the rapid discovery of new activities becoming components of economic exchange be maximized.
The year 1973 was a good one for connoisseurs of explanations of the free market’s demise. The oil crisis constituted a pleasing blend of such favored elements as alleged market failures via the emergence of cartels, and industry in chaos. John Kenneth Galbraith prefaced a gleeful article celebrating the new crisis facing capitalism by two quotations from Milton Friedman who had predicted a fall in the price of oil and the collapse of OPEC. OPEC had, asserted Galbraith, disproved the claim that “[any] effort seriously to limit supply and enhance prices will . . . be destroyed by the pressure to sell at the higher price. And also by the enthusiastic response of producers who are not part of the control effort.”
Events showed, however, that Friedman was “out” only in his timing. The market responded precisely as predicted. Sources of oil, previously uneconomic, came on stream. Substitutes emerged. Falling demand led to surpluses and some OPEC countries broke rank, selling under official prices. The only “failure” involved was the confidence of all too many in market forces, compounded by the perfectly predictable failure of the ludicrous attempts of many governments which, lacking the wisdom of King Canute, believed they could control matters by price controls, gasoline rationing, lower speed limits, and so on.
One year before the oil crisis of 1973, however, the opponents of capitalism had been mightily heartened by the publication of the Club of Rome report. The essence of this report, you will recall, was that exponential growth trends in population accompanied by resource depletion would lead to our reaching the limits of global capacity within one hundred years, resulting in catastrophe. While some developing nations perceived in The Limits to Growth further evidence of some sort of conspiracy to disadvantage peoples desperately in need of massively increased economic growth, most Western intellectuals inter preted the report as a telling indictment of capitalism. Capitalist nations, after all, were the nations characterized by the economic growth inexorably leading the world to destruction.
This conclusion led, and still leads, to two strategies for action inimical to the survival of the free market in a free society. The first, followed by the Club of Rome itself in embarking upon its “Reviewing the International Order” project, directed by the Nobel-Prize-winning Dutch economist Jan Tinbergen, prescribes a global redistribution of wealth as the means of averting global disaster. The prescription was at one with that recommended by the 1964 United Nations Conference on Trade and Development, which had specified a minimum one per cent transfer of the national income of developed countries to developing countries and set a target of an annual rate of growth in the developing world of five per cent.
Two Approaches to One End
The major contrast between what one might call “the philosophy of UNCTAD” and that of the Club of Rome is that the former was optimistic, believing that the inevitable destiny of every society is affluence and that a “massive transfer of resources from North to South” will lead to this happy state of affairs. One perceives that prescription as an elixir leading to an earthly paradise; the other perceives the prescription as preventive medicine saving us from an earthly hell. The prescription, however, is the same.
Adequately to explore this re-ponse to the myth of finite resources lies beyond the scope of a single paper. This is fortunate, as such exploration leads one into the tangled jungle of Lenin’s analysis of imperialism, unpleasant human traits as envy and an irrational guilt bordering upon masochism, the utterly extraordinary economics of the Brandt commission and the much- discussed New International Economic Order, the Law of the Sea Treaty, and an entirely new vocabulary of euphemisms which obscure the central question of precisely who is to do precisely what for precisely whom. I can but urge you to avail yourselves, should you decide to undertake such exploration, of the services of such admirable guides as Professor P.T. Bauer and Dr. Kenneth R. Minogue.
The other response to the myth of finite resources I deem politically significant and destructive of individual and economic liberty, is that of those people described by Dr. H. Peter Metzger as “the coercive utopians.” Their vision of utopia is a radically decentralized, semi-agrarian society composed of small, self-sufficient communes utilizing “soft” energy alternatives and enjoying the simplest of cottage industries. The inhabitants of such communes will rejoice in an unravaged environment, will experience closer and more intimate human relationships than hitherto known, and will have witnessed the passing of enmities spawned by an inequitable distribution of economic goods. According to Ralph Nader, “[We] are going to rediscover smallness. If people can get back to the earth they can grow their own gardens, they can listen to the birds, they can feel the wind across their cheek, and they can watch the sun come up.”
Mistrust of Industrialism
There is nothing particularly new about such romanticism. Nor is there anything new about a deep-seated mistrust of industrialism. It can be found in such dedicated opponents ofsocialism as Belloc and Chesterton, and was articulated by the conservative Prime Minister of the United Kingdom, Stanley Baldwin, when he identified the “real England” with “the tinkle of the hammer on the an-vii in the country smithy, . . . the sound of the scythe against the whetstone, and the sight of a plough team coming over the brow of a hill . . . .” What is new is the plethora of self-styled “public interest” groups exerting considerable political clout and supported by alarmingly large numbers of well-intentioned people completely ignorant of the “hidden agenda” informing such groups. Llewellyn King has perceptively described this agenda:
[Its vision] is the decentralized society; its weapon for capitalistic excess is regulation, not nationalization; its means for decentralization are technological . . . . The cutting-edge of this agenda—turning the United States from an industrialized, centralized society into a decentralized, semi-agrarian nation—is to put a tourniquet around centralized energy development . . . and to bring about, through the dispersal of energy sources, a dispersal of decision-making and return power to the people in small, local units.
In one sense it is tempting to dismiss this scenario simply as bizarre: indeed a reviewer of a volume elaborating this scenario (Ernest Callenbach’s Ecotopia) dismissed it as a “satire of an environmentalist’s daydream.” A moment’s thought should be sufficient to reveal its patent absurdity. One cannot help but feel that few of the well- fed, well-housed, well-educated, and perhaps well-intentioned beneficiaries of “high technology” now biting the hand that fed, housed and guided them have ever really contemplated the technology involved in the manufacture of a simple spade. Inasmuch as quite a few spades will be needed in their alternative society that all of us apparently are to enjoy, such contemplation might be salutary! And so might further contemplation on the restricting effects of limited communications upon the sharing of human knowledge, the impact of their semi-feudal socio economic system on medical and para-medical services, and the “dehumanizing” nature of the many la-bor-intensive activities their realized ideal would involve.
The Myth of Finite Resources
There are two major points I would make in this context: first, I would simply observe that a free market economy in a free society, an economy emerging from the uncoerced attempts of individuals seeking to improve their situation by reference to their own diverse visions of the “good life” and their own perceptions how best to realize these visions, represents the ultimate form of a decentralized economic system; second, I would urge men and women attracted by the seemingly admirable objectives of many “public interest” groups to make sure that the leadership of such groups is not, in truth, held by elite power brokers in the body politic, creating pressures for anti-free market regulation and busily forging links with the State reminiscent of mercantilism at its worst.
I have twice, in discussing two responses to neo-Malthusian pessimism about the capacity of the earth to sustain high economic growth, used the expression “the myth of finite resources.” I am not suggesting of course, that resources are infinite, although I wish individuals referring to finite resources would facilitate discourse by distinguishing between preservable resources such as air, reclaimable resources such as metals, renewable resources such as trees, and depletable resources which cannot be preserved unless we do not use them. I am rather drawing attention to the grotesque misunderstanding endemic among many who speak of finite resources without saying what is meant by a known resource.
It should be self-evident that no mining company would spend vast sums looking for what is common; it should be equally self-evident that since reserves are defined in terms of what can economically be recovered, their extent is dependent upon prevailing prices. Indeed, the price system in a free market economy adapts production to more information than any political planners could be aware of, let alone synthesize. Market prices indicate when it is and when it is not economical to recover reserves. It is that economic system which people concerned about the conservation of various resources should be advocating.
Technology Creates Resources
It should also be noted that technology not only consumes but in a very real sense creates resources. Michael Novak has noted, for example, that oil, known in Biblical times and marginally useful in the making of ink and perfume, only really became a “resource” when a use was found for it and a technology devised to extract it. Again, the early Iberians mined the Rio Tinto deposits in Spain for copper, gold and silver. Falling grades and the collapse of the Carthaginian empire caused the mines to be abandoned. The greater organizational and engineering skills of the Romans reopened the mines. Grades fell even further and the mines again were closed. The discovery by the Moors in the Middle Ages of the process of “leaching,” made further recovery of copper feasible. Technology, in other words, created resources, the mine closing again and opening again as the “roasting process” supplanted “leaching” and the “flotation process” supplanted the “roasting process.”
Even unintended and undesired side-effects of new technologies cry out, for their best resolution, for the market. Consider pollution. Historical research on the legal response to pollution in nineteenth-century England reveals not any failure of capitalism, but the failure of courts to enforce the sine qua non of capitalism—private property rights—through the tort of nuisance. Private entitlements to clean air were transferred to the “public domain” where they were appropriated by industrialists. Once again a departure from, and not the workings of, eco nomic and political liberty compounded the difficulties created by a new technology.
Having referred to a failure of nineteenth century English courts to enforce private property rights, it is, perhaps, appropriate to remind ourselves of the limited but utterly vital function of government. King Canute, in his wisdom, knew what rulers cannot do; that knowledge, however, must be placed alongside a recognition of and emphasis upon what rulers must do. Economic and political liberty depend utterly upon laws establishing and protecting property rights and enforcing the performance of contractual promises.
Douglas North has argued eloquently and persuasively that the appearance of economic growth in Europe was no historical accident linked to sudden technological revolution: what characterized early modern Europe was a system of property rights making innovative activity more profitable than anywhere else and ever before. If a system of property rights is imprecise, or its protective mechanisms inefficient, behavior informed by short-term considerations is encouraged. A system of property rights defining and protecting people’s entitlements to what their efforts create, reduces the risks inherent in production, increases the potential profitability of innovation, and thereby encourages the deferred consumption necessary for capital formation.
Protecting Individuals from Violence, Theft and Fraud
It is vitally important that those who define the essential function of governments in terms of the protection of individuals from violence, theft, and fraud, and seeing to the enforcements of contracts, do not equate limited government with weak government. If private property rights are not efficiently protected, economic liberty and political liberty are at risk.
And it is here that our present situation is precarious. As Friedrich Hayek has consistently argued, “legislatures” which were conceived by early theorists of representative government to be limited to the making of “laws” in a very specific sense of that word, have expanded the term to refer to everything that elected representatives resolve. As against an understanding of the “rule of law” as the legitimizing of coercion solely to enforce obedience to general rules of individual conduct equally applicable to all, in an unknown number of future instances, such rule has become equated with the enforcement of any and every directive issued by elected represen tatives of the majority, however much such directives discriminate in favor of, or to the detriment of, some groups of individuals.
The “public choice” theorist Allan Meltzer has, like Hayek, concluded that a fundamental conflict obtains between representative democracy as we know it today and the market system. Let me cite here the essence of Meltzer’s argument:
The government grows faster than the private sector whenever the costs of government can be diffused and the benefits concentrated . . . . The principal reason is that politicians can organize supporters at lower cost by offering new programs than by offering either tax reduction or elimination of existing programs . . . .
Each time a candidate opposes a program those who benefit from the program have an incentive to vote for the opposition. Some voters will be attracted and pledge their votes. Generally, fewer votes will be gained than lost because the gain to an average voter from eliminating a program is smaller than the loss to the beneficiaries . . . . If taxes were concentrated and benefits diffused, a coalition in favour of tax reduction would be organized to eliminate programs, reduce taxes and the relative size of government . . . .
Candidates often run on programs favouring tax reduction, efficiency in government, elimination of waste and the ‘crushing burden’ of regulation and taxation. Once in office the promises may be repeated, but they are not enacted. Again, the reason is that coalitions in favour of tax reduction or efficiency are costly to maintain . . . . The benefits from new programs can be concentrated to help the voters who supported the candidate or promise to support him in the future. Coalitions in favour of benefits are, therefore, more efficient than coalitions in favour of tax-reduction. They can be organized and maintained at lower cost.
A competitive political process sustains efficient coalitions and eliminates inefficient coalitions. The members of a group favouring tax reduction and smaller government can be bid away by finding benefits that reward the members. Such benefits include specific tax reduction, subsidies, regulation of competitors, tariffs, and licensing.
. . . If I am correct, there is.a flaw in the operation of representative government. The flaw produces the growth of government. The government grows, faster at times, slower at times. On average, government grows.
Adam Smith’s “liberal plan of equality, liberty, and justice” can usefully, I suggest, be understood in terms of his answer not to the question political philosophers from Plato onward have asked, namely, “What economic and political structures maximize the good that the best can do, assuming they enjoy economic and political power?” but to a very different question: “What economic and political structures minimize the evil that the worst can do, assuming they enjoy economic and political power?” The current wisdom of our age has it that his trust in a free market as a limitation on the evil the worst can do given economic power was in error and his trust in democratic government as a limitation on the evil that the worst can do given political power was sound. But I am suggesting the converse is the case.
The essentially philosophical observations of Hayek, and the more empirical observations of the public-choice theorist Meltzer, underscore the same vital point: the free market in a free society is under threat not because of market failure but rather because of government failure. The political structures which classical liberals advocated have not proved strong enough to counter or curb the perfectly understandable desire of the politician to improve his situation—maximize his utility if you like—and the equally understandable desire of vested interests to improve their situation by the employment of skilled, information rich intermediaries whose task it is to bring to the notice of politicians the unfortunate consequences of ignoring the particular cause such intermediaries represent.
Problems of Size in the Free Market Economy
The accuracy of this diagnosis of our problem is confirmed if we contemplate two further common objections to a market economy cited by its opponents: the claim that the development of the modern corporation involves a mutation fatal to the survival of the market, and the claim that monopolistic and oligopolistic structures have supplanted the classical market.
John Kenneth Galbraith’s statement of the first claim is concise: “In recent decades there has been . . . [a] shift of power from owners to management within the modern large corporation . . . . The management, though its ownership is normally negligible, is solidly in control of the enterprise. By all visible evidence it possesses the power.” The same point, essentially, was made by Marx when he described the joint stock company as “private production without the control of private property.”
The claim collapses. Market forces continue to operate. The decisions of corporate management have an ira-pact on the anticipated cash flow of the corporation, and this is reflected in share prices. Indirect though this market process may sound, it monitors and directs the behavior of management and prevents the misallocation of resources both Ludwig von Mises and contemporary public choice theorists ascribe to government bureaucracies.
The second claim under consideration—that oligopoly and monopoly have destroyed the classical market—again finds expression in Galbraith: “[a difference] which invades every aspect of economic organization and behavior, including the motivation to effort itself . . . [exists be tween] . . . the world of the few hundred technically dynamic, massively capitalized, and highly organized corporations on the one hand, and of the thousands of small and traditional proprietors on the other.” The same claim is made ad nauseam by those who have absorbed the Institute of Policy Studies’ Amsterdam-based Trans-national Institute’s practice of describing transnational corporations as “fascist” and extend it to almost any corporation marked by size and a significant market share.
Size and a significant market share, however, do not constitute monopoly power. While no one has to my knowledge more scathingly described the inclination of businessmen to conspire than did Adam Smith, the fact is that unless large corporations agree to restrict production and thereby maintain high prices market forces continue to operate. Such agreement, however, is not easily achieved. The collapse of OPEC, noted earlier, is a case in point, as is the similar collapse of CIPEC which, in the 1960′s, boasted a membership representing some seventy-five per cent of the world’s exported copper. Firms, no matter how large, unless they capture the coercive power of government, are no more able long to defy market forces than King Canute could defy the laws governing the tides.
The problem is that when government patronage is up for sale businesses beth can and do bid for it. And as noted earlier, such patronage /s all too often up for sale. Whether purchased by unions or businesses, the resulting symbiotic relationship augurs ill for liberty and for the material well-being of consumers. Yet I underscore my central contention: the flaw is to be located in governments which, unlike King Canute, are oblivious of the laws which limit their powers. The only difference is that whereas the claim that King Canute could control the tides was easily and decisively discredited, claims that governments can intervene in the market place without disturbing the processes making for economic efficiency are not so easily refuted. As I have attempted to illustrate, a plethora of excuses exist for inflation or involuntary unemployment or decreasing material prosperity.
Further Study Needed
Those of us committed to economic and political liberty still, as Leonard Read always insisted, have much learning and thinking to do. Maybe the political structures described in volume three of Friedrich Hayek’s Law, Legislation and Liberty point in the direction we should be moving if we are to prevent governments going beyond what they can and must do. Maybe Gordon Tullock’s scheme of so-called “vote payment” merits thought, and study.
Yet I say “maybe.” For in the last analysis, I believe our defense of the free market in a free society ultimately must appeal to the value we ascribe to individual autonomy. We are always, therefore, vulnerable—vulnerable to a process described in the book of Deuteronomy:
When you have eaton and had all you want; when you have built fine houses to live in; when you have seen your flocks and herds increase, your silver and gold abound, and your possessions grow great . . . do not forget the Lord your God Who brought you . . . out of the house of slavery.
Marx was in error when he perceived, in the proletariat, those who would destroy capitalism, rising up in protest against a system which allegedly defrauds and impoverishes them. It is the bourgeoisie, the children of affluence, who have turned against the very system that delivered them from the “house of slavery” that is material destitution and rule by the whim of a privileged elite. It is they who scripted Dallas, created J.R., and thereby gave expression to their irrational abhorrence of the economic and political heritage of which they are the beneficiaries. Maybe you recall Marx and Engels’ description of the symptoms they saw as indicative of the death throes of what they so hated: “constant revolutionizing of production, uninterrupted disturbance of all social conditions, everlasting uncertainty and agitation . . . . All that is solid melts into air; all that is holy is profaned.” It is when I read these words and then peruse my daily newspaper that I fear.
Yet at the same time I cling to the hem of hope. As King Canute demonstrated, there are some tasks governments cannot successfully perform. I have concentrated upon the economic and political limitations which, ignored by governments, wreak incalculable damage to all, governed and governors alike. Yet there is an even more fundamental limitation. Governments cannot de stroy the capacity of men and women to dream their own dreams and yearn to make them come true, to formulate their own visions of the “good life” and yearn to realize them, tocreate their own goals and yearn to work towards them. Some of us call this capacity the imago Dei—the “image of God”—but it is the reality, not the words we use when we name it, that matters. The free market in a free society/s amoral, informed by no one vision of the “good life” and guided toward no single end. Yet paradoxically undergirding it is a reverence for human autonomy, a reverence for the creative spirit of individual men and women, that no alternative way of organizing a society exemplifies.
The counterparts of King Canute’s deluded courtiers are, today, legion. Governments wise enough and humble enough to reveal their limitations to fawning admirers and court chaplains are few. Yet the human spirit and its yearning for liberty survive. Leonard Read, in establishing the Foundation for Economic Education, put his ultimate trust in that spirit and in that yearning. And his trust was not misplaced. 
13. R. Minogue, “Between Rhetoric and Fantasy,” Encounter, December 1980; idem., “Toward a New Disorder,” Encounter, September 1981; idem., “UNCTAD and North-South Dialogue,” paper read for the Centre for Independent Studies, Melbourne, May 1983.
26. G. Tullock, The Politics of Bureaucracy (Washington: Public Affairs Press, 1965); W. A. Niskanen, Bureaucracy and Representative Government (Chicago: Aldine, 1971); A. Breton, The Economic Theory of Representative Government (Chicago: Aldine, 1974); T. E. Borcherding, ed., Budgets and Bureaucrats: The Sources of Government Growth (Durham: Duke University Press, 1977).