Freeman

ARTICLE

Our Unique Economic System

MAY 01, 1963 by BRADFORD SMITH

Mr. Smith, Economist, United States Steel Corporation, presented these views as an ad­dress before the Michigan State Conservative Club, East Lansing, Michigan.


I guess at the very beginning I owe you a word or two of orienta­tion because on this occasion I have planned to give myself the luxury of indulging in personal views—or theorizing, if you like—about our unique American eco­nomic system. It comes about this way: I happen to have been born in the last century and like many of my generation I grew up tak­ing a lot of things for granted. I assumed, without bothering about the reason why, that individual liberty and private enterprise were our objective and procedure; that our government was our servant to be loyally supported rather than our master to direct and support us; that laws were protections not oppressions; that industry, thrift, self-reliance, and honesty were vir­tues; and that in this land we were both privileged and required to stand on our own feet without leaning on or being leaned on by others.

Some thirty years ago, under the stresses of the great depres­sion, the origin and evolution of which no one at that time under­stood, the subject matter of pub­lic questions changed greatly. The questions were no longer about the best ways to achieve our destiny within this taken-for-granted framework of laws, attitudes, and institutions. The main question, instead, was whether the frame­work itself was all wrong and ought to be changed. It was whether, for example, charity should be governmentally rather than privately dispensed; should there be massive redistribution of income; should government control prices and wages; should it engage in production; could and should we spend our way out of the depression; and so forth. In short, individualism was chal­lenged by collectivism.

A lot of people were thus put in a position where they had to do some researching as to whether what we had formerly taken for granted was something precious to be preserved, or whether it was proper and probable that individu­alism in America should be super­seded in our time by some sort of socialism or collectivism. To get ahead of myself a bit, it seems less proper than it does probable that this transition is under way. We have already come far: In 1960, government—at all levels com­bined—took command through taxation over the distribution of about one-third of all goods and services produced, as against one-sixth thirty years earlier. And we are now so mired in inflationary debt and social commitments that one must wonder how we can con­tinue on this course without in­viting debt repudiation.

So what I have to say here is the recounting of some of the thoughts and observations accu­mulated in the years of that ex­ploratory re-examination, and they are mostly of the kind one seldom finds mentioned in the economic textbooks.

Three Controlling Frameworks

I suppose that economics de­scribes the behavior of people in earning their livings. So to estab­lish some presumably common groundwork of understanding I start by proposing that human be­havior is ruled, for the most part, by three overlapping circles or frameworks of influence. First, there is human nature itself—the things that are inside of people in terms of innate capacities, needs, and desires. Second, there is the outside physical world—the natu­ral resources environment within which people find themselves. Peo­ple act differently in different places. Third, there are the rela­tionships which people establish between each other out of their customs and moral attitudes, codi­fied into law, and enforced by the compulsions of government.

About human nature it should be immediately noted that man does not live by bread alone—and I will come back to that—but first there are some relevant things in­nate in so-called economic man.

Thus, each of us is born with a capacity for sensations which range from excruciating pain through feeling of discomfort, on up to satisfaction, pleasure and, indeed, ecstasy. More than that, man is capable of having anticipa­tions of pleasure and pain which we regard as the emotions of hope and fear. These emotions extend even to contemplation of one’s post-mortem status, and in so do­ing react in some measure to rule mortal behavior. Pleasure and pain, hope and fear, are what rule peoples’ actions and inhibitions. They are the great and universal human motivations. No economic system can exist that does not honor that fact. Man’s pain-pleas­ure, hope-fear scale of sensation and emotion is essential to his survival as a living organism and through it natural law is enforced on him. If, for example, he had no pleasure in satisfying his hun­ger, he would long since have be­come extinct; if fire gave him no pain, he would long since have be­come ashes; if he had no fear at the top of a cliff, he would soon have been dead at its bottom; if he had no hope of gain or fear of destitution, he would not toil and save and so he would either have been dead or, at best, remained a mere animal, scampering through forests hunting for edible nuts.

Man also has disinclination to toil. Put more brutally, he is born with a considerable capacity for laziness. But this also is a sur­vival requisite, for if fatigue poi­sons failed to create disinclination to overexertion then man could well have torn himself to pieces in unchecked activity. All of us know some who have literally killed themselves through overexertion.

I suppose that it is out of these innate characteristics that econo­mists long ago formalized the law of supply and demand. Man’s hun­gers and wants which give pleas­ure in their satisfaction constitute the demand curve within him, and his disinclination to toil consti­tutes the cost or supply curve. Where the two cross then man, in­sofar as his innate characteristics are concerned, has achieved the maximum material happiness in the given environment.

You can illustrate this to your children at the dinner table some time. Let us say that little Sonny has had one piece of pie which he eagerly consumed. He may want another piece but not as much as he wanted the first piece. And there, by the way, is the econo­mists’ famous law of diminishing utility sitting right inside us. Mother asks Sonny if he wants an­other piece—to which he says, "Yes." She then tells him to go out in the kitchen and get it for himself, whereupon he says he does not want it after all, and if he is a sophisticated little fellow, he may comment that it is not worth the effort. Whereupon you can all have a laugh because he has achieved the point at which his internal demand and supply curves have crossed. The addi­tional satisfaction to be had from the additional pie was balanced out by the dissatisfaction in the additional exertion required to se­cure it. He has achieved the bal­ance point of maximum net satis­faction in the given circumstances.

Innate want plus laziness in con­stant conflict within us produce a survival balance, explain the end­less pursuit of "something for nothing," foster invention, and un­derlie the economists’ law of sup­ply and demand. This is so basic that some have formally described it as the "Iron Law of Economics" in these words: "Man ever tends to satisfy his wants with the mini­mum possible exertion." If we would understand individualism, communism, and authoritarianism, and how one feeds into the other, we had better never forget that law. Our system exists in partial defiance of it, as I will show later.

There is one other thought I have about these internal supply and demand curves: No one knows in terms of measurable exertion or measurable satisfaction just what constitutes the maximum material happiness. But there is a means of achieving it, whatever it is, even if we cannot measure it or plan it. It is to refer the prob­lem right back to the innate mech­anism itself, just as in the case of Sonny and the pie. He was neither compelled nor forbidden to eat the additional piece; he was neither compelled nor prevented from get­ting it. Left free, he achieved the maximum net satisfaction in terms of his own wants and dislikes. So also could it be for any number of people if we make the utopian assumption that none of them would resort to fraud, theft, or co­ercion in their dealings with each other. Here then is what might be styled the biological basis for the leave-us-alone—the laissez-faire—philosophy of achieving maximum net satisfaction for a society. Could any social system dedicated to the "pursuit of happiness" achieve its objective in disregard of reliance on voluntary, nonco­erced decision and action?

Collapsing Time

Next, I want to draw your at­tention to three things about hu­man perceptions, and human ac­tions in response to them, because to me they help to explain how people wishing to preserve liberty could nevertheless be beguiled in­to accepting totalitarianism. The first one I think of as "collapsing time in one’s thinking"; the sec­ond I think of as "getting used to things"; the third I think of as the "threshold of action"; and about all of them I think they are very human and understandable.

About collapsing time in one’s thinking, I suspect that all of you, if you but consult your own experience, will recognize that the further off in time an event you perceive or anticipate may be, the less effect it has on your current attitudes, actions, and judgments. My personal illustration is a big bump I got on my head from a low pipe in my basement. For quite a while afterwards I re­membered to stoop when passing under it. But as time passed, the influence of the perception—that bump on the head—dimmed; and so, sure enough, there came the day when, wham, I did it again!

As for minimizing the future consequences of today’s deeds we have in illustration the famous saying, "After me the deluge." Modern-day alibis for minimizing future consequences in formulat­ing current decisions for breach­ing a principle are sometimes phrased as, "I’ll cross that bridge when I get to it," or "Let’s be practical," or "Peace in our time," or "The end justifies the means." Prick up your ears and be vigilant when you hear them, even in high places.

I think this is important be­cause, although the time diminu­tion of a perception’s effect on ac­tion is a protective survival char­acteristic as far as the individual is concerned, it is far less protec­tive of any economic system not rooted in brute totalitarianism. Here is the reason: It is, of course, necessary that you as an individual should do the things to­day which will provide you with your breakfast tomorrow, as dis­tinguished from your breakfast next year. After all, you have to get past tomorrow before you can get to next year!

But a stream of population is a timeless thing in this sense: If you take a section of it, you will find so many young people, so many middle-aged, so many old folks, and so on, and among them laughter and tears, gladness and sorrow. Take the same cross sec­tion years ago, or years hence, and you find the same things. There is turnover of the individuals, but the race itself flows on, reproduc­ing each day the same character­istics. An act or deed done today may seem beneficial today, but have more than offset tingly evil consequences later on. It is hu­man nature for the individual to minimize the later evil. But an evil done to a race of people or its in­stitutions, is just as much an evil if it happens tomorrow or yester­day as if it happens today. It is not good to disregard the future consequences of today’s deeds, despite the cynic’s question of "What has the future generation ever done for us?"

Those who wish to think wisely about the establishment and main­tenance of good economic systems or political institutions must learn to fight their own perfectly human tendency to minimize both the les­sons of the past and tomorrow’s consequences of today’s deeds. I call it "collapsing time in one’s thinking." That people mostly do not collapse time in their thinking has been observed in bitter words by Hegel. Santayana said it also, but in more kindly fashion. He said, "Those who do not remember the past are condemned to repeat it."

This helps to explain to me why history records the disappearance of one civilization after another, why it displays one tyrant after another, one war after another, and one inflation after another, such as the one we have been in for the past quarter of a century or more.

Getting Used to Things

The second thing about per­ception I wish to note is our ten­dency to get used to things and not notice them any more even if they are still there. Walk among roses and they smell nice; stay with them and you notice them no more. I suppose this also is a sur­vival characteristic innate in the human being. Imagine, for ex­ample, the raving maniacs we would all he if we were continu­ously conscious of our clothes wherever they touched us! The characteristic is in us; we cannot change it. But it also opens the door to the camel’s-nose-in-the tent technique of overthrowing social orders. It means that a little infringement of principle in de­fiance of the lessons of history can be introduced, and there will at first be some indignation and re­sistance from those who can col­lapse time in their thinking. Then everybody gets used to it, and even if minority protests continue unabated, their effectiveness fades away like the smell of the rose. Then the next step can be taken.

An example that has achieved classic proportions is the progres­sive income tax. In 1913 when the amendment authorizing it was adopted, I imagine that not many people realized that Marx and Engels in the Communist Mani­festo had urged, even demanded, steep progressive income taxation as a most effective and, once started, self-energizing means of creating eventual chaos and over­throw of the system of private property and individual liberty. The amendment’s abrogation of a protective Constitutional principle and its potentiality for evil were indeed pointed out by a few but were disregarded, I think pri­marily, because the widespread expectation was that the rates would never be high. Indeed the first tax ranged in rates from 1 to 7 per cent. Then people got used to it and, as Marx had pre­dicted, it was increased again and again until today the minimum rate is 20 per cent and the maxi­mum is over 90 per cent. The camel is indeed well into the tent and the damaging consequences to the innate human motivations on which our system depends are im­measurable.

The point is that if any such ultimate result had been envi­sioned in 1913, the enabling amendment would undoubtedly have been rejected; and yet today, because of the principle of getting used to things, there is little in­dignation around, despite the fact such extreme and selective tax-taking can be objectively justified only by embracing a harsh he’s got-it-let’s-take-it philosophy akin to that of the burglar. It is not a good idea to let the camel get his nose into our tent.

The Threshold of Action

The third thing about percep­tions I wanted to note is what I think of as the threshold of ac­tion. I can illustrate it quite briefly: I suppose that all of us have spent a night shivering in bed because it turned just cold enough to make us uncomfortable, but not quite cold enough to make us bestir ourselves to get another blanket. From such a cold night toa high tariff or to a labor, a prod­uct, or a political monopoly is not a far cry. Suppose someone—or a pressure group—found a way to steal a penny a day from each one of us. You might recognize it as stealing, but the tremendously hu­man thing would be to do nothing about it. It would not get over your threshold of action. The stimulus would be too little. How­ever, the aggregate of the tiny takes from each of us would con­stitute a most powerful incentive for the thief. He has big incen­tive; our resistance is too dis­persed to be effective.

I guess I do not have to spell out in detail how whole economic or political systems can be altered or subverted simply by playing on the three characteristics of human perception I have noted: The idea is to rely on general inability to collapse time in one’s thinking and play up some immediate seem­ingly good purpose as an excuse to get the camel’s nose in the tent. But introduce it only to a degree that is below or at least not far above the threshold of most peo­ple’s perception and action. Then let people get used to the presence of the nose and simultaneously give time for the effectiveness of initial protest to grow dim. Then introduce the camel’s neck and re­peat the process over and over un­til his whole ungainly form is in.

I would guess that there is no way to oppose this process except as people establish and adhere to timeless principles and so bring the force of moral indignation to bear on deeds that are in them­selves at the moment of little ma­terial significance to them. There is a precedent for, if recollection serves correctly, there was once a Boston Tea Party at which the camel’s nose was recognized, re­sented, and repelled.

The Law of Variation

Thus far I have been speaking of certain survival characteristics of human beings that bear on eco­nomic and political behavior as though we were all the same. But though these characteristics are common to all of us, we are not alike. In talents, ambitions, capac­ities, as well as in physical ap­pearance, we all differ. Darwin had something to say about it. I call it the Law of Variation. It and the Iron Law illuminate the na­ture of economic and political sys­tems more than any other ap­proaches I know.

We all know of the biologists’ bell-shaped curves describing the probable distribution of a single characteristic in a population. There are a very few very tall peo­ple and a very few very short ones. The biggest number of us are just average, while the numbers of those of intervening heights di­minish as the given heights approach the extremes. Of more per­tinence to this inquiry is the way the normal distribution can be­come terrifically skewed when we are counting the instances in which rare characteristics are combined in one individual. Sup­pose we want a great orator who is also exceptionally healthy. There are relatively fewer people who have this combination than there are those who have one of the two things which make up the combination. Add next a great lust to dominate one’s fellow man, and the number having all three char­acteristics is still smaller. Add an opportunity of social unrest, thus limiting the time incidence of our selection, and the wanted combina­tion is aggregated in still fewer people. Add ruthlessness, irre­sponsibility, irreverence—and so we could go on to get a Nero or a Hitler.

My point is that even if the dis­tribution of single characteristics is bell-shaped, the combinations of exceptional aptitudes in individ­uals which lead to exceptional per­formance may be rare—like the rarity with which a dozen pennies tossed together will come out all "Heads." For us this means that at any time, in any place, in any population there will always be some idiots and some geniuses, some sinners and some saints, some rich and some poor, some who earn very large incomes and some who earn very little, with a characteristic distribution of in­tervening incomes as, indeed, Pareto has shown. But most of all, for the purposes of this inquiry, it means there will always be a minority possessed of great desire to establish coercive control over and to exploit their fellow men, and possessed also of the special aptitudes to do so, if unchecked, by playing on the human motiva­tions and perceptions in fashions such as I have sketched.

Natural Resources

So much then, for the time be­ing, about the human nature framework of behavior. The other two frameworks of influence were: natural resources and social rela­tionships. There is little that we can or need to say about natural resources. Man did not create them and all he can do in exchange for their presence is to thank God. It should be remarked that some of the spots on earth have greater natural resources than other spots, and that people live in both of them and almost endlessly make war over them. Other things being equal, the people with the richer resources will achieve a balance between the satisfaction of wants and the required exertion, which represents a greater level of con­sumption than that of people liv­ing in places that are less rich in resources. For the present pur­pose it is sufficient to note that, like human nature, natural re­sources are not to be changed. They can be observed, but must be accepted as they are.

The Social Framework

This brings us to the third over­lapping circle of influence—the so­cial framework—which I think of as the accepted customs, morals, institutions, and especially the po­litical structure and laws of a so­ciety. Of the three frameworks this one alone is established by man and hence subject to his al­teration and control. Only through the social framework a nation es­tablishes is there opportunity for it to implement whatever aspira­tions it may hold.

Government in this connection is best regarded as society’s nec­essary and monopoly instrument of compulsion or constraint. Un­less one has some understanding of the nature and administration of compulsion, insight into the functioning of this third frame­work will be denied him. For com­pulsion is the central theme of political organization and hence of its influence on economic organi­zation and activity. Nor can any­one have a workable idea about the meaning of individual freedom until he understands compulsion and the means of negating it in human relationships. So, how does compulsion work?

Compulsion

Human action, we have seen, re­sults from people’s pain-pleasure, hope-fear scale and from disin­clination to exert one’s self. Is there any possible way of "getting through" to the individual and compelling( not persuading, or in­ducing, or paying) him to do or not to do anything whatever, ex­cept as you can threaten to or ac­tually introduce man-made pain or deprivation into that scale, or an additional exertion requirement into his environment? Can you force your neighbor to do any­thing if he knows that you can­not injure him in his person, good name, or property in any way? You can’t, but government can be­cause it is organized compulsion—power to deprive (fine), to im­prison and kill, supported by an armed police force permitting no rival armed organization among the governed, ever "nipping in the bud," or "purging," such rivalry as treason before it can get started.

Organized constraint—or gov­ernment—is necessary in any so­ciety because the Law of Varia­tion tells us there always will be some sinners, some thieves, liars, and killers, who if not thereby re­strained will themselves organize compulsion, in Al Capone style, in­to what one might think of as a gangster government. Quite aside from that, and supposing the pur­pose to be benevolent, the Iron Law and the Law of Variation tell us that organization of compulsion—that is, government—will quite naturally occur in any society. To me, the distinctions between so­cial organizations and their result­ing economic systems are best or, at least, most interestingly ex­amined in terms of who holds the monopoly of constraint and for what purposes it is utilized or delegated. I think of such organi­zations as of three types: the authoritarian state, the socialist or communist state, and the in­dividualist or voluntary society.

The Authoritarian State

In the authoritarian state a ruler and supporting class pos­sess the monopoly of compulsion and use it to exploit the labors of the governed for their own grati­fication and benefit. The authori­tarian state seems to be typical throughout history, the one to which deviations there from often revert as, for example, in the rise of prewar dictatorships in Europe and more recently in Cuba. There must be some deeply imbedded reason for this, and I think we find it in the Law of Variation and the Iron Law.

Thus, as I noted a moment or two ago, the Law of Variation tells us that there will always be some possessed of great desire to compel others to do their bidding and simultaneously possessed of the collection of rare aptitudes and moral attitudes enabling them to organize or gain control of the master instrument of constraint—that is, government; and so it will be done. The Iron Law then tells us that this tends inevitably to be an exploitive state, for pos­session of the power provides op­portunity to tax or steal from the governed with immunity from re­taliation, and this is likely to oc­cur if for no other reason than that for the higher echelons of the ruling party to command the loy­alty and obedience of the lower ones, the latter must receive more than their exertions would other­wise procure them. And from where else can the needed some­thing-for-nothing bribe be ob­tained other than by taking it from the governed? You can see large-scale illustration of this in Russia and elsewhere; in minia­ture you can see the same princi­ple at work in American graft, "pork barrel" legislation, patron­age, "make-work" jobs, "handouts."

The authoritarian society is the natural and stable form of society because it is in solid conformity with the survival characteristics of the human being. It is dominant in history. Once established it tends to perpetuate itself because those wielding power seldom give it up short of bloodshed. If an au­thoritative state is overthrown through organization and exercise of still greater physical power, then the wielders thereof won’t let their power go after they have won. They just become the new set of rulers. Hence, much of hu­man history is the story of a squirrel-cage succession of one authoritative regime after another from which the people almost never break out, as you may see in many countries of the world. George Washington was the excep­tion. He refused to become our king; he gave up his wartime powers and insisted upon estab­lishment of a representative re­public of limited power. He uniquely opened the door to the squirrel cage. We can, of course, crawl back into the cage, well-baited with promised security; and the door will then snap shut.

Communism

I turn next to socialism or com­munism that flies the banner, "From each according to his abili­ties, to each according to his needs." I consider it not because it ever has or could actually exist for long in the story of mankind, but because it exists so often and persistently in men’s minds. I know why it appeals: It operates powerfully upon the imaginative projection of the pain-pleasure scale. It seems to promise to each one freedom from want, freedom from fear, and freedom from oner­ous exertion. What could be nicer?

But the communal society can­not endure because it defies both the Iron Law and the Law of Variation. It denies that there will be any people, per the Law of Variation, who will organize com­pulsion for their own benefit. But even beyond that it assumes that the survival human incentives be­hind the Iron Law are nonexistent or nonoperative. Thus, if the su­perior output of the more produc­tive is taken from them by force or threat thereof (how else? ), the reason for their superior exertion is automatically extinguished; communism assumes they would still be more productive. If the less productive get something for nothing, then their reasons for exerting themselves are also un­dermined. Theoretical communism would thus sever the survival con­nection between appetites and ac­tivity, transforming human ob­jectives from the pursuit of in­dividual productivity into the com­petitive practice of indolence.

Chaos, such as Marx sought, is the result out of which arises dictatorship substituting fear of the whip for hope of reward as reason for its slaves’ exertions. This we have seen in the transitory adop­tion of theoretical communism un­der the Russian revolution, to be superseded in a matter of hours by the organized coercion of a murderous dictatorship that has continued ever since in that land. The communist promises are only bait for the authoritarian trap.

The Individualist Society

This brings me to the individu­alist or voluntary society—in short, to the American economic system. In the authoritarian state the power to compel is used by its wielders to despoil those subject to it. In theoretical communism it is used to rob Peter to pay Paul—a sort of Robin Hood romanti­cism running riot. In the volun­tary society the power is used by government exclusively to punish those who resort to fraud, theft, and coercion in their dealings with each other. Most especially the vol­untary society in pure form can exist only if those administering its compulsive power refrain from using it in any way for the de­spoliation of some for the advan­tage of themselves or their parti­sans.

Since the voluntary society thus requires that the administrators of compulsion do not use it in the ways dictated by the Iron Law, this society is, like the communist society (although not so greatly), inherently unnatural and unstable. This is the society’s Achilles’ Heel; for the Iron Law, as we have noted, rests on most power­ful survival urges. Yet on holding it in abeyance at this one point the society’s survival depends.

I think the only thing that has restrained—or can restrain—the otherwise natural behavior of those administering the power of government is the presence of a widely and deeply held moral atti­tude that reaches back at least to the Commandment, "Thou shalt not steal," and to the doctrine founded on Scripture that all be­ing equal before their Creator must hence be equal before the law. In fact, the voluntary society would apply the morality govern­ing individual behavior to the be­havior of groups operating, or op­erating through, government. Thus, only a highly moral and vigilant people can have and keep, or deserve, the voluntary society and the individual freedom that can exist only in a classless society that bans individual and inter­group compulsion and despolia­tion.

The voluntary society estab­lished with the writing of the

Constitution has paid off hand­somely in material terms—for those who like that reason for subscribing to moral attitudes. The economic system thereby es­tablished was one which said to every individual or family unit liv­ing under it: You can have every­thing you produce and no one—not even those who govern—can take it from you without your con­sent or compensation. On the other hand, it said: If you do not pro­duce you have no recourse to the production of others—there will be no direct or indirect taking without paying. Thus, for the first time in history the great basic human motivations of hope and fear, pain and pleasure, were harnessed to give the maximum stimulus to each person’s no exploitive capacities that was pos­sible without undermining a simi­lar stimulus to others. It thus re­leased, gave opportunity to, and stimulated all the talents of all the people. It automatically guided ex­ertion to provide maximum achievable satisfaction since what­ever non-harmful things were pro­duced, by whom, where, when, in what amount, and at what price or wage were left to the voluntary decision of those concerned. Dis­ciplining competition was also automatic because no one could prevent another from engaging in pursuits similar to his own.

It is, therefore, perhaps no won­der that there then blossomed an ever-increasing flood of production of the good things of life, some­times described as a miracle. It came from the social implementa­tion of "Thou shalt not steal"—even through your government, and of "Do not coerce others as you would not be coerced"—even through your government. That is the deep-down unique thing about the American economic sys­tem, the precious key to its under­standing. If the morality on which it rests is abandoned, the system will revert to brute totalitarian­ism.

I have no doubts about the basic morality of the American people as a whole and, moreover, the love of freedom is their cherished heri­tage and tradition. My concern, instead, is that they will not be alert; that they may be victimized by manipulators of the principles of perception I have noted and so led to condone government actions for seemingly good purposes, but which are nevertheless incompat­ible with the voluntary society and can lead, in turn, to further im­pairment of it.

From that viewpoint it is help­ful to remember that for the vol­untary society to endure, the power to tax must not be utilized to despoil some for the benefit of others; that citizens must be equal before the law and not classified by occupation or otherwise to be accorded largess, privilege, or un­equal treatment; and that econ­omic decisions must be free of co­ercion from any source, especially from government as in price and production decrees.

Taxation

With regard to taxation the Founding Fathers knew that, whereas in the authoritarian so­ciety the ruling minority uses taxes to despoil the majority, the problem when the ruling class is by definition the majority becomes one of restraining it from despoil­ing minorities. To meet that prob­lem the Fathers wrote three pro­visions into the Constitution: First, only the House, where rep­resentation was proportional to population, could initiate tax leg­islation. Thus, taxing power, vot­ing power, and population were in some measure equated. Second, all taxes had to be uniform geograph­ically. Thus, those in regions representing a numerical majority could not combine to impose taxes on those in other areas which they themselves escaped. Third, all di­rect taxes—such as income taxes—had to be apportioned according to population. Thus, in effect, he who voted a direct tax, himself had to pay it. A majority could not vote a tax on an opulent minority greater than it simultane­ously voted on itself. It is true that dissenting minorities had to pay, but their despoliation was precluded by limiting their burden to that which the majority volun­tarily voted on itself. And as quid pro quo they could enjoy, equally with the majority, the results of taxation as in highways, judicial systems, or post offices. Through these extraordinary provisions the morality of the Commandment was implemented; the socializa­tion of stealing was prevented; the temptation to abuse the tax power in accordance with the Iron Law was thwarted—until 1913. In that year the Sixteenth Amend­ment abrogated the third protec­tive provision with the fantastic ultimate consequences I previously noted. (Editor’s Note: The au­thor’s views on "Liberty and Taxes" were set forth in more de­tail in the March 1963 issue of THE FREEMAN.)

Equality Before the Law

With regard to the maintenance of equality before the law the Constitution also had certain pro­visions. Thus, it forbade the granting of any title of nobility and, by the Thirteenth Amend­ment, it prohibited slavery and involuntary servitude (except as punishment for crime). It thus obliterated the, at that time, his­toric classifications of people into privileged and unprivileged classes. I think the general intent of the Founding Fathers was clear; the government was not to be the source of largess for any­body. Except for the payment of military pensions the Constitution does not specifically authorize un­requited payments to any group. I suspect the Fathers relied heavily on the protective tax provisions they had devised to prevent the government from being used to redistribute income. Thus, if the major burden of taxation had to be carried by the majority that voted it, then it is likely that only disbursements benefiting the ma­jority would be authorized—that is, only those which promoted the general welfare, as is indeed au­thorized by the Constitution. Put another way, the rob-Peter-pay­-Paul process doesn’t work very well if the operator of it finds that he himself is the selected Peter.

The Welfare State

Despite this intent, and perhaps even more because the bar to dis­criminatory taxation was re­moved, we all know that the Wel­fare and Commerce clauses of the Constitution have been stretched to cover the transformation of our voluntary society, in good meas­ure, into a so-called welfare state.

People have been deliberately clas­sified by occupation, by age, by geography, and by income status in order to be accorded unequal treatment under the law. Farmers, old folks, unemployed people, and even foreigners—to name some classifications—have been recipi­ents of untold and unearned bil­lions of dollars collected in taxes heavily loaded against the more productive and augmented by what amounts to "printing press" money. Government compulsion has been directly introduced into many wage, price, and production decisions. Powers of compulsion have additionally been delegated to industry-wide labor monopolies, granted immunity from laws that others must obey and able to im­pose widespread economic hard­ship to enforce their demands. The welfare state is a modern name for an approximation of the ideal communism I previously de­scribed and which, as I noted, will not work. It causes, does not cure, economic stagnation and hence widens the opportunity for ever-increasing government interven­tion in economic decisions.

The Future

Does this mean that the Ameri­can economic system cannot en­dure; that deeply-rooted human nature—the Iron Law and the Law of Variation—is going tow in in the end; that this extraor­dinary voluntary society is only an accident created by a group of inspired thinkers and imposed on an un-understanding populace who have ever since been retrograding back to the authoritarian society via the communist anteroom?

The doubters and the pessimists have the easy job. They can cite human nature and the many leaks that have already occurred in the moral dike behind which our so­ciety lives; they can cite the doubts of the Founding Fathers themselves, the fears expressed by such students as Lord Macaulay and William Graham Sumner. They can quote Karl Marx’s con­fidence that our society could be wrecked, Khrushchev’s roarings that he will bury us. And they can find no one who has with confi­dence and conviction made the case that our society is inherently a durable one.

But I cannot accept that view. At the beginning of these remarks I asked you to remember that I would come back to the truth that man does not live by bread alone. Man is more than economic man. He is moral man. This you know by merely observing it. Each knows someone whose wisdom, insight, structure of moral atti­tudes, and serene adherence to them command your reverence. People do have ideals and live by them despite seeming disadvan­tage to themselves in terms of the materialistic pain-pleasure and ex­ertion scales of measurements. Christianity was founded by one such person.

The voluntary society will sur­vive, I believe, because its threat­ened submergence has caused peo­ple to re-examine and rediscover its foundations in time-tested morals—and they find them good and worth living for and by. There is a great ground swell of reawakening understanding and appreciation abroad in our land. People are beginning to detect and resent the collectivistic trends hiding behind "do-good" propos­als. They can, by realizing that people do not normally "collapse time" in their thinking, thereby through self-discounting learn ac­tually to do it. Out of their own contemplations they can erect a structure of principles and convic­tions which will overcome within themselves what I have tagged as the threshold of perception and action, and so get just as mad and effective about a little stealing as about a lot of stealing, just be­cause it is stealing and trans­gresses the Commandment, "Thou shalt not steal." That way leaks in the moral dike, behind which liberty lives, can get closed before they become floods. The camel’s nose in our tent will be recog­nized, resented, and repelled be­fore his whole ungainly form can follow it in. They will become vigilant, through realizing that without vigilance liberty can be lost.

In short, and in conclusion, the prospects for the unique Ameri­can economic system finally rest with you and me and our children and their children, and the moral attitudes to which we uncom­promisingly subscribe and by which we will live.

 

 

***

Ideas on Liberty

The Common Good

To SUSTAIN the individual freedom of action contemplated by the Constitution is not to strike down the common good, but to exalt it; for surely the good of society as a whole cannot be better served than by the preservation against arbitrary restraint of the liberties of its constituent members.

JUSTICE GEORGE SUTHERLAND

Adkins vs. Children’s Hospital, 1923 (261 U.S. 525)

ASSOCIATED ISSUE

May 1963

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