Freeman

PERSPECTIVE

Perspective

JANUARY 01, 2003 by SHELDON RICHMAN

Filed Under : Government Intervention, Market Failure, Interventionism, Rule of Law


Free Martha!

Martha Stewart is certainly an attractive target for an ambitious Securities and Exchange Commission (SEC) enforcer. She’s the “domestic diva” people love to hate. But under any rational notion of the rule of law, she should not be in the government’s crosshairs.

At this writing, the SEC had informed Ms. Stewart that it intended to file civil securities fraud charges against her. According to the Wall Street Journal‘s sources, the charges are “based on novel theories of both insider trading and securities fraud for statements Ms. Stewart made proclaiming her innocence.” Criminal charges were also being contemplated.

What is Ms. Stewart supposed to have done? She sold almost 4,000 shares of ImClone Systems stock right before it was announced that the Food and Drug Administration (FDA) had turned thumbs down on the company’s cancer drug, Erbitux. She is a close friend of former ImClone CEO Sam Waksal, who last October pleaded guilty to insider-trading charges.

But the SEC is not saying she knew the FDA was about to release bad news for the company. Rather, its theory is only that Ms. Stewart sold her shares after her broker, who knew that members of Waksal’s family were selling, advised her that ImClone’s price was probably going to fall.

Insider-trading law is inconsistent with the principles of a free society. But even if that statement is wrong, there are no grounds for charges against Ms. Stewart. In typical unconstitutional fashion, Congress, rather than defining “insider trading,” left it to the SEC to write the definition. To be guilty of insider trading, one must be “in breach of a duty of trust or confidence that is owed directly, indirectly, or derivatively, to the issuer of that security or the shareholders of that issuer, or to any other person who is the source of the material nonpublic information.” By what stretch of the imagination does Ms. Stewart satisfy that criterion? She was an ImClone stockholder — period. She owed no duty to anyone connected with the company.

Moreover, there were no victims of her action. The anonymous buyers of her shares were already in the market looking for ImClone stock. If she hadn’t sold hers, the buyers would have found others. She certainly did not cause the stock price to fall. The FDA did that.

The charge of untruthfulness stems from her disputed statement that she had a standing order to sell the stock if the price went below $60. Even if she lied, why is that a crime? When the government, wielding unjust statutes, invades your privacy by asking why you sold something you own, do you owe it the truth?

* * *

Before a seller can get his prices down, he first has to get his costs down. Therein lies the role for innovation, explains Ralph Hood.

Did nature select us to be capitalist animals? Dori LeCroy looks at the marketplace through evolutionist lenses to understand how we became what we are.

Alongside the other great short works on the freedom philosophy, Donald Kochan would add James Madison’s essay “Property.”

Eminent domain doesn’t just violate the property rights of peaceful individuals, it violates the principles of sound economics. William Anderson spells it out.

Why would Soviet farmers feed freshly baked bread to their hogs? That’s what Dale Haywood wanted to know.

A determined entrepreneur dedicated to excellence: that describes James B. Lansing, maker of fine audio equipment. Anthony Young chronicles the career of a capitalist.

Jeremy Rifkin insists we are running out of oil and we had better switch to hydrogen-based energy quick. Wrong on both counts, writes Michael Lynch.

A man is suing fast-food restaurant chains, charging he got fat and sick eating in their establishments. No, seriously. Ninos Malek has the story.

The specter of “overproduction” has haunted the United States throughout its history. But as Thomas Woods demonstrates, this is another case where “It ain’t so much the things we don’t know that get us into trouble. It’s the things we know that just ain’t so” (Artemus Ward).

F.A. Hayek’s 1949 essay “The Intellectuals and Socialism” is unmatched in explaining why dealers in ideas are so often attracted to state power over peaceful pursuits. Adam Young revisits this seminal work.

Nearly everyone suspects that the government’s schools are less efficient than private schools. John Wenders puts some numbers to the issue and isn’t surprised by the results.

Here’s what our columnists have this month: Lawrence Reed tells the story of George Washington Plunkitt and Tammany Hall. Doug Bandow sympathizes with corporate tax avoiders. Thomas Szasz debunks the billionaires who want to medicalize drug laws. Robert Higgs shows that World War II didn’t make Americans richer. Donald Boudreaux says technology is not enough. Walter Williams says beware the “food Nazis.” And on hearing U.N. Secretary General Kofi Annan say that development in the Third World requires taxation of the rich, James Otteson responds, “It Just Ain’t So!”

Books coming under examination deal with junk science, the media’s economic myths, the peril to the West, intellectuals in politics, the decline of “liberalism,” and the role of foundations.

ASSOCIATED ISSUE

July 1991

ABOUT

SHELDON RICHMAN

Sheldon Richman is the former editor of The Freeman and TheFreemanOnline.org, and a contributor to The Concise Encyclopedia of Economics. He is the author of Separating School and State: How to Liberate America's Families.

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