A Reviewer’s Notebook – 1974/4

Said the Crawling Peg

To the Dirty Float,

“We’re two lost souls

“In a leaky boat,

“and down below there’s a hole in the hold

“That can’t be plugged with Paper Gold.”

This, in rhymed capsule, is the gist of the proceedings of the first International Monetary Seminar, which was sponsored last spring by the Committee for Monetary Research and Education, Inc., at the Arden House campus of Columbia University. The seminar was held some time before the Arabs, contemptuous of paper money whether called Paper Gold or not, decided to use the “oil weapon” to force the western world to let Israel go down the drain. But the handwriting was on the wall even before the Arab ukase. With not a single western nation dedicated to disciplining its economy, why would the raw material owners in the so-called Third World go on giving their riches away for what John Exter calls, not IOUs, but “Who-owes-you nothings”? The publication in book form of the Arden House proceedings (Toward a New World Monetary System, edited by G. C. Wiegand and issued by the Engineering and Mining Journal of the McGraw-Hill Publications Company; $8.95) is a not-so-gentle reminder that the oil-producing countries of the world, having achieved what is close to a corner on exportable energy, could use their dominant position to pick up most of the loose gold in the world. They would then proceed to hold their gold, along with their oil, until the West had ceased to deal in “Who owes you nothings.”

The contributors to Toward a New World Monetary System can’t quite spell out what the money of account, or the numeraire, of the future will be, but most of them seem to agree that gold will be either the official or the unofficial standard. There may be no such thing as an objective store-of-value (value is always subjective, as Carl Menger and Ludwig von Mises both taught), but, historically, most people have agreed that a basic medium of exchange must have purity, rarity and inbuilt resistance to rot. Gold fills the bill better than silver, which is more abundant and tends to drift off into use in industrial and commercial forms.

Basic Disagreement

The authorities who debated with each other at Arden House were not of one mind on the subject of the Bretton Woods system, which was viable until a distrustful world, uncertain of what to do about a seventy-billion “Eurodollar” overhang due to the scandalous monetary behavior of Washington, began to worry about the persistently adverse international balance of the U.S. Henry Hazlitt and John Exter, I gather, would agree that Bretton Woods, with its central bank manipulation of currency “swaps,” its “special drawing rights,” and so forth, is beyond resurrection. Fritz Machlup, on the other hand, seems to be saying, along with Professor David Meiselman, that there could be life in the old dog yet. I am not enough of a technical student of banking to follow Professor Machlup on “gliding parities” and the various degrees of “managed floating” (isn’t that a contradiction in terms?), but I can see that politicians in past eras have not always respected a gold numeraire. Says Fritz Machlup, “In my reading of economic history neither the gold standard nor any other system of fixed exchange rates have [sic] ever effectively curbed governments in their extravagant spending policies… when eventually the inflation of credit, prices and incomes threatened to deplete the country’s gold and exchange reserves, the gold parities or dollar parities were changed or given up. A barrier which is lifted whenever it really bars is hardly worth having.”

Professor Machlup’s knowledge of history may be good, but there are tides in the affairs of nations. When indiscipline has resulted in chaos, there is nothing to do but to agitate for a discipline that would permit people to protect themselves against the further depredations of irresponsible politicians. Without peering too far ahead into the mist, can’t it be said that the time has come to let U.S. citizens own gold if they so choose? We are now off the gold exchange standard, so what is the objection to letting people establish their own private hedges against a continuing inflation? If Arabs can hold gold, why not John Doakes in Kokomo?

Helpful Suggestions

Henry Hazlitt’s contribution to the Arden House deliberations seems to me to be eminently sound simply because he does not strive to combine a lot of things into “a higher synthesis” that would be a blueprint for a better international monetary system. What Mr. Hazlitt does is to suggest that we stop doing a number of things on the national scene before worrying about great international conclaves. He says that establishing a sound currency is an ethical problem that begins at home. People have a moral right to make contracts in anything they choose; that is what personal liberty means. One of the things that Congress could do without waiting upon international cooperation would be to restore the right of American citizens to buy gold on whatever terms they choose. This, says Mr. Hazlitt, would open gold markets everywhere in the world, and it would immediately establish gold as a de facto international money, whether monetized or not.

The second thing advocated by Hazlitt would be to balance the Federal budget. He would do this not by raising taxes but by slashing expenditures. If we were to discipline ourselves by balancing the budget over a fairly long period, the dollar would be respected in world markets, and it would become possible at some point to return to a full gold standard.

Poor Reception

What Mr. Hazlitt has to say is, of course, not being listened to in Washington. Nixon, in his desperate effort to find favor with some of his “liberal” enemies, has asked for a whopping budget that can be paid for in full only by running up some more Keynesian deficits. The little spending trickles will flow together to become broad rivers. As our “pols” see it, it would be a desirable thing to protect people against “catastrophic” illness, so why not a “national” health plan? Poor people should have access to lawyers, so why not a private (i.e., a government-financed) corporation, something comparable to the Post Office, to provide “free” legal service to those who can’t afford good counsel? And why not a Family Assistance Plan to put a “floor” under everybody? This is the way the tide now runs on Capitol Hill. So what Mr. Hazlitt proposes will probably not be listened to until we have had another round of inflation, culminating eventually in an inflationary crisis.

Even though we have not reached the point where it is likely that the majority of our politicians are ready to listen to Mr. Hazlitt’s common sense, some things may be done to improve the U.S. position in the world. William J. Casey, Jr., our Under Secretary for Economic Affairs, suggests, in an interesting paper on the “Internationalization of the Capital Markets,” that we balance off the investments that we make abroad by attracting foreign investors to our own shores. He thinks we “have enormous assets not the least of which” is a “high standard of disclosure and fair dealing.” Will the Arabs, who have gold to invest, listen? We’ll see.

 

THE PEOPLE FACTOR: Managing the Human Climate by Philip Lesly (Dow-Jones-Irwin, Inc., Homewood, Illinois, 1974) $9.95.

Reviewed by Charles Hull Wolfe

In this book, an unusually perceptive, knowledgeable and articulate public relations man has attempted to tell how a private institution can do an effective communications job in a relatively new situation — in a human attitude-climate no longer peaceful and mild but essentially hostile and stormy.

As the author puts it in his introduction, “In an era when most men and women seem to have become assertive, when every kind of viewpoint has a movement and a loud voice,” the gap between institutions and their publics “is threatening to undermine all of our organizations and the society they compose. It seems not only pertinent but urgent that the causes of this estrangement be diagnosed, and a course of treatment sought.”

From time to time the author reveals considerable understanding of the American “miracle” which simultaneously “produced the greatest degree of individual freedom and the greatest range of individual choice of any major society in history.” He is also aware that this society’s foundations are threatened by those on the “left,” and that their activism includes physical militancy and the presumption that private institutions are “guilty until they have gone through an inquisition.”

But Philip Lesly manages to trace this attack to a variety of secondary causes, terming the “estrangement” between private organizations and their publics “a direct consequence of the growth and complexity of our institutions,” the failure of business to communicate the need for profits, and the fact that “in some areas business has not performed adequately in the public interest.”

Nowhere, as far as I could detect, did the author bluntly and boldly portray the underlying cause — the deliberate, long-standing attack by collectivist-minded intellectuals determined to destroy our traditional, religiously-oriented society and system of individual liberty, and replace it with secularism and statism.

Had the author worked from this premise, he could have better interpreted various phenomena which he has correctly observed but not adequately explained, such as the promulgation by contemporary intellectuals of two contradictory articles of faith: 1) That the average individual cannot be relied on to assume responsibility for his own actions, and 2) That the average individual must be given power to determine how all our institutions are operated.

While contradictory in and of themselves, in today’s mental climate both contentions tend to further the cause of socialism, and thus are consistent as precepts of socialist propaganda.

Just as the author leaves something to be desired in explaining root causes of the worsening business climate, he also fails to make some important recommendations for improving the mental atmosphere. For example, as far as I’m aware, he never urges those who prefer responsible freedom to devote themselves to a systematic, in-depth study of liberty, and to develop their ability to intelligently present the case for a free society and a free market.

Again, in titling his book, the author may have violated one of his own precepts — that to lessen our social problems, we must stop creating unattainable expectations — for surely his title implies that the human climate in America can be managed. In an authoritarian country, “managing” the human attitude-climate — controlling or directing it, rendering it subservient to one’s will — would be hard enough; but in a relatively free society, no one — and certainly no businessman or corporation — has the power to make such clear-cut guidance possible.

Nonetheless, Philip Lesly is a most interesting and well-read man who appreciates liberty and fair play, and who reveals considerable writing skill and a great deal of insight on a wide variety of subjects. Most friends of freedom should be able to gain from his book useful ideas on how to communicate more effectively.

 

PSYCHO-CHEMICAL WARFARE: THE CHINESE COMMUNIST DRUG OFFENSIVE AGAINST THE WEST by A. H. Stanton Candlin (New Rochelle, N. Y.: Arlington House, 1974) 540 pp., $14.95.

Reviewed by Allan C. Brownfeld

In this volume, the author argues persuasively that the Chinese Communists are engaged in a massive campaign aimed at the West with narcotic drugs as the primary weapons.

A. H. Stanton Candlin, a native of Tientsin, North China, and a long-time member of the British Foreign Service who was at one time Chemical Advisor to the British High Commission in Germany, and held important intelligence responsibilities, makes an impressive case.

The use of narcotics as a political weapon by the Chinese Communists, Mr. Candlin points out, is not unique in world history. “History,” he writes, “is replete with examples of the use of drugs to attain political ends… consider in this regard, examples of the use of drugs for political purposes, such as provided by the sect of the Assassins in Syria, Persia, and elsewhere; the Roshaniyeh in Afghanistan; and, in more recent times, the Japanese narcotics or psycho-chemical warfare offensive.”

Marco Polo wrote in his Travels of the Assassins: “The Grand Master of the Assassins, whenever he discovers a young man resolute enough to belong to his murderous legions, invites the youth to his table and intoxicates him with the plant Hashish. Having been secretly transported to the pleasure gardens, the young man imagines that he has entered the paradise of Mahomet… he is informed that he can enjoy, perpetually, the delights he has just tasted if he will take part in the war against the Infidel as commanded by the Prophet.”

It is from the Japanese, however, that the Chinese Communists learned how drugs could be used as an effective political weapon. The principal characteristics of the Japanese campaign, the author notes, were that, “It provided a means of exploiting Chinese susceptibility towards drugs… whereby they, could undermine the fabric of Chinese society and liquidate the authority and influence of the National Government… By it they could weaken the Chinese will to resist at all levels… It was a means of inducing collective defeatism among their enemies.”

Mr. Candlin warns that the narcotics offensive being launched by the Chinese Communists embodies in a special Marxian sense the application of the ancient military maxim of Sun Tzu (c. 500 B.C.), sometimes called the Chinese Clausewitz: “To fight and conquer in all your battles is not supreme excellence. Supreme excellence consists in breaking the enemy’s resistance without fighting.”

The book is filled with documentary evidence and statements such as that from Harry J. Anslinger, the U.S. Commissioner for Narcotics for many years.

In 1950, after the Chinese Communists established control of the Mainland, Mao Tse-tung forbade opium smoking in China and a few opium growers were executed with great publicity. Yet shortly after this, Commissioner Anslinger placed an American complaint before the United Nations to the effect that the Communist Chinese were smuggling narcotics into Japan. His evidence was overwhelming and proved that during the early 1950s China was heavily engaged in the illicit drug trade. When Mr. Anslinger made these charges at the U.N., the Soviet Union vigorously denied them. After the Sino-Soviet split, however, Pravda, in its issue of September 12, 1964, charged that Communist China was the biggest opium, morphine, and heroin producer in the world. Total proceeds from the illicit narcotics traffic were alleged to yield some $500 million annual revenue.

Drugs in Vietnam

Mr. Candlin expresses the view that the Chinese Communists were largely responsible for the drug offensive carried out against American servicemen in Vietnam. He reports of the investigation by John Steinberg of the Senate Subcommittee on Juvenile Delinquency who discovered that heroin which was 99.5% pure was being sold for as little as $1.00 a vial. Heroin which was only 10% pure, he noted, could be sold for at least $10.00 a vial. It was, states Candlin, thus clear that the increase in narcotics was by no means only a money making venture, but had other purposes.

The volume contains such eyewitness reports as that of Miss Yuan Moun-ru, who testified before the Asian and Pacific Affairs Subcommittee of the House Foreign Affairs Committee in May, 1972. A refugee from Communist China, Miss Yuan reported that, “My route of escape from China to Burma is via Yunnan Province. I rode through Lu River Valley and the district of Kaonigon Mountains. I saw with my own eyes the Chinese Communist liberation army growing opium in that area. So were the Burmese Communists and their mountain army under Chinese Communist influence.”

Another statement of the Chinese Communist policy came on December 13, 1961 from Lawrence Sullivan, Coordinator of Information for the U.S. House of Representatives, who declared that, “For the first time in human history, the systematic production and distribution of narcotic drugs has become an organized government monopoly in Red China. In ten years, Mao Tse-tung has built up a virtual monopoly in opium, heroin, and morphine.”

Prior to “detente,” the author notes, there was real concern in Washington over Communist China’s role in the narcotics traffic. This increased when Egyptian editor Mohammed Heikal reported a conversation in which Chou En-Lai had told President Nasser that, “We are planting the best kinds of opium especially for the Americans.”

Now, however, there is an attempt to ignore this material. “The threat,” Mr. Candlin writes, “has apparently been concealed from the public by persons who evidently had the desire to cultivate better relations with the Red Chinese.”

With the publication of this important book, however, the burden of proof is placed upon those who deny such a role for the Peking regime. It seems unlikely that they will be able to meet it.