All Commentary
Saturday, August 1, 1970

A Reviewer’s Notebook – 1970/8

Al Lax’s Consumers’ Capitalism and the Immutable Laws of Eco­nomics (Charles Hallberg & Co., $5.95) is an adventure in shirt­sleeve economics. What it tries to do—and succeeds very well in ac­complishing—is to put the concept of marginal utility (a rather forbid­ding phrase) into easily compre­hensible terms. This is “Austrian economics” in homespun, or Men­ger-for-the-Masses, which eschews all talk about “monopsony,” or “oligopoly,” or any of the manifold verbal barbarisms that the profes­sional economists use as short­hand. It is the work of a good sim­plifier who knows how to be clear without becoming superficial.

If it is Menger-for-the-Masses, an exposition of how the subjec­tive desires of individuals resultin personal lists of preferences re­garding the utility of any and all the items that are offered in trade, it is also Mises-for-the-Multitudes. Like Ludwig von Mises, Mr. Lax is struck by the fact that “plan­ning” on the Soviet model would be impossible if no free market system existed anywhere in the world to establish the proper re­lationship between hard metallic money and goods. The utter de­pendence of socialist “planners” on what happens in an “unplanned” market is a subject for cosmic irony. Nobody knows how to set prices that will “clear the market” unless there is, somewhere in the world, a free system which will let individuals judge what they want in relation to what they have to pay for it. Socialism and “bureaucratic planning” come to grief on the measurement problem: they need a “market” to give them sig­nals about the point where the weakest desire is willing to fork up something for the last item that a producer is able to put up for sale without going broke.

Millions of Planners

The dependence of “planners” on evidence gathered from “un­planned” systems leads Mr. Lax to transvalue the usual terms of dis­course. It is not really true, he says, that “invisible hand” capital­ism is an “unplanned” affair. Un­der unfettered capitalism it is the individual consumer who does the “planning.” He tells the producer what is wanted, and in what pro­portions. It may seem strange that a city like New York, with eight million people, gets its morning coffee without any “conning tow­er” consideration of how many coffee trees should be planted in Colombia and Brazil, or how many coffee roasting establishments should be financed, or how many ships should be dispatched to Sao Paulo. Actually, however, a couple of million housewives, each plan­ning for an individual family, add up to a total “plan” for coffee de­livery in the New York market­place. No bureaucrat could do as well as the “invisible hand” that takes its orders from two million “planning” housewives.

Under “consumers’ capitalism,” energy goes to where it is needed most. In countries where “bureau­cratic capitalism (or state social­ism) reign more or less supreme, the disposal of energy must be allotted in accordance with the prej­udices and the guesses of the com­missars. In the “mixed economies,” where there is some freedom and some of what might be called “planning-by-guess,” energy moves into action in distorted ways. Most of the nations of the world have “conglomerate” systems. But the ones that do the least “planning­ by-guess” have the highest stan­dards of living, other things (such as soil endowments, the availabil­ity of water, and so on) being equal. Even in places like Japan, where land is at a premium and most raw materials must be brought in from overseas, freedom can create a prosperity that is the envy of bureaucratic economies that are better endowed with such things as coal and iron in the ground and wider horizons for the growing of corn and wheat and cattle.

Resort to the Rule of Force

Since bureaucrats resist letting the “market” decide, they are thrown back upon the rule of force. The “planners” have to make use of the secret police and the torture chamber to push pro­duction into the channels they have arbitrarily chosen. The “bu­reaucratic capitalist” nations be­come “giant tribes,” in Mr. Lax’s appropriate description. They trade with each other by barter (“if at all”), and every compet­ing tribe is suspect. And, to keep people from emigrating to places where individuals do their own “planning,” the “giant tribes” ring themselves with land mines and ugly walls, “with police dogs patrolling the exits.”

Periodically, in the “bureau­cratic capitalist” systems, the in­efficiency becomes so notorious that the “planners” feel they must experiment with an “as if” market system. So we have the spectacle of a Yevsy Liberman in Soviet Russia saying publicly that the communist system must find some way of reintroducing the concept of profit. Without profit, so Liber­man told the commissars, there was no way of gauging efficiency. But how do you create the atmos­phere for a profit system without such things as individual owner­ship, access to a free capital mar­ket, and competition for raw ma­terial and labor? Liberman has never been able to answer this in a country which insists on bureau­cratic allocation of capital and ac­cess to raw material sources. Since the Russians have no way of ob­jectively determining optimum shoe production, for example, they don’t know when to stop making shoes and start making something else. Their only reference points for calculation come from the world market for such things as leather, the material needed for shoe lasts, and so on. Without the capitalistic West to copy, the So­viet “planners” would, as Mr. Lax expresses it, “be helplessly lost in a maze with no beginning nor end.”

Freedom or Coercion

Mr. Lax denies that one can have “the best of both worlds” by sad­dling a free system with “bureau­cratic planning,” or “interven­tionism.” You cannot “plan” with­out taking resources from those who, if the market were left to judge, would place them where they could be used in the most ef­ficient manner. Laws and decrees cannot create prosperity. If a min­imum wage will supposedly give everyone a minimum subsistence standard, why not go the whole hog and make everybody rich by setting the minimum wage at $25 an hour? The answer is that all any minimum can do is to exclude from the labor market any person who can’t make money for an em­ployer at the government-dictated wage rate. The minimum wage “intervention” must approximate a good guess at the natural market price for unskilled labor if it is not to result in unemployed men and a reduced amount of goods for sale. But if the minimum wage does approximate a good guess at what the natural price for labor would be without any political ukase, it is obvious that no inter­vention was necessary in the first place.

Mr. Lax’s treatment of tariffs is particularly refreshing. The standard argument for tariffs is that they are needed to protect Americans from the low-wage competition of nasty foreigners. But the attempt to keep workers and capital employed in naturally inefficient industries actually re­stricts the energy that might be applied in places where a nation has a real comparative advantage. Says Mr. Lax, “in spite of the be­lief that tariffs protect Americans from cheap foreign labor, tariffs (in the long run) inhibit the shift of workers into higher-paying jobs.” The U.S., so Mr. Lax argues, should forget about competing with Japan or Hong Kong in mak­ing artificial plastic flowers or in­expensive clothing and put its bet on airplanes and electronic com­puter systems, where it has a great advantage over the so-called “de­veloping” nations.

The “planners” world always re­sults in “problems,” such as the “farm problem,” or the “housing problem.” Where the economy re­mains free, there is no such thing as an “automobile problem,” or a “shoe problem.” The attempt to “plan” production allocates capi­tal (seized by taxation) to the cre­ation, of surpluses which, by def­inition, are what nobody wants. The surpluses, says Mr. Lax, “are the twentieth century pyramids.”

Mr. Lax’s book is edited by Edmund A. Opitz, who also wrote the Introduction. The Preface is contributed by Leonard E. Read.

  • John Chamberlain (1903-1995) was an American journalist, business and economic historian, and author of number of works including The Roots of Capitalism (1959). Chamberlain also served as a founding editor of The Freeman magazine.