A Reviewer's Notebook - 1978/10

A PERVERSION OF TECHNOLOGY

In 1856 an eighteen-year-old English chemistry student, William Henry Perkin, thought he might find a source of synthetic quinine in coal tar. But serendipity, which has been defined as the faculty for making important discoveries by accident, took over in his test tube. Instead of quinine, Parkin evoked from his coal tar a bright purple solution that was the first of the aniline dyes.

Perkin tried to market his product in his own country, but the English went right on using berries, barks, flowers, eggs and insects for their dyestuffs. It took the Germans, with their genius for turning garbage into wealth, to build a fantastic chemical industry on Perkin’s lucky mistake.

What began in the Perkin test tube was to have momentous consequences for the world, both for good and for ill. It was on dyestuffs that I. G. Farben, the great German chemical cartel, grew to such tremendous proportions. The bright reds and yellows and the subtle blues that came out of the German laboratories were profitable but harmless. But dyestuff science and technology—and the funds they generated—had other, and more important, spinoffs.

It is the story of the spin-offs that fascinates Joseph Borkin, a Washington attorney who once worked for Thurman Arnold’s antitrust division in the U.S. Department of Justice. The spin-offs—nitrates from the air, gasoline, oil and rubber from coal—have a tremendous potential for good. Synthetic nitrogen fertilizers, coming when they did, put the ghost of Malthus back in its shroud for a considerable stay, and the hydrogenization process of getting gasoline from coal may be the answer to the so-called energy crisis if oil and natural gas ever do run out. But highly dangerous explosives can be made from nitrogen; and when gasoline from coal was commandeered by the Nazi state, it almost succeeded in making Hitler’s Thousand-Year Reich a horrifying reality.

It is the perversion of chemistry and technology to political ends that is the subject of Mr. Borkin’s The Crime and Punishment of I. G. Far-ben (The Free Press-Macmillan, 866 Third Avenue, New York, N.Y. 10022, 250 pages, $10.95). The cartel idea is menacing enough in itself, but when a great cartel and a truly imperial state with pretensions to world rule combine in unholy matrimony the results, as we know from the experience of two world wars, can be devastating. In a lean and disciplined prose that drives straight to the heart of the matter, Mr. Borkin offers us both an exciting action story and a warning fable. This is the Faust legend in modern dress. And in the telling Mr. Borkin makes note of some tremendous ironies.

Patriotic Intentions

The biggest irony of all is that the companies that were combined in I. G. Farben were started by good men. Fritz Haber and Carl Bosch, who together worked out the Haber-Bosch process for getting nitrogen out of the air, were good patriots.

Haber, a Jew, had ideas about feeding the world with his nitrogen fixing discoveries, and Bosch, though he believed in industrial combination, always resisted the politicization of his company. The Nazi manias were furthest from their thoughts as they went about the patriotic business of freeing the Kaiser’s Germany from dependence on mined nitrates from Chile.

If it hadn’t been for the Farben laboratories and factories, World War I would have ended without the protracted slaughters of trench warfare. The German Schlieffen Plan was to wheel through Belgium and take Paris in a month. Stored nitrates from Chile would be enough to carry the Schlieffen Plan to a quick success. But the French taxicab army stopped the Germans at the Marne, and, with both sides digging trenches like mad, the Schlieffen Plan was dead. The Kaiser had to face up to the appalling fact that his army didn’t have enough gunpowder to last a year of trench warfare.

So it was up to the German chemical industry. Fritz Haber and Carl Bosch leaped into the breach. When it became apparent that there would be a ticklish gap in time between the disappearance of gunpowder made from imported Chilean nitrates, now cut off by the British blockade, and the free flow of Haber-Bosch factory-produced nitric acid, Fritz Haber was confronted with a moral crisis. Chlorine gas was in plentiful supply in the dyestuff plants, and it could be used at the front as a substitute for gunpowder. The chlorine that killed or wounded 15,000 Allied troops at Ypres was a desperation weapon, and could have been justified as such. But when Haber, still wrestling with his conscience, went along with a decision to use poison gas in the Russian East, his wife, Clara, committed suicide.

The price of patriotism came high to Fritz Haber, who was forced out of I. G. Farben to keep the Nazis from proclaiming it a "Jew company." He died in exile in Switzerland, a broken man. Bosch’s fate was to be sidetracked after he made the mistake of telling Hitler to his face that the Nazi campaign against the Jews would set German chemistry back a hundred years. In dismissing Bosch Hitler roared, "Then we’ll work a hundred years without physics and chemistry."

Slavery and Murder

There were others in I. G. Farben who decided, some of them eagerly, some out of prudence, to hunt with Hitler to the end. Without Farbenmade gasoline from coal and a buna rubber substitute from the same source, the Nazis could not have embarked on the conquest of Europe. One compromising thing led to another, and I. G. found itself building a huge industrial complexnext door to the Nazi death camp at Auschwitz. The decision to build at Auschwitz was dictated by a plentiful supply of water, which was needed in abundance for chemical processes. But Auschwitz also offered I. G. Farben an unending supply of slave labor. The company plumbed its own depth of depravity when it set up its own concentration camp, with a gallows to remind workers that hanging could be the penalty for even the most innocent disruption of shop routine.

For their crimes in abetting Hitler’s murder policies and plundering the chemical companies of France and Poland, key I. G. Farben officials got off lightly enough. Borkin strains to be objective in reporting the sentences—"guilty of… slavery and mass murder, sentenced to imprisonment for six years." The excuse of some of the convicted officials could have been "duress," but if the Farben high command had chosen another site in preference to Auschwitz would the Nazis have intervened? It was not "duress" that had the company casting sheep’s eyes at a source of cheap labor that could be literally worked to death.

Mr. Borkin leaves no doubt that there was considerable hanky-panky about the return of I. G. Farben-owned property, both inside Germany and in the United States, to German owners after both the big wars. Some mighty big names were involved in deals that, in retrospect, seem more than faintly discreditable. Bribes were passed after World War I to shady hangers-on in the Harding Administration. And an effort was made to use a relative of the Kennedys to regain General Aniline and Film, seized by the U.S. during the second war.

The return of Farben properties after World War I had disastrous consequences to the allies during the Hitler years. We have been luckier in our post-World War H relinquishments. But Mr. Borkin wonders about the precedents we have set.

 

THE ANTITRUST PARADOX by Robert H. Bork

(Basic Books, Inc., 10 E. 53rd Street, New York, N.Y. 10022, 1978; 388 pages)

Reviewed by Melvin D. Barger

When it passed the Sherman Act in 1890, the U.S. Congress set the government on a new course—attempting to control the size and market influence of business organizations. The other early milestones in antitrust legislation were the Clayton Act and the Federal Trade Commission Act, both passed in 1914. Clayton involved the government in pricing decisions and was reinforced by the Robinson-Patman amendment in 1936, while the Federal Trade Commission Act mandated the setting up of an administrative agency to regulate competitive business practices. Except for occasional subsequent tinkering and threats, Congress has stayed out of the antitrust field, and antitrust policy has really been shaped by a series of landmark Supreme Court decisions.

According to Robert H. Bork, a large number of these Supreme Court decisions have been wrong, resulting in an antitrust policy that is at war with itself. Judicial performance on key antitrust decisions has been both inept and contradictory, seriously impairing business efficiency and imposing heavy penalties on the American consumer. The original purpose of antitrust legislation was the promotion of "consumer welfare," but any such ideal has long since been diluted by a complex chain of court decisions aimed at reaching various other social and political goals.

The Antitrust Paradox is a well-organized, well-written study of just how this happened, with some final thoughts about the general problem. Mr. Bork brings impressive credentials to this task. A full-time professor at the Yale Law School, he is a former Solicitor General of the United States and more recently was a resident scholar at the American Enterprise Institute. Highly regarded in the legal profession, he is emerging as one of the new dissident intellectuals who can find some good things to say about the American business system. Like Milton Friedman and Irving Kristol, Mr. Bork is not a purist libertarian, but he is heavily oriented in free market principles and his writings clearly call for considerable freedom in business.

Mr. Bork opens his argument with some powerful comments about the current crisis in antitrust. We learn something about the antitrust enterprise, the lawyers, judges, economists and legislators who work unceasingly in antitrust to impose a complexity of rules on business. "Generally, these rules ignore the obvious fact that more efficient methods of doing business are as valuable to the public as they are to businessmen," Mr. Bork writes. "In modern times the Supreme Court, without compulsion by statute, and certainly without adequate explanation, has inhibited or destroyed a broad spectrum of useful business structures and practices. Internal growth to large market size has been made dangerous. Growth by merger with rivals is practically impossible, as is growth by acquisition of customers or suppliers. Even acquisitions for the purpose of moving into new markets have been struckdown, as the law evolves a mythology about the dangers of conglomerate mergers." There are other questionable Court positions: against cooperative ventures by independent businesses, against manufacturer control of product distribution, in favor of pricing behavior that actually leads to higher prices.

But even this unpleasant state of affairs may be only temporary. The current populist hostility to business makes it easy to blame every hardship on the major corporations, paving the way for further antitrust assaults on business. Indeed, there are a number of antibusiness people who might admit that antitrust has some intellectual problems but is a good idea because it keeps businessmen on the defensive. And among those professionally concerned with antitrust, Professor Bork says, there is disagreement about two basic questions: (1) the goals or values the law may legitimately and profitably implement; and (2) the validity of the law’s vision of economic reality. Professor Bork obviously feels that consumer welfare should be the primary goal of antitrust, and he takes issue with much of the economic theory that guided many of the antitrust landmark decisions.

A large part of the problem is that any antitrust legislation requires making severe trade-offs. If the antitrust policy is aimed at maintaining a certain number of producers in an industry, it may be at the cost of business efficiency and hence consumer welfare. Professor Bork does not pretend that a free market will always allow for a certain number of rivals to survive in an industry, but he does show that most successful firms become dominant largely through efficiency rather than as a result of predatory behavior. Again and again, however, this business success has been penalized by the courts simply because the judges failed to focus on the single goal of consumer welfare or used an unsound basis for economic reasoning.

While the goal of consumer welfare has its drawbacks, it would at least give the business community fair warning about the probable legality of its operations, it would tend to place intensely political and legislative decisions in Congress instead of in the courts, it would maintain the integrity of the legislative process, it would require more realistic economic reasoning, and it would avoid arbitrary or anticonsumer rules, Mr. Bork writes. But with antitrust policy pursuing many social and political goals, none of these things are being achieved.

Mr. Bork then goes on to analyze, case by case, the landmark Supreme Court decisions that led to the current crisis. Writing in a brisk, highly readable style, he dissectsthese important decisions in such a way that the ordinary layman can understand them. There was the famous United Shoe Machinery decision, for example, which undermined machinery leasing practices without really determining whether the firm was being efficient or predatory. In the Brown Shoe case, a merger was ruled a threat to competition even though the acquiring firm and the firm being acquired had, respectively, only 4 and 0.5 percent of the nation’s shoe output! And in one of the most well-publicized decisions of all, the Supreme Court ruled against Procter & Gamble’s acquisition of Clorox on the grounds that Procter had advantages in advertising and promotion which would be anticompetitive.

Professor Bork mentions or analyzes about 80 cases which relate to the key topics of his book, and the effect is one of brilliant revisionism. He knocks down first one well-established argument and then another, demonstrating that in case after case the courts systematically destroyed consumer welfare while pursuing goals aimed at preserving competition, "protecting" the small businessman, or eliminating barriers to entry. The conclusion is inescapable that many of the antitrust landmark decisions which formed antitrust policy have been disasters for the consumer, as well as being destructive to business freedom.

In his Summation (what other term could a lawyer use for closing remarks!), Professor Bork calls for a sweeping reform of antitrust policy based on making consumer welfare the only policy goal. He specifies several forms of behavior that should continue to be proscribed by the law, but he goes on to argue that many of the practices that are now prohibited should be permitted, including agreements on prices, territories, refusals to deal (with certain qualifications), small horizontal mergers, all vertical and conglomerate mergers, vertical price maintenance and market division, and many other actions which most corporation lawyers now regard as off limits. Moreover, he does not feel that antitrust should be concerned with any firm size or industry structure created by internal growth or by a merger more than ten years old.

Professor Bork also acknowledges, in his final thoughts, that current antitrust policy was influenced by something deeper than erroneous reasoning. "To study antitrust at length, to wonder at the manifold errors of economics and logic displayed, to see that the errors move the law always in one direction, is to begin to suspect that a process much deeper than mere mistaken reasoning is at work," he writes. "It seems as though the intellectual terrain is regarded as important not in and for itself but as a field of action uponwhich the political order moves against the private order."

Mr. Bork leaves no doubt that his sympathies also move in one direction, at least much of the time. He wants to protect and preserve the good in the private order and the free society. Most of the time, the private order loses in the antitrust struggle. But with heavyweight defenses such as The Antitrust Paradox, the private order may have a fighting chance.


THE INFLATION CRISIS, AND HOW TO RESOLVE IT

by Henry Hazlitt

(Arlington House Publishers, New Rochelle, New York; 192 pages)

Reviewed by Mark Spangler

Nowadays people from every walk of life are concerned about inflation.

What actually is inflation? Is it inherent in a free market economy? Who or what is the cause—unions, government regulations, merchants, federal deficits, or middlemen? Can inflation be stopped, and how?

What to do? Most people are desperately confused and searching for answers. Society is facing nothing short of a crisis. In answer to this grave situation comes Henry Hazlitt’s latest book, The Inflation Crisis, and How to Resolve It. As Mr. Hazlitt himself begins the book, "No subject is so much discussed today—or so little understood—as inflation."

Henry Hazlitt estimates that a dollar of today is worth less than 25 cents of a 1940 dollar, and certainly no one has to be told that a dollar continues to buy less and less. Yet, how many people realize that since 1940 the federal government has increased the money stock by well over a thousand percent? Hazlitt reports that at the end of 1939 the total number of dollars in the economy was 63.3 billion, and at the end of 1977 that figure stood at 806.5 billion. Anyone who is aware of these events should surely sense a logical connection between constantly rising prises and a continuous expansion of the money supply.

Mr. Hazlitt points out that there are two sides to every price: "A `price’ is an exchange ratio between a dollar and a unit of goods. When people have more dollars, they value each dollar less. Goods then rise in price, not because goods are scarcer than before, but because dollars are more abundant, and thus less valued." He clearly explains that the present predicament of ever-soaring prices results from a deliberate government policy to flood the economy with more and more dollars simplyby "printing" them, so to speak. In fact, the term "inflation" originally meant increasing (inflating) the money supply. Today the term is commonly used to mean the most evident consequence of creating money, generally rising prices.

So, nothing at all is mysterious about inflation; it is government intervention pure and simple. Why, then, do government leaders continue to inflate and why do the "printing presses" go undetected by the general public?

Inflation serves the immediate interests of vote-seeking politicians. Most office seekers promise scores of hand-outs in return for being elected, but the federal budget has become so ominous that financing by direct taxation is politically impossible. The federal government resorts to printing money to help cover any deficits, and that is done in a very complicated way through the Federal Reserve and commercial banking system so as to hide the process from most people.

Henry Hazlitt devotes a great deal of The Inflation Crisis to discussing government spending, deficit financing, and the fallacies in general of a government-managed monetary system. In addition, he explains the benefits of a market-determined gold standard.

His text ranges from presenting simple principles of money and inflation to refuting sophisticated Keynesian doctrines, especially the notion that monetary expansion is necessary to employ idle workers and resources.

Equally important, Hazlitt analyzes policies of monetarists, generally led by Chicago School economist Milton Friedman. The distinction between monetarists and other advocates of free enterprise is often muffled. Henry Hazlitt makes plain that monetarists are inflationists, who advocate a certain annual rate of monetary expansion by government officials: "The central flaw of the Monetarist proposal is its extreme political naivete. It puts the power of controlling the quantity, the quality, and the purchasing power of our money entirely in the hands of the State, that is, of the politicians and bureaucrats in office." A consistent free market economist, on the other hand, would argue to let individuals, voluntarily acting in the marketplace, choose what commodity they will accept as money.

Hazlitt cautions about using false remedies to combat inflation. Attacking rising prices with wageand-price controls misses totally the heart of the problem. They do nothing to halt the monetary expansion. Moreover, the controls themselves have the disastrous consequences of creating shortages, discouraging production, and moving ever toward a complete command economy.

Mr. Hazlitt also explains how inflation disrupts production, inhibits economic calculation, distorts interest rates, malemploys workers and resources, and consumes capital.

Just as serious as the economic disruption are the social consequences of inflation. It destroys thrift, promotes gambling, disheartens the spirit to work, and breeds social unrest, envy, and crime. "Under inflation… only a handful of people realize clearly what is going on. The majority tend to blame their plight, not on government, but on those of their neighbors who appear to be profiteering from inflation."

From the standpoint of economics, the the cure for inflation is simple—stop it! Stop the politicians from printing money to pay for their spending pro-grams; but herein lies the difficulty. The problem of inflation extends be-yond economics, as Henry Hazlitt concludes, "A major part of the solution . . . will be how to get the monetary system out of the hands of politicians. Certainly as long as we retain our nearly omnipotent redistributive State, no sound currency will be possible." 

Further Reading

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