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Friday, June 1, 2007

A Sennholz Sampler

The Light of Economic Freedom Shines Brightly

Editor’s Note: Hans Sennholz, a former president and trustee of FEE and long-time chairman of the economics department at Grove City College, died in June at age 85. We honor his memory with three of the many articles he contributed over the years.

“Jobs and Trade,” July 1996

Unemployment is the great puzzle of our time. It perplexes politicians, confuses officials, and even entangles economists. It persists and continues to grow despite all the government programs that mean to reduce it and the tax dollars spent to alleviate it.

Some writers continue to echo the teaching of Karl Marx. For them, capitalism always creates an “industrial reserve army of labor” consisting of the mass of wage-earners who are exploited and then thrown out of their jobs. Most economists are at one with John Maynard Keynes, the economic guru of our time, who viewed unemployment as a symptom of insufficient spending. Politicians continue to cling to the Keynesian view because it supports their spending predilection.

Some old-guard politicians and writers explain unemployment in protectionist terms which are among the oldest and most controversial in economics. Unemployment, they blaze about, is the price we pay for our participation in a global economy with millions of unemployed and under-employed people who are willing to work for 25 cents an hour. “Free trade” is “unfair trade” for Americans who are condemned to the indignities and hardships of unemployment.

If foreign trade actually were responsible for the corporate layoffs, the phenomenal rise of imports and exports in recent years should have disemployed most Americans. According to U.S. Department of Commerce statistics, U.S. general imports in 1950 amounted to $8.954 billion. By 1960 they had nearly doubled to $15.073 billion. By 1970 they had risen to $40.356 billion. During the 1970s they soared to $244.871 billion, and during the 1980s to $495 billion. This year they may exceed $700 billion. Surely, if imports would destroy jobs, this 7,800 percent rise in imports since 1950 should have thrown most Americans out of work.

It is difficult to imagine our present working conditions and standards of living if the U.S. government had turned inward and closed its borders in 1950, as the Hoover administration managed to perpetrate in 1930. Even if the disruption of trade and immediate foreign retaliation would not have brought another depression, the crushing burden which radical liberal administrations placed on the economy during the 1960s and 70s would surely have depressed the economy and drastically lowered American levels of living. Similarly, if there had been no foreign investments, the staggering budget deficits of the 1980s and ’90s would have drained the capital market and paralyzed the economy.

Employment always is a phenomenon of productivity and cost. In a market economy, in booms and depressions, there is an unlimited demand for labor that makes productive contributions. Labor that costs more than it is expected to produce, whether it is unskilled or armed with triple degrees, is devoid of any demand. In the eyes of potential employers, it is utterly “unproductive.” This applies to actors and administrators, systems analysts, software programmers, automatic engineers, and aeronautical scientists. If young Ph.D.s in mathematics are unable to find employment, employers believe them to be rather “unproductive” considering their cost and productivity.

Much university-educated labor remains unemployed because it is not in touch with the labor market. It is government-directed and taxpayer-financed. Graduating from mammoth state universities and guided by Pell grants, Work-Study grants, Stafford loans, Perkins loans, and numerous other federal and state support programs, many graduates are ill-equipped for useful employment. In nearly all fields of economic activity employers provide most of the productivity training. But they are reluctant to offer it if the expenses of the trainee are prohibitive and the final results of the training are not expected to cover the outlays.

Businessmen continually adjust to changes in demand, supply, transportation, technology, cost of labor and capital, government levies and obstacles, domestic and international competition. Every member of the market order is under pressure to adjust in order to stay productive. Of course, a person is free to ignore the pressures; the typist may continue to pound the typewriter. But she cannot justly insist that she be subsidized by fellow workers and employers. The same is true of a university-trained aeronautical engineer who has learned to build great military planes. In times of war and preparations for war he is in great demand. In peace he will have to learn peaceful pursuits. He does not have the natural right to live off the labors of others.

International competition is as beneficial as domestic competition; it forces sellers to outdo one another by offering better and cheaper goods and services and forces buyers to outdo one another by offering higher prices. Protective tariffs and other trade restrictions effect the very opposite; they permit the protected producers to offer inferior products at higher prices. They cause production to shift from places in which the natural conditions of production are more favorable to places in which they are less favorable. They force labor to move from export industries paying high wages to the protected industries that generally pay lower wages. In short, trade restrictions hamper production and thus lower the standards of living.

The competitive position of an enterprise in domestic as well as international markets is determined by its total costs of which labor costs merely are one of many components. In capital-intensive industries, such as the pharmaceutical, chemical, aeronautical, steel, tool-and-die industries, the cost of capital tends to determine competitiveness; in labor-intensive industries the total cost of labor is decisive. There are no labor-intensive American industries that compete with foreign labor. Our service industries which render valuable labor services need not fear foreign competition; they are protected by onerous immigration restrictions.

Free trade is fair trade; those who deny it to others do not deserve it for themselves.

* * *

“You Cannot Get Even,” June 1978

Government affects individual incomes by virtually every decision it makes. Agricultural programs, veterans’ benefits, health and labor and welfare expenditures, housing and community development, federal expenditures on education, social insurance, Medicare and Medicaid programs, and last but not least, numerous regulations and controls affect the economic conditions of every citizen. In fact, modern government has become a universal transfer agency that utilizes the political process for distributing vast measures of economic income and wealth. It preys on millions of victims in order to allocate valuable goods and services to its beneficiaries. With the latter, transfer programs are so popular that few public officials and politicians dare oppose them.

The motive powers that drive the transfer order are as varied as human design itself. Surely, the true motives are often concealed, and a hollow pretext is pompously placed in the front for show. And yet, man is more accountable for his motives than for anything else. A good motive may exculpate a poor action, but a bad motive vitiates even the finest action. Conscience is merely our own judgment of the right and wrong of our action, and therefore can never be a safe guide unless it is enlightened by a thorough understanding of the implications and consequences of our actions. Without an enlightened conscience we may do evil thoroughly and heartily.

An important spring of action for the transfer society is the desire by most people to get even in the redistribution struggle. “I have been victimized in the past by taxation, inflation, regulation, or other devices,” so the argument goes, “therefore I am entitled to partake in this particular benefit.” Or the time sequence may be reversed: “I’ll be victimized later in life,” pleads the college student, “and therefore I want state aid and subsidy now.”

This argument is probably the most powerful pacifier of conscience. It dulls our perception and discernment of what is evil and makes us slow to shun it. After all, we are merely getting back “what is rightfully our own.” With a curious twist of specious deduction the modern welfare state, which continually seizes and redistributes private property by force, is defended by the friends of individual liberty and private property. “Man is entitled to the fruits of his labor,” they argue, “we are merely getting back that which is rightfully and morally our own.” They borrow the arguments for the private property order to sustain the political transfer order.

Surely getting back that which is rightfully and morally our own is a principle that is rooted in our inalienable right to our lives. It is a property right that springs from our human rights and from the right to life itself. It is the right to restoration of the fruits of our efforts and labors of which we are deprived by deceit, force, or any other immoral practice. It is a specific right to recovery or compensation from those who are wronging us or have injured us in the past.

This right to restoration does not beget the right to commit the very immoral act from which we seek restoration, to imitate others in acting immorally, or to seek revenge against the trespassers or innocent bystanders. But this is precisely what the “get-even” advisers urge us to do.

In an unfortunate automobile accident we are hurt or injured, or our vehicle may be damaged, because of the negligence of another driver. This gives us the right to demand restoration and compensation from the guilty party. But it does not give us the right to seize another car parked in the neighborhood, or return to the road and injure another driver. Or, our home is burglarized and we suffer deplorable losses in personal wealth and memorabilia. This does not bestow upon us the right to do likewise to others. But the “get-even” advocates are drawing this very conclusion.

He who is desirous of “getting even” in the politics of redistribution longs to join the army of beneficiaries who are presently preying on their victims. They would like to get their “money back” from whomever they can find and victimize now. Like the victim of a burglary who becomes a burglar himself, they are searching for other victims. But in contrast to the new burglar who may be aware of the immorality of his actions, the “get-even” advocate openly defends his motives while he is pursuing his political craft.

We cannot get even with those individuals who deprived us of our property in the past. They may have long departed this life or may have fallen among the victims themselves. We cannot get even with them by enlisting in the standing army of redistributors. We merely perpetuate the evil by joining their forces. So we must stand immune to the temptations of evil, regardless of what others are doing to us. The redistribution must stop with us.

The redistributive society has victimized many millions of people through confiscatory taxation, inflation, and regulation. Government, acting as the political agency for coercive transfer, seized income and wealth from the more productive members and then redistributed the spoils to its beneficiaries. Although many millions of victims and beneficiaries were involved, which often obscures the morality of the issue, the forced transfer took place between certain individuals. It is true, the beneficiaries, who used political force to obtain the benefits, cannot easily be recognized in the mass process of transfer. But even if we could identify them, and establish a personal right to restoration, our property has been consumed long ago. A vast army of beneficiaries, together with their legions of government officials and civil servants, consumed or otherwise squandered our substance. There is nothing to retrieve from the beneficiaries who probably are poorer than ever before, having grown weak and dependent on the transfer process.

When seen in this light, the get-even argument is nothing more than a declaration of intention to join the redistribution forces. It may be born from the primitive urge for revenge against government, state or society. But it is individuals who form a government, make a state and constitute a society. By taking revenge against some of them for the injuries suffered from the hands of others, I am merely reinforcing the evil.

Revenge is a common passion that enslaves man’s mind and clouds his vision. To the savage it is a noble aspiration that makes him even with his enemies. In a civilized society that is seeking peace and harmony it is a destructive force which law seeks to suppress. But when the law itself becomes an instrument of transfer, the primitive urge for revenge may burst forth as a demand for more redistribution. It becomes a primary force that gives rise to new demands or, at least, reinforces the popular demands for economic transfer. The common passion for revenge, no matter how well concealed, undoubtedly is an important motive power of social policy that leads a free society to its own destruction.

No wealth in the world and no political distribution of this wealth can purchase the peace and harmony so essential to human existence. Peace and harmony can be found only in moral elevation that reaches into every aspect of human life. A free society is the offspring of morality that guides the actions and policies of its members. To effect a rebirth of such a society is to revive the moral principles that gave it birth in the beginning. It is individual rebirth and rededication to the inexorable principles of morality that are the power and the might. The example of great individuals is useful to lead us on the way, for nothing is more contagious for greatness than the power of a great example.

To spearhead a rebirth of our free society let us rededicate ourselves to a new covenant of redemption, which is a simple restatement of public morality. In the setting of our age of economic redistribution and social conflict it may be stated as follows:

  • No matter how the transfer state may victimize me, I shall seek no transfer payments, or accept any.
  • I shall seek no government grants, loans or other redistributive favors, or accept any.
  • I shall seek no government orders on behalf of redistribution, or accept any.
  • I shall seek no employment, or accept any, in the government apparatus of redistribution.
  • I shall seek no favors, or accept any, from the regulatory agencies of government.
  • I shall seek no protection from tariff barriers or any other institutional restrictions of trade and commerce.
  • I shall seek no services from, or lend support to collective institutions that are creatures of redistribution.
  • I shall seek no support from, or give support to associations that advocate or practice coercion and restraint.

We do not know whether our great republic will survive this century. If it can be saved, great men of conviction must lead the way—men who with religious fervor and unbounded courage resist all transfer temptations. The heroes of liberty are no less remarkable for what they suffer than for what they achieve.

* * *

“Beware of Despair,” July 1994

Many lovers of freedom love to despair. They complain of regulation, regimentation, taxation, inflation, confiscation, expropriation, bureaucratization, and politicization. They cry out against legislators, regulators, tax collectors, judges, and bureaucrats who annoy and anger them every day. Some look askance at all manifestations of government.

Yet no man who is mindful of the past should take a morose or despondent view of the present. The past surely was no better than the present; the past days were not what they should have been. In our own century, man’s inhumanity to man reached unprecedented magnitudes in brutality and barbarity, in bloody wars between the great Western nations, the massacre of countless millions of innocent people in the Soviet Union, Germany, China, and many other places. No present calamity, whether political, social, or economic, can be compared with those evils.

Social and economic policies in the United States are no worse today than they were in the past. When compared with the 1930s and 1960s they may even be more circumspect. During both the 1930s and 1960s the country suffered major breakthroughs of political and economic radicalism which paved the way for an economic command system. . . .

The fears of the pessimists in our midst are natural and logical. If we project the trend of the last sixty-five years into the future, we will in time arrive at a political command system, at first at democratic socialism of the British variety and later at a Soviet brand. The road on which Presidents Hoover and Roosevelt first embarked leads straight to authoritarian socialism.

Fortunately, history never moves in a straight line. The trends of policy change as the ideas which guide man are ever changing. Ideas are the factors that shape policies and guide Presidents in a way they lead all other individuals. In most parts of the world the trend of policy has already changed fundamentally and is visible as a movement toward “privatization.” A free-market counterrevolution is rising in all corners of the world; the old order of political economy is retreating everywhere. The revolution of ideas has swept away the Communist system, discredited all forms of socialism, and is bringing hope to many poor countries. All over the world governments are being downsized, public enterprises are privatized, and taxes are lowered. The houses which Marx and Keynes built are being razed and replaced by houses designed by Adam Smith and Ludwig von Mises.

The light of economic freedom is shining brighter now than at any time in this century. Even old-guard socialists readily concede that the market order is more productive than the command order; socialistic parties all over the world are introducing market reforms. Communist China, the last stronghold of Communism, has launched a vigorous market order.

The United States may very well be the last country to reform and depoliticize the economy. A giant does not readily learn from a puny neighbor; a superpower does not cheerfully emulate a country without power; a victor does not gladly follow in the steps of the vanquished. Yet the size of a country and its military might do not annul economic law; disregard and disobedience of economic law in time stifle military might and weaken a country. . . .

It is difficult to convince a pessimist that the future belongs to people who are free. He spends all his time worrying about tomorrow’s misfortunes which may never come. He peers into the future wearing dark glasses and sees only darkness. Despondent and forlorn, he is bogged down with discontent and unhappiness, calling himself a “realist” and being proud of it. But even realists need the promise of success in order to be active and energetic. Few people readily give their time and strength to a hopeless cause even if it should be noble and desirable. Without the hope of success and ultimate victory the pessimist can muster little support for the cause he may represent. His fears are likely to become self-fulfilling.

Virtue and justice may not be enough to achieve victory for a noble cause. It takes effort and leadership which builds on reason, judgment, and hope. A habitual pessimist is incapable of leading the way.

We know where we are, but we do not know where we will be in the future. God does not suffer man to have knowledge of things to come. Yet we always look to the future; our ideal, whatever it may be, lies further on. Henry Wadsworth Longfellow, the nineteenth-century American poet, who wrote some of the most popular poems in American literature, responded to all forms of pessimism when he wrote: “Look not mournfully to the past—it comes not back again; wisely improve the present—it is thine; go forth to meet the shadowy future without fear, and with a manly heart.”

  • Hans F. Sennholz (1922-2007) was Ludwig von Mises' first PhD student in the United States. He taught economics at Grove City College, 1956–1992, having been hired as department chair upon arrival. After he retired, he became president of the Foundation for Economic Education, 1992–1997.