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Tuesday, April 1, 2008

Book Reviews – April 2008


by Donald J. Boudreaux

Greenwood Press • 2008 • 162 pages • $55.00

Reviewed by Richard M. Ebeling

In the mid-nineteenth century, French classical-liberal economist Frédéric Passy, who would share the first Nobel Peace Prize in 1901, predicted: “Some day all barriers will fall; some day mankind, constantly united by continuous transactions, will form just one workshop, one market, and one family. . . . And this is . . . the grandeur, the truth, the nobility, I might almost say the holiness of the free-trade doctrine; by the prosaic but effective pressure of [material] interest it tends to make justice and harmony prevail in the world.”

Alas, for mankind the triumph of free trade in the nineteenth century did not last. There was soon a counterrevolution against liberty in the forms of socialism, nationalism, and interventionism that led to the return of state planning, government control, and restrictions on international exchange in the twentieth century.

But the disastrous effects from all forms of political and economic collectivism over the last hundred years have brought about a revival of market-oriented ideas that has given a new respectability to free enterprise and free trade. General ignorance of economics and the power of special interests, unfortunately, continue to push the world back to a more protectionist path.

There are some advocates of liberty, however, who are attempting to educate the public about the benefits of free trade. One of these individuals is Donald J. Boudreaux, chairman of the economics department at George Mason University and a former president of FEE. His new book, Globalization, is an excellent exposition of the logic and benefits of free trade and an extremely insightful critique of many popular rationales against international trade.

Boudreaux reminds us of the glorious achievements of globalization in the second half of the nineteenth century and the years before World War I, and the damage done by the politics of collectivism in the first half of the twentieth century. While the period after 1945 did not represent a return to free trade, Boudreaux explains that the regime of freer trade that followed World War II greatly enhanced living standards for hundreds of millions around the globe. Since the fall of the Soviet Union and the end of the Cold War, a movement toward market-oriented reforms in former communist countries and the Third World has spread the prosperity that comes from greater economic freedom, raising hundreds of millions more people out of poverty.

In clear and compelling language, Boudreaux describes the advantages of the division of labor and specialization based on comparative advantage. He reminds us that the benefits from trade come not from exports but from the better and less-expensive imports those exports enable people to buy. As a result, he demolishes the fallacies underlying people’s fears about trade deficits.

This leads him into a detailed discussion of the supposed “exceptions” to the case for free trade. Boudreaux points out that while one can make up scenarios that appear to justify protectionism, the alleged exceptions are logically flawed and historically unproven. His examples are “dumping” (the supposed selling of goods in another country below the “cost of production”) and “infant industry” policy (helping a new domestic industry with tariffs until it can compete against foreign rivals).

Boudreaux also responds to those who fear that globalization threatens cultural diversity and national identity. He shows that, in fact, not only does globalization often assist the preservation of cultures, but it also enriches each one by adding contributions from other societies.

Finally, Boudreaux turns to the institutions needed for successful globalization. These include private property, relatively unregulated markets, an impartial rule of law with equal treatment for both citizens and foreign investors, a stable and sound monetary system, and limited government with low taxes. Countries that follow those rules not only reap benefits from trade but also create a healthy climate of freedom for their own people.

If prosperity through globalization is to continue, we must all know and defend the ideas on which it is based. In Globalization, Donald Boudreaux does an excellent job in assisting us.

Richard Ebeling is the president of FEE.

Radicals For Capitalism: A Freewheeling History of the Modern American Libertarian Movement

by Brian Doherty

Public Affairs • 2007 • 741 pages • $35.00

Reviewed by Bettina Bien Greaves

Austrian economist Ludwig von Mises said, “He who wants to improve conditions must propagate a new mentality, not merely a new institution.” But propagating a new mentality is not as easy as flipping a switch. It takes time; an idea that starts in the mind of one person must travel to others by persuasion—talking, teaching, writing, broadcasting, or simply by setting an example. Only if an idea gains general acceptance will it bring social change.

Brian Doherty, a senior editor of Reason, has written a “freewheeling” history of the libertarian movement developed in America by “radicals for capitalism” who have tried to “propagate a new mentality.” Doherty reports the activities of many individuals—dedicated and colorful characters all—who, each for his or her own reason, helped promote the libertarian mentality.

Doherty traces the freedom philosophy back to Jefferson and the Founding Fathers, through the philosophers and thinkers of the eighteenth and nineteenth centuries, down to present times. The ideas of Marx and Keynes, the popularity of Franklin Delano Roosevelt, and two world wars overwhelmed the limited-government voices that survived the Depression, effectively silencing opposition to the government. Once the war ended, however, the radicals for capitalism who had opposed the New Deal and its Keynesian spending programs began fighting back.

Three books by remarkable women, published while the war was still going on, began to rekindle faith in the old American philosophy and, according to the Cato Institute’s David Boaz, can be credited with having “given birth to the modern libertarian movement.” Doherty devotes a chapter to them—The God of the Machine by Isabel Paterson, The Discovery of Freedom by Rose Wilder Lane, and The Fountainhead by Ayn Rand.

Doherty identifies five individuals as having played major roles in postwar libertarianism: Mises, the Austrian-born economist who fled war-torn Europe in 1940 after teaching and writing on free-market economics for decades and then continued his work in America; F. A. Hayek, student, friend, and colleague of Mises in Europe and author of The Road to Serfdom (1944), which created a sensation by maintaining that socialist economic planning, then popular with most nations, actually leads to fascism and Nazism, the very evils the free countries were fighting; Ayn Rand, a refugee from communist Russia who wrote the dramatic novel Atlas Shrugged—which converted a generation of young people into enthusiastic advocates of capitalism and opponents of the altruistic welfare state; Murray Rothbard, son of Jewish immigrants and an ebullient, irrepressible “radical for capitalism” who attracted many enthusiastic young followers who later became serious economists and libertarians; and Milton Friedman, also the son of Jewish immigrants and a brilliant, charismatic intellectual who had substantial political success by pushing for “half steps in the direction of less government.”

The book also covers libertarian organizations. The first organization started after the war dedicated specifically to promoting the freedom philosophy and capitalism was FEE, founded by Leonard Read. As a long-time member of FEE’s staff and a participant in Mises’s New York University seminar, I knew most of the people mentioned in Radicals for Capitalism and Doherty interviewed me when researching this book.

The radicals for capitalism Doherty writes about include anarchists, pacifists, atheists, anticommunists, draft resisters, science-fiction writers, academicians, political activists, goldbugs, religiously motivated persons, and even several individuals who tried to establish free-market utopian “libernations” outside the domain of any existing government. Radicals for capitalism also established think tanks, wrote books, published journals, gave lectures, and taught.

Financing for most of these libertarian ventures came from real-life capitalists, entrepreneurs who had acquired wealth in our relatively free-market system. Anti-New Deal businessmen helped FEE get started. Free-market foundations paid Mises’s salary at NYU, provided student scholarships, financed economics seminars, and subsidized many libertarian organizations. Charles and David Koch, whose father raised them with the idea that big government was bad government, donated millions to libertarian causes.

Radicals for capitalism undoubtedly contributed to the climate of libertarian opinion that made it possible for Barry Goldwater to run for president in 1964, and also for Ronald Reagan to run and win the presidency in 1980.

In any free society, ideas are always changing—in ladies’ fashions, lifestyles, the role of government, individual freedom and responsibility, and economic and civil rights. Doherty has written a fascinating history of how radicals for capitalism and their fellow travelers helped to “propagate a new [libertarian] mentality” in this country.

Bettina Greaves served FEE for more than four decades as a senior staff member, resident scholar, and trustee.

Armed America: The Remarkable Story of How and Why Guns Became as American as Apple Pie

by Clayton E. Cramer

Thomas Nelson • 2006 • 257 pages • $26.99

Reviewed by George C. Leef

Clayton Cramer wrote Armed America as a rebuttal to former Emory University history professor Michael Bellesiles’s Arming America: The Origins of a National Gun Culture. Bellesiles created a furor by purporting to show that, despite everything Americans are taught, firearms played a very small role in the country’s early history. Bellesiles sought to prove that guns of all types had actually been rare in the colonial period and early years of the United States.

Gun-control advocates were overjoyed. The book was given glowing reviews in all the important places and won the illustrious Bancroft Prize awarded by Columbia University. Its many champions swallowed whole Bellesiles’s claims without ever checking his sources. Why bother? The author was a professor at a prestigious university, and besides, the thesis was perfectly suited to the gun-control agenda. Bellesiles’s contention supposedly refuted the arguments of Second Amendment scholars who maintain that the language of the amendment recognizes an individual right to keep and bear arms. Opponents of that understanding insisted that the Second Amendment was only intended to secure a collective right, namely, the right of governments to arm militias and other official forces. The opponents welcomed Bellesiles’s revisionist history as support for that view.

There was a gigantic flaw in Arming America, however. The evidence was largely bogus. Dozens of skeptics scrutinized the book’s documentation, and one scholar after another, including Clayton Cramer, found glaring misquotations and fabrications in the footnotes. When challenged, Bellesiles at first tried to brush off his critics and later took to attacking their supposed motives. His evasions were unavailing. In time it became clear to all but his most die-hard ideological allies that Bellesiles had written a fraudulent and dishonest book. Columbia revoked his Bancroft Prize, and Oxford University Press announced that it would no longer sell the book.

Despite the mountain of evidence against Arming America, there are still people who contend that there were only a few minor problems with it and that its thesis still stands. That’s why Cramer wrote his book: to prove beyond question that Bellesiles was wrong and that firearms were in fact widely owned and used in early America. In that effort, Cramer is overwhelmingly successful, and along the way we learn a good deal about guns in our early history.

In the colonies, Cramer demonstrates, it was common for members of the militia (which included nearly all white men) to supply their own guns and ammunition. Furthermore, in the conflicts with the French and Indians in the seventeenth and eighteenth centuries, the soldiers in the militia demonstrated great proficiency with firearms. The widespread ownership and skill in the use of guns during that period are utterly inconsistent with Bellesiles’s assertion that firearms were rare.

Another interesting piece of evidence Cramer adduces is the fact that Indians owned guns. If the settlers really had few guns, how did the Indians come to have substantial numbers of them? Here we encounter one of those enlightening pieces of history. Laws against selling firearms to the Indians were in effect in the colonies, but just like modern gun-control laws, they were unenforceable. Moreover, it appears that the colonists actually benefited from Indian ownership of guns. The Indians could more easily procure game that they would then trade to the settlers. Guns in the hands of the supposed enemy turned out not to be a disaster but rather a mutual benefit.

The colonists’ ability to fight successfully against the veteran professional British army during the Revolutionary War is again strong evidence that the people weren’t strangers to firearms. During the famous British retreat after their sortie to Lexington and Concord, patriot marksmen inflicted heavy casualties on the redcoats. If the people had so few guns, how was that possible? As Cramer writes, “If every American militiaman was not a crack shot, he was certainly a good enough shot with his fowling-piece, musket, or rifle, to terrorize the finest army in Europe at the time.”

Cramer never ventures directly into the debate over the meaning of the Second Amendment, but he doesn’t need to. Armed America thoroughly refutes the notion that guns were rare and therefore the drafters of the Constitution must have meant to protect only a collective, state-centered right. Hats off to Clayton Cramer for his dogged pursuit of the truth.

George Leef is book review editor of The Freeman.

The European Economy Since 1945: Coordinated Capitalism and Beyond

by Barry Eichengreen

Princeton University Press • 2006 • 504 pages • $35.00

Reviewed by Waldemar Ingdahl

Some topics might prove too daunting to write about even in tomes. Barry Eichengreen, professor of economics at the University of California, Berkeley, has undertaken a difficult task in this book—an economic history of the whole of Europe, a comparison with the United States, and some considerations for the future. The result is a clear and concise book that shakes up some preconceptions.

Recovering from World War II was not as problematic as many think. Eichengreen contradicts Mancur Olson’s view that Europe had to start from scratch and free itself from its historical institutions. He argues that it was precisely this historical continuity that enabled the recovery; just a few years after the war, Europe’s production capacity was back at prewar levels, even considering Germany’s devastation.

It was not a time of technological breakthroughs, but rather of steady recovery, mobilizing the resources unused during the war and implementing some innovations from the United States. This was possible through the political consensus found in the corporativist collaboration among government, industry, and unions, with banks ready to provide the corporations that had survived the war with investments from small-time savers.

The lessons learned from the 1930s were that unions had to agree to hold back demands for wage increases and that governments needed to eliminate trade barriers. The European Economic Community (EEC) was born because it was clear that Europe had been falling behind the United States even before the war. The balkanized and closed economies were unable to exploit economies of scale and scope, and were slow to develop mass-production methods. The EEC provided a regional market appropriate to make best use of the new technologies. With the financial assistance and the export markets of the United States, this proved to be a successful strategy.

But corporativist policies started to founder in the 1970s. The OPEC oil crisis was part of the problem, but the main issue, Eichengreen writes, was that the postwar generations had forgotten the lessons of the past. Unions demanded ever-higher wages and militant strikes pressured corporate profits and investments. Governments tried to calm the economy by expanding the already-extensive welfare state, thereby worsening the high rate of inflation.

Meanwhile, most of Eastern Europe, which had been agricultural, was pushed by the Soviet Union into rapid industrialization. But that region was poorly endowed with energy and industrial raw materials, and its industrial output poorly tailored to the needs of the downstream users. Without the proper price mechanism of a market economy, managers sought to minimize plan targets while maximizing planned allocation of resources. Those economies stagnated in the 1960s, either trying autarky or reforming to “market socialism.” Both paths proved fruitless. The socialist systems made it through the ’70s because loans by Western banks delayed their ultimate collapse.

While Europe struggled, the United States asserted itself. Eichengreen places great importance on the differences in financial institutions. Europe’s banks were geared toward supporting well-established corporations concentrated on producing “more of the same,” while the reliance of American corporations on venture capital favored what Eichengreen calls the “intensive growth” of startups and innovations.

The ’90s proved to be a mixed success for Europe. Liberalization and structural change proved difficult, and rigid labor markets, excessive public spending, and high taxation are still present. But the European Union (EU) was able to weed out some of the worst policies and succeeded in the difficult integration of Eastern Europe.

The book’s analysis is on target. The structures and institutions of the European economies were suited to fine-tuning and applying existing technologies. They were tailored for a world with little international competition, not for the close integration and intense competition following globalization. The EU was designed for a half a dozen countries with complementary economic structures in order to achieve limited economic goals: expanding heavy industry, liberalizing trade, deregulating product markets. It was not designed to support 27 member states with widely different economic structures, political cultures, and visions of the future.

Eichengreen foresees that continuing economic integration and technological advancement will make Europe adapt to a more dynamic model. While arguing for some important reforms, he fails to draw the key conclusion—that Europe was successful in its incremental growth not because of but despite its alliance of big government, big business, and big labor. Europe would be wise to follow its own path, but it would be unwise to think that the European path should retain its high degree of corporativism and government economic planning rather than moving toward free markets.

Waldemar Ingdahl is the director of Eudoxa, a liberal think tank in Stockholm, Sweden.

  • George Leef is the former book review editor of The Freeman. He is director of research at the John W. Pope Center for Higher Education Policy.