All Commentary
Monday, December 1, 1980

Markets or Edicts?

Mr. Dykes of Canton, Ohio is an energy consultant and Chairman of Total Energy Management, Inc.

The so-called energy crisis in the United States is entwined with such other issues as inflation, balance of payments, national security, foreign policy and the maintenance of individual freedom. And resolving these other issues is critically tied to the solution of the energy problem. Shall we forfeit another large measure of freedom, for instance, in the hope for gasoline on Sunday at a price we would prefer to that set by the market?

Unfortunately, it appears the die has been cast. As we have done so often in the past through our elected leaders, we have chosen the route of legislation, of regulation, of decisions “made on high,” of throwing money at the problem, apparently altogether unaware of the dismal record of this process in the last fifty years or so. It is a process which has never demonstrated its usefulness; lacking basis in sound principle, it has no chance of truly solving the so-called energy crisis. Our situation demonstrates once again the utter futility of such a course. If there is no real shortage of energy-producing fuels, we are far along toward being regulated into one.

I am not as critical of our leaders as I am of the rest of us for creating the climate attractive to those who would apply political measures to problems much better solved by the market. We create such leadership by retreating from responsibility in a mad rush for security. In other words, we are continuing the course which indicates a lack of faith in free men. Free men made this country great, and they did so through their own decision making. Once again, we must make our own decisions. So dramatic are the results of that process that I have come to see it as a law of the Cosmos. Individual freedom invariably is the condition in the society which shows real progress.

Individual freedom may be defined as the unassailable, God-given right for each individual to act as he wishes so long as he does not interfere with the equal rights of others to act as they wish. Note that in this definition no one is given license to interfere with his neighbor under the guise of freedom.

A couple of decades or so ago, when the welfare state was still debatable, its proponents would say to an advocate of freedom, “Yes, but you can’t eat freedom.” Today, the same idea would be stated, ‘rYes, but you can’t put freedom in the gas tank.” Such an argument tends to be convincing until one realizes, from a careful study of history, that it is only in those nations where freedom has had a large measure of acceptance that people have eaten well. Turning the same idea to gasoline—a part of the energy problem—it can be shown that an exorbitant price per gallon of gasoline in Russia would be unlikely to stir up a revolution because so few Russians own cars. And if you have paid attention to the pictures coming out of China, why are all those people on bicycles?

Only through a change in attitudes at the grass roots in America is it likely that any substantial change in policy will occur. Time may yet remain to reverse our present course before the next big crisis—whatever that may be—comes to lop away another portion of our remaining freedom.

I have served recently in a lecture series on the so-called energy crisis. More than half of those who preceded me spoke disparagingly of regulation. One speaker said he believed our problem started with the 1954 decision by the Supreme Court which permitted the regulation of the price of natural gas delivered through interstate pipelines. Although I think our problem started much earlier than that (I like the year 1913) I am willing to start with 1954.

As soon as the regulated price of natural gas was below the price a free market would have set, two things—at least two things—began to happen. First, more and more gas was consumed than would have been the case with unregulated prices. Second, fewer and fewer people were interested in risking their money to find more gas. Whatever else one might say for price fixing, it is a sure formula for a shortage.

I do not know to what extent our tax laws, our depreciation allowances, our control of prices, and the like led to imported oil, but I do know that at least we had oil. The Saudis and the other OPEC nations cannot use all their oil—they must trade it for things they don’t have. Speaking from a purely selfish standpoint, it makes more sense for us to use their oil than our own. For years we bought their low-priced oil for dollars which were depreciating in value in response to our domestic inflationary process. It is no surprise that OPEC suppliers should react, albeit over-react perhaps, to our policies of inflation.

We responded by continuing price controls on our own petroleum products, by reducing the depletion allowance, and by following a phased relaxation of price controls on petroleum with what is euphemistically called, “a windfall profits tax.” In addition, it is now reported that seven states are planning to enact taxes specifically on petroleum production. These only can do harm. We have enacted laws making it more difficult to drill, have discouraged the building of refineries wherever and whenever they have been proposed and, in general, have treated these prospective producers as if they were scabs and scoundrels. None of these seem like the things we should be doing to increase pro duction.

The process which made this country great and rich and powerful is not a deep mystery. It started with a spiritual idea—that men should be free to exercise their own powers of decision so long as they did not interfere with the equal rights of others. Our Constitution and Bill of Rights were a guarantee of such liberty. With such freedom to try, men set about producing and building as never before on the face of the earth. Innovation and invention were everywhere apparent. In the market place, if a product became much higher in price because of short supply, then substitutes—usually better methods and products—were found to take its place. And in those times government was largely restricted to keeping the peace.

Then, we set about making true the dire prophecy of Alexis de Tocqueville that democracy would fail in America. In effect, he said that when politicians found ways to promise things to some voters at the expense of others, this great and noble experiment would fail. The politicians have found a way; we have been going the route of transfer payments and our future does not look as rosy as it once did. But it does not have to end that way. So long as we can still express our opinions, there is the opportunity to restore freedom and accept individual responsibility for our lives.

For whatever reason, we do seem to face an energy shortage. It has come about by edicts, unnatural processes which interfere with the free flow of energy—in this case, human energy. We must again embrace the time-tested process: follow the natural law of individual freedom, and these other things shall be added. So let us remove controls, cut taxes which inhibit enterprise, stop inflation, reduce regulation. When such restrictions are lifted or greatly eased, then prices will ration scarce resources, profits will direct investments and losses will eliminate the inefficient producers. The free market must replace edicts. This is the formula for abundance.

  • Mr. Dykes of Canton, Ohio is an energy consultant and Chairman of Total Energy Management, Inc.