Dr. Carson has written and taught extensively, specializing in American Intellectual history. He is the author of several books, his most recent being Organized Against Whom? The Labor Union in America. He is working at present on A Basic History of the United States to be published by Western Goals, Inc.
It sometimes sheds light on a subject to examine the end toward which a course of action tends. This line of reasoning has often been dismissed as a reductio ad absurdum. It is possible, of course, to arrive at all sorts of absurdities by the reduction and extension of acts to the ends toward which they may tend, considered in a vacuum. We might, for example, conclude that taking a drink of water is damaging because it tends to use up the supply of fresh water. This absurd conclusion is arrived at, however, by ignoring the fact that the supply of fresh water is being continually replenished.
But there is nothing at all absurd in reasoning from the tendency of acts to the possible or probable conclusion if they are continued and multiplied, if the qualifying conditions are duly noted. Indeed, far from being a device for arriving at an absurd conclusion, the legitimate use of reductio ad absurdum is “the refutation of a proposition by demonstrating the absurd conclusion to which it would inevitably lead when logically developed,” as one dictionary says.
At any rate, it is my intention in what follows to explore the tendency of the results produced by government intervention on the market. As for the thrust of intervention itself, it has several tendencies. One of these is in the direction of government oppression and tyranny. While this tendency may not be generally known or accepted, it has been often alluded to and much analysis and evidence has been assembled to prove it.
It has been shown, too, that the tendency of interventions is to hamper and restrain dealings in the market. Indeed, often this is not so much a tendency as the immediate result of given interventions. For example, an increase in the minimum wage may result in immediate unemployment for marginal workers. There has been much exploration of the impact of various sorts of interventions, an impact closely tied to the nature of the intervention. For example, price controls that set prices below the market level result in shortages; those that set them above the market result in surpluses.
An Intolerable Burden
What I wish to explore here is a much broader, more general, and a longer range result of government intervention. I want to deal with a possible or probable general result of long term and mounting government intervention in the market. The tendency of government intervention in the market is to hamper market operations. To put it another way, intervention burdens activity in the market, makes it more difficult or costly to use the market. When that burden becomes sufficiently great, people will, if they can, begin to abandon the market. More precisely, they will operate outside the legal market and may well reduce greatly if they do not cease entirely their dependence upon the market.
In short, a sufficient level of intervention in the market could result in a reversion to primitive modes of providing goods and services. This is not simply a logical conclusion or one arrived at by an exercise of the imagination, but rather developments along this line have occurred in the past and are going on in the United States today, as I intend to show. Before doing so, however, there are some other points to be made.
Perhaps, one of the points can at least be suggested this way. Jesus said, “The sabbath was made for man, and not man for the sabbath.” With equal validity, it can be said: Government was made for man, and not man for the government. Or, to tie this saying even more closely to the present topic: The market was made for man, and not man for the market. The context within which Jesus made the observation brings it into focus. He was walking with His disciples through a grain field on the sabbath day. The disciples began to pick some of the grain to eat. The Pharisees accused them of violating the laws for the sabbath. To which, Jesus replied with the above quoted observation, among others.
Institutions, organizations, and even observances take on a life of their own sometimes. They become perverted from their end of serving man to having men serve them. Governments are especially prone to this abuse and to turning any institutions which fall under their power to their own ends. That has happened in large measure to the market in the United States (and in many other countries), and it is a point which will be elaborated below.
What I would emphasize at this stage of the discussion is that, where choice is possible, men may take the opportunity to override the institutional fetters. That, I take it, is what the disciples of Jesus did on the above occasion. That, too, is a possibility that is on its way to becoming a probability in the case of the increasingly fettered market.
The Blessings of Trade
There are two ways that man can provide in an economic manner for his wants. One is to produce the goods himself. That is, he can grow the crops to provide himself with food and fiber, gather the materials and build himself a shelter, and construct clothes by his own labor. In short, he might somehow manage to provide himself with the necessities and amenities of life by his own direct efforts. This is a primitive way of providing goods and services. It is necessarily so, for anyone who would attempt to do it would be limited to such tools as he could construct, to such materials as were in the immediate vicinity or near to him, and to such skills as he could develop within his life span. In these circumstances, even the most industrious and ingenious would be bereft of many, indeed, virtually all, of the conveniences to which we are accustomed.
The other way to provide for our wants is by way of the market. That is, we may acquire the goods to meet our wants by trading our surplus produce in the market for them. The process is sufficiently familiar that little elaboration of its workings may be necessary. Yet its very familiarity may dull our awareness of the array of goods and services available through it and the complexity of the arrangements by which they come to us. We go to the market not only for butter, eggs, bread, gasoline, shirts, and cars but also for physicians, dentists, teachers, preachers, carpenters, electricity, banking, air transport, and the thousands of goods and services we may want.
The market makes possible the specialization of labor, the division of labor, the concentration of capital, the availability of goods from diverse climes and regions, and most of the paraphernalia which makes possible the many goods and services we enjoy. It comprises all the means ever devised or that ever will be devised for making trades. It cannot be outmoded, for every new means for facilitating trade is only grist for its mills. Its advantages over each person’s producing to meet all his wants by his own direct efforts are patent, and in a free and open contest the market tends to carry the day.
Some qualifications and exceptions to the above should be noted:
First, personal production for one’s wants and reliance upon the market are not mutually exclusive categories. It is possible both to produce for oneself and for the market, and to buy some of what is wanted while producing the remainder. Indeed, many, perhaps most, services are provided in the home by the family. Some people have vegetable gardens in which they grow some of the food they consume but go to the market for the rest. The primary reliance may be on the market, supplemented by home production, and so on. The categories were described in absolute terms and at poles apart so that a tendency toward one or the other could be determined.
Second, it should be noted that goods can be acquired by the use of force or theft. Since that method of acquisition is diseconomic, when not illegal, it has been left out of consideration.
Third, it is unlikely that most people will ever cease to provide some goods for themselves directly or that the market will be entirely abandoned. Within that framework, however, great, even massive, shifts can and do occur.
The Oppressive Burden Taxes Impose on the Market
Be that as it may, the thrust of intervention by government is placing an increasing burden on the market. Probably, the most oppressive burden on the market is by taxes on goods bought and sold in the market. It has not been generally understood that taxes can be a burden on the market, though awareness of this appears to be increasing. It has long been understood, of course, that taxes, any and all taxes, have an impact on an economy. So they do, and unavoidably so; they affect the way in which people can employ their resources and the extent of those resources available to them. But that is not the point to be emphasized here.
Instead, the point is that taxes collected in the market or based on market activities are a burden on the market. They are a burden on the market because they can be evaded or avoided by not using the market. Virtually all Federal taxes today are a burden on the market. They are a government intervention in the market when they are collected in the market and a burden on it however they may be collected. A large portion of Federal taxes are collected in the market.
All personal income taxes withheld by an employer are collected in the market. (The buying and selling of labor is a market operation, and this is a tax upon it.) So, too, are all Social Security taxes withheld by an employer. Excise taxes, such as those on tires, telephones, liquor, cigarettes, and so on, are collected in the market. Corporate income taxes, to the extent that they are passed on to the consumer, are ultimately collected in the market in the price of goods. So, also, are the portions of Social Security taxes paid by the employer, as well as such taxes as those for unemployment compensation.
All these are burdens on the market because they enter into and become a part of the prices we pay for goods in the market. This is so even in the cases of some excises, where the tax may be separately listed, for it is still necessary to pay the full price to get the good. It should be noted, too, that a recently enacted law, not yet in effect, would extend this practice of market collection to interest and dividend income.
The Federal taxes not collected in the market are based on market activities. Corporate income taxes are not directly collected in the market (though they may be ultimately collected from the consumer) but they are almost entirely based on market activities. So are the income taxes and Social Security paid by the self-employed. That is, these are based on income derived from trade. They are a burden on the market, at the least, in that they are a cost of trading in the market imposed by government.
State and Local Taxes
Many state and local taxes are also a burden on the market. State income taxes are usually collected in much the same way as are Federal taxes. Sales taxes are, in effect, a part of the price of goods on which they are levied. So are the various “hidden” taxes, by whatever level of government they are imposed. Business licenses and other taxes may not be levied directly on the market, but they are, as a cost of doing business, ordinarily paid for by the consumer and are a burden on the market.
By contrast with Federal taxes, however, some state and local taxes are not a burden on the market. They are neither collected in the market usually or as a rule nor are they based on market activities. The most important of these taxes is the property tax. It is true that the amount of the tax may be calculated by reference to selling prices in the market. But that must be accounted incidental, since the tax is levied without regard to any market transaction or activity. (Real estate transfer taxes, recording fees, and the like, are, of course, burdens on the market.) Licenses, such as marriage licenses, driver’s licenses, license plates for vehicles, hunting licenses, and others paid for by individuals in their private capacities, are not a burden on the market generally.
But it is not my intention to list and categorize the whole vast array of taxes imposed in the United States. It is only necessary to mention enough of them to suggest the immensity of them and how and in what ways they constitute a burden on the market. Although the amount of his income which goes to taxes varies from individual to individual, estimates suggest that on the average it may now amount to something on the order of 35 to 40 per cent. As much as 75 per cent of that can almost certainly be classified as a burden of doing business in the market.
Counting the Costs
Since most of these taxes end up in the prices that we pay for goods and services, it is feasible to conclude that the price we pay for these is inflated by as much as 25 per cent by the tax burden on them. But whatever the figure might turn out to be, if it could be precisely calculated, it is undoubtedly large and costly. In addition to the taxes themselves, there are the clerical and other costs of paperwork to keep the records necessary to collect and pay the taxes. So far as this is done by businesses, these costs are passed on to the consumer, too, where possible.
Potentially, the most devastating of taxes has not yet been discussed. It is taxing by inflation—the increase of the money supply. The market provides the arena within which inflation could or would occur. (This is neither a fault nor a defect of the market. It is of the same order with the statement that without life there would not be death.) That is, money, as a medium of exchange, has its whole use and value in the market. Without the market, there would be no purpose in in creasing the money supply. The market could exist without money, though it would be a primitive market, but it is most unlikely that money would exist without the market.
Money facilitates exchanges in the market. Inflation is a tax on all market transactions made for currency. As the inflation mounts, the value of the money depreciates. Trading becomes an increasingly precarious undertaking; to trade other goods for a money declining in value becomes increasingly risky. Inflation, then, is a burden on the market, and if it becomes headlong, an intolerable burden. Inflation is most commonly the result of government intervention in the market by increasing the money supply to raise money to meet its deficits.
There are numerous interventions whose burdens on the market are difficult, when not impossible, to calculate. How, for example, can the impact of zoning restrictions be determined? There is no way to know how many purveyors of goods have been kept out of the market. And what of such government monopolies as that of collecting and delivering first class mail? Not only does this keep people out of the business who would like to compete but also it denies to customers the services they might perform at better prices.
Government price setting tends to drive the price of many commodities, such as milk, butter, cheese, electricity, tobacco, and so on well above what they might otherwise be. Government safety regulations covering all sorts of things from working conditions to automobiles to drugs to the packing and preservations of meat add to the cost of providing all these goods. The difficul ties, and hence the cost, of building, have been greatly increased by all the environmental protection regulations. James J. Hill pushed the Northern Pacific Railroad through the Rockies in little more time than it would take nowadays to get the approval from all the government agencies to build a railroad station. In short, there are tens of thousands of government regulations which hamper the market in numerous ways at virtually incalculable cost to all who trade in the market.
But in no area does government intervention hamper the market with more devastating results than in that of employment. Intervention has gone on so long there and now reaches in so many directions that the buyers and sellers of labor, in many instances, can no longer be served in the market. The market cannot be cleared of either demand or supply. Many job openings go unfilled while many millions are unemployed. The work force has been drastically reduced over the years (in the proportion of the total population .working) on the one hand; yet, on the other, many who would work cannot find acceptable employment. These remarks cover not only the situation at the current time but also long-term conditions.
Price Controls on Labor
The most basic government intervention in the labor market has been in price. Alterations and fluctuations in price are the most basic means for clearing the market for labor, as for other goods. The government has long since instituted downward price inflexibility by the minimum wage for most occupations. This inflexibility occurs at a considerably higher level in most government and union jobs. Moreover, the inflexibility extends to a whole range of wages and salaries (where there are established scales) in most government and union covered jobs. This downward inflexibility prices many people out of the market. It is a major cause of unemployment, both that which appears in government statistics and much that does not.
But government intervention in the labor market goes much beyond price controls. There are also regulations about hours of work, prohibitions against child labor, encouragement of early retirement, compulsory school attendance laws, numerous subsidies to keep people off the labor market ranging from unemployment compensation to the food stamp program to grants and loans for attending schools and colleges, and all sorts of safety and job regulations which make the way of employers hard.
There are fringe benefits which tend to make labor much more expensive than it would otherwise be, such as retirement programs, medical and life insurance, and so on. These are usually not mandated by government, though many of them have been acquired by unions, all of whom operate under government auspices, but the fringe benefits are often granted to employees as pay increases not subject to taxes. Nonetheless they add to the cost of labor.
Government intervention not only makes it difficult to find employment but also contributes to the shortage of workers of the particular skills and abilities that are wanted. All programs which keep people off the market tend to do that. In addition, government sponsors training, much of which may have little or nothing to do with job opportunities. But also some of the government interventions tend to foster inflexibility, intractableness, and refusal of employees to accommodate themselves to the work the employer provides. That has been the tendency of minority hiring prescriptions, legal prescriptions as to what is and is not a part of the job, and, in general, a government or union hardnosed attitude toward employers. Such attitudes and behavior burden the market by making it difficult to provide goods and services that may be wanted.
Avoiding the Market
Government intervention, then, tends to burden the market. As it mounts and spreads, it increases the cost and reduces the attraction of trading in the market. The thrust of government intervention is to set the stage for people to find ways to survive outside the framework of the legal market. When the burden becomes too great people may seek to avoid the legal market entirely. By so doing, they revert to more primitive means of satisfying their wants. There have been indications for several years now that people were considering and taking steps to reduce their dependence on the legal market and avoid dealing in it where they could. Undoubtedly, there are various motivations at work. Some are attempting to avoid or evade paying taxes. Some are trying to survive when they cannot find employment in the legal market. Others may be drawn to a simpler and more basic way of living. Still others may be ideologically motivated or justified, harbor an animosity toward the market itself, and wish to avoid an arena dominated by capitalists, as they see it. There are people who are so antigovernment that they want as little as possible to do with the legal market. My concern is not primarily with the specific motivations but with the phenomenon of withdrawing from the legal market and its relation to the burden placed upon the market by government intervention.
Dealing in Cash
Three categories of activities for avoiding the penalties and burden of the legal market have emerged and assumed some importance thus far. One is to deal in cash or other means of transferring funds without keeping records. The IRS claims that several hundreds of billions of dollars earned in this way largely may be eluding the tax gatherers. Be that as it may, newspaper and other reports indicate that there is a goodly amount of this done. It probably occurs mainly in payments for labor and services, though other goods may be transferred this way so long as the transfer does not have to be recorded.
There is nothing illegal about dealing in cash or other negotiable instruments, per se. Nor are such trades anything other than normal market activities on their face. They become evasions of the legal market, however, when some law is violated in connection with them. If the person receiving such income does not report it for tax purposes, he is failing to comply with the law. In like manner, if an employer pays in that manner to avoid paying the minimum wage, withholding taxes, or Social Security, he would not be in compliance with the law. How widespread such practices are is a matter of conjecture, but the IRS, at least, claims they are occurring on a large scale and that much money is involved.
A second activity is the revival of bartering. Again, labor and services appear to be mainly what is traded. Thus, a lawyer may trade a legal service to an orthodontist for work on his children’s teeth or an electrician may trade with a carpenter, and so on. Organizations have even been formed to facilitate such exchanges in some communities. Again, these are market activities, albeit rather crude or primitive ones, and there is nothing illegal about them.
However, the attraction in this sort of activity must surely be increased by the fact that collecting taxes on the transactions is difficult, to say the least. It comes so close to performing services for yourself, which is not taxable, that it seems a quibble to argue that it could even be taxed. Presumably, no money has changed hands, and no prices translated into money have been named. I decline further comment on this activity, however, for I neither desire to be guilty of encouraging tax evasion nor to add any arguments to the arsenal of those of the tax-gatherers.
The other activity comprises a whole range of undertakings, all of which would presumably reduce or eliminate some dependence on the market. They range from home-gardening to the revival of arts and crafts to solar heating and cooling to sewing to whatever may be done in the home or on the land to provide for the wants of a person or family. Many of these are fairly commonplace ideas; others are quite exotic.
Over the past decade a considerable literature has been developed describing and promoting these do-it-yourself activities. Magazines, such as the popular Mother Earth publication, are regularly devoted to exchanges of information and descriptions of these things. A goodly number of books have been published on such topics as how to produce all your food on two acres of land. There are undoubtedly other values to these activities, but so far as they are economically feasible they result in avoiding at least some of the burden that has now been laid on the market.
It is possible to lay such burdens on the market that people either will not or cannot meet their wants in the market. It is possible to destroy the currency by inflation so that trades can no longer be practically effected with the official money. It is possible to lay such a burden of taxes on the market that people will refuse to operate within it. It is possible to regulate productive activity to the extent that very little can or will be produced for it. It is possible, by so doing, to leave people with only primitive and crude means for providing for themselves. Some or all of these things have happened in the course of history, at various times and places.
The Soviet Union was reduced to primitive economic conditions between 1918-1921. Some of the destruction could be attributed to the civil war, but most of it can be placed on the actions of the Bolshevik rulers. The money supply was virtually destroyed by inflation. The assault upon property and upon activities in the market did the rest. As a result, in 1921 industrial production was only about 13 per cent of what it had been before World War I, and agricultural production had declined precipitately. The population of the cities was decimated. Leningrad had a population of nearly 2¥2 million in 1916; by 1920 it had fallen to just over 700,000. Large numbers of people had left the cities in order to survive by providing for themselves in more primitive ways. Many other examples could be given, but perhaps the point has been made.
Clogging the Channels of Communication and Trade
The market was made for man, and not man for the market. It was made to facilitate his trades, to enrich his life, by producing what he can most effectively, by specialization, by the division of labor, by disposing of his surplus in return for the produce of others. It was not made as an instrument for government. It was not made for the collection of taxes, for the imposition of taxes, or as a device to serve the value system of those who govern by regulation and restriction. It is a perversion of the market to burden it so greatly with taxes and restrictions that man is serving the government through the market in addition to or rather than simply providing for his wants.
Government, too, was made for man, and not man for government. It is a perversion of government when its impositions become so heavy that man is serving government rather than being served by it. When those impositions are imposed on and through the market, an invaluable lifeline—the market—is being transformed into a club.
Men take what measures they can to avoid the club, even if it means giving up the advantages of the market. That way lies more primitive means of providing for our wants. The thrust of government intervention in the market is in that direction.