All Commentary
Monday, March 1, 1971

Radical Economics, Old and New

Dr. Sennholz heads the Department of Eco­nomics at Grove City College and is a noted writer and lecturer for freedom.

Most modern economists openly profess disinterest in ideological and political matters. They go about their studies, proclaiming ethical neutrality and freedom from bias, to specialize in a great many details of economic phenom­ena. The profession is more and more divided into groups specializ­ing in diverse kinds of research so that few members are able to un­derstand the whole field or relate to it the work done in these spe­cialties. The writing of compre­hensive treatises on “principles of economics” has virtually ceased and few students are ever intro­duced to the eternal principles of human action.

Yet, these same economists who claim the scientific dignity of ethi­cal neutrality readily pass judg­ment on social and political af­fairs. In fact, they are busily undermining the classical economics that believed in the harmony of interests and social beneficence of the competitive private-property economy. Espousing the theory of “monopolistic competition,” they condemn the structure and work­ing of the market system and the power of private firms which are said to administer their outputs and selling prices and fix their payments to labor. The main body of the profession embraces “Keynes­ian” doctrines and theories, which have dealt a severe blow to the economics of individual enter­prise and promoted radical gov­ernment intervention. Keynesians are convinced that the market economy fails to attain and main­tain an appropriate flow of money through the system, or “effective demand” for all products, that it lacks over-all stability or steady growth. The system’s grave liabil­ity, they proclaim, is its failure to automatically correct its own maladjustments which occur as de­pressions and inflations.

These modern developments of economic theory contributed to the growth of new attitudes among the electorate and clamor for new public policies. Hence, the ideo­logical and political trends toward new-style liberalism and control-type socialism. And above all, a new radicalism bubbles through the profession.

The old radicalism consisted of a few Marxian professors who had the rare courage to openly confess allegiance to the concepts and doc­trines of their master. But while there are few professed Marxians in the American economic profes­sion, a great deal of Marxism has swayed the thinking of countless economists. Marxian surplus value theory, commonly called “exploita­tion theory,” has been widely ac­cepted in economic thought, in American legislation and labor policy. The Marxian theory of capital concentration and business monopoly is embraced by most Americans and is used as a guide­post by the Department of Justice in its antitrust activities. Finally, Lenin’s doctrine of capitalist co­lonialism and imperialism is wide­ly accepted as the explanation of foreign affairs, causing our gov­ernment to help purge European colonialism from all corners of the world.

The new radicalism represented by an organization of younger economists in the Union for Rad­ical Political Economics, with counterparts in most other social sciences, demands drastic domes­tic reforms and an end to the war in Vietnam.

The private-property-individual enterprise order is summarily con­demned in terms of Marxian anal­ysis. In addition, it is criticized for its tendency to create such problems as inflation, urban decay, pollution, racial conflict, and many other ills of contemporary society.

Even economists schooled in the classical tradition are joining the chorus of vocal critics. The pri­vate enterprise system, they con­tend, does not lead to maximum welfare because many social costs are ignored in the calculation of welfare. Large blocs of externali­ties, which are social costs not in­cluded in private costs, are charac­teristic of the enterprise system. These externalities are destroying our physical environment and pre­cipitating disaster for the human race.

Robert U. Ayres and Allen V. Kneese make such charges in an essay on “Production, Consump­tion and Externalities.” (Ameri­can Economic Review, June, 1969, pp. 282-297). Private businessmen are discharging wastes into the atmosphere and water courses without cost to themselves. And consumers do not fully use up, through the act of economic con­sumption, the material elements that enter production. Almost 3 billion tons of residue are going back annually into our environ­ment. This is becoming unbear­able, especially in mass urban so­cieties with growing populations and rising material output. Ad hoc taxes and government restrictions are not sufficient to cope with the growing problem. Central, or at least regional, control is needed; and above all, a new economics must be devised that considers waste disposal an integral part of the production and consumption process, and places it within the framework of general equilibrium analysis. “Under conditions of in­tensive economic and population development the environmental media which can receive and as­similate residual wastes are not free goods but natural resources of great value with respect to which voluntary exchange cannot operate because of their common property characteristics.”

Such observations reflect an un­bounded faith in the political and bureaucratic process. No matter what the grievance may be, the blame is always laid on private property and individual enterprise, and the solution is always more government!

Who is Polluting?

Even some of the facts are grossly misstated. The worst of­fenders are not private business­men in their search for profits, but government itself rendering eco­nomic services in a primitive man­ner. Urban communities are pol­luted by an increasingly formid­able cascade of solid waste, such as garbage and trash, rubbish and debris. According to a preliminary report made in 1968 by the Bureau of Solid Waste Management in the U. S. Public Health Service, only 64 per cent of the nation’s people lived in communities that had ref­use collection systems. About half of household wastes were collected by public agencies, and one-third by private collectors; the rest was disposed by householders them­selves. Most commercial and in­dustrial wastes were handled by private collectors. And most of the dumps and incinerators were oper­ated by public authorities or li­censed contractors working for public authorities.

These facts primarily indict government rather than profit-seeking enterprise for our envi­ronmental crisis.

Or take the pollution of our waterways. Who is discharging pollutants into streams and rivers, lakes and oceans? Lake Erie, the most polluted inland body of water, is an example. According to independent surveys, the city of Cleveland is by far the worst of­fender, followed by Toledo and Buffalo and other cities. Numerous public sewer authorities discharge thousands of tons of waste into the lake every day. So filthy is Cleveland’s Cuyahoga River that it catches fire occasionally and traps tugs and boats in its flames. Surely, Lake Erie would suffer no serious pollution were it not for sewer authorities established and operated by government.

Under common law, the beds of navigable bodies of water are gov­ernment property. Can it be sur­prising then that government it­self either is polluting the lakes and rivers or permits them to be polluted? To blame individual en­terprise is an obvious distortion of facts.

It is true, public attitude toward government property usually dif­fers from that toward private prop­erty. While the latter is generally respected and the owner protected in its use, government property is treated as a common good without an owner. Unless it is guarded by a host of inspectors and policemen, it is used and abused by the citi­zenry as if it were free. This com­mon attitude can hardly be con­strued as recommendation for more government ownership or control over environmental re­sources.

The Air We Breathe

The third pollution that is often laid on the doorstep of profit-seek­ing enterprise is the contamina­tion of the air we breathe. In a stinging criticism of the “conven­tional wisdom” of economics, E. J. Mishan of the London School of Economics and Political Science called the private automobile one of the great disasters of the hu­man race. It pollutes the air, clogs city streets, and contributes to the destruction of natural beauty. The economic growth it represents conflicts with social welfare. (“Economic Priority: Growth or Welfare” in Political Quarterly, January, 1969).

Such a severe indictment of the automobile is tantamount to a re­jection of one of the most splendid fruits of private enterprise. There are few, if any, private automo­biles in collective economies, from Soviet Russia to Castro Cuba. The automobile means high standards of living, great individual mobility and productivity, and access to the countryside for recreation and en­joyment. In rural America it is the only means of transportation that assures employment and income. Without it, the countryside would surely be depopulated and our cities far more congested than now.

The air pollution in our cities, the smoke, haze, and smog, nevertheless present grave health haz­ards to millions of city dwellers. Is individual enterprise that man­ufactured those millions of auto­mobiles not responsible for most of the city pollution?

Zoning and Other Intervention

Again, the blame for the in­tolerable pollution of city air rests mainly with government. In par­ticular, three well-established po­litical practices have contributed to the environmental dilemma. First, zoning has become a popu­lar legislative method of govern­ment control over the use of land. Primarily applied in urban areas, zoning constitutes government planning along “orderly lines,” to control congestion in houses and neighborhoods, height, size and appearance of buildings and their uses, density of population, and so on. Surely, zoning has shaped the growth of American cities ever since the 1920′s when it became popular.

Take Los Angeles, for instance. Radical zoning ordinances made it the largest U.S. city in area, a vast sprawling metropolis of more than 455 square miles in which transportation is an absolute ne­cessity. The resident of Los An­geles may travel a hundred miles every day to work, shop, eat, to attend school or church, or to seek recreation or entertainment. Public transportation cannot possibly meet the million fold needs of Los Angeles transportation; only the private automobile can.

Secondly, in nearly all Ameri­can cities public transportation has deteriorated to disgraceful levels of inefficiency and discom­fort. The private companies that first provided the service were regulated and taxed into losses, and finally replaced by public au­thorities. Under their control, mass transportation has generally deteriorated in quality and quan­tity while the costs have soared, as in the New York City subways, for example.

Public transport authorities are easy prey for militant unions. Pol­iticians or their appointees can­not easily resist the demands of teamsters locals and their allies, despite the resultant inefficiency and high cost. The traveling pub­lic is frequently left stranded by organized work stoppages, slow­downs, and other union tactics. When public transportation is most urgently needed, in the vaca­tion or holiday season, it is often struck by one of the unions.

The privately-owned mass trans­portation media are taxed by a host of government authorities until their services deteriorate or even sputter to a halt. The ex­amples are legion. But the recent bankruptcy of the Penn Central

Railroad illustrates the point. Even in bankruptcy, public tax authorities are crowding the courts to force collection of their levies. While labor unions threaten nationwide walkouts, government tax collectors prey on railroad in­come and assets. And when a com­pany finally petitions its regula­tory authority to halt some loss-inflicting service, it may be denied the right to do so. If permission is granted, local courts may order the company to continue the serv­ice and bear the losses. Can it be surprising, then, that service re­luctantly rendered is minimal and poor?

When public transportation is dismal, undependable and ineffi­cient, neglected and uncomforta­ble, primitive and costly, people naturally provide their own trans­portation. And millions of private automobiles are clogging the city streets adding their exhaust fumes to the city air.

Finally, there is the tendency to treat road and highway invest­ments, no matter how huge, as “free goods” that are available to anyone without charge. City gov­ernments endeavor to provide ade­quate approach roads for unre­stricted use of the automobile, continually constructing new ex­pressways on the city’s fringes. It is true, a great number of high­way taxes are levied on those who use the highways. The Federal government collects taxes on gaso­line, lubricating oil, new automo­biles, tires and tubes. A highway trust fund established by the Highway Revenue Act of 1956 re­ceives and expends the excise tax­es, which are the sole source of funds for the Federal aid highway systems. But as soon as an ex­pressway is completed it is over­crowded with countless automo­biles speeding or crawling to the city. No matter how many millions of dollars were expended on its construction, it is “free” to the user who simply does not relate the tax on his gasoline or tire to a particular trip to the city. But even if he were mindful of the tax costs to him, the use value of the expressway, its convenience, speed and safety, may exceed by far the tax cost. Thus, millions of sub­urban automobiles are rushing to or from the cities on billion-dollar highways, adding their exhaust fumes to our environment di­lemma.

Ignoring Property Rights

The problems of smoke, soot, noise, waste, and water pollution reveal unfortunate legal deficien­cies in the protection of private property. The law has always been and continues to be inadequate in its treatment of property rights, in particular, the liability and indemnification for damages caused by the owner’s use of property. Ideally, the right of property as a market phenomenon entitles the owner to all the advantages of a given good, and charges him with all the disadvantages which the good may entail.

Over the centuries governments have again and again restricted or even abolished the rights of pri­vate property. At other times the law, either by design or default, shielded the owner from some disadvantages of his property, and charged other people with some of the costs, the external costs. Obvi­ously, if an owner does not reap all the benefits of his property, he will disregard such benefits in his actions; and if he is not charged with all its costs, he will ignore such costs.

During the nineteenth century, legislation and adjudication re­flected enthusiasm for the rapid industrial and commercial devel­opment. Legislators and judges understood the great importance of capital investment for economic betterment. They favored invest­ments in industry and transporta­tion and the productive employ­ment of property. Unfortunately, they decided to hasten the eco­nomic development through tariffs, subsidies, land grants, and relief from some external costs. Thus, as the tariffs and subsidies en­couraged some production, so did the relief from externalities. Some investments were made and some consumption took place just be­cause part of the costs was shifted from the owners to other people and their property. The pollution of air and water was overlooked as a “public price” for economic progress, that is, some costs were shifted from one owner to another to encourage economic activity favored by government.

The growing awareness of en­vironmental problems is laudable indeed. But the explanations given by “experts” today are taken straight from the armory of po­litical and economic radicalism. The private property order is summarily condemned, and gov­ernment is hailed as the only saviour from our self-destruction. More taxes and regulations, or better yet, comprehensive govern­ment planning and control, are to correct a deplorable situation. In reality, the no-man’s-land of “pub­lic property” and government ma­nipulation of private property constitute the pollution problem. Only sincere respect for private property and its unbiased protec­tion by the law can alleviate a deplorable situation.



Subsidizing A Crisis:

The shocked surprise in the spring of 1970, when the graduating class suddenly found out that they had to go out and look for jobs, may thus have been the first sign of a typi­cal “inventory crisis”—which always takes everybody by surprise. Whatever the eco­nomic climate, the next few years will be years of sharp readjustment in the “careers market.” The “career” boom of the 1960′s is as much a thing of the past as the stock mar­ket boom in “takeovers,” “conglomerates,” and “growth ventures.”

PETER F. DRUCKER The Public Interest (Fall, 1970)

  • 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.