Dr. Sennholz heads the Department of Economics at Grove City College in Pennsylvania and Is a noted writer and lecturer on monetary and economic affairs. His latest book, Age of Inflation, describes our dilemma and offers recommendations for restoring a sound monetary system.
The Carter energy plan contains a familiar ingredient: it takes money from the working taxpayers to give to the nonworking population. It proposes a windfall profits tax on oil producers and a fuel subsidy to poor consumers. When enacted, it may introduce "fuel stamps" just like "food stamps," to enhance the lives of some 25 million people who are believed to be poor.
Transfer programs now comprise the lion’s share of the federal budget. During the past decade transfer payments grew by almost 300 per cent, while wages and salaries rose by 134 per cent. In 1970 these transfer payments amounted to $57 billion; in the federal budget for 1980 they are estimated to exceed $226 billion. How much longer can the transfers grow at twice the rate of the earnings that are supporting them?
Surely, the political transfer process cannot continue to grow indefinitely. There are limits of economic output as well as political power to seize an ever-larger share of income from the producers. But above all, the very nature of the transfer society, which is social and economic conflict, sets limits to the transfer process.
It is a strange twist of contemporary morality that political conduct is judged by far lower standards than are the acts of individuals. Men who would not think of stealing or pillaging the property of others—who would rather suffer deprivation than to enrich themselves by such methods—believe that politics justifies all means. They engage in confiscatory taxation, devious inflation, and restrictive regulations in order to facilitate the transfer of income and wealth. Their political leaders, anxious to be the favorites of the transfer multitudes, yield to their prejudices, desire what they desire, and furnish the sophistry that will propagate and defend those desires.
The transfer society is a conflict society in which the beneficiaries of transfer are ever eager for rapid progress while the victims bitterly oppose every step of the way. The transfer battle is fought in all media of communication and education and on the floors of the legislature, where, in a democratic manner, the majority of representatives decide the issue. But all decisions are just temporary as the political battle continues. In every session of the legislatures, whether they are national, state, or local, the transfer process needs to be fed by new appropriations and allocations, and new victims need to be found in order to bestow new benefits.
A great deal has been said and written about the psychological, social and economic consequences of the transfer. Most political discussions today hinge on this issue. The beneficiaries and their friends applaud the effects and laud the policies that facilitate the distribution. The victims, on the other hand, point at many deleterious effects not only upon themselves but also upon the beneficiaries. Both sides advance arguments of ethics, politics, economics, psychology, history, and many others, in order to sustain their position. Both talk about liberty and justice for all.
The Rush to the Exits
Whatever we may say about the consequences, there cannot be any doubt that the victims of the transfer system react by seeking to escape. They become refugees in their own country, dismayed and frightened, always on the run from agents of the transfer society. They spend countless hours searching for avenues of escape that promise relief and salvation. Many spend their time and effort pursuing the legal loopholes, no matter how narrow and awkward they may be. Others seek their escape on illegal bypaths that are mined by fines and imprisonment. A few get caught in an intricate net of rules and prohibitions which government is spinning continually around its intended victims.
The direction of escape is determined by the policy of expropriation conducted by the transfer government. It may seize income and wealth through confiscatory taxation, devious inflation, and restrictive rules and regulations. The victims seeking refuge from them all, rearrange their efforts to reduce their burdens. They seek to realize income that is tax exempt, or utilize additional tax exemptions, deductions and tax credits, shift incomes to various types taxed at lower rates, or simply postpone the tax for various periods of time. They shun savings and investments that are depreciated by inflation and seek refuge in investments that are said to be inflation proof. They buy real estate, precious metals or other tangible assets that hopefully appreciate in value. And finally, the businessman who faces regulatory inequity searches for loopholes or, if none can be found, may discontinue his production or otherwise readjust it in order to minimize the regulatory results.
Many refugees from the transfer system pride themselves on their prowess in all matters of escape. They attend "survival seminars," subscribe to advisory services specializing in survival behavior and investments, and otherwise prepare for the breakdown of the transfer order. Some escape artists may even amass sizable fortunes on their way to the social exits. But they are neither prudent nor bold, and surely no heroes in any sense of the word. They are running from the battlefield of ideas on which our future is decided. They are deserting, although the battle is still raging and there is no safe hiding place anywhere.
Getting Your Share
Many victims also try to get even by joining the class of beneficiaries. While chafing under the heavy load of progressive taxation and rampant inflation, they are getting in line for any and all favors the transfer government may extend. The businessman who is suffering from confiscatory taxation and restrictive regulation lobbies for government orders and contracts, for urban renewal or other HUD-subsidized housing projects. The doctor who pays maximum income-tax rates and loses his Keogh-plan savings to inflation clamors for a federal grant to his favorite hospital or for higher federal outlays for health professions training. The attorney or accountant, the professor, minister or rabbi, in fact, all primary victims of taxation and inflation send their children to public schools or state universities where government pays the lion’s share of the educational expenses. And upon retirement, they all are looking forward to the generous benefits of Social Security. After all, they contributed so long to the transfer system, why should they not avail themselves of everything to which they are legally entitled?
In the end, no one knows with certainty whether he has lost or gained from the transfer system. Everyone is waiting for his turn at the public trough, which continues to enjoy popularity and respectability. In the line are to be found some of the primary victims, moaning and complaining about the burden they are expected to carry. But their very presence in the line casts doubt on the sincerity of their complaints, while it gives moral sanction to the waiting line and the benefit trough.
Defending the Mainspring of Economic Well-Being
The true defenders of individual freedom and a peaceful social order neither scramble for the exits nor stand in line for their share of the loot. They do not spend their waking hours scheming and plotting their escape. They are in the midst of the ideological battle. With all their strength and courage they are resisting the transfer order, rejecting its temptations and refuting its spurious arguments.
They readily admit that private income and capital must be preserved for current production and future employment. They even emphasize the moral obligation of the present generation to preserve and promote the economic well-being of future generations. But what would it profit our heirs to inherit our material riches if they lacked the freedom and morality that are the very mainspring of those riches? In the long run, economic prosperity without this mainspring will wither and die like seed sown upon stony ground.
The United States is the ideological, economic, and military bastion of Western freedom and civilization. If it fails, for any reason, civilization must perish. There is no escape.
A Defensible Social Ideal
There is but one defensible social ideal, and that is a world in which every individual is free to work out the inner impulses of the Spirit, without aggression on his part or interference on the part of others. A State which accomplished this simple, primal duty, the protection of all its citizens, would accomplish something greater than has yet been historically recorded, and something which no State, preoccupied with illegitimate and paternalistic activities, is ever likely to accomplish.
Hanford Henderson, "Hands Off" from The North American Review, December 1924