One of the very first FEE staff members that I ever met was Bettina Bien Greaves. It happened more than four decades ago, in the summer of 1977, in Irvington-on-Hudson, New York. I was one of 35 attendees at a FEE seminar.
She was already an icon in my mind (and in the minds of many others!), and she couldn’t have been friendlier or more welcoming. One evening during that seminar week, she invited me to dinner at her home with her husband and fellow Austrian School economist Percy Greaves. I drank from a fire hose of Austrian economics for the entire evening.
Many years of friendship later while I visited a 96-year-old Bettina in Hickory, North Carolina, the subject of that 1977 get-together came up in our discussion. She volunteered, “I always asked visitors to sign my guestbook. Would you like to see what you wrote?”
From off the shelf, she pulled her guest book for 1977. After about 30 seconds of searching, I found my inscription. It disappointed me. I had written barely a sentence, not much more than a perfunctory thank you. I’m sure I was so taken by the conversation that evening that I must have been gripped by a form of writer’s block. I wondered if she would frown upon such brevity. But true to form, Bettina was the perfect host then, and still the perfect host all those years later. “Maybe you should have had another drink,” she said with her characteristic, toothy smile.
Bettina gave so much to FEE that no tribute to her would ever be complete. That giving included decades of service as the longest-serving FEE employee ever. She offered a never-ending stream of insights and articles.
When she moved into a retirement facility, she gave FEE her home in Westchester County, New York. It yielded more than $400,000 when sold at a time when we really needed the cash, early in the Great Recession that started in 2008. Donations of time, advice and money continued long after she retired. Less than a month after she passed away on January 22, 2018, at age 100 1/2, we were advised by an attorney that she had included a generous bequest to FEE in her estate plans. Bettina was truly the gift that never quit giving.
One of my young colleagues at FEE, Tricia Beck-Peter, wrote these beautiful words about Bettina the day she died:
Bettina served FEE for over fifty years and was instrumental in shaping the organization during our earliest years. Bettina was, among many things, Ludwig von Mises’s bibliographer and close friend. She made it her mission to catalog Mises’s work and to make him and Mrs. Mises comfortable in their final years.
She was a courageous and kind woman. Although I did not know her personally, I was inspired by her legacy. When she joined FEE in 1951, very few women were working in ideological spaces. When one considers the relatively small number of women in the libertarian professional sphere, one would have to extrapolate quite thoroughly to imagine how unique Bettina was. How many times must she have been the only woman at a table? The only woman in a room? She set an example for young women like me, working to create a place in this movement. She established the precedent that women could do great things in this movement.
One young woman who was emboldened by Bettina’s example was FEE Campus Ambassador Savannah Lindquist, who was named FEE’s first Bettina Greaves Distinguished Campus Ambassador in recognition of her contributions to the organization. She had planned to drive several hours over spring break to meet Bettina. I wish she had been able to. I wish Bettina could have looked this incredible young woman in the eye and seen the future of the movement she gave so much to. The prize will continue to be awarded in her name, but from this point on will be awarded as the Bettina Greaves Memorial Award.
Bettina gave us her tireless energy and her fierce curiosity. She gave the world the gift of Mises and his life story. When she moved into a retirement facility, she gave FEE the proceeds from selling her home. Over and over, this woman gave of herself to the cause of human liberty. Now she is gone, and all we can give her is the promise to honor her memory.
To help remember this very special woman, we give you a collection of some of her best essays published by FEE during her half-century tenure on our staff.
—Lawrence W. Reed
Foundation for Economic Education
FEE and the Climate of Opinion
“The genuine history of mankind,” as Ludwig von Mises wrote, “is the history of ideas.” In this sense, history is made, although it is not planned, by men and by their ideas. We can see the power of ideas by studying history. Just as water can in time wear away rock, so too may an idea in time come to erode the rock of public opinion and change the course of history. For instance: the concepts of the eighteenth-century Enlightenment—individual rights, private property, religious freedom, and limited government—sparked an “industrial revolution” and reduced absolute monarchs to figureheads; socialist, Communist, and fascist ideas produced the totalitarian states and the world wars of the twentieth century; political propaganda catering to the fears and hopes of people persuaded the voters in the 1930s to welcome Roosevelt’s New Deal and Hitler’s national socialism; and the widespread belief that government spending and inflation are needed for the economy to prosper has produced today’s “welfare states.”
But ideas, and with them the climate of opinion, are constantly changing. There are signs today that people are beginning to reject some aspects of the “welfare state” and to look outside government for solutions to problems. Time and again, political “ins” are voted out. Cuts in government spending and privatization are now being discussed in the halls of Congress; and private enterprise and entrepreneurship are being studied on college campuses. Do these events portend a widespread ideological shift toward freedom and limited government, with more recognition of individual rights, private property, religious freedom? Only time will tell.
When the Foundation for Economic Education (FEE) was established in 1946, World War II had just ended. Discussion of military matters had, of course, been strictly prohibited during the war, and even criticism of government was considered unpatriotic. The majority of the people in the United States at that time undoubtedly believed that President Franklin Delano Roosevelt had rescued the nation from a serious depression and had been responsible for our victory in a war that destroyed the foreign “devil,” Adolf Hitler. A few organizations founded in opposition to the New Deal survived, but, generally speaking, criticism of government was not in fashion.
Most organizations that want to bring about ideological change try to influence the masses, to change votes and politicians at the next election. But FEE was different. Through Henry Hazlitt, Leonard Read had encountered the Austrian economist Ludwig von Mises, who stressed the importance of ideas and the power of ideology. Thus, FEE looked beyond the next election; it hoped to bring about a more lasting change in people’s ideas and attitudes.
When FEE was founded, most people in this country believed that government planning was necessary to recover from the war, that economic prosperity depended on government spending and inflation, and that government should provide a “safety net” to protect people from the effects of hunger, poverty, and old age. The ideas on which we act come from many sources—family, school, church, workplace, friends, colleagues, and books.
The final spark that ignited Read’s interest in promoting the freedom idea had come from California businessman W. C. Mullendore. However, the freedom philosophy itself has a broad base; it is built on the principles of classical liberalism as developed by thinkers over the ages, and as they are still being developed today by philosophers, scholars, historians, economists, and others who ponder the problem.
Foremost among the thinkers on whose theories and writings FEE has depended is the Austrian-born free market economist Dr. Ludwig von Mises. Mises was one of the first persons Henry Hazlitt introduced to Read when he was making plans to establish the Foundation. Mises already had a well-deserved reputation in economic circles in Europe as a scholar, as an outspoken advocate of capitalism, and also as a critic of government intervention. It is not surprising, therefore, that Read asked Mises to serve as FEE’s economic adviser. Mises was never a regular member of FEE’s staff, but he visited FEE regularly, lectured at seminars, and wrote articles for FEE. One draft of Mises’ magnum opus, Human Action: An Economic Treatise, was typed on FEE’s premises by FEE secretaries. When Yale University Press published it in 1949, FEE distributed copies to college and university libraries throughout the country. Mises’ teachings on economics, market operations, monetary theory, the role of government, the importance of private property, and the dangers of socialism, communism, and interventionism pervade all FEE’s efforts.
Henry Hazlitt was one of the Foundation’s founding trustees. Although he was never on FEE’s staff, his ideas and his writings have been FEE staples from the very beginning. Hazlitt’s powerful little Economics in One Lesson, first published in 1946, has been, and still is, one of the best easy-to-read introductions to economic thinking. It has had wide appeal; Reader’s Digest published two separate chapters before the book was published, and it has been translated into twelve different languages. FEE still sells several thousand copies every year.
Promoting the Freedom Philosophy
Read used to say “You can’t sell freedom like soap.” In trying to promote the freedom philosophy, he refused to try to reach the masses; he rejected the use of flashy advertisements or radio “sound bites”—TV had barely been born in 1946. To change opinions long-range, not simply in time for the next election, to effect a turnabout in thinking, FEE wanted to reach people interested in ideas—intellectuals, teachers, writers, and anyone else who could help spread the freedom philosophy. FEE began publishing books, pamphlets, and articles; holding seminars; and giving lectures. FEE’s writers, of course, criticized the New Deal/Fair Deal “welfare state” philosophy of the day. But they did more; they also presented the positive free-market alternative.
In FEE’s view, there is good and bad in everyone. Most people recognize the advantages of voluntary cooperation and want to cooperate, to get along and live at peace with others. Thus the market itself, a product of voluntary cooperation, tends to bring out the good, the moral, the best in people. On the other hand, government controls and regulations help some, hurt others, cause conflicts, and thus inevitably tend to bring out the worst in people.
Government should not interfere in the economy; it should not play favorites; it should protect everyone equally against aggression, domestic and foreign. Period. That is all! The New Deal/Fair Deal programs obviously interfered. Moreover, they didn’t accomplish what their proponents intended; price and wage controls led to shortages and agricultural subsidies to surpluses. As Mises stated, government interference with the market not only fails to accomplish the ends aimed at but “makes conditions worse, not better,” even from the point of view of the government and those backing its interference.
FEE explained that the solution for almost any problem was to get government off people’s backs. Free men and women could solve their own problems better than any government planner or bureaucrat. Individuals must assume responsibility for themselves and their families and stop looking to government for help. Only then would they be free to pursue their personal goals in peace. “Anything that’s peaceful” became Read’s mantra.
FEE gradually began to build up a mailing list of persons to whom it sent, free of charge, one-page easy-to-read “Clippings of Note” and small pamphlets. Each commented on some current event. They raised questions. They made people think!
The Foundation also published longer studies, more serious booklets including “Roofs or Ceilings?” by two future Nobel laureates, Milton Friedman and George Stigler, “No Vacancies” by Bertrand de Jouvenel, Fiat Money Inflation in France by Andrew Dickson White, Planned Chaos by Ludwig von Mises, Why Kill the Goose? by Sherman Rogers, Will Dollars Save the World? and Illusions of Point Four by Henry Hazlitt, Industry-Wide Bargaining by Leo Wolman, Liberty: A Path to Its Recovery by F. A. Harper, and The TVA Idea by Dean Russell.
The Foundation’s tracts attacked some of the government’s most “sacred cows.” And they were effective.
The National Association of Real Estate Boards reprinted and distributed to its members nationwide many thousands of copies of “Roofs or Ceilings?”
In February 1949, Reader’s Digest (distribution then 4.5 million in the U.S. alone) reprinted FEE’s “No Vacancies” by Bertrand de Jouvenel.
FEE Investigated and Criticized
Like a burr under a horse’s saddle, FEE’s critiques of government programs festered and irritated some politicians. In the spring of 1950, the House of Representatives set up a Select Committee for Lobbying Activities. Its objective was to investigate “all lobbying activities.” In actual fact, it spent most of its time examining a few “conservative” organizations, including the Foundation. Were they pressuring Congressmen on behalf of their “conservative” agenda? Were they lobbying in the guise of engaging in “educational” activities? Should they be registered as lobbyists? And who was paying for their attacks on public housing? Rent control? Farm price supports? TVA? Foreign aid? Labor unions?
The Committee asked to see the Foundation’s financial records and Mr. Read finally decided to open FEE’s files. Four Committee staffers spent about a week in Irvington going through FEE’s records.
Mr. Read testified before the Committee on FEE’s role as an educational organization:
The Foundation is not, I believe, charged by you with lobbying or with violation of the existing act. Rather, the thought is that activities such as those carried on by the Foundation, while not being regarded as lobbying as that action is commonly construed, may, nonetheless, have as much or more influence on legislation than those actions popularly thought of as lobbying. It has been said that our activities are in the “fringe” zone of lobbying, implying that these “fringes” might be included in any new lobbying act. That, as I understand it, is why your Committee investigated the Foundation, and why I am here.
The organization which I represent is a non-profit research and educational institution. Its sole purpose is a search for truth in economics, political science and related subjects. It is that, and nothing more—an institution for learning. I doubt that any college or university or other institution of learning in this country is more genuinely, and with any more uncompromising honesty, dedicated to the search for truth in these matters than is the Foundation. . . .
Syndicated columnist Drew Pearson called the Foundation “A mysterious organization, . . . a vigorous lobby aimed at wrecking the European Recovery Program [that] has been flooding the country with propaganda aimed at undermining the Marshall Plan, rent control, aid to education and social security.”
One radio commentator called FEE “one of the biggest and best financed pressure outfits in America. . . . It is the fountainhead for half-truths and distortions, designed to deceive the American public for the benefit of the outfits who are behind this thing.” The next day the same commentator said: “The Foundation for Economic Education is a vicious anti-labor propaganda outfit. It spreads its venom in order to crush organized labor and, if possible, to crush Farm Bureau cooperatives as a secondary objective.”
FEE’s largest donors, according to the CIO News, included “some of the same wealthy individuals and firms who have kicked in to every anti-labor, pro-big business propaganda and lobby outfit in the business of trying to convince the average American that the country is going socialist, if it isn’t there already, and that such aids to mankind as social security, unemployment compensation, the TVA, public housing, rent and other price controls are depriving him of his freedom to go hungry and unsheltered in his own sweet way.”
A labor union spokesman wrote: “the Foundation doesn’t have to scrounge for dollar bills like labor organizations do. . . . The list of big contributors sounds like the ‘Who’s Who’ of American big business.”
FEE’s President, Leonard Read, was described in Ammunition, a left-wing publication, as “smooth. . . . He wears $250 suits, $30 shoes, $10 cravats (you wear a necktie, he wears cravats), and $15 shirts. . . . The Foundation for Economic Education . . . was set up with plumbing that included a pipeline into the treasury of every really big corporation in America.”
One radio report released by the UAW-CIO Education Department charged that Donaldson Brown, a retired Vice President of General Motors had been “so impressed” with Read that he “set him up in the propaganda business.” The release went on to say that there is “something called the Corrupt Practices Law which forbids corporations to contribute money to political campaigns and there is the Lobby Registration Act which requires lobbies to list the source of all of their contributions over $500. But this foundation operates outside both these laws.”
One Democratic Congressman, Carl Albert of Oklahoma, paid FEE a backhanded compliment. Read was “far more effective,” he said, “than the average buttonhole artist, so-called, around the Capitol.”
The House Select Committee on Lobbying had set out to determine whether or not new legislation was needed to regulate lobbyists. Its hearings did not lead to new legislation. However, only the Democratic members of the Committee would sign its report; the Committee Republicans considered it too biased. It was “designed to help ‘leftists’ now running for office,” they charged; the Democratic conclusions were “lopsided” and as “intolerant as an article in Pravda.” The Republicans called the majority report a “Socialist white paper. . . . The majority members say all lobbying by business and conservative elements is bad; all lobbying by left-wingers, labor organizations and Fair Deal office holders is good.”
In 1951, Eleanor Roosevelt, widow of Franklin Delano Roosevelt, commented in her syndicated column on F. A. Harper’s “Morals and the Welfare State,” a FEE pamphlet. She was “struck” by the implication that there is some similarity between the “welfare state” and Communism. “[M]uch that appears in this pamphlet,” she wrote, is “dishonest in its thinking. . . . the mere tying together of communism and socialism” was “dishonest. They are two quite different things. . . . We can have opinions as to whether all the things that have been done and euphemistically grouped together under the name of ‘welfare state’ are wise economic measures. Or we may question the effect on the character of the people when the government assumes certain responsibilities in conjunction with the people. . . .however, that does not make us Communist or Socialist.
“We are a free people and what we choose to do should not be labeled something which it is not.”
FEE’s Efforts Continue
The Buchanan hearings interrupted but did not deter FEE from its educational goal. The Foundation went quietly on its way, trying to erode the rock of pro-government public opinion with the written and spoken word. Its influence was gradually spreading beyond FEE’s immediate circle through its readers and personal contacts. Yet during these years the media paid little attention.
The early 1950s saw the publication of two of FEE’s long-term “best sellers.” The Mainspring of Human Progress by Henry Grady Weaver, inspired by Rose Wilder Lane’s Discovery of Freedom (1943), had been privately printed. FEE acquired the rights and put out a new edition. Weaver’s thesis is that individuals have prospered throughout history only when they have been free. The book proved popular and has gone through many printings, sold many thousands of copies (several thousands each year just to one firm that uses the book as an aid in teaching their students of fast-reading).
Read “discovered” FEE’s second best seller—The Law by French deputy and journalist Frederic Bastiat (1801–1850)—while still in California. Bastiat had written the book as an attack on the socialist thinking of his day but it was just as pertinent to twentieth-century thinking. Bastiat distinguished “law” from “morality.” Depriving a person of his property for the benefit of another was “plunder,” Bastiat said, and it was wrong no matter who did it. When the government authorized “plunder,” when it taxed some people to protect manufacturers or to give subsidies to farmers, Bastiat said, it was “legal plunder.”
Through Pamphleteers, Read had reprinted in California the somewhat archaic British translation then available of The Law. Read was disappointed at the book’s reception. So after FEE was started, he had the book retranslated from the original French into modern colloquial English. The new translator, Dean Russell, a young journalist, was a World War II veteran who had been a bombardier in the U.S. Air Force. Read’s attention was attracted to Russell by a Saturday Evening Post article Russell had written explaining why he would not take government money under the G.I. Bill to attend graduate school. Russell’s rendition of The Law has sold more than a half million copies and has been translated into Spanish and Polish. As a result of FEE’s promotion, Bastiat has even been “rediscovered” in France.
Read lectured far and wide on behalf of FEE. One of his favorite talks was on “How to Advance Liberty.” The task, he said, was a learning, not a selling, process. Freedom would be won only as individuals, one by one, “did their homework,” acquired enough understanding first to reject socialist teachings, and then to climb the ladder step by step until in time they, themselves, could become spokesmen for the freedom philosophy. This has been FEE’s educational approach throughout the years.
Read used to tell the tale of “Whitey,” a fiery labor union organizer. Whitey had led a violent life, had even had one of his fingers bitten off in a fight. Read’s acquaintance with Whitey began with a vitriolic letter from Whitey attacking something Read had written about unions. Rather than answering in kind, Read replied soberly, calmly, and sent Whitey some books to read. Whitey had hardly expected such gentlemanly treatment. He read the books and asked for more. Read and Whitey continued to correspond for a couple of years. But then for a time no word from Whitey. Finally a letter. Whitey had been in an automobile accident and hospitalized for three months. Then Whitey added: “. . . but, Mr. Read, you should see the interest my three doctors are showing in our philosophy.”
Anti-free trade protectionists protested vigorously when, in 1953, FEE published W. M. Curtiss’s The Tariff Idea. Many producers panic at the thought of free trade for fear of lost sales due to cheap foreign imports and lost jobs because of low-cost foreign competitors. Shortly after its publication, J. Howard Pew, CEO of Sun Oil and a FEE trustee, announced that he would have to resign from the Board and stop supporting FEE financially. Generally speaking, he said, he was in favor of the Foundation’s position. But, he said, when the government had pressed for exchange controls, he, as head of his company, had actively fought for tariffs as the lesser evil. Pew did not think he should support tariffs as his company’s CEO and at the same time oppose tariffs as a FEE supporter. His obligations to Sun Oil’s workers and stockholders compelled him, he said, to resign from FEE’s board and to withdraw all financial support. Pew had been contributing to the Foundation from the beginning, had even withstood the Buchanan Committee onslaught, and had become one of FEE’s largest supporters. Read didn’t consider for a moment dropping FEE’s anti-tariff, pro-free trade position; “We’ll miss you, Howard,” he said. Fortunately for FEE, a fellow Board member and close friend of Pew’s persuaded him not to resign and he remained a FEE Trustee and supporter until he died.
The Freeman began publication in New York City in the fall of 1950, as a biweekly pro-free market-sized magazine of opinion. Given the widespread acceptance of the “welfare state” philosophy at that time, free-market oriented journals found it difficult to survive financially; subscriptions and advertising could not cover expenses. After a few years, in the hope of cutting costs, the financial backers of The Freeman decided to move the publication to Irvington. In the summer of 1954, The Freeman was taken over by Irvington Press, a subsidiary of FEE. It was then converted into a monthly with Frank Chodorov as editor. But it still lost money.
For almost ten years, the Foundation had been issuing occasional one-page releases, “Clippings of Note” and “Clichés of Socialism,” also pamphlets and once in a while a book. In 1955, it started Ideas on Liberty, intended to be a quarterly. Only three issues had appeared when the decision was made to combine it with The Freeman. In January 1956, the first issue of The Freeman: Ideas on Liberty, reduced to Reader’s Digest size, appeared under the aegis of the tax-exempt Foundation. This journal then became FEE’s principal publication outlet. Another format change in 1986 altered its appearance but not the free market principles expounded.
Silently and steadily over the years, a stream of books, pamphlets, lectures, letters, monthly issues of The Freeman, have issued forth from FEE. The Foundation has also reached many individuals personally by means of the spoken word, through lectures and seminars, both in Irvington and on the road.
In 1956, FEE held its first summer seminar in Irvington. FEE’s limited government philosophy was so strange to the ears of the participants, many of them Keynesian and anti-business teachers, that they rejected it out of hand. Dr. F. A. Harper, FEE’s most scholarly staffer on the program that summer, was an advocate of “natural rights.” For him, the right to own property was sacred; it should not be violated, not by anyone, not ever! He wouldn’t steal, he said, not even if he and his family were starving; certainly he didn’t want the government to “steal” on his behalf. Heated discussions followed. At the close of the seminar week, the participants lined us FEE-staffers up at the front of the lecture room. With great ceremony they presented us with a peck of potatoes—to assure that we needn’t starve, not even if we refused to steal or to accept government handouts.
Just as every individual is different and has a definite personality, so do groups have different “personalities,” depending on their individual members. Attending the next FEE seminar that same summer was a young Mexican, Agustín Navarro. To Agustín, FEE was “Mecca,” the source of all truth. His enthusiasm and eagerness were infectious; all were affected and, as a result, the participants at that seminar received FEE’s message most favorably. That was a time when Mexico was hostile, even dangerous, for anyone advancing anti-Communist and pro-market ideas. Yet upon Navarro’s return, he took over the Instituto de Investigaciones Sociales y Económicas and operated it for years, publishing leaflets and pamphlets criticizing socialism and Communism and promoting the free-market philosophy.
What is FEE’s message? For many years, FEE publications have stated that the Foundation’s goal was to promote the philosophy of the free market, limited government, private property. Its message may be boiled down to three easy-to-grasp concepts: individual freedom is good, moral, and productive (see Mainspring); for one person to plunder another’s property is wrong and immoral, just as is government-authorized plunder, or “legal plunder,” as Bastiat called it (see The Law); and individuals working, exchanging, and cooperating voluntarily in a free market increase production and improve economic conditions, while government interferences make matters worse (see Hazlitt’s Economics in One Lesson and the logical explanations in Mises’ works). Over the years, FEE has persuaded many persons to accept these basic concepts. In many cases, these ideas have changed their thinking, goals, and lifestyles.
As has been pointed out, many factors influence the ideas on which a person acts. Everyone we meet, everything we read, see, hear, learn, can affect our ideas. Even when persons have told us directly, as some have, that FEE has changed their lives, that does not mean that FEE was the only influence. Nevertheless, we can point to a few specific cases. A former public school teacher told us that he became disillusioned with the public schools because of what he learned from FEE, left the system and became an entrepreneur. One couple withdrew their daughter from the public school system and enrolled her in a private school because of a personal letter from a member of FEE’s staff. Others have turned to homeschooling. Several teachers have told us that attending a FEE seminar made them more effective, and quite a few have returned for refresher seminars in free-market economics. FEE’s ideas have challenged many, forcing them to rethink their basic philosophy of life. Some have started discussion groups, written books and articles and others have been inspired to go on the lecture circuit.
FEE’s articles have been reprinted many times, in many places. Many have appeared in newspapers as op-eds. Quite a few FEE publications have been translated and distributed abroad. Reader’s Digest has published at least eight articles from The Freeman in their American and international editions where they reached many millions of readers in the United States and overseas.
A number of FEE “alumni” have been influenced, at least in part by FEE, to start their own free-market oriented think-tanks. None has been an actual FEE clone; rather each has aimed at a somewhat different audience, used another approach, or dealt with some special field. Dozens of such free-market institutions, foundations, or think-tanks have sprung up since the Foundation was started. Although FEE may have had nothing directly to do with their founding, if you scratch the persons responsible for their operations, you are bound to find somewhere some connection with FEE.
A Worldwide Shift in Ideology?
Now, fifty years after World War II and the founding of FEE, it is apparent that the climate of opinion in the United States is changing. There is less antagonism toward “big business,” less confidence that welfare state programs are succeeding, and less pressure to grant privileges to labor unions or subsidies to special interest groups than there was when FEE was founded. There is talk now of cutting government budgets, even of trying to restrict spending on such sacred government programs as Social Security, Medicare, and welfare. There is more discussion of free enterprise, entrepreneurship, and privatization. Unfortunately, however, not enough. People are still not confident enough of the advantages of free markets to elect politicians who appreciate the importance of drastically limiting government so as to leave people really free.
If we look back, however, we see a hopeful trend. From the time of the Great Depression, which was wrongly blamed on capitalism, until the 1960s, the advocates of big government met little or no serious opposition. But ideas seem to have changed somewhat. The Foundation may not have been directly responsible for the 1964 nomination of Barry Goldwater as the Republican presidential candidate, for the 1979 election of a conservative Margaret Thatcher in England, for the 1980 election of the emotionally pro-freedom Ronald Reagan, or for the 1989 downfall of Communism in the U.S.S.R. and Eastern Europe. However, it is possible that FEE’s constant pounding away at the freedom philosophy for fifty years, together with the efforts of other advocates of free markets such as Mises and Hazlitt, and those of the many new free-market oriented think tanks, have played, and are playing, a small role in this ideological shift. What role, if any, no one can really know. We can only say that FEE was among the early promoters of the freedom idea in this country after World War II, that FEE has been pegging away at the same thesis ever since, and that ideas have consequences.
Originally published in the May 1996 edition of The Freeman.
 The more prominent “conservative” organizations established during the early years of the New Deal were The National Economic Council, founded in 1930–1931; the Economists’ National Committee on Monetary Policy, set up in 1933 when the United States went off the gold standard; and the Committee for Constitutional Government, established originally in 1937 as the National Committee to Uphold Constitutional Government to fight Roosevelt’s proposal to pack the U.S. Supreme Court. The America First Committee, started in 1940 in opposition to Roosevelt’s foreign policy, which the Committee’s members held was taking the country into a war that wasn’t our business, had been disbanded promptly after the Japanese attack on Pearl Harbor.
 Mises’s Human Action can be found on FEE.org at https://fee.org/resources/human-action-by-ludwig-von-mises/.
 Hazlitt’s Economics in One Lesson can be found on FEE.org at https://fee.org/resources/economics-in-one-lesson/.
 Czech, French, German, Italian, Lithuanian, Norwegian, Romanian, Polish, Portuguese, Spanish, and Swedish.
 Friedman’s “Roofs or Ceilings” can be found on FEE.org at https://fee.org/resources/roofs-or-ceilings-the-current-housing-problem/.
 White’s Fiat Money Inflation in France can be found on Mises.org at https://mises.org/library/fiat-money-inflation-france/.
 Hazlitt’s Will Dollars Save the World? can be found on Mises.org at https://mises.org/library/will-dollars-save-world/.
 Harper’s Liberty: A Path to Its Recovery can be found on Mises.org at https://mises.org/library/liberty-path-its-recovery/.
 The Reader’s Digest reprint of de Jouvenel’s “No Vacancies” can be found on FEE.org at https://history.fee.org/media/2825/1094-condensed-from-a-pamphlet-no-vacancies.pdf.
 The New York Times, October 30, 1950.
 Weaver’s The Mainspring of Human Progress can be found on Mises.org at https://mises.org/library/mainspring-human-progress/.
 Read’s lecture “How to Advance Liberty” can be found on FEE.org at https://fee.org/resources/how-to-advance-liberty-a-lecture-by-leonard-e-read/.
The Ghost of the Little House: A Life of Rose Wilder Lane
Rose Wilder Lane was born on December 5, 1886. She was a fascinating person. For most of her life she eked out a precarious livelihood as a freelance author, journalist, ghostwriter, and novelist. Yet her impact has been much greater than that of run-of-the-mill freelance authors, journalists, ghost-writers, and novelists. She became an important figure in the libertarian movement.
Rose was vivacious, lively, energetic, adventurous, a fascinating conversationalist, and a brilliant storyteller. A determined individualist, she was a rebel all her life.
Rose was extremely bright and taught herself to read, she says, at three years of age. She rebelled against poverty and the hardships of her childhood. She also rebelled against uninspiring teachers and her formal schooling ended at an early age. She left home at sixteen and was soon supporting herself on $2.50 per week as a telegrapher. She made her way to California where she worked in real estate and journalism and married briefly.
After World War I, she went to Europe for the Red Cross and to the Middle East for the Near East Relief. She found poverty everywhere; Armenia was the worst. Repulsed by the suffering and destitution in war-torn Europe, Rose was attracted by Communism. But in time, she rebelled against that too and became what she called a rebel in the tradition of the American Revolution, an advocate of individual freedom. She described her philosophical transformation in a piece in the Saturday Evening Post which later gained wide circulation as a booklet, Give Me Liberty.
Rose’s mother was Laura Ingalls Wilder, author of the beloved series of Little House books for children. It now appears that Rose had much more to do with the success of those books than has previously been acknowledged. Rose had long encouraged her mother to write, and Laura had had quite a few articles published in local Missouri newspapers and farm journals. Then she began writing down her childhood reminiscences. Laura sent Rose her handwritten manuscript and asked Rose to help. As a skilled ghostwriter, Rose took the story in hand, added descriptive material and conversation, fleshed out incidents described, enhanced the narrative, and gave the tale a suitable beginning and end. After Rose had “run her mother’s manuscript through her typewriter” in this way, the first of her mother’s Little House books, The Little House in the Big Woods, was accepted in 1932 for publication by Harper’s and named a Junior Literary Guild Selection.
Laura Ingalls Wilder continued her reminiscences. In time there were eight books in the Little House series. Laura sometimes resented her daughter’s help, but she realized Rose was making her manuscripts publishable. All of the Little House books have become bestsellers and they are still kept in print by their publisher to this day.
It took Rose about a year to “run through her typewriter” each of the books that followed the first one. As Rose worked on her mother’s manuscripts, she introduced more and more of her developing philosophy of individual freedom. The extent of Rose’s involvement became apparent only after Laura donated “her handwritten, fair-copy manuscripts” of several of the books to libraries (the Detroit Public Library named in her honor and the Pomona, California, Public Library) and scholars began to compare Laura’s versions with the published books.
Rose’s opposition to government intervention strengthened as the years rolled by. She became a strenuous opponent of Franklin Roosevelt’s New Deal. Before Pearl Harbor, she opposed our entry into the war. During the war, she refused to apply for a ration card, relying on honey for sweetening and canning her own garden fruits and vegetables. She even refused to accept a Social Security number. When a radio commentator asked his listeners for their views on Social Security, she scribbled on a postcard: “If [American] school teachers say to German [Nazi] children, ‘We believe in Social Security,’ the children will ask, ‘Then why did you fight Germany?’ All these ‘Social Security’ laws are German, instituted by Bismarck and expanded by Hitler. Americans believe in freedom, in not being taxed for their own good and bossed by bureaucrats.” The local postmaster, reading the message, considered it subversive and notified the FBI, which sent a state trooper to investigate. Rose’s response was a newspaper article: “What Is This—the Gestapo?”
Rose presented her fully developed freedom philosophy in a book, The Discovery of Freedom, published during the war in 1943. It has just recently been republished with a new preface by FEE’s President, Hans F. Sennholz. Partly because of this book, John Chamberlain credits her, along with Isabel Paterson, author of The God of the Machine, and Ayn Rand as having “rekindle[d] a faith in an older American philosophy.” This book also inspired Henry Grady Weaver’s Mainspring of Human Progress, which is a FEE bestseller.
The freedom message Rose presented through her books has even reached people who don’t read. Her novel, Let the Hurricane Roar, later republished as Young Pioneers, which dealt as the Little House books did with life on the frontier, was dramatized for radio and broadcast with Helen Hayes as the star. The Little House books ran for several years as a television series, starring Michael Landon.
Rose was not only a rebel but a crusader. As she journeyed from Communism to freedom, she used every opportunity to convince others of her particular brand of individualism. She was a prolific correspondent. Two books of her letters have been published: one of those to DuPont’s Jasper Crane, The Lady and the Tycoon, and the other, just published, edited by William Holtz, author of this biography, of Rose’s correspondence with Dorothy Thompson, the prominent newspaper columnist. Economists V. Orval Watts, Jean-Pierre Hamilius of Luxembourg, Robert LeFevre, and Hans F. Sennholz all came under her spell. She also gave LeFevre’s Freedom School both spiritual and financial support.
In the course of her life, Rose “adopted” several young men who became proteges. One of these, Roger MacBride became her attorney, heir, and most loyal promoter. Elected to the Vermont State Legislature, MacBride proposed and argued for legislation to reduce the size of the state government by disengaging the state from a host of enterprises. In 1972, as a presidential elector, MacBride surprised the nation by casting his vote, not for the Republican slate as expected, but for the Libertarian presidential and vice-presidential candidates, John Hospers and Toni Nathan. And in 1976, MacBride himself ran for U.S. president as the Libertarian Party’s candidate.
Rose Wilder Lane lived a full and colorful life. She thrived on intellectual challenges. She suffered heartbreak and hardships. She traveled widely. In 1965, under the sponsorship of the Defense Department, she was sent as a correspondent for Woman’s Day to Vietnam. In 1968, she was planning still another trip—to places in Europe she hadn’t seen before. On October 29, she baked several loaves of bread in her Danbury, Connecticut, home and went upstairs to bed. As Holtz wrote, “Sometime during the dark hours just before dawn, her heart stopped.” Her pilgrimage was over.
Originally published in the September 1994 edition of The Freeman.
 The First Four Years was published in 1971, after Rose’s death, without benefit of her editing.
 Weaver’s The Mainspring of Human Progress can be found on Mises.org at https://mises.org/library/mainspring-human-progress/.
 William Holtz, Professor of English at the University of Missouri-Columbia, has done a prodigious amount of research, digging through voluminous files, documents, notes, and letters, to produce a sympathetic, delightful biography of a fascinating, dynamic, and complex individual.
The Day of Deceit: The Truth About FDR and Pearl Harbor
On December 7, 1941, the Japanese navy attacked the U.S. fleet at Pearl Harbor. The following day, President Roosevelt described it as “a date that will live in infamy.” In spite of this country’s official neutrality, Roosevelt personally had been eager to have the United States enter the war on the side of England. He had persuaded Congress to assist England with money, food, munitions, planes, ships, and Lend Lease, and by patrolling and convoying British ships in the Atlantic. These measures were intended, Roosevelt assured the people, not to take us into war, but to keep us out. Japan’s attack, while we were still formally at peace and negotiating to settle various disputes, gave Roosevelt the excuse he wanted to ask Congress for a declaration of war.
When the President announced that the fleet had been attacked “suddenly and deliberately” by Japan, people believed him. Only after the war did the people discover that FDR’s administration and top military officials had not been as surprised as they were: the U.S. government had been privy to many of Japan’s intentions since mid-1940, when intelligence officers deciphered her top diplomatic code. Washington officialdom had been expecting aggressive Japanese action somewhere in the Pacific. Whether or not they were expecting the Pearl Harbor attack is another question.
For years rumors have circulated to the effect that Roosevelt knew that Japan planned to attack Pearl Harbor—and just let it happen. By far the most detailed and credible claim to date is contained in Robert Stinnett’s book Day of Deceit: The Truth About FDR and Pearl Harbor. Stinnett is a Navy veteran of World War II who spent his life as a newspaper journalist and photographer. He argues that ample evidence was available to U.S. administration and military officials—through Japanese intercepts decoded and translated before the attack—to indicate that Japan was planning to attack Pearl Harbor. The Pearl Harbor commanders, Admiral Husband E. Kimmel and General Walter C. Short, would not have been surprised if they had been properly informed. Washington, however, chose to keep them in the dark.
Stinnett describes what appear to be three “conspiracies”: the first to compel the Japanese to attack the United States and thus to bring us into World War II; the second to deprive the Pearl Harbor commanders of available information about Japan’s intentions; and the third an attempt, which still persists, to keep pre-attack information from the public.
The first “conspiracy” began, Stinnett says, in October 1940, with a memorandum by Japanese expert Captain Arthur McCollum, chief of the Far Eastern Section of Naval Intelligence. The memorandum listed eight steps to induce Japan “to commit an overt act of war.” First, the main strength of the U.S. fleet should be retained in Hawaii. This Roosevelt promptly arranged, over the objections of James Richardson, commander-in-chief of the U.S. fleet. Over the following year, McCollum’s other suggestions were also adopted.
According to Stinnett, U.S. cryptographers had deciphered not only Japan’s diplomatic code known as MAGIC, but also some of her military codes, enabling operators in U.S. monitoring stations around the Pacific to intercept and decode countless Japanese military dispatches. Significant information was received from these intercepts, Stinnett says, including the Japanese Task Force’s last-minute choice for its staging area, its destination, and its attack order. But that intelligence was purposefully withheld from the Pearl Harbor commanders.
On November 23, Kimmel, as the Fleet’s Commander-in-Chief, had ordered, without White House approval, a search for Japanese forces north of Hawaii and had moved the Pacific fleet into the North Pacific. When White House officials learned of this and feared the fleet might encounter the Japanese attack convoy, Kimmel’s ships were ordered back to Pearl Harbor. Also on November 25, the Navy in Washington told Kimmel to route all transpacific shipping southward leaving the north Pacific “vacant” and thus, according to Stinnett, open for the approach of the Japanese convoy.
Judging by the words and actions of Roosevelt and his advisers it is hard to believe that they were as sure as Stinnett indicates they were that the Japanese attack on Pearl Harbor, which they wanted, was imminent. For instance, at a meeting of Roosevelt’s “War Cabinet” on November 25, Secretary of War Henry Stimson remarked that “the Japanese are notorious for making an attack without warning, and the question was . . . how we should maneuver them into the position of firing the first shot without allowing too much danger to ourselves.”
Even though Stinnett’s case does not seem to me entirely convincing, he has certainly assembled a great deal of information previously unavailable. His book makes fascinating reading for anyone interested in the events leading up to the Japanese attack and the administration’s subsequent attempts to deny responsibility and pin the blame on the commanders, who were not only deprived of vital military intelligence, but also were impeded in their efforts to gather it themselves.
Originally published in the December 2000 edition of The Freeman.
Savings, Tools, and Production
Life is uncertain, especially for primitive peoples who have only their own hands, wits and human energy to use in providing for themselves and their families. Sooner or later, if they are able, they will start accumulating some reserves for “rainy days.” Prehistoric men who lived in caves must have known from bitter experience that there were times when they would be cold, hungry, sick and helpless. If they could manage in “good” times to consume somewhat less than they produced, then they would have some supplies left to tide them over bad times. Aesop’s story of “The Ant and the Grasshopper” illustrates this point:
On a cold frosty day an Ant was dragging out some of the corn which he had laid up in summer time, to dry it. A Grasshopper, half-perished with hunger, besought the Ant to give him a morsel of it to preserve his life. “What were you doing,” said the Ant, “this last summer?” “Oh,” said the Grasshopper, “I was not idle. I kept singing all the summer long.” Said the Ant, laughing and shutting up his granary, “Since you could sing all summer, you may dance all winter.”
There is a little grasshopper in each of us; we all consume some part of what we produce today—as a matter of fact we must consume something today in order to survive. But most of us also have some of the ant’s “time preference”; we set aside a part of what we have for tomorrow, next week, next winter or next year—for the “rainy days” that are bound to come from time to time. Rainy day savings consist of stocks of consumers’ goods—food, clothing and shelter—that individuals produce, do not consume immediately, but set aside to eat, use and wear later.
To survive change and uncertainty may be difficult if one has no surplus stocks of consumers’ goods to fall back on. Therefore, men reasoned, some reserves might be helpful to tide them over difficult times. And they began to make conscious efforts to prepare for “rainy days.” Thus, reason and the drive to relieve “felt uneasinesses” and attain ends induce men to adopt the time preference of Aesop’s ant. Rainy-day savings, therefore, are the outcome of conscious, rational and purposive actions. Among rational, thinking human beings, the time preference which leads to restraint in consumption is strengthened by reason, logic and the expectation that saving some things to consume later will enable them to cope more successfully with the uncertainties the future is likely to bring.
Those most likely to make the effort to save for “rainy days” are those who have confidence that they and their loved ones will be able to reap the potential advantages of any savings by being better able, as a result, to cope with “rainy days” when they arrive. For the ant-like time preference to exist and have a significant impact on the actions of men, their rights to own private property and to hold, accumulate and dispose of it as they wish must be recognized and safeguarded.
On the other hand, the grasshopper-like time preference is bound to prevail among men who have little hope of benefiting from putting forth greater effort to produce and from demonstrating greater restraint in consumption. Had Aesop’s grasshopper succeeded in forcing his demands on the ant, or had the other barnyard creatures ganged up on the Little Red Hen and taken her production by force, neither ant nor Little Red Hen would have been likely to work so hard another time. They would not have postponed consumption in the expectation of reaping later benefits, but would have consumed their entire production “today.” People among whom a grasshopper like time preference prevails, therefore, inevitably consume almost immediately practically everything they produce and find themselves poorly provided for later when “rainy days” or “bad times” come.
Pure manual labor is hard, tiring and not very productive. Thus men quite logically look around for ways to make their efforts less tiring and more effective. Sooner or later, even among primitive peoples, someone will have an idea for using some object to make hunting, fishing or foraging a bit easier and more efficient. Someone might try using a large stick as a club, a log as a float, a stone as a missile. Once a person recognizes an object to be useful for a purpose, he has a “tool.”
The starting point of any tool is an idea. But the development of tools also requires the earlier accumulation of “rainy day savings” so that some persons may spend their time and energy to develop the idea into tools. Tools save time and effort. But their main advantage is that they enable the user to increase production. As more is produced, more will be available to consume. Also as more is produced, it becomes easier to set aside still more reserves for later “rainy days.”
If people produce increased reserves of consumers’ goods, large enough not only to tide them over “rainy days” but also to last while they devote more time and energy to implementing new ideas for developing still better tools, their next logical step is to start accumulating reserves of tools. Purposive saving for the production of tools, that is, for the production of producers’ goods or factors of production, is “capitalist saving.”
These “capitalist savings” may then be employed by producers who specialize in making still more and better tools. Today’s very complex and sophisticated machines and production methods are merely the outcome of this simple sequence. As production increased over the centuries step-by-step improvements were made in tools. With more and better tools available, it became possible to produce even more, permitting the development of still more and better tools. And so the process continued down to modern times.
Entrepreneurs and Property
The entrepreneur “gets it all together.” As he pays for things in the course of carrying out his project on the market, he acquires ownership, step-by-step, of the factors of production. With the ownership of these factors of production comes also the right of control, i.e. the opportunity to decide how they shall be used. Therefore, the products which are made from an entrepreneur’s resources—with the aid of savings he has assembled or borrowed, the voluntary cooperation of many persons with whom he made arrangements and his ideas and planning—are his and his alone once he has fulfilled all previous commitments.
If we consider the products of any specific private enterprise from this angle, it is easy to understand why and how they become the private property of the entrepreneur who took the risk. His right to the output of his project depends, of course, on his having contracted for and paid in advance for all the goods and services which were used in the process. Under capitalism, therefore, the person to whom the final products belong has acquired legal and effective title to them by having previously acquired and paid for everything used in their production.
In primitive societies, when individuals were first able to keep for themselves and their families some of their own production, over and above what was needed for immediate consumption, no matter how little that might be, they could feel a bit more free and independent. Without property rights all the material things they have and even their lives are at the mercy not only of nature, but also of the community “strong man,” king, ruler, dictator, gangster, or anyone who proves physically more powerful, more ruthless or more persistent in compelling others to do his bidding. The opportunity to own private property and to control its use, therefore, fosters individual freedom and independence even in primitive societies.
The right to own and control property is probably even more important in a specialized, division of labor, capitalistic economy. Personal freedom, independence and economic survival depend on that right. If property rights are protected and a person’s private home is “his castle,” a place to which he may retire in peace, he may be confident that he, the members of his family, his papers and his effects will be safe there from unwelcome intrusions, “from unreasonable searches and seizures.”
Moreover, the right to own and control private property is important to entrepreneurs and producers in a complex capitalistic market economy. But it is important not only to them. It is perhaps even more important to all the rest of us. As a matter of fact, most of us living today would not even be alive if producers had not been relatively free in the past to use their private property as they chose in the hope of earning profits. It is only because the property rights of producers, would-be producers, savers, investors, entrepreneurs, inventors, innovators, etc., have been respected and protected that they were willing and able to cooperate in expanding production. As a result, life expectancy has lengthened, death rates declined, population increased and people throughout the market economy now live longer, healthier lives and have a much greater quantity and variety of food, clothing, shelter, luxury goods and leisure than ever before.
Property owners are interested in using their resources to serve their own ends. They find that the surest way to attain their various ends under capitalism is by providing consumers with the various goods and services they want. As a result, property owners are challenged under capitalism to try to serve consumers. When they succeed in doing this, they can earn not only the psychic profit which comes from knowing they are helping others, but they will also be rewarded with monetary profits for themselves.
To use their property to best advantage, property owners must be free to make their own decisions. Flexibility is most important. What kinds of tools are developed, what form capitalist savings will take, and what will be produced will depend on the ideas and actions of specific entrepreneurs in the light of their understanding of conditions and their future expectations.
The entrepreneur contemplates an ever-changing “half-baked cake,” a smorgasbord of “rainy day” savings, i.e., stores of available consumers’ goods, plus capitalist savings in the form of potentially productive factors of production. He tries to juggle things around, reassemble them, and make them more productive. To do this, he must study consumer purchases and refusals to purchase, analyze available resources, consider market prices of the very recent past and try to anticipate future conditions—all difficult tasks at best. If, as a result of his efforts, he can alter the various factors of production so as to serve consumers better and/or cheaper than before, they will become more valuable on the market.
The more freedom and flexibility he has to act in accordance with his own best judgment, the better his chances are. The safer property is expected to be, the more capitalist savings he can expect to attract for investing in his enterprise. The more assurance entrepreneurs and investors have of being able to keep what they earn through the enterprise, the more incentive they will have to continue saving, investing, producing and serving consumers. Any outside interference that deters such enterprises will hamper their plans for production, reduce the amount of goods and services, and so cut down on the number of voluntary transactions possible.
Originally published in the January 1977 edition of The Freeman.
From time to time, insightful economists have described the operations of a market economy. Many have noted that no central planner is needed to tell producers what to produce, when to produce, how much to produce, and what quality to produce. Adam Smith, often called the “first economist,” pointed out in 1776 that the butcher, the baker, and the brewer are guided as if by “an invisible hand.” Frederic Bastiat remarked in 1845 that Parisians need not fear starving the next day, but could sleep peacefully in their beds, confident that the city would be provisioned during the night.
However, it was only with the development of the subjective, marginal utility theory of value by the Austrian school that economists explained why the market needed no central planner, why no one needed to direct the butcher, the baker, the brewer, or to plan the provisioning of Paris. It was Ludwig von Mises (1881–1973), leading spokesman for decades of the Austrian school, who clearly demonstrated the consumer’s crucial role in production.
Every one of us has personal, subjective values, the Austrian economists point out. Each of us acts in response to our respective values. When as consumers we buy, or refuse to buy, we send a message to the entrepreneurs who guide production. Entrepreneurs “are at the helm and steer the ship,” Professor Mises noted. “But they are not free to shape its course. They are not supreme, they are steersmen only, bound to obey unconditionally the captain’s orders. The captain is the consumer.” Let’s see how Captain Consumer directs production.
Recent accounts of economic conditions in the U.S.S.R. tell of serious shortages—of soap, for instance. Why? It is said there are bottlenecks in the production of paraffin needed for producing sulphanol, an ingredient used in making soap; hence the production of soap is held up. It is charged that the responsibility for soap-making is dispersed among several governmental departments, each with other more urgent responsibilities; hence soap production is neglected. But the real reason for the shortage of soap is the lack of opportunity for entrepreneurs to respond to the wants and wishes of consumers.
A widespread shortage of soap would never exist in a country with freedom of opportunity and respect for private property. At the first sign of demand for soap over and above available supplies, some entrepreneur, hoping for profit, would try to fill the gap, by starting a small soap-making operation of his own, or by shipping soap from where it was more abundant. The demands of consumers would guide him.
Given the lack of soap in Russian stores, why doesn’t someone there start to make soap at home? Soap isn’t very difficult to make and the ingredients aren’t expensive. Many of our grandmothers and great-grandmothers used to make soap. Old cookbooks give recipes. It can be made from readily available raw materials: wood ashes, fat, lye, and salt.
Let’s assume for a moment that an enterprising Russian housewife and her children weren’t deterred by the threat of government regulation and decided to make soap on their own. Wood ashes they would have aplenty. Also fats left over from cooking. By pouring water over the ashes and letting it stand, they could leach out a form of lye. This they would then mix with the fats, add salt, and heat until a crude kind of soap began to form. Not a very fancy soap, to be sure, but a usable soap, which in view of the shortage in Russia, consumers would undoubtedly welcome.
Each Russian consumer who chose to spend money for this new soap, instead of something else such as cigarettes, would vote his personal values, transferring rubles to these enterprising soap-makers while, at the same time, sending fewer rubles to the producers of cigarettes. As consumers purchased soap in preference to cigarettes, they would be giving the venturesome soap-makers more and more rubles, providing them with a profit, and encouraging them to continue production.
Freedom to Choose
Consumer sovereignty is consumers making choices one by one, consumers buying one thing and not another, consumers transferring their money to some producers and not to others. The process isn’t invisible; it isn’t miraculous; it only seems miraculous in that it directs production without a central authority having to plan or give orders.
If consumers still clamored for more soap after the first batch was gone, the enterprising soap-makers would expand production, in response to consumer sovereignty. As more and more consumers bought their soap, the soap-makers would profit. And their success would induce others to start producing soap, perhaps an improved variety, this too in response to consumer sovereignty. As sales grew, the soap-makers would have to look farther afield for supplies of wood ashes and leftover cooking fats. Consumer sovereignty would soon impact on suppliers of these raw materials too, affecting the prices they asked and could receive for raw materials, persuading them to sell to the soap-makers, and perhaps even to expand their production. In short order, as consumers assumed control, the production of soap in Russia would rise and the shortage would disappear.
Consumer sovereignty is manifested by consumer purchases and refusals to purchase. As long as customers continued to buy soap, they would keep on transferring money from other segments of the market to pay for their purchases. In the process, they would help to make those soap-producers who responded to their wishes richer. In the final analysis, it is the consumers, as Mises has written, who “make poor people rich and rich people poor. They determine precisely what should be produced, in what quality, and in what quantities.”
Russian consumers lack soap and many other goods because potential entrepreneurs have little freedom to go into business, to invest, to experiment, and to try to respond to the wishes of consumers. In Russia, there is a shortage of soap because consumers aren’t free to make some entrepreneurs richer by buying their products and others poorer by refusing to buy theirs. In Russia, there is a shortage of soap bemuse the consumer is prevented from expressing his sovereignty on the market. In Russia, central planners, not consumers, are sovereign.
Originally published in the June 1990 edition of The Freeman.
The origin of language is shrouded in antiquity. No matter how we may speculate, we can never really know how language actually started—long, long ago before the dawn of history. Words may have begun as grunts and cries of fear, joy, expressions or interjections. Or perhaps as attempts to imitate the sounds of nature, the cries of wild creatures. Modern linguists are inclined to believe, however, that words developed as people tried to express themselves vocally and to describe reality through symbols. The origin of language is not as important for us today, however, as what language is and how it enables us to express ourselves.
Language is a major tool for communicating. It has helped to unify societies and to develop cultures. It has encouraged individual expression and intellectual development. Language permits us to transmit knowledge from person to person throughout society and down through the ages. Thus, language makes it possible for us to learn, not just from our own personal experiences, but from other persons, even from many who lived far away and long ago. Properly used, language can facilitate teamwork and cooperation, making increased production possible. If misused, however, it can mislead, distort and misrepresent, its words becoming veritable “language traps.” To communicate successfully, therefore, it is important to choose one’s words carefully so as to convey the ideas we want to express and avoid misunderstandings.
An Ongoing Process
The development of language is an ongoing process. It is evolving continually as people conceive of new ideas and want to pass them along to others. Many persons, specialists, scientists and scholars, often find existing words inappropriate for their purposes. As they seek to express themselves ever more precisely they enrich our language. Thus, new words are being created every day, some by specialists, some borrowed from other languages and other cultures. To accommodate new ideas, fads and fashions, as well as expanding scientific knowledge, the usage and meanings of old words also change from time to time. Witness the many new words and terms that have entered our language with the Beatnik generation, for instance, and the development of electronics and computers. Some new words and new meanings for old words prove helpful and in time are accepted into language; others tend to confuse rather than to clarify and are eventually dropped and forgotten.
After World War II, the German people found they had not only to clear away the rubble left from the bombings. They had also “to revive the German language” to undo the damage done by Nazi propaganda. German novelist Hans-Werner Richter noted in a recent interview (Pan American Clipper, July 1983):
After 12 years during which German had been distorted to a mumbo jumbo of Nazi propaganda . . . even ordinary words had lost their true meanings. You couldn’t use such words as heart, spirit, blood, soil, folk, country, because during the Third Reich they had acquired a sense and implication that those of us who returned from the war rejected . . . Then, slowly, we began using traditional words and expressions again, though very cautiously, in order to give them once more their lost meaning and content.
Leonard Read, FEE’s President from 1946 until his death in 1983, used to tell a story to illustrate how the words we hear and use can influence not only language but also thought. In 1947, Read attended the founding meeting of the Mont Pèlerin Society in Switzerland. Also attending the meeting were Ludwig von Mises, “dean” of Austrian economists, and Walter Eucken, noted German professor and free market economist. Eucken had lived in Germany throughout World War II. Though a critic of the Nazi regime, he had been so well respected that the authorities had left him pretty much alone. Eucken addressed the Mont Pèlerin meeting. After hearing him speak, Mises commented to Read, “It is amazing how the Nazi jargon has unwittingly been admitted into his speech. He always spoke such perfect German and he used to be a good economist.” Through its jargon, the Nazi propaganda had even affected the economic ideas of Eucken, one of Nazism’s most severe critics.
In the Mises seminars at New York University, which I attended for many years, Mises frequently spoke of the importance of carefully choosing one’s terminology. He often warned against using mechanical terms or similes and metaphors from the physical sciences to explain human action. As shorthand expressions, they may be helpful at times to illustrate an abstract point. However, the danger exists that such similes or metaphors may be taken literally. Moreover, they are never really suitable for describing human action, which is always purposive, intentional, never mechanical.
Some words are appropriate, others inappropriate, for expressing the ideas we want to convey. Some may actually conceal and distort the meaning we have in mind. And, as we have seen, some may even change the opinions of those who use and hear them. Among the worst offenders nowadays are words that have been borrowed by economists from the languages of violence, mechanics, the physical sciences and mathematics. Such words may even become “language traps.”
Terms of Violence
Consider the word “revolution,” with its two basic meanings. The first comes from the verb “to revolve,” meaning to rotate around a single point, the second refers to the violent overthrow of a regime. “Revolution” was first applied to the industrial world by writers who noticed the important technological developments of the late 18th and early 19th centuries. They obviously did not consider these developments to be rotating around an axis; rather they used “revolution” to describe the overturn, within a fairly short period, of earlier production methods. “‘A revolution is making,’ said Arthur Young in 1788 when he saw the textile machines spread from the cotton to the woolen industry.” The Marxians later drew a parallel between the technological “revolution” that was taking place and the changes in political and intellectual life which they hoped that “revolution” would bring about.
Careful historians know that the old order was not “suddenly broken in pieces by the mighty blows of the steam engine and the power loom,” as sociologist and economist Arnold Toynbee (1852–1883) put it. From 1760 to 1830, industrial production was going through “the slow gradual process of economic evolution . . . . [there was] no sudden shift of scene” but rather “a constant tide of progress and change, in which the old is blended almost imperceptively with the new.” (E. Lipson, An Introduction to the Economic History of England). Economic historian T. S. Ashton also deplored the use of the word “revolution” in this context for, as he writes:
The word “revolution” implies a suddenness of change that is not, in fact, characteristic of economic processes. The system of human relationships that is sometimes called capitalism had its origins long before 1760, and attained its full development long after 1830. (The Industrial Revolution, 1944/1964. p. 4)
The factory system with its assembly lines did not spring full blown from the system of medieval hand-tooled production to destroy the small scale industry with a single blow. Yet that is the implication in Toynbee’s use of the term. And since his day, the phrase, “industrial revolution,” has gained broad acceptance in our language, carrying with it the connotation of violence and the implication that the changes wrought by the “industrial revolution” were antagonistic to the interests and wants of the people.
Terms of violence—“strike” and “pickets”—are also used to describe the activities of modern labor unions. To “strike” implies the use of force. The word “picket” originally referred, in military terminology, to the pointed posts or stakes used to build a defensive stockade or to the soldiers ordered to stand guard around a military position. Literally speaking, “peaceful pickets” and “educational picketing,” dignified by references in U.S. Supreme Court decisions, are contradictions in terms.
Members of modern, specially privileged, labor unions are often not prohibited from using force or threat of force. And when they “strike” or “picket” their previous places of employment, they sometimes actually engage in acts of violence. So terms of violence may not be inappropriate to describe their activities. However, such terms are not suitable for describing the peaceful employer-employee relations of a free market society.
Nor are terms of violence suitable for describing the other processes of free and open competition on the market. Nevertheless, frequent references to “cutthroat competition,” “the law of the jungle,” and the like, appear in the popular economic literature. Persons who understand the principles of human action and the market process look on the operations of the market from a very different perspective.
Competition in the marketplace is part of a cooperative process rather than a physical struggle among entrepreneurs, investors, workers and selling personnel. All these various categories of producers cooperate in the effort to attain their common goal, to try to serve consumers better. Producers of the same or similar products may sometimes feel as if they are in a race with one another. Yet a producer’s prime goal is not to destroy or defeat others. Rather each is looking for ways to provide consumers with something they want more than the other goods and services then being offered.
The fact that many consumers are demanding the same or similar items does not make them turn on one another tooth and claw. Rather it works to their advantage. It stimulates increased production and makes economies of mass production possible. Everyone who wants a hammer, a television set or any other item, benefits from the fact that other people also want hammers and TVs, for instance, for it leads producers to manufacture more hammers and TV sets, better hammers and TVs, cheaper hammers and TVs or better and cheaper hammers and TVs. And the demands of many producers for specific raw materials, or specialized workers, for instance, help other producers of the same or similar products in an unanticipated way—by inducing savers and investors to enter and/or to expand those particular fields of production.
Thus, market competition results in a complex process of cooperation among producers of all the goods and services needed at every stage of production to transform and transport raw materials from their natural state into finished goods in the hands of final consumers. This process bears no similarity at all to anything like brutal “cutthroat competition” or “the law of the jungle.”
Terms from the Physical Sciences
The tremendous advances made in the physical sciences, especially during the last hundred years, has led to remarkable technological developments. We now enjoy the fruits of countless inventions undreamed of only a few decades ago. Many of these improvements were made possible because the physical scientists could conduct controlled experiments, analyzing physical phenomena quantitatively as well as qualitatively.
As the prestige of the physical sciences has advanced, many persons have come to expect that the science of human action, economics, should also be transformed from a qualitative to a quantitative science. Yet both the subject matter and the methodology of the science of human action are very different from those of the physical sciences. The terms that describe and explain the one are not suitable for describing and explaining the other. They may even become veritable “language traps,” distorting meaning, leading to misunderstandings and preventing the clear expression of economic ideas.
Economics deals with the conscious, purposive actions of individuals, based on their ideas, ideas which are always changing. Neither ideas nor actions can be quantified or measured as physical phenomena can be. Moreover, there are no constant relations in the field of ideas and actions, so that controlled experiments are impossible. Yet it is the actions of individuals on the basis of their ideas that make the economy, the market, which economists study. Without individuals, ideas and actions, there would be no economy, no market. Thus, market phenomena are always the outcomes of the conscious and purposive actions of living, thinking, acting individuals, not of machines, automatons, or robots.
Social cooperation and the market began countless centuries ago as people discovered that it was to their advantage to cooperate, divide the labor, specialize and trade the results of their efforts. They learned they could increase the total amount of goods and services produced and thus improve the situation of all participants. As people became aware of the benefits of social cooperation, society developed. Thus, society itself, as Mises points out, “is a product of social cooperation.” And the market evolved gradually over centuries, out of countless conscious and purposive actions of individuals, as people reached out to touch more and more persons throughout the world.
As individuals noticed more and more opportunities to gain through cooperation and trade, the complexity and extent of their cooperation increased. The division of labor became more and more specialized and trading transactions expanded. Step by step there evolved the extremely complicated and interrelated production processes and far-reaching market transactions we see today, which make it possible for all of us to have and consume goods and services that come from many lands. The long-term, large scale effects of this widespread social cooperation dovetail so perfectly that it is tempting to look on the market as something that functions “mechanically” or “automatically.” While it is true that today’s social cooperation and market arrangements were not consciously planned, it is not true that they are in some way “mechanical” or “automatic.” Each of the many separate steps that led to them was purposively undertaken by some individual or individuals.
It is to the credit of Friedrich Hayek, winner of the 1974 Nobel prize in economics, that he has explained explicitly that “the spontaneously grown institutions” such as private property, the market, language, media of exchange (i.e., moneys), moral codes, and so forth, although not intentionally designed by men are in effect man-made, in the sense that they are the outcomes of countless purposive individual actions. Hayek cites the early English economist, Adam Smith (1723–1790) who noted that man in society is led “to promote an end which was no part of his intention.” He also refers to his Austrian predecessor, Carl Menger (1840–1921), who considered “the major problem of theoretical interpretation” to be “the origin of social structures arising unintentionally.”
The actions of the unnumbered millions who have participated in the market may each have been planned by an individual, i.e., they were all “micro.” Certainly, they were all conscious, purposive, intentional, and not “automatic” or “mechanical.” However, no one intentionally planned the totality of the results, i.e., the “macro” effects. The overall results, though unforeseen, appear “orderly” and are generally beneficial to society. Hayek explains in The Counter-revolution of Science that “the independent actions of individuals will produce an order which is no part of their intention.” As he puts it there is nothing mysterious in the fact that: “. . . money or the price system enable man to achieve things which he desires, although they were not designed for that purpose, and hardly could have been consciously designed before that growth of civilization which they made possible . . .”
Hayek is well aware of “language traps.” In The Counter-revolution of Science, he specifically calls attention to the fact that “the term institution itself is rather misleading in this respect as it suggests something deliberately instituted.” (p. 83). Hayek certainly must appreciate also the difference between the way things “grow” in nature and the way human institutions develop out of the conscious actions and choices of individuals. Yet, enchantment with the phrase “spontaneously grown institutions” can easily lead one into a “language trap.” It is most important not to forget that Hayek’s “spontaneously grown institutions,” though not specifically conceived or intended by man, are actually outcomes of many separate, conscious, purposive actions of individuals.
Adam Smith’s “invisible hand” metaphor is somewhat analogous to Hayek’s “spontaneously grown institutions.” Smith’s “invisible hand” metaphor dramatized the fact that, thanks to market forces, the structure of prices and free and open competition, no Production Czar was needed to control production and equate supply and demand. Yet, some of Smith’s admirers have fallen into a “language trap” Smith certainly didn’t intend to set. They have interpreted his phrase to imply that an all-knowing, all-powerful God actively intervenes in human affairs to assure that supply on the market will tend to equal demand, and vice versa. This misinterpretation reinforces Mises’ words of caution that similes and metaphors may lead to misunderstandings if interpreted literally.
Persons who introduce into economic discussions and analyses terms from the fields of the physical sciences and mechanics fail to understand clearly the nature of economics. They do not realize that economics deals with personal ideas and conscious actions of individuals which are neither quantifiable nor measurable. Nor do they realize that there are no constant relations in the field of human action. There is nothing “automatic” or mechanical about the market. Using terms that imply that there is denies, in effect, the essence of market transactions based on individual ideas and subjective values and purposive actions. It ignores the inevitability of change and may very well mislead unwary users into unfortunate “language traps.” Thus such terms as “market mechanism,” “automatic forces of the market,” “business cycles” or “equilibrium prices” are never appropriate for describing market phenomena.
Terms from Mathematics
The current infatuation with aggregate economics and computers has enhanced the popularity of mathematical terms for describing market phenomena. However, they are not appropriate for dealing with the principles of human action. To understand why not, consider the origins and definitions of mathematical terms.
When physical scientists analyze the world and the universe, they seek to describe distance, area, weight, volume, time, sound, heat, light, and so on, in units of measurement that do not change, or at least do not change perceptibly enough to distort the particular measurements being taken. Each unit of measurement is related in some way to the physical world itself. Units of distance and area are defined in terms of the earth’s surface. The unit of time by which we reckon years, months, days, hours, minutes and seconds, is based on the rotation of the earth and the movement of the stars. The weight of an object is a measurement of its resistance to the earth’s gravitational pull, i.e., according to Webster’s New Collegiate Dictionary (1951), weight is “the force with which a body is attracted toward the earth. It is equal to the mass of a body multiplied by the acceleration due to gravity.” Volume is a measure of solid content, or a dry or liquid measure.
Various scales have been devised to record temperatures—Centigrade, Fahrenheit, Kelvin, Reaumur, etc.—all easily convertible, for “on each of these [scales] are two fixed points, the melting point of ice and the freezing point of water under standard pressure” (The Columbia Encyclopedia). The most frequently used units of measurement for heat are the Calorie and the British Thermal Unit, both defined as “the amount of heat required to raise the temperature [of a certain amount] of water at its maximum density one degree” Centigrade or Fahrenheit, respectively. Scientists can also measure sound, heat and light now by the waves they emit.
Units of Measurement
These units of physical measurements are all precisely defined. They do not deal with ideas, opinions or values. Scientists may mismeasure or misread measurements. Their instruments may be wrongly calibrated. Their very attempts to measure an element may raise or lower its temperature, influence its chemistry or physiology in some way and so affect the measurements taken—the Werner Heisenberg principle. Their experiments may go awry and their interpretations of their results may vary. However, the existence of such difficulties does not affect the basic fact that physical scientists can deal with physical objects as if they are constant, or variable only within certain inconsequential limits. And they can expect that physical experiments and measurements carefully carried out, under controlled conditions, will be precise and accurate.
Mises used to say, “economics is not potatoes.” Rather, economics is a study of the ideas, actions and values of men. The study of economics provides the theories and understanding that help men determine how best to supply consumers with precisely enough potatoes, neither too few nor too many, so as to satisfy their demands for potatoes without wasting time, labor and other resources, resources that might better be used to satisfy other market demands, more urgent than the demand for more potatoes. This, in essence, is the “economic problem.”
Now it is true that some of the consequences of conscious, purposive human action may be measured in mathematical terms. The raw materials and agricultural products brought forth from the earth, potatoes for example, may be counted, measured and weighed. The physical goods produced with the cooperation of entrepreneurs, investors and workers may also be totaled and measured in various ways. However, these physical goods and services are distinct from the values men place on them and it is their values to men that interest economists.
Economics is the science of human action, of individuals, their ideas and values. It deals, not with physical phenomena—goods and services themselves, whose size, weight, volume, temperature, and the like can be measured—but with human responses to them: emotions, sensations, feelings, values and the ideas they evoke. Such responses are personal and subjective. They can only be compared by the individual experiencing them. It is not even possible for an individual to measure his/her emotions, sensations, feelings, values and ideas, nor to compare them with other persons’ emotions, sensations, feelings, values and ideas. And there is certainly no universal, constant, scale of measurement that can be precisely defined and calibrated, against which the emotions, sensations, feelings, values and ideas of one, several, many or all persons may be measured.
A Study of Human Action
If we forget that economics is a study of human action and begin to look on it as being concerned simply with the production of potatoes—or of the many and sundry other goods and services on the market—it becomes tempting to describe economic phenomena in terms of mathematical “language traps.” However, the popular mathematical terms frequently applied to economic concepts—the “balance of payments,” “price levels,” “stable prices,” the “rate of profit,” “market equilibrium,” business or trade “cycles,” “index numbers”—imply something that is not true. They imply that market phenomena—the outcomes of ideas, values and actions of individuals—are in some way quantifiable, measurable and predictable. Thus, such terms are more apt to mislead than enlighten.
The goal of economics is to try to alleviate insofar as possible the “economic problem,” the fact that there is a scarcity of goods and services relative to the demand for them. Economics seeks to determine how best the world’s resources should be arranged so as to provide people with the goods and services they want, not too many or too few, without wasting scarce resources. However, this is not a question of technology, mathematical measurement or of business and commerce. Only on the basis of an understanding of the principles of human action and the role of ideas and values can economists determine how individuals should cooperate, divide the labor, exchange the goods and services and calculate so as to plan production to yield the best possible results as valued by consumers. Terms that misrepresent or conceal the contribution economics can make toward alleviating the “economic problem” are “language traps” to be avoided.
Originally published in the June 1985 edition of The Freeman.
Market Money and Free Banking
“If we want to have money, it must be something that cannot be increased with a profit by anybody, whether government or a citizen. The worst failures of money, the worst things done to money were not done by criminals but by governments, which very often ought to be considered, by and large, as ignoramuses but not as criminals.”
—Ludwig von Mises, speaking at the Foundation for Economic Education, November 8, 1969.
Most people who write about money and banking nowadays from a free-market perspective criticize the Federal Reserve—and rightly so—for contributing to uncertainty by alternating between expansion and contraction. They point to the Fed-induced monetary manipulations that have led to the boom-bust business cycle. They criticize especially the Fed’s arbitrary contractions of 1929–1933 and 1936–1938, which resulted in economic downturns and were alleviated only when monetary expansion resumed. They fault the Fed for sitting on its stockpile of gold and for not using it as a basis for further expansion. They object to the Fed’s inconsistency, alternating between easy credit one moment and tight credit the next. At the root of their criticism there appears to be a belief, however, that a continual expansion in the quantity of money is not only desirable but also necessary for an economy to prosper.
As an alternative to national control of the monetary system, these free-market critics of the Fed would prefer private banking. In their view, private banks would be well able to satisfy the market’s “need” for currency by issuing bank notes to satisfy the demands of their clientele. Such issues of currency would hold no threat of inflation, they say, for the issues would necessarily be limited by the competition of the issues of other private banks as well as by the obligation of each bank to redeem its notes in real commodity money according to terms agreed upon.
Private banks with the freedom to issue notes are certainly consistent with free-market theory. However, by starting from the premise that the very purpose of free banks is to issue currency, it would seem that the advocates of private banks ignore basic economics; they fail to consider, first, what market money is and, second, the basic role of banks in a free market.
Money is not a piece of paper with a dollar sign printed on it; money is basically a medium of exchange, something with market value that market participants are willing to accept in exchange. Second, banks are institutions dedicated to handling, safeguarding, lending, and/or managing the funds of depositors, according to agreed-upon terms. Emphasizing the note-issuing aspect of private banking assumes (1) that the paper currency itself is money, (2) that the economy “needs” a certain supply of readily available paper bank notes, and (3) that a less-than-“adequate” amount of currency necessarily leads to economic disaster.
Everyone wants more money—you, I, our friends, families, employers, businessmen. It is not money per se that we want, but purchasing power; we want what money can buy—food, clothing, and shelter, of course, and also automobiles, televisions, computers, medical care, travel, and entertainment. There is practically no end to the wants we can satisfy if we have more money. Government too wants more money to buy things—guns, planes, highways, and the ability to pay its employees; it wants to provide health care, to take care of the poor and the elderly, to clean up pollution, to insure bank deposits, to give humanitarian aid to foreigners, to assist some foreign governments militarily, and so on ad infinitum. There seems to be no limit to the amount of money people would like to have.
Some people carry over into the field of economics the idea that each of us would like more money in his own wallet or bank account. They reason that if everyone would be better off if he had more money, then it should follow that the more money in the whole economy the more prosperous the whole economy would be. Some have even carried this idea to the extreme and have recommended that the government needn’t collect taxes at all but may simply print all the paper money it wants, and hand it out to people on the theory that their spending will then bring prosperity. Of course, if this idea were really put into practice, the printed money would soon be so plentiful that it wouldn’t be worth anything on the market; it would no longer be serviceable as a medium of exchange, and thus, also, it would no longer be any good as money. Producers would stop producing and there wouldn’t be anything to buy—at any price.
Continually Increasing Money
Fortunately economists see through such proposals and do not recommend the unlimited issue of paper money. However, many persons, unfortunately, believe that for an economy to prosper the total quantity of money in the economy must be continually increased. They point to occasional monetary contractions (deflation) in this country and claim that the economy began to pick up only after the Federal Reserve began again to inflate. Deflation, they say, must be avoided at all costs. And most people believe it is the task of government and of the banks to provide the currency, to keep prices relatively stable, and to prevent deflation.
Private banking, according to its advocates, would eliminate violent monetary fluctuations. Private banks of course should be free to issue currency, but their notes would not be legal tender. Their paper notes would represent the medium-of-exchange-commodity on deposit at the bank and would be redeemable by the bank at any time. As such, their notes could become the community’s money. But their status as money would have to be earned; it would not result from the mere issue of paper currency labeled “money.” A private bank’s notes would have to compete with readily marketable commodities, as well as with other bank notes, for acceptance as media of exchange. The bank would have to persuade market participants that its notes had value on the market, were generally acceptable to traders, and thus were reliable media of exchange.
The method for introducing the bank’s notes into circulation and the interest rate it asked of borrowers would limit the effectiveness of supply and demand in checking under- and over-issue. For instance, a below-market interest rate would invite an increased demand for loans, which the bank could satisfy only by expanding its note issue; an above-market interest rate would discourage loan applications and lead to contraction. However, it is true that the bank’s willingness to redeem on demand all its notes submitted for redemption would prevent any over-issue.
The monetary problem that the advocates of free banking are trying to solve, as described by modern monetary economists, is very complex. But this complexity is not a consequence of the economics of money. Rather it is caused by governmental, not economic, factors—especially the designation of government’s notes as legal tender for the payment of debts. The complexity of the monetary situation is the outcome of many regulations and controls. To analyze the problem and the views of today’s advocates of free banking, one must review some basic economic principles.
Medium of Exchange
There is really nothing complex about money itself. Money is simply a medium of exchange. Money came out of barter as a result of countless purposive actions of individuals. As the development of specialization and the division of labor expanded to encompass more and more persons, it became difficult and cumbersome to exchange goods for goods, that is, to engage in direct exchange, to barter. If Jones wanted to trade his output for things to consume, he was not always able to locate a would-be trader willing to take his goods and services in exchange for the precise items he wanted. As a result, step by step, Jones and other would-be traders discovered in time that exchanging what they had for a more widely desired commodity would bring them one step closer to a successful exchange.
Traders came to recognize, as the outcome of countless voluntary exchanges, agreements, and contracts, that some particular commodity could serve as a generally useful medium of exchange in their community. Such a readily marketable commodity might be held for a while and then used later when a suitable trading opportunity arose. Thus, over centuries, perhaps millennia, money evolved. No government conceived the idea; it came out of the market. The medium of exchange in any community must be something that has market value, purchasing power. If a commodity is easily available and free to everyone, no one will be willing to take it in trade for what he is selling. Such a “free good” will never become a medium of exchange.
The availability of a medium of exchange was a big step forward toward economic progress. The name given to it is “money.” Over millennia, many commodities have been used as money—gold, silver, wampum, tobacco, cattle, and more. As a result of voluntary transactions undertaken by countless traders over years, the various commodities used as money were finally narrowed down to practically only one—gold.
Although we now talk about our paper U.S. dollars as if they were money, we should never forget that whatever we use as money must be something people will take in trade. Only its tradability, its acceptability, assures that money is something you and I can exchange for things we want. It should be “something that cannot be increased with a profit by anybody, whether government or a citizen,” lest that government or citizen take advantage of the situation to increase its quantity until it loses its value as a medium of exchange.
However, we should not dismiss money as unimportant because it is simply a medium of exchange. In today’s world, almost every interpersonal transaction depends to some extent on a reliable money. It is essential for a viable economy. It facilitates trade, calculation, and production. It enables entrepreneurs operating in a finely specialized division of labor to estimate production costs, calculate potential income, and anticipate future markets. It makes it possible for entrepreneurs to carry out far-ranging and complex financial transactions over long periods of time and across great distances.
Strictly speaking, the government-issued currency in use today, the U.S. dollar, is not money per se. It is a transmogrification of market money foisted on the people by force through the legal-tender laws. It is a derivative of the commodity—gold—that emerged over centuries as the market’s medium of exchange. Similarly, privately issued notes would have to earn their reputation as reliable media of exchange to become accepted as money.
Banks and Banking
To understand money, it is important also to analyze banks and their economic beginnings. Banks originated as market custodians for funds entrusted to them by depositors. They soon began to serve as middlemen to help arrange financial transactions for customers. A bank’s assets consisted of the funds left with it for safekeeping and money entrusted to it for managing and/or lending. If banks lent funds left with them for safekeeping they did so only at the risk that their depositors, who expected their money to be kept safe and available on demand, might ask for it and find it gone. However, experience taught bankers that all depositors would not ask for all their money at the same time; so a bank could lend a portion of these funds—if it was careful. The bank knew that the rate of interest it asked could influence a person to borrow more or less. If the bank lowered its interest rate, it could expand its currency issue and lend more for its own profit. But lending more increased the bank’s risk. It always realized that such over-lending might be discovered and it would then have to make up the shortfall from elsewhere or face bankruptcy.
It is argued that expanding credit to lend more money promotes prosperity because it puts money in the hands of businessmen who can use it to good advantage. This argument depends on considering the “seen” and ignoring the “unseen.” It ignores the fact that new credit over and above the available supply of savings can be granted only by issuing loans at below-market interest rates. This means expanding credit artificially. Those who benefit from the additional new credit, created for the profit of the issuing bank, are helped; they appear on the market ahead of others, bid up prices, and walk off with their credit-financed purchases. Those who do not benefit from the new credit, the savers on whose funds the expansion was based, are hurt. But they are not seen. Not having received any of the new credit, they do not become visible spenders; they are prevented by the beneficiaries of the new credit from using their own money as they wish.
Banks are expected, of course, to lend the money that savers leave with them for that purpose, sharing part of the interest earned with those who furnished the funds. But even in such cases, banks must be cautious. They soon learned from experience that the periods for which loans are made must be coordinated with the dates when the money lent has to be repaid to depositors. In other words, deposits that its customers could claim on demand at any time must always be redeemable from funds on hand. Funds to repay short-term loans must be financed by credits that will be repaid by the end of the short terms specified. And long-term loans may be financed by funds repayable to the bank over longer periods. But those funds too must be back in the bank by the date when they must be repaid to the depositors. For instance, if a bank’s short-term loans are backed by long-term mortgages, the bank would be in trouble.
The Role of Government
Much has changed over the centuries since money first evolved on the market and since entrepreneurs first opened banks to serve the needs of persons who engage in money transactions. But the basic economic principles remain the same. To serve as money, a commodity must still possess widespread marketability as a medium of exchange. And to remain in business private banks must still fulfill their obligations.
Governments have become more and more involved with monetary matters. It started when they were called on to settle disputes that arose over contracts. Courts and judges were frequently asked to decide whether the two parties to an agreement had actually complied with the terms agreed upon. Suppose one person agreed to exchange bushels of wheat for money of the realm, and the other agreed to pay a certain amount of money for wheat. When the time came for the farmer to deliver wheat and the buyer to deliver money, one or both parties might object that the other had not complied with the agreement. It was then up to the courts to decide. Was the wheat delivered actually the quantity and quality specified in the contract? Was the money paid—whether gold, silver, wampum, tobacco, dollars, or pesos—actually “money” as called for in the contract? Only that, and nothing more than that, the courts and judges had to decide.
Government’s role in the field of money was soon broadened. From the idea that courts must settle disputes over what was meant by “money” in specific cases, there developed the doctrine that money was whatever the government said it was. Governments took advantage of this situation. They not only decreed what money was but they expanded for their own profit the quantity of whatever they decreed to be money. Then they compelled people to accept that money in trade by declaring it to be legal tender for the payment of debts.
Counterfeiters try to piggyback for their own profit on a community’s money. A government does essentially the same thing. In ancient times, governments clipped or adulterated their coins and then compelled the people to accept them at their previous nominal value. Later, with the invention of the printing press, it became easier to debase the currency. The government could simply declare anything to be money, even a piece of paper. Then government privileged certain banks and protected them from bankruptcy if they printed bank notes for the profit of the government over and beyond the gold or silver deposits in their vaults. And the government gave these bank notes legal-tender status. With the establishment of the Federal Reserve system in this country in 1913, the monetary system of legal-tender paper bank notes based on reduced gold and silver backing was formalized. In time the U.S. government itself, through the Federal Reserve, assumed the responsibility for issuing this country’s currency. And these paper notes enjoy legal-tender status today.
The redemption in gold or silver of legal tender was at first discouraged and then halted completely. In 1933 it became impossible for citizens to obtain gold for their paper money, and they were eventually prohibited from owning any monetary gold at all. The U.S. government even reneged on its own promises to redeem its bonds and debts in gold. In January 1975, U.S. citizens regained the right to own gold, but they are still compelled to accept the government-issued legal-tender notes.
Throughout all the years since the Federal Reserve Banks opened, the quantity of legal-tender money has continually increased. And the market value, the purchasing power, per unit of this money has continually declined, reflecting the subjective value that individual market participants place on the dollar relative to other goods and services.
Inflation: More Money or Higher Prices?
One reason for confusion over money results from the changed definition of the word “inflation.” Originally and traditionally it meant an increase in the quantity of money and/or credit, and it is so defined in Merriam Webster’s Second International Dictionary (1954). Only in recent decades has the word been widely used to refer to one consequence of a monetary increase: an increase in prices. Granted, this new definition is now widely accepted, but that does not make it correct or expedient. Not only does it leave the language without a term for a monetary increase, but it shifts the blame away from the real culprits to the victims. While the U.S. government and the government-established Federal Reserve are responsible for increasing the quantity of money for their own profit and hence causing prices to rise, it is the victims—businessmen, savers, workers, investors, consumers, and so on—who are blamed for asking or paying higher prices.
Now let us consider the Federal Reserve as “an engine of inflation.” Granted, it is difficult to compare the number of dollars in circulation over the years. Statisticians frequently revise their “money stock” estimates, even changing what they include. However, there can be no doubt that there has been a tremendous increase in the number of dollars since 1913 when the Fed was established. There was a Fed-inspired monetary expansion from 1921 to 1929. In 1913, the country’s “money stock” (gold, coins, and notes) was estimated at $3.798 billion. On June 30, 1929, at the peak of the stock market boom, this figure had more than doubled to $8.538 billion, representing a substantial inflation. If market prices did not climb to the same extent during those years, as most economists agree they didn’t, it is because the effect of the monetary increase on prices was hidden by increased production, due to the initiative, innovation, and productivity of entrepreneurs, creating a downward pressure on prices.
To return to the statistics, the money stock reported on June 30, 1930, dropped slightly from 1929 to $8.306 billion, but by June 1932 it had climbed to $9.004 billion. The Fed’s figures show that the country’s money has been increased more or less steadily ever since, bounding up especially during war years. By the end of 1998, M2 figures came to $4,288.3 billion. And they continue to climb. If U.S. prices have not risen proportionately, it is due not only to the tremendous initiative, ingenuity, adaptability, and productivity of entrepreneurs but also to the mushrooming demand by foreigners to hold dollars—as their preferred medium of exchange—for their own security and as a hedge against the potential loss in value from inflation of their own country’s currencies.
Being unable to trade in gold, and having long since been compelled to accept the U.S. legal-tender dollars in payment of debts, market participants have come to accept them by default as the best available medium of exchange. Having no other realistic alternative, entrepreneurs do their best to calculate their costs and potential markets in terms of dollars. In making business plans, they try to anticipate future fluctuations in the value of the dollar. And as long as the Federal Reserve practices relative restraint, market participants worldwide adjust and adapt fairly successfully. But in the last analysis, the market value of the U.S. paper/credit dollar depends on the judgment of fallible human beings who take into consideration, among other factors, the political climate, the interests and profit of the U.S. government.
The Effects of Inflation
Supply, demand, and competition for the medium-of-exchange commodity are determined by the subjective values of market participants. This is true whether the medium is gold, a paper substitute for gold, a paper note decreed by government to be legal tender, or a private bank’s paper note. Every dollar added to the existing supply of money to which the market has adjusted has at least three inevitable consequences: (1) it confiscates some wealth from anyone who owns dollars; (2) it upsets the calculations of entrepreneurs; and (3) it reduces purchasing power.
New issues of money and/or credit withdraw or extract some value, some purchasing power, from every existing dollar asset, whether in a wallet, savings account, bond, insurance policy, or debt payable in dollars. The value of every person’s dollar holdings shrinks even as he sleeps. New issues of money and/or credit upset the calculations entrepreneurs made in dollar terms, distorting production, causing malinvestment, and setting the stage for a boom/bust business cycle. Of course, holders of privately issued currency that does not enjoy legal-tender status are not helpless; they may refuse to accept it if it loses value and turn to some other medium of exchange.
When the quantity of money is increased, the new money is passed from one person to another throughout the economy. But this takes time. Every additional monetary unit created—whether by gold miner, the printing press, credit expansion, or deficit financing (monetization of debt)—goes to some individuals first. It necessarily affects their value judgments, reducing in their minds the marginal utility of each unit of money. Those who receive the new money or new credit first benefit, feel more affluent, spend more freely, and are willing to offer higher prices for goods and services. Their demand for goods and services creates pressures on the market, pushing prices upward. The delayed and uneven effect on the market of an inflation helps the early recipients of the new money at the expense of others. Those who do not receive any of the new money until later are hurt; they must pay the higher prices resulting from the pressure of the increased demands of the early beneficiaries before they get any of the new money themselves.
There have been many times in history when the value of money has dropped drastically because governments have increased the quantity for their own profit. One of the most dramatic cases is that of the German mark after World War I. By 1923, the number of German marks was increased by billions, the market value of a single mark fell practically to zero. The marks still enjoyed legal-tender status. However, they were no longer reliable and ceased to serve as money. Creditors engaged in all kinds of subterfuges to avoid being repaid in marks, and debtors tried various tactics to trick their creditors into accepting payment in the depreciated marks.
Many other national currencies have suffered similar fates in recent years—the Bolivian and Argentine pesos, the Russian ruble, the Italian lire, the Thai baht, the Indonesian rupiah, the Hungarian forint, to name a few. Such examples show clearly that there can be too much money.
How Much Is Enough?
Any quantity of money is adequate because prices will adjust. Individual market participants, bidding and competing with one another, will bring the purchasing power parity principle into effect. They will bid more or less for units of money, and more or less for goods and services, depending on their subjective values. The purchasing power per monetary unit will tend to decline as the number of monetary units increases. It will tend to rise as the number of monetary units drops. In the end, the purchasing power per monetary unit will shrink or stretch so that the total available quantity of money, large or small, will suffice to purchase the available goods and services. Thus, any amount of money is enough money, if it is not changed abruptly or arbitrarily and if it is not made legal tender.
Originally published in the October 1999 edition of The Freeman.
 This article was sparked by Professor Richard H. Timberlake’s three articles in The Freeman (April, May, and June 1999).
 It defines inflation basically as a “Disproportionate and relatively sharp and sudden increase in the quantity of money and credit, or both, relative to the amount of exchange business.”
 Statistics approximate, taken from the monthly Federal Reserve Bulletins.
 The Fed’s monetary statisticians apparently took a holiday in 1933 along with the banks. But they returned to the task after the gold stock was revalued from $20.67 to $35.00 per ounce by FDR’s diktat. The value of the money stock as of December 3, 1933 ($17.470 billion) reflected the increased value of the government’s gold holdings. By December 1941, when World War II started, the money stock had increased to $90.435 billion. By the end of the war, it had been expanded to $113.597 billion. In the 1950s, the U.S. gold holdings began to go down as other countries started to withdraw their gold from the United States. However, money stock statistics continued to climb. At the end of the Korean War (1955) it was approximately $133.3 billion. In 1971, Federal Reserve statisticians revised their money stock figures (M2 consisted of currency outside of banks, demand deposits, plus time deposits at commercial banks) and backtracked, calculating M2 in 1964 to have been $273.8 billion. In 1971, Nixon stopped the sale of gold to foreign governments and foreign central banks. He devalued the U.S. dollar in December 1971, to $38 an ounce, and then again in February 1973 to $42.22. In January 1975, the U.S. government resumed selling gold and U.S. citizens regained the right to own gold coins and gold bullion. The price of an ounce of gold zoomed off the charts, indicating the extent to which the effects of inflation, defined as monetary increases, had been suppressed. After the end of the Vietnam War, M2 figures came to $576.5 billion.
Mises on Copyrights
The widespread reproduction and “sharing” of copyrighted music on the Internet led a friend to ask me what Ludwig von Mises would have thought about the situation. The more I pondered the question, the more I concluded that Mises would have considered this just another case where copyright law must play catch-up with new technology.
Many people believe they should be allowed to reproduce and “share” copyrighted material free of charge, some because they don’t want to pay for the privilege and others because they believe it is wrong to grant monopolies to authors, composers, musicians, or anyone at all for that matter. But there is more to the problem than monopoly.
Mises once said, more or less facetiously, that while he had known book authors who opposed patents because of the monopoly privilege they give inventors, he had never known a book author who opposed copyrights because of the monopoly privilege copyrights give authors. Mises may have had Murray Rothbard in mind, for in Man, Economy, and State and Power and Market, Rothbard defended copyrights and criticized patents. Rothbard said it was possible for an inventor independently to come up with precisely the same invention that someone else had developed earlier and had already patented. In that case, the earlier inventor would receive patent protection and the other would be out of luck. Rothbard considered that unfair.
However, Rothbard said it was inconceivable that a second author would ever succeed in arranging words in the same order as they had appeared in a previously published book without having knowledge of the earlier book. Being a unique production, a book is entitled to copyright protection.
Mises, of course, didn’t talk about monopoly itself as being “good” or “bad.” Monopolies could exist on a free market in the rare case when the owner of a factor of production controlled the total supply of that factor. And in the even rarer case that the demand for a monopolist’s product was such that buyers were willing to pay an above-market price for it, he might be in a position to reap a greater financial gain by restricting production and selling fewer units at a higher price per unit. Mises considered this perhaps the only instance in which producers could violate consumer sovereignty with impunity.
The case of government-created and/or government-protected monopolies was another matter. He didn’t discuss them from the point of view of their “morality” or “immorality,” however. He simply talked about their economic aspects, saying that government-granted monopoly privileges change the situation by introducing coercion into the picture. Such privileges make consumers pay higher prices for the monopolized good or service and force them to restrict their consumption of other things. Government grants of patent and copyright protection are examples.
However, it appears from what Mises wrote in Human Action that he wasn’t opposed to copyrights and patents as such. A patent or copyright is defined as an agreement on the part of the government to protect the property rights of an inventor or author to his creation for a certain period of time. The inventor or author pays a price for this protection: he agrees to turn his creation over to the public, at no cost, when the protection expires.
Now if the government is to protect property, it must define that property.
Technological development is nothing new, and when it affects the character of a form of property, it inevitably requires the refining and redefining of the rights of individuals to their private property. The copyright laws have had to be revised and adapted whenever new methods of production and reproduction were developed. The Encyclopedia Britannica says that according to Roman law, when a person wrote words on a parchment, the composition belonged to the owner of the blank materials. This definition of ownership must have arisen when monks copied manuscripts laboriously by hand, letter by letter, on valuable parchment sheets furnished by their monastery.
The Development of Printing
When printing came along and books could be copied more cheaply, the question of property rights became more urgent. However, William Blackstone (1723–1780), the authority on British law, said the rights of an author “being grounded on labor and invention” were “too subtle and unsubstantial a nature to become the subject of property and the common law, and only capable of being guarded by positive statutes and special provisions of the magistrate.” Copyright was looked on as “a doubtful exception to the general law regulating trade,” which at that time was generally opposed to monopoly.
Again according to the Britannica, British law began to protect intellectual property with copyrights in 1709 as “in the nature of personal property. . . . A man’s own work, in this view, is as much his as his house or his money, and should be protected by the state.” This, of course, puts the onus on the government to define what personal property is copyrightable.
James Madison, fourth president of the United States, had been a participant in the 1787 constitutional convention in Philadelphia. The U.S. Constitution that he helped to write gave Congress the power to secure “for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” Several years later, Madison, when listing the various forms of property the government was “instituted to protect,” included a person’s intellectual property, his “opinions and the free communication of them . . . [their] enjoyment and communication.”
By the nineteenth century, the idea that published books would be copyrighted was widely accepted. Washington Irving, after whom Irvington-on-Hudson, New York, was named, was one of the first American authors to earn a living from royalties received from his books, although not a handsome living—he was usually close to broke. Charles Dickens was another prolific author who relied on the royalties his books earned under British law. His attitude toward America turned somewhat negative when pirated versions of his books were published in the United States.
It may be impossible to describe all the changes that have been made in copyright law over the years in response to the different ways copyrighted material might be disseminated. Adjustments have been made from time to time. For instance, arrangements were worked out over several decades to compensate musicians whose works were played on mass-produced recordings, in movies, and on radio and TV broadcasts. And as photocopy machines proliferated, it was determined that copying excerpts from copyrighted works for reference, research and study fell within the law’s “fair use” principle.
The government’s protection of an author’s or an inventor’s creation makes it possible for the creator to ask a monopoly price. Although monopoly prices generally benefit sellers, harm buyers, and infringe the supremacy of the consumers’ interests, Mises saw copyrights and patents as an exception to this rule. He wrote in Human Action—and here I quote with some interpolation in brackets:
If on a competitive market one of the complementary factors, namely f [a recipe or invention], needed for the production of the consumers’ good g, does not attain any price at all, although the production of f requires various expenditures and consumers are ready to pay for the consumers’ good g a price which makes its production profitable on a competitive market, the monopoly price for f becomes a necessary requirement for the production of g. It is this idea that people advance in favor of patent and copyright legislation. If inventors and authors were not in a position to make money by inventing and writing, they would be prevented from devoting their time to these activities and from defraying the costs involved. The public would not derive any advantage from the absence of monopoly prices for f. It would, on the contrary, miss the satisfaction it could derive from the acquisition of g.
Later in the book Mises discussed patents and copyrights further, pointing out their “external economies,” that is, the benefits they furnish to persons other than those who produced the protected material.
The extreme case is shown in the “production” of the intellectual groundwork of every kind of processing and constructing. The characteristic mark of formulas, i.e., the mental devices directing the technological procedures, is the inexhaustibility of the services they render. These services are consequently not scarce, and there is no need to economize their employment. Those considerations that resulted in the establishment of the institution of private ownership of economic goods did not refer to them. They remained outside the sphere of private property not because they are immaterial, intangible, and impalpable, but because their serviceableness cannot be exhausted.
People began to realize only later that this state of affairs has its drawbacks too. It places the producers of such formulas—especially the inventors of technological procedures and authors and composers—in a peculiar position. They are burdened with the cost of production, while the services of the product they have created can be gratuitously enjoyed by everybody. What they produce is for them entirely or almost entirely external economies.
If there are neither copyrights nor patents, the inventors and authors are in the position of an entrepreneur. They have a temporary advantage as against other people. As they start sooner in utilizing their invention or their manuscript themselves or in making it available for use to other people (manufacturers or publishers), they have the chance to earn profits in the time interval until everybody can likewise utilize it. As soon as the invention or the content of the book are publicly known, they become “free goods” and the inventor or author has only his glory.
Mises went on to say that this problem has nothing to do with the genius who creates out of the sheer urge to do so; he does not wait for encouragement. But:
It is different with the broad class of professional intellectuals whose services society cannot do without. . . . [I]t is obvious that handing down knowledge to the rising generation and familiarizing the acting individuals with the amount of knowledge they need for the realization of their plans require textbooks, manuals, handbooks, and other nonfiction works. It is unlikely that people would undertake the laborious task of writing such publications if everyone were free to reproduce them. This is still more manifest in the field of technological invention and discovery. The extensive experimentation necessary for such achievements is often very expensive. It is very probable that technological progress would be seriously retarded if, for the inventor and for those who defray the expenses incurred by his experimentation, the results obtained were nothing but external economies.
Mises understood that patents and copyrights are controversial:
They are considered privileges, a vestige of the rudimentary period of their evolution when legal protection was accorded to authors and inventors only by virtue of an exceptional privilege granted by the authorities. They are suspect, as they are lucrative only if they make it possible to sell at monopoly prices. Moreover, the fairness of patent laws is contested on the ground that they reward only those who put the finishing touch leading to practical utilization of achievements of many predecessors. These precursors go empty-handed although their contribution to the final result was often much more weighty than that of the patentee. . . . [T]his is a problem of the delimitation of property rights. . . .
It should be noted that merely because copyright grants a monopoly privilege to the producer of intellectual property, there is no guarantee that buyers will pay a monopoly price should the producer choose to ask it. Many books, poems, and musical compositions don’t sell well, or may not sell at all, and their authors and publishers may suffer losses. As Mises wrote, “Under copyright law every rhymester enjoys a monopoly in the sale of his poetry. But . . . [it] may happen that . . . his stuff . . . can only be sold at their waste paper value.”
Also, the producers of some copyrighted intellectual property, eager to spread their ideas, readily grant reprint permission for free. For instance, this is true of most articles in The Freeman.
With the new technological developments that now make it so easy to reproduce and “share” musical compositions, we are entering a whole new ball game. Without copyright protection, musicians, authors, and composers are in the position of having to bear all the costs of production while the benefits go to others. Thus the new technology calls for further refinement of the rights of private property owners.
Originally published in the June 2004 edition of The Freeman.
 Rothbard’s Man, Economy, and State can be found on Mises.org at https://mises.org/library/man-economy-and-state-power-and-market/.
 Rothbard’s Power and Market can be found on Mises.org at https://mises.org/library/power-and-market-government-and-economy/.
 Encyclopedia Britannica, 11th ed., 1910, vol. 7, p. 118.
 James Madison, “Property,” March 27, 1792; http://press-pubs.uchicago.edu/founders/documents/v1ch16s23.html.
 Ibid., p. 661.
 Ibid., pp. 661–62.
 Ibid., p. 662.
 Ibid., p. 277.
Remembering Henry Hazlitt
Henry Hazlitt was one of a very special breed, an economic journalist who not only reported on economic and political events in clear and understandable language, but also made contributions to economics.
When I arrived at FEE in 1951, I was just a neophyte in the freedom philosophy. Hazlitt was a trustee, author of the bestselling Economics in One Lesson, and for several years an editor of the fortnightly free-market-oriented news-commentary magazine, The Freeman, predecessor of FEE’s The Freeman: Ideas on Liberty.
But he was easy to approach; his manner was pleasant, not aloof or overbearing. He was of average height. His features were regular, and he wore a mustache. He dressed appropriately for a journalist working in midtown Manhattan in his day—in suit and tie. He was modest, always thoughtful of others, and one of the kindest and most gracious men I have known. His friends called him Harry, and in time I too came to call him Harry. I was proud to have him as a friend.
Hazlitt was born on November 28, 1894; his father died when he was a baby. He attended a private school established for poor fatherless boys in Philadelphia. When his mother remarried, the family moved to Brooklyn, where he went to the public schools. After high school, he enrolled at New York City’s free-tuition City College. But his stepfather died, and he had to drop out of college after a few months to work and support his widowed mother. Yet, as Hazlitt wrote later, his short time at college “had a greater influence than may at first sight be supposed, not as much from the knowledge gained there, as from the increased consciousness of the knowledge which I still had to gain and the consequent ambition to attain it.” He became determined to learn.
Books became Hazlitt’s university. He embarked on a self-imposed home-study course, reading and writing prodigiously. He read college texts, browsed in libraries, and studied shorthand and typing. He got a job with the fledgling Wall Street Journal, then a rather obscure publication reporting only news of Wall Street. In World War I he joined the Army Air Service and was sent to Texas. At war’s end he returned to New York and continued to write for various newspapers—as financial editor, literary editor, editorial writer, editor, and then as a member of the editorial staff of the New York Times, where he wrote most of its economic editorials. He acquired his real education on the job.
Hazlitt was modest; he always attributed his success to good luck—in having read great books and having known great men. He used to say that the three biggest influences on his economic thinking were: (1) the British clergyman/economist Philip Wicksteed (1844–1927), whose book The Common Sense of Political Economy he encountered early in his career while browsing in a library; this book, based on the subjective marginal-utility theory of value, gave him a sound foundation in economics; (2) Chase National Bank economist Benjamin M. Anderson (1886–1949), a fellow New Yorker whom he saw frequently; and (3) the noted Austrian economist Ludwig von Mises (1881–1973).
Hazlitt lived an active life as a newspaperman. He belonged to several literary societies, attended their luncheons, and met the leading authors and intellectuals of his day. He admired, he once said “almost idolized,” H. L. Mencken, whom he briefly succeeded as editor of The American Mercury. Hazlitt frequently debated prominent politicians on the radio: Vice President Henry Wallace, Secretary of State Dean Acheson, and U.S. Senators Paul Douglas and Hubert H. Humphrey. He came to know practically all the conservatives and libertarians of his day, not only Mises and Anderson, but also, among others, FEE founder Leonard E. Read, Isabel Paterson, Rose Wilder Lane, John Chamberlain, William F. Buckley Jr., Lawrence Fertig, Sylvester Petro, F. A. Hayek, and Ayn Rand.
In 1938 Hazlitt reviewed for the New York Times the English translation of Mises’s Socialism, describing the book as “the most devastating analysis of socialism yet penned.” Mises was then in Switzerland, but the two men corresponded briefly. Then in 1940 Hazlitt received a telephone call from Mises, newly arrived in New York. Hazlitt was dumbfounded: “It was as if John Stuart Mill had risen from the dead!”
Mises, a refugee from war-torn Europe, had been forced to leave his home in Vienna, Austria, a comfortable position in Geneva, Switzerland, and the academic world of Europe where he was well known. He and Hazlitt soon became the best of friends, and “Lu,” short for Ludwig, found a special place in Hazlitt’s heart and mind.
Hazlitt’s Helping Hand
When Mises phoned Hazlitt, Mises was trying to start a new life in the United States. Hazlitt was always willing to help his friends. Through contacts in the State Department, he helped Mrs. Mises’s daughter to escape Nazi-occupied Paris (this was before the Japanese attack on Pearl Harbor, when the United States was not yet at war). He asked his friend Benjamin Anderson, who had associates at Harvard University, to help Mises find a teaching position. Harvard wasn’t interested. Hazlitt arranged a dinner for Mises with Alvin Johnson, director of the New School of Social Research, where many European victims of Nazism had received positions. But when Johnson told Hazlitt that Mises was “too extreme,” Hazlitt realized that Johnson only hired socialists.
By Hazlitt’s arrangement, Mises wrote several editorials for the New York Times. The Rockefeller Foundation gave Mises a grant for several years, enabling him to write Omnipotent Government and Bureaucracy. Mises soon obtained a position as visiting professor with the New York University Graduate School of Business Administration. Then Hazlitt brought him to FEE, and Leonard Read hired him as economic adviser.
In the 1950s Mises’s NYU graduate seminar in economic theory was held in Gallatin House, diagonally across Washington Square from the apartment where Hazlitt lived with his wife, Frances. Hazlitt felt sorry for Mises having to speak every Thursday evening to a small group of students who were tired after working all day at their regular jobs. So to buck Mises up, Hazlitt began attending the seminar. The topics varied from year to year—epistemology, history, Marxism, capitalism, monopoly, interventionism, monetary theory, and socialism. Mises frequently cited historical illustrations and amusing examples. “Interestingly,” Hazlitt said later, “what I found was, no matter how many times I would go, no matter how often I heard in effect the same lectures, there would always be some sentence, some incidental phrase or illustration that threw more light on the subject.” On one occasion, laughter broke out. Mises: “The Soviets censor bad books.” And then proudly with a twinkle in his eye: “My books!”
Hazlitt considered himself especially lucky in counting Mises and his fellow noted Austrian economist F. A. Hayek (1899–1992) among his friends. Hazlitt had, of course, known both for many years through their writings, but it was only after he reviewed their books that they met and became friends. When F. A. Hayek’s The Road to Serfdom came out in 1944, Hazlitt reviewed it for the Times, calling it “one of the most important books of our generation.” The book became a bestseller. Hazlitt’s review attracted Hayek’s attention, and in 1947 he invited Hazlitt to attend the important first meeting of the free-market-oriented society he was organizing, later internationally known as the Mont Pèlerin Society.
Hazlitt wrote 15 books in all—his first published when he was only 21. His first book on economics, Economics in One Lesson, was published in 1946 when he was still with the Times. Once I told Hazlitt that he hadn’t written Economics in One Lesson but rather One Lesson in Economics. He agreed. “But it wouldn’t have sold so many copies,” he said. He was undoubtedly right. Economics in One Lesson made economics easy to understand, and it became an immediate bestseller.
By this time, Hazlitt had a thorough understanding of economic principles, and all his work reflected his free-market interpretation of events. As a matter of fact, he left his position on the editorial staff of the New York Times on that account.
After World War II, the Allies held an international conference on money, which was dominated by the then-popular ideas of British economist John Maynard Keynes. While the conference was going on in Bretton Woods, New Hampshire, Hazlitt was editorializing against it in New York City. He considered its proposals for an International Monetary Fund and a World Bank inflationary and was convinced they would end badly. However, when the IMF and World Bank were endorsed by 43 nations, Times publisher Arthur O. Sulzberger told Hazlitt the newspaper could no longer editorialize against them. Hazlitt agreed not to mention them in future editorials. But he also went out and found himself a new job.
Lands Job at Newsweek
In 1946 Hazlitt became the “Business Tides” columnist for Newsweek. Week in and week out for twenty years Hazlitt analyzed world events and government programs from the free-market point of view. He argued for capitalism and sound money, and against inflation, government intervention, and socialism. His column gained a wide and influential readership. Mises even believed that Hazlitt’s columns gave Federal Reserve officials a guilty conscience and kept them from expanding credit as much as they would have liked. But Hazlitt lost his position on ideological grounds. When the left-oriented Washington Post took over Newsweek, it decided to replace Hazlitt with three more “mainstream” college professors—free-market monetarist Milton Friedman of the University of Chicago, middle-of-the-roader Henry Wallich of Yale, and Keynesian Paul A. Samuelson of M.I.T.
Hazlitt must have been amused but somewhat chagrined when Samuelson, ardent Keynesian and author of the then-most-widely used college textbook, wrote Hazlitt that “one of the reasons [he] decided to go into economics” was because he had been impressed by a Hazlitt column assigned him when a college undergraduate. Hazlitt graciously thanked Samuelson for his letter. But he was too honest to let Samuelson believe he approved of his economics: “As you know, I venture to differ with you on some propositions in economics, and in my book, The Failure of the ‘New Economics,’ I may have expressed my differences with less than complete politeness. Nevertheless, I am enormously flattered to learn that something I wrote long ago influenced you and particularly that my article was one of the reasons that you decided to go into economics.”
Throughout his life, Hazlitt was always reading and writing. On his 70th birthday, he reflected on his career. He had been writing for most of 50 years, “practically every weekday: news items, editorials, columns, articles . . . in total some 10,000 editorials, articles, and columns; some 10,000,000 words! And in print! The verbal equivalent of 150 average-length books.” He earned renown in at least three areas: as a popularizer of sound economic thinking, as a critic of John Maynard Keynes, and as a contributor to ethical moral philosophy. Not bad for a poor fatherless boy and college dropout.
Henry Hazlitt continued to fight the good fight until July 9, 1993, when he died at the age of 98.
Originally published in the November 2004 edition of The Freeman.
 Hazlitt’s Economics in One Lesson can be found on FEE.org at https://fee.org/resources/economics-in-one-lesson/.
 Quoted from Hazlitt’s annual summary, as a young man, of his intellectual development, 1912; copy on file at FEE.
 Wicksteed’s The Common Sense of Political Economy vol. 1 can be found on Mises.org at https://mises.org/library/common-sense-political-economy-volume-1/.
 From my interview of Hazlitt, March 27, 1977.
 From my unpublished Mises seminar notes, December 17, 1959.
 A condensed version of Hayek’s The Road to Serfdom can be found on FEE.org at https://fee.org/resources/the-road-to-serfdom-condensed-edition/.
 Samuelson letter to Hazlitt, September 15, 1966; copy in FEE’s files.
 Hazlitt’s Failure of the ‘New Economics’ can be found on Mises.org at https://mises.org/library/failure-new-economics-0/.
 Hazlitt letter to Samuelson, December 15, 1966; copy in FEE’s files.
 Hazlitt’s remarks, November 29, 1964, reprinted in The Wisdom of Henry Hazlitt (Irvington-on-Hudson, N.Y.: Foundation for Economic Education, 1993), pp. 45–46.
How Much Money?
Do we need more money as the population increases? Do we need more money as production expands? That would seem logical. But is it?
What individuals really want is not more money, but more purchasing power. Money itself isn’t wealth. Look at Germany in 1923. The Germans had plenty of paper money then–billions and billions of Marks. But with all that money, they had little or no purchasing power. A housewife considered herself lucky if she could find a baker willing to take a wheelbarrow full of paper money for one loaf of bread. It is the purchasing power of money, not the money itself, that counts.
Money Has Two Basic Functions
(1) as purchasing power. A money whose purchasing power can be relied on is the most efficient means for individuals to obtain the many varied goods and services they want. Each of us always wants to hold a certain amount of money for future purchases.
(2) as a means for comparing the market values of various goods and services. Because billions of German Marks were being printed in 1923, the purchasing power of a single Mark dropped practically to zero. Germans no longer wanted to hold Marks. Rather, they used every ruse they could devise to exchange their useless Marks promptly for something tangible. Also, as the Mark declined in value, comparisons with various goods and services became increasingly unreliable. By the end of 1923, German Marks were completely useless for either of money’s two basic functions.
Money is the medium of exchange people offer in the expectation of obtaining various goods, services, and leisure time. All very well and good. But when there are more people and when more goods and services are being produced, won’t more dollars be needed if the extra people are to buy the additional goods and services? Won’t more dollars have to be created to cover all this additional spending and keep people producing and prosperous?
No! The answer, as the German case shows, isn’t more dollars. The answer is more purchasing power. And here the market provides the answer.
Suppose the population has increased but the quantity of money or credit has not been artificially expanded. Then more would-be buyers will be competing to buy the goods and services available. The same amount of money will have to stretch farther. Would-be producer/sellers will have to sell at what would-be buyers can afford to pay–or else forgo sales. If would-be producer/sellers do not anticipate artificially induced increases in the quantity of money, they will not keep asking higher and higher prices, as sellers often do nowadays; they will be willing to drop their asking prices, especially if they feel confident that the cost of replenishing their stocks too will not go up, and may even go down. The tendency, therefore, will be for dollar prices to go down and the purchasing power of the dollar, and hence the purchasing power of individuals, to rise.
Suppose production has been expanded, but the quantity of money or credit has not been artificially increased. As would-be sellers will be offering more goods and services than before, but there is no more money, the same amount of money will have to stretch farther. Would-be producer/sellers will have to sell at what would-be buyers can afford to pay–or else forgo sales. If would-be producer/sellers do not anticipate artificially induced increases in the quantity of money, they will not keep asking higher and higher prices, as producer/sellers often do nowadays. They will then be willing to drop their asking prices, especially if they feel confident that they can reproduce their stocks at, or below, their previous costs. The tendency, therefore, will be for dollar prices to go down and the purchasing power of the dollar, and hence the purchasing power of individuals, to rise. Because their dollars will buy more, both consumers and producer/sellers will tend to be better off.
If the quantity of money is not artificially increased, every would-be buyer will take care to spend his or her hard-earned money only on what is most important. Of course, people will disagree as to what is “most important”—but that is another matter. And every would-be seller will take care to sell only when he expects the sale to prove worthwhile, under the circumstances. Goods, services, and money will then gravitate, as the market directs, toward those persons whose demands are the strongest and most intense. This will tend to produce the greatest possible satisfaction.
Government Interference with Money
Not only can the market cope with the demands of an increased population and the appearance on the market of increased stocks of goods and services, but also government interference with this process is disruptive. In the first place, creating new money itself does not assure economic well being. In the second place, artificial monetary expansion can lead, as it has many times in the past, to economic disaster.
Governments have never been at a loss for excuses to inflate (increase the quantity of money) or to expand credit. They argue that more people need more money; more money must be created to buy the increased quantities of goods and services produced; many people need help because they can’t afford adequate food, clothing, shelter, and medical care; quarterly or year-end debt settlements create extraordinary demands for cash; exporters need to be subsidized to encourage exports and improve the balance of trade; businessmen need more money to finance transactions or to expand, and interest rates are higher than they are willing to pay; the government must counteract bank credit contraction to forestall a recession or depression, so the quantity of money to lend must be increased. And so on. However, government doesn’t like to tax to pay for these programs; it much prefers to create new money and credit. And that paves the way to disaster.
Some of the effects of monetary expansion are seen. But many are unseen. Monetary expansion helps some people, the first beneficiaries of the new money; these people are “seen.” The monetary expansion hurts others, those who receive none of the new money, and those who receive it only later after they have been penalized by having to pay inflated prices for things they purchased; these people are “unseen.” Monetary expansion also misdirects production. It subsidizes some producers who are “seen,” while discouraging others, those who must pay for the subsidies or are hurt by the competition of subsidized competitors; these producers are “unseen.” Moreover, production encouraged by artificial monetary increases is determined by politicians, and thus the wants of consumers are neglected. Artificial monetary expansion leads also to international complications and the disruption of the international market, international prices, and the balance of trade.
How the Market Copes
Over the centuries, both the population and production have multiplied many times over. The market has become worldwide. Individuals, operating in and through the market, have generally coped with these changes without direct government intervention. As the demand for money increased, prices were pushed down by competition, and the purchasing power of gold rose. When gold increased in value, opportunities for profit in gold mining appeared and adventurers all over the world searched for gold. The Spaniards stole gold from the Incas of Peru. Prospectors discovered rich gold fields in Australia, South Africa, and Alaska. And substantial gold fields were found in Russia also. The exploitation of these gold discoveries expanded the quantity of monetary gold without artificial government intervention.
The market also found other ways to cope with the rising demand for money due to population and production increases. Prices fluctuated. When more people were asking for more goods and services, with essentially the same number of dollars to spend, each dollar became more valuable; as a result people had more purchasing power if not more dollars. A single dollar bought more than before; living costs went down, and living standards went up. People were better off even if they didn’t have more dollars. If governments had not inflated in recent decades, price adjustments would undoubtedly have been made by using fractions of the monetary unit. After all, the dollar is infinitely divisible. For instance, if our government had not promoted inflation and credit expansion, we might be buying a daily paper with a 1/4 cent token (instead of 25 cents or 50 cents), a loaf of bread for pennies (instead of $1.00 or more), or an automobile for $500–$1,000 (instead of $10,000 or $20,000).
In addition to allowing prices to fluctuate, the market coped with the rising demand of trade for money in other ways. Traders economized the use of the precious metals. They developed banking and started using various paper documents in transactions—gold and silver certificates (receipts representing warehoused gold or silver), bonds, bills of lading, checks, checking accounts, and various forms of securities. These new techniques enabled businessmen to pay for purchases without actually shipping gold or silver. Bank clearing houses made inter-bank transfers of funds cheaper and faster. Electronic bank deposits and transfers, and credit cards, continue this economizing trend. And no one can foresee what new market economies will be forthcoming.
Fiat money (printing press money) and fractional reserve banking are not listed here because both owe their continued use to government protection of some kind. If government had not entered the field of money and banking, private banks would have had to fulfill their obligations as do all other private businesses. Without government protection, a bank that issued more promises to pay than it could fulfill would be forced to mend its ways or go into bankruptcy. A bank that issues more banknotes (promises to pay upon demand) than it can redeem is courting disaster. And no bank whose assets and reserves constitute only a fraction of its obligations can expect to survive for any extended period of time without some form of government protection.
If government had not intervened, the market would have been able to cope with population and production increases through the pricing structure and various other techniques traders would have devised. The pressure of new buyers appearing on the market and the pressure of producers offering more goods and services, without any artificial increase in the number of dollars, would have enhanced the purchasing power of every dollar. Prices would have tended to go down and living standards would have risen, even though monetary incomes stayed essentially the same. Instead of expecting continual inflation and rising prices, people would have looked at their economic situation from a different perspective. They would have compared their present and past living standards and considered how much better off they were than in the past because their living costs had declined. It didn’t cost as much to feed the family as it used to. A new automobile this year cost less than it did ten years ago. And so on.
If prices are free to fluctuate, and if traders on the market are not prevented from economizing when it seems advisable, any amount of money will be sufficient to fulfill money’s two basic functions—as purchasing power and as a means for comparing relative market values. As a matter of fact, when monetary inflation is resorted to in the attempt to compensate for changes, the monetary unit loses both its purchasing power and its use as a standard for comparing values. The consequences of a government-induced inflation—in the attempt to keep pace with changes in population and production—will always be much more disastrous than any short-run benefits it brings to its relatively few early beneficiaries.
Originally published in the March 1994 edition of The Freeman.
Why Communism Failed
Editors’ note: This article, written for FEE’s op-ed program, has been carried by newspapers in Alabama, Arkansas, California, Indiana, Missouri, New Jersey, New York, Pennsylvania, and, in Spanish-language translation, in New Mexico, New York, Mexico, and the Dominican Republic.
Three years after the Russian Revolution, an Austrian economist, Ludwig von Mises, argued that Communism would fail and explained why. Communism, or socialism, couldn’t succeed, Mises wrote in 1920, because it had abolished free markets so that officials had no market prices to guide them in planning production. Mises was relatively unknown when he made his controversial forecast, but he acquired some international renown later as the leading spokesman of the Austrian (free market) school of economics. Since his death in 1973, his theories have gained new adherents, some now even in Eastern Europe.
The Soviet Union was launched with high hopes. Planning was to be done by a central committee, ensuring plenty for everyone. The state was to wither away. But things didn’t work out that way. The Soviet state soon became one of the most oppressive in the world. Millions of Russians starved in the 1920s and 1930s.
As Mises pointed out, the raw materials, labor, tools, and machines used in socialist production are outside the market. They are owned by government and controlled by government planners. No one can buy or sell them. No market prices can develop for them because they aren’t exchangeable.
Modern production is time-consuming and complicated. Producers must consider alternatives when deciding what to produce. And they must consider various means of production when deciding how to produce. Raw materials, tools, and machines must be devoted to the most urgent projects and not wasted on less urgent ones.
Consider, for instance, the planning of a new railroad. Should it be built at all? If so, where? And how? Is building the railroad more urgent than constructing a bridge, building a dam to produce electricity, developing oil fields, or cultivating more land? No central planner, even with a staff of statisticians, could master the countless possibilities. Machines might be substituted to some extent for labor; wood, aluminum, or new synthetic materials might be substituted for iron. But how will the planners decide?
To make these decisions, planners must know the relative values—the exchange ratios or market prices—of the countless factors of production involved. But when these factors are government-owned, there are no trades, and thus, no market prices. Without market prices, the planners have no clues as to the relative values of iron, aluminum, lumber, the new synthetics, or of railroads, oil fields, farm land, power plants, bridges, or housing. Without market prices for the factors of production, the planners are at a loss as to how to coordinate and channel production to satisfy the most urgent needs of consumers.
More than 70 years have passed since the Russian Revolution and 45 years since the end of World War II. Why then do the Russian people still lack adequate housing and many everyday items? Why does agricultural produce rot in the fields for lack of equipment to harvest and transport it? Why are factories and oil fields so poorly maintained that production declines? Because the raw materials, tools, machines, factories, and farms are not privately owned. Without the bids and offers of private owners, prices reflecting their relative market values cannot develop. And without market prices, it is impossible to coordinate production activities so that the goods and services consumers need will be available. That is why Communism fails.
In a competitive economy, where factors of production are privately owned, these problems are solved daily as owners calculate the monetary values of the various factors and then buy, sell, and trade them as seems desirable. As Mises wrote in 1920, “Every step that takes us away from private ownership of the means of production and from the use of money also takes us away from rational economics.”
Today, even Communists are coming to recognize that Mises was right. The U.S.S.R., a socialist society without private property and monetary calculation, is still “floundering in the ocean of possible and conceivable economic combinations,” as Mises foresaw in 1920, “without the compass of economic calculation.” Will she now take the important step Mises recommended of introducing private ownership of the means of production?
Originally published in the March 1991 edition of The Freeman.
Leonard E. Read, Crusader
If you had known Leonard E. Read in the 1930s, you would probably not have picked him as a future crusader for the freedom philosophy. Charismatic, energetic, debonair, he was a businessman, an organization man, a Chamber of Commerce man. In 1932, in the depth of the Depression, he became manager of the Western Division of the U.S. Chamber of Commerce, headquartered in San Francisco. Some Chamber members were alarmed at the direction government was taking. But not Read and not the U.S. Chamber, which adopted a policy of going along to get along.
Then Read called on a prominent California businessman who had been criticizing the Chamber’s position, William C. Mullendore, executive vice president of Southern California Edison. Read left Mullendore’s office a changed man, “liberated,” as he would phrase it later, from accepting blindly the popular worldview. He started to consider and ponder ideas that had never concerned him before.
As Read examined the world through his newly acquired “freedom-tinted” glasses, he realized that the New Deal’s spending and inflation, its economic distribution programs, and its pro-union Wagner Act and minimum-wage legislation all restricted the freedom of individuals and hampered economic recovery. He was aghast at the violations of private property he saw around him. He embraced enthusiastically the freedom philosophy Mullendore had expounded, became convinced it held the answer to the country’s economic depression, and began to look for ways to share his newly found philosophy with others. In the process he became a crusader.
Read could not spread his pro-freedom ideas to the extent he wished within the Chamber. So he started an outside publishing venture, Pamphleteers, Inc., through which he released pamphlet versions of several pro-freedom works—Frederic Bastiat’s The Law, Rose Wilder Lane’s Give Me Liberty, Andrew Dickson White’s Fiat Money Inflation in France, Ayn Rand’s Anthem, and Virgil Jordan’s Freedom in America. But Read felt frustrated. He realized he was trying to serve two masters—his employer and his freedom philosophy.
Just before the war ended in Europe, Read resigned as general manager of the L.A. Chamber to take a position in New York City as vice president with the National Industrial Conference Board (NICB). His job was to raise funds for its educational program, through which he hoped to promote the freedom philosophy. But the NICB’s idea of “education” was not Read’s. It wanted to present “both sides” of every issue. In a world where “the other side” was already being presented everywhere, in newspapers, radio, films, schools, universities, and books, “the freedom side” would receive short shrift. Disappointed once more, Read resigned.
The Founding of FEE
By that time, Read, through his work with the Chamber of Commerce and the NICB, had many contacts who shared his faith in freedom and his belief in the importance of finding some way to counteract the New Deal thinking. By 1946, Franklin Roosevelt’s interventionist ideas had been further entrenched by price, wage, and rent controls and other wartime emergency legislation. So, with the backing and support of some of his friends, Read decided to set up his own organization. That spring Read established the Foundation for Economic Education (FEE).
It is one thing to believe in, and to dream of, promoting the freedom philosophy; it is quite another thing to actually do so. Without an organization to put outreach schemes into practice, there could be no promotion of the freedom philosophy, except in a very limited way through personal contacts. It takes an organization to publish books, briefs, and pamphlets, to hire speakers, to schedule lectures, and to arrange seminars. This is what Read had in mind for his foundation. And he was well-prepared for the task. He was a rare mix of crusader, businessman, administrator, and money-raiser. As crusader, the sincerity of Read’s belief in moral principles infected others. His zeal and enthusiasm for the freedom philosophy persuaded listeners to support his cause. As businessman, Read realized that if an organization is to succeed, its income must exceed its outgo. Establishing and maintaining an organization also required Read’s talents for money-raising and administration.
As there had been controls on rents and practically no construction during the war, office space in New York City was scarce or non-existent. When a real estate agent suggested that Read look at suburban property, he found and purchased a large private estate, still FEE’s home, which had been vacated by the owner during the war because of the difficulty of getting help.
To staff the Foundation, Read sought to assemble a group of persons who shared his goal. Read turned first to V. Orval Watts, who had been with him at the L.A. Chamber and had written some of its most effective anti-big-government tracts. Then, from Cornell University, he hired F. A. Harper, W. M. Curtiss, Paul L. Poirot, and Ivan R. Bierly. I came to FEE in 1951 and Edmund A. Opitz arrived four years later. Other staffers came and went over the years. When they left FEE, many continued to promote the freedom philosophy in one way or another, in business, in colleges and universities, and through other free-market think tanks.
Read was a moral philosopher, not an economist, though his principles made him a pretty good free-market economist. He reasoned that if it is moral to respect the life and property of individuals, then it is immoral to violate their rights to life and property; if it is moral to deal peacefully with others, then it is immoral to use force, fraud, or threat of force to impose one’s wishes on others; if voluntary transactions among private-property owners are moral, then to hinder or prevent voluntary transactions among willing traders is immoral. No one, neither private individual nor public agency, should take property by force or coercion from one person for the benefit of another. These principles led Read logically to believe in the morality of private-property rights, a free-market economy, and free trade, and to the conviction that government intervention that violates private property, hampers free markets, and interferes with free trade is immoral. His proverbial answer when asked how to solve any economic problem was: “Get the government out of it.”
For Leonard Read, the difference between what was permissible and what was impermissible was simple. Anything That’s Peaceful (the title of one of his many books) was permissible. Read was always ready to point out that the voluntary way was not only right but beneficial. Obviously, it benefited those directly concerned. But eventually it helped everyone through increased cooperation, production, and well-being. On the other hand, the use of force to coerce others against their will was wrong, immoral. Moreover, while the use of force might help some, it inevitably hurt others.
Read’s goal was to counteract, through FEE, the anti-freedom, pro-socialist, New Deal philosophy of post-World War II America. The problem was to reawaken in the people a belief in the morality of freedom. Since people cannot be forced to be moral, their ideas must be changed—through education. Read’s whole life became devoted to this task, to free-market education in the broadest sense of the word.
One of the ways Read engaged in free-market education was through the distribution of the works of Bastiat. It was “love at first sight,” or should I say “love at first reading,” when Read first encountered Bastiat during his Chamber of Commerce days. Bastiat (1801–1850), economist, journalist, and member of the French Chamber of Deputies, had fought long and hard against the socialist ideas of his day. Bastiat’s moral approach to freedom appealed to Read. And his anti-socialist arguments were relevant to Read’s struggle against Roosevelt’s New Deal.
As noted, Read, while still in California, reprinted the English translation of one of Bastiat’s small books, The Law. Bastiat had proclaimed that life—physical, intellectual, and moral—was a gift from God, not government. “Each of us has a natural right—from God—to defend his person, his liberty, and his property. . . . If every person has the right to defend—even by force—his person, his liberty, and his property, then it follows that a group of men have the right to organize and support a common force to protect these rights constantly.” However, according to Bastiat, that common force, government, had been used to destroy the rights of individuals and to take the property of some for the benefit of others. This would be considered “plunder” if done by gangsters or thieves. When done in the name of government, it was still “plunder”—Bastiat called it “legal plunder.” His book cited many examples of government-sanctioned “legal plunder.”
Read had been disappointed by the reception accorded The Law. He decided the rather archaic British prose of the translation must have prevented others from sharing his enthusiasm. So he set Dean Russell, a journalism graduate student recently mustered out of the Army Air Corps, to translating it into modern English prose. Russell’s translation, published in 1950, just a century after the book first appeared in French, introduced Bastiat’s writings on freedom to new generations of readers. It has since sold a half million copies and is still one of FEE’s best sellers. FEE has also published newly translated versions of Bastiat’s other books, Economic Sophisms, a collection of short pieces on free trade (most notably “The Candlemakers’ Petition,” a satirical attack on tariffs), Economic Harmonies, and Selected Essays in Political Economy. Bastiat’s valuable and readable works might have been forgotten were it not for Read.
Spreading the Word of Mises
When Read needed economic advice, he relied on others, especially Austrian-born economist Ludwig von Mises, who had joined FEE in the very beginning. Mises, a refugee from war-torn Europe, had arrived in the United States in 1940, jobless and practically broke. Mises had been well known and well established in Europe, but in this country where Keynesian big-government, big-spending ideas reigned supreme, his free-market ideas were considered old-fashioned. One of FEE’s founding trustees, economic journalist Henry Hazlitt, urged Read to take Mises on as economic adviser.
The Hazlitt-brokered relationship benefited all concerned: Read, FEE, and Mises. Mises lent advice and prestige to the Foundation. Through the years, the Foundation spread Mises’s teachings by providing a platform for him to speak at seminars and to write for its magazine, The Freeman. FEE also helped with Mises’s 800-plus-page economic opus, Human Action. A FEE secretary finished typing the manuscript and staffers prepared it for publication by Yale University Press, which occurred in 1949. Once it was published, FEE helped to place it in libraries. The Foundation itself has also published some of Mises’s books—the first was Planned Chaos (1947)—and assisted in the publication of others.
The FEE Seminars
Read felt that one of the most effective ways to bring the freedom philosophy to people was through personal contact. The give-and-take of discussions, with the opportunity to ask questions, sparks interest. So in the 1950s, FEE began holding seminars, sometimes at its headquarters in Irvington, but frequently off-site around the country through arrangements made by local supporters of the freedom philosophy. Most were held on weekends—Friday evening to Sunday noon—with a three-man team of speakers—Leonard Read plus two others, perhaps Ed Opitz of FEE’s staff; Dean Russell; Jim Rogers, a dynamic spokesman for freedom; Ben Rogge, Wabash College professor; Hans Sennholz of Grove City College and later FEE’s president from 1992 to 1997; Percy Greaves, freelance economist and historian; George C. Roche III, FEE seminar director and now Hillsdale College president; or Bob Anderson, for many years FEE’s executive secretary.
Many seminars were aimed at the general public, but others have been intended to reach various special groups—high-school or college teachers, college undergraduates, ministers, students of journalism, and so on. Seminars have played an important part in FEE’s activities and, thanks to them, freedom has made friends all over the world.
Read lived, breathed, and thought the freedom philosophy. Wherever he went, he looked for, or made, opportunities to present his ideas. When he flew—and he did a lot of flying back and forth across the country to fulfill speaking engagements and to meet potential supporters—he would tantalize his seatmate with hints of where he had been, what he had done, and persons he had met. Out of curiosity, his seatmate would ask, “What do you do, Mr. Read?” And that opened the door for Read to talk about FEE and the freedom idea.
For Read, variety was the spice of life; he considered individual diversity “a blessing.” Everyone should be free to try anything, so long as he didn’t interfere with the equal rights of others. That way lay progress and economic development! Read had profound confidence that individuals could accomplish almost anything if left alone. He saw the “Miracle of the Market” (an article title) as the outcome of the actions and ideas of countless individuals.
As a boss, Read left his staff pretty much alone, counting on their self-motivation to contribute, each in his or her own way, to the freedom philosophy. But he insisted on several points. FEE should present a favorable impression to the public. All publications should be attractive. And anyone who wrote to FEE should receive a serious and courteous answer.
The Read Touch
One day the mail brought a vicious three-page diatribe from a labor-union organizer who attacked Read’s position, expressed in an article about a recent airline dispute, that there was no moral right for workers to strike, that is, to forcibly prevent willing workers from occupying vacated jobs. Read took no notice of the correspondent’s ill temper, but used a “turn-the-other-cheek approach”; he sent a serious and courteous reply with two small books. Some weeks later the union man, “Whitey,” wrote authorizing Read “to become my director of reading. Send me anything which in your judgment will help my thinking, and with invoice.” Whitey changed his occupation and eventually the two men met in Seattle when Whitey drove Read to the airport after a lecture. Read reminded Whitey of his first letter. Read wrote later that Whitey felt “crushed to think he had written in such a vein to one who reacted as [Read] had.”
“Suppose I had replied in kind?” Read recalled asking. “Would you and I be riding together?”
“I’ll say we wouldn’t!”
“Whitey, let me explain what I did to you.” Holding his plane ticket against the windshield, Read asked, “What holds it there?”
“The tension of your finger.”
“You are right, Whitey. It is known as the law of polarity or the tension of the opposites. Now observe what happens when the tension is removed.” The ticket fell to the floor. “Well, that’s precisely what I did to you. I removed the tension; I gave you nothing to scratch against.” Read then quoted an old Arab proverb, “He who strikes the second blow starts the fight.” “When I didn’t strike back,” Read said, “there was no fight; you and I could become friends.”
This story has a sequel. “Perhaps two years later, there came a period of three months with no word from Whitey—most unusual. Finally, a letter arrived, explaining that he had been in a head-on auto collision. He was still in the hospital after 90 days. And then this: ‘but, Mr. Read, you should see the interest my three doctors are showing in our philosophy.’”
What We Do Not Know
Read had an immense respect for what we do not know. “The Wisdom in Knowing I Know Not” and “The Importance of Awe” were titles of two articles. He considered ideas all-important. He advocated self-education, urged everyone to do his “homework,” to strive to become the best that he could, and to live up to his potential.
Read was not above a little showmanship. When he wound up a lecture he often had the lecture room darkened. Then he would light a small electric candle. The eyes of everyone in the audience would be riveted to that small flame. “No amount of darkness,” he said, “can extinguish that tiny light.” Then gradually Read would turn up the intensity of the candle until the whole room was flooded with light. “A good idea,” Read said, “is similar. Once abroad in the world it lives; it cannot be extinguished or put back in a bottle. And an idea whose time has come can spread in time to encompass the entire world.” And so it would be, Read believed, with the freedom idea. In spite of the refusal of the general public to accept the freedom philosophy, Read remained eternally optimistic, convinced that freedom would win in the end.
Leonard Read’s Influence
Read died in 1983. But FEE has endured. It celebrated its 50th anniversary in 1996. And it continues along the path down which Read pointed. Thanks in part to Read and to FEE, the freedom philosophy and free markets are now more widely discussed and more respectable than they were in the years immediately following World War II. The founders of many recently established free-market think tanks give credit to Read and to FEE for having helped to inspire them. Some New Deal and World War II interventions, FEE’s targets in the early years, have expired or been repealed. But others remain, and new interventions are proposed daily. Government regulations and controls go on and on. The struggle against the welfare-state philosophy is by no means won.
Until people understand economic principles clearly enough to realize that government should not intervene in the private affairs of peaceful persons, and that government’s role should be limited to protecting life, property, and voluntary social cooperation, and adjudicating disputes, Read’s work will not be done. Until that day arrives, there will be plenty of work for FEE’s staff and other free-market-minded thinkers, writers, and teachers. The freedom philosophy remains a dream, an ideal, but one well worth striving for.
Originally published in the September 1998 edition of The Freeman.
 White’s Fiat Money Inflation in France can be found on Mises.org at https://mises.org/library/fiat-money-inflation-france/.
 Read’s Anything That Is Peaceful can be found on FEE.org at https://fee.org/resources/anything-thats-peaceful/.
 Bastiat’s “Candlemakers’ Petition” can be found on FEE.org at https://fee.org/articles/the-candlemakers-petition/.
 Bastiat’s Selected Essays can be found on FEE.org at https://fee.org/resources/selected-essays-on-political-economy/.
 Mises’s Human Action can be found on FEE.org at https://fee.org/resources/human-action-by-ludwig-von-mises/.