All Commentary
Tuesday, February 22, 2011

Making Sense of the Controversy

The Foundation for Economic Education’s goal from the very beginning was to promote, what Leonard E. Read called, the freedom philosophy. Understanding the principles of economics is a crucial step to understanding why freedom works. The tools of economics can illustrate why many policies have the opposite effect of their stated goals. This is exactly what FEE’s second ever publication, Roofs or Ceilings? The Current Housing Problem, set out to do for rent control.

Written by Milton Friedman and George Stigler early in their careers, the pamphlet explains through economics why the choice is between having less, and poorer quality housing through price ceilings (rent control’s means), or to have more, and better quality roofs over our heads through the use of price rationing, i.e. letting the market work. And Friedman and Stigler do an exceptional job with this task.

Despite certain positive effects, such as introducing a young Murray Rothbard to the works of FEE, the pamphlet was met with much controversy. Ayn Rand viewed Roofs or Ceilings? as, “the most dreadful thing ever put out by a conservative organization… I never expected that from Leonard Read. He was really my last hope of a conservative who would act on the proper principles, and take some positive practical action for our cause; and it is awfully hard to see a last hope go.” She even referred to Friedman and Stigler, both future Noble prize winners who are as much known for their work in the freedom movement as for their economics, as the “two reds!”

Rand’s complaint boils down to the absence of morality and justice within the pamphlet’s argument. For her, the pamphlet views government rationing by command as the moral equivalent of rationing by a free price system, with efficiency being the difference. In other words, it does not state that it is always and everywhere wrong for the government to ration. Efficiency should come second to morality and justice.

The problem with Rand’s critique is that this requires a value judgment, which economics cannot provide as a positive science. All economics is value free, it tells us what is and not what should be. Mises’s argument on the impossibility of socialism for example does not say socialism is wrong, but that it is impossible for it to achieve its ends due to the inability to provide economic calculation. This is no different from Friedman and Stigler’s argument against rent control.

Still, many within FEE, including Read himself, found Friedman and Stigler’s soft-core approach to liberty within the pamphlet to be troublesome. Specifically, Read and others at FEE were concerned about a paragraph on page 10, which seems to suggest the authors agree with the goal of equalizing income. And seem to suggest a need for “long-term measures” to achieve this goal. Read asked Friedman and Stigler to remove the paragraph but they refused. So, in response, the Foundation inserted a footnote spelling out its objections. It states:

“Editors note: The authors fail to state whether the ‘long-term measures’ which they would adopt go beyond elimination of special privilege, such as monopoly now protected by government. In any case, however, the significance of their argument at this point deserves special notice. It means that, even from the standpoint of those who put equality above justice and liberty, rent controls are ‘the height of folly.'”

  • Nicholas Snow is a Visiting Assistant Professor at Kenyon College in the Department of Economics, and previously a Senior Lecturer at The Ohio State University Economics Department. His research focuses on the political economy of prohibition.