We continued to wrangle about it for days. But one day I went out to tea, although not because I wanted to. In Washington you don’t go to parties just because you want to go, you know; you go because you have to go. I had to call upon Mrs. Harlan F. Stone, the wife of the Supreme Court Justice. She was at home on Wednesday afternoons and so about 5:45, which is nearly the end of the day, I went to her house and presented myself. There were a lot of other people there. We went up to the dining room to get a cup of tea, and there I met Mr. Justice Stone who had just come home from the Court and was getting his cup of tea. We greeted each other and sat down and had a little chat.

He said, “How are you getting on?” I said, “All right.” And then I said, “Well, you know, we are having big troubles, Mr. Justice, because we don’t know in this draft of the Economic Security Act, which we are working on—we are not quite sure, you know, what will be a wise method of establishing this law. It is a very difficult constitutional problem, you know. We are guided by this, that, and the other case.” He looked around to see if anyone was listening. Then he put his hand up like this, confidentially, and he said, “The taxing power, my dear, the taxing power. You can do anything under the taxing power.”

I didn’t question him any further. I went back to my committee and I never told them how I got my great information. As far as they knew, I went out into the wilderness and had a vision.

But, at any rate, I came back and said I was firmly for the taxing power. We weren’t going to rig up any curious constitutional relationships. “The taxing power of the United States—you can do anything under it,” said I. And so it proved, did it not?

—FRANCES PERKINS, Secretary of Labor, 1933–1945
“The Roots of Social Security” (1962)
www.ssa.gov/history/perkins5.html

To the Editor:

In the December 2004 issue of The Freeman, P. Gardner Goldsmith criticizes “Star Trek” for foolishly postulating that we could do without money. He presents us with an argument of the following structure: X is stupid; someone told him that “Star Trek” creator Gene Roddenberry said X; therefore Roddenberry was foolish for having said X. That’s why the legal system has a rule against hearsay! To be sure, the various “Star Trek” spinoff series were the work of “politically correct” types who may well have envisioned the abolition of money, but in the old original show, there most definitely is money, and indeed evidence of capitalism and the profit motive. For the record, the episodes “Mudd’s Women,” “The Trouble With Tribbles,” “The Devil in the Dark,” “The Enterprise Incident,” “Let That Be Your Last Battlefield,” and “Errand of Mercy” all include either explicit use of money or references to private property and capital exchange, and that’s just off the top of my (admittedly fannish) head. The author’s economic argument is correct—I agree it’s a mistake to think society doesn’t need money or property rights—but his unwarranted abuse of “Star Trek” doesn’t help make the case. Perhaps he should have directed his ire at the more overtly socialist spinoff shows.
––AEON J. SKOBLE
askoble@bridgew.edu Bridgewater, Mass.

Gardner Goldsmith replies:

It is true that in the original series, money was used in certain scenes. The episodes “Mudd’s Women” and “The Trouble With Tribbles” are excellent examples. However, in writing my article, I recited nearly verbatim what the co-executive producer of “Voyager” told me. This producer had worked with Gene Roddenberry and explained to me that before he passed away, he had explicitly stipulated that there was to be no money in the Federation. There has been money shown in non-Federation societies and even in scenes where Federation members interacted with alien races, such as the space station in “The Trouble With Tribbles.” But I can tell you with complete confidence that Roddenberry worked on the planning for three of the four “Trek” spinoffs and this policy was strictly his. It was not concocted by so-called politically correct producers under his watch who eventually took over the franchise (all terrific people, by the way). I must admit, given the manner in which things such as the fictional “Prime Directive” of the Federation have been disregarded in the four series, it is easy to find examples of where Roddenberry’s orders were broken, but I am relating what other producers, who worked closely with Roddenberry on developing his shows, told me. They respected him, as did I, and they would not lie about his plans. The inventiveness of scriptwriters was often utilized to skirt hurdles presented by the institutional structure of “Star Trek,” and I suspect that in the original series, Roddenberry did not hold firm to his rules. However, the later producers did, and I do not believe they held to the “no money” policy because of a devotion to postmodern, anti-capitalist sentiment. They suffered limitless headaches because they tried so hard to stick with Roddenberry’s plan, and I think they knew it was unworkable for a real society.

To the Editor:

I was belatedly reading in the November 2003 issue of Ideas on Liberty when I came across something that caught my eye. This was the statement in George Leef’s book review of Pieces of Eight by Edwin Vieira, Jr., claiming that the Constitution defined a dollar as 371.25 grains of fine silver. I could not recall ever seeing such a definition in my admittedly dilettantish studies of this document. As the statement was even referenced to a specific portion of the constitution, Article I, Section 9, clause 1, it was a simple matter to quickly check the reference. This confirmed that the matter detailed here was that there should be no prohibition by Congress of migration or importation of persons (slaves) prior to 1808.

The only reference to coining money in the Constitution is the authorization to Congress “To coin Money and regulate the Value thereof and of foreign Coin” in Article I, Section 8. There is also the prohibition for the States to “coin Money . . . [or] make any Thing but gold or silver Coin a Tender in Payment of Debts” in Article I, Section 10. (Regrettably, no such prohibition was given to the federal government.)

As neither of these portions of the Constitution codifies the specific value of a dollar in terms of silver content, I was wondering if this notion was an error of the author or of the reviewer? Could you shed any light on this matter?
—R. R. SCHOETTKER
By e-mail

George Leef replies:

My thanks to R. R. Schoettker and the other readers who caught my mistake. The legal definition of the dollar as a coin with 371.25 grains of pure silver is in the Coinage Act of 1792. See http://landru.i-link-2.net/monques/coinageact.html.

Social Security Reform Can Be Less Paternalistic

To the Editor:

John Attarian argues in “Is Social Security Reform Paternalistic?” (The Freeman, January/ February 2004) that plans to replace or reform Social Security with a system of compulsory private pensions are “far from being advances,” and are at least as paternalistic as Social Security. His arguments, though, are puzzling.

By calling Social Security “paternalistic,” Attarian means that it takes away the individual’s responsibility to provide for one’s retirement and thus encourages individuals to give less thought to the future, treating them like feckless children rather than responsible adults. Attarian is clearly right about this, but a compulsory private system — for example, such as proposed by the Cato Institute — significantly increases the amount of freedom to plan for one’s retirement and increases one’s responsibility to make such decisions.

In a private system, one has a property right in one’s pension, which one lacks in the pay-as-you-go system of Social Security, and thus one gets to choose, within limits, how to invest one’s contributions, and within limits, how to receive the results of one’s contributions during one’s retirement. Of course, a compulsory private system is not a voluntary, purely libertarian, retirement system, since it forces the individual to contribute to a pension savings account and prevents the individual from making certain savings and investment decisions, but the issue at hand is whether a compulsory private system is better than Social Security, not whether it is the best system or the least paternalistic system. The only place I can find in Mr. Attarian’s article where he tries to refute the argument that a compulsory private retirement system increases freedom and responsibility compared with Social Security is when he says that the compulsory private systems are “messier” than Social Security. This may be true, in that a system where there is zero freedom to decide what happens with your payroll taxes may be less messy than a system where one has a right, hedged with restrictions, to choose how to invest one’s contributions. However, the issue isn’t a quasi-aesthetic judgment about messiness, but rather which system gives people more freedom to plan their lives and their retirement and in that sense treats them more like competent adults.

I have written this letter, not merely because I am puzzled by Mr. Attarian’s argument, but because the matter is a very important one. Unless Mr. Attarian thinks Social Security will simply collapse and that a purely libertarian system will arise out of its ashes, libertarians need to come up with a feasible liberty-increasing alternative to Social Security and other major welfare-state programs. A system of private compulsory savings and insurance is one such alternative that has been elaborated and defended by a number of libertarian writers (including me; see the forthcoming “The Moral Case for a Market-Based Retirement System” in Social Security and Its Discontents, ed. Michael Tanner, Cato Institute) and fellow travelers. If Mr. Attarian has a better feasible alternative, I and other readers of The Freeman would be quite interested in learning about it.
—DANIEL SHAPIRO
dshapiro@wvu.edu
Associate Professor of Philosophy
West Virginia University

I was very puzzled by John Attarian’s article on Social Security reform. Social Security is roughly 24 percent of the money going into the politicians’ hands in Washington. We are talking real money here, over $500 billion annually. Why do you think the Washington establishment is fighting reform proposals with personal retirement accounts (PRAs)? PRAs are about real political power and real political change.

Giving each worker more control and ownership over their retirement assets is key to decentralizing power away from Washington. Once every worker has savings in the capital markets of our country, it will make a world of difference. . . .

Real savings in PRAs, with the miracle of compound interest, will give all Americans the ability to create real wealth. Taking those funds out of the hands of the politicians and putting them into workers’ individual accounts will be a big step forward for freedom. Yes, it is not a perfect world, with each individual having complete control over his or her life. But it is a big step in the right direction. . . .
—BOB COSTELLO
bobcostello89@hotmail.com
President, SocialSecurityChoice.org

John Attarian replies:

I did not make an “aesthetic” judgment about “messiness,” simply a judgment of the obvious fact that these schemes of forced saving and investment are more paternalistic than Social Security because the government is meddling and exerting control in many more ways: the decision to save; the forced saving of tax money; where the savings may be invested; how long the investments are to be held; when they may be drawn on; how much one may receive; and in what form (lump sum, annuity, etc., etc.). This is obviously far more, and far worse, micromanagement of one’s life than Social Security undertakes. My image of the hovering mother overseeing Billy’s every move is quite accurate.

As for a feasible alternative, given the political realities I think the most we can hope for is to phase Social Security out. The Social Security Act should be repealed, and with it the payroll tax, which was intended to create a mentality of entitlement and make the program untouchable. Social Security should be converted to a rigorously meanstested benefit financed out of general revenue for those born before 1965. The younger generations, born after 1965, should be fully on their own, free to make their own arrangements for old age with fully voluntary IRAs, which should be totally tax-free as compensation for their loss of all claims to Social Security benefits.

To the Editor:

As a former wartime draftee — the Korean War — I’m of two minds re Aeon J. Skoble’s “Neither Slavery Nor Involuntary Servitude” piece in your September issue (“It Just Ain’t So!). No question, he did a very good job of picking apart the operational flaws inherent in any draft. But where I found him woefully deficient (especially considering the wonderful title of the piece!) was in how quickly he backed off from belaboring those two atrocious Supreme Court decisions designed back before 1920 to make military conscription look acceptable. I mean really, how can we libertarians hope to teach young people the rightness of our cause if we roll over so easily?
—JOHN SIMONS
Sheffield, Vermont

Aeon Skoble replies:

John Simons takes me to task for “how quickly [I] backed off from belaboring those two atrocious Supreme Court decisions” that failed to understand conscription from the point of view of the Thirteenth Amendment. But there’s nothing to belabor. My point was that it doesn’t matter, legally, whether I think that since conscription is involuntary servitude it ought to be forbidden by the Thirteenth Amendment—it only matters whether the Supreme Court thinks so. What does matter is my contention that regardless of the Supreme Court’s ruling, conscription is bad public policy. So I concentrated instead on replying to the flawed reasoning of contemporary academics and legislators who are in a position to drum up support for new policies. It would be important to refute the reasoning in Butler and Arver if I were preparing a brief for a court challenge to those decisions. But that’s not what is before us. What is before us are grandstanding politicians, backed up by some mistaken academic theories, proposing new laws that are irrational on several grounds. It is that reasoning to which I was responding. Simons wonders how we can “hope to teach young people the rightness of our cause if we roll over so easily?” I certainly wasn’t rolling over easily—I thought I was fairly strident—but there’s no point in pretending that Supreme Court decisions are other than what they are.

No Common Good?

To the Editor:

Professor Harold B. Jones, Jr.’s cursory dismissal of the idea of a “common good” deserves far more thought. (Review of The Collapse of the Common Good by Philip K. Howard, September 2003.) Relying as he seems to on individualism, of course, is a familiar theme for libertarians, but it seems to neglect matters of criminal law, constitutions, common law, natural law, and just plain common sense. While the author he reviews might have erred in his concept of the common good, e.g., in favor of collectivism, socialistic or bureaucratic solutions, gargantuan government, and so forth, the real debate should maintain respect for the common good while deciding just how far government should go. At times, this may even overlap what Jones might happen to consider the “well-being of the individuals of whom the commonality is composed.” (E.g., does he mean, “To each according to his needs?”) Otherwise, Jones will subject us to anarchy, another familiar pillar of libertarians which they’ve never entirely justified.

Jones’s idea of “justice” or “fairness to particular parties” is no easy paradigm. Both sides in court are seldom equally happy, so on what basis is it to be decided? His very mention of “fairness” and “justice” introduces an element above mere individualism.

Of course, rejecting the “common good” is a standard tactic for new movements — e.g., feminism, which considers it anathema — but it’s always a bit hypocritical since they also enjoy the benefits of civil society, courtesy, gentlemen, right law and order, family, property law, various ordered freedoms, security from predators, etc., all commensurate with the common good. That individuals benefit from the common good in many ways (a sort of trickle-down phenomenon) should be a given.
—W. EDWARD CHYNOWETH
Sanger, Calif.

Harold Jones, Jr., replies:

The “common good” is of necessity the good that is actually enjoyed by particular persons. There is no higher entity from which it can, in Mr. Chynoweth’s words, “trickle down.” It exists only to the extent that it bubbles up in the experience of concrete individuals.

A sense of “justice” is a part of this experience. It arises from the conviction that the law will be consistent in its defense of reasonable conduct. This does not mean that every party to every lawsuit will leave the court rejoicing. It means rather that third parties can look at the decision and reliably find either encouragement or warning with regard to whatever it is they may be planning. It means that laws can be trusted, in the words of Justice Holmes, as “prophecies of what the courts will do.”

The Collapse of the Common Good describes a society in which this has ceased to be the case. Its author fails to see that the ills he deplores are the result of what he suggests as a remedy. They are the result of government by men rather than by law. They are the result of precisely the fact that those whom Mr. Howard refers to as “people with responsibility” (bureaucrats) are permitted to impose their will on others “just because it seems right” (to the bureaucrat). The “plain common sense” to which Mr. Chynoweth makes his appeal says that any “good” forced upon the individuals concerned is not “common,” and it is unlikely to be experienced as “good.”

The level of social cooperation is highest when the government is restricted to guarding the borders, minding the infrastructure, and protecting the unoffending citizen. Under such a system, individuals can be confident about the rewards of honest effort. Each seeks his or her own good by providing something others regard as valuable. Any “debate,” as Mr. Chynoweth puts it, “over just how far government should go” is ultimately a debate over whose interests are to be encouraged and whose are to be sacrificed. When that debate is taken seriously, people seek to advance themselves not by providing a service but by having the law declare they are entitled to something at the expense of their neighbors. It is then only a short step to Hobbes’s description of the struggle of “every man against every man,” and to the social collapse of which Philip Howard writes.

Nature Conservancy Is Not Benign

To the Editor:

Re: Arthur Williams’s letter on the Nature Conservancy (TNC) in your October 2003 issue: TNC is not the benign organization that Mr. Williams holds it out to be. It lives not on individual donations but on corporate grants and federal tax dollars—more than $32 million between 1995 and 2000. Your readers may want to read the Washington Post’s investigative series on TNC, peruse some of the TNC-related postings on www.propertyrightsresearch.org and www.eco.freedom.org (instructive is the article “Nature Conservancy—Fraud and Theft”), and read “Nature’s Landlord,” published by Range Magazine.

The TNC may not engage in the terrorist activities used by Earth First, but it is advancing the same environmentalist goal— evict humans from broad areas of the country (a.k.a. The Wildlands Project) and prevent the productive use of land. The ongoing revelations about TNC’s modus operandi bring to mind Lord Acton’s observation on power and corruption.

—JOHN D’ALOIA JR.
St. Mary’s, Kansas

No Tears for Drug Companies, Please

To the Editor:

I always enjoy the articles in The Freeman: Ideas on Liberty. As a physician, I wish to comment on Doug Bandow’s article, “Healers Under Siege,” in the November 2003 issue.

In the article, the author paints the drug companies as underdogs — under siege. The reality is these companies have had their “foot in the door” at the Food and Drug Administration (FDA) for about 100 years. The Bureau of Chemistry, later renamed the FDA, was formed in 1906. Recent studies showed that over 50 percent of FDA employees were consultants for or in some way had worked for drug companies before or after their tenure at the FDA. This is a shocking case of the “revolving door” between a government agency and the industry it is supposed to regulate.

The legal “drug culture” in America, the product of excellent public relations and FDA rules, is not improving the health of the American people. That is a major reason health-care costs are rising so fast. Drugs are excellent for short-term trauma medicine. However, many drugs are toxic, and longterm they damage the body.

A recent study by the American Medical Association found that side effects of pharmaceuticals killed about 192,000 people each year, just in hospitals. This makes pharmaceuticals the fourth leading cause of death in America. There is definitely trouble in paradise, and the cost explosion in health care is but a symptom. Drug manufacturers lobby hard to defeat any proposals that would allow alternative products on the market that are far safer and less costly. The drug industry is part of a medical cartel held in place by licensing laws, hundreds of other anti-consumer laws, and the FDA, which has legislative, executive, and judicial powers all rolled into one.

For this reason, I grow weary of articles praising or feeling sorry for the drug industry. The reality of the legal drug culture is a classic case of government regulation gone awry.
—LAWRENCE WILSON, MD
via e-mail

Doug Bandow replies:

There’s no doubt that drug makers work hard to game the regulatory process, but that’s hardly a surprise when Washington asserts its control over the approval of new medicines. Government control is no more justified there than elsewhere in the healthcare system—such as limiting competition with MDs by other medical professionals. And while drugs should not be viewed as the only remedy for disease and injury, their benefits can be enormous.

To the Editor:

Although I don’t see any flaws in your arguments about the theory of free trade in your column for the April 2004 issue of The Freeman, you should at least acknowledge the distortions in most any nation’s economy because of government intervention and direction. Because of that government involvement, I question whether we really can have free trade in the world today.

Just because jobs move to other countries where tasks can be done more cheaply than in this country does not necessarily mean that it’s because of the working of the free market. In fact, that is certainly not the case. Most, if not all, countries subsidize their industries so that they can compete with American companies or, in some cases, overtake and replace them. . . . For example, Japan set up national industrial policies to subsidize their electronics and steel industries specifically so they could overtake the U.S.’s. . . . [T]hat’s also why Japan’s economy has been stagnant for the past ten or so years. . . .

One may discuss the ability of governmentsubsidized goods to cross borders freely; but free trade? It can’t exist under the current state of political control of economies. Let’s remove the controls in our own country first, then talk about free trade.
—JOE OGRINC
Bratenahl, Ohio

Sheldon Richman replies:

My article did what is suggested in the letter: “[T]he mixed economy creates problems that appear attributable to international trade. . . . Finally, the doomsday scripts written by the free-trade skeptics confuse the effects of trade with those of pervasive government intervention in the economy. Yes, free trade requires people to make adjustments. Here’s how the government can help: cut spending, slash and repeal taxes, abolish regulations, and move to market-based money.”

Even if foreign competitors are subsidized to the extent that most people think, why is it assumed that shelter from competition would make those firms efficient? We should expect just the opposite. Japan’s record of helping industry has been unspectacular, despite impressions to the contrary. Foreign subsidies are indeed unjust to the taxpayers who have to provide them, but they do not violate free-trade principles per se, which merely call for borders open to goods and services.

Was Mises Right about Copyrights?

To the Editor:

In the June issue, Bettina Bien Greaves explored Ludwig von Mises’s opinions on copyrights and patents, and finds that Mises gave at least tacit approval of them. I thank her for bringing our attention to this issue. Her article shows that even the greatest minds can sometimes fall for popular fallacies. At least Mises recognized that copyrights and patents are monopolies created and enforced by a government.

One of the fastest growing areas of the economy today is in works, such as Linux, which are explicitly put in the public domain by the inventors so that they can continue to benefit from progress in technologies necessary for their work without impediment of copyrights and patents. Sharing technology improves efficiency and standardization, especially in favor of those who share that technology. This flies in the face of Mises’s conjecture that if factor fis needed for product g, and f does not attain any price at all, then production of f might need a government monopoly for g to be available. . . .

Mrs. Greaves says, “if the government is to protect property, it must define that property.” I think that such definition might be unsupportable and contrary to natural law. In natural law, a property right is authority to decide how some thing is used. This right is natural, because no two people can use the same thing at the same time. With a patent, one has the pledge of the government that it will assault someone who is imitating one’s patented methods. An unlimited number of people can imitate a method; and very likely no one will know about the vast majority of imitations. So, I find it difficult to call a patent something that can be owned in the same sense that physical property can be owned. To the extent that the government uses patents and copyrights to justify restricting the use of one’s mind, skills, and desired use of property, patents and copyrights involve government violation of property rights rather than protection of the same.

Mrs. Greaves notes that James Madison included copyrights and patents in the U.S. Constitution. However, the writers of the Constitution did so with hesitation, and Thomas Jefferson had serious concerns that merited several letters to James Madison. (See Copyrights and Copywrongs by Siva Vaidhyanathan, 2001.) It is also not at all clear to me that Madison’s inclusion within property rights of “opinions and the free communication of them” meant copyrights and patents. . . .
—JOSEPH D. RUDMIN
rudminjd@cisat.jmu.edu
Harrisonburg, Va.

To the Editor:

Bettina Greaves’s scholarly article on how Mises viewed copyright and patents fulfills the limited objective set by its title, but unfortunately leaves open the question of how those issues might be resolved in a properly free society; that is, one burdened by no irrational presumption that any solution must be furnished by a government.

Supposing that we can bring about such a society, the questions of how composers, writers, and inventors could protect their intellectual property becomes surprisingly simple: for the only “rule” applying would be that no obligations exist except those undertaken voluntarily by contract — that being an alternative expression of the nogovernment premise. Thus if Mrs. Greaves ad written a masterpiece on economics, she would consider whether or not it should be published, hopefully bringing her rich rewards as customers buy copies. If so, she would specify simple terms of contract governing each and every sale; they would include a clause that says the buyer may not under any circumstances copy the work.

Should a buyer subsequently break that contract and sell knockoffs of a work he does not own, he would be made to compensate the author. . . . A powerful deterrent, to be enforced of course by a freemarket justice system.

Similar terms would restrict those who broadcast music and who listen to it, and those who place CDs on the Internet, etc. There would be neither need for nor possibility of “laws”—which are, being no more than one-sided contracts, hopelessly inadequate.
—JIM DAVIES
jimdav@copper.net
Newbury, N.H.

Bettina Bien Greaves replies:

Mr. Rudmin’s criticism, as I see it, consists of three major points. He suggests that (1) by endorsing copyrights and patents, Mises fell for a “popular fallacy”; (2) to the extent that patent and copyright laws prevent individuals from copying a patented device or process, they restrict individuals from using their minds and skills; and (3) government violates “natural law” when it defines property more precisely than to say that “a property right is authority to decide how some thing is used.”

One may or may not agree with Mises on copyrights and patents. Perhaps he did fall prey to mainstream thinking. After all, the stand one takes is a value judgment, not a question of right or wrong or scientific law. Mises gave the subject serious thought and he agreed pretty much with the view, expressed in the Constitution, that copyrighting written works and patenting inventions would help “To promote the Progress of Science and useful Arts.” It is certainly correct to say that “a property right is authority to decide how something is used.” However, this is not a sufficient definition. All property originates from self-ownership, appropriation, and occupation of unused natural resources, production, exchanges, and gifts. However, it is not “natural law” that determines what is private property in today’s complex division of labor economy. Market participants etermine what is property by trading and by the terms in their contracts. They are continually exchanging goods and services in line with mutually agreeable terms, and ownership is continually shifting. If differences and misunderstandings arise concerning the terms of a contract, it is up to the courts to settle such disputes and assure that each market participant receives the property that is his due. And that is not always easy, even in the case of physical property. In some cases the courts — the government — must even define property and decide to whom it belongs.

I do not agree that government uses patents and copyrights to justify restricting the use of mind, skills, and property. What the patent gives the creator of an invention (a “practical application” of a principle, not the principle itself) is the exclusive right — for a certain period — to make reproductions to sell or to lease to others, or to authorize others to construct and operate the invention. The patent application is public, and its information may save would-be inventors the trouble of doing their own research and enable them to develop a new invention that they can then patent.

In response to Mr. Davies, what the copyright accomplishes is to define a new literary or musical creation as more than a physical object comprising sheets of paper with printing on them, which may be disposed of as the owner wishes. The copyright recognizes a property right of the creator not in the ideas presented, but “in the form or expression of ideas.” This gives the creator “the exclusive right to reproduce the work, prepare derivative works, or to perform or present the work publicly.” Thus once a work has been copyrighted, its “form or expression of ideas” attains special status as “property.”

I concurred on one point with “The Subsidy of History” by Kevin Carson (June 2008). It is not sound to view the historical development of capitalism as though it evolved strictly by fairness, without including the vices of mankind. Surely history is better stated by Burton Folsom in The Myth of the Robber Barons that there were “political entrepreneurs” and “market entrepreneurs” (even though Mr. Carson might criticize the latter as well).

However the view that emphasizes the reestablishment of justice, by confiscating much that is owned by the wealthy, leaves out much of reality. Today, we are beset by those who advocate taking from the oil companies, solely because they make “exorbitant profits.” Then there are those who seek to restore to Mexico the American states that were once Mexican territory. Similarly, there are those who seek reparations for descendants of slaves. These approaches take the view (which Mr. Carson might share) that the issue is solely a matter of justice, rather than adherence to the rule of law.

Hence let us assume, arguendo, that everything written in “The Subsidy of History” is completely correct (which I take as viewing capitalism in its worst light). There remain other factors to be addressed. For example, much of what industry has produced has been earned. Moreover, much of the earnings of the wealthy have been redistributed through taxation (and other mechanisms) to others. So it is not simply a matter of taking from the thieves to return to their victims, but also of considering that which industry has developed and that which our government has stolen from them. Moreover, it is overreaching for a country to attempt to correct that which was done prior to a man’s life. Thus, while there was loss to a man whose father was enslaved, it is beyond the capability of society to compensate for that loss. It is more than challenging for society to adequately deal with the injustices where those involved are living and the facts obtainable. . . .

Consequently, to deal with the issues of our day, I would begin with the presumption that possession is evidence of ownership. Then, given a case brought by an injured party (to the extent that he has been harmed), full compensation should be made. Finally, each guilty party requires due punishment. To operate instead by conflicting visions of justice would require a nation not of laws but of men.

—ALLEN WEINGARTEN
Monroe Township, N.J.

Kevin Carson replies:

I agree with Mr. Weingarten that there are good elements in American capitalism. Every society in history has been a mixture of the political and economic means to wealth. But even in American capitalism, I believe the overall structure is largely defined by the political means and that genuine markets operate mainly in the interstices of the state-corporate system. A purely market system, in my estimation, would have a lot more Ralph Borsodi and Lewis Mumford, and a lot less Alfred Chandler.

I also agree that there are serious practical difficulties involved in any rectification of past injustice. But inaction carries its own cost in ongoing injustice. The only fair comparison is between the net levels of justice involved in action and inaction, respectively. I’ve already made it clear where I believe the advantage lies in such a comparison.

According to Kevin Carson (“Hierarchy or the Market,” The Freeman, April 2008), a private business corporation is in effect “an island of calculational chaos in the market economy.” . . . Carson writes, “Those at the top make decisions concerning a production process about which they likely know as little as did, say, the chief of an old Soviet industrial ministry.” But that is not true with respect to modern corporations. They operate in an economy with private property, privately owned businesses, and a market for goods and services in which prices develop. Thus a corporation is not similar to a socialist state; it has market prices to guide it.

Carson mentions F. A. Hayek’s “The Use of Knowledge in Society,” which explains that the knowledge corporations need to plan their operations is widely dispersed among countless individuals. But Carson fails to note that Hayek explained how this information becomes available to businessmen through market prices. . . .

Businessmen make calculations on the basis of market prices not only when exchanging with other businesses but also when shifting goods and workers internally from one department to another. Almost every day, newspapers report some example of entrepreneurs making plans on the basis of market prices and using bookkeeping to determine income and outgo. . . .

It is true, as Carson points out, that government interventions—regulations, taxes, and subsidies—distort prices and the pattern of production, so that today’s prices are not truly free-market prices. Nevertheless, even such not-truly-free-market prices . . . make available to businessmen widely dispersed information and enable them to calculate fairly accurately, formulate plans, estimate costs and income, and anticipate profits and losses. Thanks to market prices and modern bookkeeping methods, our corporations do not yet operate “in a manner quite similar to the bureaucracy of a socialist state.”

—Bettina Bien Greaves
Hickory, North Carolina

Kevin Carson replies:

Most of the issues Mrs. Greaves raises were addressed in my June 2007 Freeman article, “Economic Calculation in the Corporate Commonwealth.” I refer her to it, since I cannot do her arguments justice in the constraints of a letter.

I would dispute Mrs. Greaves’s contention that a genuine price system operates within the large corporation, either as an effective mechanism for assigning values to production inputs or for aggregating dispersed knowledge. Corporate internal-transfer pricing, in the case of goods for which there is no external market, are essentially what Murray Rothbard denounced, in Man, Economy and State, as play-acting, directly comparable to the pricing Oskar Lange proposed under his market socialism. Peter Klein expounded on this at much greater length in “Economic Calculation and the Limits of Organization” (The Review of Austrian Economics, vol. 9, no. 2, 1996). Rothbard and Klein probably underestimated the extent of the problem. The majority of intermediate goods to which internal-transfer prices are assigned are product-specific components for which no external market exists.

The phenomenon Mrs. Greaves describes, of corporate management using external market prices as a guide to internal-transfer pricing, is just the kind of estimation Ludwig von Mises argued state-socialist central planners would have to resort to in assigning prices to inputs in their domestic economies. Mises, it goes without saying, regarded this as highly unsatisfactory.

Pricing based on the available supply and the valuation of purchasers under the spot conditions of the market may lead to irrational allocations given different conditions of supply and valuation within the firm. . . . But if all that matters is that some external market continue to exist, no matter how unrepresentative of conditions within the firm, then a state-planned economy ought also to work just fine with implicit pricing based on foreign markets, so long as some market exists anywhere in the world.

To address Mrs. Greaves’s other major point, on distributed knowledge, the source of the trouble is the moral hazard resulting from the separation of “ownership” from control, and of labor from management. Management’s attempts to aggregate knowledge in a hierarchy are limited by the agent’s unique knowledge. Unless the agent is a residual claimant, who fully internalizes the costs and benefits of his own actions, he has every reason (and opportunity) to take advantage of his private knowledge to the disadvantage of the principal. Management is insulated from effective external control by its use of retained earnings for most new investment and its ability to rig the internal rules of corporate governance to thwart hostile takeovers and proxy fights.

In American corporate culture, despite management’s ostensible role as agent, its normal practice is that of an Ottoman tax farmer: gutting long-term productive capabilities in order to maximize short-term profits and game its own bonuses and stock options. . . . Double-entry bookkeeping is a doubtful instrument for controlling an agent when the agent is keeping the books.

The Fed was established in 1913 in the hope of avoiding the banking crises that had periodically occurred because of a shortage of funds. The Fed was to create a “flexible” money supply to satisfy the “needs of business” and to serve as the lender of last resort to banks in crisis. Thus its very purpose was inflationary. It fostered “easy money” by making loans available at relatively low interest rates. The new “easy money” lured businessmen to undertake enterprises they would not have considered profitable at market interest rates. Thus business boomed. The stock market flourished. If there had been no boom, there would have been no monetary contraction. Thus the Fed’s responsibility for the depression extends to the preceding boom.

Ludwig von Mises laid the groundwork for this Austrian theory of the business cycle in his first book, The Theory of Money and Credit, in 1912. He showed that because under inflation prices would rise sharply without apparent end (threatening runaway inflation), a crisis is inevitable.

As far as I know, Friedman gave no indication that he realized that the choice between runaway inflation and depression was inherent in the very principle on which the Fed was based. But then he was an inflationist; he believed that only by constantly and steadily increasing the money supply, to keep abreast of increases in production and population size, can an economy prosper.

—Bettina Bien Greaves

by e-mail

Ivan Pongracic, Jr., replies:

Thanks to Mrs. Greaves for these interesting and important points regarding the long-running Monetarist-versus-Austrian debate over the business-cycle theory. This topic was outside the confines of my piece, but it certainly bears closer attention.

The cause of the speculative bubble that led to the stock market crash is an unresolved and somewhat controversial topic. Whereas Milton Friedman and Anna Schwartz accepted that the bubble was caused by investors, seemingly endorsing—at least partly—the Keynesian “animal spirits” explanation, Austrian economists have argued otherwise, beginning with Ludwig von Mises, F. A. Hayek, and Lionel Robbins in the 1930s.

Following in the Austrian tradition, Murray Rothbard in his 1963 book America’s Great Depression collected his own monetary data showing that the Fed engaged in a highly expansionary policy in the 1920s, contradicting Friedman and Schwartz, who claim that the Fed engaged in a basically stable monetary policy during that period.

In the Austrian account, the Fed’s expansionary policy created an unsustainable boom, with the over-expansion of credit distorting interest rates and making it impossible for investors to correctly judge the validity of different business projects, thus leading to the mistakes that manifested themselves in the stock-market crash of 1929.  (Note that the Austrian explanation was not at odds with the rest of Friedman and Schwartz’s story—in fact they are quite complementary. The Austrians argue that poor Fed policy led to the bust of 1929, while Friedman and Schwartz explain how the Fed went on to magnify that bust many times over.) Friedman and Schwartz relied on conventional measures of the money supply to come to the conclusion that the pre-crash period was not inflationary, whereas Rothbard used an unconventionally broad measure to come to the opposite conclusion.

This issue has not been conclusively settled one way or another. The Freeman in fact ran an exchange several years ago between Richard Timberlake and Joe Salerno arguing over this very point, with Timberlake arguing pro-Friedman and Salerno arguing pro-Rothbard (April, May, June, and October 1999 and September 2000, all online at www.fee.org). See also Richard Ebeling’s “From the President” column in the December 2006 Freeman, where he claims that Friedman’s failure to fully grasp the causes of the crash were due to his “aggregate” analysis, which prevented him from seeing the distortions created by the Fed on the microeconomic level. More work is necessary on this debate, though I remain sympathetic to the Austrian argument.

I will take issue with Mrs. Greaves’s letter over one point:  I think it is highly uncharitable—and ultimately inaccurate—to refer to Friedman as an “inflationist.” For most of his life he believed that the benefits of a commodity money (which he recognized as providing a greater check on inflation than fiat money) were outweighed by its costs (digging the metal out of the ground as well as removing it from industrial and ornamental use).  He proposed his constant money-growth rule exactly to check the Fed’s inflationary power, which came with control over fiat money.  But he eventually realized that that power is highly unlikely to be checked by such a rule and therefore changed his mind on this issue.  Friedman was an honest intellectual, willing to admit when he was wrong. We do him—and ourselves—a disservice when we apply labels to him that question his dedication to liberty.

Henry Edmondson describes his book, John Dewey and the Decline of American Education, as “a simple exegesis of Dewey’s writing, with commentary suggesting how his thought finds expression in contemporary American education.” He reminds us that ideas have consequences, and Dewey’s ideas have had disastrous consequences for American education over the past 50 years.

Anyone who attempts to write about John Dewey’s ideas is immediately presented with two problems. The first is selecting works from the vast corpus of writing by and about Dewey. The Collected Works of John Dewey covers 71 years of Dewey’s writing in a mere 37 volumes, while the Library of Congress lists 375 books written about Dewey alone. Edmondson, who teaches political science at Georgia College and State University, focuses on four of Dewey’s major works, Democracy and Education, Human Nature and Conduct: An Introduction to Social Psychology, Schools of Tomorrow, and Experience and Education. He also draws from a number of Dewey’s other major works in educational philosophy, political and social philosophy, and ethics, as well as a wide range of secondary source material. Overall, Edmondson’s coverage of Dewey’s thought is excellent.

The second problem is Dewey’s awful prose and ambiguous ideas. Even William James and Oliver Wendell Holmes, both admiring colleagues in the famed Metaphysical Club, recognized that Dewey’s writing was often vague and confusing. Although Edmondson agrees that Dewey was an abysmal communicator, he argues that readers can overcome Dewey’s lack of clarity by recognizing that he “subordinates his philosophy to his [progressive] politics.” Using that approach, Edmonson is able to provide a succinct overview of Dewey’s ideas without being weighed down by his writing.

Throughout the book, Edmonson highlights Dewey’s disdain for religion, tradition, and inherited values. Dewey claimed that such beliefs are at least signs of unintelligent thinking and, at worst, outright oppression by the wealthy and powerful. Philosophically, Dewey argued that, because human nature is always in flux, fixed values and beliefs are inimical to progress. Consequently, he declared that schools should no longer be a venue for teaching traditional religious and moral values. Instead, Dewey believed that schools should be places where the child’s impulse and whim rule—insofar as those impulses and whims are consistent with the values of Progressivism.

Dewey did not, however, contend that schools should be places of uninhibited activity, as many unfamiliar with his work believe. Edmondson points out that Dewey was a man blinded by his desire to see schools as the means to implement a comprehensive program of progressive social change. As a “microcosm of social life,” the school provided Dewey a convenient place to socialize students into adherents of progressive ideals, that is, collectivism and statism.

Dewey also rejected religion and traditional values in favor of encouraging perpetual experimentation via the scientific method. Edmondson sees this as a streak of nihilism in Dewey’s thought, which might be the most worrisome consequence of adopting pedagogy based on his ideas. One needs to look no further than the legion of constructivist-based programs, such as “I Like Me” and “values clarification,” to identify the kind of destructive influence Dewey’s ideas have had on schooling in the United States.

Within the classroom Dewey insisted that teachers should not impose abstract aims or external standards on their students. Instead, he endorsed learning through play and hands-on activities, and defended an ad hoc curriculum that favored neither vocational nor academic subjects. Dewey maintained that socialization was just as important as teaching essential skills like reading. Edmondson concludes that our current confusion over standards and goals is a “natural consequence of Dewey’s insistence on such fluid educational standards.”

Edmondson includes chapters on the educational thought of Thomas Jefferson and Benjamin Franklin. What might appear to be an unusual detour is actually a very instructive discussion of alternatives to Dewey. At times, Dewey insisted that he was heir apparent to Jefferson, but Edmondson shows that Dewey departed from both Jefferson and Franklin by repudiating those Founders’ shared belief that a vibrant republic requires an education designed to cultivate personal virtue. Dewey’s radicalism is nowhere more apparent than in his rejection of the Founders’ educational ideals.

Finally, Edmondson offers a number of ways that we can renounce our Deweyite inheritance. They fall into two broad categories: philosophical coherence and excellence in teaching. Philosophical coherence includes implementing reforms that restore clarity, traditional values, and the liberal arts to our schools. Edmondson also calls for the abolition of the middle-school, schools of education, and student-learning outcomes, all of which impede genuine educational innovation. He also wants to encourage excellence in teaching by maximizing teacher autonomy and improving teacher preparation.

Those aren’t bad ideas, but what we really need is the one reform that cuts the Gordian Knot—separation of school and state. Dewey’s philosophy would probably never have taken root and wouldn’t last long in an environment where parents made their own choices and spent their own money for education.

This is what makes Theodore Burczak’s Socialism after Hayek so refreshing and intriguing. He is a socialist who has mastered Hayek’s critique of socialist central planning and concluded that Hayek was right: It is impossible to do away with private property, competition, and prices if economic rationality, efficiency, and coordination are to be maintained.

In the opening chapters Burczak explains with impressive clarity the Hayekian view of the social order. Prices are essential for a functioning economic system because they capture and convey multitudes of bits of knowledge that are dispersed among all the members of society. The price system enables each person to use his unique knowledge of his own time and place in the division of labor while coordinating his actions with those of all the other social participants.

As an extension of this, Burczak also accepts Hayek’s argument that the social order that evolves out of the interactions of the multitudes over many years and generations contains more information and wisdom than any group of intelligent planners could ever know. Hence, the idea of socially engineering a society from top to bottom is both absurd and dangerous.

Burczak defends none of the twentieth-century experiments with “socialism in practice.” He views the Soviet Union as an oppressive and exploitive system that plundered the very people in whose name the regime legitimized its power. So the reader at this point might ask, “Then what is left for a self-proclaimed socialist to defend against the Hayekian critique of political and economic collectivism?”

Burczak tries to salvage a reformulated socialism by justifying the welfare state and defending a system of worker-owned and -managed firms in place of the more traditional “capitalist” enterprise in which the businessman hires the services of workers for which they receive contracted wages.

Since Hayek emphasized that human knowledge is inherently imperfect and is decentralized among billions of individuals around the world, Burczak tries to then paint Hayek as an apostle of “postmodernist” philosophy. Since nothing can ever be known for sure and what is tentatively known is always open for revision, Burczak argues that Hayek’s case for impartial rule of law and an equality of individual rights to life, liberty, and property is totally misplaced. The rule of law, he says, is really only the interpretive opinions and ideological biases of judges who serve “class interests.”

Since law cannot be impartial and “objective” in its principles and applications, then we should rely on the greater or more inclusive diversity of democratic politics to construct a consensus about what are the “rights” and social “duties” of each member of society. Since there can be no final “truth” concerning what should be considered the content of human rights, we will merely have a floating and ever-changeable group opinion about these things.

Burczak posits a consensus that we all have obligations to each other to assure a meaningful life worth living, which means a mandatory redistribution of wealth to guarantee everyone a minimum standard. He never deals with how this will be enforced, though of course there is no way to establish this guaranteed standard of living other than through compulsory taxation. Because there are no final or ultimate moral standards, the recalcitrant who may have to be brutalized, imprisoned, or even killed to see that he “contributes” his “fair share” will not have been coerced or murdered but merely “conversed” with in the continuing postmodern dialogue over what is socially good or just.

Of course, even if we accept the premise that as human beings we have a certain ethical obligation to assist our less fortunate fellow human beings to have a fuller life, it does not follow that this requires the welfare state. Indeed, one can easily apply Hayek’s arguments concerning the division of knowledge in society to argue that only individuals familiar with the particulars of the time and place in which they live will have sufficient usable knowledge to assure that those deserving of charity actually receive it in the most effective way. The welfare state has the same inherent organizational weaknesses as all other forms of government planning: it is imposed from the top down and must have some degree of a “one-size-fits-all” design. Private charity sets in motion what Hayek called the “discovery procedure” of competition. In the rivalry for voluntary support from the citizenry, private charities have to demonstrate their ability to better achieve the goals for which they have been established. Thus the likelihood of actually solving these “social problems” is increased.

The other element to Burczak’s “post-Hayekian” reconstruction of socialism is his case for worker-owned enterprises. He merely takes for granted all the ancient Marxian theoretical baggage concerning necessary labor (that amount of work and output needed for the worker to sustain himself and his family) and surplus labor (the amount of work and output in excess of this minimum). Through the wage contract, Burczak states, the capitalist-owner of the enterprise “demands” a portion of the “surplus” output that the workers’ own labor produces and therefore “exploits” them by that amount, with this being the “profit” the capitalist keeps for himself.

All of this was answered long ago, in the late nineteenth century by another Austrian economist, Eugen von Böhm-Bawerk. He showed that in the long run, in a competitive market, there are no profits. Entrepreneurial rivalry results in resource prices (including wages) being bid up as enterprisers attempt to expand output where profits exist; then when that greater output is offered on the market, consumer prices are bid down in the attempt to attract more customers until profits have been competed away.

Even in the long run, however, there is normally a discrepancy between what entrepreneurs pay for resources (including labor) and what the products sell for. But Böhm-Bawerk demonstrated that this is the implicit interest earned by businessmen-employers for advancing wages to their workers during the production process. Since all production takes time, if those employed in the enterprise are not to wait until the product is ready for sale in the future to receive their wages, then someone must pay them today for work that will not result in a completed product until tomorrow. To forgo other uses for which he could have applied his savings, the businessman-employer receives a  “premium” over even the long-run costs of production as compensation for “waiting” until the product is in finished form and sold to the buying public.

The other element that Burczak completely misses is that production does not just happen. It almost always requires a guiding mind that envisions a demand for a product in the future, who imagines ways of combining the factors of production to transform them into a useful finished product, and who sees ways of effectively organizing the enterprise to achieve this end. In other words, the entrepreneur is the element missing from Burczak’s analysis, and therefore he fails to fully understand why what most enterprises produce cannot be the result of some joint democratic decision-making process by the worker-owners.

Nothing prevents workers from pooling their savings and other resources and forming jointly owned firms among themselves. But we see few instances of this. This suggests that many people do not want to take on the time, risk, and uncertainties of being a boss. They want to have the greater certainty of a contracted wage for which they do a specified amount of work each day, while someone else bears the costs of planning, overseeing, and directing the enterprise.

If workers did see the benefits and advantages to more widely participating in worker-owned firms, it would not be necessary for Burczak to make the case for political prohibition of traditional employer-employee contractual relationships to force worker-ownership on “the masses.”

While a worthy attempt to honestly confront the challenge that Hayek made against socialism, Burczak’s analysis ends up simply demonstrating how hollow the socialist ideal remains, even in this reformulation.