In our economy of complex interrelationships, economic crises with wide-ranging consequences have become almost daily occurrences. Yet practically no one seems to understand what causes them. Most modern economists look at statistics and try to anticipate what will happen by extrapolation. Only Austrian economists understand the economy as the outcome of complex interpersonal relationships and transactions. Only Austrian economists trace economic crises back to the actions, decisions, and choices of individuals under various circumstances. As one of this country’s leading Austrian economists, Hans Sennholz not only analyzes many economic crises, but also suggests needed reforms.

This book contains 42 articles written during the years 1997 to 2003 by Professor Sennholz, who served as FEE’s president from 1992 to 1997. He was the first student in this country to earn a doctorate under Ludwig von Mises. During almost 40 years as a professor at Grove City College, Sennholz introduced Austrian economics to thousands. He retired from Grove City in 1992, but Sennholz can’t retire from teaching and communicating; he continues to lecture, write, and comment on current events.

When new technologies are developed, production can be improved and expanded. Economies in transportation and communication make the world smaller so that it costs less to deliver raw materials and finished goods to users. As information and money can now be transmitted almost instantaneously throughout the world, it is easier, faster, and less expensive to carry out transactions. Consumers throughout the world benefit. Despite all our progress, however, we still find that economic troubles beset many nations. The blame is almost always misplaced—on business greed, on foreigners, on the environment. Sennholz makes it clear that the seeds of economic troubles are sown by bad governmental policies.

Among the crises Sennholz considers here are stock-market bubbles, inflation in Mexico, the bankruptcy of Argentina’s government, economic recession in Japan, the collapse of the Thai exchange rate, Germany’s new welfare society, and the rise (or fall) of the Euro. According to Sennholz, a crisis creates the opportunity for a new beginning; it is never too late to reform.

Sennholz blames the Fed’s monetary policy for the United States’ soaring deficits and the shrinking purchasing power of the dollar: “No central bank on earth, not even the Federal Reserve, can continually inflate its currency and defy market rates of interest without harming both its currency and the economy,” he writes. He recommends that we abandon the Fed’s monetary manipulation and return to gold money. “[T]here cannot be any doubt that a gold dollar would restore justice in international relations and reassert American power and leadership. It would clear away much conflict and strife and pave the way toward a more equal and peaceful world order.”

Regarding Argentina’s disastrous experience with inflation and bankruptcy, Sennholz states, “Great crises call for extraordinary measures that redress the causes of the evil. The Argentinian crisis presents not only great dangers to the country’s political and economic order but also an opportunity for a new beginning. . . . In a free and unhampered contract system, creditors and debtors, banks and depositors would soon come to reasonable and fair agreements about their contractual relations. A contract system would call for no new taxes, not even compensation for harm done by law and regulation. It would reopen all banks and allow them to meet their obligations to the best of their ability. It would expect the government to honor its peso obligations. But it would also demand that government cease and desist from any more regulations, new outlays, new taxes, and new disruptions of any kind.Argentinians need time and a period of peace for recovery.”

That’s the essence of the Sennholz approach—freedom works; government control doesn’t.

Whether Sennholz is discussing an economic crisis in the United States or elsewhere, his analysis is always sharp, incisive, and enlightening. He makes understandable even the most complex situations. In the last analysis, he traces the origin of almost every crisis to government-fostered inflation and credit expansion. The scenario varies from time to time and country to country depending on many factors: government spending, regulations, interest rates, taxes, and more. But the culprit is always monetary manipulation.

The excellent essays in Sowing the Wind will convince just about any reader that the economic troubles of our times are rooted in government policies that interfere with the functioning of the free market and that the way to escape them is to rely on the voluntary mechanisms of production and exchange.

To obtain insight into Hayek as a person, scholar, and philosopher, Ebenstein, himself an economist and author of six previous books on economic and political thought, read and re-read Hayek’s works, and researched his life thoroughly, including letters to and from Hayek, articles about him, and interviews with him and his friends. Then Ebenstein wove all that material together to describe Hayek’s intellectual “travels.” Separate chapters are devoted to persons important in Hayek’s intellectual life: John Stuart Mill, Mises, Lionel Robbins, John Maynard Keynes, Karl Popper, and Milton Friedman.

Mises encouraged Hayek’s studies of the importance of competitive market prices, which led to his major contributions. His concept of the market’s “spontaneous order” came from his understanding of prices and demonstrated that, as Ebenstein writes, “absent an orderer, human society can achieve great orderliness.” Too little emphasis, Hayek wrote, “has been placed on the fragmentation of knowledge, on the fact that each member of society can have only a small fraction of the knowledge possessed by all, and that each is therefore ignorant of most of the facts on which the working of society rests.” Hayek explained how market prices help to alleviate the knowledge problem by transmitting widely dispersed, nonverbal knowledge.

In 1920 Mises argued that a socialist society — in which property was collectivized, no factors of production were traded, and hence no market prices existed — would be unable to function because socialists would be unable to perform economic calculations. To this argument Hayek added that, without the knowledge market prices impart, the planners would lack the very information they needed to formulate a plan.

In England Hayek taught at the London School of Economics, wrote several books, and gained a reputation as a technical economist. He debated John Maynard Keynes. Hayek said he was then considered “one of the two main disputing economists. There was Keynes and there was I.” Keynes died in April 1946 and became “a saint.” But, Ebenstein writes, Hayek discredited himself academically by writing a book for popular consumption, The Road to Serfdom, and “was gradually forgotten as an economist.”

As a young man, Hayek saw his native Austria drift toward socialism. And again in England during World War II he witnessed Britain drift in that direction. The Road to Serfdom portrayed German Nazism and Soviet socialism as essentially the same. Socialism and liberty were incompatible, he maintained. The most effective way to assure freedom and individual rights was not central planning, but market competition within a “carefully thought-out legal framework.” “[A] policy of freedom for the individual is the only truly progressive policy.” The “socialists of all parties,” to whom Hayek dedicated the book, were apoplectic and responded with vehemence, but rarely came to grips with Hayek’s arguments.

The book’s fame soon crossed the Atlantic. Through the efforts of the London-based Institute of Economic Affairs, its devastating critique of socialism gained notoriety and later political influence during the administrations of Prime Minister Margaret Thatcher in England and President Ronald Reagan. The book also “revolutionized” Hayek’s life, Ebenstein notes, transforming him from economist to political philosopher. In 1950 Hayek moved to the University of Chicago’s Committee on Social Thought. His next two major works, The Counterrevolution of Science (1952) and The Constitution of Liberty (1960), enhanced his standing as a political philosopher. The former demonstrated that positivists and historicists, by applying the methods of the physical sciences to economics, were laying the grounds for socialism; the latter presented his philosophical defense of liberty. Hayek’s basic thesis throughout his life, appearing most prominently in his later writings, was that “[t]he most important institutional safeguard of individualism is the rule of law.” “Where not laws, but men rule,” he maintained, “no one is free and great coercion is inevitable.” Hayek was adamant that nothing had contributed more to the prosperity of the West than the “relative certainty of the law.”

Hayek’s three volumes, Law, Legislation and Liberty (1973, 1976 and 1979), plus a summary volume, The Fatal Conceit (1988), established his well-deserved reputation as the philosopher of liberty.

According to biographer Ebenstein, “His writing will serve as a beacon to enlighten centuries.” We are indebted to this author for his excellent work in illuminating the long and productive life of this great advocate for liberty.

Invisible Hands by Kim Phillips-Fein, professor of American history at New York University’s Gallatin School, is a well-researched and thorough account of resistance to government economic domination. It’s also a veritable Who’s Who of twentieth-century “conservatives” who have been trying, ever since FDR’s New Deal, to “propagate a new mentality.” Phillips-Fein provides an evenhanded investigation of the counterreaction, launched mainly by people in the business world, to the authoritarianism of the New Deal. While she deftly illuminates that part of the “conservative” movement, Phillips-Fein fails to note that the “conservatives” consisted not only of free-market stalwarts like Mises but also many corporate-state advocates who just thought the New Deal went too far.

Franklin D. Roosevelt took office after criticizing his predecessor for expanding government and increasing public spending. Yet once in office FDR embarked on new programs that increased spending, centralized power, and imposed many regulations and taxes. Roosevelt won over public opinion, but many Americans were alarmed by his programs and philosophy.

The book describes the founding of the American Liberty League by a group of businessmen who wanted to preserve “private enterprise” (but were no fans of laissez faire). The National Association of Manufacturers joined in the struggle and even claimed by 1940 that it was winning the battle against the New Deal. Then came World War II, and it became “unpatriotic” to criticize federal controls and regulations. Only at war’s end were the varied “conservatives” able to resume the struggle to limit government power.

Phillips-Fein maintains that the decline of the “liberal” New Deal regime “lay not only in its inner tensions . . . but also in the slow preparation of an alternative agenda by its business opponents.” She acknowledges the crucial role of economists such as Ludwig von Mises and Friedrich Hayek in guiding that agenda. Also influential were the ideas of Leonard E. Read, founder of FEE, and the international Mont Pelerin Society of free-market advocates.

Invisible Hands also covers religious groups that were formed to promote the freedom philosophy and oppose communism.

Some of the success of these groups came through the publishing of books and magazines to promote the free market and attack socialism. Chambers of commerce supported entrepreneurship and argued against interventionist government. Business groups introduced free-market materials in the schools and a few universities created courses in entrepreneurship.

Collective bargaining, as required by the National Labor Relations Act, led to conflict and strikes. Companies often gave way to union demands, but some fought back, and the book details the personalities and events. The Kohler Company withstood a long strike in 1954, operating with non-union workers. General Electric’s Lemuel Boulware stood up to the unions, publicizing GE’s best offer and saying, “Take it or leave it.” Unfortunately, the courts declared his approach illegal.

The genial, articulate former movie actor Ronald Reagan proved an effective spokesman for GE and free enterprise. He had the common touch and spoke of providing jobs instead of encouraging capital formation. His attitude toward business? He was, the author writes, “the candidate of the entrepreneur, the farmer, the small businessman, the independent.”

Phillips-Fein looks on Reagan’s capture of the presidency in 1980 as a victory for “conservativism” and the anti-New Dealers she describes. “A great transformation of American politics began during the years that Ronald Reagan was in the White House,” she writes. Reagan fired and replaced 11,000 air traffic controllers after their illegal strike in 1981. Strikes and union membership declined. The labor movement dwindled, and the left’s statist agenda was held in check.

The author recognizes that Reagan failed to eliminate the welfare state or to shrink government bureaucracies. Still, she says, “the political cause for which they [market enthusiasts and business conservatives] labored has in large part been triumphant: the New Deal has been turned back.”

But that conclusion is unwarranted. The New Deal mentality is still alive and well. The government is growing rapidly in scope and power. Advocates of limited government and free enterprise now face a new and perhaps even more daunting challenge in Barack Obama’s “new New Deal.”

Invisible Hands is a carefully researched history of the struggle to “propagate a new mentality” to replace statist thinking. The history is sound even if the writer’s conclusions aren’t always solid.

Interventionist ideas dominated Europe when Mises was a young man. He wrote later that when he entered the university in 1900, he was “a thorough statist [interventionist].” Unlike most of Mises’s fellow students, he was not a Marxist; he had studied the works of Marx, Engels, and Lassalle, found them incomprehensible and so was “consciously anti-Marxian.”

At that time the teachings of Gustav Schmoller’s Historical school of economic state science prevailed in the German universities. According to Schmoller, the only scientific method for the sciences of human action was history, the study of the past from which economic theory was to be abstracted. Moreover, Schmoller’s school did not really deal with scientific problems but was dedicated instead to the glorification and justification of Prussian policies and Prussian authoritarian government. Thanks to Mises’s intense interest in historical knowledge, he never accepted historicism, having rejected this view of economics even as a high school student.

During his Christmas vacation in 1903, Mises’s senior year at the university, he read Carl Menger’s Grundsätze der Volkswirtschaftslehre (Principles of Economics). The book opened his mind to a new way of thinking, a completely different approach to economics from that of either Marxism or historicism. As he wrote later, it “made an ‘economist’ of me.”

As Menger presented it, economics is a science of reason and logic, the study of the actions of men, their ideas, and the means they use to accomplish their chosen ends. Menger’s book dealt with the economizing individual as a universal phenomenon–that is, his principles apply to everyone at any time. We all act on the basis of our own subjective values in the effort to acquire things we consider important for “our continued existence and development (life and well-being).” We try to use what we have to get what we want as expeditiously and economically as possible, given the time and circumstances. Once Mises realized that economics was a science and that subjective value and marginal utility were the bases for all economic theory, his interest turned from history to economics.

Subjective value theory explained that voluntary exchanges improved the situation of both parties to a trade. One man’s gain was not another man’s loss; rather, both parties expected to benefit. In the absence of force, fraud, or human error, they did. Then ipso facto in a free-market world, conditions would continually improve and people would become better off , richer, more peaceful, and more prosperous. But the market then was by no means free. Almost all European governments forcefully interfered with it, regulating and controlling their economies to a considerable extent. The Austrian government controlled rents, restricted imports, and inflated the money supply to subsidize the railroads and food producers. Germany’s socialistic policy would culminate in an almost completely controlled economy in World War I and later in Hitler’s National Socialism. In the Soviet Union the communists destroyed the market and private property.

Mises reasoned that if in a free-market society, where peaceful social cooperation prevailed, the voluntary actions and choices of individuals tend to coordinate the actions of all market participants, improve production, and contribute to peace and prosperity, then interference through force or threat of force hampered and disrupted that process. Mises was a serious and conscientious student. The more he studied and thought, the more he realized that future peace and prosperity depended on promoting an understanding of good free-market ideas and opposing bad government-interventionist ideas. As a high school student he had adopted as his motto a phrase from the Latin poet Virgil: “Do not yield to the bad, but always oppose it with courage.” Hence he determined not only to improve his own understanding of economics but also to fight interventionist ideas by explaining their harmful consequences and by teaching sound economic ideas in the classroom, lectures, seminars, books, and articles.

Early Development

In his 1922 book, Socialism, Mises followed Menger in explaining how money developed out of barter as a trading commodity and became society’s medium of exchange. Without such a common denominator, traders would be unable to calculate consumer demand, production costs, and selling prices. Mises pointed out that in a socialist society without private property, there could be no market prices and without market prices, the task of the government’s central planners would be like trying to steer a ship without a rudder–chaos!

In Mises’s earlier book, The Theory of Money and Credit (1912), he pointed out that by lowering the interest rate asked of borrowers, banks could expand credit, create more “money” to lend, make borrowing easier, and thus stimulate businesses artificially. He explained later that the German government itself had been responsible for its runaway inflation in 1923 by printing money to spend and to lend. Only much later did Mises realize that unexplained economic crises were due not to market failure, but to the artificial reduction of interest rates–by banks and by governments–that caused a “boom” by inducing businesses to borrow more than they would have otherwise and then later a “bust,” when their projects, which turned out to be malinvestments, made losses.

A Comprehensive Treatise

Mises had written books on money, inflation, the trade cycle, and socialism, as well as articles on practically every aspect of economics. Yet he felt the need to integrate all the teachings of the Austrian school–subjectivism, the division of labor, monetary theory, international trade, pricing, competition, monopoly, savings, investment, and more–into a comprehensive treatise on economics. Mises’s activities with the Austrian Chamber of Commerce in Vienna occupied him almost full-time. However, anticipating the rise of socialism in Austria and of Hitler in Germany, Mises accepted a teaching position at the Graduate Institute of International Studies in Geneva, Switzerland, in 1934. His teaching schedule in Switzerland was not strenuous, and he finally had time to devote to the book on economic theory he had been contemplating for some time. He began shortly after he arrived in Geneva, and he kept on writing in between his other obligations–teaching, getting married (his wife-to-be had managed to get out of Vienna shortly after the Nazis arrived in 1938), and lecturing at international meetings. He wrote in longhand, submitting his manuscript page by page to be typed. Finally, in the spring of 1940, thanks to Mises’s determination and persistence, the manuscript for Nationalökonomie, an all-encompassing 756-page book on economics, was in the hands of the publisher.

By then, World War II had begun. Germany had overrun and occupied Austria, Poland, Holland, Belgium, Norway, and France, and attacked Russia. Mises’s situation in Switzerland, as a “stateless citizen” after the Nazis occupied Austria, had become uncomfortable. Friends of Mises arranged for him to be issued a non-quota U.S. visa, and he made plans to leave Switzerland. The publication of Nationalökonomie was announced in the Tribune de Genève on June 16-17, 1940. With the Nazis in control of most of Europe, 1940 was an unpropitious time for launching on the European market a new German-language free-market-oriented book. Though depressed by the war and sorry to leave Switzerland, Mises was undoubtedly proud and pleased to be carrying with him in his luggage, when he left for the United States on July 4, a copy of his newly published treatise on economics.

Mises and his new wife arrived in New York on a hot and muggy August 2, 1940. It took some time for Mises to feel settled in the United States. But by 1944 he had written and had published two English-language books (Omnipotent Government and Bureaucracy). In 1946 he became economic adviser to FEE.

Hazlitt’s Suggestion

Around this time, FEE trustee Henry Hazlitt, economic journalist, author of the popular Economics in One Lesson, and a close friend and supporter of Mises, suggested that Nationalökonomie be translated into English. Mises disagreed, saying it should be rewritten in English for an American audience. So Mises set to work. FEE founder and president Leonard E. Read was supportive of the effort. A FEE secretary helped type the final manuscript, and Read committed FEE to purchasing 500 copies to assure its publication by Yale University Press.

Human Action (1949) is organized along similar lines to Nationalökonomie. But it is a very different book, longer than the German original (889 pages) with fewer references to European history. Instead Human Action is illustrated with incidents of interest to American readers. For instance, it cites Margaret Mitchell’s Gone with the Wind, the U.S. experiment with Prohibition in the 1920s and 1930s, and General Billy Mitchell, ardent advocate of air power in the 1930s, who was demoted and court-martialed for criticizing the military, then posthumously rehabilitated and honored.

Beginning at the Beginning

In Human Action Mises starts at the very beginning. Human beings act. Why? Because they are not neutral with respect to their situation; they are dissatisfied, uneasy in some respects, and have an idea about how to improve their condition. All actions are, by definition, purposive–that is, aimed at ends. This is the subject of economics. Economics is not a study of the physical production of material things; that  is physical science, mechanics, or technology. Economics is not a study of what men did in the past; that is history. It is not a study of why men act; that is psychology or, Mises’s term, thymology. It is not the study of unconscious bodily functions (digestion, breathing, the beating of the heart, the involuntary reflexive responses of the human body to stimuli); that is physiology.

Humans act based on subjective evaluations, so subjective value theory is crucial for understanding all economic phenomena. Men have values, wants, and preferences. Some things are more important to them than others. They seek to trade things they have that they value less for things they value more. They are uneasy, dissatisfied, so they strive to exchange their present situation for another. Mises explained that prices are ratios reflecting the relative subjective values of buyer and seller expressed in money terms at the instant of exchange. Thus economics is not a study of material things or monetary statistics, but of decisions, ideas, choices, values, and the purposive actions of human beings. From this point of view, Mises described the workings of the market. Production, the division of labor, exchanges, wages, money, savings, and trades all stem from the decisions, choices, purposive actions, ideas, and personal subjective values of economizing individuals as they bid and compete with one another to improve their respective situations. Similarly, Mises explained supply, demand, competition, unemployment, monopoly, domestic and international trade, and more as outcomes of the actions and interactions of valuing individuals, each doing their best under the circumstances to seek their ends.

In Human Action Mises also analyzed government interventions into the market–taxes, price controls, price supports, inflation and credit expansion, special privileges and subsidies to some and special costs to others, trade restrictions, monetary expansion and contraction, war, and so on. Such government interventions inevitably have unintended consequences, such as increased costs, distorted production, higher prices, idle resources, and unemployment.

Human Action: An Economic Treatise represents the culmination of Mises’s life-long effort to present a comprehensive economic theory of the operations of an unhampered market plus a description of how government interferes with and obstructs social cooperation and market activities. It is a sober, scientific book, not a diatribe.

It is our relatively free market that has produced the cornucopia of goods and services we enjoy today; it has increased our knowledge of the world, improved living standards, and supported an ever-increasing population. By describing in Human Action the workings of a society based on social cooperation, the division of labor, and private property, Mises believed he presented the guideline for maintaining a free-market economy. He also believed he explained how this trend toward plenty, peace, and prosperity can be disrupted by government interventions. He concluded:

The body of economic knowledge is an essential element in the structure of human civilization; it is the foundation upon which modern industrialism and all the moral, intellectual, technological, and therapeutical achievements of the last centuries have been built. It rests with men whether they will make the proper use of the rich treasure with which this knowledge provides them or whether they will leave it unused. But if they fail to take the best advantage of it and disregard its teachings and warnings, they will not annul economics; they will stamp out society and the human race.

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.”¹ 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.”² On one occasion, laughter broke out. Mises: “The Soviets censor bad books.” And then proudly with a twinkle in his eye: “My books!”³

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 Pelerin Society. (See Hazlitt’s recollections on page 37.)

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. (See page 26 for an appreciation of Economics in One Lesson.)

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. (For Hazlitt’s analysis of Keynes, see page 15.) 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. (For Hazlitt’s views on money see page 34.) 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.⁴ 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.”⁵

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.”⁶ 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.

1. Quoted from Hazlitt’s annual summary, as a young man, of his intellectual development, 1912; copy on file at FEE.

2. From my interview of Hazlitt, March 27, 1977.

3. From my unpublished Mises seminar notes, December 17, 1959.

4. Samuelson letter to Hazlitt, September 15, 1966; copy in FEE’s files.

5. Hazlitt letter to Samuelson, December 15, 1966; copy in FEE’s files.

6. 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.

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.”¹ 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.”² 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.”³

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.⁴

External Economies

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.⁵

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.⁶

Controversy Continues

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. . . .”⁷

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.”⁸

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.

Contributing editor Bettina Bien Greaves was a long-time FEE staff member, resident scholar, and trustee. She attended Ludwig von Mises’s New York University seminar for many years and is a translator, editor, and bibliographer of his works.

Notes

1. Encyclopedia Britannica, 11th ed., 1910, vol. 7, p. 118.
2. Ibid.
3. James Madison, “Property,” March 27, 1792; http://press-pubs.uchicago.edu/founders/documents/v1ch16s23.html.
4. Ludwig von Mises, Human Action (Irvington-on-Hudson, N.Y.: Foundation for Economic Education, 1996 [1949]), pp. 385–86.
5. Ibid., p. 661.
6. Ibid., pp. 661–62.
7. Ibid., p. 662.
8. Ibid., p. 277.

Reviewed by Bettina Bien Greaves

For years Hillsdale College has published annual anthologies in honor of Ludwig von Mises. In the beginning these were slim volumes, consisting only of addresses made at the college by visiting dignitaries. Since Richard Ebeling joined Hillsdale’s economics faculty and became editor of this series, however, each volume has contained serious economic papers and been an important contribution to economic literature. The current volume, number 27 in the series, is a tribute to Mises’s major economic work, Human Action.

The lead paper is by Ebeling himself and is in effect a small book, about a hundred pages with footnotes. It is a masterful presentation of the Misesian-Austrian theory of the business cycle, amplified by descriptions of the contributions to the theory by Knut Wicksell, Eugen Böhm-Bawerk, and F. A. Hayek. Ebeling explains the theory still further by critiquing the cyclical theories of non-Austrians, notably John Maynard Keynes. And in a later paper in this same volume, Ebeling critiques the theory of Mises’s contemporary Joseph Schumpeter, who sought to explain the trade cycle as due to the innovations of entrepreneurs financed by “abnormal credit.” Even those familiar with Mises’s business-cycle theory will profit from Ebeling’s clear explanation and his critiques of anti-Misesian doctrines.

Robert W. Poole Jr.’s “Human Action as a Guidebook to Modern Public Policy” offers hope to libertarians. Students of the free market have always found it easy to criticize government programs and to describe a laissez-faire society with a properly limited government. But when asked how to get from here to there, they hesitate. Poole offers a step-by-step program. First, educate. And then use Fabian gradualist tactics in reverse. After World Wars I and II, collectivism was riding high in England; important industries were nationalized and national health care was expanded. The economy languished and living standards declined. However, Hayek’s The Road to Serfdom (1944) and the establishment of the Institute of Economic Affairs and Adam Smith Institute began to open British eyes. Prime Minister Margaret Thatcher privatized millions of public housing units by selling them to their occupants, gave shares of stock to the workers in some state-owned industries, and sold stock in others, turning many individuals into private investors. The economy began to revive.

In this country also, free-market think tanks are beginning to have an impact. Ambulance operations, zoos, and garbage pickups have been privatized. The city of Indianapolis has privatized over 70 services, including the airport and two large, complex wastewater plants. Milwaukee, with a socialist mayor, privatized its wastewater system, and Democratic mayors in Atlanta and Birmingham, Alabama, have privatized their water systems. Thus the path from here to there proceeds step by step. However, when the supposedly “deregulated” California power industry has “price caps” on what it may charge customers and governments place obstacles in the path of California firms seeking to expand production to serve their customers, much educational work remains.

According to Leland B. Yeager, in his paper “The Moral Element in Mises’ Human Action,” Mises has drawn his share of criticism for his utilitarianism, even from some of his own disciples. However, Yeager explains that Mises’s utilitarianism has nothing to do with the crass, materialistic utilitarianism that has attracted the scorn of critics. For Mises the ethical question is always: Does an action support or undercut social cooperation, which is essential for the happiness of society’s members? According to Yeager, Mises “did not reject natural law in the scientific sense; and he did not reject natural law and human rights as ethical precepts. . . . What Mises rejected was the exaggerated, foundationalist, almost mystical status that some writers have accorded to them. . . . Precisely because human rights and human dignity are important values, they deserve a more solid grounding than mere intuitions reported in noble-sounding language.” To illustrate, Yeager quotes from the writings of natural righters such as Murray N. Rothbard, Larry J. Eshelman, and Hans-Hermann Hoppe.

The other contributors to this volume include Gene Epstein, Gleaves Whitney, George Roche, Charles Murray, Hans F. Sennholz, Israel M. Kirzner, Roberto Salinas-León, Sanford Ikeda, and Karen Vaughn.

Each of the papers helps the reader gain a better insight into some aspect of Mises’s life, work, and Human Action. This book is well worth reading.

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 purposively 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.

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.^[1] 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).^[2] 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 for 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.^[3] 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.^[4] 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.

Notes

1. This article was sparked by Professor Richard H. Timberlake’s three articles in The Freeman (April, May, and June 1999).
2. 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.”
3. Statistics approximate, taken from the monthly Federal Reserve Bulletins.
4. 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.

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. (See Edmund Opitz’s account on page 519 of this issue.)

Freedom-Tinted Glasses

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 benefitted 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.

Promoting Bastiat

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 benefitted 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.