“It is common to see good intentions, if they are carried out without moderation, push man into very vicious results.”

—Montaigne

In the current debate over federal farm policy, those who express concern at the government’s mountainous holdings of surplus agricultural products are accused of lacking sympathy with the plight of the farmer. When the full-employment bill was under consideration, its opponents were charged with desiring a “pool” of unemployed so that plenty of labor would be available at low wages. Similar accusations are heard in connection with housing, Social Security, “public” power, and many other politico-economic questions. Whenever it is proposed to exert governmental authority for the supposed economic benefit of one group or another, those who question the wisdom of such action tend to be branded as selfish, callous, and indifferent to the welfare of the beneficiary group.

Intentions and Results

Charges of this kind illustrate the tactical disadvantage suffered by those who look at economic issues from various angles instead of from only one. The forms of political intervention in economic life that add up to the “welfare state”—or, if carried to their logical extreme, to outright socialism—are directed at ends which may appear, and sometimes are, desirable in themselves. No one could quarrel with such objectives as continuous full employment, fair prices, adequate housing, and cheap power, if these ends could be defined clearly, attained successfully, and considered apart from the means by which they are sought. Those who oppose measures aimed at ends which are desirable prima facie have the burden of proof thrust upon them, a burden that is the more difficult to sustain because the objections, however grave, are usually less obvious than the ends themselves.

This seems to be why the worldwide drift toward authoritarianism and inflation is so difficult to combat. Authoritarianism and inflation are not conscious ends but means, or rather secondary results of means. The vast majority of people have no desire to live in political strait jackets or to see their currencies debased. They desire freedom and sound money. But they also desire the “social programs” upon which all modern governments have embarked, and in aiming at one set of goals they are unintentionally moving toward the other. The movement could be stopped in its tracks if the people could grasp the full political and economic implications of the words Montaigne wrote almost four hundred years ago: “It is common to see good intentions, if they are carried out without moderation, push men into very vicious results.” To most people, it appears, the “vicious results” are thus far less visible than the “good intentions.” As long as governments and popular majorities wear these economic blinders, as long as they have eyes only for the ends aimed at and not for the secondary results that actually follow, the gradual loss of both freedom and true security seems likely to continue.

The truth of Montaigne’s words, as applied to current affairs, rests upon a few easily observable facts. One is that every economic objective involves the sacrifice of one or more other possible objectives. Another and more important one is that every means adopted toward the desired end becomes the cause of many undesired results. Hence it is impossible to aim successfully at one end alone. Intelligent consideration of a concrete proposal must start not with the end but with the means, and it must include as many as possible of the ends which that means will tend to produce. It is not enough to ask whether the objective aimed at is desirable and whether the proposed means will attain that objective. It is necessary to inquire also whether the conscious objective is more important than those which must be sacrificed for it and whether it is important enough to justify the many undesired and perhaps undesirable results that will be entailed.

The Farm Program

The record abounds in illustrations of means that have been directed at certain ends and have produced quite different ones. For example, in the effort to insure “fair” prices for farm products, the United States government offered nonrecourse “loans” on so-called basic commodities at 90 per cent of parity, and on some other farm commodities at varying rates. To prevent overproduction, farmers were required to accept acreage restrictions and, under some conditions, marketing quotas in order to qualify for the loans.

The unintended result was that production of the price-fixed crops continued to increase despite the restrictions. It became worthwhile for farmers to cultivate land more intensively and increase yields per acre. Land withdrawn from price-fixed crops was used for others, and these in turn were overproduced. Prices fixed at levels above those prevailing abroad destroyed foreign markets for American farm products. Consumers at home were forced to pay artificially high prices for their foods and fibers, and domestic consumption was discouraged. Farm products from abroad were attracted here by the high prices. The development of competing commodities was stimulated. Even though the government gave away vast quantities of farm products, its holdings continued to grow until, in President Eisenhower’s words, “farmers, the intended beneficiaries of the support program, today find themselves in ever-growing danger from the mounting accumulations. Were it not for the government’s bulging stocks farmers would be getting far more for their products today.”

Housing and Labor

To protect tenants against high housing costs, governments have established rent controls. The unintended result is that new building and even normal maintenance have been discouraged, housing shortages have persisted, people have been forced to live in antiquated structures and, in some countries, comfortable living quarters have become almost unobtainable at any price.

To improve housing standards, the United States government has provided subsidies in the form of public housing projects and loan guarantees. The unintended result is that the construction industry has been overloaded. Building costs have risen to unprecedented heights. Housing intended for middle- and low-income families has been placed beyond the financial reach of such families. Consumers’ incomes have been diverted from other avenues of expenditures into housing. “Windfall” profits of builders have given rise to public scandals.

To improve wage-earners’ standards of living, the government has enacted minimum-wage laws and encouraged large-scale unionization of workers. As a result, marginal workers have been rendered unemployable. Costs of production have been rigidified and employers virtually forced to economize by abolishing jobs instead of reducing wage rates in slack periods. The strike has been used increasingly as a weapon against the general public and even against the government, rather than against the employer. Major strikes have, in fact, assumed the proportions of national emergencies, forcing the government into the position of virtual arbitrator between the contracting parties. The wage demands of powerful unions, by pushing prices and costs of living sharply upward, have become perhaps the most potent instrument of inflation in our economy. Meanwhile, the general level of real wages has continued to rise with productivity, as it always has done, irrespective of legislation and unionization.

“Welfare” and “Security”

In the endeavor to protect people against the hazards of unemployment, old age, sickness, and other personal misfortunes, governments all over the world have assumed the responsibility of maintaining high levels of business activity and of providing financial aid to individuals under certain conditions. The means by which these ends are sought are of three principal types: (1) direct control of various phases of economic life, such as prices, wages, hours of labor, and the like; (2) manipulation of the money supply and interest rates by central banks and governments; (3) direct outlays of public funds, either taxed or borrowed, not for the purposes of government but to provide “welfare” and “security” to individuals, as these terms are understood by governmental legislators and officials.

Both the intended and the unintended results vary with the degrees and types of control adopted and the economic positions of countries. Some nations still have serious unemployment problems. In most countries a condition of virtually full employment seems to exist at present, and in some an unmistakable boom is under way, with serious inflationary pressure. Such extraneous factors as wars, revolutions, armament programs, and American aid have played their parts in bringing about these conditions, in some countries more than others, so that generalizations are difficult. On the whole, the situation tends to strengthen rather than allay doubt as to whether governments can meet the “full-employment commitment” over an extended period.

As for the unintended results, two are beyond question: the suppression of economic freedom and the bias toward inflation. In some countries, freedom of enterprise and freedom of contract have all but disappeared. Almost everywhere, bureaucratic controls over the people’s economic lives have been widened and strengthened. There has been constant upward pressure on wages and prices. Persons dependent upon fixed incomes have been impoverished. Tax burdens have become heavier and governmental budgets more difficult to balance. Costs of production have been forced upward. The internal and external purchasing powers of currencies have drifted apart. International payments have been thrown out of equilibrium. To restore balance, governments have shackled foreign trade and foreign exchange with restrictions that have resisted all efforts to free them. Hope for currency convertibility has waned. Recurrent rumors of impending devaluation sweep across the world. Beneath the “pegged” exchange rates and the other regulated values is an all-pervading instability that makes a mockery of all devices for economic security.

The moral effects are less tangible but perhaps no less important. Under the influence of compulsory redistribution of wealth and income by state action, respect for the individual property rights that lie at the foundation of free institutions has weakened. Many independent, self-reliant citizens have found the lure of “something for nothing” too strong and have degenerated into pressure groups fighting for what they have been taught to regard as their share of the taxpayers’ money.

The Final Outcome

The evils, contradictions, and absurdities of the “welfare state” are, in the final analysis, the results of narrow and superficial economic thinking—thinking that concerns itself with a single, seemingly desirable end and not with the innumerable effects that flow from the means adopted toward that end. The proper aim of economic life is an over-all aim: the use of limited human and material resources in such a way as to serve most effectively the needs and desires of all the people. This aim tends to be achieved automatically in a regime of free markets where the people’s needs and desires can express themselves in price offers to which producers are forced by economic necessity to conform. When political authority, even with the best of intentions, interferes with this self-regulating flow of goods and services, it sets up chains of cause and effect which it can neither foresee nor control except by constantly widening its authority. The final outcome is a regimented society from which all objective and valid guides to human effort have vanished, along with human freedom. []

From The Guaranty Survey, March 1956, Albert C. Wilcox, Editor.