Although Gates and Collins have written a tract that pays lip service to individual achievement, liberty, and free enterprise—the foundations of America’s prosperity—they nevertheless embrace egalitarianism, the redistribution of wealth, and the welfare state as indispensable policies and institutions. Moreover, in their passion to maintain the estate tax, they assert that it “helps make America great.” This is the first time, to my knowledge, that anyone has argued that this tax has been partly responsible for the American people’s prosperity since 1916, when the federal tax was instituted.

The authors’ defense of the tax rests on several dubious assertions, to say the least. They claim that the estate tax will reduce the “concentration of wealth and power” in the United States; forces individuals of great wealth to “pay back society” for the enormous “investment” in our public institutions; strengthens “equal opportunity” in our society by putting a “brake on the accumulation of hereditary wealth”; will reduce the disparity in income levels that is so corrosive to democracy; will “level” the playing field, so that “runners start at the same starting line”; is a good tax, because “for us, the progressivity of the tax system is a core principle”; provides an incentive to charitable giving. Without the estate tax, wealthy families would reduce their charitable contributions.

They also argue that the three great religious traditions—Judaism, Christianity, and Islam—support the tax. They contend that it must be maintained because, after all, “taxes are a privilege in a democratic society, a necessary component for sustaining the common good.”

Gates and Collins repeat ad nauseam that the “concentration of wealth and power” is a grave threat to the Republic. They argue, for example, that “fewer than ten multinational media conglomerates dominate the American mass media landscape.” So what? Americans are tuning out network broadcasting and turning to cable and the Internet, the latest frontier of information freedom.

In reality, it is the concentration of political power in Washington that is undermining the American people’s natural rights and prosperity. Taxes, monetary debasement, regulations, trade restrictions, out-of-control spending, overseas military adventures, and the military-industrial complex have eroded any chance of a sustainable prosperity.

The authors believe that the wealth of the “rich” could not have been created without the “investment” made by governments at all levels, particularly the federal government. In fact, the creators of wealth pay for so-called public services throughout their lifetimes in the form of income, sales, property, excise, and other taxes. Why should the federal government also confiscate up to 50 percent or more of their estates when they depart this world? How much is enough for the federal Leviathan?

Another of the authors’ assertions, namely, that the estate tax will increase “equal opportunity” at birth is simply ludicrous. Even if Melinda and Bill Gates, Jr., donate all their wealth to their foundation, their children will always have more opportunities than the children born to any other couple in America, or for that matter anywhere in the world. The offspring of the very wealthy are the beneficiaries of their parents’ genes and successes. The estate tax cannot change that.

The authors’ true colors are revealed when they say that progressive taxes form the core of their beliefs. Marx is smiling in his grave. In the economy, the law of one price governs virtually all market transactions. Only when it comes to taxation do seemingly intelligent individuals parrot the “ability to pay” mantra as if it were a divine decree.

In the final analysis, William Gates, Sr., Bill Gates, Jr., Warren Buffett, George Soros, and the other wealthy supporters of the estate tax should keep making money and giving away as much of their fortunes as they see fit. America does not need an estate tax. America needs more economic freedom and the restoration of the liberties that Gates, Collins, and others are willing to compromise in the name of the “common good.”

In my high school days I had a friend who had been thoroughly imbued with the socialist mindset. He was willing to concede there might be some adverse consequences if the government went too far toward equality and economic control, but was adamantly in favor of the “humanity” of socialism. We amiably debated the role of profit, income inequality, just prices, greed, and similar questions.

Reading Hunter Lewis’s Are the Rich Necessary? made me think back on those discussions, for it delves into the basic economic and philosophical disputes between advocates of socialism and advocates of laissez-faire capitalism. Throughout, Lewis gives readers a dialogue between opposing points of view similar to but much more learned than my debates back then. I regard his presentation of the socialist/egalitarian philosophy as fair (Lewis is not merely pummeling a strawman), but the pro-market side clearly comes out on top. If you were to give the book to a libertarian son or daughter, you need not worry about turning him or her into a Marxist.

At the outset Lewis says he isn’t trying “to propagate a particular set of ideas.” It is obvious, however, that he knows the free-market arguments very well and is not indifferent between the two camps.

His first chapter digs into the title question: Are the rich necessary? Lewis presents several arguments that they are not: that they are parasites, cause poverty, and exploit the poor. In support of that litany of complaints Lewis quotes Abby Rockefeller (yes, a descendent of oil billionaire John D. Rockefeller), who said, “Many suffer because of the few.” Lewis then follows up by making the case that the rich (at least those who earn their money) are beneficial.

In presenting the pro-market side, Lewis quotes extensively from Henry Hazlitt: “No matter whether it is their intention or not, almost anything that the rich can legally do tends to help the poor. The spending of the rich gives employment to the poor. But the saving of the rich and their investment of these savings in the means of production gives as much employment and in addition makes that employment constantly more productive and highly paid.”

It’s hard not to notice that the argument against income inequality has a bumper-sticker quality to it, while Hazlitt’s rejoinder aims at the rational faculties. I don’t think Lewis is being unfair here. You could make the anti-capitalist argument longer, but you can’t make it any better.

Another topic Lewis addresses is profit. My high-school friend was against profits because in his view they made things more expensive. We find that childish notion in the arguments that profit is unnecessary. Lewis cites historian Howard Zinn, who contends that the profit system “distorts our whole economic and social system . . . leaving important things unproduced.”

In the following pro-profit arguments he presents, Lewis adduces facts that show the silliness of Zinn’s position. For example, he refers to Mark Kurlansky’s book Cod to show how the profit motive led people to make the discoveries and investments necessary for large-scale cod fishing to begin, which in turn made it possible for great numbers of Europeans to increase their protein intake substantially. People made the investments in commercializing the cod fishery because they thought they would be profitable. Progress in overcoming hunger hinged on the market’s profit motive. Lewis also goes into the alternatives to privately owned, profit-seeking business (government ownership and worker-owned firms) and points out that they entail serious difficulties.

How about economic depressions? Opponents of the free market often point to depressions as proof of the need for pervasive government regulation of the economy or even state ownership. Freeman readers will be delighted to read the counterarguments that Lewis gives. They are based on Austrian insights that government manipulation of money and credit causes widespread misallocation of capital to projects that have to be liquidated once the tinkering ends. Lewis deserves a round of applause for making Austrian business cycle theory comprehensible to the average reader.

Are the Rich Necessary? also plows into other key aspects of the intellectual battle between free-market advocates and their opponents, including globalization, central banking, and “just prices.”

This highly readable book would be an excellent gift for anyone whose economic thinking is at the same level as my friend’s was. I am going to pass my copy along to my sons. Their economic understanding is much better than his was, but the book is certain to sharpen their understanding and give them an arsenal of arguments to use against the anti-capitalist mentality.

An affluent professor and consultant with a five-bedroom house and a taste for BMWs, Frank nevertheless boasts that he never spends much on wine and that he decided to eschew a costly Viking grill in favor of a cheap Weber.

How he spends his own money is his business. Unfortunately, Frank views everyone else’s money as collective property: “Do we want to spend our money on better teachers, better roads, and enhanced national security? Or do we want to spend it on more expensive watches, more elaborate gas grills, and bigger mansions?” Everyone else’s money becomes “our money.”

“If we all pay more in taxes,” he urges, “then we’ll all have less available for private consumption and then we won’t feel as though we need to spend as much.” He doesn’t really believe all should pay more in taxes. He proposes that the wealthy pay a tax on consumption (income minus saving) with marginal rates of 50 percent above $220,000.

“Demand for many of the things we buy,” he contends, “is driven in part by their function as signals.” To illustrate, he says that increased spending on clothing by the very rich has affected the amount a middle-class worker must spend on a professional wardrobe.

Nonsense. Even the fanciest brands have never been cheaper, thanks to outlets and eBay.

The author’s thesis depends on inequality of consumption, not of income. That difference is less than you’d think, however. W. Michael Cox and Richard Alm in a recent New York Times op-ed found that average consumption per person among the top fifth is just slightly more than double the average consumption of the bottom fifth.

Frank ignores such inconvenient evidence in favor of badly garbled secondhand data about income and wealth. All his figures came from Chris Hartman at inequality.org—a writer who specializes in “travel, sports, persuasive, and media-friendly political research.” Many of Frank’s assertions are based on easily refuted data—for example, his false claim that “asset ownership has become even more heavily concentrated during recent years.”

Frank’s biggest complaint is not about big incomes but big houses. He worries that “the median size of a newly constructed house in the United States, which stood at 1,600 square feet in 1980, had risen to more than 2,100 square feet by 2001, despite the fact that the median family’s real income had changed little in the intervening years.” As with the data on income and wealth, Frank’s evidence is sloppy. The National Association of Realtors’ “affordability index” shows that housing affordability has improved from 1979 to 2008.

Putting aside the many problems with Frank’s data, his case for redistributionist taxation is just a weak excuse for having the federal leviathan gobble up more of the wealth created by individuals. Allowing politicians in Washington to increase their spending on whatever they please (there is no magic fairy to ensure that any added revenues will be devoted to better teachers and roads) is not going to make the relatively poorer people feel better. It might cost some of them their jobs, however. Think back to the impact of the luxury boat tax of the early 1990s, the only discernible effect of which was to cause high unemployment among the workers who had been building yachts for the rich and famous to enjoy.

We should not overlook the ethical muddle of Frank’s call for coercive redistribution. He disapproves of individuals’ spending money they have peacefully acquired in ways that give them satisfaction, but insists that the government forcibly take money away from the wealthy so that egalitarians can pat themselves on the back. Frédéric Bastiat called that legal plunder.

Frank has spent many years writing books and devising phrases to remind us that he disapproves of status symbols (Luxury Fever, 1999), overpaid superstars (The Winner Take All Economy, 1995), and people who try to keep up with the Joneses (Choosing the Right Pond, 1985). This slim volume repeats those egalitarian themes in a condensed way. Minimizing the surplus verbiage starkly reveals that the author’s strong opinions remain based on remarkably weak evidence.

A television audience in the millions will feast on the glitz and glamor of Hollywood when the 81st Annual Academy Awards are bestowed February 22. My thoughts will be elsewhere that Sunday night—on a friend who won an Oscar 24 years ago. Three days later, February 25, will mark the 13th anniversary of the day he was killed.

On the night of the 57th Oscars in 1985, Amadeus claimed Best Picture, F. Murray Abraham won for best actor, and Sally Field for best actress. Then came the announcement of the winner of the award for best supporting actor. To the stage bearing the widest grin of his life bounced a man few Americans had ever heard of. He had acted in only one motion picture. He had been trained as a physician in his native Cambodia, where he had witnessed unspeakable cruelty and endured torture before escaping and finding his way to America barely five years earlier. He was Dr. Haing S. Ngor.

Ngor’s Oscar-winning performance in The Killing Fields gave him a platform to tell the world about the mass murder that occurred between 1975 and 1979 in Cambodia at the hands of the Khmer Rouge communists. When I met Ngor at a conference in Dallas a few months after Oscar night, I was struck by the intensity of his passion. Perhaps no one loves liberty more than one who has been denied it at the point of a gun. We became instant friends and stayed in frequent contact. When he decided to visit Cambodia in August 1989 for the first time since his escape ten years before, he asked me to go with him. Dith Pran, the photographer Ngor portrayed in the movie, was among the small number in our entourage. Experiencing Cambodia with Ngor and Pran so soon after the genocide left me with vivid impressions and lasting memories.

But Cambodia in 1989 was still a universe away from the Cambodia of 1979. In spite of the country’s continued suffering on a grand scale, I knew it was a playground compared to the three and a half years that Ngor and Pran lived through and miraculously survived.

During that time, crazed but battle-hardened and jungle-toughened revolutionaries who had seized power in 1975 set about to remake Cambodian society. Their leader, Pol Pot, embraced the most radical versions of class warfare, egalitarianism, and state control. Mao and Stalin were his heroes. In the warped minds of Pol Pot and his Khmer Rouge hierarchy, the “evils” they aspired to destroy included all vestiges of the former governments of Cambodia: city life, private enterprise, the family unit, religion, money, modern medicine and industry, private property, and anything that smacked of foreign influence. They savaged an essentially defenseless population already weary of war. The Khmer Rouge manufactured the killing fields for which the film was later named.

One day after taking power, the Khmer Rouge forcibly evacuated the populations of all urban areas, including the capital, Phnom Penh, a city swollen by refugees to at least two million inhabitants. Many thousands of men and women—including the sick, elderly, and handicapped—died on the way to their “political rehabilitation” in the countryside. Survivors found themselves slaving away at the most grueling toil in the rice fields, often separated from their families, routinely beaten and tortured for trifling offenses or for no reason at all, kept hungry by meager rations, and facing certain death for the slightest challenge to authority.

Thon Hin, a top official in the Cambodian foreign ministry at the time of our 1989 visit, told me of the propaganda blasted daily from speakers as citizens labored in the fields: “They said that everything belonged to the state, that we had no duty to anything but the state, that the state would always make the right decisions for the good of everyone. I remember so many times they would say, ‘It is always better to kill by mistake than to not kill at all.’ ”

Churches and pagodas were demolished and thousands of Buddhist monks and worshippers were murdered. Schools were closed down, and modern medicine was forbidden in favor of quack remedies and sinister experimentation. By 1979 only 45 doctors remained alive in the whole country; more than 4,000 had perished or fled. Eating in private and scavenging for food were considered crimes against the state. So was wearing eyeglasses, which was seen as evidence that one had read too much.

Early estimates of the death toll from starvation, disease, and execution during Pol Pot’s tyranny ranged as high as three million—in a nation of only eight million inhabitants when he took power. Most now put the figure in the neighborhood of two million deaths.

Haing Ngor didn’t just see these things; he endured them. He had to get rid of his eyeglasses and disappear as a doctor. He reappeared as a cab driver, hoping he and his wife would not draw the attention of the Khmer Rouge. Nonetheless, on more than one occasion, he fell prey to their brutality. In one torturous episode, one of his fingers was sliced off. In another, his wife died in his arms from complications during childbirth. Ngor’s skills as a physician might have saved her, but he knew if he revealed he was a doctor they both would have been executed on the spot. He eventually escaped Cambodia through Thailand, landing in America in 1980, a year and a half after a Vietnamese invasion eradicated the Khmer Rouge regime.

Haing Ngor believed the world must know these things, fully and graphically. When fate led to a chance to act in a movie about the period, he grabbed it and performed brilliantly. He deserved the Oscar it earned him, even though he often said that he really didn’t have to “act.” He had personally suffered through calamities much worse than those depicted in the film. He was driven to do well so that the rest of us would remember what happened and those to whom it happened.

One cold morning in February 1996 I learned that Dr. Haing S. Ngor had been shot and killed the day before—not somewhere in Southeast Asia, but in downtown Los Angeles. The perpetrators, it turned out, were ordinary gang thugs trying to rob him as he got out of his car. They took a locket that held the only picture he still had of his deceased wife.

For Haing Ngor, rediscovering his freedom after experiencing hell on earth wasn’t enough. He couldn’t relax, breathe sighs of relief, or resume living a quiet or anonymous life. He felt compelled to tell his story so others would know what awful things total government can do. He forced us to ponder and appreciate life more fundamentally than ever before.

Enjoy the Oscars on February 22. We should be thankful for people like Haing Ngor, who did more to educate for liberty in a few short years than most people who take their liberty for granted will ever do in their lifetimes.

“Diversity” has become a true sacred cow to many on the political left. The extent of the worship was displayed in the September 29, 2006, issue of The Chronicle of Higher Education, which featured a 40-page supplement devoted to diversity on American campuses. At Washington State University, for example, there is an official bearing the title “vice president for equity and diversity.” The annual budget for his office is $3 million, and he has a staff of 55. No doubt about Washington State’s commitment to diversity.

The Supreme Court fell for the diversity pitch in its 2003 Grutter v. Bollinger decision, saying that states have a “compelling interest” in obtaining the educational benefits that diversity supposedly provides.

A few people have stuck their necks out to criticize the diversity mania. Peter Wood, for example, took an unflattering look at it in his book Diversity: The Invention of a Concept. He and virtually all other critics have been on the right. In The Trouble with Diversity, however, author Walter Benn Michaels attacks from the left. Michaels, a professor of literature at the University of Illinois-Chicago, isn’t so much upset with the infatuation with diversity per se as he is that its advocates have, in his view, been seduced into the pursuit of a false idol. Michaels is an old-fashioned egalitarian, and he sees the diversity crusade as a terrible distraction from what ought to be the central, overarching goal of the left—redistribution of wealth.

Here is how Michaels puts his argument: “Giving priority to issues like affirmative action and committing itself to the celebration of difference, the intellectual left has responded to the increase in economic inequality by insisting on the importance of cultural identity. So for thirty years, while the gap between the rich and the poor has grown larger, we’ve been urged to respect people’s identities—as if the problem of poverty would go away if we just appreciated the poor.”

Michaels isn’t arguing, therefore, that the push for diversity is harmful in itself, but only that true leftists ought to be out demanding more taxes on the rich and programs to help the poor. There isn’t anything in the book on the problems caused by our diversity obsession—such as how it undermines performance standards and breeds contempt for its supposed beneficiaries.

The book does manage to land a few good punches, especially Michaels’s well-supported argument that there really is no such thing as “race.” He also makes it clear that most of the people who are favored by diversity policies are not the least bit needy. The problem is that, for the book to succeed, it also has to carry two additional points: that government policies can significantly reduce economic inequality and that the pursuit of greater equality ought to be the supreme goal of people on the left. Sadly, the author makes almost no effort on either.

Like all utopian dreamers, Michaels assumes that the only cost of redistributionist policies is that the “fat cats” will have quite a bit less money so that the suffering poor will have more. Can it be that, viewing the world from his office in the English Department, he is unaware of all the work showing that welfare programs change the incentives of people in ways that undermine all the good intentions of their advocates? Perhaps so—there are no references to Charles Murray, for example. Nor do we hear anything about the consequences of income redistribution where it has been national policy. Britain relentlessly pursued egalitarianism after World War II. By the mid-1970s, that country was heading for economic ruin as both human and financial capital fled. The Trouble with Diversity, however, ignores all about the troubles with egalitarianism.

Furthermore, even if the leftist reader at whom Michaels aims the book agrees that diversity is the wrong goal, why should he agree that equality is the right goal? If someone thinks that the most important social change to work for is peace, for example, there’s nothing in this book to change his mind. It doesn’t seem to occur to Michaels that people on “his side” might conclude that his egalitarianism is just as quixotic as the diversity crusade.

Lastly, Michaels makes himself Exhibit A for the long-standing contention that many leftists care about people only in the abstract. He is honest enough to admit that when he sees homeless people in Chicago, he doesn’t give them assistance but just wants them to go away. It’s the government’s job to solve that problem, you see.

The only lasting impact of this quirky book will be to make its wealthy, leftist author somewhat more wealthy.

Economists Sandra Peart and David Levy have written a deeply interesting but ultimately unsatisfying book. While the work uses a major episode in the history of economic thought to cast light on an issue still of great importance today, I believe that the authors’ methodological predilections and their misunderstanding of the proper relationship between scientific theory and practical life result in their dancing around the periphery of that issue.

Peart and Levy’s central argument is that, under the sway of the racist views current during the late-nineteenth and early-twentieth centuries, economists abandoned the axiom of human equality held by earlier practitioners, such as Adam Smith, David Ricardo, and John Stuart Mill. The authors make a convincing case that what the leading opponents of “classical” economics chiefly rejected was its assumption that human nature is the same everywhere and that people differ primarily due to their unique life history and the particular circumstances and incentives they confront. This implies that an “expert” is unlikely to make better choices for some individual than he is for himself. That egalitarianism was anathema to intellectuals like Charles Dickens, Thomas Carlyle, Francis Galton, and John Ruskin, for whom the white race had the mission of directing the lives of their genetic inferiors. A logical extension of racist thought, especially when coupled with the new understanding of evolution proposed by Darwin and Wallace, was eugenics, which advocated top-down control over human breeding in the interest of “improving the species.”

Evangelical Christians rejected white racial dominance based on their belief that, after the Fall, all people were incapable of self-perfection and stood equally in need of God’s grace. Therefore, they allied with the classical economists in a number of prominent public debates. For example, both groups demanded the prosecution of the white governor of Jamaica, Edward Eyre, for indiscriminately killing over 400 of his black subjects to quell an episode of civil unrest, and were opposed by the racists, who lauded Eyre for dealing resolutely with “savages” who refused to appreciate the benevolent tutelage of their white masters.

Unfortunately, racist ideas eventually triumphed even in economics, as Peart and Levy demonstrate with quotes from leading economists, including Alfred Marshall, F. Y. Edgeworth, Frank Fetter, and A. C. Pigou. As a consequence, the assumption that each person should count equally when evaluating the merit of some policy was replaced by the idea that certain people may have a significantly greater capacity for happiness than do others, entitling them to preferential consideration.

The authors having persuaded me that the demise of classical economics was closely tied to the increasing weight given to race in explaining human affairs, I kept expecting to reach their debunking of those racial doctrines themselves. But the nearest thing they offered was a mathematical analysis of how folk wisdom could possibly compete with scientific models in guiding decisions.

I found this disappointing for two reasons: First, the proper outcome of scientific research is not practical advice but theoretical understanding, and so trying to measure a scientific model on the same scale as a proverb represents a categorical confusion. Second, it isn’t even that near to the discussion I hoped to find—in fact, their defense of folk wisdom strikes me as being irrelevant to their central concern, because it could be true both that folk wisdom is often a match for scientific experts and that the racists were right in that the folk wisdom, say, of the Lithuanians is superior to that of the Latvians.

But Peart and Levy do not merely avoid examining the evidence for racist views: they disparage any effort to do so, asserting that the danger of taking such theories seriously outweighs the value of any scientific truth they possibly contain. Here again, I think the authors suffer from same fundamental confusion as did the eugenicists: theoretical understanding is not a rival of, or potential substitute for, practical judgment. No genuinely scientific theory should be declared beyond the pale because it is politically incorrect. The best safeguard against such horrors as Nazism and Stalinism lies in realizing that even if their key theories were scientifically sound, it would not justify the policies they were said to imply, for such matters can never be resolved based solely on scientific facts but involve ethical judgments as well. For example, there is nothing incoherent in a scientist’s hypothesizing that race is an important factor in human action while still regarding racial persecution and discrimination as immoral.

While Peart and Levy have written a fascinating and well-researched book that successfully illuminates an important factor in the transition from classical to neoclassical economics, their work falls short of its promise due to the authors’ failure to recognize the gulf separating theoretical speculation from practical reasoning.

by Paul Seabright

Princeton University Press • 2004 • 304 pages • $29.95

Reviewed by Richard M. Ebeling

One of the most profound insights of economics is that the activities of billions of people can be coordinated without central direction and without most of these interdependent people knowing anything about one another.

This interdependency not only spans all the continents of the world but also stretches across time. There are people right now extracting some raw material from the ground, or planting some seeds in the soil, or beginning the manufacturing process of some commodity, which—days, months, or even years from now—will satisfy other people’s wants for multitudes of goods. Even more astonishing is that practically all these people have little or no idea of the “bigger picture” of how their diverse and decentralized actions all fit together in an intricate network of exchange relationships that bind humanity into one commercial community. Equally amazing, it is not necessary for any of these people to understand how all their actions are connected for each one to find his niche and perform his specialized role in the division of labor.

Yet precisely because most people do not have to understand how this all works, numerous misconceptions abound about the nature of the system. This often leads to government policies that do serious harm to the maintenance and continuing success of the international economic order. That is why it is important to constantly remind both scholars and laymen of the basis of this international order, and of the threat from misguided public policies.

This is the theme of Paul Seabright’s recent book, The Company of Strangers: A Natural History of Economic Life. Seabright goes far beyond the narrow field of economics to incorporate recent research in history, anthropology, sociology, and psychology. Among the benefits from an extended division of labor, he explains, are that risks can be shared, greater specialization can be developed, and a wider accumulation of knowledge can occur. But to take full advantage of these benefits, mankind had to go far beyond the small hunter-gatherer tribe or primitive agricultural community, to include people outside the immediate circle of family and non-relatives in the closed group.

The circle of association, cooperation, and exchange had to include “strangers” if the division of labor was to be significantly expanded. But how did primitive man come to trust strangers? Being outside the narrow tribal band, they were competitors for the basic physical means of survival; they were “the others” who might kill, rob, or enslave you.

In the process of primitive man’s evolution, Seabright argues, two qualities developed: the capacity for rational calculation and the sentiment for reciprocity. When primitive man first began offering or receiving opportunities for trade, he might well have thought that deceit and theft could be to his advantage in the encounter with the stranger. But reflection would have made him realize that there might be benefits from future interactions with such strangers, meaning that in his own longer-run self-interest any such repeated transactions could only be assured if he kept his word and abided by any agreement. At the same time, various social experiments have suggested that people generally follow a psychology of “tit for tat”; that is, even if repeated transactions are not expected, individuals will mostly reciprocate with either generosity or malice, depending on how another has behaved or is expected to behave toward them. Thus general kindness and honesty by some individuals tends to beget the same from others. Psychological and physiological studies have also shown how smiling and laughter—and their actual and perceived sincerity—reinforce bonds of trust, confidence, and association among people outside their narrow circle of family and friends.

Seabright discusses the role of money as an institution that facilitates the interconnections of multitudes of individuals unknown to one another through the willingness to accept a commodity whose only or primary usefulness is to be traded for other goods. The unease which some feel that money depersonalizes human relationships, he argues, is more than outweighed by the liberating anonymity that monetary relationships introduce for individuals in society. The greater trust that existed in more intimate face-to-face relationships has been replaced with “purchased trust” in the form of product warranties and brand-name reputations that stand behind goods and men in their dealings with one another.

Also behind the growth of an extended division of labor are the general and abstract rules of association that leave much of society’s development uncertain and unpredictable. Yet it is only when governments are mostly limited to securing life, liberty, and property that people have the latitude for creativity, imagination, and innovation, along with the freedom from political constraint to experiment in the arts and sciences, as well as with industrial technology and general cultural change.

Seabright applies these ideas to a variety of themes and topics. He emphasizes that a growing multitude of interacting human beings will have many different views concerning the value of things and the ends to pursue. The social institutions of property and exchange serve as means to resolve these differences through the price system. He illustrates this with the problem of the growing scarcity of water in many parts of the world, the competing demands for which may be reconciled through peaceful market competition.

Seabright also highlights how social order and patterns often emerge out of the spontaneous interactions of men, without any imposed design or command. Drawing on some of the writings of Jane Jacobs, he shows how safety and trust emerge in urban neighborhoods without a policeman or a social planner at every corner. He explains how markets have transformed the original “business unit” of the traditional family into the modern corporate firm. And he discusses how human knowledge has been preserved and shared, from the primitive symbols on the walls of caves to the intricate and virtually instantaneous means for transmitting information around the modern world.

Though Seabright explains and defends the vast benefits of market globalization, he is not an advocate of laissez faire. He sees various problems concerning “negative externalities” and “public goods” that require extensive government intervention, as well as the need for a welfare state to assist those “harmed” by market change. Nonetheless, his book offers a fascinating and extremely informative panorama for understanding how the human race has evolved from the simple hunter-gatherer into modern man in the global society.

Richard Ebeling is the president of FEE.

Saying Yes: In Defense of Drug Use

by Jacob Sullum

Tarcher/Putnam • 2003 • 340 pages • $25.95

Reviewed by Paul Armentano

Like ex-President Bill Clinton and former Vice President Al Gore, author Jacob Sullum admits he’s smoked marijuana. He’s also dabbled with psychedelics, cocaine, opioids, and tranquilizers. But unlike so many political figures, Sullum offers no mea culpa for his past vices in Saying Yes: In Defense of Drug Use. Rather, he confesses his “sins” to illustrate that the typical recreational drug user bears more resemblance to someone like him (or even the ex-president) than the drug war’s stereotypical poster boy: the down-and-out street-corner junkie.

However, it’s precisely those like Sullum who have been AWOL from America’s drug-policy debate. The reason is obvious. Admitting to illicit drug use risks harsh legal and economic sanctions. Because of this, Sullum writes that “people who use illegal drugs in a controlled, inconspicuous way are not inclined to stand up and announce the fact. Prohibition renders them invisible.”

Those who favor America’s present prohibitionist policies would prefer they stay that way. From the drug warriors’ standpoint, even acknowledging the existence of such a class strikes a blow to their entire justification for the drug war, as summarized by the Drug Enforcement Administration (DEA): “Drugs undo the bounds that keep many seemingly normal people on an even keel.”

Sullum counters this assumption by bringing the “silent majority” out of their smoky closet. His purpose “is to contrast drug use as it is described by politicians and propagandists with drug use as it is experienced by the silent majority of users: the decent, respectable people who, despite their politically incorrect choice of intoxicants, earn a living and meet their responsibilities. The lives they lead challenge a central premise of the war on drugs—that certain substances have the power to compel immoral behavior.”

Sullum includes within this majority computer programming guru Bob Wallace, an early employee of Microsoft, founder of Quicksoft, and a pioneer in the concept of shareware. Wallace (who died shortly before the book’s publication) was a daily pot smoker, one of 32 “controlled drug users” Sullum interviewed for Saying Yes. In most cases, their stories are remarkably similar: Illicit drugs are something they enjoy—or in some cases, enjoyed—responsibly and in moderation. Moreover, almost all admit that their illicit drug use seldom posed any significant problems in their personal or professional lives. Sullum draws from these testimonials, as well as his own experiences, not to absolve drugs as potentially harmful substances, but to reinforce his point that the vast majority of illegal drug users harm neither themselves nor others.

“Just as writing about moderate drinking does not mean denying the harms caused by alcoholism, writing about controlled drug use does not mean denying the damage done by destructive relationships with illegal intoxicants,” Sullum maintains. “Rather, my intent is to add some balance to the public debate by pointing out that excess is the exception.”

Saying Yes is not so much a defense of casual drug use (as the subtitle implies) as a plea to draw rational, legal distinctions between between use and abuse, and to base our laws accordingly.

If what Sullum calls “voodoo pharmacology” is a myth, he believes it’s illogical for the law to treat illicit drugs any differently from alcohol.

Consequently, only when drug-law critics tackle voodoo pharmacology (rather than the negative effects of the drug war) will they succeed in changing America’s drug policies.

Paul Armentano is a senior policy analyst for the NORML Foundation in Washington, D.C.

The War Against Excellence

by Cheri Pierson Yecke

Praeger • 2003 • 260 pages • $49.95

Reviewed by George C. Leef

The 1983 “A Nation at Risk” report famously stated that “If an unfriendly foreign power had attempted to impose on America the mediocre educational performance that exists today, we might well have viewed it as an act of war.” Since then, there has been a great deal of talk about improving the educational system and some legislative developments purporting to “raise standards.” On the whole, though, it’s hard to perceive any improvement, and if Cheri Pierson Yecke is correct in the War Against Excellence, things have gotten worse, particularly at the middle-school level.

Yecke, Minnesota’s former education commissioner, has penned another in the stream of books exposing the deplorable truth about government schools. The education establishment is quite happy that about 88 percent of all children attend government schools, and it invests mightily in public relations to keep everyone convinced that “public education” is doing wonderfully, but just needs more money. Yecke pulls back the curtain to reveal that over the last 20 years or so, middle schools (usually grades 6–8) have been infested with an alarmingly anti-education mindset.

According to the author, five beliefs that “progressive” education theorists embrace have infiltrated the middle schools. (Yecke does not say that these views are confined to middle school—they certainly are not—only that the problem seems worst there.) The beliefs are: • in the equality of educational outcomes; • in questioning the value of individualism; • in the supremacy of the group over the individual; • as well as the belief that advanced students have a duty to help others at the expense of their own needs; and • that competition is negative and must be eliminated.

If those ideas sound like egalitarianism, that’s just what they are.

Yecke quotes University of Florida professor Paul George, who states that middle schools should become “the focus of societal experimentation, the vehicle for movement toward increasing justice and equality in the society as a whole.” Schools, he writes, “are not about taking each child as far as he or she can go. They’re about redistributing the wealth of the future.”

The United States has always had plenty of educational theorists eager to use government schools as laboratories for their dubious notions about the reformation of society, but the current crop seems to have been particularly effective in getting theirs implemented. Yecke discusses several distressing manifestations of those egalitarian beliefs.

One is the attack on ability grouping. Schools have customarily put brighter students in accelerated classes and sometimes grouped slower students for special attention. To the egalitarian theorists, naturally, that practice is both educationally bad and morally wrong. They have insisted that schools end ability grouping, and quite a few have done so.

What’s so bad about ability grouping? Supposedly, it contributes to “the stratification of society.” If gifted kids could be slowed down, the thinking goes, they wouldn’t be so successful later in life, thus taking a big step toward “social justice.”

Even if you buy into coercive redistribution, why take steps to reduce the future output of ideas, inventions, and wealth? Abolition of ability grouping has been resisted from parents of gifted children, who resent having their kids held back so the education theorists can enjoy their utopian daydreams. Unfortunately, when those parents have complained, for the most part they’ve often run into a stone wall.

Another manifestation of rampant egalitarianism is “cooperative learning,” that the notion students should work and be graded in groups rather than individually.

The obvious problem with cooperative learning is that the smarter kids do most of the work, but must share the credit. To our egalitarian theorists, this approach to education tells the bright kids that they have to “share” their talents. The best thing one can say that it alerts them early on that they will be treated as social resources to be exploited in the future through the income tax.

The War Against Excellence is bound to increase the number of parents who bail out of government schooling.

George Leef is the book review editor of The Freeman.

A History of the Federal Reserve, Volume I: 1913–1951

By Allan H. Meltzer

University of Chicago Press • 2003 • 800 pages • $75 hardcover; $25 paperback

Reviewed by Christopher Mayer

The Federal Reserve System began operations in 1914, 11 months after passage of the congressional act that created it. Rooted in European thinking and modeled after the Bank of England, the Fed was a political animal that encountered difficulties right out of the gate. Hardly independent, the Fed was often under the thumb of the U.S. Treasury. Its purpose was a confusing mash of varying economic theories and political goals.

In this book, Allan Meltzer chronicles Fed history with an amazing eye for detail—minutes, speeches, books, journals, letters are all culled as footings for his narrative. The author is to be commended for his wide survey of primary sources. Unfortunately, Meltzer’s prose leaves something to be desired. It is professionally written, no doubt, but it is as dry as the driest of autumn’s fallen leaves. Slogging through this dense book will be difficult for all but the most ardent Fed followers.

Meltzer, who teaches at Carnegie-Mellon University and specializes in monetary theory, gives the reader a conventional history. Indeed, Fed Chairman Alan Greenspan himself wrote a kind foreword to the book, calling it both “stimulative and provocative.” Meltzer is even-handed in his assessments of various actors and their ideas and his representation of their goals; he seems to take everyone at face value. One sees none of the conspiratorial overtones, for example, regarding the Fed’s snug relationship with the banking industry. Not surprisingly, in perusing his list of sources, you will not find references to Murray Rothbard or Edward Griffin (author of The Creature from Jekyll Island). As a result, this book might be little else than a reference for details otherwise hard to uncover or find in one place.

There are lots of details about specific policy debates that Fed members had with one another and others outside the Fed. But those details are likely to be of little interest to libertarian-minded readers. It’s like listening to burglars debate how they are going to break into a house. To the libertarian, such considerations are irrelevant—the house should simply not be broken into. Similarly, one tires of hearing Fed governors pontificate about their tools for manipulating the economy—the economy should simply not be manipulated.

The period Meltzer covers is a depressing tale of monetary degradation. It sounds quite odd today, but Meltzer writes of the early years of the twentieth century that “many bankers, economists as well as ordinary citizens believed that the gold standard was the correct way to harmonize international monetary politics.” Therefore, efforts to maintain the gold standard or some system with gold at its base met little opposition. The gold standard was widely viewed as the proper way to restrict inflation and contain the damage government could do to the currency. Meltzer notes that “the gold standard was a main issue in several presidential elections in the United States. Each time, the gold standard candidate won.”

However, as we know now, such views did not last. As Meltzer observes, the “gradual dissemination of Keynesian ideas in the 1940s slowly transformed the consensus view.” That is, Keynesian ideas weakened the support for the gold standard and replaced it with an activist view of the Fed as a manager of economic output and employment. Discretionary policy by government experts became the accepted, “sophisticated” view; belief in gold came to be regarded as hopelessly old-fashioned.

“The population had become more urbane and more educated,” Meltzer writes, as if those characteristics and support for our monetary traditions were somehow incompatible. He is obviously a fan of the Fed, praising its work at many points. While he is critical at times, his criticism is never of the institution itself, but only of its policy errors. In other words, Meltzer would not dismantle the system, only push different buttons or pull different levers.

The history of the Fed is laced with irony. Here is an institution thought to provide stability and ballast to the economy. Yet its meddlesome ways create and amplify forces of instability and weakness. After reading Meltzer’s history, one has to wonder what would have happened in the absence of Fed’s constant economic meddling.

Christopher Mayer is a financial writer living in Gaithersburg, Maryland.

Reviewed by Richard Ebeling

In 1988 Robert Nisbet, one of America’s most prominent sociologists and conservative social philosophers, published The Present Age: Progress and Anarchy in Modern America. He critically evaluated how American society had come increasingly under the control of the central government in Washington, D.C. One of the main forces behind that trend, Nisbet argued, had been U.S. participation in the two world wars.

Before World War I, the American people had been predominantly local and regional in their loyalties and interests. Political decision-making was decentralized, and the federal government’s activities were still, for the most part, limited to the narrow responsibilities originally assigned under the Constitution. But both the Woodrow Wilson and Franklin D. Roosevelt administrations expanded the power of the federal government over the states and the people. War played a crucial role in the process. Making the world safe for democracy in World War I, being the global arsenal of democracy in World War II, and acting as the policeman of the “free world” during the Cold War all required the sacrifice of liberty at home.

Taxation and regulation for the war efforts concentrated power, wealth, and decision-making in the federal government. The welfare state reinforced that trend as people grew increasingly dependent on largess from Washington. As a result, American society and culture became more and more “nationalized” in the twentieth century, Nisbet concluded. (See my review of The Present Age in The Freeman, January 1989, www.fee.org/vnews.php?nid=2019.)

In his new book, America the Virtuous, political scientist Claes G. Ryn explains why this trend has continued in the United States, in spite of the end of the Cold War following the demise of the Soviet Union in 1991. What has happened, Ryn argues, is that American foreign policy has been more or less captured by a group of policy analysts and policymakers he labels “the new Jacobins.”

The original Jacobins were the radical ideologists of the French Revolution who declared the necessity of remaking man and society for the purpose of creating not merely a better but a perfect world. They waged intellectual and political war against the notion of an invariant human nature and against the historically evolved institutions of society, as well as the cultural and moral foundations on which Western civilization had developed over the centuries. The Jacobins believed in rationalistic blueprints for redesigning the social order. Anything that resisted this cleansing revolutionary reform had to be destroyed in the name of the future utopia.

The new Jacobins, who Ryn explains are better known as “neoconservatives,” believe that America is called on to remake the world in the image of a particular conception of democracy and equality. In their view, “democracy” means the abstract god of a political institutional order that reflects the will of the majority, which is mistakenly taken to be synonymous with liberty. Equality means the reduction of all human distinctions to one standard of a national mass man, with all individual, local, and regional differences within the country submerged in a uniform pattern of life.

And just like the earlier Jacobins, the new American Jacobins believe that an intellectual and political elite is needed to educate and guide society to its egalitarian, democratic utopia. In addition, this means that many of the traditional constitutional restraints on the federal government must be set aside so the central government has the power and discretion to bring America to its domestic destiny.

The new Jacobins also insist that this model of a perfected America is the ideal that the rest of the world should follow. The United States is called on to bring this ideal to the ignorant, backward, and corrupt nations around the globe. And with the same revolutionary zeal of the older Jacobins, this goal is to be accomplished through the force of arms if necessary.

Ryn argues that the tragic events of September 11, 2001, have served as the rationale and catalyst to set this global crusade in motion. The invasions and occupations of Afghanistan and Iraq are the opening military campaigns to bring the “American way of life” to one part of the world not enlightened enough to achieve it on its own. In other words, America’s new Jacobins are determined to socially engineer entire peoples and cultures according to the ideal to which they would aspire if only they had the wisdom to see what was good for them. Social bliss is to be brought to them through American bombs and bayonets and U.S.-designed ballot boxes.

But what if millions around the world do not want this gift from America? What if they resent and resist the overthrow and destruction of their own histories, cultures, and institutions—no matter how unenlightened or barbaric they may seem to the new Jacobin elite? Then America is faced with a future of endless wars in the name of creating a global empire of democracy and equality, as defined and dictated by the neoconservatives.

Ryn reminds his readers that the older tradition of freedom and reform in America was based on the idea that social and economic change cannot be imposed from the outside. It must grow within the individuals of other societies and nations. If America follows the path of empire for the supposed good of mankind, the American people will find that their own freedoms and fortunes will have to be sacrificed on the altar of global social engineering.

Richard Ebeling is president of FEE.

Reviewed by Robert Batemarco

Libertarians and other consistent free-market advocates are often accused of being blinded by ideology. Maybe the shoe belongs on the other foot. According to my scorecard, John McMillan, author of Reinventing the Bazaar, cites over 80 cases either of markets solving problems or of governments thwarting consumers. This compares with roughly a dozen where government actions appear to have done more economic good than harm. Although a baseball game that one-sided would be called a laugher, McMillan, a professor of economics at Stanford, concludes with a straight face that we cannot make a general case for minimizing government’s role.

Despite this failure to draw conclusions consistent with his evidence, McMillan has written a book that contains much of value. He is a skilled writer who can take recent developments in economic theory and make them easily understandable, even for non-economists. He provides apt examples that bring these theories to life. There can be little argument with his central contention that how well markets are designed is of paramount importance in how well they work. His five conditions for making markets run properly—smooth information flows, well-protected property rights, trust, competition, and minimal third-party effects—are unexceptionable, although his understanding of them is distorted by a misperception all too prevalent in the economics profession, namely, that each condition calls for government action.

Reinventing the Bazaar is informative about the wide variety of auctions and how they work. Auctions are obviously an area of expertise for this author; he used his knowledge of economic theory to help design an auction selling off part of the electromagnetic spectrum. This makes chapter 7 one of the best in the book. In it he explains why some goods are sold by auction while others simply have posted prices. He also describes the differences between open auctions, Dutch auctions, sealed-bid auctions, second-price auctions, simultaneous ascending auctions, reverse auctions, and package bidding, elucidating the strong and weak points of each. In so doing, he shows how entrepreneurs themselves redesign markets.

Also strong are chapters 12 and 15, which show, respectively, the havoc wreaked by socialistic central planning and the ability of markets, even when partly unfettered, to restore health to moribund economies. Alas, Reinventing the Bazaar implies we can only see with hindsight the debacle that was socialism, ignoring Ludwig von Mises and others like him who, through rigorous application of economic theory, foresaw that failure was inherent in socialism’s nature. Nonetheless, this book’s comparison of the attempts of China and Russia to move toward markets both piques our interest and lends support to McMillan’s contention that the devil is in the details.

Toward the end of the book, the author tries to ensure that his qualified support of markets not be mistaken for libertarianism. He does this by holding up Ayn Rand as the apotheosis of market theorizing—as if no one else has grappled with these problems.

McMillan’s chief target is Rand’s philosophical rather than empirical approach. There are two things wrong with this line of attack. The implicit assumption that the facts would never support laissez faire is belied by much of the material in the book. The second error is the ready dismissal of the philosophical and ethical approach to policy questions. Although the author admits that principles can indeed trump costs and benefits, he never acts on that insight. Indeed, it appears to me that ignoring it leads him to struggle with issues like patents. The case-by-case, cost-benefit approach McMillan consistently employs permits him to arrive at no firmer conclusion on that issue than “whether . . . [intellectual property protection] . . . should be strong or weak varies with the circumstances.” This is because he never regards such fundamental questions as what constitutes theft of someone else’s ideas as having any bearing on the point at hand. Murray Rothbard successfully used this very question to attach clear but defensible limits on the legal protection for intellectual property. (He accepted copyrights but not patents.) This shortcoming pervades McMillan’s work, preventing him from drawing a sharp line between what government should and should not do.

Samuel Johnson called second marriages “the triumph of hope over experience.” Re-inventing the Bazaar shows an intimate acquaintance with the experience of government distortion of markets, yet clings to the hope that government can make markets function better. While the facts McMillan presents make this book well worth reading, I would advise readers to draw their own conclusions.

Robert Batemarco is a vice president of a marketing research firm in New York City and teaches economics at Pace University.

Reviewed by Gene Callahan

The wonderful thing about Hegelianism as a “theory” of history is that it can be shaped to suit almost any particular political agenda one wishes. If you can formulate a thesis and antithesis so that your political program emerges as the synthesis of the two, then you can read all of history backwards: a story inevitably leading to its stirring climax, the triumph of your ideology.

The Ideas That Conquered the World is such a reading of the past, intended to support what Michael Mandelbaum, who teaches foreign policy at Johns Hopkins and is a senior fellow at the Council on Foreign Relations, calls “the liberal theory of history.” However, it is not so much a “theory of history” as a riffling through the last century or two to discover events that lend support to Wilsonian social democracy. Mandelbaum presents a “triad” of policies fundamental to his vision of liberalism: democracy, free markets, and disarmament/collective security. However, he does not coherently articulate the meaning of any one of these elements.

For instance, Mandelbaum asserts that the “liberal” approach to international relations is the “configuration of all . . . military forces so that they are suitable for defense but not for attack.” Such a policy has been adopted fully, he says, “only [by] the countries of Europe and North America.”

Does Mandelbaum really believe that the military forces of the United States currently are configured only for defense? Since World War II no foreign government has attacked American territory, yet the United States has intervened militarily in other countries over 60 times. One might applaud those interventions as necessary for the good of the liberal world order, but to call them “defensive” seems so to stretch that word as to render it meaningless. If the U.S. invasion of Panama in 1989 can be called “defensive,” what war cannot?

Nor does Mandelbaum offer any argument as to why democracy is inherently liberal. He asserts that democracy involves “restraints on the exercise of power by governments,” but he does not explain how or why that is so. If democracy simply means that a government should perform only those actions that are approved by the majority of its citizens, as Mandelbaum implies, then democracy only limits government to doing whatever the majority approves, however illiberal that might be.

Mandelbaum’s version of “free markets” is a sadly attenuated version of the classical-liberal policy of laissez faire. Rather than recognizing that free markets are what occur when coercion and central planning are absent, he believes that free markets must be “constructed” and “maintained,” and that such construction and maintenance are “far more difficult than had been imagined for most of the modern era.” He holds that the “status and power” of the World Bank and the IMF are evidence of the triumph of “laissez faire capitalism,” despite the fact that their existence springs entirely from a perceived need for centrally planned intervention into the market economy.

Mandelbaum says “the rise of the welfare state . . . made popular sovereignty through universal suffrage compatible with the protection of private property by giving every citizen property in the form of an entitlement to benefits from the state.” In other words, “private property” is “protected” by being subject to arbitrary confiscation by the majority of voters. While Mandelbaum asserts that modern social democracies establish zones that are “off limits to the exercise of government power,” he gives no indication as to what the boundaries of such “zones” might be. He tries to calm the fears of classical liberals by contending: “In the twentieth century . . . liberty and political equality proved to be compatible in Britain and the United States and throughout the Western core.” However, many classical liberals might contend that mass democracy has led to precisely the diminution of liberty that they predicted it would.

While purportedly a supporter of free markets, Mandelbaum does not even seem to realize the fundamental flaw of socialism: the absence of any means by which to calculate economic success. He contends that while the command economy was “not necessarily superior to the market, [it] did work.” As evidence, he cites the facts that in socialist regimes “people migrated in large numbers from the countryside to the cities” and “governments built, owned, and managed huge industrial complexes.” It is hard to imagine why these are indicators that an economy is “working.”

The Ideas That Conquered the World is a salient example of the common tendency to herald whatever trends are currently ascendant, while ignoring any analysis of whether such trends are sustainable in the long run.

Gene Callahan is the author of Economics for Real People (Mises Institute, 2002).

Reviewed by Brian Doherty

Freeman columnist Thomas Szasz, emeritus professor of psychiatry at the State University of New York Health Science Center in Syracuse, has tirelessly agitated for over four decades—in over 20 books and hundreds of speeches and even in occasional courtroom testimony—in defense of the rights of our culture’s most abused group: the so-called mentally ill.

Szasz maintains that mental illness is in fact a metaphorical illness: the illegitimate rhetorical medicalization of behaviors we find disturbing in order to excuse inhuman treatment of the “patient.” Turning his opponents’ weapon back on them, he embraces—but honestly, not covertly—the extended metaphor as a rhetorical technique. His 1970 classic, The Manufacture of Madness, compared our culture’s treatment of the mentally ill with the historical treatment of witches (while debunking the popular “liberal” notion that the witches of old were “really” mentally ill).

In Liberation by Oppression Szasz uses another illuminating metaphor to revisit his favorite topic, “mental illness” as an excuse for oppression. We now assume the inferiority and practical inhumanity of the mental patient; and this, he posits, can be profitably analogized to the old assumptions about the inferiority and inhumanity of blacks that underlay slavery.

The key idea linking both evils (though our culture sees only one as evil now) is what Szasz calls coercive paternalism. This is the idea that it is acceptable—indeed, admir-able—to dominate a class of people because it is ultimately for their own good. Szasz traces the history of arguments for and against slavery and the oppression of the mentally ill and displays the analogous thinking that has justified both tyrannies.

He shows how neither slaves nor mental patients have the freedom to come and go as they please, or have courts respect their rights. He convincingly compares fugitive-slave laws and the Interstate Compact on Mental Health. Defenders of slavery—chattel or psychiatric—depend, as Szasz relates, on frightening myths of the inherent dangerousness of the Negro or the mental patient.

Szasz’s choice of central analogy is wickedly incisive. It takes something the modern liberals believe in fervently—the necessity to care for mental patients by force if necessary—and compares it to a racist institution they profess to hate more than anything. If Szasz can make such a person see the similarities he rigorously points out, it will be a rhetorical grand slam indeed.

He does not spend the whole book hammering home that analogy. He also explains in depth how legal changes in the relationship of doctors and psychiatric patients irreparably corrupt any hope of a genuine therapeutic relationship. Now doctors can be held liable for not reporting any potential “danger” they divine from their patients, and patients can sue doctors for not giving them this season’s most popular psychiatric “medicines.” These legal complications, Szasz writes, transform psychotherapy “from a helping situation into a sting operation.”

But perhaps most fascinating for followers of Szasz’s career is his addressing the deinstitutionalization of the mentally ill—a public policy for which Szasz is frequently blamed, and whose effects are taken to be self-evidently bad. Szasz thinks that kicking people out of mental institutions after they have had their ability to cope with the outside world stripped by being trapped within them merely compounds the original injustice.

Here, Szasz doesn’t take a strict libertarian anti-welfare stance, which would say that if mental patients can’t pay for their keep in an asylum, then they have no right to stay there. Szasz thinks that true asylum is a function a civilized society should provide, and that “politicians and philanthropists would have to support it with the appropriate legislation and necessary funds.”

“Our society,” he adds, “provides no place of refuge for the individual who wants to escape from the world. Instead of offering asylum, the modern mental hospital offers only coercions called ‘treatments,’ intended to force the patient back into a society in which he cannot, or does not want to, find a place for himself.” He examines the current system of forced drugging, outpatient therapy, hospitals, halfway houses, and prisons that now dominates mental health care, and considers “deinstitutionalization” nothing more than “indefinite psychiatric probation.”

The book is the product of a man who has passed 80, with a long, courageous, and doubtless somewhat frustrating career of advocacy for liberty and responsibility behind him. Its epilogue ends on a sadly valedictory note that will especially touch long-time fans of Szasz and what he stands for. He quotes Lord Acton, one of his favorite thinkers: “It takes a gentleman to live on terms of hearty friendship and kindness and intimacy with men whose ideas and conduct he abhors and when he well knows that they view with contempt and horror the principles on which he shapes his own character and life.”

Szasz then adds: “As I look back on my life, I pride myself on having been able to follow Acton’s example, at least in this regard.” This is as chilling a discussion of the social role of the advocate of unpopular ideas—such as libertarianism—as I’ve seen. Still, Szasz ultimately manages to cheer the liberty-loving reader with his sharp, witty polemic whose occasional acid cannot fully overwhelm the sweet love of humanity and freedom that motivates it.

Brian Doherty is a senior editor of Reason magazine.

But is it true?

In the litany of reasons given to justify foreign aid, one that is meant to emphasize the poverty of the underdeveloped world is the slogan that some significant percentage of the world’s population lives on less than a dollar a day. The first thing that comes to mind is, how does anyone know this? Second, is it significant? What does it mean?

One problem with the slogan is that the dollar isn’t what most people think of as a dollar. The World Bank bases the standard on the 1985 dollar, which was worth more than $1.65 in 2001 dollars.

Moreover, a dollar in London or New York is not the same as a dollar anywhere in the Third World. Everyone knows you can buy a lot more housing for a dollar in Peoria than in San Francisco. The differences in purchasing power are far greater in the Third World. Having lived in Africa for over a decade, I can attest that one dollar goes a long way. (In South Africa, only 21,000 people out of 42 million earn more than $3,000 per month. The average “wealthy” family has an income close to around $10,000 a year.)

The United Nations Development Program (UNDP) uses the 1993 dollar but also considers purchasing power. It reports: “Between 1990 and 1998 the proportion of people living on less than $1 (1993 PPP [purchasing power parity] US$) a day in developing countries was reduced from 29% to 24%.”¹ As this quotation indicates, fewer and fewer people are impoverished as time goes by.

Another statistic that is trotted out to prove things are getting worse in the Third World is per capita gross domestic product (GDP). How is this calculated? An estimate of the total economic output of a nation is divided by the number of people living in that nation. But that neglects an important fact about these economies: many of them are cash poor but labor rich. The value of human labor is not taken into account.

In the West a farmer tills his field using a tractor, which represents a substantial capital investment. But the Third World farmer tills a field with his labor. Hence one of the reasons for high birth rates in such countries is that children are seen as an investment in the future. In the First World the tractor is included in the GDP, while in the Third World the labor is not. In fact, very little of Third World investment in the form of labor makes it into the GDP statistics. There are many people who do not earn the cash equivalent of a dollar a day, yet they are accumulating wealth.

There are other problems with the notion of per capita income. Every time a child is born, per capita income falls. Yet each death increases it. If a huge portion of a population died overnight, the nation, on paper at least, would appear much richer. But would anyone say the people there were better off?

What precisely is happening in the Third World? According to the United Nations, World Bank, and myriad other groups that keep track, the standard of living is improving. The statistic that almost trumps all others is life span. People who find their conditions worsening don’t live longer lives. But life expectancy is consistently better in the Third World than a century or even half a century ago. In 1906 the life expectancy in India was 25 years;² today it’s around 64.³ As recently as 1930 the average life span in China was only 24 years.⁴ Today it’s 69 for men and 73.5 for women.⁵

In The Skeptical Environmentalist, Bjørn Lomborg notes that in France in 1800 the average life span was 30 years; it was 45 years in Denmark in 1845.⁶ The vast majority of the Third World is doing much better than that. According to the United Nations, the worst region in this regard is Africa: it has an average life expectancy of about 51 years.⁷ The worst of the Third World today is about where France was in 1913.8 Africa’s life expectancy today is better than similar rates in the United States a century ago.⁹

A good deal of this improvement is due to the massive decline in infant mortality. The current average infant mortality rate in Africa is 83 per 1,000.¹⁰ That’s slightly better than it was in Sweden in 1900.

Not as Good as It Gets

This doesn’t mean things are as good as they could be. But things never are. Life is a process, and so is economic development. On average the Third World today is about where the Western world was at the turn of the last century. One interesting indication of this improvement is that the doomsday merchants at the United Nations have dramatically shifted the focus of their annual reports on the world’s population. In past years they concentrated on food, infant mortality, and life spans, particularly in light of a “population explosion.” The U.N. Population Fund’s State of the World’s Population 2001 played down all those issues and instead concentrated on long-term environmental “problems” like global warming. Projections of famine in the next few decades have been replaced by concerns about slight changes in the world’s climate over the next few hundred years.

Improving life spans and lower infant mortality would seem to indicate rising levels of wealth. That is exactly what is happening. World economic progress over the last two centuries has been nothing short of miraculous. The capitalist nations saw wealth expand 13 times in that period. Latin America expanded its wealth sevenfold, and even Africa had a fourfold increase in wealth.¹¹ No wonder the U.N. has said that poverty worldwide has decreased more in the last 50 years than in the previous 500.¹²

For some, however, greater wealth doesn’t make up for inequality between the developed and developing worlds. For years the UNDP said inequality was increasing. But this judgment was based on exchange rates instead of actual purchasing power in different countries. Because richer countries have higher nominal prices, Lomborg says, the exchange-rate method produced “unreliable comparisons that will greatly exaggerate inequality.”¹³

Eventually the UNDP came to the same conclusion and abandoned this method. Its “Human Development Report 2001″ noted: “With the exchange rate measure, the ratio of the income of the richest 20% to that of the poorest 20% grew from 34 to 1 in 1970 to 70 to 1 in 1997. With the PPP [purchasing power parity] measure, the ratio fell, from 15 to 1 to 13 to 1.”¹⁴

The idea that the world is becoming more unequal is an important weapon in the arsenal of the egalitarian left. To support the thesis, egalitarians manipulate the facts. UNICEF and the Worldwatch Institute, for example, compare differences in income in straight dollar terms. For example, suppose you earned $500 a year and I earned $5,000, then two years later your income was $1,000 and mine was $6,000. In the first year I earned $4,500 more than you. In the second I earned $5,000 more. Some consider this evidence that income has become more unequal.

But in fact you doubled your income while mine only improved 20 percent. Surely our levels of inequality declined. In the base year you earned 10 percent of my income. In the comparison year your income was almost 17 percent of mine. That’s a dramatic reduction in inequality.

By most objective standards the Third World today is a much improved place. Besides the improvements already cited, educational levels are up and starvation is down. There is wider access to clean water and health care than at any time in history.

What Happened?

What explains this improvement? Since the collapse of communism in 1989 the world has gone through an ideological revolution. Central economic planning as a path to prosperity was discredited. The 2002 Index of Economic Freedom gives some indication of how this translated into policy changes in Third World nations. The Index rates the majority of nations on economic freedom going back to 1995. Of the nations rated, some 105 would be considered developing countries. Of those, almost two-thirds, or 65 of them, are more economically free today than they were in the past. In 23, economic freedom has declined, and in 17, it has remained about the same.¹⁵

Of course, to say that life is improving on average does not mean that things are improving equally for all people. Most of the economic progress in developing countries is taking place in a minority of the nations. Luckily those nations contain about 60 percent of the population of less-developed countries.

So why are 60 percent seeing major improvements in life while 40 percent are not? The integration of individual economies into a global free-trade regime has dramatically changed the world, and this improvement is most obviously seen in the standard of living for globalized Third World nations. According to the World Bank, 24 developing countries in particular have joined the globalization revolution, and most of the improvement in Third World economic conditions is limited to those nations alone.

The World Bank said:

Countries that strongly increased their participation in global trade and investment include Brazil, China, Hungary, India, and Mexico. Some 24 developing countries–with 3 billion people–have doubled their ratio of trade to income over the past two decades. The rest of the developing world actually trades less today than it did 20 years ago. The more globalized developing countries have increased their per capita growth rate from 1 percent in the 1960s, to 3 percent in the 1970s, 4 percent in the 1980s, and 5 percent in the 1990s. Their growth rates now substantially exceed those of rich countries. . . .¹⁶

The Third World is now divided between nations that have liberalized their economies and joined the global economy and those that cling to the outmoded economic policies of interventionism and protectionism. While the new globalizers are prospering, those that cling to the past are not just stagnating but declining. The average per capita growth in those countries was a negative 1.5 percent. The World Bank study noted:

The striking divergence between the more globalized and less globalized developing countries since 1980 makes the aggregate performance of developing countries less meaningful. However, since 1980 the overall number of poor people has at last stopped increasing, and has indeed fallen by an estimated 200 million. It is falling rapidly in the new globalizers and rising in the rest of the developing world. Non-income dimensions of poverty are also diverging. Life expectancy and schooling are rising in the globalizers–to levels close to those prevailing in rich countries around 1960. They are falling in parts of Africa and the FSU [former Soviet Union].¹⁷

There’s good news even in the bad news: If the developing countries that are declining are doing so because of bad policies, a shift to market reforms will produce the same stunning improvements we see in the new globalizers of the Third World.

Notes

1. Sakiko Fukuda-Parr et al., Human Development Report 2001 (New York: Oxford University Press, 2001), p. 22, emphasis added.
2. Bjørn Lomborg, The Skeptical Environmentalist (New York: Cambridge University Press, 2001), p. 51.
3. United Nations Population Fund, State of the World Population 2001 (New York: United Nations Population Fund, undated), p. 68; www.unfpa.org/swp/swpmain.htm.
4. Lomborg, p. 51.
5. State of the World’s Population 2001, p. 67.
6. Lomborg, p. 50.
7. State of the World’s Population 2001, p. 67.
8. Julian Simon and Herman Kahn, eds., The Resourceful Earth (New York: Basil Blackwell, 1984), p. 51.
9. Lomborg, p. 53, where he notes that in 1900 the life expectancy of a newborn American girl was 48, three years less than in Africa today.
10. State of the World’s Population 2001, p. 67.
11. Lomborg, p. 71.
12. U.N. Development Program, “Human Development Report” 1997, http://hdr.undp.org/reports/global/1997/en/default.cfm.
13. Lomborg, p. 74.
14. “Human Development Report,” p. 20.
15. Gerald P. O’Driscoll, Jr., Kim R. Holmes, and Mary Anastasia O’Grady, 2002 Index of Economic Freedom (Washington, D.C.,: Heritage Foundation, 2002).
16. World Bank, Globalization, Growth, and Poverty (New York: Oxford University Press, 2002), p. 5.
17. Ibid., p. 7.

Reviewed by John Samples

Responding to Watergate, Congress a generation ago passed draconian restrictions on campaign spending and fundraising. The Supreme Court eventually struck down the spending limits, but affirmed contribution ceilings and the legality of the new agency empowered to oversee the regulatory regime, the Federal Election Commission (FEC). Over time, inflation has made the contribution limits more restrictive, but campaign spending has increased apace.

In the mid-1990s Senator John McCain took up the cause of legislating new restrictions on campaign finance emphasizing the issue during his failed presidential effort in 2000. That cause was reinvigorated, thanks to the eagerness of many to see the Enron debacle as proof of the corrupting influence of campaign contributions. With the recently signed reform bill heading to the U.S. Supreme Court, Smith’s book could not be more timely.

The cause of campaign finance “reform” attracts a strange mélange of civic puritans, who decry corruption, and traditional egalitarians, who attack the “undue influence” of the affluent. Among the puritans should be counted McCain himself, who is nothing if not self-righteous, and the numerous Washington interest groups like Common Cause and the Naderite factions, all of which lobby to rid money from politics while taking millions from leftist foundations like the Joyce Foundation and the Pew Memorial Trust.

Like earlier puritans, McCain and his allies prefer religious zeal to public reason; they rarely support their claim that campaign donations corrupt American government. Smith nonetheless examines their assertion with scholarly care. Political scientists have extensively studied the links between campaign giving and congressional voting. As Smith, a law professor at Capital University currently serving as an FEC commissioner, notes, they have found little if any connection between the two, an important finding since the only constitutionally acceptable rationale for restricting contributions would be preventing corruption or the appearance of corruption. In fact, academic studies say party affiliation, ideology, and constituent preference are more important factors affecting congressional votes.

The most intellectually serious—and most dangerous—proponents of campaign finance restrictions are the traditional egalitarians, who profess their cause in our most eminent law schools. Some law professors argue that we must restrict the political speech of some to enhance public debates and thereby realize “First Amendment values.” Others say the Fourteenth Amendment requires government action to promote a de facto equality of influence in politics.

Smith invokes the clear meaning of the Constitution against the “First Amendment values” argument. The framers intended to exclude government regulation of the marketplace of ideas. They defined political liberty by the absence of governmental intervention and not as a goal to be achieved through positive state actions. They knew that politicians could not be trusted to regulate the electoral process. Once we abandon the clear language that Congress “shall make no law . . . prohibiting freedom of speech,” Smith persuasively argues we are only a step from “suppression pure and simple.”

Other academics argue that government must substitute public for private financing of elections to attain “equal protection under the law.” Yet, as Smith notes, the Fourteenth Amendment protects citizens against governmental discrimination. It places no positive obligations on government to fund political campaigns. The Constitution guarantees equality before the law, not equal influence over elections or policymaking. Smith’s treatment of the Supreme Court cases in this regard is comprehensive and masterful.

He touches on many other issues in this work. Fully at home in constitutional law, he crosses disciplinary boundaries without fear, evincing an adventuring spirit that is needed on this topic. He has clearly written a book that will stand as the last word in defense of free speech in political campaigns.

I might mention in closing two great ironies about this work. John McCain appears late in the book. McCain’s obsession with campaign finance has always been a bit of a mystery, a puzzle possibly tied to his bad conscience about the Keating Five Affair. (Readers may recall that five senators, including McCain, were accused for doing favors for S&L figure Charles Keating in return for campaign contributions.) Smith examines the evidence and suggests McCain did nothing wrong or improper—Smith is more than fair toward a public figure who is rarely fair to others.

The other irony: Smith now serves on the FEC. When he was nominated to that position, the “reform” lobby attacked him along the low road, comparing him to David Duke, the Unabomber, and Slobodan Milosevic. The resistance held up his nomination for over a year, during which he finished the work under review. Rarely has sweet revenge and a profound public service been so winningly combined. Every friend of political liberty should read Unfree Speech.

John Samples is director of the Cato Institute’s Center for Representative Government.