The argument behind this smear is fallacious for several reasons. First, the charge is almost never made against those who accept money from or otherwise have relationships with the State. Those same leftist critics are never heard suggesting that people who accept National Science Foundation money for social science research arguing for more government are mouthpieces for political self-interest rather than disinterested truth-seekers. One could further note that the dollars given by the state and federal governments for scholarly research dwarf the amount given by the private sector. So if one wants to play this game, the question of who is really hiring shills becomes a lot more interesting.

Chicken or Egg?

Second, the argument implies that whoever accepts the funds holds his or her views because of that relationship. It’s as if the evil corporation swoops in on naïve scholars and, after dangling cash or prestige in their faces, gets them to produce studies in favor of deregulation. In reality the causality runs the other way: If corporations or their foundations wish to support academic research, they will find scholars whose work is already consistent with their positions. The scholars have come to their views independently of the support, not because of it.

But both arguments miss the much more important point. The hidden and false assumption of leftist critics is that the benefits of deregulation accrue mostly to the firms competing in the industry. Yet genuine deregulation primarily benefits not competitors, but consumers. As economists have long argued, real market competition is what drives firms to increase the quantity and quality of products and reduce prices in the process. One need only look at the highly competitive retail and technology industries, among many others, to see the empirical evidence for competition’s benefits.

Widespread Benefits

Those of us who think deregulation and increased competition are good do so not because we want to enrich the firms in those markets, but because we want to see the benefits of competition available to everyone, especially the poor for whom lower prices matter most. Specifically, I support Walmart’s right to open a store in an urban area not because I think it’s good for Walmart, but because I want its low prices and above-minimum-wage jobs to be available to the residents of those neighborhoods. Competition is a positive-sum game: If Walmart profits, it’s because they better served consumers.

The left needs to realize that corporations often support more regulation, not less. Never forget Horwitz’s First Law of Political Economy: “No one hates capitalism more than capitalists.” Real competition makes firms work hard and earn every penny; where competition is restricted, firms can frequently profit much more easily. Larger firms in particular tend to like regulation for two reasons: 1) they are likely to have a role in crafting it to their benefit, as they did in the recent Dodd-Frank banking regulations; and 2) they are better able than smaller firms to absorb the costs of those regulations, as we see from the increased centralization of the banking industry, among others. Leftist critics might consider the ways in which regulation concentrates economic power and competition disperses it.

Economists who support deregulation while having links to corporations should not be accused of being shills without clear and specific evidence of a quid pro quo. If those of us who support deregulation are serving the interests of anyone, it is consumers, not producers. Far more corporate dollars go to lobbying for additional government intervention and subsidies than to scholarship on behalf of deregulation. The corporations understand that a larger role for the State is often far more in their self-interest than is deregulation. If only their leftist critics could understand that as well.

One reason Egypt’s political development was frozen for so long is the lasting influence of Gamal Abdel Nasser (president 1956 – 1970), who allied the country with the Soviet Union, imposed a policy of economic nationalism and statism, and created huge loss-producing State enterprises and a bloated bureaucracy. Other reasons are Egypt’s geography, geology, economy, history, and geopolitical position, each of which has stifled the generation of an open political and economic system and strengthened the country’s static and authoritarian political system by providing revenue directly to the rulers, without requiring the consent of a productive population.  Since the rulers don’t rely mainly on taxes, they have little reason to promote good governance or to be accountable to the people.

Sources of Revenue

Geography:  The Suez Canal provides a direct passage between the Red Sea and the Mediterranean. As an artificial sea passage between Europe and Asia, the Canal is of major importance because it avoids the long ship passage around Africa. The Suez Canal was nationalized by Nasser in 1956.  Every day nearly 40 vessels traverse the Canal, producing some $3.3 billion per year in income to the state.

Geology: The land of Egypt is blessed – or cursed – with oil reserves that provide foreign exchange earnings estimated at 1.2 billion dollars per year.  The oil industry was nationalized in 1962 and provides rents to the State and the bureaucracy it has spawned.

Economy: A rigidly controlled labor market has created huge unemployment and forced many Egyptians abroad in search of work.  Every year, Egyptians working in North America, Europe, and the Gulf countries send an estimated $4.3 billion per year to their families, providing an external source of income to the country without creating wealth at home.

History: Egypt’s inherited wealth of tourist sites draws some five million foreign visitors per year from the whole world.  The sites are State-owned and -managed and accordingly poorly maintained, but because there are no close substitutes for seeing the Sphinx or the Pyramids, the State receives billions of dollars in foreign exchange earnings (some $5 billion in 2005).

Geopolitics: Egypt is a central hub in the chaotic politics of the Middle East, as neighbor to Libya, Sudan, Israel, Jordan, and Saudi Arabia (from which it is separated by the Sinai desert and the Red Sea). Apparently without consulting “the Egyptian street” (and the Arab street in general), the government of Egypt was the first Arab government to sign a peace treaty with Israel (the Camp David Accords of 1979). In return for being at peace, every year since 1980 the United States has given the Egyptian government over $2.1 billion, including $1.3 in military aid. Egypt’s leaders have occupied an increasingly difficult position, as they are seen as betraying the Arab nationalist ideals of Nasser and abandoning the cause of the Palestinians.

All those “rents” were captured by the ruling coalition, which until earlier this month were increasingly ruled over by President Mubarak’s son Gamal.  Those rents have supported a vast system of patronage through which Egyptian society has been controlled. The now-defunct National Democratic Party and the state organs it dominated controlled almost all of the media, the unions, the secret services, and the political police. As a result, “democracy” was emptied of its meaning.

A “rent-seeking” political system that cemented its hold on society put Egypt in a perpetual pre-revolutionary situation and created a powerful, but quite brittle, security situation.

The demographics and economics of Egypt also have contributed to the brittleness.  Egypt’s statist economic system generates few opportunities to create wealth, in contrast to receiving rents through State employment.  Unemployment is probably over 30 percent, and with some 600,000 young people entering the job market each year, the situation has been worsening.  Moreover, Egypt’s population is both rapidly growing, with some 26 million Egyptians under the age of 15, and poor, with 44 percent living on less than $2 per day.

Plutocratic Land of the Pharaohs

In short, the Land of the Pharaohs is a dual society, with a thin layer of powerful and wealthy people whose riches have largely derived from rents from the State, ruling over a mass of impoverished people.  The poorly managed “privatizations,” undertaken in a climate of pervasive corruption and hostility to independent business, have done little to address the country’s intolerable inequalities. Moreover, the country faces a total public debt above 100 percent of GDP, and public finances are taking a nose dive, resulting in  delays in payment of wages to public servants, traditionally a strong base of support for such rent-seeking States. The pressure has been building for years, and the example of Tunisia accelerated the process, resulting in an explosion of anger and rage.

The desperate and left-behind have in the meantime been swelling the ranks of the more radical movements. The Salafists, Wahhabis, and more radical branches of the Muslim Brotherhood are the main beneficiaries of that process, as other avenues for political dissent have been stifled; the increasing bomb attacks and the recent uprising are the main consequences of this. But even the Muslim Brotherhood seems to have been surprised by the uprising in the streets.  There is hope that perhaps something different will emerge, something that goes beyond the confrontation between a quasi-fascist one-party State and a radical Islamist movement working to take its place.

The roots of the revolt have been growing for years.  It will take some time before we see what will grow from those roots: a pluralistic democracy, a renewed and even more tyrannical military State, or an intolerant Islamist tyranny?

Now imagine that some lobbyists have staked out part of Antarctica and brought suit in federal court against tourists who trespassed on “their” land. Fine, you say: After all the lobbyists got there first. Replace “Antarctica” with “ideas” and you have the surreal world of “intellectual property.” Unfortunately, while you and I cannot both mine for gold in the same spot, we can certainly make use of the same idea, and therein lies the heart of this story.

A good spot to start the tale is in 1998, when a panel of judges ruled that software was patentable, thereby starting the intellectual property equivalent of the California gold rush (State Street Bank & Trust v. Signature Financial Group). Every child knows how to answer the door: “Knock knock.” “Who is there?” But what if I taught a computer how to say, “Who is there,” and patented the idea? Absurd, you say. Well, we all understand how to run an auction—but do not try doing it with a computer because the holder of U.S. Patent 7,702,540 (also known as e-Bay) will sue you. And that in a nutshell is what software patents are all about.

The entire concept of being able to patent a commonly used idea because it is implemented on a computer is silly, but this article is too short to review all of the millions of software patents issued since 1998. A famous and not-so-famous example may serve to reinforce the point. Raise your hand if you have not heard about the Amazon “one-click” patent (U.S. Patent 5,960,411). No hands? Okay, if you can patent one click, why not two? Sorry, that you cannot do. Why not? Microsoft beat you to it (U.S. Patent 6,727,830).

Software patents, though, are only a modern incarnation of an ancient evil. How about patenting the peanut butter and jelly sandwich? Too late, already done—in 2005, no less (U.S. Patent 6,874,409). That one did not hold up in court. There are so many silly patents that there are two websites, totallyabsurd.com and patentlysilly.com, to publicize them. Many seem to tell a tale of inventors with little sense—and a government patent office with even less. How about a thong diaper (U.S. Patent D539422)?

Here is one that was approved by the eagle eyes at the U.S. Patent Office (U.S. Patent 6,637,349): “A motorized picnic table having a drive mechanism, wheels connected to and driven by the drive mechanism, a table mounted above the drive mechanism, and at least one seat adjacent the table. In the preferred embodiment, the seats are bench-type seats and flank the drive mechanism.”

That was “invented” by Gregory A. Lafferty, “approved” by patent examiners Robert Olszewski and James S. McClellan, and lawyered by Baker & Daniels.

And what was the patent examiner smoking when he approved this one?

A method of swinging on a swing is disclosed, in which a user positioned on a standard swing suspended by two chains from a substantially horizontal tree branch induces side to side motion by pulling alternately on one chain and then the other (U.S. Patent 6,368,227).

But if you think patenting the obvious is silly, then what about patenting the impossible? Do these inventors sit around and watch Star Trek all day, then rush off to the patent office? U.S. Patent 6,025,810 protects the warp drive: “[This] invention takes a transmission of energy, and instead of sending it through normal time and space, it pokes a small hole into another dimension, thus sending the energy through a place which allows transmission of energy to exceed the speed of light.” It comes complete with elaborate wiring diagrams.

Fun is fun. But there is a serious side to all this nonsense. In The Social Network, Facebook creator Mark Zuckerberg asks, “Why should a guy who makes a really good chair owe money to anyone who ever made a chair?” Yet in practice that is what patents are for. Take the matter of faster-than-light travel. The patent is silly because it is science fiction rather than science. But should a real entrepreneur ever come up with a way of communicating faster than the speed of light, the only thing we can be certain of is that she will then have her pants sued off for patent violation by Mr. David L. Strom—owner of the “idea” of the warp drive.

Does that sound crazy? Consider the true story of Jerome Lemelson, who in 1954 and 1956 filed patents (or so he later claimed) on optical scanning. Optical scanning was no more practical in 1956 than the warp drive is today—and needless to say, Lemelson’s “invention” did not include a working device. Still, when optical scanning became widespread in 1998, Lemelson demanded and received millions of dollars in royalties from the companies that produced optical scanners. It is true in the end the courts invalidated his patents. But he did not give back the money.

The Rest of the Story

Patents are not the end of the story. They seem so serious: They’re essential, it’s said, to innovation, growth, economic welfare. Patents involve weighty and important things. By contrast, trademarks and copyright seem lightweight. What does a song really matter to our economic well-being? The logo of a company? If the International House of Pancakes wants to sue the International House of Prayer for a trademark violation, well it’s silly, but so what? If a woman trademarks her name and threatens to sue anyone who uses it in written communication, well the world is filled with silly people. If one restaurant sues another over grazing goats on the roof, it’s an amusing article in the Wall Street Journal. Or suppose a company calls itself “Rosetta Stone,” trademarks the name, then sues Google for selling it as a keyword for searches. At least a big company like Google can afford the lawyers to defend itself. And if the media industry’s anti-piracy lawyers are suing one another for copying cease-and-desist letters, that’s not only silly but ironic, right? It’s true that these silly lawsuits clog up the courts, but that’s the price we have to pay for . . . well I am not sure why we have to pay it, but you get the point.

Some copyright stuff is sleazy. For example, Stephens Media encourages people to share its news articles with their friends, then sues them for copyright violation when they try to do it. It’s true the company intimidates a lot of people into paying up—but “no harm no foul”: Nobody has actually gone bankrupt on its account yet.

The truth is that trademarks—unlike patents and copyright—have a legitimate purpose. Why should someone be allowed to do business pretending to be me? That’s how trademark law is written. Yet no law has been written that lawyers cannot distort. A company, Peabody Energy, recently tried to take down a website making fun of its clean-energy claims because—you’ve got it—the site used its trademarked name.

The Electronic Frontier Foundation has an entire catalog of these kinds of offenses. Are they just silly? Or are they sinister? Suppressing free discussion of the demerits of a person (who trademarked her name) or a company (that trademarked its name) certainly is not the purpose of trademark law. Or how about this: When the book Alice’s Adventures in Wonderland—a book not under copyright and in the public domain—was reformatted for the Adobe e-book reader, readers were told that any effort to copy, print, lend, or give the book away—or indeed to read the book out loud—would be a violation of international copyright law. Leaving aside that these restrictions are as meaningless as they are legally unenforceable, and that this falls into the silly rather than sinister category, the idea that a copyright holder might want to prevent something from being read aloud should give pause.

After you pause, take a deep breath: There is worse to come. There are copyright holders who want to prevent things from being read at all. The Diebold Corporation sued a group of students. Their offense? They made public internal company emails documenting that Diebold voting machines do not work especially well, and in particular are vulnerable to the casting of fraudulent votes. Pretty serious stuff. Why did Diebold sue these students? It sued them for copyright violation. It claimed the internal emails were copyrighted and that the students had reproduced them without permission. In this instance the courts behaved sanely: Judge Jeremy Fogel wrote in his decision that “no reasonable copyright holder could have believed that portions of the e-mail archive discussing possible technical problems with Diebold’s voting machines were protected by copyright.” But while threatening and carrying out meritless lawsuits is not as bad as winning them, it imposes a real tax on free speech. And more to the point, the history of intellectual property is the history of absurd requests being repeatedly rebuffed by the courts (think “software patents before 1998”) until a panel of judges finally caves in.

Let us be realistic: People sue each other for all sorts of silly reasons having nothing to do with intellectual property—and often win in court. People who spill coffee on their laps sue the maker of the coffee; burglars who fall through the roofs of properties they are robbing sue the owners for unsafe roof conditions, and so forth.

Abusive by Nature

So why condemn intellectual property law over, say, tort law more broadly? Why focus on IP and not on the broader problem of excess litigation? The answer is that intellectual property is abusive by its very nature. Despite what the propagandists say, intellectual property is not about protecting land from trespassers. It is about controlling what belongs to other people. It is about the right of Disney Corporation to tell me what to do with things I have on my computer—even things I have created myself.

Is it a coincidence that the main accomplishment of the patent system is to encourage rent-seeking behavior? Well, consider that originally the only purpose of the patent system was to encourage rent-seeking behavior. There was no fiction that it was a reward for invention: The king simply granted favored rent-seeking courtiers monopolies over the production of salt, the land in Virginia, or whatever the favorite with the largest bribe happened to desire.

Is it a coincidence that the main use of copyright is to suppress free speech? Well consider that originally the entire purpose of copyright was to suppress free speech. When the printing press became widespread, a monarchy deathly afraid of popular dissent granted printing companies “copyright” monopolies over the printing of (government-authorized) books, along with the right (and obligation) to burn any books the monarchy disapproved of.

Where is this all headed? Intellectual property is not merely a threat to freedom of trade and speech. It is also a threat to freedom of thought. Sound far-fetched? A ridiculous straw man? A wild exaggeration?

Is it? How about this famous copyright lawsuit that the plaintiff won? It concerned two songs: One consisted of four repetitions of a short musical phrase A followed by four repetitions of B. The other and subsequent song also consisted of four repetitions of A followed by three repetitions of B. And indeed, the tune was sufficiently “obvious” that the judge concluded that George Harrison did not knowingly copy the song “You’re So Fine” when he wrote “My Sweet Lord.” He nevertheless ruled for the plaintiff: “His subconscious knew it already had worked in a song his conscious did not remember. . . . That is, under the law, infringement of copyright, and is no less so even though subconsciously accomplished.”

Subconscious copyright violation! Just wait until we all have video cameras implanted in our retinas! Then you will have to pay a fee to Walt Disney Corporation or some other big company each time you look down the street. Or perhaps you will have to pay me: I’m thinking of patenting the idea.

I hope you’ll believe me when I say I was motivated by only the purest intentions — I sincerely wanted to make the school a better place.  I put a lot of time and thought into my speech and carefully selected an outfit to wear.

I realize now that my ideas for leading the school through the 1976-77 school year were nothing monumental.  I wanted to place a suggestion box in the library so any student could make his or her ideas known; I wanted to start a student newspaper.  Maybe there was something in the speech about soliciting student volunteers to pick up litter from the playground, and that the big kids should be deterred from bullying the little kids.  At the time it seemed like a solid platform.

On Election Day, I wore my white sweater with a hand-lettered campaign button pinned over my heart.  We gave our speeches at a podium set up at the front of the cafeteria.

Todd, a red-haired, freckled boy on whom I’d had a crush since fourth grade, gave his speech first.  It (unlike him) was nothing remarkable.  Though my heart was still loyal and he was definitely the cutest boy in our class, he was not, I decided, presidential material.  My best friend, Debbie, gave her speech next.  She was a worthier opponent, and prettier than me, but still I felt confident, thinking I had a real shot at the power seat at Sharonville Elementary.  I knew Debbie really wanted to be class secretary, but since there was just the one election, she was hoping for third place in the popular vote.

Campaign Promise Turns the Tide

Then it was Chris’s turn.  I remember just one sentence from his speech, but it was the sentence that torpedoed my dreams of the presidency:  “Elect me and we will have malts in the cafeteria … every day!”

Now, really — frozen chocolate malts were a coveted treat. They cost a quarter extra, and the cafeteria ladies put them on the lunch menu maybe twice a month.  To blithely suggest that it was within the student council president’s authority to open the floodgates and provide unlimited chocolate malts was … irresponsible.

But it didn’t matter, as long as the voters believed it.

My carefully thought-out speech was lost to the ages.  Nothing I said would have mattered at that point.  Chris had the election in the bag.

Chicanery!  I was indignant, and even though the word chicanery wasn’t in my vocabulary at the time, I had just been schooled on the concept.

When the votes were tallied, the results were announced over the school public-address system.  Chris had been elected president, I was vice president, Debbie was secretary, and Todd treasurer.

A month after our inauguration it became painfully clear that Chris could not deliver on his campaign promise, and his approval rating plunged.  Hobbled by the bureaucracy in the cafeteria, he resigned office before he could be impeached.   As vice president I assumed the president’s duties, and the suggestion box was installed in the library.

Malts in the cafeteria.  Every time a politician makes a promise, that’s what I hear.  It’s all just malts in the cafeteria.

This is the state on which our authors focus. They aren’t much interested in either praising or condemning the conservative movement, but seek to explain its political success over the last several decades. They do that very well indeed. Micklethwait and Wooldridge thoroughly cover the whole spectrum of conservative politics, from the ground troops of the Republican Party to the brigades of analysts and policy wonks in the various rightist and free-market think tanks. (But sorry to say, FEE doesn’t get a mention.)

Micklethwait and Wooldridge take Western Europe as a counterpoint, a sort of leftish benchmark, and note that America is conservative in a relative way—and in a bipartisan way. Even “liberal” Democrats here are “conservative” in comparison with European leftists, something that the authors attribute to the “effectiveness” of the conservative movement.

Where I take major exception with the authors is precisely that—American conservatism is “effective.” Effective, how? Maybe in slowing down the progress of government expansion a tiny bit. We aren’t quite as bad off as, say, Sweden, but the main contours of America are not much different than they were when Nixon took office. And now we have a huge new federal entitlement in prescription drugs, courtesy of a “conservative” president.

Our authors note that America is the only developed nation without a full government-supported health-care system; that it is the only Western democracy that does not furnish child support to all families; that it is ready to be the only OECD nation (of 30—Australia seems about to give up being the only other holdout) to deny paid maternity leave. In this sense are we “the right nation,” one with “conservative power,” but I’m not inclined to see any remarkable conservative power in the fact that the United States hasn’t bitten on some of the worst ideas meddlesome politicians have come up with.

When the authors talk about “conservative power in America,” I say this could well be the very power that Milton Friedman put down as “the tyranny of the status quo.” Few conservative politicians have the nerve to challenge the deeply ingrained collectivist notions that many Americans hold, ranging from “public education” to eminent domain. The great conservative movement has done precious little to shake people out of those ideas, and it’s becoming increasingly clear that many conservative leaders today don’t even care to try. It reminds one that F. A. Hayek took pains to explain why he was not a conservative.

A particular blind spot for Micklethwait and Wooldridge is the phenomenon of rent-seeking. In their index, they give 12 citations to Milton Friedman and ten to Hayek, yet none to another Nobel economist, James Buchanan. Yet it was Buchanan who, with Gordon Tullock, came up with the idea of Public Choice, the explanation for why the modern democratic state inevitably gets caught up in the favor-granting business. Here special interests press our vote-and-campaign-money-hungry politicians for favors including subsidies and manifold tax-and-import protectionism.

Micklethwait and Wooldridge correctly charge the Bush White House with kowtowing to special interests, letting federal spending (defense and nondefense) skyrocket, federalizing airport security with tens of thousands of new government employees, slapping tariffs on imported steel, signing the biggest farm bill on record, and, by the way, casting not a single veto on a spending or any other bill. What they apparently fail to see is that the federal juggernaut is a systemic problem that conservatism has done nothing to solve.

Back in 1835, Tocqueville foresaw today’s democratic state, where all too often “The will of man is not shattered, but softened, bent, and guided; men are seldom forced by it to act, but they are constantly restrained from acting; such a power does not destroy, but it prevents existence; it does not tyrannize, but it compresses, enervates, extinguishes, and stupefies a people, til each nation is reduced to nothing better than a flock of timid and industrious animals, of which the government is the shepherd.”

Dear Freeman reader, look out. Make way for more shepherded “progress.” Messrs. Micklethwaite and Wooldridge amuse and edify us on today’s Politicized America, but do so in an ephemeral way. They silently endorse government interventionism as a given and conservatism as a means of protecting the status quo. This a pity.

Table 1 shows the percentage of Americans who gave unions favorable and unfavorable ratings in the years 2001, 2005, 2007, and 2010. These results are consistent with earlier Gallup polls that showed that in 2008, 59 percent of Americans approved of unions while in 2009, only 48 percent approved. They are also consistent with a Rasmussen poll released in March 2009 that showed that only 9 percent of union-free workers would prefer to unionize.

Table 2 shows the percentage of Americans who agreed and disagreed with the proposition that “unions are necessary to protect workers” in the years 2003, 2007, and 2009. While the figures for 2009 show that more study is needed on this question, the trends are encouraging.

Table 1: Americans’ Opinions of Unions
Year    Favorable    Unfavorable
2001    63%             28%
2005    56                33
2007    58                31
2010    42                41

Table 2: “Unions are necessary to protect workers.”
Year    Agreed    Disagreed
2003    74%        23%
2007    68           28
2009    61           34

Table 3 shows the percentage of Americans who agreed and disagreed with the proposition that “unions have too much power” in the years 1999 and 2009. This trend is also encouraging. The perception that government has too much power is growing. Since government-employee unions (GEUs) are becoming the dominant face of American unionism, I expect even more people to conclude that unions have too much power.

Table 3: “Unions have too much power.”
Year    Agreed    Disagreed
1999    52%         40%
2009    61            33

The Winter 2010 issue of The Cato Journal provides excellent reading on this matter. It consists of 12 articles addressing the question “Are Unions Good for America?” The authors argue persuasively that the answer is no. In the concluding article I imagine what might replace the National Labor Relations Act (NLRA) when unions have lost enough respect to make it possible to repeal that law. What follows are some highlights of the other papers.

Armand Thieblot surveys American union history and concludes that, because labor law bestowed coercive powers on unions, “many individual union members simply found themselves beholden to a different set of bosses, who took part of their pay for dues.” Under current union law, unions have almost run out of rent-seeking opportunities in the private sector. They now have turned to two types of political rent-seeking. They have diverted most of their organizing energy to the capture of government employees (51.3 percent of all union members are now government employees), and they lobby for even more coercive power over private-sector workers—for example, card check. Thieblot wonders “whether there can be any way to stop or divert substantive union control over the economic activities of the entire country.” In my view, President Obama’s appointment of Andy Stern, former president of the SEIU, to his National Commission on Fiscal Responsibility and Reform makes Thieblot’s point.

Project labor agreements (PLAs) and prevailing-wage laws are two other forms of political rent-seeking. PLAs are schemes to strip away any advantages that union-free construction firms have over their union-impaired rivals when bidding on construction projects by requiring union-free firms to pay union wages and benefits, use union hiring halls to obtain workers (even workers who are already their employees), and submit to union work rules. PLAs also force all workers to pay union dues and to contribute to union pension plans. They are usually imposed by state and local governments, but by executive order Obama has forced them on federal construction projects. David Tuerck critically examines the arguments unions use to justify PLAs and finds them all spurious. On average they raise the cost of government construction projects 12–18 percent.

Prevailing-wage laws also apply to taxpayer-funded construction projects. The federal Davis-Bacon Act (1931) was the first such imposition. Since then 31 states have adopted their own versions. These laws require all firms that work on government construction projects to pay union wages and benefits. Thus union-free firms cannot compete on the basis of worker compensation. Freeman book review editor George Leef dissects all the arguments that unions have used to lobby for such laws and examines the historical record of their effects. He concludes that they all should be repealed.

Randall Holcomb and Jim Gwartney explain how American labor law has resulted in significant declines of economic freedom and prosperity. The authors explain the precipitous decline of private-sector union density and the disastrous effects of American unions in the auto and railroad industries, and they provide useful international comparisons.

Opportunistic behavior by private-sector unions eventually results in capital flight from heavily unionized cities. Capital flight causes declines in both population and real income in such cities. Stephen Walters analyzes the carnage, paying particular attention to Detroit.

According to the Pew survey, the demographic group most supportive of unions in America is blacks. Paul Moreno gives an extensive account of how unions have long “used racial discrimination as an economic weapon.” While blacks are no longer excluded from unions, many of them are subjected to more subtle forms of discrimination through such union-based institutions as seniority rules.

The “high-wage doctrine” is the belief that unemployment comes from lack of spending, which is in turn the result of insufficient money wages. So when faced with unemployment the remedy is to increase money wages. Those who believe this silliness and also think that unions increase money wages are likely to approve of unions. Lowell Gallaway destroys the high-wage doctrine and in doing so eliminates one of the most effective arguments in favor of unions.

Unions used to endorse free trade because it lowers workers’ cost of living. Now unions oppose it ostensibly to protect American jobs. Daniel Griswold explains how free trade actually increases jobs and worker compensation. The problem for unions, of course, is that under free trade “unionized firms just fade away.”

Unions abhor right-to-work laws because in those states that have them, unions cannot force workers to pay union dues. Moreover, unions find it more difficult to organize in those states. Richard Vedder explains how right-to-work laws promote liberty, prosperity, and quality of life.

Are we headed back to those same beliefs? In his State of the Union address President Obama proposed forgiving student loans to those going into (honorable) public service, but not to those going into (dishonorable) commerce. The idea that making a profit is morally tainted has become fashionable in recent years, as has the belief that those who earn profits must “give back to the community” to atone for doing so.

Yet making a profit is neither moral nor immoral—it is simply necessary to preserve life. Every living thing must make a net energy profit if it is to survive. If living creatures do not consume at least as many calories in the form of food as they expend procuring, preparing, and digesting that food, they will die. By analogy, if an oil company’s actions are to be of use to anyone (whether the company is owned by the State or private individuals), it must produce more BTUs’ worth of petroleum than it expends to find, produce, refine, and transport it.

Money Changes Everything

While the need for a net energy profit is obvious, the introduction of money clouds the issue. Energy profits may be all well and good, but monetary profits? Money is evil! Yet it is money that enables us to keep score. Without money and prices based on free exchange, it is impossible to determine whether any cooperative activity is worth the cost.

Suppose, for example, a company drills a well that will yield 100 barrels of oil a day. Is it worthwhile for the company to produce the oil, or should it cap the well and look for one that will flow at a higher rate? Theoretically, a net energy balance could be performed to decide the question—that is, the BTUs contained in the oil could be compared to those needed to produce it. Unfortunately, determining the energy cost of fabricating, transporting, and installing tanks, pumps, pipe, valves, fittings, nuts, bolts, and gaskets would be a monumental task, as would determining the energy needed to transport and refine the oil.

Suppose, however, that the necessary calculations could somehow be made, and it turns out that producing the oil would result in a net energy gain. What then? Should the company produce the maximum 100 barrels a day, or would that just leave it with a storage problem? An energy balance cannot answer this question because it does not indicate demand.

But there is still another problem. The only reason we could even consider performing a net energy balance to determine whether the oil should be produced is that energy appears on both sides of the equation. I am, for example, willing to invest 50 BTUs in order to obtain 100 BTUs’ worth of oil in return, but how much energy should I expend to produce, say, a pound of copper?

In a free market, prices—generated by the free buying and selling of privately owned things—allow us to calculate the costs and benefits of production, to determine consumer demand, and to compare the relative values of different goods. The oil producer does not need to know how much energy was used to make a valve. All he needs to know is its price. The manufacturer’s costs for materials, labor, overhead, and energy are all reflected in that price. Knowing the price of the equipment and of its transportation and installation enables the oil producer to determine his costs. Knowing his costs and knowing the price consumers are willing to pay for a barrel of oil enables him to calculate the monetary profit (or loss) that will result from recovering the oil. Because the prices the producer pays for equipment, parts, services, and labor include the value of energy expended, the producer can be reasonably sure that if he makes a net monetary profit, he will also be making a net energy profit.

Asking whether it is moral to make energy or monetary profits makes no more sense than asking whether it is moral to eat. Like eating, making a profit is neither moral nor immoral, it is simply necessary.

Fair Profits

That is not to say, however, that because making a profit is necessary, anything done in the name of profit is acceptable. Trading labor for food is one thing, snatching a crust of bread from a child’s hand is quite another. The question of morality, then, lies in how a profit is made, not in the bare fact that a profit is made.

There are only two ways in which a person may obtain goods to ensure a net profit and sustain life: produce it himself or obtain it from someone else. There are only two ways to obtain a thing from another: Take it with or without the other’s consent. If a good is obtained with consent (without either fraud or coercion), it must have either been exchanged for a service or another thing of value, or it must have been received as a gift or as charity. A thing obtained by consent is obtained morally.

If a thing is taken without consent, it is obtained immorally. This is true even if it was taken legally. In most societies, outright theft and fraud are illegal but most societies have legalized some degree of “rent-seeking”—that is, manipulating government rules to obtain unearned profits. Such legalized plunder is minimized in states whose economies are based on the free market and maximized in those in which government intervenes heavily. Mercantilism, political (or “crony”) capitalism, socialism, fascism, and communism are all based on varying degrees of nonconsensual exchange. If we are to live, we have no choice but to make profits. We can choose, however, how we make them. Will we do so by producing and freely exchanging goods and services with others, or will we once more convince ourselves that such activities are beneath us, fit only for serfs and slaves? Will we, like the Romans, choose to believe that wealth is honorable only if it is gained by plunder?

This proposal was not really all that shocking: Such a program would have been consistent enough with the advertised purpose of certain phases of American land policy from 1776 on. American governments handed out land (however acquired) for over a century to veterans, settlers, land speculators, railroads, timber corporations, mining companies, and other parties. (I’ll give you three guesses which groups made out the best). Governments did so as a source of revenue, for geostrategic reasons, to win favor with voters, or to reward a small class of typically American operators who flat-out deserved to be rich.

In a new, revolutionary, and republican society, there was of course much talk about widespread property as the bulwark of republican freedom. But the talk was so general that Federalists and Republicans could share it, while leaving themselves plenty of room in which to create a small class of owners of a disproportionate amount of the public domain. Overall—from the founding land speculators down to 1893, when the frontier allegedly ran out—American land policy resembled in both theory and practice the kind of “privatization” we see under mercantilist Republican administrations. One landmark in the process was Johnson and Graham’s Lessee v. William M’Intosh (1823). Here, Chief Justice John Marshall undertook to write a long essay on the received theory of how property previously stolen by European kings or their agents is best conveyed. As was his wont, Marshall proved entirely too much, in as clear a case of Albert Jay Nock’s “copper riveting” of narrowly focused property rights as we could want. (See my “Albert Jay Nock and Alternative History,” The Freeman, November 2008.)

Southern agrarian Andrew Lytle noted that from the settler’s point of view the whole frontier process represented an attempt to get away from would-be aristocrats and other aspiring land monopolists. Consistent republican ideologists like Thomas Skidmore and George H. Evans agitated from the 1820s into the 1840s in favor of giving homesteaders first claim on the territories. Generally speaking, other claimants prevailed, while the politics of slavery and antislavery further complicated the matter. In the bigger picture, the Homestead Act of 1862 was the exception rather than the rule, as Paul W. Gates showed in a noteworthy 1936 paper (“The Homestead Law in an Incongruous Land System,” American Historical Review).

I cannot discuss here what an ideal policy based on “mixing one’s labor” with resources might have looked like. Suffice it to say that sales of thousands and tens of thousands of acres to individuals, land companies, and corporations were not especially consistent with any genuine republican ideal. The disappearance of most of the best land in California into the hands of a half-dozen individuals in a few decades comes to mind. But large-scale buyers had mixed their money with federal land officers, and that no doubt counts for something.

Meanwhile, the judiciary—state and federal—busily remodeled the common law and shifted the burdens of industrialization onto third parties, extensively modifying the older law of nuisance. Harry Scheiber finds that “law was often, if not to say usually, mobilized to provide effective subsidies and immunities to heavily-capitalized special interests [under] either ‘instrumentalist’ or ‘formalist’ doctrine.” Even existing doctrines of “public rights” and eminent domain came to serve business interests. Finally, federal judges’ discovery in the 1880s of corporate “personhood” in the Fourteenth Amendment perfected the Federalist Party’s original mercantilist program. All these changes importantly influenced just who would benefit from the American State-system of land tenure (to use Nock’s phrase) and its attendant modes of preemption and exploitation.

Land and Independence

Many writers have seen a special relationship between landownership and personal independence. And here we hit on what is perhaps the truest insight of republican theory—one taken up by many classical liberals. Briefly, this holds that a broad “middle class” of property owners is essential to the maintenance of free societies. The point is as old as Aristotle. On the negative side, in decrying the social effects of England’s fabled land monopoly, radical liberals like Percy Bysshe Shelley, Thomas Paine, Thomas Hodgskin, and John Bright implicitly affirmed the republican axiom.

A typical nineteenth-century American “self-help” book aimed at young men did not say, “Get a job working for wages within an increasingly intricate division of labor so as to enjoy a greater variety of consumer goods.” Instead, it said, “Get yourself a competency”—a vision fraught with republican implications suitably modernized. Working for wages, if one did it at all, was a temporary stage—to be endured while learning a skill or trade and abandoned later in favor of real or potential independence. This independence, derided in our time as “illusory,” left one free (within limits) not just from state interference but also from nineteenth-century employers. And if independence is illusory in our time, it is at least partly because the political activities of well-connected elites long since removed the preconditions of independence deliberately and systematically.

One key (but not the only one) to this much-sought-after independence was access to land, a theme taken up by Catholic writers Hilaire Belloc and G. K. Chesterton in early twentieth-century England. Sociologist Robert Nisbet commented that never, after reading Belloc, did he “imagine that there could be genuine individual liberty apart from individual ownership of property.” In any case, as historian Christopher Lasch put it, “Americans took it as axiomatic that freedom had to rest on the broad distribution of property ownership.” Perhaps Americans were wrong to believe such a thing. But let us examine the matter a bit more.

This American axiom receives support from those political economists who believed that the land/labor ratio importantly determines social structure. Edward Gibbon Wakefield somewhat gave the game away in the 1830s by opposing easy access to land in Australia, lest potential wage-earners try for self-sufficiency before spending “enough” years working for others. Marx chided Wakefield for letting this “bourgeois secret” out and was in turn chided by Franz Oppenheimer, Achille Loria, and Nock for not learning the right lesson from Wakefield’s recommendations on rigging the market.

H. J. Nieboer argued (1900) that where resources are “open,” few will work for big enterprises, and the latter will (if they can) institute some form of slavery. Evsey Domar writes (1970) that one never finds “free land, free peasants, and non-working owners” together. Why? Because where political leverage allows, aspiring lords and (literal) rent-seekers will eliminate the free land, the free peasants, or both.

Colonial Policies

With this theorem in view, let us survey some colonial evidence. Enterprisers in colonies have always wanted regular supplies of cheap labor for their projects. Although there is no evidence in favor of a “right” to such a thing, these prospective employers were never discouraged. Aided by colonial administrators with the same assumptions, they gradually overcame native economic independence. Land was the key, and neither the colonizers nor the natives doubted it. No matter how hard natives worked on their holdings, colonialists decried their “idleness”—and their uncivilized failure to work for wages.

We may therefore give the overworked English Enclosures time off (for now) and look at some other cases. Consider the Japanese colonial administrator in Okinawa who complained in 1899 that the typical Okinawan held land and therefore had low expenses and few wants. For these reasons, the native saw “no need to undertake any other business, nor to save money.” Since native lands were held informally, they could not be capitalized. Such people and properties did little for the great cause of development and, shortly, the Japanese government (!) denounced Okinawans’ customary arrangements as “feudal” and set out to modernize the island. American occupation later perfected this anti-agrarian revolution. Doubtless, however, much “employment” was created in the post-World War II Okinawan service economy dominated by the U.S. military.

Turning to English colonies in the Caribbean and Africa, we find comparable phenomena. England abolished slavery in the colonies in the 1830s. (Never mind that, as historian Eric Foner comments, “Through a regressive tax system, the British working classes paid the bill for abolition.”) By this time, English policymakers had embraced Adam Smith’s view that positive incentives motivated labor better than fear of starvation or draconian punishments did. But an ocean made all the difference, Foner observes, and new peasantries made up of former slaves were “seen in London, as in the Caribbean, as a threat not simply to the economic well-being of the islands, but to civilization itself.” John Stuart Mill’s famous defense of peasant proprietors “did not extend to the blacks of the Caribbean; their desire to escape plantation labor and acquire land was perceived as incorrigible idleness.”

And so Britain’s former slave colonies put vagrancy and other laws to work and crafted taxes aimed at restricting “the freedmen’s access to land.” As Foner puts it, “Taxation has always been the state’s weapon of last resort in the effort to promote market relations within peasant societies”—that is, to force people into markets in which they were not eager to participate. In Kenya the problem was one of “dispossessing a peasantry with a preexisting stake in the soil,” but colonial legislation proved up to the task. Foner concludes that in “the Caribbean and southern and eastern Africa . . . the free market [was] conspicuous by its absence”—its workings restricted “as far as possible” in the interest of the well-off and powerful.

Historian Colin Bundy has studied the economic rise and political-economic fall of a class of independent African farmers in the Eastern Cape Colony and other parts of South Africa. Various Cape Location Acts (1869, 1876, and 1884) sought to lessen “the numbers of ‘idle squatters’ (i.e., rent-paying tenants economically active on their own behalf) on white-owned lands.” Such peasant farming “conferred . . . a degree of economic ‘independence’: an ability to withhold, if he so preferred, his labour from white landowners or other employers.” Further: “Both the farmer and the mine-owner perceived . . . the need to apply extra-economic pressures . . . to break down the peasant’s ‘independence,’ increase his wants, and to induce him to part more abundantly with his labour, but at no increased price.” In their view, “Africans had no right to continue as self-sufficient and independent farmers if this conflicted with white interests.”

Bundy observes that “Social engineering on this scale took time and effort, but the incentives were powerful.” By way of a “one man one lot” rule under the Glenn Grey Act of 1894, legislators sought to keep African farming within “certain acceptable bounds.” (Here, finally, was a use for John Locke’s famous “proviso” about leaving enough resources for others!) Evictions increased after the Anglo-Boer War (1899-1903). Rents rose (Enclosure defenders, take note), and former tenants stayed on as laborers. Tax pressure on African farmers increased. This “employers’ offensive” from 1890 to 1913 ended successfully in the South African Natives Land Act of 1913, which effectively outlawed the practices under which a particular African peasantry had shown much success.

One supposes, in standard libertarian fashion, that agricultural employment increased thereafter along with land values. But that was the whole point: to proletarianize independent peasants by leaving them no option but to work for wages for Boers and Brits on farms, in mines, and elsewhere. Whether more “employment” was good in itself seems unclear. We can, at least, impute the outcome back to specific political intentions and levers. So much for the colonies, then—and all this without even mentioning the two greatest monuments to England’s defense of free markets: Ireland and India.

Telescopic Land Reform

Colonial bureaucrats and employers saw a definite connection between small-scale landownership and independence, and resolved to cut that independence short. By now we begin to see that “the subsidy of history”—to use Kevin Carson’s useful term—has been very large indeed. A number of libertarians have understood the problem at hand in pretty much these terms. They have tended, however, to dwell on instances far away from our own shores, writing about land reform in Latin America, South Africa, Asia, and other places. In the mid-1970s Murray Rothbard, Roy Childs, and others addressed the matter.

Rothbard wrote that “free-market economists . . . go to Asia and Latin America and urge the people to adopt the free market and private property rights” while ignoring “the suppression of the genuine private property of the peasants by the exactions of quasi-feudal landlords. . . .” In this vacuum, only the local communists appeared to support “the peasants’ struggle for their property. . . .” And so libertarians “allowed themselves to become supporters of feudal landlords and land monopolists in the name of ‘private property.’”

Decades earlier, that very conservative German liberal economist Wilhelm Röpke wrote that German history would have gone better had Prussia undergone “a radical agrarian reform breaking up the great estates and putting peasant farms in their place.” He adds: “Influential Social Democratic leaders opposed the transformation of the great estates in Prussia into peasant holdings . . . as a ‘retrograde step.’” Röpke called for freeing Germany from “agrarian and industrial feudalism” and the ills “of proletarization, of concentration and overorganization, of the agglomeration of industrial power and the destruction of the individuality of labor. . . .” In his view, the typical proletarianized worker or clerk wanted “a small house of his own with a garden and a goat shed, an undisturbed family life without training courses, mass meetings, processions, and political flag days; dignity and pleasure in his work, an independent if modest existence. . . .”

Why Go Abroad?

For Enclosure-like pressures on small-holders closer to home, we need look no farther than states like Kentucky, where courts vigorously enforced the full feudal rigor of the “broad form deed,” thereby ensuring the strip mining of many a mountaineer out of productive existence down to the early 1990s. With the system so long stacked in favor of big landholders and bankers, well subsidized by history, one begins to understand the popularity of those New Deal programs that promoted individual home ownership.

Economist Michael Perelman has confirmed a direct relationship between rural labor without independent means of support and the applied politics of English classical economists. The latter preached a great gospel of “work,” mainly for others, who ought to be doing this work. Except for a narrow class of Dissenting Protestant factory owners, those most vigorously espousing this gospel were not themselves noted for doing a lot of work. Together, however, owners and economists said in effect, “Work for us, join the armed forces, or emigrate, ye doughty Angles, Saxons, Jutes, and Scots.” And emigrate they did, leaving us with an American folk wisdom in which old times in England, Scotland, and Ireland were not that great. (This folk memory may have at least as much heuristic value as latter-day econometric claims that everyone became better off in the new division of labor.)

And so we return to Henry George’s problem: How did Americans manage as a society to seize so much land, incur whatever moral guilt goes with the seizures, and then not bloody have any of it? The chief mechanism was precisely the political means to wealth that Oppenheimer and Nock analyzed. The reason Brisco County Jr.’s “Robber Barons” struck the right note is that there were such individuals. California was a laboratory case, as George well knew, of the successful primitive accumulation of land by a microscopically small class of state-made men. As with ontogeny and phylogeny, Western accumulation recapitulated Eastern accumulation. From such causes arose the famous “end” of the frontier circa 1893. But open land did not so much disappear naturally as succumb to preemption. And then, with perfect timing, the conservation movement put enormous quantities of land beyond the reach of actual settlers.

As for those Americans who currently own property, they typically own it after 20 or more years of bank payments. Is land so genuinely scarce that a bank must always be in the middle? This remains our central question. Certainly, nineteenth-century allocations played a lasting role, and later political interventions added to concentrated property ownership.

And what of the promotion of “easy” home ownership in recent years? It is a product of 1) the widespread delusion, in the wake of Lyndon Johnson’s and Richard Nixon’s inflationary financing of the Vietnam War, that real estate constitutes the ultimate inflation hedge, and 2) the specific dynamics of the expansionist fractional-reserve banking under new rules (“deregulation”) increasing moral hazards for bankers.

There is also the unhappy fact of property taxes—our chief surviving feudal due. Fail to pay those, and the state enrolls a new owner on your former property. This reduces somewhat the fact of private property in land.

Independence, Republicanism, and Liberty

Some classical liberals and libertarians downgrade personal independence. Better to participate in the going order and enjoy a wider array of comforts, they say. But socialists and corporate liberals can play the same game—and have for over a century. It seems to me that those libertarians who join in this refrain rather willfully misconstrue a very simple point: They hail the joys of the division of labor, the higher degree of civilization (that is, more stuff) to be gained from dependence, interdependence, and sundry trickles of income and utility down and up. But already in 1936, Southern agrarian John Crowe Ransom noticed a flaw in this reasoning, writing, “[I]ncome is not enough, and the distribution of income is not enough. If those blessings sufficed, we might as well come to collectivism at once; for that is probably the quickest way to get them.” If greater choice among consumer goods makes up for lost independence, then the case for socialism (or X) would be clinched, provided socialism (or X) could deliver the economic goods (where “X” stands for any political ideology offering us the same stuff/independence tradeoff.)

I doubt we are necessarily “better off” merely because of employment. We need to know more, including why particular sets of choices exist in the first place. Back in the ’60s, Selective Service used to “channel” us into the “right” occupations by threatening to draft us. Given the parameters, our choices were “free.” If it’s that easy, then we are always free, no matter the historical and institutional constraints. Similarly, “To Hell or Connaught” was a choice, and never mind that Oliver Cromwell and his army arbitrarily created this particular prisoner’s dilemma. But perhaps I have leapt from choices among goods to choices between ways of life. Why? Let us look into this.

What if proletarianization is not the ideal form of human life? What if a complex division of labor is merely useful or convenient, but not a moral imperative? What if most of us are hirelings, well paid or otherwise, and then we learn what that status amounts to? The post-Marxist socialist André Gorz writes, “Capitalism owes its political stability to the fact that, in return for the dispossession and growing constraints experienced at work, individuals enjoy the possibility of building an apparently growing sphere of individual autonomy outside of work.” Our interest here is the “autonomy” mentioned, which sounds like a near cousin of “independence.” The sentiment seems sound enough, and the partial convergence of Röpke and Gorz is eye-opening.

Now in the view of Quentin Skinner (a modern republican theorist of note), unfreedom arises both from direct, forcible coercion and from institutional arrangements that make people dependent, since the latter always contain the possibility (realized or not) of arbitrary interference and coercion. Such discussions usually center on the form of state. Utilitarian liberals like Henry Sidgwick did not care about forms. If the Sublime Porte, Tsar, or King of England leaves us substantially alone, we are “free,” and that is that. In Skinner’s view, if those worthies can on their own motion change their policy of leaving us alone, we are not free, no matter what they are doing right now. Freedom requires that we not be menaced by latent unknown powers.

Freedom in this sense is liberty—a shared civic or public good. Like many real public goods it is not provided by the state, indeed the state may be its chief enemy. Law and settled custom may provide this public good, and consumer goods—the people’s pottage—do not compensate for abandoning such an order, where it exists. Today, people often work long hours to buy some independence. In another time, they began with some independence, and then chose how hard to work. Now we see, perhaps, the difference between choices among economic goods and past choices between systems structuring our choices.

Widespread landownership long supported a kind of liberal-republican independence. Perhaps we should reexamine the nexus and ask ourselves how, in Donald Davidson’s words, we “let the freehold pass,” and whether that was really for the best.

Alas, it says nothing about knowing American history.

Good thing for Sen. Lindsey Graham (R-S.C.). He’d have to find honest work.

Interviewed after last January’s State of the Union address, Graham was asked about the situation in Iraq. Trying to put the difficulties in perspective, he said the United States did not get its constitution until 1789.

Buzz! Wrong answer, Sen. Graham. But as a consolation prize you get to take home a copy of Merrill Jensen’s book, The New Nation: A History of the United States During the Confederation, 1781-1789. We’ll also throw in a copy of Herbert Storing’s What the Anti-Federalists Were For. And thanks for playing our game.

Seriously, I realize that children learn virtually nothing about the eight years before 1789 during which the United States existed under the Articles of Confederation. But shouldn’t someone who holds himself qualified to be a U.S. senator know that what we call “the Constitution” was really America’s second constitution?

The Articles were adopted by the Second Continental Congress on November 15, 1777, and took effect after ratification on March 1, 1781. That was seven months before Cornwallis surrendered at Yorktown on October 19, 1781, and two and a half years before the Treaty of Paris was signed on September 3, 1783.

They remained in effect until “the Constitution” displaced them in 1789. The process by which the Articles were scrapped—rather than amended—in favor of an entirely new blueprint was dubious. As the Anti-federalist “Federal Farmer” (most likely Melancton Smith of New York) wrote in October 8, 1787, had the people known that a new constitution creating a strong central government was to be written, “no state would have appointed members to the convention.”

Eight years is a significant period for a nascent country to endure after breaking away from an empire. Sen. Graham’s remarks were meant to suggest that what took place in the United States during that time was similar to what’s taking place now in Iraq. But that is ridiculous. The 13 states did not embroil themselves in civil war or sectarian violence—neither internally nor with one another. Quite the contrary.

How was life under the Articles of Confederation? As Merrill Jensen writes, “Americans fought against and freed themselves from . . . coercive and increasingly centralized power. . . . They did not create such a government when the Articles of Confederation were written, although there were Americans who wished to do so. . . . Thus the American Revolution made possible the democratization of American society by the destruction of the coercive authority of Great Britain and the establishment of actual local self-government within the separate states under the Articles of Confederation.”

Under the Articles, Congress had no power to tax or to erect trade barriers. If it needed revenue it had to petition the states. There was no separate executive branch.

People in the new states, Jensen writes, were full of optimism about the possibilities ahead. Criminal codes were made more humane, with the death penalty removed for all crimes but murder and, in some cases, treason. Property qualifications for voting were abolished over time. Charities and mutual-aid societies were formed, along with library, scientific, and medical associations. Schools were founded. The union of church and state was increasingly opposed.

Of course there was slavery, which contradicted the philosophy espoused in the Declaration of Independence. But “[w]ithin a few years after 1775, either in constitutions or in legislation, the new states acted against slavery. Within a decade all the states except Georgia and South Carolina had passed some form of legislation to stop the slave trade,” Jensen writes. New England states and Pennsylvania took steps toward abolition, and anti-slavery societies flourished.

What about the economies of the states? We can infer much from the fact that those who wanted to overthrow the Articles for a new constitution warned of coming economic turmoil if the central government were not fortified. Hence turmoil was a prediction not a description. Although individuals (white males) were free to a hitherto unknown extent, the states were no models of laissez faire.

Rent-seeking (political entrepreneurship) was rampant in the states, as it has been in every real-world system. Subsidies, loans, trade restrictions, and land giveaways were common. In this largely agrarian society, Jensen writes, “the dominant note was sounded by American merchants and business men who lived mostly in the seaport towns. . . . Their power was born of place, position, and fortune. They were located at or near the seats of government and they were in direct contact with legislatures and government officers. They influenced and often dominated the local newspapers which voiced the ideas and interests of commerce and identified them with the good of the whole people, the state, and the nation.”

Merchants and manufacturers disagreed on what kind of government intervention should exist, but not on whether it should exist. That’s because they had different competitors. Merchants liked imports but wanted barriers to foreign (especially British) shipping, while manufacturers wanted barriers to foreign goods and didn’t care about shipping. Part of the impetus to a strong central government was business’s desire for a uniform national economic policy, since individual states, acting alone, could hurt themselves by having more stringent restrictions than their neighbors and one state could capture the lion’s share of trade by competitively lowering its barriers. In other words, the consolidation of 1789 was part regulatory cartel.

Regional Differences

There were also regional differences. Most manufacturing was in the North, so protectionist sentiment was concentrated there. The South had little manufacturing and wanted access to cheap foreign goods. Thus high protective tariffs found little support. Northerners who coveted the southern market realized that only a nationwide trade policy would serve their interests. On the other hand, southern farmers wanted as many shipping options as possible and had little interest in restrictions on foreign carriers.

State economies suffered booms and busts—and a depression in 1784–85—thanks to paper money, government banking policies, and other intervention. But the crises were not extraordinary. As Jensen summarizes, “There is nothing in the knowable facts to support the ancient myth of idle ships, stagnant commerce, and bankrupt merchants in the new nation. As long ago as 1912, Edward Channing demonstrated with adequate evidence that despite the commercial depression, American commerce expanded rapidly after 1783, and that by 1790 the United States had far outstripped the colonies of a few short years before.”

Despite the heavy intervention, the states still had virtually an unprecedented degree of economic freedom. A person could easily get a plot of land and take care of his family by farming. There was no distant overbearing central bureaucracy to worry about. Contact with government was minimal. Imagine what the economic growth and the justice of income patterns would have been had the states practiced laissez faire!

Thus contrary to Sen. Graham, pre-1789 America had a constitution, almost no central government, prosperity, and peace. Not too shabby.

The reasons for junking the Articles of Confederation for the Constitution are worthy of study but too big a topic for this column. Suffice it to say, as Jensen did, that “the founding fathers who wrote the Constitution of 1787 were quite a different set of men from those who signed the Declaration of Independence in 1776.”

Many people think their taxes are too high and that the tax system is unfair. While those who favor individual liberty might find this encouraging, the specific reasons for discontent are not entirely positive. Many Americans think the current system is unfair because of how it affects income distribution and intervenes in markets. That is, most Americans think that the tax system should redistribute and intervene—just in a different way.

There are many arguments against using taxes to redistribute income and reallocate resources. Economists like Gordon Tullock and Mancur Olson have explained why we should expect much special-interest bias and waste (rent-seeking) in large activist government. Public-opinion polls indicate that people oppose special-interest bias and waste in the tax system. However, lots of Americans see the system as a means of partial economic planning for the achievement of “social goals” like poverty reduction or pollution abatement. In his classic book, The Road to Serfdom, F. A. Hayek explained why comprehensive economic planning would ultimately destroy individual liberty. Tax policy in the United States does not aim at comprehensive planning, but it does serve as a vehicle of partial planning. A close examination of public discontent over taxes and the tax system itself reveals that the use of income taxes as a means of partial economic planning has already resulted in a loss of individual liberty.

An Ipsos poll last year noted that 58 percent of Americans believe the middle class pays too much in taxes. Fifty-four percent believe the poor pay too much. Sixty percent believe the rich do not pay enough. Others complain that the top 5 percent of income earners pay too much. Still others say the top 5 percent get too many tax breaks. Small businesses and the self-employed pay too much, while large businesses pay too little, according to this poll.

Complaints also target the tax code’s complexity and lobbyist influence. These are valid complaints. The Standard Federal Tax Reporter has 66,498 pages of federal tax rules. These rules are incomprehensible. A slight majority of Americans hired a professional to work on their tax returns this year. This work was done by 1.2 million professionals and generated revenue of $2.4 billion for H&R Block alone. Some people think that a flat tax rate of 17 percent would solve this problem. Other people favor consumption taxes or value-added taxes. Still others favor heavy tariffs to protect American industries.

Thus most of the discontent with federal taxes and spending is with the current form of fiscal redistribution and fiscal activism, not with redistribution and fiscal activism itself. Most Americans disapprove of the current fiscal structure of government, but not because they oppose any form of high and complex taxes, which large activist governments require. To put it simply, most Americans want a tax system tailored to their own political or ideological beliefs, one that would tax different people according to what they each see as fair.

One might say that this is simply democracy in action. In a democratic society different people assert different points of view and enlightened public debate resolves these differences. There are sound reasons to doubt this is the case. In The Road to Serfdom, Hayek argued that democracy functions best when it is limited to enforcing a few general rules of conduct that do not favor any particular group or individual. Rules concerning which side of the street we should drive on are uncontroversial. Rules against violent crimes are essential to the functioning of any society. Constitutional rules guaranteeing free speech and free association are necessary for promoting freedom. A democracy that enforces a few simple and common-sense rules can function without threatening individual liberty.

Problems arise when we attempt to use democracy toward specific ends. The difference here is between enforcing general rules of conduct without aiming at any particular outcomes and activist government that tries to bring about particular outcomes. A limited government would need to raise revenue for only its limited purposes. An activist government uses taxes to achieve broader purposes: to redistribute income from less to more “deserving” people, to protect the environment, to protect American jobs, or to achieve some notion of “social justice.” We do not, and can never, agree on which of these priorities is the most important. As Hayek wrote, any attempt at such social planning will derive from an incomplete set of values. Different people will have different views on such matters. The attempt to form a single plan necessarily favors some views at the expense of others. Only a few can see their views put into action through tax policy.

Consequently, the attempt to plan even part of society through tax incentives or redistribution will be based on a “partial scale of values” that will leave most people discontent. People who think that the tax system would be fair if their views were adopted should realize that each of their views is only one among many and that most differences over policy can never be resolved in a society of independent thinkers. The form of discontent revealed in recent polls is simply a product of the forces Hayek described.

Worse still, activist government is vastly complex. In a complicated and changing world elected officials must delegate substantial powers to bureaucrats. As Hayek noted, parliaments that assume an activist role in planning society will become “ineffective talking shops.” So elected officials must delegate discretionary powers to bureaucrats who can judge particular cases on their individual merits. This is in fact what has happened with the IRS. The tax code is not only complex but vague. Ambiguity allows IRS auditors discretion in how they enforce the code. In the 1990s congressional hearings on the IRS revealed many instances of officials’ abusing their authority.

“The Worst Get on Top”

Of course, one could dismiss these cases as anecdotal evidence from one particular period. However, Hayek demonstrated that “the worst get on top” of any government that seeks to plan economic activity, and this rule doesn’t apply only to heads of state. He noted that “To be a useful assistant in a totalitarian state, it is not enough that a man should be prepared to accept specious justification of vile deeds; he must be prepared to break every moral rule he has ever known if this seems necessary to achieve the ends set for him.” When it comes to competing over governmental power, those with good intentions and high ideals are always at a disadvantage with those who will stop at nothing to acquire more power. Of course, the IRS is not a part of a totalitarian government. Yet it is a part of an activist government that attempts to do far more than enforce a few simple rules.

We have not traveled the full length of Hayek’s road to serfdom, but we have gone far enough to see where it leads. The IRS hearings revealed more than the abuse of taxpayers. Whistleblowers at the agency had their careers ruined. Thus fair-minded persons there could not advance to positions of authority. Only those willing to stop at nothing to achieve IRS goals could reach such positions. This strongly supports Hayek’s contention that those who acquire discretionary powers in government are not trustworthy.

Many of the more common concerns with the tax code are legitimate. Tax compliance is costly, and the laws favor special interests. Yet the discontent that most Americans have with the tax code is no cause for optimism. Since most of them want to change the tax system to reflect their conception of social justice, we must conclude that they are intent on taking at least a few more steps toward serfdom. This is cause for concern but not for hopelessness. Our primary task is to convince the public that they have come to expect too much of democracy.