Introduction by Paul Charles Milazzo

Introduction

PAUL CHARLES MILAZZO

Loyal readers of Newsweek had reason for disquiet when the latest issue hit the stands on May 3, 1954. Those who managed to endure the details of the ongoing Army-McCarthy hearings or the deteriorating French position in Indochina sought solace, and more stimulating fare, by flipping through as usual to the business section. There, in a series of pieces over the past month, columnist Henry Hazlitt had offered his typically engaging analysis of contemporary economics, examining, in the context of the recent recession, how a more steeply progressive tax code might dampen both government revenues and business profits. Now, however, his “Business Tides” column—a staple of Newsweek’s back pages since 1946—was nowhere to be found. Weeks passed, spring gave way to summer, but the troubling void remained. Nervous letters began to flood editors’ in-boxes. “I would like to know what has become of Henry Hazlitt’s column in your magazine,” demanded the executive VP of one Midwestern industrial association, echoing scores of other concerned correspondents. “Frankly, it was the principal if not the only reason that I subscribed.” Such missive-writers shuddered to contemplate whether management had discontinued the column, silencing the most clarion voice for economic liberty in American popular media.¹

Newsweek’s editors elicited a collective sigh of relief upon announcing the return of “Business Tides” on July 12, now that its sixty-year-old author had convalesced from an extended cardiac illness. They also took the opportunity to reintroduce Henry Hazlitt to his audience, describing him as a “genial, quick-moving, soft-spoken Philadelphian” whose forty-year career in journalism began at the Wall Street Journal and included distinguished editorial positions at the New York Evening Mail, New York Herald, New York Sun, Nation, American Mercury, and New York Times. An esteemed literary critic and financial reporter, Hazlitt had cemented his national reputation with a best-selling primer on free market economics, Economics in One Lesson, published the same year he started at Newsweek—where, eight years later, his columns remained “extremely popular with readers.” Hazlitt would remain a fixture at the magazine until 1966, his longevity as a regular columnist surpassed at his retirement only by Raymond Moley’s.²

This extensive volume makes it possible and convenient for another generation to encounter “Business Tides” anew. The pages that follow reproduce every column Henry Hazlitt wrote for Newsweek throughout his twenty-year career. They offer both a testament to his diligence and insight, as well as a vantage to rediscover how free-market economic thought in the post-World War II era was transmitted and popularized, and why it endured. Even as recent histories of the American Right have transformed our perceptions of the United States after 1945, the significance of economics has only begun to attract the attention it deserves. The latest accounts emphasize that conservatives occupied a modern vanguard, not an atavistic fringe, in post-World War II politics. During an era of putative liberal “consensus,” their ideas appealed to great numbers of Americans, particularly among the middle class in rapidly developing regions like the Sunbelt. Historians have also come to view World War II less as a bright dividing line, and American conservative thought more as an evolving continuum stretching back to the 1930s. In the process, the focus has shifted from social and cultural issues, particularly with respect to race, to the more overtly economic concerns that generated resistance to the New Deal Order. Recent work has recognized that opposition to liberal economic policies arose not simply out of corporate self-interest or business intransigence, but also from principled libertarian objections voiced by theorists with a coherent critique of state power and an articulate defense of the free market.³

Recovering Henry Hazlitt’s long career serves to advance this unfolding narrative. Hazlitt matters, because over the course of the twentieth century he became the most important economics and business journalist in the country, the most influential mainstream purveyor and popularizer of the Austrian School of free market economics, and, prior to the ascendance of monetarists and supply-siders, the most prominent, articulate, and persistent critic of prevailing Keynesian doctrine. From the Great Depression to the dawn of the Reagan era, Hazlitt applied the tenets of Austrian and classical economists to interpret contemporary economic issues for a mass audience, making a principled case for capitalism and a practical case against the unforeseen negative consequences of statist economic policies. To the extent that many readers sampled the work of Friedrich A. Hayek and Ludwig von Mises directly, they did so on Hazlitt’s recommendation. A student, confidante, and patron of these Austrian luminaries, a founding member of the Foundation for Economic Education and the Mont Pèlerin Society, an urbane yet lucid writer with an international reputation, Hazlitt stood at the epicenter of American economic conservatism.

Yet the notoriety Hazlitt deserves has thus far eluded him. Out-sized personalities on the Right tend to draw more popular and scholarly attention, not least because of the media amplifying their messages. The gadfly fusionist William F. Buckley helped consolidate the modern conservative movement by launching National Review in 1955, but he also reached the masses through his long-running television program, Firing Line, along with popular novels, books, and syndicated columns. Ayn Rand’s evocative, idiosyncratic, and philosophical fiction never loosed its grip on the best-seller list or the consciousness of millions of readers. Even Milton Friedman, scion of the Chicago School, managed to parlay his academic genius into a media empire of sorts.

Although a less flamboyant personality like Hazlitt could never hope to close this charisma gap, none should disparage the audience he reached as a journalist in the employ of a mass circulation weekly magazine. His career at Newsweek coincided with the rise of the “information press” pioneered by Henry Luce in the twenties and thirties. Luce’s entrepreneurial vision led him to perceive a market for a new kind of weekly periodical, one that amassed, condensed, categorized, and narrated general interest news features in a slicker, more easily digestible form than that offered by stalwart publications like Century, Outlook, or Literary Digest. Launched in 1923, Time became the gold standard for newsweeklies by the depression years, staffed by an army of researchers, writers, and editors whose anonymous work bore the trademark stylistic and ideological stamp of their founder.⁴

Luce’s overt biases and lucrative readership inspired competitors. Chief among them was News-Week, founded in 1933 by Luce’s former foreign-news editor, Thomas J.C. Martyn, who described Time as “too inaccurate, too superficial, too flippant and imitative” and promised to deliver a magazine “written in simple, unaffected English [in] a more significant format [with] a fundamentally sober attitude on all matters involving taste and ethics.” The start-up hemorrhaged money until 1937 when it merged with Today, a publication associated with one-time Roosevelt brain-truster and New Deal apostate Raymond Moley. Malcolm Muir, former president of McGraw-Hill, took over as editor-in-chief, while the deep pockets of real estate magnate Vincent Astor kept the enterprise solvent. Newsweek soon lost the hyphen but never gained the edge over Time, settling in as the nation’s second-ranked news-weekly. Critics found its nondescript style of prose and reportage bland, its departmentalization of news derivative of Luce’s model. Unlike Time, however, it did feature signed columns, and the prospect of escaping relative anonymity helped draw Henry Hazlitt into the fold—that, and the responsibility of penning just one column per week instead of five or more for the New York Times, where his position as chief economic editorialist kept him tethered to his desk and left little time for book projects, travel, or family life.⁵

Newsweek also delivered an expansive and expanding audience for Hazlitt’s writings. During the 1950s, the magazine’s circulation increased by 80 percent, reaching 1.5 million by 1961. Its “pass-along” readership, or those who viewed the periodical’s contents without paying directly for it, approached ten times that figure. Millions more encountered Hazlitt’s work when Reader’s Digest reprinted his columns or newspaper editorials nationwide and quoted them. In short, a postwar generation of readers who enjoyed more affluence, education, and leisure time than ever before provided an eager market for the kind of periodicals in which Hazlitt appeared—and an often receptive ear for his free-market analysis. Businessmen and entrepreneurs most appreciated his defense of unencumbered capitalism. General Electric Vice President Lemuel Boulware, for example, made Hazlitt required reading for the company’s corporate supervisors, managers, and executives.⁶

More broadly, however, Hazlitt appealed to the growing “suburban warrior” demographic that historian Lisa McGerr identified in her history of the New Right in Southern California. These middle-class Americans, drawn from the Midwest to the Sunbelt’s high-tech, white-collar economy after World War II, took up residence in booming industrial metropolitan areas, embraced presidential candidate Barry Goldwater in 1964, drove the subsequent rightward shift of the Republican party, and prepared the way for Ronald Reagan. Neither status-anxious nor backward-looking (as liberal intellectuals at the time assumed), these thoroughly modern men and women imbued the self-identified, grass-roots Right with a political and cultural resilience grounded in “deep-seated conservative ideological traditions.” A flood of printed materials generated by conservative writers, publishers and periodicals, passed from household to household and discussed among neighbors, co-religionists, and business associates, helped uphold those traditions. As his fan mail attests, Hazlitt’s journalistic contributions circulated prominently within these and other intellectual communities throughout the country.

James L. Wick certainly believed so, and he exhorted Hazlitt not to take lightly the extent of his reach. A Republican activist and later executive publisher of Human Events, Wick wrote to Hazlitt in the wake of his work-induced heart attack. Over the course of the last four years, Hazlitt had dutifully filed his column while traveling extensively on the lecture circuit, co-editing the fractious libertarian journal, The Freeman, publishing a novel, The Great Idea, and appearing as a rotating co-anchor for the Longines Chronoscope, a network news interview program on late-night television (in this sense, Hazlitt, like his more famous friends, was no stranger to multi-media exposure). Wick was “thrilled beyond description” to see “Business Tides” up and running again. “You are among the few people in America on our side who have an enormous following,” he insisted. “Your column is read throughout the world. It has an influence beyond any reaction that you get. Some young person of 22 who later may become very powerful may have his views changed or even reversed by continued reading of your column. . . . For every person who writes you there are, as every editor knows, a thousand or ten thousand who feel the same way but don’t think to drop you a line.”⁷

Wick’s letter also serves as a reminder that, despite Hazlitt’s loyal following and mass audience, “Business Tides” retained a distinctly counter-cultural flavor. For contemporary readers, these columns offer a glimpse at the wider economic history of the post-1945 era. During that time, Hazlitt assumed the bearing of a dissenter: from price controls and other microeconomic planning mechanisms; from the Marshall Plan and similar foreign aid programs thereafter; from the reigning Keynesian macroeconomic policies that supported full employment and downplayed the risk of inflation; from the expanding welfare state. These positions did not endear him to power brokers in academic circles or the halls of Washington. Moreover, during an era that assigned great cultural capital to credentialed experts in the realm of public policy, Hazlitt’s detractors found ample reason to marginalize a libertarian without a college degree.

But through the force of his autodidactic erudition and penetrating prose, Hazlitt established his position in the upper echelon of opinion makers. On a weekly basis, he stood athwart conventional wisdom yelling “stop” while maintaining the first principles of Smith, Mill, Bastiat, Wicksteed, Hayek, and Mises (among others) in public discourse. He did so in the guise of a didactic polemicist, edifying and exhorting an audience of business people, decision makers, and informed laymen, stimulating discussion and debate along the way.

ECONOMICS IN A THOUSAND LESSONS

Intrepid readers of this volume face a potentially daunting task, since Hazlitt produced 971 columns in his two decades with Newsweek. By comparison, Milton Friedman, one of his successors at the magazine, penned around 300 between 1966 and 1984. How best, then, to plumb the depths of such an opus? It helps to keep in mind that this survey begins near the end—Hazlitt’s libertarian outlook had essentially matured by 1945, forged during the preceding thirty years of boom, bust, and war. His jeremiad over the course of four postwar presidential administrations, then, retains a certain consistency familiar to those acquainted with his most popular publication.⁸

Hazlitt’s stock and trade consisted of exposing persistent economic fallacies cultivated through ignorance of basic economic interrelationships. The eponymous “lesson” offered in Economics in One Lesson was to recognize the long-term, secondary consequences of economic policies beyond the immediate benefits sought by pleading interests. For Hazlitt, who channeled the classical economists of the nineteenth century, good economics comprehended both sides of the equation: supply is demand; all credit is debt; exports pay for imports; saving is spending of another sort; one person’s income is another’s cost. Bad economics did not, and was thus invoked to justify various ill-founded schemes to fix prices, protect domestic markets from foreign competition, and divert tax dollars to subsidize favored industries, commodities, public works, exports, or welfare projects.

In applying the insights of Economics in One Lesson writ large to the pressing issues of the day, “Business Tides” also broadcast the basic Austrian tenets animating that book. Hazlitt condemned state intervention in the market, championed free trade, questioned underconsumption as a catalyst for recession, celebrated entrepreneurial creativity, and viewed inflation, rather than unemployment, as first among economic evils. He also emphasized how the spontaneous order of the price system conveyed vast quantities of information among countless market actors, allocating scarce capital, labor, and resources far more efficiently than top-down planning mechanisms ever could.

In this context, the first columns worth sampling are two that preview, by way of parody, nearly all the major themes Hazlitt would treat over the years. In the first, “A Modern Corporation Reports” (9/1/47), a befuddled company president, I.M.N. Addlepate, breezily informs stockholders of his efforts to align corporate practice with the “precepts of the most forward-looking economists and statesmen.” Accordingly, the firm boosted wages by 15 percent a month every month to increase national purchasing power—but violated federal labor laws by doing so without engaging in collective bargaining, making “high-salaried union leaders” appear superfluous. To insure “full employment,” the company found ways to reduce efficiency and remove labor-saving machinery, improving job figures by “37.2 per cent last year with no increase in output whatever.” To enhance export sales, it granted credits to foreign customers with few concerns about reimbursement; after all, defaulted loans would benefit the nation as a whole by preventing imports and protecting “our home industries.” Likewise, issuing bonds in great excess of the corporation’s assets was no cause for concern, “because as one big family we merely owe this debt to ourselves.” And in the fight against inflation, the company heeded the government’s request to reduce prices to a “fair” level far below production costs, triggering an anticipated increase in the volume of sales that reached its apex when the goods were given away for free. Addlepate paints these policies as a triumph of the New Economics, noting just one hiccup: the company had gone bankrupt in the process of implementing them.

In “The Fairdeal Family at Home” (5/29/50), George Fairdeal sits with his wife Alice at breakfast, wondering aloud why buying a new house should prevent them from taking a summer European vacation as well. Why not do both, even if it means borrowing from his brother, Bob? After all, the family deserves the best. Alice demurs, suggesting that such spending would preclude saving for retirement or medical expenses and create an unsustainable debt, since Bob will have to be repaid someday. George scoffs, insisting that the “richest nation in the world” ought to provide old age pensions and medical insurance. Alice points out that government health care and pensions are subsidized by other average taxpayers like themselves, so they would be no better off socializing these costs or thinking “that everybody can be supported at the expense of everybody else.” When George protests in the name of equality and fairness, Alice reminds him that redistributive schemes dampen the incentive to earn for both subsidizers and subsidized, reducing the total amount of wealth available for redistribution in the first place. George, unmoved by the connection between production and wealth, sees no reason why the government can’t provide for all the needs and wants of citizens. “All you’re saying, dear,” his exasperated wife retorts, “is that every family should be forced through higher taxes to spend its money on the things you think it needs instead of on the things each family itself thinks it needs.” A hungry and distracted George proceeds to inquire about the coffee cake they had yesterday, learning to his utter dismay that it has all been consumed.⁹

Apart from proceeding chronologically, approaching “Business Tides” on a thematic basis provides a logical blueprint to peruse Hazlitt’s prodigious output. What follows, then, are some brief synopses of the most common, interrelated themes Hazlitt developed in his columns, leavened with enough relevant historical context to suggest why he might have chosen to address a particular issue when or how he did. Although it is impossible to summarize here all of the positions Hazlitt took or all the subjects he explored, these sections feature some of his most representative and noteworthy columns. Readers are encouraged to consult the footnotes, where more comprehensive citations and suggestions appear.

INFLATION

The specter of inflation haunted “Business Tides.” More than a third of the columns Hazlitt wrote addressed the issue in some way. Hazlitt’s fixation on inflation stemmed from his immersion in the works of Mises and Hayek, but also reflected a change in public outlook dating from the Second World War. After 1939, the focus of economic concern shifted from depressed to runaway prices, and during the war federal agencies like the Office of Price Administration (OPA) fostered expectations that government controls could administer the problem. In a broader context, since 1933 the New Deal had mobilized consumer and labor groups in a way that promoted a more active conception of “economic citizenship,” conditioning them to approach wages and prices as negotiable targets, properly set through an institutionalized process of bargaining. As the economy grew still more political in the post-war years, the matter of managing inflation assumed center stage.¹⁰ To read about inflation in “Business Tides” is to encounter Henry Hazlitt at his most didactic. Faulty understanding and false diagnoses, he feared, inspired only bogus remedies. Given the inflationary challenges inherent in post-war reconversion and then remobilization for the Korean conflict, he covered the topic most intensely during the Truman years, although subsequent administrations all evoked his displeasure on the subject in varying degrees.

The best place to begin is with a five-part series published between 3 September and 1 October 1951, entitled “Inflation for Beginners,” which, when issued separately by Newsweek as a pamphlet, drew over 100,000 requests from readers. Hazlitt characterized inflation as “the increase in the volume of money and bank credit in relation to the volume of goods.” The colloquial interpretation of inflation as merely a rise in prices, he insisted, mistook an effect for a cause. More accurately, expanding the number of dollars in circulation allowed consumers to bid up the prices of things they wanted to buy, effectively reducing the purchasing power of individual dollars—as with anything else, increasing the supply of money decreases the value of the marginal unit. Drawing upon Mises’s Theory of Money and Credit, Hazlitt also underscored inflation’s psychological component, noting how the present value of the dollar anticipates the future, “just as the value of a bushel of wheat depends not only on the total present supply of wheat but on the expected future supply and on the quality of the wheat.” Producers and creditors who foresaw further depreciation likewise could be expected to adjust the prices of their goods and services upward to compensate.¹¹

Since individual employers, wage-earners, or consumers had no power of their own to grow the money supply, Hazlitt observed, governments stood out as the primary culprits responsible for inflation. Alternative explanations for a general inflation that focused on the velocity of money, shortages of goods (demand pull) or wage-price spirals (cost push) let state actors off the hook for a problem they themselves brought into being. Only governments could create new money, and they could resort to more subtle methods than the printing press to do so. To help finance the war, for example, the Federal Reserve agreed to purchase unlimited government securities from the Treasury at a fixed (or “pegged”) rate of 2.5 percent, creating demand deposits from which the government could draw. Wartime expediency encroached into peacetime, however, and the Fed dutifully continued “monetizing” government debt, flooding the system with dollars, propping up an artificially low interest rate in the bond market, and displacing real savings. Many commentators criticized the practice of “pegging” (which was discontinued in 1951), but few other than Hazlitt lamented how the persistent budget deficits racked up by post-war administrations were regularly subsidized through similar bond sales or note transfers to banks. His special distaste for federal expenditures in excess of tax revenues stemmed foremost from their inflationary effects (although, he hastened to add, while “huge expenditures wholly met out of huge taxes are not necessarily inflationary, they inevitably reduce and disrupt production, and undermine any free enterprise system. The remedy for huge governmental expenditures is therefore not equally huge taxes, but a halt to reckless spending.”) He cautioned as well that the various federal loan and aid programs designed to stimulate everything from the domestic housing market to foreign export trade all formed part of a “concealed budget deficit” exacerbating inflation.¹²

Hazlitt condemned the “swindle” associated with such easy money policies. Between 1939 and 1951, the money supply (circulating currency plus demand deposits) increased 171 percent, which he blamed for the 135 percent rise in wholesale prices during that same period (by 1963, the percentages were 388 and 138, respectively). Estimates of economic growth in this context also proved misleading. In a critique of President Truman’s midyear economic report for 1947, Hazlitt noted that a $225,000,000,000 gross national product (GNP) sounded less impressive if the relative purchasing power of the dollar amounted to “only 55 cents as compared with the dollar of 1935–39.” Bondholders suffered from similar illusions if they believed the Fed/Treasury collaboration to suppress interest rates acted to preserve the value of their investments (the relationship between bond price and yield is reciprocal). In fact, the long-term inflationary effects of easy money eroded their real value.¹³

For Hazlitt, then, inflation transcended mere economics; he viewed it as a moral issue. Governments reneged on sovereign debts when they knowingly devalued the currency used to pay them off (or, in the case of the United States in 1933, repudiated the obligation to discharge them in gold). But that was just one sin among many. Inflation, Hazlitt emphasized, “depreciates the value of the monetary unit, raises everybody’s cost of living, imposes what is in effect a tax on the poorest at as high a rate as the tax on the richest, wipes out the value of past savings, discourages future savings . . . encourages and rewards speculation and gambling at the expense of thrift and work, undermines confidence in the justice of a free enterprise system, and corrupts public and private morals.”¹⁴

But because inflation, “like Janus,” showed “two opposite faces,” Americans remained confused, ambivalent, and incapable of presenting a “united front” against it. When the wage earner, farmer, or businessman complained about inflation, Hazlitt observed, they usually referenced the prices they paid for the goods and services of others, rather than those garnered for their own. Forgetting that high money incomes and high money prices represent two sides of the same coin, citizens succumbed to the rhetoric of politicians who promised to promote heads while containing tails. Rather than halting the expansion of money and bank credit, for example, President Truman endorsed higher industrial wages and agricultural commodity prices to keep up with the cost of living, while calling on businesses to reduce their prices voluntarily and lamenting the burden high rents exerted on city dwellers. Yet, Hazlitt observed, since 1939 industrial wages had risen far ahead of rents, just as the price of agricultural commodities had outstripped that of other goods. “The real evil of inflation is that it redistributes wealth and income in a wanton fashion often unrelated to the contribution of different groups and individuals to production,” he noted. “All those who gain through inflation on net balance necessarily do so at the expense of others who lose through it on net balance. It is an illusion to suppose that the losers can ever be brought abreast of the gainers except by setting the gainers back. And it is often the biggest gainers by inflation who cry the loudest that they are its chief victims.” Policy makers’ hypocrisy when dealing with the causes of inflation, Hazlitt warned, invariably bred counterproductive statist solutions like price controls. Political rhetoric that treated higher wages and farm income as “virtuous and welcome, but higher profits as a disaster and a sin” prepared the way, since it obscured the function of profits both as an incentive to production as well as a source of capital expansion and employment.¹⁵

For Hazlitt, the cure for inflation was to stop inflating. For two decades, his advice to policy makers remained consistent: stop running deficits and monetizing government debt, cut the budget, maintain higher legal reserve ratios for Federal Reserve banks, don’t hold interest rates at artificially low levels, eliminate foreign aid and similar loan programs, and commit to returning to the gold standard. As he informed his readers, however, government officials had few incentives to follow this advice, because they had a vested interest in promoting policies that sustained a perpetual inflation. He characterized this inflationary orientation, in turn, as a direct consequence of the regnant economic doctrine of the post-war period: Keynesianism.

KEYNESIAN ECONOMICS

Hazlitt wielded a broad brush when depicting the landscape of Keynesian economics. He never drew distinctions between, say, John Maynard Keynes himself or his American disciples; between Keynesian theory and Roosevelt’s often ambivalent New Deal feints in that direction; between Depression-era proponents like Alvin Hansen, who believed a “mature” American economy required the government to serve indefinitely as an employer of last resort, or post-1945 liberals like Leon Keyserling, whose renewed faith in that economy following World War II led them to favor growth, rather than redistribution, as the path to prosperity and income equality; between laborite proponents of public sector spending and high wage policies or more conservative “corporate” Keynesians who favored military contracts and tax cuts.¹⁶

Whatever the iteration, Hazlitt judged the commanding status of the New Economics as “one of the great intellectual scandals of our age,” a doctrine destined to enervate capitalism in the long run rather than rescue it from its putative excesses and enemies. His critiques of Keynesianism usually addressed one or more of the following basic tenets: (1) aggregate demand and consumer purchasing power provided the engine for economic stability and growth; (2) to sustain them, the government had the responsibility for maintaining “full employment,” given the inherently unstable nature of the market economy; (3) state actors possessed the knowledge and technical capacity to do so using macroeconomic instruments; (4) countercyclical measures to prevent economic downswings and maintain “full employment” abided annual budget deficits when necessary; and (5) a little inflation could be traded off for higher employment. Hazlitt often employed the term “compensated economy” as shorthand for these prescriptions, or the belief that “it is the government’s function to ‘stabilize’ the economy and to ‘compensate’ for the mistakes of private business.” He penned dozens of columns detailing why this was neither possible nor desirable; a number of them written in 1958–59 previewed the arguments he would present in The Failure of the New Economics (1959), an intensive critique of Keynes’s 1936 magnum opus, The General Theory of Employment, Interest, and Money.¹⁷

At root, Hazlitt defined Keynesianism as a prescription for inflation and false prosperity. Keynes desired to remedy a problem that “orthodox” proponents of Say’s Law supposedly never acknowledged: chronic unemployment at market equilibrium. Indeed, he considered full employment at equilibrium the exception rather than the rule, and sought a “General Theory” applicable beyond this special case. According to Hazlitt, Keynes never accepted downward wage flexibility as a solution to unemployment, because he believed it politically unworkable. Labor would, however, accept (or otherwise not notice) a decrease in real wages. Thus government efforts to achieve “full employment” by stimulating aggregate demand operated, in effect, to lower the value of money, raising the selling prices of commodities far enough ahead of wages to maintain temporary profit margins. The subsequent appeal of such policies reflected the haunting memory of the Great Depression and the “delusion that under inflation we can gain more in our role as sellers and producers than we must lose in our role as buyers and consumers.”¹⁸

Hazlitt rejected this strategy. He believed Keynes’s misreading of Say’s Law led him to promote a fallacious, demand-driven model of the economy that obscured the role of production (supply) in creating demand. “Mere inflation” and the higher prices and wages that resulted only appeared to do so, but “in terms of the actual production and exchange of real things” it did not. Rather, inflationary booms distorted “the structure of production,” promoted misallocations of capital and resources, invited economic collapse, and reduced long-run productivity and profits, the only authentic sources of economic growth and real income. Likewise, a weakened dollar acted to diminish the purchasing power Keynesians so cherished.¹⁹

When the 1946 Employment Act declared it a government policy to maintain “maximum production, maximum employment, and maximum purchasing power,” one available method to go about it was deficit spending reminiscent of the World War II experience. While Hazlitt condemned the inflationary effects of “priming the pump” in this way, he also questioned the assumption that “what principally determines the level of economic activity is the volume of government spending.” He underscored the point using the specific case of defense expenditures, where supposedly “the more resources we are forced to devote to making guns and tanks and shells, instead of consumer goods, the richer we become.” But, he argued, assume for the moment that taxes ultimately paid for defense expenditures. If in 1953, as the Korean War wound down, “defense payments suddenly dropped from the present $50 billion a year to only $10 billion, taxes could also be cut by $40 billion. Then the taxpayers...would have $40 billion more to spend than they had before, to make up for the $40 billion drop in government spending.” While the pattern of production would change, “there is no reason to suppose that the over-all volume of output or activity would decline.” In actuality, however, tax receipts did not cover the full cost of defense expenditures. The prosperity affiliated with Keynesianism, military or otherwise, derived from the inflationary effects of deficit spending, which, Hazlitt emphasized, could not be planned or controlled in the long run.²⁰

For Hazlitt, inflationary Keynesian policy was inherently a monetary policy, regardless of its fiscal dimensions. “Debauching the currency is the oldest and most discredited trick in the world,” he noted, “and this is all there is to the much-touted “Keynesian revolution” when you take its sophisticated clothes off.” The Keynesian embrace of “government planning in the field of money and credit,” however, was not limited to the Left. According to the historian Robert Collins, the brand of deliberate Keynesianism adopted by postwar administrations was that embraced by corporate elites. It nominally eschewed large-scale discretionary government expenditures for the stability and relative “automaticity” of tax cuts and monetary manipulation. A number of more conservative actors, from the businessmen on the influential Committee for Economic Development (CED) to President Eisenhower and the chairman of his Council of Economic Advisors, Arthur Burns, advocated countercyclical policies to address economic downturns and maintain employment levels. They favored monetary instruments (manipulating the discount rate, reserve requirements, and open market operations) as among the least intrusive alternatives.²¹

Indeed, the Eisenhower administration’s resort to such options during the recessions of 1953–54 and 1957–58 (in part to facilitate government deficit borrowing) prompted Hazlitt to declare, in a July 1954 column, “We are all Keynesians now.” Students of history will associate those words with Milton Friedman, who was said to have uttered them in reference to the economic Zeitgeist circa 1965 and the enthusiastic Keynesianism of the Kennedy-Johnson White House. Yet more than a decade earlier, prior to the ascent of Samuelson, Heller, or Tobin, Hazlitt coined the phrase in response to an administration known more for its concern about balanced budgets. The sentence that followed helps to clarify: “We are all monetary inflationists.” While sympathetic to Eisenhower’s efforts, Hazlitt still criticized ballooning federal expenditures, continued deficits, and low discount rates relative to international norms. In particular, he believed Keynesian easy money advocates misunderstood how the structure of interest rates provided incentives for savers. Seeing only the borrower’s side of the equation led to artificial rate reductions that “discourag[e] normal thrift, savings, and investment” and “reduc[e] the accumulation of capital” that actually drove job growth. When the administration did manage a balanced budget (as it did in 1956, 1957, and 1960), he suggested that surpluses alone could not prevent inflation if the supply of money and credit remained bloated.²²

Even in the midst of recession, then, inflation concerned Hazlitt more than unemployment. He trusted the workings of a free market would alleviate the latter, while the encroachments of the state created and exacerbated the former. Accordingly, Hazlitt placed little faith in countercyclical strategies to “smooth out” business cycles. “It is no accident that the most violent fluctuations in prices, production, and employment have corresponded with the period of most government interference in business,” he observed with a nod toward Austrian theories of the business cycle. “Most major modern business oscillations have been the result either of credit and currency expansion deliberately instigated by government, followed by inevitable collapse, or at least by failure of government to halt an unsound credit expansion until too late. The best government ‘contracyclical’ policy would be to keep an inflationary boom from starting, not to try to whip it up again after it has begun to flag.”²³

As Keynesians became more overt in their stated desire to sustain particular levels of economic growth in the late fifties and sixties, Hazlitt focused his attack on the aggregate statistical concepts they employed. He did not harbor the same animus toward mathematical modeling in economics as Ludwig von Mises did, finding, for example, the empirical data compiled by Simon Kuznets useful enough to cite on more than one occasion. Compared to members of the Chicago School, however, whose highly technical work retained a macroeconomic focus, Hazlitt was wont to find such measures as gross national product and national income arbitrary and unreliable. Not only did he consider GNP calculations of economic growth exaggerated by inflation, he also thought it fanciful that executive branch experts could predict national income when they had a hard enough time predicting the size of the annual budget deficit. In the late fifties, Hazlitt refuted Walter Lippmann and other pundits who cited the Soviet Union’s explosive economic expansion as a spur to accelerate U.S. growth rates. Hazlitt’s Austrian-influenced analysis of socialist systems produced a healthy skepticism about the veracity of Soviet statistics or likelihood that a command economy without a price system could meaningfully increase outputs of agricultural or consumer commodities.²⁴

Suffice it to say, Hazlitt did not share the Keynesians’ confidence in cyclical or “full-employment” budgets that tolerated deficits in years of economic decline and anticipated surpluses in growth years. Balancing income and expenditures over the course of an economic cycle, rather than a single fiscal year, presented two dilemmas. The first involved a straightforward knowledge gap. “No one knows when an ‘economic cycle’ has begun or ended,” he noted, “or just where we are in it, or when employment is ever high enough to take the terrible risk of balancing or overbalancing the budget.” The second, however, invoked the broader politics of the budgeting process and the very nature of the welfare state—reinforcing on another front Hazlitt’s misgivings about the viability of the entire Keynesian project.²⁵

THE FEDERAL BUDGET AND THE WELFARE STATE

Roughly every January, “Business Tides” conducted the same grim ritual: reviewing the annual federal budget. Pick any of these columns at random, and a palpable sense of déjà vu overtakes the reader. Each year, Hazlitt lamented a budget larger than the last, “a constantly mounting percentage even of our inflated national income.” In 1949, Truman’s $42 billion offering equaled “the amount spent in the entire five peacetime years from 1935 to 1939 inclusive. And few people ventured to describe those Roosevelt spending years as models of economy at the time.” The $73.9 billion budget for fiscal 1959 included a then-record $28.1 billion for non-defense spending, not counting trust funds for social security and highways (another $16 billion). The stated estimate of $97.9 billion for fiscal 1965 actually came in at a half-billion less than that for 1964, although Hazlitt believed the Great Society’s aspirations would render such optimism laughable—he had seen it happen too many times before. So too, the attitude toward economizers he first noted during the Truman era proved applicable for every administration thereafter:

Apologists for this budget are already falling back on the familiar technique of trying to silence its critics by asking rhetorically: “Where would you cut?”.... The burden of proof, on the contrary, must be placed for each item squarely on the shoulders of those who demand the expenditures. And it is not enough for them to prove, even if they could do so, that everything that these expenditures will buy is “needed.” They must prove that the citizens of the country need each of these things even more than they need the things for which they would spend their own money if it were not taken away from them in taxes.²⁶

Hazlitt’s annual budget litany served to undercut the view of full-employment budgets as automatic instruments fine-tuned by experts and immune somehow to the distributive impulses ingrained in democratic, interest-group politics. In 1966, he noted that only 6 out of the last 36 budgets had run surpluses; yet the United States had not exactly suffered thirty years of recession justifying those deficits. In reality, Hazlitt observed, few politicians had the wherewithal to sustain the deflationary or budget-cutting measures required in years of surplus, for few wanted to face the wrath of client interests who benefited from inflationary policies. Rather than encourage automatic budgetary adjustments, Keynesian policies seemed to validate the worst instincts of solicitous politician’s intent on extending economic booms indefinitely through unchecked social spending.²⁷

Hazlitt anticipated the economists of the Public Choice School in the 1970s, then, in arguing that Keynesian policy facilitated and accelerated rent seeking. Although he never evoked that specific terminology, “Business Tides” offered a mountain of evidence to support the assertion. For two decades, Hazlitt chronicled ever-ballooning post-war federal expenditures in the form of agricultural subsidies, subsidized low-interest mortgages, educational and small business loans, welfare spending, foreign aid, water projects, and highways. Such deficit-inducing programs offered countless examples of the “one lesson” unlearned. Since funding for the welfare state did not come from “the fourth dimension,” it had to come from either inflationary borrowing or taxation. Taxes effectively transferred the income of the politically unconnected to the politically connected, offering no net social benefits but merely increasing the purchasing power of certain interests at the expense of others. Burgeoning government programs did not “meet more national needs,” as President Kennedy claimed in 1963. Rather, they caused “every tax-paying family to meet fewer of its own needs, [leaving] less for private persons and private business to invest in the future, in increased productivity or economic growth.” Like inflation, the welfare state offered merely the illusion of prosperity.²⁸

Hazlitt underscored the role of interest groups and bureaucratic self-promotion in the perpetuation and expansion of the administrative state. Observing the British system led him to speculate, astutely, whether “the welfare state, once embarked upon, set up such powerful vested interests for its own preservation that it. . . becomes irreversible.” Closer to home, the farm program stood out as a particularly egregious example of an “emergency” initiative (designed to raise severely depressed farm prices during the 1930s) that achieved profligate permanency thanks to the workings of bipartisan “iron triangle” politics. Dedicated farm groups, congressional subcommittees, and the Department of Agriculture succeeded in erecting a program of price supports that served to “raise the cost of food to our own poor, to pile up huge unsold farm surpluses in government warehouses, and to stimulate food giveaways or cut-rate sales to foreign (including Communist) countries.” It did so for the stated purpose of closing the income gap between farm and non-farm labor, even as the price of agricultural commodities rose higher than average during the post-war period. This gift from taxpayers to farmers, which subsidized a massive unsold surplus, prompted Hazlitt to wonder, in the spirit of reductio ad absurdum, why the parity principle wasn’t just applied universally: “why not. . . demand equality of everybody’s income with everybody else’s, regardless of his contribution to production” and sever any lingering connection between “income received and value produced?”²⁹

“Neoconservatives” of the 60s and 70s are usually credited with bringing social science research methodologies to bear on Great Society social programs and introducing the concept of “unintended consequences” to policy debates. Yet Hazlitt routinely applied economic analysis to a host of government programs to reveal their unforeseen shortcomings, inequities, and market inefficiencies.³⁰ In 1962, he wrote with concern about the “unfunded liabilities” of the social security system and noted that the Medicare program introduced under Kennedy stood to “give heavy (unearned) benefits to the present aged and load the cost onto the present young.” During the fifties, he detailed how transforming unemployment insurance into a more generous relief program “dampen[ed] incentives to find work quickly,” penalized those who worked part time, “subsidiz[ed] the unemployment created by excessive wage rates, and reliev[ed] the pressure on powerful unions to bring wage rates down to the level at which full employment could be restored.” Likewise, raising minimum wage laws, a popular initiative with every administration, increased unemployment among low-paid workers, precisely those most targeted for assistance. “The first thing that happens when a law is passed that no one shall be paid less than $1.25 an hour is that no one whose work is not deemed worth $1.25 an hour will be employed at all,” he noted, depriving such laborers “of the right to earn the amount that [their abilities] permit [them] to earn.”³¹

Hazlitt did not dedicate as much space to Lyndon Johnson’s “War on Poverty” in “Business Tides” as he would in later books like Man vs. the Welfare State and The Conquest of Poverty, but offered some perceptive critiques all the same. “The problem of curing poverty is difficult and two-sided,” he noted. “It is to mitigate the penalties of misfortune and failure without undermining the incentives to effort and success.” Johnson’s flood of social legislation, on the other hand, more resembled a set of government interventions intended to “try to cure evils brought about by previous government interventions.” Duplication was inevitable. The Job Corps and similar manpower training programs, for example, cost $340 million and overlapped with existing Kennedy-era initiatives. But these expensive efforts stood to assist only a relatively small number of enrollees, few if any of whom represented the poorest, least skilled workers (later critics would similarly underscore this tendency for poverty programs to benefit the better off disproportionately). Hazlitt was also prescient enough to see that Johnson’s aspirations for “total victory” over poverty far outstripped programmatic expenditures of under $1 billion per year. “This comparatively tiny price tag for such a vaultingly ambitious goal, one suspects, is merely a way of getting the camel’s head in the tent,” he observed. “If the history of social security is any guide, we can expect the price tag to increase geometrically as the years go on.”³²

Hazlitt likewise took note when liberal defenders of the welfare state in the Kennedy-Johnson years began to advocate what he called “the socialization of consumption,” a position most commonly associated with Harvard economist John Kenneth Galbraith. Galbraith exerted little direct influence on White House economic policy, dissenting from Kennedy’s Council of Economic Advisors when it endorsed a Keynesian tax cut. But he remained a renowned public intellectual, best known for books like The Affluent Society. There and elsewhere, he argued that liberals needed to rethink their emphasis on corporate Keynesianism and target income inequality more directly, increasing government spending on public infrastructure rather than relying on economic growth alone to close the gap.³³

Galbraith’s thesis prompted spirited dissents from Hayek and other economists associated with the Mont Pèlerin Society, but Hazlitt’s own series of columns on the subject summarized their objections in bracing terms. As Hazlitt saw it, Galbraith had abandoned the old socialist contention that capitalism could never obtain optimum production or improve the standard of living of the working class. The problem now was that capitalist production worked all too well, directing too much wealth into the hands of the middle class, who spent it excessively on the consumer goods the economy generated in overabundance.

In recommending a redirection of resources via taxation from the private to the public sector, Hazlitt observed, Galbraith scored a semantic victory by implying the selfishness and wastefulness of the former and the democratic, public spiritedness of the latter. But Hazlitt preferred to describe the private sector as the “voluntary sector” (where people spend their own money on goods and services as they see fit) and the public sector as the “coercive sector” (where, in the words of Bastiat, “everybody tries to live at the expense of everybody else”). For Hazlitt, Galbraith’s thesis supposed that “people are individually unfit to spend the money they themselves have earned, but somehow able to choose wisely the officeholders who will seize the money and spend it for them.” Moreover, it assumed that “people will continue to work to earn the same amounts or more, no matter how much their freedom to keep or spend their earnings is curtailed.” Galbraith ultimately erred in decoupling goods and income: without the former, which he found excessive, the latter, which bureaucrats coveted, would not exist. In the end, it was the public sector that proved wasteful, selfish, and parasitic on a private sector that created and sustained the affluence Galbraith derided. The workers of the world, Hazlitt concluded, “have enormously more to gain from continuous increase in per capita production than from any conceivable redistribution.”³⁴

PLANNING AND ECONOMIC CONTROLS

The qualms that liberal intellectuals like Galbraith expressed about consumer decision-making in the private sector paralleled the suspicions bureaucrats held about the price system in general. As Hazlitt often reminded his readers, prices convey information that helps countless individuals solve complex problems of production, distribution, and consumption in a decentralized marketplace. But administrative experts preferred to solve these problems by employing technocratic methods within centralized institutions. Disturbed by a system they did not entirely understand, planners sought constantly to improve or correct it, “usually in the interests of some wailing pressure group.”³⁵

In this context, Keynesian policy prescriptions proved so troubling because they did not merely involve “non-invasive” macroeconomic manipulations, as many proponents claimed. For Hazlitt, Keynesian policies led ineluctably to an escalating series of microeconomic controls, statist planning schemes, and restrictions on individual freedom, not to mention long-term economic decline: a road to serfdom and impoverishment. Accordingly, “Business Tides” chronicled how the Truman, Kennedy, Eisenhower, and Johnson administrations habitually turned to microeconomic planning to mitigate the inflationary effects of the macroeconomic policies they pursued.³⁶

In a spate of articles condemning Truman’s various flirtations with price control programs, Hazlitt noted “the spectacle of a government’s assuming to protect us from the consequences of its own policies by asking for more powers against “speculators,” producers, and “profiteers.” Of course, “voluntary” business efforts could do nothing to hold down prices if the administration ran deficits and expanded currency and bank credit. But imposing arbitrary ceilings prevented adjustments in relative prices necessary to “[synchronize] the production of thousands of different commodities in relation to each other,” resulting in the very shortages officials decried. When Democrats denounced “profiteers” (but not, he noted, union “wageteers”), they ignored how profits actually guided output to alleviate shortages while providing the capital to increase production and wages. Some businessmen held out the prospect of “fairly administered” price-fixing plans allowing them “cost of production plus a reasonable profit” to achieve these same ends. But, Hazlitt noted, such a scheme wouldn’t work, since “a uniform percentage profit for everyone . . . would give no more incentive for producing an article in critically short supply than one in relative excess.” Thus, production bottlenecks were endemic, as evident during the national meat shortage in 1946 that so angered Americans and eroded popular support for the OPA:

As a result of ceilings, cattle raisers found it more profitable to fatten their cattle on the lots than to send them to market. This led to a whole series of other shortages. A soap crisis is being created because soap is mainly made from tallow and tallow comes from steers. Synthetic rubber and hence tire production are threatened in turn by the shortage of soap. A meat shortage also means a hide, leather, and shoe shortage. A bread shortage may come from a scarcity of lard needed in baking, for lard comes from hogs.³⁷

Not even the most brilliant bureaucrats could solve the calculation problems price controls imposed, Hazlitt concluded, channeling Mises. With something like 9 million different prices in the United States, and 40 trillion interrelationships between them, “general” price controls remained a totalitarian fantasy. But instituting more targeted controls, he observed, resembled squeezing a balloon: holding down the price of certain goods in an economy inflated with a greater volume of money will simply lead to distortions elsewhere, as consumers’ dollars flow to bid up the prices of uncontrolled commodities. An extension of controls on beef, pork, and lamb in September 1946 caused the prices of their substitutes, poultry and eggs, to rise, for example, until they were removed.³⁸

Accordingly, Hazlitt bucked conventional wisdom in refusing to attribute a spike in prices to the lifting of wartime controls in November 1946. Cost-of-living indexes that suggested price stability between 1942 and mid-1946 peddled a fiction, he insisted, since the fog of wartime controls masked the true extent of credit inflation and ignored “the realities of black market prices, shortages, rationing, queues, favoritism, deterioration of quality, and non-existent goods.” Even though some prices rose sharply in the wake of decontrol, he cautioned, others would decline, “for the very reason that all commodities will be competing freely for the consumer’s dollar, so that if more of it has to go for one commodity, less of it will be left for others.” He also urged the phasing out of lingering controls, like those for rent, which only “intensified the housing shortage by encouraging existing tenants to use space wastefully, and by discouraging repairs, improvements, and new construction.” Not surprisingly, Hazlitt counseled against imposing similar types of controls during the mobilization effort for Korea in 1950–51.³⁹

Even after the formal lifting of wartime price controls, Hazlitt could point in future years to other inefficient forms of control and planning: agricultural price supports, the continuation of rent control, JFK/LBJ “wage-price guideposts,” consumer credit controls, and, with the onset of the balance of payments problem after 1957, various exchange controls and restrictions on foreign investment. The “parity formula” in agriculture, for example, attempted to freeze in place World War I-era price relationships that happened to favor farmers even as it forced city workers to pay more for food. If it were really possible to preserve dynamic price relationships in amber this way, Hazlitt mused, why not do so universally for everything from freight rates to neckties? Why not adjust the parity rate downward if agricultural prices exceeded those of other goods (not surprisingly, no one in the farm bloc ever suggested such a thing). The political favoritism inherent in the administration of the parity principle even victimized other farmers, as it applied to certain select commodities but not others—boosting wheat growers, for example, while sticking hog or poultry raisers with more expensive feed. And like most government controls, the farm program inevitably bred corruption and preferential treatment, since “arbitrary quotas must breed lobbies.” Hazlitt summarized the process in a July 1962 piece examining the sugar and cotton quota system:

The government, say, guarantees farmers higher prices for certain crops than they could get in a free competitive market. As a result it finds that it has encouraged huge surpluses. To prevent these it limits the number of acres on which each farmer is permitted to grow the subsidized crops. But these privileged acres then sell for enormously higher prices than those on which the subsidized crops are forbidden. So what happens when someone stands to win or lose millions of dollars, depending on the discretionary decision of some petty bureaucrat...? The result is the most inevitable consequence of substituting discretionary favoritism for the rule of law. One of the worst consequences of “government economic planning” all over the world has been the corruption of the civil service.⁴⁰

When viewed in the wake of the 2008 financial crisis, Hazlitt’s columns on credit control make for some particularly eye-opening reading. During the fifties, he attributed the rapid growth of consumer credit to the Federal Reserve’s failure to maintain interest rates at appropriate levels. Rather than clamp down on the total supply of credit, the government chose instead to substitute “bureaucratic judgment and favoritism for the judgment of the marketplace,” setting limits and conditions on specific types of installment credit used to purchase consumer durables or obtain margin loans for corporate securities. Yet, he observed in 1956, “the same government that fears the too-rapid growth of installment credit, even when financed by private lenders at their own risk, has promoted an enormous housing boom by itself guaranteeing mortgages on shoestring margins that make the installment credit terms of automobiles or television sets look like the acme of conservatism.” It came as no surprise, he mused, that government-backed lenders lacked the incentive to assess a borrower’s fitness or integrity, when the money they stood to lose belonged not to them, but to taxpayers. Hazlitt spoke here specifically regarding the veterans mortgage program, but his Eisenhower-era lament echoes still, with haunting prescience, amidst the modern ruins of Fannie and Freddie: “What sort of government policy is it that encourages families to assume debts beyond their resources?[...] The only real remedy is not for Congress to ‘set up more safeguards,’ but to get the government out of the lending business.”⁴¹

LABOR POLICY AND UNIONS

Hazlitt ranked federal labor policy as the most pernicious of the various forms of economic control, because he believed that state-sponsored efforts to fix the price of work cut to the heart of Keynesian purchasing power and full-employment fallacies. The collective bargaining regime created by the 1935 National Labor Relations Act established organized labor as a “countervailing force” in the industrial marketplace to balance the considerable influence traditionally wielded by corporate management. Given that over the past six decades, the federal government had aligned itself more or less consistently against the trade union movement, this leveling of the playing field under force of law represented one of the most consequential of Roosevelt’s reform efforts—not least because it cemented a permanent electoral alliance between unions and the Democratic Party.⁴²

According to Hazlitt, the inevitable politicization of wage setting under the Wagner Act took on a Keynesian patina once Democrats accepted that “higher wage rates under no matter what circumstances increase the income of labor and increase prosperity by increasing labor’s ‘purchasing power.’“Under normal conditions, if government-facilitated contracts imposed hourly wages exceeding marginal worker productivity, production costs would increase, the volume of sales and gross income would fall, and unemployment would rise, since most overpriced commodities, including labor, remain unsold—unless the money supply expanded as well. In that case, an unstable prosperity could be maintained as long as prices kept ahead of wages, that is, as long as union labor acceded to falling real income.⁴³

But unions had grown sophisticated and sensitive to any decline in real wages. Rather than fall for the “money illusion,” Hazlitt suggested, they would demand wage increases (automatic or otherwise) to compensate for inflation. Since inflationary policies work only through stealth (as soon as consumers or lenders become aware of inflation, they hedge against it) the result would be a wage-price spiral supported by ever-larger volumes of depreciating currency. Under such conditions, unemployment could co-exist with inflation (stagflation) if wages managed to exceed prices; eventually the entire edifice would collapse.⁴⁴

Excessive wages acted to raise prices for consumers and thus reduce the real purchasing power of all other (non-union) workers, Hazlitt argued. Indeed, Hazlitt was at pains to demonstrate that the wages and benefits secured by the most influential unions in major industries like automobiles and steel routinely outpaced the cost of living by significant margins. But by increasing the costs of production, they also reduced corporate profits. Without profits for capital investment, companies could not purchase the machinery that increased worker productivity—the only non-inflationary method to raise wage rates. Indeed, the “fetish” of full employment obscured this connection between maximum production and efficiency. Even the most primitive or tyrannical societies employed everyone, he observed; only free-market systems fostered the innovation necessary to get the most production with the least labor, the hallmark of economic progress. The best way to bring about enduring “full employment,” Hazlitt concluded, was “to provide a stable currency, and to keep prices, wages, and interest rates free, competitive, and flexible, so that a workable dynamic relationship can be constantly maintained between one price and another, one wage and another, between prices and costs, prices and wages, payrolls and profits.”⁴⁵

The transformation of the political economy of labor under the New Deal state militated against such free-market alternatives, Hazlitt believed, because it had institutionalized inflationary wage demands that employers had little recourse to refuse. In addition to the Wagner Act, he could point to the expansion of minimum wage provisions through successive amendments to the 1938 Fair Labor Standards Act or via the 1936 Walsh-Healy Act, which covered federal contractors. Related rules for overtime pay, he added, tended to penalize employers offering the highest wages and reward the best-paid workers disproportionately. Again, Hazlitt credited a combination of capital investment, improved production technology, and market competition for driving marginal labor productivity and the general wage level steadily upward over time. If the reformers were right and causation lay elsewhere, he noted, then even the poorest of nations could create prosperity at any time by legislative fiat or through “bargaining.”⁴⁶

Not even the 1947 Taft-Hartley Act gave Hazlitt reason for hope. Taft-Hartley emerged as the conservative counterweight to the Wagner regime, the product of a Republican-dominated 80th Congress elected in 1946 in response to post-war inflation, excessive government controls, and historic levels of labor strife. Passed by an alliance of anti-labor Republicans and Southern Democrats, Taft-Hartley did not roll back, so much as circumscribe, New Deal labor law. It retained the process of collective bargaining supervised by the National Labor Relations Board, but outlawed wildcat strikes, secondary boycotts, and the closed shop. It prohibited both management and labor from engaging in “practices which [sic] jeopardize the public health, safety, or interest” and required anti-communist affidavits from all unionists. Moreover, it authorized the president to intervene in strikes that threatened national security and enabled individual states to pass “right-to-work” laws outlawing exclusive union shops.⁴⁷

Despite his initial optimism, however, by 1949 Hazlitt began calling for Taft-Hartley’s repeal, judging it equally guilty of rigging the system against business owners. Both Wagner and Taft-Hartley forced employers to negotiate exclusively with industry-wide unions, granting the latter effective monopoly power denied to other associations or corporate entities. Neither spelled out what good faith collective bargaining actually meant. What it amounted to in practice, according to Hazlitt, was relentless pressure on employers to concede to union demands and on workers to join unions whether they wanted to or not. “The right to strike does not necessarily imply the right to win a strike, and the right to quit work does not imply the right to prevent others from working,” he emphasized.⁴⁸

Hazlitt judged that American labor law had removed all the risk associated with striking, and with it any incentive for labor representatives to bargain in good faith. Contrary to the expectations of lawmakers, the guarantee of federally supervised collective bargaining did not usher in a new era of industrial peace. The period between the late forties and the early seventies saw the most frequent and contentious series of work stoppages in the twentieth century, averaging 352 major events annually in the fifties and 285 per year over the next two decades. The steel industry alone was convulsed by national strikes in 1946, 1949, 1952, 1956, and 1959.⁴⁹

When the collective bargaining process broke down in an industrial dispute with national security implications, presidents frequently convened independent factfinding commissions to arbitrate an equitable solution. As documented in “Business Tides,” however, such recourse to “neutral” experts invariably produced recommendations that ratified the most inflationary union demands for wages and benefits. The 1926 Railway Labor Act created the template in an effort to deter debilitating railroad strikes, but FDR and Truman employed similar boards to deal with coal and steel stoppages as well. “If government boards know how to set steel wages, then they know how to set all wages and prices,” Hazlitt opined during the 1949 steel strike. Of course, no board could know for certain how much a given wage increase stood to affect company profits, prices, or competitiveness, even if it acted with complete objectivity “and not, as in the past, merely to buy off a strike, or to hold the labor vote, or to pay a political debt.” Indeed, stated commitments to wage stability usually evaporated, as they did during the Korean War, when Truman’s Wage Stabilization Board recommended that striking steel workers receive an 11 percent increase despite the fact that their wages, among the highest in the country, outstripped the cost of living. Industry efforts to compensate with a 5 percent price increase, however, provoked denunciations from the administration. De-linking wages and prices in this way created an ingrained double standard that, Hazlitt contended, squeezed employers in a Keynesian vice. In practice, “wage stabilization” served as little more than “a political effort at redistribution of income.”⁵⁰

As a last resort, presidents faced with a prolonged strike jeopardizing national security could opt to seize the industry in question and operate it under government auspices. Truman did so with the railroads (1946) and steel (1952), and his threat to take over the coal industry in 1950 forced mine operators to accept the recommendations of federal arbitrators. Hazlitt decried this nuclear option as an assault on property rights and an exercise in blaming the victim, one that stretched the bounds of constitutionality (the Supreme Court agreed in 1952) and effectiveness. “Mr. Truman seems to have forgotten entirely that even when he seized the railroads in May of 1946 he did not end the strike that had been declared against the generous wage decision of his own fact-finding board,” he noted during the dust-up over coal. “On that occasion Mr. Truman was finally reduced to proposing that he be given the totalitarian power to throw the strikers into the Army and force them to run the trains that way.” Yet none of this dampened President Kennedy’s desire in 1961 for enhanced authority to conduct labor relations, including stronger seizure laws and more vigorous fact-finding boards whose new powers, Hazlitt feared, would amount to compulsory arbitration and wage fixing.⁵¹

Ironically, by the early sixties such demands reflected concerns within the Kennedy White House that unions had grown powerful enough to “demand and get excessively high wage rates . . . that would force more inflation, price us out of foreign markets, imperil the dollar [and] bring unemployment.” This shift in perspective, even among establishment liberals, reflected broader changes in how Americans perceived the role of labor unions in national economic life after 1957–58. Ever a persistent critic, Hazlitt approached labor affairs with a renewed sense of urgency around this time.⁵²

Two notable trends upended labor’s fortunes after 1957. First, the serious recession that began that year underscored the onset of urban deindustrialization, particularly in the “Rustbelt” states bordering the Great Lakes and extending throughout the Northeastern, Mid-Atlantic and Midwestern regions. Whereas the industrial base in this area managed to absorb the higher production costs and discord that accompanied union activism in the forties and fifties, the high demand and lack of competition that characterized those years could not be sustained indefinitely. Hazlitt had long warned that exorbitant, inflation-indexed union wages and fringe benefits threatened to price American companies out of an increasingly competitive global market. His extensive coverage of the great 1959 steel strike represented the culmination of this argument. Though a conflict over shop floor rules precipitated the walkout, Hazlitt chose to emphasize, as always, the ruinous implications of union wage demands on employment and competitiveness. As it turned out, the strike paralyzed the American Steel industry for 116 days and marked the beginning of its permanent decline, as cheaper imports from more efficient foreign forges filled the gap for domestic manufacturers.⁵³

The second blow to labor’s prestige came in the form of congressional committee hearings on union corruption and criminality, chaired by Arkansas Senator John McClellan in 1957. Though a majority of committee members hailed from right-to-work states the evidence linking prominent unions like the Teamsters to organized crime and racketeering proved hard for anyone to ignore. The hearings tarnished the moral standing of labor and induced Congress to pass the 1959 Landrum-Griffin Act, which instituted tighter restrictions on secondary boycotts and stricter regulations of union financial dealings.⁵⁴

Around this time, the emphasis in Hazlitt’s labor columns shifted from the structural flaws of the collective bargaining process under Wagner/Taft Hartley to the endemic problem of labor violence enabled by the 1932 Norris-LaGuardia Act. The Act barred federal courts from issuing injunctions to halt “nonviolent” labor disputes. But in so doing, Hazlitt maintained, it removed the primary instrument for preventing the intimidation and coercion routinely associated with mass picketing, made replacement of striking workers nearly impossible, and left the Federal government with no means of policing local strikes or preventing violence. The Taft-Hartley Act was “practically blind to the existence of such matters,” while ambiguous federal court decisions left the power of states and localities to respond in doubt. Hazlitt never denied the right of workers to strike peaceably, but the cultural animus against strike-breaking nourished by Norris-LaGuardia and other labor laws meant that “if no strike can ever be broken, the strikers must always win, no matter how extravagant their final demands, and more and more strikes, with consequent economic paralysis, must be encouraged and rewarded.”⁵⁵

In developing his extended critique of how state-sanctioned labor violence and intimidation eroded the rights of employers and workers alike, Hazlitt drew upon the research of Sylvester Petro, a libertarian legal scholar and longtime admirer of Mises. Petro’s publications included a summary of the McClellan hearings, Power Unlimited: The Corruption of Union Leadership, and tracts such as The Kohler Strike: Union Violence and Administrative Law and The Labor Policy of the Free Society, where he promoted “free employee choice” as the central principle in American labor law. Like Hazlitt, he recommended repealing Norris-LaGuardia, Wagner, and Taft-Hartley, abandoning labor boards, outlawing mass picketing and all forms of violence and coercion by either side, and insuring all individual workers and employers enjoyed the right to “free bargaining,” that is, the freedom to engage whatever collective bargaining unit they chose, rather than limiting the choice to a single, state-approved, industry-wide union.⁵⁶

“Not until private coercion is prevented can personal liberty be secure,” Hazlitt insisted. He reaffirmed this principle and deplored the fruits of violence in a series of columns between 1959 and 1966 covering a multitude of work stoppages beyond the steel industry. These included the New York newspaper deliver strike (1/29/59); the New York hospital strike (6/8/59); the meatpackers strike (12/28/59); the Kohler strike (9/12/60); the Pennsylvania Railroad strike (9/19/60); the New York Printers Union strike (12/24/62); the dockworkers strike (1/21/63, 2/25/63); the national railway strike (9/16/63); the New York newspapers strike (10/11/65); the New York transit strike (1/31/66); and the airline mechanics strike (8/15/66). In a number of these pieces, Hazlitt also critiqued union efforts to maintain featherbedding shop floor rules that shortened hours or maintained sinecures for obsolete workers in the face of capital expansion. The long-held economic fallacy that machines immiserated workers rather than emancipated them, he observed, lay at the root of these endeavors.⁵⁷

TAX POLICY

Liberal labor and welfare policies were designed to stimulate a “propensity to consume” that supposedly grew more tenuous as aggregate income increased. Hazlitt, however, faulted Keynesian theory for neglecting and undermining the more critical propensities to work, save, and invest. Specifically, he judged the punitive post-war tax rates assessed on corporations and the wealthy as further evidence that Keynesians wished to transfer the impetus and initiative for capital investment from the private sector to the public sector.⁵⁸

World War II compelled a transformation of the American tax code. Since its inception in 1913 until 1940, the federal income tax had applied, at most, to 6 percent of the population, exempting all but the wealthiest tiers. Such a peripheral, class-targeted approach, however, could not begin to shoulder the fiscal demands of global war. Accordingly, the Revenue Acts of 1942 and 1943 created a system of “mass” taxation that broadened eligibility across all incomes, imposed a more steeply progressive rate structure topping out at 90 percent, and introduced withholding to collect income at the source. The number of taxpayers grew from just under 4 million in 1939 to nearly 43 million by 1945, while tax revenue ballooned from $2.2 billion to $35 billion ($19 billion personal, $16 billion corporate) during that same period. The onset of the Cold War kept rates high, although a bevy of deductions and loopholes mitigated the burden somewhat. In short, mass taxation became a permanent feature of American life. It enabled the growth of the post-war state, as the federal government came to dominate the nation’s revenue system, collecting over half of all taxes by 1950. And it provided Keynesians with a more precise instrument with which to implement countercyclical budgeting.⁵⁹

The hundred or so “Business Tides” columns on specific tax issues rank among the most technical Hazlitt wrote. They are difficult to summarize easily or in brief. One in particular, however, published on March 30, 1953 and reprinted in Readers’ Digest, neatly captures his overarching approach to the matter. In it, Hazlitt recounts a conversation with a friend who tried to figure out how much he needed to earn under the current tax code to pay a recent $100 plumbing bill. Since the friend qualified for the top bracket, he calculated that $1,000 in dividends from his General Motors stock would leave him with $100 after the 90 percent tax bite. To generate those dividends, however, GM had to earn over $4,000 before taxes, meaning it needed to move more than $21,000 worth of its product to dealer showrooms. In sum, to pay the plumber his $100 required GM to sell 18 Chevrolets. In recounting this tale, Hazlitt did not seek to drum up sympathy for the wealthy so much as draw attention to the impact of the tax burden on the productive capacity of the economy. When the government took, on average, 57 percent of yearly corporate earnings and wrung “42 times as much out of the average corporation as the investor in the top income-tax bracket is allowed to get and keep,” it threatened to dry up the capital investment needed to maintain wages, employment, and production.⁶⁰

Despite his steady drumbeat for cuts in federal expenditures, Hazlitt demonstrated a willingness to forego balanced budgets temporarily in exchange for significant tax reform. In many respects, his formula conformed to that later associated with supply-side economics, emphasizing significant, permanent reductions in the top personal and corporate tax rates as well as in the overall number of brackets, cuts in the capital gains tax, elimination of the effective double taxation of dividends, and more generous depreciation allowances. He sought above all to alter the incentive structure of the tax system to promote more savings and capital investment among society’s most productive actors, rather than to make that system more “fair.”⁶¹

Indeed, Hazlitt was wont to reject broader tax reductions in the lower brackets. He decried several Democratic efforts during the Truman and Eisenhower eras, for example, to increase personal exemptions across the board, which he feared would remove millions of Americans from the rolls and severely inflate the federal deficit. On the one hand, releasing so many Americans from a tax obligation effectively cut the connection between expenditures and taxes, breeding fiscal irresponsibility among those who assumed “the wealthy” would pick up the bill for a profligate welfare state. But the hard fact remained that the bulk of tax revenue came from the base of the pyramid (below the 20 percent rate), not the apex. “Cutting taxes on low incomes, at the cost of a huge budget deficit, will not increase the purchasing power of low-income groups,” he insisted, “for if the deficit is financed by borrowing from the banks and increasing the money supply . . . it will create inflation”—the most regressive of all taxes—driving up prices and eviscerating purchasing power.⁶²

For these reasons, Hazlitt opposed the Kennedy-Johnson tax reform bill, which, he felt, cut taxes too much in the lower brackets and too little in the upper (while monetary policy was kept far too loose). The result was an $11 billion deficit—a tax cut financed through borrowing and inflation. Recent scholarship has made an intriguing case that the logic driving the landmark 1964 tax reduction—which reduced rates from 91 percent to 70 percent at the top of the pyramid and from 20 percent to 14 percent at the base—derived more from the supply-side theories of Robert Mundell than the Keynesian orthodoxy within the Council of Economic Advisors. Historians and economists will continue to debate the origins of the policy, but for his part, Hazlitt sensed Keynesianism afoot. As he wrote on March 9, 1964, “the Administration’s pressure for the $11.5 billion tax cut just enacted may be cynically ascribed to an effort to win the coming election. But it is also supported by an economic theory, a theory now widely and sincerely held. . . . It is a pure ‘demand theory.’ It assumes that, whenever there is recession or unemployment, the reason must be ‘insufficient demand.”⁶³

BRETTON WOODS AND FOREIGN AID

Henry Hazlitt never considered extensive domestic travel a prerequisite for composing “Business Tides.” With few exceptions, like a trip to the Texas cattle country in 1948, he filed his nationally oriented columns from New York, the nation’s (and the world’s) financial capital. He adopted a considerably more peripatetic approach, however, when addressing international economic affairs, something he did quite frequently during his tenure at Newsweek. Nearly every summer, bylines from London, Paris, Berlin, Madrid, Stockholm, Zurich, Brussels, or Amsterdam announced that Hazlitt was abroad. As he recalled years later, the challenges of roving journalism proved exhilarating, if exhausting:

I had to start interviewing people on my first day, usually a Monday. I would typically begin with the economics officer at the American Embassy and would get further “leads” from him among the informed economists and businessmen of the country. I would try to finish up my fact collecting by Friday morning, and start my column, filing it late Friday or early Saturday. Sunday would often be my day for a plane to the next country. I do not remember that I ever failed to fulfill this schedule.⁶⁴

Whether written out of his office or his suitcase, Hazlitt’s analysis of world economic problems garnered an engaged and influential foreign readership consisting predominantly of Europeans and Americans abroad (although his following in Latin America was also significant). He estimated that the version of his column published in Newsweek’s international edition generated about 25 percent of his mail, even though it reached the equivalent of only 5 percent of the domestic circulation. Public figures like Chancellor Ludwig Erhard of West Germany and Reinhard Kamitz, President of the National Bank of Austria, counted among his readers. The BBC thought enough of his reputation to make his ruminations on the British budget the subject of a transatlantic broadcast. For this international audience, Hazlitt projected his domestic concerns about inflation, Keynesian theory, statist controls, and the welfare state on a global scale, dissenting once more from the conventional wisdom informing economic policy after 1945.⁶⁵

As Allied victory in World War II appeared more certain, western officials resolved to apply the lessons of the previous war’s aftermath to the process of postwar reconstruction. They envisioned a cooperative system designed to buttress global economic interdependence. It would prevent a collapse of finance and trade by discouraging autarky: the competitive currency devaluations, high tariff walls, and like policies that had aborted post-war recovery in the twenties and brought about worldwide depression in the thirties. The most influential architects of the Bretton Woods agreement, however, including John Maynard Keynes and Harry Dexter White, determined not to sacrifice the well-being of domestic economies upon the altar of stable currencies. The institutions they helped create at the 1944 Bretton Woods Conference, including the International Monetary Fund (IMF) and World Bank, were designed to maintain liquidity and adjust imbalances in trade payments without dampening the flow of goods or capital, but also without disturbing domestic prices or inducing unemployment.

The Bretton Woods agreement as enacted required the United States to serve as a world economic hegemon. The U.S. offered its own currency as a global reserve that provided the peg for a system of fixed international exchange rates, tying all other currencies to the dollar and the dollar to gold at $35 per ounce, making it convertible upon demand of central banks. The United States also provided a massive influx of capital to jumpstart European recovery. The severity of the problem seemed clear in the summer of 1947, when Great Britain reneged on its loan agreement with the United States and suspended convertibility of the pound in order to stop the hemorrhage of dollar resources from British banks. Meanwhile, Germany’s own economic dislocation disrupted critical supplies of coal and other goods that Europe’s industrial base and civilian population required. The Marshall Plan formed the lynchpin of the subsequent American rescue effort, funneling billions of dollars overseas to rebuild the infrastructure of Western Europe. In the context of the emerging Cold War conflict with the Soviet Union, American officials interpreted such economic aid, in combination with billions more in direct military assistance, as the critical pillars supporting the global containment of communism, a commitment that would extend beyond the immediate post-war crisis and the borders of Europe.⁶⁶

Hazlitt viewed these trends with alarm, but not because he considered himself an “isolationist.” Indeed, he bristled at the term, especially when used to delegitimize criticisms of prevailing policy. “Our own economic and political future will be deeply affected by the fate of Europe,” Hazlitt confirmed in 1947, and “we should do anything we can that promises to increase Europe’s welfare without imperiling our own.” He approved of military alliances such as the 1949 Atlantic Pact, an unprecedented guarantee on the part of the United States to come to the direct aid of victims of Soviet aggression, and advocated economic engagement by the private sector. But Hazlitt’s brand of conservative internationalism did not abide by the unsound and fallacious economics he saw informing much of U.S. foreign policy. He rejected the mantle of global hegemon if it meant the United States had to sacrifice its economic well-being by fronting for policies that bred statism, autarky, and inflation at the expense of efficiency, production, and freedom.⁶⁷

In brief, Hazlitt believed that American foreign aid, from the Marshall Plan on, perpetuated unsustainable financial practices on the part of foreign recipients, incentivized, in turn, by Bretton Woods’s flawed system of international monetary “reform.” He described the 1944 agreement as having abandoned a true gold standard for a Potemkin village. Behind the façade of the fixed dollar, individual governments were allowed to peg their currencies at “an artificial, arbitrary, and unreal valuation” supported not by a free, self-correcting price system but rather “police penalties” and state controls. They did so in concert with Keynesian prescriptions. Internal post-war politics within each nation dictated policies to maintain high wages, full employment, and consumer purchasing power, all of which required expanding supplies of money and credit. Under a true gold standard, such inflated currency would quickly lose value in international markets, but under IMF regulations governments had the obligation and the flexibility to preserve the “official” exchange value relative to the dollar. They accomplished this through exchange controls: forbidding citizens to buy and sell currency at the rate a free market would actually bear (black markets in currency usually reflected the difference). As a consequence, these artificial, official exchange rates tended to overvalue the pound, the franc, the lira, and the mark by a significant margin.⁶⁸

Hazlitt blamed chronically overvalued currencies and other self-imposed state policies, rather than the devastation of war, for the post-war “dollar gap” that prompted the hue and cry for U.S. foreign assistance. Because overvalued currencies make foreign imported goods less expensive and domestic exports more so, they encourage trade deficits. British and French consumers shunned their own products for cheaper American ones, for example, and needed a constant supply of dollars to purchase them. But since exports pay for imports, a slowdown in the former led to a shortage of dollars to pay for the latter (of course, under free currency exchange, such a high demand for dollars would make them, and American goods, more expensive, altering consumer incentives accordingly). The problem, Hazlitt explained, was not a “dollar gap,” but rather the simple fact that “Britain and Europe and Latin America wish to buy more from the United States than they sell to it. . . . They wish to buy more than they can afford to pay for. They are consuming more than they are producing.” The only permanent remedy involved an increase in their production or a reduction of their consumption. “As long as they do neither,” he observed, “they can only keep up the one-sided trade with us with the proceeds of our loans or gifts.”⁶⁹

Meanwhile, a multiplicity of other controls exacerbated the imbalance. Price ceilings distorted and reduced production while concealing domestic inflation; various allocations and prohibitions paralyzed initiative; nationalization of industries, as in Britain, built in inefficiencies and increased budget deficits; confiscatory taxes dampened investment and incentive. Likewise, various import quotas, bilateral treaties, license requirements, export subsidies, and other internal restrictions did “far more to throttle two-way trade” than even America’s own unfortunate tariff walls. Hazlitt underscored the cumulative absurdity of these policies by imagining their effect on interstate commerce:

The 1947 per capita income of Mississippi was lower than that of Great Britain, Denmark, Sweden, or France. Yet Washington did not start rushing millions of dollars into Mississippi either to “halt Communism” there or to enable Mississippians to buy more goods from New York. But if Mississippi’s state government suddenly decreed that 50 cents in Mississippi was worth $1 in New York; if it ordered its exporters to turn over all their dollars from sales to New York to the state government and accept only 50 cents apiece for them; and if Mississippi’s government then allotted the proceeds to its importers to enable them to buy every dollar’s worth of goods from New York at a cost to the importer of only 50 cents-then everybody in Mississippi would want to import from New York and nobody in Mississippi would be crazy enough to export to New York. Mississippi would immediately have an unfavorable balance of trade and an appalling shortage of New York dollars.

Ironically, Hazlitt observed, even as President Truman denounced critics of foreign aid as “isolationists,” the Marshall Plan’s Economic Cooperation Administration (ECA) subsidized autarkic policies that reduced American import levels and proved more deserving of the label. They left American consumers worse off, he lamented, while sticking American taxpayers with the tab for trade deficits and socialism abroad.⁷⁰

Hazlitt recommended the lifting of exchange and other controls as the most direct cure for the world’s economic ills. Nations that did so, like Canada or West Germany under Ludwig Erhard and his advisor Wilhelm Röpke (acting against the wishes of American occupation officials), soon reaped the benefits. Those that did not resorted instead to a series of patchworks. “The most brilliant schemes of the planners today consist in tapering off their previous plans,” Hazlitt noted in 1950. These included reducing (but not eliminating) import quotas or, more commonly, adjusting currency exchange rates. While the Bretton Woods system meant to discourage competitive devaluations, it essentially encouraged corrective ones. France independently devalued the franc in February 1948; Britain slashed the official value of the pound from $4.03 to $2.80 in September 1949, and dozens of other nations soon followed suit. Within a year, Britain’s gold and dollar reserves more than doubled, and America’s own imports increased. Yet rather than throw off the yoke of controls entirely, most states chose to retain them in modified form. France, Hazlitt noted, continued to “fix the franc at an arbitrary official level,” tried to balance trade by “offering a 20 per cent subsidy on most exports and imposing a 20 per cent tax on imports,” and kept its economy “honeycombed with protections, subsidies, vast welfare programs, and rent, price, and wage controls.” He considered “managed” devaluations, rather than those dictated by the market, as “a confession of bankruptcy” and a “high-sounding euphemism for continuous currency debasement,” where bureaucrats unilaterally violated sovereign promises and habitually cheated creditors. As such, Hazlitt considered “automatic currencies based on gold” superior to “managed currencies based on guile.”⁷¹

While Hazlitt approved of U.S. security guarantees to western nations, he looked more skeptically upon efforts to bundle “military assistance” as an essential component of foreign aid. The House Committee on Foreign Affairs included one of the columns he wrote on the subject, “Why Foreign Arms Aid?,” in its minority report on the 1954 Mutual Security Act. His argument echoed the concerns of prominent congressional conservatives, including Robert Taft (R-OH), a persistent critic of the national security state and Truman’s activist foreign policy. Any nation that had the will to defend itself likely had the means to do so as well, he assumed. Although exceptions occasionally arose, like Turkey, Greece, Iran, Korea, or Formosa, U.S. contributions earmarked for arms aid usually “released that much of the [recipient] governments’ own funds for other purposes,” including social security schemes, food subsidies, or paying the deficit on nationalized industries. At the very least, he suggested, Congress ought to deduct sums authorized for arms aid from foreign aid appropriations or the U.S. military budget. In the midst the Korean conflict and at the height of Cold War tensions, Hazlitt noted that Western European nations allocated roughly 5 percent of their national incomes and 18 percent of their government expenditures to defense. By comparison, even before the war over a third of the U.S. budget went for that purpose, even though the direct threat of Soviet aggression loomed larger for Europe. Like other forms of foreign aid, Hazlitt concluded, military assistance spared European nations from making zero-sum budgetary choices and ultimately subsidized profligate social welfare states.⁷²

Part of Hazlitt’s unease with the Truman administration’s foreign and military aid proposals stemmed from their inherent potential for mission creep. Not only did future administrations expand the European component of these programs, they also followed Truman’s lead in targeting the Third World. Indeed, by 1961, the United States had spent $90 billion dollars in foreign aid, including $60 billion in direct economic assistance to over 70 countries. Hazlitt hardly stood out as a lone voice of dissent. Foreign aid consistently ranked among the most controversial items on the political agenda, drawing fire from both the right and the left at different times for different reasons—indeed, on this subject Hazlitt managed to find common ground with both conservative representative Otto Passman (D-LA) and liberal Senator Wayne Morse (D-OR). Nevertheless, his dogged persistence stands out, as does the clarity of the economic case he presented.⁷³

Hazlitt’s critique of Truman’s “Point Four” Program (later expanded into a 1950 pamphlet entitled, Illusions of Point Four) previews some of the arguments he would mount against aid to “developing” countries in the fifties and sixties, and mirrors other points of analysis directed at the original European aid program. Hazlitt was fond of noting that no country got rich by giving its exports away. “We are told that ‘three out of every four dollars’ in our foreign giveaway program ‘will be immediately spent within the United States,’” he recalled. “This is like trying to appeal to the self-interest of an automobile dealer by telling him that if he makes you a gift of $4,000, you will use $3,000 of it to buy one of his cars.” Likewise, resources “invested” by the government overseas merely diverted them from private domestic development. Foreign capital normally flowed to opportunities offering the highest returns or the lowest risk, but foreign aid bureaucrats had few incentives to make such distinctions, much like their colleagues overseeing subsidized domestic mortgages or educational loans. Of course, if the United States did decide to use its aid as a wedge to force internal economic reforms and render recipient nations more credit-worthy, it would likely generate ill will and anti-American sentiments that communists could exploit.⁷⁴

Yet, Hazlitt insisted, developing nations like India needed precisely such reforms to draw efficient capital and increase world production in ways that would benefit their populations. Charitable gifts intended to prevent starvation in such countries inevitably overlooked the fact that government policies, rather than acts of God, usually caused or exacerbated the crisis in the first place. “The argument that India cannot pay $190,000,000 for grain because it has only “limited foreign exchange reserves” and an “unfavorable balance of payments” is economic nonsense,” Hazlitt noted in 1951. “These conditions are the result of the Nehru government’s own exchange control measures. It has made dollars scarce in the same way as it has made foodstuffs scarce—by putting artificial price ceilings on them.” What these nations needed was not handouts but “internal political stability, order, and good faith, and the adoption of policies calculated to attract the confidence rather than distrust of domestic as well as foreign private capital.” These included recognition and protection of property rights, freedom to withdraw earnings or principal, which would require dismantling exchange control, and the elimination of other “vexatious controls” such as “price-fixing, wage-fixing, and arbitrary profit limitation.” Hazlitt anticipated the arguments of contemporary economists like Hernando de Soto when he described capitalism as the “marriage of liberty and security,” where the rule of law worked to incentivize production and create wealth.⁷⁵

Hazlitt did not hesitate to question other fundamental assumptions underlying the foreign aid program. Why, for example, was it suddenly considered “the duty of the American taxpayer ‘to promote welfare and growth for the peoples of Africa’?” Could U.S. aid actually achieve this goal? Did any demonstrable correlation exist between the level of aid provided to developing nations and their rates of economic growth? Moreover, if politicians belittled the cost of such programs to the taxpayer, did that mean that foreign aid dollars accounted only for “a similarly minute percentage of the total GNP of the hundred or so nations” receiving such aid? “How, then,” he asked, “could it substantially increase their living levels?” And was there any guarantee that aid recipients like Egypt, India, or Yugoslavia would actually support U.S. national interests during an international crisis?⁷⁶

In this vein, Hazlitt dared to revisit an even more fundamental supposition: “has our economic aid, scattered over nearly a hundred countries, done anything appreciably to arrest the spread of Communism?” Indeed, he doubted the essential premise that “poverty and despair” created a fertile breeding ground for indigenous communist movements, or that American aid served a vital function by lifting the standard of living high enough to ward off the threat. Again, U.S. officials had confused cause and effect. “It is not true that the nations of Europe are in danger of Communism today primarily because they have run into a series of economic crises,” he asserted. “They have run into these crises, rather, mainly because they have adopted monetary inflation, dictated economies, and socialistic controls which have destroyed the price mechanism and its incentives.” Anticipating modern debates concerning the motivations driving Islamic terrorism, Hazlitt believed the appeal of communism or other statist ideologies had an ideological rather than a material basis. “Germany went Nazi with less poverty, illiteracy, hunger, or disease than any country outside the United States,” he noted, while richer industrial districts tended to nurture more communist sympathies than poorer agricultural regions. Indeed, Communism and world income had advanced together. Military assistance may have slowed communist aggression in areas like Formosa or Vietnam. But in the end, Hazlitt wondered whether American foreign aid programs from the Marshall Plan on were “framed and administered as to save socialistic [nations] from Communism or . . . to save [them] from capitalism.”⁷⁷

Hazlitt’s critical analysis remained consistent even as the global economic dilemma shifted from a dollar gap to a dollar glut, and U.S. policy makers grew increasingly concerned after 1957 about the drain of gold prompted by a worsening balance of payments deficit. It came as no surprise to Hazlitt that the burden of hegemony was beginning to weigh the U.S. economy down. The Bretton Woods system tied an anchor around the dollar, expecting it to hold its gold price firm while supporting all the other currencies that governments felt free to devalue at will (43 leading currencies depreciated between 1952 and 1962). At the same time, U.S. foreign aid programs flooded international markets with billions of dollars, inviting a trade imbalance. Likewise, the expense of those aid programs, coupled with unchecked domestic spending, exacerbated budget deficits and domestic inflation, fanned as well by loose Federal Reserve interest rate policies. These inflationary pressures acted to weaken a dollar that served as the lynchpin of the entire global monetary network.⁷⁸

“What the United States faces today is only derivatively a ‘balance of payments’ crisis,” Hazlitt observed, “it is primarily a crisis of inflation.” Setting aside “the goods and dollars that we deliberately give away in foreign aid, payments always balance,” because foreign currency received in a sales transaction is eventually used to buy back goods from its country of origin. But, he noted, “if in return for the goods they sell to us, foreigners buy gold instead of other goods, it is because they think gold is the better bargain. They will think this as long as our commodity prices, as a result of domestic inflation, are too high as compared with the price at which we sell gold.” In other words, inflated money supplies, prices, and wage levels had turned the tables on the United States, making foreign imports cheap, domestic exports expensive, and gold—steady at $35 an ounce since 1944—the best deal in town.⁷⁹

Hazlitt emphasized that policies designed to discourage imports offered no solution to the balance of payments problem. The Kennedy and Johnson administrations attempted in various ways to reduce foreign investment, duty-free purchases, and similar commercial exchanges for foreign goods or services. But, he observed, “by the exact amount that we cut down our purchases from abroad, we ultimately cut down our sales abroad, by depriving foreigners of the dollar purchasing power to buy them.” Indeed, Washington’s crackdown on foreign investment made little sense given its magnanimous commitment to foreign aid. As Hazlitt surmised, “when we give away the dollars to buy part of our exports, we give away those exports. We cannot use the proceeds from those exports to buy our needed imports.” As such, they did little to bring about a trade balance, while retarding capital development and economic growth. Exports facilitated by foreign investment, however, were “real” because foreigners paid for them, and they helped to build “American economic strength.” Anyone worried about the negative effects of foreign investment on the balance of payments, he concluded, “should doubly oppose foreign aid.”⁸⁰

The American economy in the 1960s, with its booming growth and steady price levels, posed something of a dilemma for Hazlitt, who warned constantly of the dangers of inflated money and credit supplies. Where did this inflation manifest itself, then, if not in prices? The balance of payments problem pointed to the answer. “What has happened is that most of our inflation has been exported,” he maintained. “Broadly speaking, we have paid the cost of it, and Western Europe and the rest of the world have had the advantage of it.” Inflation led to the cumulative balance of payments deficit, precipitating “a massive movement of reserves to other countries from our own,” where they increased foreign money supplies, stimulated foreign economies, and employed foreign labor. Likewise, the International Monetary Fund always stood ready to lend to countries that ran up deficits, held down interest rates, and overvalued their currencies. The result, Hazlitt surmised, was an era of world inflation, a bubble waiting to burst.⁸¹

GOLD

Hazlitt knew the Bretton Woods system was unsustainable in the long run—it collapsed in 1971 when President Nixon closed the gold window. But what did he offer as an alternative? Again, he bucked convention by following his mentor Mises and advocating a return to a true gold standard, where all currencies, not simply the dollar, were backed by gold reserves at a fixed ratio, freely convertible on demand by anyone into any other currency. Hazlitt wrote dozens of articles related to gold, particularly in the context of the balance of payments problem, but a series of four columns written in January 1954 best captures the essence of his argument. Requests poured in from across the country when Newsweek’s editors released them in booklet form, as they had with the series on inflation. And the Senate Banking and Currency Committee invited Hazlitt to testify on various gold bills then pending before Congress.⁸²

Hazlitt considered an international gold standard a bulwark against currency manipulation on the part of politicians and bureaucrats and a prophylactic against inflation. As such, he interpreted the Bretton Woods system as an outgrowth of the Keynesian animus against gold and its quasi-automatic stabilizing properties. Under a metallic standard, inflation compelled higher prices, shifted the balance of trade against the inflating nation, and precipitated an outward flow of gold. Shrinking gold stocks acted to contract supplies of money and credit, raise interest rates, arrest inflation, and bring the flow of trade back into equilibrium. According to Hazlitt, foreign bankers and currency dealers actually anticipated this sequence at the first hint of inflation, initiating an adjustment in the exchange rate and signaling central bank managers to raise discount rates to stem the drain on gold. “Unsound monetary and economic policies, or even serious proposals of unsound policies,” Hazlitt suggested, “were immediately reflected in exchange rates and in gold movement.” The inherent stability of fixed exchange ratios and free convertibility ultimately bolstered confidence and facilitated international trade and lending. The gold standard never “broke down” in times of crisis or war, Hazlitt insisted. Rather, it was willfully abandoned or undermined by the policies undertaken by public officials. The choice, then, between gold’s equilibrating mechanism and a currency “managed” by bureaucrats was a choice between free enterprise and collectivist planning. Hazlitt harbored no illusions about the complications involved in restoring an international gold standard. In the end, however, he believed gold could prompt governments to act in ways that promoted liberty and prosperity: “to respect.. . private property, economize in spending, balance their budgets, keep their promises, and above all refuse to connive in . . . the overexpansion of money and credit.”⁸³

MOVING ON

In 1961, publisher Philip Graham, president of the Washington Post Company, purchased Newsweek from the trustees of the Astor Foundation following Jacob Astor’s death. His inspiration for the move came in the form of persistent pleading from a group of Newsweek insiders, including managing editor Osborn “Oz” Elliot, Washington Bureau Chief Ken Crawford, and his assistant, Ben Bradlee. The change in ownership breathed new life into the magazine and signaled an ideological shift. Graham was friendly with Vice President Lyndon Johnson and enjoyed access to the Kennedy White House. Oz Elliot, elevated to the editor-in-chief position, likewise counted himself a Kennedy partisan who sought to challenge Time’s market dominance by expanding the range of issues the magazine addressed and appealing to a younger audience. Even after Graham’s suicide in 1963, Elliot continued to secure significant budget increases from his wife and successor, Katherine, to fund an overhaul in style and content. In addition to splashier graphics, he also inaugurated in-depth coverage of the major social and political trends of the sixties, including award-winning features on the civil rights movement that attracted prominent national attention and hundreds of thousands of new readers.⁸⁴

Years later, Hazlitt attributed his departure from Newsweek in 1966 to the animus of Katherine Graham, but here his memory betrayed him. Graham generally deferred to Elliot on most editorial matters. Though the magazine’s new management treated Hazlitt well, renewing his contract several times from 1961 on and providing him with a generous pension, plans were already underway to phase him out. Elliot concerned himself with balancing the personalities and politics of his regular columnists, bringing on Walter Lippmann and Emmet Hughes, for example, to balance Raymond Moley’s “predictably conservative” views. In that vein, he “thought it equally desirable to counter the antediluvian economics of Henry Hazlitt with something closer to current day reality.” In 1965, “Business Tides” began running on a biweekly schedule, alternating with a new column by Henry Wallich, Yale professor and former economist at the Federal Reserve Bank of New York. Wallich described himself as a “conservative,” but noted in the same breath that “the new conservative in economics today must accept most of the changes of the past 25 years and go on from there to improve them.”⁸⁵

Elliot’s quest for diversity and new blood also led him to sign up two of the nation’s leading economists, Harvard Keynesian Paul Samuelson and Chicago monetarist Milton Friedman, completing the triumvirate that would replace Hazlitt. “We need three people to fill the spot formerly occupied by one,” Oz graciously informed him, although he was quite satisfied to usher the “dull right-winger” from Newsweek’s new, glossier pages. For his part, Friedman realized that his outlook and Hazlitt’s were “essentially the same,” so much so that he thought it proper to seek out his blessing before accepting the assignment—Hazlitt, of course, enthusiastically urged him to take it. Perhaps Elliot had imbibed enough of the Kennedy mystique to consider youth and Ivy League credentials sufficiently exciting. At any rate, Hazlitt was 72 years old in 1966, and ready to move on. Soon after his last column appeared on September 12, he received a fan letter testifying to his longevity and influence:

Some 35 years ago as a freshman or sophomore in an economics course at the University of Chicago I was assigned an article by you. I can’t remember its title, but I do remember its general subject matter: that the deductive method was indispensible in the field of science, including the social sciences. I was much struck by the example you gave of the discovery of the new planet (Neptune?) by Leverrier and Adams purely by deductions from Newton’s equations and the aberrations in the observed orbit of known planets. A writer never knows what his impacts have been. I can say that one of the reasons I decided to go into economics was reading your article.

The letter writer’s name? Paul Samuelson.⁸⁶

BACK TO THE FUTURE

The preceding pages have couched Henry Hazlitt’s significance predominantly in historical terms, but it is fitting to conclude by noting his continuing contemporary relevance. During his tenure at Newsweek, an era of growth and prosperity when federal budget deficits typically amounted to around 1 percent of GNP and citizens registered more confidence in the power of government to improve their lives, liberals could more easily dismiss Hazlitt as a crank. After surveying the economic landscape from the 1970s to the present day, however, he appears a lot less cranky, and a good deal more prophetic.

Even readers who do not necessarily share the depth of his profound libertarian suspicion of the state can appreciate the broader cautionary message Hazlitt delivered through the medium of economic analysis. The post-World War II mandate for government-managed prosperity, he warned, created an institutional bias toward inflationary policies that public officials, regardless of political orientation, would find difficult to resist or ultimately contain. In the long run, the hubris of technocrats offered no substitute for the decentralized genius of the market. Moreover, he observed, Liberalism could articulate no implicit limit on the scope of its socio-economic agenda, and so possessed no inherent brake on its recourse to state power. The private resources required to nourish the resulting public sector promised to be, in William Voegeli’s phrase, “never enough,” such that the welfare state threatened to sap the very social and economic capital that sustained it.⁸⁷

Hazlitt found no contradiction in a vision of progress achieved through free markets, individual initiative, and a smaller role for government. As he clarified in his final Newsweek column, his criticism of liberal economic and social policy did not arise out of callousness or disinterest in reducing poverty or increasing wages. “I do not differ from my ‘liberal’ correspondents in their goals, but simply in their proposed methods of achieving them,” he explained. “In trying to bring about some wished-for result directly and immediately, they too often fail to see that the ultimate results of the policies they propose will be exactly the opposite of what they desire.” Modern readers acquainted with economic stimulus plans, “quantitative easing,” automotive and bank bailouts, health care reform, “cash for clunkers,” housing and higher education bubbles, “green” jobs subsidies, underfunded state pension programs, public sector union contracts, climate change legislation, the crisis of the Euro, escalating debt ceilings, denunciations of “tax cuts for the rich,” and “living constitutions” can certainly relate to such sentiments. The academic Walter Russell Mead suggested recently that if America is to prosper in the twenty-first century, “power is going to have to shift from bureaucrats to entrepreneurs, from the state to society, and from qualified experts and licensed professionals to the population at large.” The toolkit of twentieth century progressivism has little to offer in bringing about such a transition, but the “Business Tides” columns of Henry Hazlitt surely do.⁸⁸

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¹C.W. Anderson to John Denson, 10 May 1954, Folder “Correspondence re: 1954 Heart Attack,” Henry Hazlitt Papers, Foundation for Economic Education Archives.

²“For Your Information,” Newsweek (12 July 1954), p. 1; Henry Hazlitt, Economics in One Lesson (New York: Three Rivers Press, 1988).

³George Nash, The Conservative Intellectual Movement in America (Wilmington, Del.: ISI, 1998), Lisa McGerr, Suburban Warriors: The Origins of the New American Right (Princeton, N.J.: Princeton University Press, 2001); Donald Critchlow, Phyllis Schlafly and Grassroots Conservatism (Princeton, N.J.: Princeton University Press, 2005); Gregory T. Eow, “Fighting a New Deal: Intellectual Origins of the Reagan Revolution, 1932–1952,” Ph.D. Dissertation, Rice University, 2007; Kim Phillips Fein, Invisible Hands: The Making of the Conservative Movement from the New Deal to Reagan (New York: W.W. Norton, 2009); Juliet Williams, “The Road Less Traveled: Reconsidering the Political Writings of Friedrich von Hayek,” in Nelson Lichtenstein, ed., American Capitalism: Social Thought and Political Economy in the Twentieth Century (Philadelphia: University of Pennsylvania Press, 2006), pp. 213–27.

⁴John Tebbel and Mary Ellen Zuckerman, The Magazine in America, 1741—1990 (New York: Oxford University Press, 1991), pp. 158–74; James Landers, “Newsweek,” in Stephen L. Vaughn, ed., Encyclopedia of American Journalism. (New York: Routledge, 2008), pp. 362–63.

⁵Tebbel and Mary Zuckerman, The Magazine in America, 1741–1990, pp. 306–07; Henry Hazlitt, “My Life and Conclusions,” p. 56, Folder “Autobiography Drafts,” Box BOI, Subject Files, Henry Hazlitt Papers; David E. Sumner, “A History of Time, Newsweek, and U.S. News & World Report? Encyclopedia of International Media and Communications (New York: Academic Press, 2003), accessed at http://www.bsu. edu/web/dsumner/Professional/newsmagazinehistory.htm.

⁶“Osborn Elliot, Father of Newsweek’s Rebirth, Dies at 83,” New York Times (29 September 2008); Osborn Elliot, The World of Oz (New York: The Viking Press, 1980), p. 67; Fein, Invisible Hands, pp. 101, 114.

⁷James L. Wick to Hazlitt, 8 October 1954, Folder “Correspondence re: 1954 heart attack,” Henry Hazlitt Papers, Foundation for Economic Education Archives.

⁸Milton Friedman, Bright Promises, Dismal Performance: An Economist’s Protest (New York: Harcourt, Brace, Jovanovich, 1982), p. ix.

⁹The family name is an obvious take off on “Fair Deal,” the label bestowed on Harry S. Truman’s domestic agenda.

¹⁰On post-war inflation, see Meg Jacobs, Pocketbook Politics: Economic Citizenship in Twentieth-Century America (Princeton, N.J.: Princeton University Press, 2005), pp. 221–61.

¹¹For more on inflation, see Business Tides (BT) 9/22/47, 12/8/47, 3/1/48/, 10/18/48, 8/1/49, 9/25/50, 5/28/56, and 5/2/60.

¹²On the pegging policy, see BT 12/22/47, 8/30/48, 9/27/48, 10/4/48, 10/18/48, 9/4/50, 1/15/51, 2/5/51, 2/19/51, 3/12/51, 5/14/51, and 5/23/53. For the relationship between deficit spending and inflation, see BT 8/4/47, 5/9/49, and 7/25/49.

¹³BT 8/4/47. See also Hazlitt, What You Should Know About Inflation, 2nd ed. (Auburn, Ala.: Ludwig von Mises Institute, 2007), pp. 1–3, 10–11, 76–78, 130–32. This volume also contains materials originally published in “Business Tides.”

¹⁴BT 10/1/51 (quote).

¹⁵BT 12/29/47, 6/16/47, 3/29/48, 8/14/50, 9/25/50, 2/12/51, 5/14/51, and 8/6/51.

¹⁶See Robert Skidelsky’s three volume biography, John Maynard Keynes (New York: The Penguin Press, 1994); David C. Colander and Harry Landreth, eds., The Coming of Keynesianism to America (Cheltenham, U.K.: Edward Elgar, 1996); O.F. Hamouda and B.B. Price, eds., Keynesianism and the Keynesian Revolution in America (Cheltenham, U.K.: Edward Elgar, 1998); Donald K. Pickens, Leon Keyserling: A Progressive Economist (Lanham, Maryland: Lexington Books, 2009); Alan Brinkley, The End of Reform: New Deal Liberalism in Recession and War (New York: Alfred A. Knopf, 1995).

¹⁷Henry Hazlitt, “On Analyzing Keynes,” National Review VII (7 November 1959), pp. 453–56. On the “compensated economy, see BT 8/4/47 (quote), 1/31/49, 5/9/49, and 3/14/55.

¹⁸BT 5/7/51 (quote). On Say’s Law, see Henry Hazlitt, The Failure of the New Economics (Auburn, Ala.: Ludwig von Mises Institute, 2007), pp. 32–42 and Steven Kates, Say’s Law and the Keynesian Revolution: How Macroeconomic Theory Lost Its Way (Cheltenham, U.K.: Edward Elgar 1998), pp. 207–08.

¹⁹See Hazlitt, Economics in One Lesson, pp. 164—76.

²⁰On “military Keynesianism,” see BT 4/20/53, 11/9/53, 10/3/55 (quote), and 1/12/53. On the 1946 Employment Act, see Jacobs, Pocketbook Politics, p. 233. Hazlitt denied that deficit spending had any “multiplier effect” on employment or economic growth, citing the deficits run during the 1930s and the rate of unemployment during that time. As a percentage of GNP, he argued, the deficits of the 1930s were larger than those of the post-war period, and the deficit-spending of World War II represented too extreme an example to serve as a model to follow. See Hazlitt, The Failure of the New Economics, pp. 135–55, 421–26.

²¹BT 8/1/49 (quote) and 6/28/48 (quote); Robert M. Collins, The Business Response to Keynes, 1929–1964 (New York: Columbia University Press, 1981).

²²Quote: BT 7/5/54; see also “The Economy: We Are All Keynesians Now,” Time (31 December 1965). On the administration’s Keynesian outlook, see BT 7/19/54 and 9/19/55. For a critique of Arthur Burns (whom Hazlitt generally admired), see BT 11/8/54. Generally speaking, Eisenhower prioritized deficit reduction and currency reduction (especially after 1959). See John Sloan, Eisenhower and the Management of Prosperity (Lawrence: University Press of Kansas, 1991), pp. 69–151. Hazlitt saw the problem of interest rates as an outgrowth of flawed Keynesian concepts like the “propensity to consume,” “liquidity preference,” and an inconsistent definition of the relationship between savings and investment, all of which led Keynes to a problematic understanding of interest rates and how they operated. The upshot was a Keynesian disparagement of savings. See Hazlitt, Economics in One Lesson, pp. 177—90 and The Failure of’theNew Economics, pp. 49–54, 78–131, 186–212. On interest rate-fixing as a kind of price-fixing, see BT 12/20/65.

²³BT 6/29/53 (quote), 7/13/53.

²⁴On GNP and national income, see BT 4/21/58, 8/25/58, 1/5/59, 1/12/59, 9/26/60, 3/18/63, 6/8/64, 7/19/65, 9/27/65 and The Failure of the New Economics, pp. 409–20. Although Hazlitt spoke of a shift in Keynesian emphasis from “full employment” to “growth,” Robert Collins argues that the latter impulse was there from the beginning, particularly as advocated by Leon Keyserling. See More: The Politics of Economic Growth in America (New York: Oxford, 2000), pp. 40–67. On the differences between the Austrian and Chicago School, see Mark Skousen, Vienna & Chicago, Friends or Foes?: A Tale of Two Schools of Free Market Economics (Washington, D.C: Capital Press/Regnery, 2005). On the Soviet economy, see BT 8/25/58, 2/16/59, 3/2/59, 3/9/59, and 7/20/59. On command economies and the price system, see Ludwig von Mises, Socialism: An Economic and Sociological Analysis (Indianapolis, Ind.: Liberty Classics, 1981).

²⁵BT 8/4/47, 1/31/49, 12/19/49, 2/20/61, 4/17/61, 5/8/61, 2/5/62, 7/20/64, and 1/17/66. On the full employment budget in particular and balanced budgets in general, see James D. Savage, Balanced Budgets and American Politics (Ithaca, N.Y.: Cornell University Press, 1988), pp. 175–79.

²⁶BT 1/24/49 (quote), 1/27/58, and 2/10/64.

²⁷BT 8/4/47, 1/31/49, 12/19/49, 2/10/61, 4/17/61, 5/8/61, 2/5/62, and 1/17/66. By 1966, Hazlitt recognized the “embarrassing dilemma” President Johnson faced after forging ahead simultaneously with the Great Society and the escalating war in Vietnam: “With the economy already overheating, with labor shortages in many lines, with consumers’ prices every month going to a new high record, how big a deficit can be tolerated in the next fiscal year, without letting loose a serious inflation?”

²⁸John L. Kelley, Bringing the Market Back In: The Political Revitalization of Market Liberalism (New York: New York University Press, 1997), pp. 44–51; Hazlitt, Economics in One Lesson, pp. 31–36, 90–97, 98–102, 110–16; On housing, see BT 11/7/49, 7/24/50, 7/31/50, 8/10/53, 8/22/55, and 1/2/56; on the welfare state generally, see BT 8/9/48, 5/29/50, 11/19/51, 2/18/57, 5/23/60, 6/13/60, 7/18/60, 7/18/60, 8/1/60, 8/8/60, 2/29/60, 1/22/62, 8/6/62, 2/4/63 (quote), 6/24/63, 4/6/64, 7/6/64, 8/24/64, 9/14/64, 1/18/65, 4/26/65, 11/22/65, and 2/28/66.

²⁹BT 10/12/64 (quote), 4/25/49 (quote), 9/22/52, and 4/26/65 (quote). On agricultural subsidies generally, see BT 4/25/49, 5/21/51, 9/22/52, 2/8/54, 2/22/54, 1/10/55, 8/22/55, 10/24/55, 10/31/55, 11/14/55, 12/19/55, 1/30/56, 3/26/56, 4/23/56, 4/30/56, 6/18/56, 2/18/57, 4/8/57, 6/22/59, 11/30/59, 8/15/60, 7/9/62, 7/23/62, 6/10/63, and 10/14/63.

³⁰Worlds collided in an amusing way in a June 24, 1963 column, where Hazlitt described neo-conservative cynosure Irving Kristol as one of many liberals “showing signs of disillusion with the welfare state that they once so ardently espoused.”

³¹On Social Security and Medicare, see BT 10/17/49, 2/29/60, 5/23/60, and 8/6/62 (quote); on unemployment insurance, see BT 4/24/50, 3/10/58, and 3/31/58 (quote); on the minimum wage, see 3/20/61 (quote), and note 47 below.

³²Henry Hazlitt, Man vs. the Welfare State (New Rochelle, N.Y.: Arlington House, 1969) and The Conquest of Poverty (New Rochelle, N.Y.: Arlington House, 1973); BT 1/27/64 (quote), 4/6/64 (quote), 8/24/64 (quote), 10/12/64, and 1/18/65. On the unintended consequences of Great Society Programs, see Allen J. Matusow, The Unraveling of America: A History of Liberalism in the 1960s (New York: Harper and Row, 1984), pp. 97–127, 217–71.

³³RichardParker, John Kenneth Galbraith: His Life, His Politics, His Economics (Chicago: University of Chicago Press, 2006); Kevin Mattson, “John Kenneth Galbraith: Liberalism and the Politics of Cultural Critique,” in American Capitalism: Social Thought and Political Economy in the Twentieth Century(Philadelphia: University of Pennsylvania Press, 2006), pp. 88–108.

³⁴BT 7/18/60, 6/27/60 (quote), 11/14/60 (quote), 1/22/62, and 9/24/62.

³⁵Hazlitt, Economics in One Lesson, pp. 108—09.

³⁶On Keynesianism and controls generally, see BT 6/28/48,7/25/49, 11/27/50, and 5/7/51.

³⁷BT 12/1/47 (quote), 12/8/47 and 10/21/46 (quote). On price controls generally, see BT 9/30/46, 10/7/46, 10/14/46, 10/21/46, 10/28/46, 11/18/46, 7/28/47, 9/15/47, 12/1/47, 2/16/48, 4/5/48, 5/2/48, 8/2/48, 7/10/50, 8/14/50, 9/18/50, 1/8/51, 4/9/51, 4/23/51, 5/14/51, 8/13/51,12/22/52, 4/6/53, 6/7/53, and 11/11/57.

³⁸BT 10/21/46, 11/4/46, and 9/24/51.

³⁹BT 12/25/50, 11/4/46, 10/21/46, 11/18/46, 4/5/48, 8/9/48 (quote), and 9/17/51. On price controls and World War II, see Gene Smiley, Rethinking the Great Depression (Chicago: Ivan R. Dee, 2002), pp. 142–47.

⁴⁰On rent control, see BT 12/2/46, 1/27/47, 12/29/47, 2/2/48, 3/14/49, 4/3/50, 5/15/50, 7/24/50, 5/28/51, and a chapter added in later editions of Economics in One Lesson, pp. 127–33. On “guideposts,” see BT 10/31//61, 5/14/62, 5/28/62, 4/29/63, 5/6/63, 12/6/65, 6/6/66, 8/1/66. On exchange controls, see BT 8/20/56, 10/22/56, 3/13/61, 8/5/63, 8/12/63, 10/28/63, 2/17/64, and 5/4/64. On parity, see BT 7/23/62 (quote), 5/21/51, 4/23/56, 1/30/56, and 6/22/59.

⁴¹BT 11/15/54, 8/29/55 (quote), 2/13/56 (quote), 3/5/56 and 2/4/57.

⁴²Eric Rauchway, The Great Depression and the New Deal: A Very Short Introduction (New York: Oxford University Press, 2008), pp. 84–96; Anthony J. Badger, The New Deal: The Depression Years, 1933–1940 (New York: Hill and Wang, 1989), pp. 118–46, 245–98; David M. Kennedy, Freedom From Fear: The American People in Depression and War, 1929–1945 (New York: Oxford University Press, 1999), pp. 288–322; Melvin Dubofsky, The State and Labor in Modern America (Chapel Hill: University of North Carolina Press, 1994), pp. 1–167.

⁴³BT 8/22/49 (quote). On high labor costs and unemployment during recessions, see BT 8/1/49 and 4/24/50. In the latter column, Hazlitt noted the similarity between price fixing in the agricultural and labor markets, where taxpayers end up subsidizing unsold surplus in silos and via unemployment benefits.

⁴⁴On inflation, see BT 5/21/56, 6/11/56, 3/21/57, 11/4/57, 7/15/57, 1/20/58, 3/6/61, and 12/17/62. Hazlitt’s analysis here overlaps with that of German economist (and Keynesian critic) L. Albert Hahn. See The Economics of Illusion (New York: Squier Publishing, 1949), pp. 49–62, 119–45, 166–84, and Common Sense Economics (London: Abelard-Schuman Limited, 1956). Hazlitt lauded both books, and wrote the introduction to the former; see BT 3/4/57. Hazlitt believed Keynes confused wage rates with wage income. Reducing wage rates could actually increase aggregate income if rate reductions led to an increase in the number of workers employed (See The Failure of the New Economics, pp. 267–69). For Hazlitt, downward wage revisions remained the primary means to correct economic downturns. He believed Keynes erred in thinking equilibrium was possible with unemployment. Rather than equilibrium, the situation Keynes was actually describing was “merely frozen, such as prolonged mass unemployment because of a prolonged maladjustment between prices of different commodities, or between individual wage rates, or most often between prices and wage rates” (Failure, p. 54). Keynes’s focus on aggregates such as “the wage level” or “price level” led him to overlook constant shifts in relative prices and wages: “Keynes remained blind to the most glaring fact in real economic life—that prices and wage never (except perhaps in a totalitarian state) change uniformly or as a unit, but always ‘relatively’” (Failure, pp. 20–31, quote, 27).

⁴⁵BT 9/12/55 (quote); On full employment, see BT 1/6/47, 9/1/47, 11/27/50, and 5/7/51; Economics in One Lesson, pp. 71–73; The Failure of the New Economics, 399–408; on purchasing power, see BT 1/27/47, 9/1/47, 8/15/49, 9/1/47, and 12/28/48. On productivity, profits, and wages, see BT 2/11/52, 3/22/54, and 7/16/56.

⁴⁶For a representative sample of columns covering minimum wage issues, see BT 2/7/49, 1/17/55, 6/17/55, 8/8/55, 8/22/55, 7/23/56, 12/3/56, 3/20/61, 4/24/61, 2/3/64, 4/6/64, 7/6/64, and 4/11/66.

⁴⁷Dubofsky, The State and Labor in Modern America, pp. 197–208. Hazlitt reviews the provisions of Taft-Hartley in BT 6/30/47. Oddly, he makes no mention in this column of Section 14(b), the right-to-work provision. By enabling Sunbelt states to outlaw exclusive union shops, it prevented the union movement from gaining a foothold there, a critical factor in the region’s—and the nation’s—postwar economic development. Hazlitt does mention 14(b) much later on (BT 6/7/65), but again seems to elide its significance.

⁴⁸On Taft-Hartley, see BT 4/12/48, 12/27/48, 5/2/49, 5/16/49, 10/26/49, 12/21/53 (quote), 2/27/56 (on monopoly), and 12/30/57. See also BT 11/25/46. Hazlitt resented Eisenhower’s “pox on both their houses” approach to labor disputes: “It is inconsistent for the government to ask unions to refrain from higher wage demands while it retains a network of federal statutes which make[s] it almost impossible for employers to refuse to yield to higher wage demands.” See BT 3/21/57.

⁴⁹Nelson Lichtenstein, State of the Union: A Century of American Labor (Princeton, N.J.: Princeton University Press, 2002), p. 136.

⁵⁰On arbitration boards, see BT 12/9/46, 5/17/48, 8/29/49, 2/11/52, 4/7/52 (quote), 6/2/52, 8/11/52, and 8/18/53. For the Kennedy administration and steel, see BT 4/30/62 and 5/21/62.

⁵¹On seizure power, see BT 3/20/50 (quote), 5/12/52, 5/19/52, 6/16/52, and 7/31/61.

⁵²BT 4/9/62 (quote).

⁵³Lichtenstein, pp. 124, 162. On recession, wages, and unemployment, see BT 4/7/58. On the Steel Strike, see BT 7/27/59, 8/3/59, 8/17/59, 8/24/59, 8/31/59, 9/7/59, 10/26/59, 11/2/59, 11/9/59, 11/23/59, 12/28/59, 1/4/60, 1/18/60, and 1/25/60.

⁵⁴Lichtenstein, pp. 162–66.

⁵⁵On union violence and Norris-LaGuardia, see BT 12/13/54, 5/16/55 (quote), 2/23/59, 5/4/59, 5/18/59, 7/27/59, 9/7/59 (quote), and 8/29/66.

⁵⁶Hazlitt cites or mentions Petro in BT 6/2/58, 10/6/58, 2/23/59, 5/4/59, 10/12/59, 4/4/60, 7/10/61, 4/8/63, 9/21/64, and 6/7/65. See also The Labor Policy of the Free Society (New York: Ronald Press, 1957); Power Unlimited: The Corruption of Union Leadership (New York: Ronald Press, 1959); The Kohler Strike: Union Violence and Administrative Law (Belmont, Mass.: American Opinion, 1961), and BT 11/2/59 (free collective bargaining). Hazlitt worried that ham-handed government efforts to address the violence government policies fostered only curtailed freedom further. These included the Taft-Hartley Act’s overly broad emergency injunction provision, which ordered all strikers back to their jobs during an 80-day cooling off period. Traditional court injunctions exerted more limited authority, requiring strikers to desist from violence and other unlawful interference with the rights of others. Not only did the cooling off period victimize strikers, however, it did little to help employers. When Eisenhower invoked it during the 1959 steel strike, Hazlitt believed it ratcheted up the pressure on the steelmakers to settle. Of course, when the 80 days expired, strikers were free to resume mass picketing and other forms of intimidation. See BT 10/26/59. Hazlitt described his proposal for labor peace as “a simple provision, enforceable in the courts, that an employer substantially engaged in interstate commerce could not discriminate in hiring or firing either against union members or against non-union members.” He also defended industry wide unions and their right to freedom of association against suggestions on the part of some conservatives that they be outlawed. See BT 1/9/59.

⁵⁷Quote: BT 11/23/59. On featherbedding, see Economics in One Lesson, pp. 49–60 and BT 3/5/62, and 6/11/62.

⁵⁸For a critique of the “propensity to consume,” see BT 5/21/56 and 6/11/56, and The Failure of the New Economics, pp. 98–134.

⁵⁹W. Elliot Brownlee, “Tax Regimes, National Crisis, and State-Building,” in W. Elliot Brownlee, ed. Funding the Modern American State, 1941–1995: The Rise and Fall of the Era of Easy Finance (Cambridge: Cambridge University Press, 1996), pp. 92–93; Julian E. Zelizer, Taxing America: Wilbur D. Mills, Congress, and the State, 1945–1975 (Cambridge: Cambridge University Press, 1998), pp. 82–90.

⁶⁰Hazlitt did not spell out how deductions, exemptions, and loopholes may have shielded wealthy and corporate taxpayers. See Zelizer, Taxing America, pp. 88–96.

⁶¹On profits and employment, see BT 10/27/47, 12/27/48, 8/6/51, 7/23/56, 6/24/57, 1/20/58, 12/11/61, 4/30/62, 5/7/62, 6/18/62, 7/29/63, 2/3/64, and 5/23/66. On incentives and supply side leanings, see BT 4/7/47, 3/22/48, 9/14/53, 4/5/53, 4/26/54, 3/14/55, 3/25/57, 6/24/57, 8/7/61, 8/14/61, 12/18/61, 6/25/62, 9/3/62, 11/26/62, 12/3/62, 1/14/63, 5/27/63, and 7/1/63. For a primer on supply-side economics, see Brian Domitrovic, Econoclasts: The Rebels who Sparked the Supply Side Revolution and Restored American Prosperity (Wilmington, Del.: ISI Books, 2009).

⁶²BT 3/23/59 (quote). On deficits and taxes, see BT 3/4/54, 3/29/54, 10/10/55, 6/17/57, 2/24/58, 7/2/62, 3/4/63, and 3/15/65.

⁶³On the JFK/LBJ tax cut, see Zelizer, Taxing America, pp. 179–211. For Hazlitt’s criticism, see BT 2/18/63, 4/15/63, 6/3/63, 9/2/63, 12/30/63, 1/20/64, 2/24/64, 3/9/64, 3/16/64, 4/25/66, and 6/20/66. For supply-side revisionism, see Domitrovic, Econoclasts, pp. 70–75. Despite their differences in interpretation, Domitrovic considers Hazlitt to be “the greatest economic commentator of the century” (p. 54).

⁶⁴Hazlitt, “My Life and Conclusions,” pp. 56–57.

⁶⁵Hazlitt to Osborn Elliot, 2 November 1963, Folder “Newsweek Contractual Agreements,” Box B04, Subject Files, Henry Hazlitt Archives; “For Your Information,” p. 1.

⁶⁶On Bretton Woods, see Alfred Eckes, Jr., A Search for Solvency: Bretton Woods and the International Monetary System, 1941–1971 (Austin: University of Texas Press, 1975) and Robert Solomon, The International Monetary System, 1945–1981 (New York: Harper and Row, 1982). On the Marshall Plan, see Michael Hogan, The Marshall Plan: America, Britain, and Reconstruction of Europe (Cambridge: Cambridge University Press, 1987), Herman Van der Wee, Prosperity and Upheaval: The World Economy 1945–1980 (London: Viking, 1986), and Melvyn Leffler, A Preponderance of Power: National Security, The Truman Administration and the Cold War (Stanford, Calif.: Stanford University Press, 1992).

⁶⁷BT 11/3/47 (quote). For a broader analysis of “conservative internationalism, see Julian Zelizer, The Arsenal of Democracy: The Politics of National Security from World War II to the War on Terrorism (New York: Basic Books, 2010).

⁶⁸BT 8/36/57 (quote), and 9/2/57.

⁶⁹BT 8/18/47 (quote), 9/22/47, 5/10/48, 8/16/48, 10/6/47, 11/3/47 (quote), 8/16/48, 10/25/48, 12/6/48, 12/13/48, and 12/20/48. Hazlitt released a book on the Marshall Plan derived from his “Business Tides” columns on the subject entitled, Will Dollars Save the World? (New York: D. Appleton Century Company, 1947).

⁷⁰On trade, see BT 6/26/50, 12/7/53, 4/12/54, and 3/28/49 (Mississippi). Of course, Hazlitt often condemned U.S. tariffs and trade quotas, particularly for agricultural products, as unfair and inefficient themselves. See BT 1/31/55, 10/24/55, 3/21/60, 7/25/60, 12/25/61, 1/29/62, 4/16/62, 6/4/62, 7/23/62, 3/19/62, and 10/28/63.

⁷¹BT 2/9/48, 2/13/50 (quote), 10/23/50, 8/36/57 (quote), 10/3/49, 11/21/49 (quote). On German policy, see BT 2/23/48. Hazlitt admired Röpke and cited him often. See BT 11/3/47, 5/10/48, 12/20/48, 9/5/49, 11/27/50, 4/10/50, 9/20/56, 10/1/56, 11/17/58, 8/15/60, 11/12/62, 9/30/63, and 4/27/64. On the economic crisis of post-war Germany, see also John Zmirak, Wilhelm Röpke: Swiss Localist, Global Economist (Wilmington, Del.: ISI Books, 2001), pp.133–62 and Röpke, Economics of the Free Society (Chicago: Regnery, 1963).

⁷²BT 7/12/48, 4/4/49, 5/30/49, 6/13/49, 5/12/50, 8/21/50, and 4/9/56; “For Your Information,” p. 1.

⁷³BT 6/15/53 (“Why Foreign Arms Aid”), 4/3/61, 11/25/63 (Morse), and 4/26/65 (Passman); Hazlitt gives a brief history of foreign aid programs in BT 11/16/59. On foreign aid politics in Congress, see Robert David Johnson, Congress and the Cold War (New York: Cambridge University Press, 2006), pp. 69–104, 110–11, 126–28, 135–36.

⁷⁴BT 4/17/50, 12/4/50, and 5/9/55 (quote). Even if the Point Four program were necessary, Hazlitt noted, its functions seemed to overlap with the International Bank for Reconstruction and Development and the Export-Import Bank. See also Henry Hazlitt, Illusions of Point Four (Irving-on-Hudson, N.Y.: Foundation for Economic Education, 1950).

⁷⁵BT 3/5/51, 7/30/51, and 7/7/52; Hernando de Soto, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else (New York: Basic Books, 2003). Hazlitt also suggested that foreign aid should not subsidize government-owned industrial and commercial enterprises, like Indian steel mills, that stood to compete with existing U.S. firms. See BT 7/8/63.

⁷⁶BT 11/25/63 and 5/9/55. For contemporary critiques of foreign aid, see Dambisa Moyo, Dead Aid: Why Aid Is Not Working and How There is a Better Way for Africa (New York: Farrar, Straus, and Giroux, 2010) and William Easterly, The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good (New York: Penguin, 2007).

⁷⁷BT 12/15/47 (quote), 1/5/48 (quote), 5/9/55, 11/25/63, and 5/29/61.

⁷⁸BT 12/22/58, 10/31/60, 4/10/61, and 11/11/63.

⁷⁹BT 1/30/61 (quote) and 6/5/61.

⁸⁰BT 4/10/61 (quote), 10/16/61, 12/16/63 (quote), 1/13/64, and 2/17/64 (quote). The Federal Reserve also helped determine the flow of investment funds. “When the government holds down long-term rates, it drives more American investment abroad and discourages foreign investment here. If the Federal Reserve stopped inflating, and allowed domestic interest rates to be determined by market forces, there would automatically be less American investment abroad and more foreign investment here.” See BT 9/23/63.

⁸¹BT 9/9/63 and 10/25/65.

⁸²“For Your Information,” p. 1. The columns in question included BT 1/4/54, 1/11/54, 1/18/54, and 1/25/54. Other relevant selections include BT 11/21/49, 11/28/49, 4/30/51, 7/6/53, 3/1/54, 3/15/54, 7/2/56, 7/1/57, 7/29/57, 8/26/57, 12/22/58, 12/21/59, 1/31/60, 11/21/60, 1/16/61, 3/27/61, 5/22/61, 6/5/61, 6/19/61, 7/3/61, 9/18/61, 10/2/61, 10/22/62, and 2/1/65.

⁸³On Keynes and gold, see BT 11/11/63.

⁸⁴David Halberstam, The Powers That Be (New York: Alfred A Knopf, 1979), pp. 363–76; John Tebbel and Mary Ellen Zuckerman, The Magazine in America, 1741–1990 (New York: Oxford University Press, 1991), p. 306; Michael T. Kaufman, “Osborn Elliot, Father of Newsweek’s Rebirth, Dies at 83,” New York Times (29 September 2008); “Osborne Elliot, 1924–2008: Remembering the Legendary Editor of Newsweek,” accessed at www.newsweek.com/2008/09/27osborn-elliot-1924–2008.print.html; Katherine Graham, Personal History (New York: Alfred A Knopf, 1997), pp. 276–83, 344–49.

⁸⁵Osborn Elliot, The World of Oz, p. 66; Robin Gerber, Katherine Graham: The Leadership Journey of an American Icon (New York: Portfolio, 2005), pp. 114–15; “Alternating Experts,” Newsweek, 11 December 1964, p. 1, Folder “Newsweek Contractual Agreements,” Box B04, Subject Files, Henry Hazlitt Papers. See also Hazlitt to Gibson McCabe, 22 March 1961, McCabe to Hazlitt, 1 April 1961, Frederick Beebe to Hazlitt, 22 October 1964, Hazlitt to Beebe, 15 April 1965, Folder “Newsweek Contractual Agreements,” Box B04, Subject Files, Henry Hazlitt Papers.

⁸⁶ Hazlitt, “My Life and Conclusions,” pp. 57–58; Elliot, The World of Oz, p. 67; Osborn Elliot to Hazlitt, 14 July 1966, Folder “Newsweek Contractual Agreements,” Box B04, Subject Files, Henry Hazlitt Papers; Milton and Rose D. Friedman, Two Lucky People (Chicago: University of Chicago Press, 1998), p. 357; Paul Samuelson to Hazlitt, 15 September 1966, Folder “Paul Samuelson, 1966,” Box B05 Pi-Se, Correspondence Files, Henry Hazlitt Papers. The article Samuelson referenced was most likely “Economics: The Lively Science,” The Nation (6 May 1931).

⁸⁷William Voegeli, Never Enough: America’s Limitless Welfare State (New York: Encounter Books, 2010). Many conservative economists, such as Chicago School monetarists, do not share the Misesian aversion to inflation that Hazlitt articulated. Accordingly, questions concerning the proper tolerence level for credit expansion in normal times or periods of economic distress continue to prompt lively discussions on the Right.

⁸⁸BT 9/12/66; Walter Russell Mead, “The Crisis of the American Intellectual,” accessed at blogs.the-american-interest.com/wrm/2010/12/08/the-crisis-of-the-american-intellectual/.