The Fallacy of Point Four

July 7, 1952

Two items in The New York Times, published nearly a month apart, combine to throw a brilliant light on our foreign handout program.

June 16: “The United States will have given away or lent an estimated $40,000,000,000 or more in postwar foreign aid by the end of this month. . . . More than 90 nations and colonies have received military equipment, economic aid . . . and a thousand other items. . . . Even Communist Russia, Czechoslovakia, and Poland were cut in for $1,000,000,000 before the ‘cold war’ developed . . . The end is not yet in sight.”

May 19: “Western leaders . . . are worried about the lack of any clear signs of improvement in production . . . and in the necessaries of life in the non-Communist underdeveloped areas. . . . The only characteristic [of the West] that the Asians have shown they really want to copy is its technical knowledge and its application of mechanical power to the production of goods and services. . . . These leaders also believe that . . . the West . . . must devote very much more of its . . . wealth . . . to the instigation of economic progress in the vast poverty-stricken regions of the non-Communist world.”

The American advocate of Point Four aid shares this in common with the Asiatic politician who receives it—that neither understands what makes capitalism so enormously productive. It is not “technical knowledge” or the “application of mechanical power.” These are among the results of capitalism, not its causes. It is capitalism that produce[s] the machines that produce consumers’ goods. The cure for the poverty of Asia, in brief, is not handouts from the capitalistic United States; it is the adoption of the philosophy of capitalism by Asia.

Capitalism is a set of economic and political principles and institutions. It consists of the marriage of liberty and security. It means freedom to produce and consume, freedom to buy and sell. It means free prices and free markets. With these freedoms it combines the institution of private property; under which a man is entitled to keep the fruits of his labor. It is these freedoms and protections that give so tremendous an incentive to production.

The underdeveloped areas have not yet learned these principles. That is the chief reason why they have remained underdeveloped. The vice of Point Four is that it continues to protect the underdeveloped areas from this knowledge. If they had to go to foreign private investors to borrow the capital they need, these investors would not lend until they were assured of certain minimum reforms (1) guarantees to private property against nationalization, confiscation, or excessive taxes; (2) freedom to withdraw earnings or principal (which would mean the dismantling of exchange control); (3) freedom from vexatious controls generally, such as price fixing, wage fixing, and arbitrary profit limitation. Under such conditions, foreign capital would flow into such areas and speed their development as British capital once speeded the development of the United States.

The reforms that would give most incentive to the investment of foreign capital are happily the same reforms that would give most incentive to the investment of domestic capital. But as long as India or Brazil, for example, can get handouts from the American government without making the economic reforms or giving the economic assurances that private capital would require, then the politicians of these countries need not bother to make these reforms. And so confidence and productivity are not increased. Point Four, in sum, far from speeding up the economic productivity of the world, in fact retards it.

FOOTNOTE ON CONFUSION

My article in the issues of June 30, entitled “Why Not Try Capitalism?”, should have been and was entitled in my original copy The Myth in the White Suit. The substitution was due to one of those last-minute composing room misunderstandings that it would take too long to explain but may not be too late to mention with regret.