Part III - A Road Away from Socialism

In this reasoning, the relation between cause and effect is assumed. It is also assumed, and· without justification, that the alleged cause 'will continue to exist and that the same ef fect will follow. 1 In this chapter I suggest how a number of objectives for which statist solutions have been proposed can be gained by measures that do not en danger our liberty. I follow the outline of Chapter 5, in which I presented a number of examples of the statist trend in contemporary policies. But in each case I seek to show how the dangerous· implications of those policies can be avoided and the desirable objectives achieved. In making these suggestions, I claim no originality. I have gathered ideas {rotTI many sources. The, test is whether these proposals would assure a fair measure of government service at a cost tolerable to our economic system, and preserve our republican government, individual liberty, and opportunity.

183 Progresswith Liberty In America belief in the inevitability of socialism has been strengthened by the ponderous learning and thinking of such foreign writers as Sombart, Schumpeter, and Harold Laski. American facts have been twisted to fit the theories of such writers. 2 There is a dangerous fallacy in accepting an economic con clusion based upon the observation of foreign facts by for eign observers. Marx, Engels, and their school found the ma terials for their con'clusions in European and Asiatic life in which classes were crystallized, resources were scanty and un-, developed, labor was in long supply, capitalism was absent, uninspired, or stagnant, and in which political absolutism reigned on every side. Marx during his life simply could not foresee the prodigious growth of production under capital ism which was to be diffused into higher standards of living for the worker. Sombart knew little of the New World; Schumpeter was unfamiliar with his adopted Americ~. Laski knew little of the America that existed outside the lecture rooms where he expounded his ideas.

The theory of inevitability has no historical, logical,... or ex perimental proof in America. It has no better basis than the warning of the old temperance lecturers that one drink or two of ardent spirits leads inevitably to a hobnailed liver and a drunkard's grave. Or than the contention of some pacifists before the First World War that the complex nature of mod ern civilization made a major war impossible. The trend of the future is by no means predetermined by the trend of the past. But in following that theory foreign scholars have. even ignored the historical facts of their own countries. As the eighteenth century opened, the state was almost su preme in the affairs of men. That century ended in a tremen dous tide of revolution in which individual freedom was ex alted over the established claims of government. 2 See pp. 76, 77. 184 Socialism Is Not Inevitable Ludwig von Mises challenges the myth that socialism is in evitable, in this way: There was, for instance, in the course of ancient Greco-Roman civilization a tendency toward an interregional division of labor.

The trade between the various parts of the' vast Roman Empire intensified more and more. But then came a turning-point~ Com merce declined, and there finally emerged the ~edieval manor system, with almost complete autarky of every landowner's house hold. Or, to quote another example, there prevailed in the eighteenth century a tendency toward red~cing the severity and the horrors of war. In 1770 the ,Compte de Guibertcould write: "Today the whole of Europe is civilized. Wars have become less cruel. Except in combat no blood is shed; prisoners are respected; towns are no longer destroyed; the country is no more ravaged." Can anybody maintain that this trend has not been changed? But even if it were true than an historical trend must go on forever, and th~t therefore the coming of socialism is inevitable, it would still not be permissible to infer that socialism will be a better, or even more than that, the most perfect state of society's economic organization. There is 'nothing to support such a con clusion other than the arbitrary pseudo-theological surmises of Hegel, Comte and Marx, according to which every later state of the historical process must necessarily be a better state.· It is not true that human conditions must always improve, and that a re lapse into very unsatisfacto~y modes of life, penury and barbarism is impossible. The comparatively high standard of living which the -common man enJoys today in the capitalist countries is an achievement of laissez-faire capitalism. Neither theoretical rea soning nor historical experience allows the inference that it could be preserved, still less be improved under socialism." 3 Thus Mises disposes of the historical hasis of the argument for the inevitability of socialism. There is also a conclusive way to dispose of. the argument for its inevitability here in 3 The Freeman, Vol. 1, No. 10, February 12, 1951, p. 301.

185 Progress with Liberty the United States. That way is to show how every reasonable objective of those who seek to improve our society can be at tained without resorting to socialistic methods. The Twofold Challenge of Statism The program of American statists could not have won the ac ceptance that has been accorded it, except for a challenge that conservatives find difficult to answer. It is that there were glaring defects in our national policies in the many years of conservative government. 4 There were injustices to correct and needs to be fulfilled, and any government should have faced them-resolutely. The statist claims, and wins support for his claim, that he is attempting to alter those mistaken policies to correct evils and to meet needs as well as he can. At least, he says, he is doing something. . The most perceptive analysts of Franklin D. Roosevelt's New Deal agree that its portrayal of defects in the economic and social order were keen and for the most part accurate.

Roosevelt, like many other reformers, knew there was some thing wrong and he knew, somewhat vaguely, where it was wrong. He was not so successful in seeing what was wrong. He was still less successful in applying remedies, for his rem edies often aggravated the disease. 4 I have used the word "policies" here advisedly, rather than the word "principles." For ·in the years of conservative government toward the end of the nineteenth and the beginning of the twentieth centuries there was nothing seriously wrong in principle with the disposition of the Federal government to give business a more or less free rein and to respect the constitutional province of the states. Some tariff protection was needed, but there was no justification for the manner in which tariff bills were written or for the ex cessive rates that were established. The Congress, backed by and limited by the Supreme Court of those times, was reluctant to invade the province of the states in the regulation of business and in social legislation. The Sherman AntiTrust Act was sponsored by a stalwart conservative acting upon sound principle. The evils and excesses of the period lay in the failure of govern ment to exercise its corrective powers effectively and in the extent to which self-interested exploiters of freedom of enterprise influenced government.

186 The Twofold Challenge of Statism It was quite characteristic of Roosevelt that he stressed ob jectives rather than methods. Somehow he, Truman later, and their articulate subordinates have always tended to as sume that, because their objectives met public acceptance, their methods must not be called into question. This tend ency, so common among reformers, is in reality an applica tion of the proposition that the end justifies the means. But bad methods can as seriously damage an economy as bad in tentions, perhaps more seriously, because the public is de luded by political jargon into confusing ends with means. The challenge by Roosevelt, Truman, and other expo nents of salvation-through-government to "show us a better way" has been difficult to answer, because critics have been of many kinds and of many points of view. They have ex hausted themselves in negative criticism, bitter denunciation, and. personal vilification. And many have been of the let-us alone-and-do-it-to-somebody-else variety. Opposition candi dates have weakened their case by grave concessions of prin ciple to please this or that special interest or party faction.

Hence, statism has succeeded in portraying its opposition as a house divided against itself, barren of constructive ideas and possessed only of a passion for the power and perquisites of office. This challenge can be met by frankly recognizing that the conservative must, in stressing the imperative need to pre serve the tested principles of the past, remember that change and progress are possible within the framework of those prin ciples. In making the choices that lie before us we should rec ognize that, sinc~ sovereignty rests with the people, popular needs and aspirations must freely be taken into account. Fi nally, much as we may deplore some of the established activ ities of the state, they are· realities too substantial to be swept aside. Let us see, therefore, what can be done to encourage progress within the limits of those realities and in the safe spirit of preserving our essential liberty.

187 Progress with Liberty We need not only to keep principle in mind, but to create workable proposals for change. General Principles THE ESSENTIALS OF INDIVIDUAL LIFE One of the soundest approaches to the making of public policy is to start with what are sometimes loosely called the people's "wants," but which should be called the legitimate aspirations of individuals. Franklin Roosevelt in the depth of the depression in 1932 approached his New Deal in that way. "What," he asked, "is it that people want?" His answer was "work and security," which, as a purely political appeal, did well in an unhappy time. Work and security, however, fall far short of the sum of human aspirations. The Negro slave before the Civil War had plenty of work, and his security was zealously protected by his owner. The free life demands opportunity and faith and mutual confidence and love of community, state, and nation.

To contribute to all these should be the abiding concern of statesmanship. In a free society people share a quest for a bet ter life, rather than enjoy the assurance of a determined share of material means. It is the job of the statesman to bring to the aid of the individual all that the state can do, without restricting the area in which the individual may do what he can for himself to satisfy his legitimate aspirations. WANT AND NEED However successful may have been the Roosevelt appeal to the "wants" of the individual, there was in it either a 188 General Principles calculated deceit or a misuse· of the word. That was true not only in his appeal in 1932 but years later in his famous "free dom from want." For want is far from synonymous with need. It is conceivable that a rich, orderly, and humane state can meet the demonstrated need of every individual. But nothing in the world can meet the wants of man. The dy namic force in a free society is the enlargement of wants and the eternal striving to satisfy them. Giving the individual the opportunity to strive to satisfy his wants should be the cardi nal purpose of free institutions.

THE DESIRABLE AND' THE POSSIBLE In politics, where immediate success is attained by saying what people can be made to believe, rather than what is demonstrably true, accent is generally placed on the desira ble rather than on the possible. An "objective" that is presented as an ideal, distant or difficult to achieve, should be plainly labeled as such. The extravagances of political oratory often obliterate the dis tinction. The duty of honest statesmanship is to measure, so far as is humanly possible, the possibilities of reform. Perhaps once in a generation a statesman takes the course of blunt truth. Churchill was able to do that in the dark days of the war. Grover Cleveland had that habit. The conservative in these days needs to remind himself of that honest course. He cannot match the statist in the portrayal of the ideal life, for he is defending a life that is too well known to be depicted as ideal.

THE ECONOMIC OBJECTIVES OF A DYNAMIC SOCIETY To secure those national values which may truly be said to contribute to the general welfare, a few simple objectives 189 Progress with Liberty might well guide the conservative leader, be he in govern ment, in business, in organized labor or elsewhere. The first is to increase the national wealth by more pro duction. That means a higher standard of living. It is at tained by encouraging those who would start new productive businesses, by increasing the span of the working life of all, by keeping at a minimum the number of unproductive peo ple, by increased efficiency through mechanization and in ventions, and by increasing capital and keeping it at work. A second objective is to stabilize economic life as much as is possible, avoiding inflationary excesses and deflationary stagnation. This requires not necessarily "full," but abun dant, continuous employment.

The third objective is to seek a more equitable distribu tion of wealth. This objective cannot be met solely by the heavy hand of law and government. In fact, the effort of statism to achieve a greater equality of wealth more often results in the equality of poverty. Modern industry has learned that steady employment at high wages is best for all concerned. The cardinal error of statism, best illustrated by the Labour government of Britain, is that the second and third of these objectives has been pursued to the neglect of the first. The three are interdependent. All are essential to prog ress. MEASURABLE AND TOLERABLE GOVERNMENT INTERVENTION Since a conservative nlust at the outset accept realities, he must recognize the fact of some government intervention in private affairs.5 We already have a generous measure of inter ventiona strong government with many controls, innumer able regulations, and large supports for various segments of the economy. These mayor may not have been initially de5 See Chapter II.

190 Rational and Workable PersorialAid sirable, but they have become adventitious props-some of them enfeebling-and they' cannot abruptly be removed without danger of disaster . .The conservative ideal should be the exercise of great care and discretion in imposing new forms of government inter vention and also a constant effort to reduce the area already occupied by government. In cutting back the area of government intervention, a first task is to encourage the taking over of more responsibil ity by private agencies and associations. For example, it is clear now, after several years of regulation by the Securities Exchange Commission, that the stock exchanges themselves can take over a large measure of self-regulation. There should be constant revision of 'laws and of administrative machinery to permit self-discipline to grow. Moreover, in setting up agencies of government, there is great need to see that one .does not work at cross purposes with another. The best example of confusion is in our anti trust laws, where a business in avoiding the violation of one law runs squarely under the proscription of another. 6 The method and spirit of administering government in tervention is all important. Those who would exercise the power of government must themselves believe in freedom.

RationalandWorkable PersonalAid THE PRINCIPLES 1. Whatever relief' is provided for those in need, through government or private channels, must come from a common source-the produ'ctivity of the nation. The sustained health of that source must be the measure of all aid, as well as the measure of our general standard of living. When government takes from that source, less remains for the standard of living 6 See above, p. 144. 191 Progress with Liberty and for private aid. The argument that taxation is an equita ble means of distributing the burden of aid is potent. But it must be balanced by several other considerations. One is the efficiency of government· and another is the fairness of the necessary taxes. Another is the danger of destroying a sense of obligation in those who give. Privately given aid has a value for both those who give and those who receive. 2. Government aid is a return to a system utterly dis credited in the past. The occasional surviving "poor houses"

and "poor farms" are reminders of that past. 3. Personal aid includes much more than items of material subsistence. It should create personal, neighborhood, and community responsibility, self-help, self-esteem, and human dignity. These nonmaterial values are likely to be neglected ~n any government activity. 4. Since the task of administering aid as a means toward the development of s~lf-help is a delicate and highly spe cialized process, it cannot be done wholesale. It cannot be standardized on a large scale. It should operate within the personal relations of the community and the neighborhood. The kindly but watchful neighbor is the indispensable pro tection against abuse. The absence of this personal relation ship was a glaring defect in the Roosevelt-Hopkins emer gency relief and Works Progress Administration of the 1930 'S. 5. In the development of privately supported and directed community welfare over the past generation or more, ther,e have been develop~d a highly trained profession of welfare workers and a body of more or less scientific knowledge.

These should not be sacrificed or impaired by the invasion of a government bureaucracy, however vigorously that bu reaucracy may pretend to be the exponent of high profes sional and scientific standards. Politics and mass administra tion can and do prevail under a system of government aid, however nobly conceived and plausibly defended. 192 Rational and Workable Personal Aid 6. Under free institutions there has been much more care of. the unfortunate. It is demonstrable that in the days before the rise of modern capitalism those who had a claim upon the sympathetic help of others were known as the "poor" and the problem as "poverty." The "poor" were regarded as wretches unable to help themselves and wholly unnecessary to society. It was not only more blessed to give than to re ceive, but the giving had more value because it raised the giver in the estimate of society and of God. The receipt of the gift involved only the .incidental lengthening of the life of an unneeded member of society.1 Productive capitalism has .provided an opportunity for employable "poor" to become earners. The enlightenment of our times now speaks in terms of lower or higher incomes.

The objective of direct help is to build self-help. Where there are the greatest masses of' the destitute, there is almost none of modern capitalistic enterprise. It is not too much to say, as does Ludwig von Mises, that the plight of these people is caused not by capitalism but by the absence of capitalism. Under the American way.o£ life, an increased population does not necessarily create new prob lems of support; it provides new lahor to build wealth. Mises points out that people are no longer helpless because they are poor, but poor because they are helpless. · Not only is inequality of income inevitable; it is the es sential incentive to create and succeed. Basically, this incen tive creates the surplus out of which it is possible to care for the genuinely unemployable. 'True welfare, therefore, has a vital stake in the preservation of economic liberty. OLD-AGE SECURITY The responsibility of providing-at least partial means for old-age, security has been thrust upon the state and Federal 7 See Human Action~ p. 832 • 193 Progress with Liberty governments. One reason for this has been the great increase in the average span of life. Some form of Federal action was probably inevitable and would have been taken· by any party in power. Let us assume, therefore, that some government provision for old-age security is a conceded objective. The present problem is to provide a way of attaining it that is fair, that does not impair personal liberty, and that does not, through a crushing tax burden, endanger the economic sys tem itself.

The first step in escaping from the morass into which we have wandered is to rationalize the present Federal social security system. That system is neither flesh nor fowl. It is not based upon honest actuarial principles. At the moment, it collects more than it pays out. But, since it neglects the principles followed by any insurance company-principles that, it might be added, are enforced upon that company by government itself-its promises and potential obligations are far beyond its resources. On any rational scale of judgment, the social security sys tem is actually far in the red. To meet its obligations at some future time, perhaps not so many years removed, the govern ment must reach into general tax revenues. We should accept, in principle now and later actually, the policy of pay-as-you-go or, as one observer has put it, owe-as you-go. We should continue the contributory payroll tax for some time, if for no reason except to impose some tax on those who will ultimately benefit. It should be recognized that in the end all must pay for those who receive pensions and that the cost of pensions is a continuing charge on the economy.

When that happens, and when the fraudulent but now prev alent assumption that people pay directly for their own bene fits is abandoned in the name of honesty, Congress should see that pension costs are bearable. That should mean that no one would receive pensions as 194 · Rational and Workable Personal Aid a matter of right. The basis should be one of need. Every incentive should be provided to retain the productive value of people over 65. If science has produced more health and years of life, there should be a corresponding payment in productive work into the sum total of the national product. Those who provide for their own security, who have means of their own, or adequate property, should not enjoy gov ernment aid. And children and other morally responsible relatives should share in the support of those who have in past years provided for them. Abhorrent though it may be to shallow exponents of statism, there should be a needs and a means test for every individual who receives government benefits. This should apply in the states as well as in the Federal system. It does not of course apply to the right of an individual to draw out the money, with interest, that h~ has contributed in taxes for a future pension.

Vital, active citizen groups of taxpayers should counteract the pressure of pensioners' groups and lobbies. Government can do little to cure the weaknesses in indus trial pensions now exacted under collective bargaining.Ex perience alone ill ust be the savior there. The problem is political, economic, and moral. If we do not overhaul our present systems of government aid the future will face chaos, unbearable taxation, the bitter awak ening of deluded beneficiaries amid inflation, government bankruptcy, and the loss of liberty under repressive govern ment. COOPERATIVE, NOT GOVERNMENT MEDICINE. The sponsors of government medicine base their argu ments on two premises-first, that competent medical serv·· ices should be made available to more people; and, second,. that medical facilities, methods, and the products of research should be expanded. They then offer their plan as a solution ..

195 Progress with Liberty The answer to this is that both these objectives are being approached .with the expansion of cooperative private efforts under a minimum of government aid. To discredit present private efforts, the sponsors of gov ernment medicine have advanced several "proofs" that are either irrelevant or false. The figures the sponsors present for deaths that better medical care might have avoided include deaths by accident, by cancer, by heart disease, and by other causes that could hardly be prevented under the government plan. They also used draft-rejection figures to prove the health deficiencies of Americans. These are most unreliable to prove such a point, since two thirds of draft rejections were for reasons with which medical facilities have little to do. Sponsors also ignore the amazing progress over the past generation in the control and eradication of disease. Arbi trarily, they say that we should have more doctors. But we already have more doctors per capita than any other country except Israel, 8 and the relative proportion is increasing.

It is untrue that only half of our people can afford volun taryhealth insurance. This is denied by the Federal govern ment's own figures of personal incomes. And any fair-minded observer would deny the subtle class appeal in the President's statement that adequate medical service can be had only by "the upper-income classes." Common sense demands that we consider present progress and evaluate against it the clear denials of liberty in the alternative proposal for government medicine-always re8 Paul de Kruif pointed out, in an article in the June 1951 Reader's Digest, that reputable medical schools have increased their freshman classes by a number equivalent to the opening of fifteen new medical sch90ls. He also makes the important observation that we cannot judge our needs merely by counting doctors' noses. The immense strides in medical treatment, particu larly in the development of the wonder drugs, have enabled each doctor to treat many more patients than he was able to in the past. For instance, a drug that can shorten the length of an illness from five weeks to five days obviously frees the doctor for the care of more patients.

196 Rational and Workable Personal Aid membering that government intervention would destroy present voluntary efforts. Everyone'recognizes that as our society becomes more com plex, as our population increases, and as medical science becomes more specialized, we need group practice, more hospitals, more specialized clinics, and more prepaid care. Those needs are rapidly being met. The Blue Cross hospital plan started in 192 9. It now has more than 41,000,000 members. It is growing every year. There is also the Blue Shield medical plan, which covers 22,000,000. MQre than 20,000,000 are now covered by other voluntary medical plans. It must also be noted that the unions are tending to include some sort of medical benefits i~ collective bargaining. It can confidently be expected that at least 90,000,000 people will> soon be protected by some form of cooperative medical care. In addition, we already have a very extensive· system of government medicine for veterans, their clependents, and others. The Hoover Commission reported in 1949' that the Federal government at that time was already giving medical care to 24,000,000 beneficiaries. Of these, 18,500,000 were veterans. And since then the Korean War has brought its casualties and liabilities. More than forty Federal agencies rendered medical service in 1949, at a cost of $2,000,000,000.

Of this expenditure, only 15 per cent went for public health, research, training, and administration. The rest was spent for direct medical care. This immense expenditure for government medicine to which we are already irrevocably committed should be con sidered before we rush pell mell into free government medi cine for all. The $2,000,000,000 that we are already spending should be compared with the entire cost of government medicine in Britain, which has in the past two years been about $1,100,000,000 in terms of our currency. When it is asserted that millions are still' left outside. 197 Progress with Liberty private voluntary plans, the private practitioner, who is the traditional means by which Americans have had medical service, is forgotten. Cooperative plans are comparatively new. Millions have not heard of them. But the great majority of these millions are protected by the devoted care of their own doctors. Presumably, there are many who have had little or no need of a doctor. But they kn01v that when they do, someone can be found to help. Any American can think of countless acquaintances who are content to depend upon their family or neighborhood physicians when they are needed". Their freedom to do this is a very real thing, as is the devotion of tens of thousands of physicians, often unpaid and unrequited. The idea that this relationship should be re duced to a routine of government is repugnant to every con sideration of self-reliance, of self-inspired charity by the physician, and of freedom itself.

Presumably, many people should be taught, mostly in the schools, the virtue of prevention of illness and of early seek ing of medical care. Also, the singlehanded efforts of practi tioners should be supplemented. But something must be left to education, the forming of habits, and learning by ex perience. Several bills have been introduced in Congress to extend Federal medical aid to states. The Taft-Smith bill would create a national health agency to administer most of the nonmilitary, nonveteran health agencies and to distribute Federal funds to states to broaden medical facilities and to provide medical and dental care for those unable to pay the whole cost. There is the Hill bill, to provide government aid to main tain membership in voluntary plans for those who are unable to pay for it. There is also the Flanders-Ives bill, which goes nearly all the way with the Truman-Ewing plan in Federal grants to medical education, hospital construction, and aid to local 198 Indispensable and Indestructible States public health services. It provides subsidies for voluntary plans, which would enable a very large proportion of the population to enroll.

All these alternative plans are, designed to extend adequate medical care to a greater number of the population, without the wholesale government intervention involved in the Tru man-Ewing proposal. There is little to choose among them, ifit is to be granted that Federal aid should be extended for any purpose beyond aid to medical education and hospitals. In all of them, as in other aspects of Federal aid, there is some danger of growing Federal power. Here, as elsewhere, it would be wiser to return to the states some of their appro priatesources of taxation and thus enable them to meet their own health problems. There confronts the nation no health crisis that requires a drastic break from the tradition of private and cooperative medical care, supplemented by Federal, state, and local aid for research, education, and building. The immense strides in medical coverage by private plans and in cheaper and bet ter remedies deny not only the presence of a crisis, but the likelihood of any crisis in the foreseeable future.

Indispensable and Indestructible States THE PRINCIPLE The basis of the American constitutional system is·a strict limitation upon the national authority and broad protection for the rights and powers of the states. Many provisions of the Constitution make this clear. The Tenth Amendment in the Bill of Rights restated this principle as an added measure for state security. Practical experience and economic and social change have not impaired the wisdom of this general principle. It is essen199 Progress with Liberty tial now to reconsider current Federal-state policy against that background. Jefferson wisely included in his enumera tion of proper government powers "mutual relations," which in modern terms means government activities in which state and Federal authority have joint responsibilities. We recog nize three groups of functions-first, Federal; second, state; and third, joint Federal and state.

The major Federal functions clearly authorized by the Constitution are: foreign affairs; maintenance of armed forces; veterans' services and benefits; regulation of ships, waterways, railroads, and airplanes; immigration; interstate commerce; bankruptcy; patents; trade practices; monopolies; banking and the sale of securities; operation of the postal service; collection of Federal taxes; debt services; atomic energy; and so forth. There are a number of other current activities under Federal administration and control: support of farm prices; old-age and survivors' insurance; certain lend ing and insurance corporations; and the protection and regu lation of labor affecting major and essential industries whose operations overlap state lines. State and local responsibilities should include: general civil and criminal law, including property law; general police protection and law enforcement; fire protection; administra tion of elections; education; public health services; most highway construction; care of the delinquent and unfortun ate; employment security and employment aid; housing; and slum clearance.

These activities, which cost nearly $10,000,000,000, should remain within the jurisdiction of the states. Any Federal concern for them should mainly be in the restricted realm of research, advice, and limited emergency aid. Joint responsibilities should include: "the construction of some highways and other public works serving national as well as state purposes (for example, airports, flood control, irrigation, and improvement of rivers and harbors); conser200 Indispensable and Indestructible States vation of ,. natural resources; and agricultural. research and information. THE STATES, OUT OF BONDAGE AND OFF THE DOLE The first step toward a restoration of balance between Federal and state authority shouid be til reallocation of the sources of taxation. Such a·reallocation should be planned by a joint commission composed of (a) members of Congress·; (b) governors and state officials; (c) citizens jointly appointed by (a) and (b). The Federal Executive should have no part in this reallocation.

Some of the principles that might guide such a realloca e tion were well stated by a Hoover Commission task force, which considered Federal-state relations. Sources appropriate for state and local taxation should be: 1. Sources widely and evenly distributed over the whole coun try. 2. Forms of business, wealth and income of a nonmobile n~ ture. 3. Sources in which receipts are obtained in connection with the regulation and enforcement of state laws (or local ordinances). 4. Sources related to special benefits, privileges or protection received from the states or their subdivisions. Taxes suitable for Federal use would be, according to the task force: 1. Those which permit a high progression in taxation. 2. Sources highly concentrated in a few states. 3. Forms of business wealth and income of a highly mobile nature. While no specific prescription can be laid down here for such a reallocation, a number of examples may be suggested.

The Federal government should retain all customs duties, alcohol and tobacco excises, manufacturers' sales taxes, a 201 Progresswith Liberty flat rate on individual incomes much less than is now levied, the corporation income tax, payroll taxes for old-age and survivors' benefits, and a few specific levies such as railroad payroll taxes for unemployment and retirement. The states should exclusively have death and gift taxes, gasoline and lubricating-oil taxes, retail sales taxes, limited individual income taxes, business and severance taxes, and payrOll taxes for unemployment benefits. Local units should exclusively have property taxes, various admission and amusement taxes, retail sales taxes where states do not use them, and various licenses and fees. A single example will show how Federal encroachment through grants-in-aid could be avoided by reallocation. We have had much agitation for a $3°0,000,000 grant for educa tion. If the Federal government would turn over all amuse ment taxes to the states and/or localities, they would have from that source approximately $45°,000,000, plenty for education and other purposes without Federal control.

Such a reallocation of taxes is the most important means of preserving our Federal-state system. To insure the security of state authority, a drastic reorgani zation of Federal grants-in-aid is required, as well as the re allocation of sources of taxation. In stating the principles that should guide such a reorgani zation I cannot do better than to quote the specifications laid down by the Hoover Commission task force: 1. National grants should be available for public services only if the service to be performed is national in character, or if it is one in which there is a definite and measurable national interest. 2. National grants, where and when available, should be made for broad categories of public services. In the interests of efficiency and economy, and· to preserve a larger measure of state initiative, the states should be permitted the discretion necessary to adjust their activities to meet particu lar needs and situations.

202 Indispensable and Indestructible States 3. Grants-in-aid programs should be based, in all cases, on close cooperation between the national and. state governments. In no event should the national government attempt to deal di rectly in grant programs with the political subdivisions of the states or with individuals. 4. National supervision of the administration of grant pro grams should be· restricted to initial approval of over-all plans, post-audit of expenditures, and technical assistance and guidance during operation. 5. The· present patch-work of grantin-aid programs should be systerp.atized, with provision for cooperative planning, appraisal, and administration on a continuing basis. 6. Definite, specific machinery should be established for imple menting Federal-state relations in the development, operation, and administration of cooperative, intergovernmental programs.

A recommended first step is the establishment of House and Senate committees of the Congress, or, preferably, a joint Con gressional committee on Federal-state relations charged with the duty and responsibility of studying the over-all situation and de termining initially the needs that exist and the extent of the program to meet such needs. Companion to this, some agency in the executive branch of the national government, perhaps the Bureau of the Budget, should concern itself with achieving balance in the administration of the several grant programs. It should be added that all grants-in-aid should be based on the demonstrated needs of states. They should be given only after there have been determined by an economic for mula the resources, population, and special requirements of a state. The demonstrably poorer states then might draw somewhat higher per capita grants. Then the grant should be made to the state in a lump sum-a sum for a group of serv ices, not for a specific purpose. This would enable the state to determine the purposes to which the money is to be de voted. If a state prefers to spend more on schools and less on roads, or more on hospitals and less·on poor relief, it should 203 Progresswith Liberty make these decisions itself. Congress should require audits and accounting of the sums granted. 9 INTERSTATE CONTROL OF NATURAL RESOURCES Like many of the proposals for more Federal intervention, the concept of Federal valley authorities has a desirable ob jective. There is need in a great river valley for some over-all planning and development. One project, be it a dam or an irrigation area or a system of interconnected power lines, must be considered in its relation to other valley projects.

H~rbert Hoover as Secretary Qf Commerce, in 1926, made a notable speech outlining the need for the constructive plan ning of water use. His vision was later realized in the Boulder Canyon project. The TVA operation and the Columbia and Missouri valley proposals are a perversion of that idea. Comprehensive planning, construction, maintenance, and administration of resources should be by a joint action of Federal, state, and private agencies. In resisting the efforts of the Federal administration to take plenary authority over their natural resources, the states have persistently urged the use of the interstate compact that is authorized by the Con stitution. A number of specifications follow, of how this might be done: 1 1. Corporate authorities should be created, through inter state compacts, in which the Federal government would be one of the parties. The powers' of such agencies might in some cases extend to whole river basins and in others to por;.

tions of those basins. In some places the contract might be made between a single state and the Federal government. 9 The creation of such an economic formula as is here suggested is quite possible. It has been done by state governments in allocating aid to counties. It has also been tried in a modified form in some Federal programs. 1 I have elaborated these recommendations in a small book, Valley Au thorities, published by The American Enterprise Association, New York City, in 1950. 204 Indispensable and Indestructible States 2 .. The. first. task of such agencies should be broad planning, in which the expert services of the Federal government, the states, and appropriate private agencies and 'corporations shouldpart-icipate. 3· The Federal government should play an important role not only in planning but in construction. The Hoover Com mission's recommendation that the Interior Department have this responsibility is sound. Competition between that Department .and the Army Corps of Engineers should .be eliminated. .

4. The Interior Department might construct some projects under authorization and appropriations by Congress, with generous contributions by the states and private corpora tions. 5. There is no reason why a state-Federal authority, prop erly incorporated, should not raise all or a large part of the money for the reimbursable projects by bond issues. At the 1950 Governors' Conference, Governor Driscoll of New Jer sey forcibly urged this upon his fellow executives. If these projects really will pay for themselves, as their exponents assert, the bond market is the place· for the test. Governor Driscoll suggested that, considering all the factors, including interest rates and the inflationary effect of deficit spending on the economy, it might be much cheaper to pay for these projects by selling the necessary securities to the public. 6. A major issue is whether dams and other great projects belong to the Federal government or to the states where they are located. The water and the land that they are built to improve belong to the states. The improvements should also belong to the states, either individually or in such compact groups as I suggest. Federal money, when advanced to pay for them wholly or in part, is a loan that should be repaid.

A proper policy to assure such permanent ownership should be based on the proposition that in paying for such projects the Federal government lends engineering skill and 205 Progress with Liberty money for the reimbursable projects and for the reimbursa ble parts of mUltiple-purpose projects. It should pay all the costs of flood control and navigation. There should be repayment, with interest, for what is loaned. The-states, with the Federal government as a partner, should create the cor porate body through a compact to hold these improvements as owner, to administer them, and to provide for their pay ment. 7. The interstate-Federal compact creating such agencies should provide an impartial method of allocating costs. This might be done by a group, some members of which should be appointed by the President and an equal number by the governors, or, if legally possible, by the Supreme Courts of the s'tates.

8. In the economic activities of such a co-ordinated agency there should be no settled policy of preference for public versus private water distribution or electric-power produc tion ~nd distribution. 9. Tax policies should be ,vorked out in compacts by which fair allocations of contributions by states can be made. States might well make such contributions if there were returned to them tax sources now arbitrarily held by the Federal govern ment. 10. The interstate compact, without Federal participation, can be used by two or more states to provide a means of de veloping projects involving more than one state. The New York-N ew Jersey Port Authority is a very successful example of thi·s. It is in fact a new agency of government with wide powers created by agreement between two states. It builds and operates bridges, tunnels, and terminals. 1 1•.In spite of many efforts to create a firm national policy concerning the conservation and development of our na tional resources, Federal activities in this field are a study in confusion, bureaucratic ambition, statist influences, tricky 206 Indispensable and Indestructible States bookkeeping, economic extravagance, and log-rolling in Con gress.2 A new Federal Administration should face this problem with determination upon a fresh start. It should determine at the outset that its policy should look toward a free econ omy and away from government monopoly and control. A temporary national commission should be formed, the pur pose of which should be the creation of national policy to "'\;vard the conservation and development of natural resources.

The initiative for the creation of such a commission might come from the President, the Conference of Governors, or from Congress. Members of the commission should be ap pointed by the President and the Conference of Governors perhaps an equal number by each. Members of ·Congress, Governors, or other public officials should not be members. It hardly needs to be added that the members of this com mission should be of proven ability, experience, and distinc tion. Among the problems for which this .commission should seek a definitive answer shQuld be (a) a proper criterion for the feasibility of public projects,. with reference to economic need, costs, and national rather than local advantage; (b) the financial burden of such works in relation to the tax burden they 1",ould impose; (c) a proper method of apportioning costs among the various. purposes for which they are built and among the sources from which payment for them should be drawn; (d) the manner in which such works and projects should pay for themselves, including the number of years over which repayment should be made and the bookkeeping involved in such repayments; and (e) the relationship of public projects to such private enterprises as electric utility companies.

These and many other issues might well be resolved on a 2 See pp. 126-3 6. 207 Progresswith Li,berty high level by such a commission, which because of its emi nence could be a powerful factor in the necessary education of the public nationally; for the greatest danger now is that the complexity of these issues obscures them from all except the initiated and the selfishly interested. The general philoso phy laid down by such a commission and the patterns of action suggested might well be a determining factor in future activities of the Federal government, the states, and private enterprise. CIVIL RIGHTS THROUGH REGIONAL ACTION The construct'ive approach to the problem of civil rights should be through regional rather than Federal action. In the preceding section I have indicated the use of .interstate compacts as a substitute for Federal valley authorities. A dif ferent form of regional action is needed in protecting civil rights, because the necessary corrective measures are not suit able for a formal compact. Action within each of the indi vidual states is necessary.

An important development in regionalism has been a long succession of meetings of groups of Governors, promoted by the Council of State Governments. At these meetings during the past few years problems common to groups of states have been discussed, and decisions have been made for par~.1lel action by the several states. concerned. Then the Governors have returned to their respective states with proposals for legislation and. administrative action. There have been re gional conferences of governors from New England, from the Far West, from the Middle West, and from the South. Something more than a meeting of governors is called for in approaching the problem of civil rights, since it goes far beyond formal legislation. State legislation is required in . the enlargement of voting privileges for Negroes. There may be some justification for state legislation in setting up ad208 Toward a Free Market visory commissions on employment practices. But the widen ing of employment opportunities should be initiated pri vately by business a~d .. employers generally. The suggestion of "anti-lynching" action is irrelevant, because, as I have pointed out, lynching is now practically nonexistent and mob violence requires effective criminal law enforcement by state authority.

Civil rights involve social, educational, religious,eco .. nomic, and political influences and authorities. The President could make a contribution to the solution of this problem, through calling a general conference of Southern leaders, including Governors, members of Congress, educa tors, clergymen, businessmen, and others, and place the ques tion before them. If he will not take this constructive action, such a joint endeavor might be initiated in some other way_ Toward a Free Market STABILITY FOR AGRICULTURE Principles. The Federal government's fir~teffort toward agricultural aid was to encourage free farming by parceling out its publicly owned land. Then, to aid in the marketing of crops and to encourage general settlement of the West, railroads were subsidized with grants of public land, and with money. Following that, the Federal government limited its help to agriculture to research, information, and educa tion. It was assumed that with Sl;lchaids as these a free market would prosper the farmer.

It was not until a large segment of American agriGulture felt the grip of distress after the First World War that further government aid became an issue. The chief argument for this aid was not the repudiation of the ideal of a free market, but the assertion that the farmer did not and could ndt enjoy 209 Progresswith Liberty the advantage of a free market. The slogan was "tariff equal ity," which meant that, since those who sold goods to the farmer were protected by the tariff, the farmer himself should have equivalent protection for his product. He bought, he claimed, in a protected market and sold in an unprotected market. And he was constantly endangered by surpluses and ruinous prices. He also complained bitterly about the terms and condi tions under which he secured credit. He paid more, he claimed, for the money he needed for his business· than did the people who made the things he had to buy. His agitation for inflation over several decades was a sincere effort to im prove both his price and his credit situation. It lacked fore sight, because when prices rose and money became cheaper, his economic situation remained relatively the same.

Finally, after years of effort, farm leaders secured the various benefits and special legislation· that have marked the past twenty years. Meanwhile, many factors other than gov ernment benefits have contributed to the improvement of the farmer's lot, and the farm problem has ceased to bean emergency. There is time now to evaluate the experience of past years, to consider the wisdom gained by those leaders Who have been closest to the farmers, and to set down princi ples for guidance in the future. Some of these principles are: 1. A free market should still be the ideal in agriculture as well as in other parts of the economy. 2. It is necessary to take account of the limitations that government has placed upon a free market in agriculture, and to work toward the removal of these government stimu lants and benefits, within the framework of existing legisla tion. 3. The present improved status of the farmer is very largely a result of mechanization, education, communication, and other products of a free economy. It is not, except in a 210 Toward a Free Market minor degree, due to government intervention. Hence, the farmer has a vital stake in the preservation of a free economy.

He cannot, except at his own peril, contemplate a· further enlargement of. the power of government. 4. The farmer's real interest is in expanded rather than in restricted production . .5. Contrary to the advice of false political leaders, his in terest is in the control rather than in the acceleration of in flation. 6. The farmers are a minoritygroup~ Any policy that puts him at the mercy of a national political party, or of the gov ernment, places him in great peril. For, once he is wholly dependent on government benefits, he might by a sudden turn toward economy be the victim of chaos and ruin. This warning has been repeatedly emphasized by Allan Kline, president of the Farm Bureau Federation, and by other nota ble farm leaders. Politics, however, is concerned with votes rather than with agricultural security and stability. It seeks to place the farm ers of the nation in a privileged and hence a vulnerable spot.

Their true friends are those who point out their common concern with all other groups in the nation. Elements of a Program. The following propositions are designed to suggest how the foregoing principles might be carried out, not. only by government,· but by all private a.gen cies and individuals concerned with agriculture. They take into consideration not only the long and, we hope, normal years beyond the current national emergency, but the special conditions that are now confronting agriculture: 1. To attempt the abrupt removal of price supports would be not only impra~tical but politically impossible. Hence, the· trend of legislation should be toward more flexible sup ports at conservative levels. Discretion in applying these sup ports probably must be left with the President and the Secre211 Progress with Liberty tary of Agriculture, but every effort should be made ~y Congress to enforce a strict responsibility of the Administra tion and to eliminate political manipulation of such sup ports. Within reasonable limits the removal of supports should be progressively guided by a timetable fixed by Con gress.

2. It is also desirable that government continue reasonable and relatively inexpensive marketing aids to push farm products that are in long supply and to hold back others in short supply. This calls for no extensive regimentation. 3. Marketing agreements in which producers act coopera tively under the sponsorship and supervision of the Secretary of Agriculture are legitimate means of increasing price stabil ity. Since those agreements, however, extend to agriculture privileges strictly forbidden under the antitrust laws,· the public should be offered some safeguards against unreason able price levels. 4. There is no reason why, even under a price-support sys tem, a multiple or two-price system should not be recog nized for· some crops. Thus producers of certain crops could divert to secondary uses a surplus raised at their own risk. This would benefit all concerned. 5. Crop insurance to protect farmers against crop failure is sound, but it should not be· used as a means of sustaining prices. If it is not worked out on a self-sustaining 1?asis, if is merely another subsidy.

6. Consumer subsidies should be limited to stamp pro grams in periods of serious unemployment and to school.. lunch programs. 7. Practical encouragement and limited incentives should be offered by government to develop scientific methods for the storage and transportation of perishables. 8. The conduct of research, the dissemination of informa .. tion and the promotion of agricultural education,· which are 212 Toward a Free Market the traditional services of Federal and state governments, should continue. g. The expansion of the industrial· use of fartn products, notably in the production of alcohol, should be encouraged. The advocates of "chemurgy" have probably been overen thusiastic in stressing its importance but, with the develop ment of more economical means ·of conversion, it should promote greater stability in agriculture. 10. There has been an alarming growth of government control of farm credit. This trend should be reversed and co operative credit agencies should be developed under govern ment supervision rather than control. Private credit-agencies should also be encouraged to take over most of this responsi bility.

Beyond these specifications, the government cannot safely extend its control and support of agriculture. Above all, the farmers must realize, as their more conservative leaders real, ize, that their prosperity and stability depend essentially on their own efforts as individuals, as members of their organiza tions, and as citizens of the nation. "The farm program," says Allan Kline, "never makes farmers prosperous. It takes a whale of a lot more than that. It takes efficient production, ... high production per man, the appropriate use of capital, keeping up with the research that goes on, soil management and animal husbandry and what have you. . . . It is impos sible to have a high standard of living unless it is earned." CREDIT WHEN AND WHERE CREDIT IS PROPER AND NECESSARY Principles that should guide the Federal government in a withdrawal from indiscriminate, incompetent, and danger ously socialistic lending through its many banking agencies are these: 1. Government should lend to private agencies and insti213 Progress with Liberty tutions only in periods of great emergency, such as deep depressions and wars.

2. At those times, loans should be clearly in "the public interest"; they should contribute to the safety and stability of the nation and the entire economy. When loans are made, the granting and administration of them should be com pe tent and free from favoritism and corruption. 3. Government loans· and guarantees should always be made to an intermediary private agency, such as a bank, rather than directly to the beneficiary. Thus, there would be interposed between government and borrower a private busi ness-agency equipped with business experience and judg ment. 4. Loans by the Federal government to states, cities, or other units of government for such purposes as the San Fran cisco-Oakland Bridge should anticipate self-liquidation and be justified by public, not private, necessity.3 PUBLIC POLICY AND PRIVATE RISK CAPITAL Much of the pressure for government lending comes from those anxious to provide working capital for new enterprises that are unable to get loans on long terms for what are es sentially business risks. This is largely the problem of small business.

The difficulty such enterprises face is due to a number of causes, most of which have originated in the very government that now proposes to do the lending itself: 1. A major source of risk capital in the past has been sup plied by individuals with surplus money to invest in small, new, sometimes hazardous enterprises. They have assumed that perhaps one out of several such risks would develop and make back what they would lose on others. As we have seen, 3 A number of more specific principles and suggestions for government lending are made by the Hoover Commission task force on lending agencies. They should guide Federal policy. 214 Toward a Free Market much of this source has now dried up because of heavy taxes on la~ge incomes. 2. Risk capital has been withheld from such enterprises because of the reduction of the prospect for profits, on account of heavy taxes. I . 3. The great bulk of accumulated savings has quite prop erly been put in such safe, conservative investments as insur ance, bonds, and utility stocks.

4. Because of this, government has properly placed strict limitations on the investments of banks, insurance compan ies, and other related lending agencies. 5. It is true that large, established corporations take risks from time to time in the development of new lines of manu facturing. An example of this was the development of nylon by the DuPont Company. In a sense, this was spreading-a risk among the thousands of stockholders of the company. Sometimes large corporations make investments in other smaller companies. But there are serious limitations on this -partly legal, partly because of the obligations of company officers to their .stockholders, and partly in line with sound business judgment. This problem of promoting the life and vitality of our economic system through new businesses cries out for the ingenuity of business leaders and organizations and also for a measure-of cooperation by government.

In such approaches to the problem private business judg Inent should be retained in lending, and risks should be spread widely. Some communities, eager to attract new businesses~ have set up privately supplied pools of credit, administered. by groups of local business and professional people. Some states have done this officially. In Mississippi, the state government has helped cities and towns issue bonds to buy and build plants to be leased to private enterprises. This is known as the B.A.W.I. or "balance agriculture with in215 Progress with Liberty dustry" plan. The state government of Maine has chartered the Maine Development Corporation, designed to ldnd to small businesses. This corporation is operated and financed by pri1'ate banks, each of which contributes a small percent age of its available capital. The adoption of this Maine plan is being seriously considered in several other states.

An adaptation of this plan on the Federal level has been proposed in bills introduced in the Senate by Senator Taft and by Senator O'Mahoney. Such measures as these, however, only reach the fringes of the problem. Intelligently conceived tax reform could re lease the natural forces essential to business growth. The worst possible way to treat this problem is by direct government lending. ' PRIVATE UTILITIES UNDER PUBLIC REGULATION The principle that government's role in business should be that of a judge rather than that of an administrator ap plies" especially to the production and sale of electricity. It should also apply to atomic energy. Such enterprises are es sentially monopolistic, and for that reason are properly called public utilities. For that reason, too, the role of gov ernment is very important in their regulation. But despite the evils that have marked private ownership in the electric power industry in the past, and despite the,growth of public ownership, the advantages of private ownership and opera tion remain.

The costly battles between government and this industry, the threat of public ownership, and the wide range of restric tive legislation have had a beneficial effect on private man.. agement. In recent· years this industry in general has devoted itself sedulously to technological progress, to a reduction of rates, to better public relations, and to a calculated restraint on its old tendency to play politics. 216 -Towarda "Free Market Regulation by the .states has reached a degree of compe tence that assures the protection of the public interest. Ex perience in frami~g regulatory laws and a vast accumulation of judicial decisions have clarified many points formerly con tested by management and the public. In short, we have developed a relationship between producer and consumer that measurably assures justice and progress under free enterprise. There is no legitimate reas<;>nwhy there should be further government intervention in this business except under very special circumstances. Moreover, where government, notably the Federal government, has developed electric power inci dental to other projects, such as navigation, irrigation, flood control, and the like, it should equitably sell that power to private distributors. It might even safely, as in the case of the Bonneville Power Administration, enter into a cooperative arrangement with private companies. The government should operate in the wholesale rather than retail field.

Private companies under state regulation should deal with the final consumer. Public monopoly in this field would, according to as ardent an advocate of local public ownership as MorrisL. Cooke, be "a calamity." The trend toward government monopoly should be stopped. FAIR COMPETITION WITH· COOPERATIVES The development of cooperatives was originally the result of a constructive effort to provide a simple means for the exchange of goods at a minimum cost. The ideal of co operatives is control and administration by the people who are directly concerned. The true cooperative is wholly in harmony with free political and economic institutions. Cooperatives, however, have been the victims of over solicitous politicians. As we have seen, they have been 217 Progress with Liberty granted legal privileges and exemptions that tempt them to expand into a multitude of businesses, some of which are unrelated to the original reasons for their creation. Because of legal advantages, they are able to compete unfairly with private businesses. Often private businesses, attracted by these advantages, reorganize as cooperatives. They become cooperatives only under the law. They have none of the genuine incentives that inspired the earlier cooperatives.

The remedy is equality with private business under the law. Tax advantages should be removed. 4 Immunities and preferences under antitrust, securities and exchange, and other legislation should be repealed. Under such equality, the genuine or "natural" advantages of certain types of cooperatives would remain. Wholesome competition would spur both cooperatives and private busi nesses that deal with the same products and services. Roswell Magill, former Under Secretary of the Treasury, in collaboration with Allen H. Merrill says this of the prin ciple that should be followed in fair and equitable taxation of cooperatives: 5 Equity would not be established by taxing to the cooperatives merely that part of their income which is accumulated, or is· re invested in corporate stock or obligations, while exempting cash distributions from income tax, for their actual income consists as well of the net profits or net margins distributed in cash, as of amounts reinvested in the cooperative. Moreover, other com petitive corporations are taxable on the entire incomes, whether 4 A distinct trend toward the taxation of cooperatives became evident in the Eighty-second Congress. The tendency seemed to be to remove exemptions wholly from certain cooperatives engaged in specific businesses, such as sav ings and loan associations and mutual savings banks, and also from all co operatives of large size; also to tax cooperatives the members of which are corporations rather than individuals; and to tighten the rules under which cooperatives may deduct their patronage dividends (refunds to members and customers) from their taxable earnings. Such changes were vigorously resisted by President Truman and his Secretary of Agriculture. .

5 "The Taxable Income of Cooperatives," Michigan Law Review, De cember 1950. 218 Regulation without Regimentation accumulated or distributed .... Tax gratuities, or subsidies, in favor of worthwhile social experiments, such as cooperatives, may have been sound and desirable under the low tax rates prevail ing during the first two decades of .the income tax. They cannot be justified, however, in the political, economic and tax climate of the 1950's. Regulation without Regimentation RESPONSIBILITY IN ADMINISTRATIVE COMMISSIONS. After a decade of agitation for Federal legislation to curb and regulate the procedure of Federal regulatory commis sions, an act designed for that purpose finally became law in 1946. 6 This act, under fair interpretation by the courts, should measurably curb the irresponsible practices of commissions and reduce the danger of "administrative absolutism." 1 The important requirements of this act are: 1. Federal administrative agencies must make public their rules, opinions, and public records, and opportunity must be offered for hearings on the adoption of new rules.

2. Officers who assume quasi-judicial activities in hearing cases shall be sep4rate from and independent of.investigation and prosecution. This should end the bad practice of vesting prosecuting and judicial authority ·in the same person or persons. 3. People who are brought before commissions shall be given the right to counsel and the right to obtain copies of data and evidence against them. 6 An Act to Improve the Administration of Justice by Prescribing Fair Ad ministrative Procedure. 60 Stat 237 (1946). A very large measure of credit for the enactment of this law belongs to the American Bar Association. The· chief architect of the act· was Carl McFarland,· former Assistant Attorney General and now President of the University of Montana. 1 See above, pp. 139-41. 219 Progress with Liberty 4. Hearing officers, who in the past have been imperious ,in their exercise' of power, may be challenged for bias. Their powers are strictly regulated.

5. Persons adversely' affected by decisions of administra tive agencies are given reasonably free access to the courts. Courts may not only decide all questions of law, but may review factual evidence and may set aside arbitrary or capri cious judgments not supported by the facts. This act has not yet been given full interpretation by the courts, and until that happens, it is not possible to determine the extent to which old conditions have been remedied. Moreover, the Civil Service 'Commission has failed to im prove the quality of hearing officers by the removal of the arbitrary and inefficient. The dangerous practice by boards and commissions of sub stituting their business judgment for that of private man agement, 8 while open now to challenge and argument, is still possible. It should be fully corrected by court decisions and, if necessary, by further legislative action. All that is needed is to return to the principles under which these commissions, notably the I.C.C., originally operated under the laws estab lishing them and defining their powers.

JUSTICE IN INDUSTRIAL RELATIONS Principles. 1. Since government intervention in the rela tions between employee and employer becomes necessary only when free bargaining and other direct relations fail, primary responsibility' for industrial relations falls on man agement, the individual worker, and the union. 2. Management should seek a high level of wages. As economies in production are achieved by greater efficiency, some of the benefit should find its way into increased wages. But labor unions should recognize that the consumer is en8 See above, p. 141. 220 Regulation without Regimentation titled to the major share of the proceeds of such economies. Labor itself is vitally concerned in relief for consumers. Its true interest is in capacity to buy, not in higher wages. Man agementshould also seek stability of employment through continuous planning. The interests of all are prompted by measures that protect the health, safety, and happiness of all concerned.

3· Management, the individual employee, and the union should have open channels of intercommunication. Employ ees and unions should be free to express their views, sugges tions, and complaints about the policies and methods of management. Management bears a responsibility to keep employees individually and collectively informed of its poli cies and of the problems and conditions facing the company. Management cannot, however, surrender its final responsibil ity for decisions on policy and methods of operation. There should be cooperation, not co-management. Since it is a wise policy to welcome labor into discussions' of management, it should also be a policy on the part of union leadership to welcome the suggestions of, and joint discussion with, man agement on union policies. 4. With or without legal compulsions, management should recognize the principle of bargaining collectively and through freely selected representatives of employees. This should be. a practice whether unions are involved or not.

5. While our essential liberty allows the formation of political groups aimed at any legal objective, there are prin ciples that union leaders should observe in their political activities. It is unfair to union members as free citizens to use their money and organization, contributed and created to further economic ends, for political objectives determined largely by union leaders in alliance with a political party. Such practices are likely to result in the neglect of the true purposes of union organizations, in the alienation of mem bers who want no political dictation, and in the irresponsi221 Progress with Liberty ble, not to say dishonest, use of money for which leaders are trustees. A political group intent on a single economic ob jective must of necessity distort the true purpose of political action, which should be the general public interest. How.. ever, legal measures can and should effectively prevent per versions of union activity. Such measures should require strict accountability for union funds, prohibit coercion in exacting contributions, and strictly protect the exercise of civil rights by union members.

6. Government, through legislation and executive action, should seek the ideal of a free market in industrial relations. Hence, its efforts should be directed toward lessening, as far as possible, all intervention by government. 7. Legal compulsion by government should be designed for the sole purpose of protecting the freedom of· all parties in industrial relationships. This principle should extend to the protection of the right of an employee to join or not to join a union, to protection of all parties from violence and from all forms of intimidation. It should guarantee and pro tect free speech for all parties. 8. In all cases, whether under compulsory laws or by mutual accord, the bargaining representatives of employees organized industrially should be chosen not solely from the group that has a majority, but by some method of propor tional representation. For example, if 30 per cent of the employees affected belong to one union, 30 per cent to an other, and 40 per cent to no union, the representatives should be in the ratio of 3-3-4.

9. Industry-wide bargaining is a direct invitation to Fed eral government control and also to domination of labor by a monopolistic group of national union leaders. Bargaining should take place between the management of a specific com pany and representatives of the employees of that specific company, chosen as indicated in the foregoing paragraph. 10. The right to strike should be inviolate, except in cases 222 Regulation without Regimentation where the public safety, health, or national defense are involved. For such instances, government should provide means of fair and equitable adjudication of the issues, with free access to the courts for the interpretation and enforce mentof law. II. In the selection of members of administrative boards and of mediating agents, true impartiality should be scru pulously sought by the executive charged with the power of appointment. 12. The law should prohibit all strikes, boycotts, and picketing for reasons other than those directly affecting the company itself. Secondary and jurisdictional strikes should be outlawed.

13. No Federal or state law should compel an employer to bargain collectively with members of his own management. This applies particularly to foremen, who are specifically the agents. of management. 14. Mass picketing or other forceful means of preventing free access to property that is under the responsible care of management should be prohibited by law. 15. Minimum-wage legislation was originally designed to prevent the employment of persons at pay insufficient for a minimum standard of living. The trend under statist policies has been toward forcing all employers to pay "average" or "prevailing" wages. This would lead to the regimentation of both management and labor. The original purpose should be adhered to. 16. Monopolies of union labor as well as of ownership and management should be subject to antimonopoly legislation. 17. All legislation should be based upon maintaining free and equitable conditions in the present and the future. The Wagner National Labor Relations Act was conceived r drafted, and justified on the ground that, since labor had been unjustly denied its rights in the past, it should be com pensated by inequitable advantages in the future.

223 Progresswith Liberty 18. The accountability of union officials for funds, in cluding political contributions, should be enforced by the same legal conditions that apply· to corporations. 19. Strict accountability for the use of funds is a major measure for the protection of union members from exploita tion by union officers. Further measures to that end are re quired to assure real democratic control and accountability in union affairs. 20. There should be equal legal responsibility by unions and management, for the keeping of contracts. FAIR PROTECTION OF' FAIR COMPETITION There is general agreement that the antitrust laws should be revised in the interest of clarity, fair trade practices, and fair administration by government. Everyone shares in need ing this, except demagogues and socialistically inclined peo ple who would use vagueness in the law to enlarge the police power of government.

The following principles would seem to be appropriate and fair means of guidiIJ.g such revisions: First, it should be clearly specified in law not susceptible to judicial distortion that mere size should not be conclusive evidence of monopolistic power. It should be recognized that in certain areas of industry large companies are desirable, indeed necessary. Second, in a given field a monopoly of the market should carry with it certain responsibilities and amenability to regu lation not imposed upon business generally. This applies to public services, where monopoly is necessary and desirable. But in other fields, and without further extensi9n of the concept of public utilities, there should be specified the legal obligation to maintain fair prices, services to all who legiti mately want such services, and access to raw materials. There are those who would specify a definite percentage of the mar", 224 Regulation without Regimentation ket as the limit for any ()ne concern. That is neither practical nor necessary.

Third, a way of getting court approval of specific trade practices which is more appropriate than the present "con sent decree" method might be that of permitting businesses to go to court to get a declaratory judgment against the gov ernment. This would eliminate the long wait for Depart ment of Justice action. Fifth, there should be more specific laws regarding prop erty. rights in patents and proper means of exercising such rights." The health of our economy and the preservation of liberty are generally conceded to be dependent upon the presence of competition and the absence· of monopoly. All sides agree on this, statists and libertarians alike. But it should be noted and underlined that altogether too prevalent an opinion exists that competition in the United States over the past seventy-five years has been on the decline and is still declin ing. This belief is assiduously stimulated by statists who would accept the pessimistic alternative of statist policies to the further enlargement of the area of liberty. The facts do not justify this widespread belief in the decline of competi tion and the growth of monopoly. Here, as in other economic fields to which I have referred, honest debate has been closed by the development of scientific economics. In a very careful review of the available data on the subjett, Professor George J.

Stigler makes the following observations and conclusions: It seems conservative to estimate that the competitive indus tries were producing seven tenths of the national income in 1939, and u,tiIizing four fifths of the labor force. 9 Then, presenting the results of a study of the labor force by Daniel Carson, Stigler goes on to say: 9 George J. Stigler: Five Lectures on Economic Problems (New York: The Macmillan Company; 1950 ), p. 50. 225 Progresswith Liberty So far as broad industrial composition goes, the monopolized sector doubled in relative importance from 1870 to the nineteen twenties, and thereafter declined moderately. The chief cause of the relative growth of monopolized sectors to the 'twenties was of course the relative decline of agriculture in the economy. . .. The broad pattern is attributable to the relative (and in the thirties, absolute) decline in mining, trans portation, and utilities, and the relative growth of trade and do mestic and personal service. It is commonly believed that these trends favorable to competitive industries. will continue in the future. 1 Finally, Stigler adds: . . . there is no obvious evidence for the more popular thesis that competition has been declining steadily (and in many ver sions, drastically) for a half century or more. This popUlar belief, I think, is partly fictional history, partly symptomatic of increas ing. sensitivity to given departures from perfectly competitive be havior. Unless it can be given a documentation which I do not believe exists, it should be abandoned as an obstacle to clear thinking on social policy. 2 Big and small businesses are growing more interdepend ent.

The figures of the government itself prove· that over the past half century there has been no increase in concentration in large companies. The bigs are not destroyers of the smalls. The ratio between large and small corporate businesses has not changed over the past twenty years. Figures of the U.S. Department of Commerce on the rela tive growth of 200 big concerns and 800 small ones between 1939 and 1946 show an advantage for the small ones. Growth and health, as there defined, are based on assets, working capital, sales, and profits. An extensive literature exists on competition and monop1 Ibid., p. 52. 2 Ibid., p. 54. 226 Regulation without Regimentation oly, but nowhere is there real evidence that, when lawful rules of fairness are enforced, bigness injures either the small companies or the consumers. Bigness in some lines may be advantageous to all con cerned, and in others smallness may be better. The deter mination of this must be left to the rule of the market.

After clarification of the laws on trade practices and mo nopoly, there should be no problem of bigness with which government has any concern. GOVERNMENT BY BELIEVERS In many discussions with advocates of statist policies, I have been struck by a similarity in the premises of their thinking. Most of them assert, and generally with sincerity, that they believe a free system of enterprise is ideally the best. They assert their faith in competition and even in prof its as essential to individual and national well-being. But they say: "We do not have free enterprise; in fact, we have never had it. And what you· call free enterprise is doomed to extinction ..We are advocating more government inter vention because we want to save what is left of freedom as long as we can. But ultimately free enterprise, or capitalism, will. destroy itself." 3 3 In Professor Stigler's comment on competition, to which reference has already been made (p. 226), he makes this further observation concerning those who assume the decline of competition because they favor some type of new ,sodal policy: "Many people make assertions about the competitiveness of the economy, and of the· rise, or more often, the decline, of competition through time, and usually their views on these questions seem to exercise a material influence on their views of desirable social policy. There is no neces sary relationship between one's views on the extent of competition and on the type of economic policy that should be pursued. One can· believ~ that. the economy is 99 per cent monopolized, and still argue for policies. designed to revive competition and private enterprise; or one 'can believe that the econ omy is 99 per cent competitive and still argue for syndicalism or socialism.

Such positions, however, are ~ot popUlar. People are prone to ,favor goals which they think. are quickly attainable, perhaps because they wish to be present when the goals are reached, perhaps because· they distrust the com petence of other people's :rrogeny." Ibid., p. 46. 227 Progresswith Liberty This is a pessimistic dogma of statism. It differs little~ ex cept in degree, from the Marxian thesis. It is a denial of the reality and the future possibilities of a free economic society. When people who share this point of view occupy posts in government, in which they exercise regulatory power over economic life, their pessimism makes impossible a healthy and constructive relationship with the people and institu tions whom they must regulate. The remedy rests in part with the authorities responsible for appointments to regulatory agencies. In the Federal gov ernment that means the President, his major department heads, the Civil Service system, and the Senate.

The final answer is political. A free people should, if they wish to remain free, elect to public office those who truly believe in a free economic system. Sound Finance and Liberty TAXATION FOR REVENUE, NOT REFORM While the unlimited power of Congress to tax incomes is a continuing threat to liberty, it is impracticable in these times of international stress to expect any constitutional change until normal times return. 4 Since the income tax can be conditioned to any sort of social or economic system that Congress and the President prefer, the problem now is to labor for the election of a President and of members of Con gress who will preserve liberty under a sound system of taxa tion. And so far as possible, the bureaucracy must be rid of people who would misuse the power of taxation. 4 In 1949 the legislature of Michigan adopted a resolution proposing the calling of a constitutional convention to limit the taxing power of Congress.

Under the Constitution of the United States, when 32 states adopt such a proposal Conpress must call such a convention, which can then submit amend Inents to the states for ratification. The Michigan resolution proposed the form of such an amendment. A number of state legislatures have since adopted this proposal. 228 Sound Finance and Liberty A number, of principles should underly tax policy: 1. The objective and ideal of all taxation should be rev~ enue, not reform. 2. For the normal civil functions of' government, Con~ gress should adopt a seif~denying ordinance limiting expend itures and taxes. No such self~imposed restriction could' be proof against a spending Congress and Administration. But Congress could by a solemnly adopted joint resolution spec ify such a policy. 3. In order to preserve personal incentive and business growth, there should be assurance that rates will be progres, sively reduced when normal times return. The surtax scale should be moderated; the double tax on corporate dividends should be eliminated; the administration of the depreciation allowance should be more liberal; and the entire Internal ,Revenue Act should be overhauled in the interest of clearly indicating to the 'Supreme Court the meaning and purpose of Congress.

4. There should be new legislation limiting the discre tion of the Treasury in administering the famous Section 102, which has the effect of inducing companies to payout reserves in' dividends. A good rule would be to place the burden of proof on the government to show that· the with holding of dividends is for the specific purpose of evading taxes. 5. A far-reaching reconstruction of the tax system should be started at once, for the purpose of giving sources of taxa tionback to the states. 6. Consciousness of taxes should be sharpened among all ranges of the population by taxes at some rate, however low, on all incomes. No group of any •considerable size should be wholly exempt and thus be dependent on the rest of the population. 7. The principle should always be stressed, however it may displease the political. mind, that direct rather than in~ 229 Progresswith Liberty direct taxation is to be preferred. Taxes· should be seen and felt. The abiding concern of a political government is to levy taxes so that as many people as possible will not know that they are paying them. In the old days ,under the property tax the citizen had a more or less reliable gauge of what he was paying for government. Now, with the enormously complex system of indirect taxation, there is little opportunity for the citizen to place responsibility-to reward or punish his pub lic servants. With the spreading of the income tax there should be an elimination of as many of the hidden and in direct taxes as possible. The sales tax also is a consciousness awakening tax. Shall we have some time a political leader who advocates "share the consciousness of taxes"? Taxes are already being more and more widely shared because "share the wealth" has progressed so far. What is needed is .to let people know more clearly what taxes they are paying and to whom.

8. Taxes should, so far as possible, be aimed at consump tion rather than accumulation. A tax on consumption, in the fprm of a sales tax, for example, is easier to collect. It also allows a limited freedom of choice to the person who pays it . to decide on the time he pays or whether he chooses to pay at all. It also reminds him that he is paying taxes.. g. The theory of "ability to pay" should be reconsidered. This cliche has been recklessly used, with little consideration of the fact that a person with "ability" to pay large taxes may also have the ability to use his money for productive and wealth-creating purposes. Drastic taxation of large incomes reduces capital formation and immediately gives an argu ment to the statist who would, following the Marxian prin ciple of credit control, thrust government forward as a provider of the necessary capital. The theory of the politi cally minded economists of recent years that government spending adds to capital formation is largely an illusion. The 230 Sound Finance and Liberty real and safe sources. of capital are, the savings of individuals and private businesses.

10. The ideal of a balanced budget needs hardly be men tioned. An unbalanced budget means an unbalanced future. SAVING OUR SAVINGS It is elementary that when the Federal government spends more than is raised by taxation, piling up of government debt .results. That, in turn, produces inflation. Inflation progressively destroys the value of savings accumulateq in the past. The debt also. places a burden on the future. The prevention of this reckless squandering of personal resources becomes a major concern of everyone and a first responsibility of government. There is no alternative to spending except to keep spend ing within the limits of income. T~e economic jargon of government economists seeks to ·deny that, of course. Their form ula is to borrow and spend first, and then from the in creased "wealth"that results, to take enough in taxes to bal.. ance a ftiture budget and to pay back the borrowed money.

That is an· illusion, because if more dollars are realized from the inflation caused by borrowing, they have less value. To a politician thinking about the results of the next election or so, a borrow-spend-to-repay policy is attractive. He cares little for the more distant future. The way to check that delusive, dishonest, and perilous policy is political. Those who have· savings and who stand to ,lose by inflation because their incomes are more or less rigid must resist the. trend. PUBLIC ECONOMY The only way to check Federal borrowing is to balance spending with receipts. There are several appro~ches to this problem. All of them should be used. 231 Progress with Liberty 1. A great many functions recently assumed by the Fed eral government should be restored to state and local govern ments. These are closer to the taxpayer and are more subject to his· watchful eye and control. Hence, the restoration of functions and powers to the states, as well as the return to them of certain tax sources now pre-empted by the Federal government, is essential not only because it is. necessary to the preservation of our constitutional system, but because it is a measure of economy.

2. Government expenditures abroad for the development of backward areas and for the recovery and expansion of the economic life of friendly allies can be measurably reduced by a sound encouragement of private investments. This would introduce better business judgment into such ven tures. 3. The same principle can be applied to great Federal projects in this country, such as dams, reclamation, great bridges, tunnels, and public roads. If, as is claimed, these will be self-liquidating, the test would be the sale of bonds by the states or by intersta.te public corporations or "authorities." Thus, responsibility is laid upon the state or region benefited and the business judgment of private investors is brought into action. Under Presidents Roosevelt and Truman, this wise though less spectacular principle has been generally ignored. 5 4. The rationalization of relief and welfare would relieve the future of a burden that may well be intolerable. 6 5. The lending policies of the government are wasteful as well as wrong in principle. Relief from this drain would save considerable amounts. 7 6. The elimination of useless jobs and other forms of waste in the vast Federal bureaucracy means much more than 5 See above, pp. 204-8.

6 See above, pp. 191-5. 7 See above, pp. 21 3-14. 232 Sound Finance and Liberty across-the-board slashing or aimless pecking away by com mittees of Congress. It involves the great task of bringing the Federal establishment under sound mechanisms of con-. . trol. One example of this is the General Accounting Office, under the Comptroller General. This office was designed to provide not only' a means for accounting of expenditures, but an instrument through which Congress could control ex penditures and guide itself in making appropriations. In practice, accounting has almost completely overshadowed the controlling job of the Comptroller General. This was pointed out by the Hoover Commission. Likewise, the Presi dent has practically lost control of his huge administration because of a faulty budgetary system. This also was a point made by the Hoover Commission. With the restoration of these controls, the immense task. of weeding out the bureaucracy might be achieved, with a saving of great sums.

7. Ultimately, the voters of the nation should realize that only frequent changes in the Presidential office, even without change of party, can bring about large-scale economies. The vested interests that develop in a regime cannot effectively be eliminated by Congress alone. A new President whois genu inely economy-minded could save billions. Thus this prob lem, as well as others, is a political one. 233 PART FOUR LIBERTY THRO GH POLITIC'AL AC ION CHAPTER VIII The Myth ofa Two-PartySystem The Two-Party Ideal The theory of a two-party system is one of the most intelli gent political concepts since the birth of constitutional gov ernment. A constitution, however wisely constructed, is still a lifeless pattern. The political party activates the constitu tional body. It is at once a mechanism between the people and their government and a cohesive element holding to gether people of similar or related ideas and interests.