No More Drinks on the House; L.E. Read

No More Drinks on the House. . . LOCAL OPTION closed the saloon in my little village before I was. old enough to steal a peek through the swinging doors. But I wasn't too young to be impressed with a fea ture common to saloons of that day: the free lunch. Rumor had it that the food was good, and all you could eat. Intriguing to a ravenous youngster! Of course, the free lunch was purely a business getter. If the customer went home to eat, he might not return for another drink. The profit in drinks ex ceeded the cost of the food; and that was the economics of the situation. I was reminded of the free lunch by a recent edict of the Civil Aero nautics Board: no more free drinks on commercial airlines! Another business getter outlawed by government, and a popular rul• • LEONARD E. READ ing at that; a high proportion of airline passengers - and perhaps every last one of the nonpassen gers - will exclaim, "Good rid dance!" Nor will I argue for free drinks; anyone who can afford to ride first class is able to pay for his own spirits. The real issue, ho\vever, is not this minor item but rather the trend it portends.

VVhat concern is this of govern ment? Carry such interventionism a few steps further, and I \von't be allowed to buy you a cup of coffee! The no-drink edict is sympto matic of a trend that frets me, and for good reason. I have been rid ing airplanes for 50 years - more than two million miles - and have grown up alongside the remark able development of this industry. Today, it is in a state of perfec tion beyond my fondest dreams.

324 THE FREEMAN June But, I recall paying a similar trib ute to railway passenger service and the "crack trains" of a short while ago. Observing what has happened to the railways by rea son of governmental and trade union interventionism and the consequent denial of competitive pricing, I wonder if the same forces are not at work in air transportation 11 Do you see what I see? Why, for instance, do our privately owned airlines find themselves competing for business by resort ing to such fringe attractions as a free martini? Why has their ap peal for passengers been reduced to such advertising sophistry? We hear of "Fan" jets and "Whisper" jets as if these were better than competitors' engines. One airline features "Yellowbirds" and an other spends a fortune on a dozen color variations. We are offered meals aloft by "Club 21" and by "Voisin." Motion pictures! And stereophonic recordings ranging from "rock" to Beethoven! Air lines compete in how nattily the stewardesses dress and how "mini" their skirts lOne airline 1 It is careless talk to assert that the airlines ran the railways out of the pas senger business. I can beat any prize fighter if his hands are tied behind his back. Had the railways been free to com pete, no telling what miracles they might have wrought. They were given no chance!

flies "the friendly skies," imply ing that the heavens may be less gracious to the others.·A stranger to flying might easily gain the im pression that the airlines are com p~ting with each other as night clubs in the sky. What accounts for this shadow competition? Protecfionwith a Vengeance The answer is simple: govern ment'does not permit realistic competition; the CAB, not the air lines, governs the pricing of air line services. Unhampered pricing is taboo; without it, competition is essentially meaningless, leaving only trivia as marks of distinction. When freedom to price their own services does not exist, how else can they compete for business ex cept by appeals to inconsequential embellishments? To rephrase one of their punch lines, "Is this any way to run an airline? You bet it isn't!" Americans, by and large, have frowned on cartels, these being arrangements where members of an industry get together and fix prices. The intent of the popular but ill-advised Antitrust Laws waS anticarte1. 2 Only recently, some executives of leading electrical manufacturers were sent to prison 2 As to how ill-advised, see "Do Anti· trust Laws Preserve Competition?" bji Sylvester Petro. THE FREEMAN, October 1957.

1968 NO MORE DRINKS ON THE HOUSE! 325 for price-fixing. In other words, they were condemned for not pric ing competitively. Yet, the airline industrY,like railroads, is a cartel, pure and simple: free entry is taboo; prices are fixed. Had the airline or railroad owners effected this rigged arrangement them selves, they would be prosecuted as criminals by· the Antitrust Di vision of the Justice Department. But they are absolved of any guilt because, in these two instances, the cartels are of governmental construction. Parenthetically, I make no claim that the airline owners are op posed to their cartel or that they are anxious for competitive pric ing. For all I know, they may like the arrangement; it has a dual attraction: no price competition and no public or governmental dis approval. While most Americans will concede that competition is sound in principle - when applied to others - not many will actually seek it for themselves. Unless one enjoys a contest for fitness' sake, competition is avoided.

The Unseen Consequences My concern, however, is not so much for the airline owner who finds his industry controlled by the CAB. I am concerned as a pas senger, and my concern extends to those who may never fly at all. What about those persons who choose not to fly? The subsidies granted to all airlines since, say, 1925, add up to some staggering, unestimable figure. 3 Who pays this bin? The taxpayers, as much by those who never fly as by those of us who regularly take to the air. Why should the nonflying 'widow Doakes, for instance, sub sidize my trips? This is rank in justice, but unavoidable under a government-backed cartel. As for those of us who prefer to fly, why should we not be of fered the full competitive range of services and prices free-market airlines would provide as a means of attracting our business? Intro duce free entry along with com petitive pricing, and watch their ingenuity out-do even today's re markable performance. And as sure continuous improvement by removing the coercive forces that have crippled the railroads! Such outstanding performance by free market practices has been demon strated time after time in all areas where they are not pro hibited!

Why not? The reason is plain: once an activity has been under government control, no one can imagine how the problems could 3 Subsidies take many forms: govern ment operated airways, weather sta tions, control towers, mail contracts, to mention a few. Then, there are the air ports, the cost of which runs into the billions.

326 THE FREEMAN June be met were it decontrolled. This is the reason why the President's Commission for postal service im provement does not recommend that mail delivery be turned over to the market, that is, to free entry and competitive pricing. And it ex plains why there is little likeli hood that the airlines will be de cartelized. Unimaginable! It is true beyond question that no one, however ingenious, can en vision how free-market airlines would operate. No one has ever had such foresight - or ever will! But hindsight shows that when an activity is left to the market the miracles happen; examples abound by the tens of thousands. Just look at the record! For instance, no one, at the turn of the century, foresaw how free entry and competitive pricing would work in the auto industry. What does hindsight reveal? A remarkable selection-of-the-fittest took place; some 1,600 companies tried their hand and fell by the wayside. Those who failed in the competition didn't like it; but I am looking at our problem from the standpoint of a consumer.

How have we consumers fared? Everyone of the past three-score years has witnessed a service to us superior to that of the previous year. Today, there are just a few survivors; but from these few we can purchase an enormous variety of autos, anyone of which would have confounded the imagination sixty years ago. And, so far as autos are concerned, we feel con fident of improvement next year, and the year after. But how con fident would we be were that com petitive industrial complex merged into a government cartel? U. S. based airlines are pri vately owned; most of the world's maj or airlines are government owned. Observe how much lower are the operating costs of the pri vate lines. 4 Private ownership, even in the absence of competitive pricing, generates a considerable ingenuity and accounts for the ex cellence of our airlines. Except as Men Have Faith However, we must bear in mind that there is no meaningful owner ship except as there is owner con trol, and that as control by the CAB increases, private ownership of the airlines correspondingly disappears. The CAB's control is increasing!

This is why the edict, "No more free drinks," is ominous; it is symbolic of what's happening: competition, even in trivia, is des tined to become less and less. Man4 For a comparison, see "Flying So cialism" by Sam H. Husbands, Jr. THE FREEMAN, February, 1965.

1968 NO MORE DRINKS ON THE HOUSE! 327 agement of the airlines is slated to pass from the title holders to a government agency, as has the management of the railroads. Once we grant that the industry is not suited to free entry and competitive pricing, that it is a natural monopoly of the govern ment cartel type, we can expect nothing different for the airlines than has already happened to the railroads. Granting this error, our airlines will, sooner or later, be staffed alike, the workers dressed and paid alike, the meals and movies and drinks served alike, and the planes decorated alike. We need only remember that competi tion, even in trivia, is not in the lexicon of collecti vism ; and we might expect that our airlines, like the government owned Air France or Air India, will even tually bear some such name as Air America. Conformity and uni formity, not distinctiveness, is the collective way.

This is assuredly the destiny of our airlines unless, of course, we turn to the one and only alter native: free entry and competitive pricing-even a drink on the house or a free lunch if the competitor so chooses. And this can happen only as more of us than now know for certain that the results will be more remarkable than we can ever imagine. ~ Spokesmen of Progress THE RICH, the owners of the already operating plants, have no particular class interest in the maintenance of free competition. They are opposed to confiscation and expropriation of their for tunes, but their vested interests are rather in favor of measures preventing newcomers from challenging their position. Those fighting for free enterprise and free competition do not defend the interests of those rich today. They want a free hand left to unknown men who will be the entrepreneurs of tomorrow and whose ingenuity will make the life of coming generations more agreeable. They want the way left open to further economic improvements .. They are the spokesmen of progress.

LUDWIG VON MISES, Human Action THE UNTRUTH OF THE OBVIOUS YALE BROZEN THIS is the age of science as well as of riots-an age when we search for and discover the laws that ex plain and enable us to understand many phenomena. Professor C. Northcote Parkinson, for example, through many years of painstak ing research, discovered the law that "expenses rise to meet in come." Parkinson has become famous for his law. Since I, too, would like to become famous, I am go ing to propound Brozen's law: Most obviousl·y true economic pol icy propositions are false! Let me illustrate with some ob viously true policy propositions which are false. Dr. Brozen is Professor of Business Eco nomics, Graduate School of Business, Uni· versi ty of Chicago. The Fair Labor Standards Act was amended to raise minimum wage rates from $1.25 an hour to $1.40 on February 1, 1967, and to $1.60 one year later. It was ob vious that a wage rate of $1.25 an hour would provide only $2,600 per year for a full-time worker.