One-Sided Capital Gains Tax; H. Hazlitt

Our concern is in getting the greatest possible benefit from the resources that are available now. For economics, the words of Omar Khayyam are most relevant: HENRY HAZLITT FOR 35 years American taxpayers have been subjected to a cynically onesided levy on capital gains. Prior to the stock market col lapse and depression of 1929-33, capital gains were taxed as in come, and at the same rates. And capital losses were fully deductible against income. But one day J. P. Morgan revealed before a Con gressional committee that he had paid no income tax for the pre ceding year, because his capital losses exceeded his ordinary in come. The statement caused great moral indignation. Yet if capital gains are equivalent to and should The Moving Finger writes; and, having writ, Moves on: nor all your Piety nor Wit Shall lure it back to cancel half a Line, Nor all your Tears wash out a Word of it. ~ ONESIDED CAPITAL-GAINS TAX be fully taxable as income, then by the same logic capital losses should be fully deductible against income.

But Congress preferred indigna tion (anQ1ll9:rerevellues) to logic (and fairness) and onesidedly "rectified" matters by refusing to allow anybody to-deduct more than $1,000 a year in short-term capi tal losses against income, though it continued to tax short-term capi tal gains in full as if they were income. Congress and successive ad ministrations then launched upon a career of inflation. This has paid the government handsomely at the expense of the taxpayer. The infla1969 ONESIDED CAPITAL-GAINS TAX 271 tionary rise in prices has made nominal money incomes rise. This rise in money incomes has kept putting people all along the line in higher tax brackets where they are automatically subject to higher and higher rates, whether or not their real incomes in purchasing power are any higher. Inflation has had the further re sult that people since 1933 have often been paying taxes on capital "gains" that have no real exist ence.

Suppose you bought stock or real estate for $10,000 in 1939 and sold it for $25,600 today. You would be taxed on a capital gain of $15,600. Actually, as the cost of living has also risen 156 per cent in this period, you would have achieved no real capital gain at all. Your $25,600 would buy no more than $10,000 bought in 1939. If you sold your real estate or stock for $21,000, you would be taxed on a capital gain of $11,000, though you would have suffered an actual loss in real terms. Under past and prospective in flation, the present capital-gains tax amounts to a large· extent to capital confiscation. Its harmfulness does not end there. By taxing net money gains in full, and short-term gains at rates up. to 77 .. per cent,. with loss deductions only against gains (except for a token deduction against income) the present sys tem of capital-gains taxation dis courages investment, particularly of risk capital. It "locks in" capi tal. It penalizes investors heavily for transferring investments into new ventures and so retards econ omic growth.

-There are at least a dozen dif ferent possible reforms of the capital-gains tax, anyone of which would make it less onesided. I suggest we begin with this one: When a taxpayer sells shares or a piece of property held over a long period, he should be permitted to calculate his real gain (or loss) by deflating his nominal money gain against the increase in the official consumer price index since the year in which he originally ac quired the property. The justice of this way of cal culating real capital. gains should be obvious. At least the advocacy of such a reform would help to make clear the inj ustice of the present heavy taxes on grossly in flated or nonexistent capital gains. The government might no longer be. able to profiteer so flagrantly, either in capital-gains revenues or in higher income tax rates, from its own inflationary policies. ~ Copyright 1969, Los Angeles Times. Reprinted by permission.

8. The Multiversity THE PROPER GOAL of education is the development of the individual; and the great task is to bring the educational structure back to that purpose. Unfortunately, the trend continues in the opposite direction. The multiversity, to use the term coined by Clark Kerr, would ap pear to be a modern hybrid with a scale of values oriented toward everything but the individual stu dent. Formerly, the university was regarded as a sanctuary for origi nal and independent thinking. Dr. Roche is Director of Seminars for the Foundation for Economic Education .. He has taught history and philosophy in college and maintains a special interest in American edu cation. 9.72 Many centers of higher learning today seem willing to prostitute themselves in pursuit of public funds. Indeed, the race for funds goes far beyond that; it also in cludes the development of a cur riculum featuring the vocational training demanded by the profes sions and the business community.

In short, many of our institutions of higher learning are directing themselves not toward independ ent inquiry and the development of inquiring individuals, but in stead are providing the institu tions of our society, both public and private, with the properly "prepared" (though not necessari ly educated) graduates needed to 1969 THE MULTIVERSITY 273 staff our social structure. An "as sembly line" is thus set in motion, as the demands of both public and private institutional giants shape the higher learning in America. Traditionally, academicians have abandoned the market place to better pursue their work; but it has been suggested that "modern America has thrust its academi cians back into the commercial arena." Clark Kerr, in The Uses of the University, has defined the modern university as "a mechan ism ... held together by admin istrative rules and powered by money." He adds that "it only pays to produce knowledge if through production it can be put into use better and faster." If everything within the academic community is for sale to the high est bidder, if concentrations of power, public and private, are al lowed to establish all the criteria for what constitutes education, then we should not be surprised when bigness displaces the indi vidual and "workability" replaces values.

Meanwhile, the multiversity grows by leaps and bounds. Ad ministration is becoming one of the great academic problems of our times, as "specialists" are added to handle fund raising, public re lations, purchasing, and the my riad other technical problems which we have insisted upon making a part of higher education. Under the banner of "public serv ice," the giantism of the modern multiversity is becoming the com monplace of American education. Impersonality The severe impact of the multi versity upon the student is de scribed by two Berkeley professors who have faced the situation first hand: The architects of the multiversity simply have not solved the problem of how to build an institution which not only produces knowledge and knowl edgeable people with useful skills but which also enriches and enlightens the lives of its students .... By any reasonable standard, the multiversity has not taken its students seriously ... to many students the whole sys tem seems a perversion of an educa tional community into a factory de signed for the mass processing of men into machines.l Often, the impact of the multi versity is equally severe upon the professors. As massive enrollments and expenditures have necessitated a great and growing educational bureaucracy, the traditional small "community of scholars" has grad ually deteriorated in many insti1 Sheldon S. Wolin and John H.

Schaar, "The Abuses of the Multiver sity," Seymour Martin Lipset and Shel don S. Wolin, eds., The Berkeley Student Revolt (New York: Doubleday Anchor, 1965) .

274 THE FREEMAN May tutions into a large group of sal aried employees. The great and growing numbers which the multi versity attempts to serve impose great burdens upon student, pro fessor, and administrator alike. And as they rush through their appointed rounds in an effort to keep the gigantic system in oper ation, they find that each new fall brings larger and larger crowds of students to be digested by the system. The tremendous numbers involved have forced many insti tutions to use IBM cards and other means of mass processing, further widening the gap between the institution and the individual. The impersonality beginning with registration is maintained in giant survey classes and concluded with anonymous graduations. In many cases students and professors never come to know one another indeed, the products of such a system are not always worth knowing. When any institutional frame work deals with thousands of per sons each day, it is not surprising if there is neither time nor re sources for an individualized ap proach. Yet, can the development of independent judgment and a genuine insight into the human condition be accomplished without a close interaction of teacher and pupil? The answer is no. Thus, many students who are attending the multiversity in search of an education are being deceived. They find themselves neglected in an institution primarily directed toward the procurement of Fed eral and foundation research grants and the development of the proper institutional "image."

College and uni versi ty alike seem to suffer from the same di sease. As Robert Hutchins put the case: The reason is that the students, who have been lured to the college by its proclaimed dedication to liberal ed ucation, find on their arrival that the reality is quite different. In reality, the college is, except in size, the same as a university, devoted to training and not to education .... Unless the American university is completely reorganized and reorient ed it can only mishandle and frus trate the students who reject the mindless mechanism of the academic assembly line; the students, in short, are looking for an education. 2 No Easy Solutions A part of the problem, of course, is due to the sheer magnitude of our institutions of higher learn ing. Such giantism makes adap tation to change and to individual needs especially difficult. But merely escaping from the giant university to the smaller college 2 Robert M. Hutchins, Los Angeles Times, Oct. 31, 1966.

1969 THE MULTIVERSITY 275 is no guarantee of success. The colleges are becoming in many cases little more than satellites to the great universities. Their ideas and attitudes often originate in the large universities; their teach ers are usually trained there. Some institutions are attempt ing a so-called "cluster-college" approach for re-establishment of faculty-student contact. But the expense involved leads administra tors back to,vard the "grea ter efficiency" of centralization. They argue that the savings in planning physical facilities for large blocks of students can then be applied in procurement of more and better personnel. In their view, large size becomes a solution to educa tional problems rather than a problem in itself. It is true that effective higher education requires fine intellect and scholarship in its teachers, and such teachers are difficult to attract to the small campus when all the money and most of the prestige lie in the great multiver sities, In either case, it remains extremely difficult for students to contact fine teachers. Many of the small schools cannot attract such men, and many of the large schools who can attract them are so beset ,vith vast numbers that teacher and pupil seldom have personal contact.

Size introduces a further complication. Many people recognize that a proper background in the so-called "liberal arts" is essential to the development of the whole man, whatever his profession might be. Attempts have been made to mass produce such educa tion through the use of the uni versal survey course. The result often is a student who knows something about everything and nothing about anything. Each professor and each depart ment want the whole time of the stu dent so that he can be thoroughly trained in the professor's or the de partment's specialty. Since it is ob viously impossible for the student's whole time to be spent in this way, the course of study is determined by a process of pulling and hauling and finally emerges as a sort of checker board across which the bewildered student moves, absorbing from each square, it is hoped, a little of some thing that each professor or depart ment has to offer him. 3 Specialization Not all of our problems should be laid at the door of mere size and nun1bers. Higher education labors under other handicaps as well. The pressures of the system drive the good teacher to,vard such increasingly narro'w special ization that the information ceases 3 Robert M. Hutchins, The Confiict in Education, pp. 60-61.

276 THE FREEMAN May to be readily communicable to stu dents. Our highly technical modern world de,mands specialization. But vocational specialization without understanding of the humanities and liberal arts affords a limited perspective on life. Narrow spe cialization tends to dehumanize. A man's work is a vital part of his life; but unless that work is kept in touch with the realities of the human condition and in con tact with a higher purpose, all difference between man and auto maton will have been removed. Specialized knowledge in the Western \vorld has accomplished miracles through increasing hu man control over physical environ ment. Man has achieved power in the process, a power being con centrated in the governmental and private institutional giants of our time. Rewards are high for the specialist. In such a process, how ever, we run a grave risk of losing the capacities which make us hu man. A young student of great ability easily may pass through his entire education without en countering the reality of the hu man condition or establishing his self-identity. Instead, he moves from one superficial consideration to the next, always dependent upon "expert" and "fashionable" opin ion, "objectively" studying noth ing but the "facts."

Superspecialization further requires a seemingly infinite variety of course offerings in the curricu lum. It is true that men are differ ent, but surely there are features of the human condition which are universal and which override all specializa tion. Only by maintaining a balance be tween our experimental bent and our loyalty to the ageless wisdom of our tradition can we hope to remain cul turally in the Western orbit. The distinguishing mark of the educated man is his sense of continuity and the awareness of his heritage. As Professor Josef Pieper has the cour age to affirm in an age of specializa tion, a man must be able to compre hend the totality of existence. 4 Specialization also serves as a shield for many within the edu cational community who do not appear primarily concerned with education. There are some who pursue erudition for its own sake, divorced from any meaning in human existence. They conceal their lack of a philosophy of life behind an endless search for facts.

Educational bureaucrats often seem to reflect the victory of the modern specialist over the uni versally.educa ted man. But this creates an extraordinarily strange type of man. . . . With a certain apparent justice he will look 4 Thomas Molnar, The Future of Edu cation, P. 157.

1969 THE MULTIVERSITY 277 upon himself as "a man who knows." And in fact there is in him a portion of something which, added to many other portions not existing in him, does really constitute knowledge. This is the true inner nature of the specialist, who in the, first years of this century has reached the wildest stage of exaggeration. The specialist "knows" very well his own tiny cor ner of the universe; he is radically ignorant of all the rest. . . . Previ ously, men could be divided simply into the learned and the ignorant .... But your specialist cannot be brought in under either of these two cate gories. He is not learned, for he is formally ignorant of all that does not enter into his specialty; but neither is he ignorant, because he is "a scientist," and "knows" very well his own tiny portion of the universe. We shall have to say that he is a learned ignoramus, which is a very serious matter, as it implies that he is a person who is ignorant, not in the fashion of the ignorant man, but with all the petulance of one who is learned in his own special line.5 At least a portion of the exces sive specialization of our time must be blamed upon the fetish of the doctoral degree. But a re search degree is far from an as surance that a man is a qualified teacher. In fact, as Irving Babbitt warned forty years ago, "the work that leads to a doctor's degree is 5 Jose Ortega y Gasset, The Revolt of the Masses, pp. 111-112.

a constant temptation to sacrifice one's growth as a man to one's growth as a specialist." The superspecialization de manded in our times often leaves the individual, as Ortega says, so specialized that he is ignorant in many facets of human existence, so ignorant that, outside his spe cialty, he reacts as an unqualified mass-man. Is it possible that pro fessors who speak with such au thority in areas outside their disciplines sometimes reflect that lack of training - proving them selves unqualified to exercise lead ership outside their narrow spe cialization? Publish or Perish The drive toward superspeciali zation and the accompanying mul tiversity quest for "image," serving as means for reaping the appropriate financial rewards available through conformity to the pressures of the gigantic pub lic and private institutional struc ture, have one of their most unfortunate manifestations in "publish or perish," the prolifera tion of research and publication for its own sake. One Stanford psychologist has suggested that . . . before the turn of the century, it will be recognized that radical ac tion is necessary to limit the out pouring of specialized and often trivial publications that even now 278 THE FREEMAN May all but inundate the offices of every academician. . . . The most prestige ful colleges will begin by making rules forbidding their professors to publish until they have been on the faculty five or even 10 years. They will thus create a campus culture in which publishing is considered not good form. 6 Though the professor may have had his tongue in cheek, there can be little doubt that a mass of trivial research tends to contam inate the academic atmosphere and bring legitimate research into dis repute. It also interferes with teaching. So long as the high road to academic success is thought to lie exclusively in research, we can scarcely expect faculty members to be properly concerned with the teaching function.

Writing, to be worthwhile, should flow naturally out of scholarship, not be imposed upon it; otherwise this forced labor acquires the status of Christmas cards and is counted, not read. If university administrators were required in their purgatory to read all of the trivia which their policies have produced, they would soon crowd the Gates of Hell clamor ing for surcease. 7 6 "Stop Publishing-or We'll All Per ish," The Stanford Observer, March, 1968. 7 A. H. Hobbs, "Sociology and Scholar ship," The University Scholar (Univer sity of Pennsylvania), January, 1960. It is to the ever lasting credit of a number of American colleges that they have not bowed to the pressures for research, but in stead have kept teaching as their prirnary goal. Many of our multi versity complexes could profitably note the comparative lack of stu dent unrest in the American col lege as compared to the American university. An important reason for that difference could be an attitude in many colleges that teaching is a legitimate function of higher education. Independent scholarly inquiry and research are vital to our society and form an important part of our educational process, but we throw out the baby with the bath when we so over emphasize that function that we come to neglect the means for transmitting our increased knowl edge to the rising generation.

Tenure and Promotion The internal political situation surrounding tenure and promotion can also interfere with the educa tional process. The trustees of many educational institutions have yielded to faculty pressures until control of the institution is the prize to be won in an open contest between the professors and the administrators. Many administra tive positions on campuses have fallen captive to faculty politics. Junior professors often depend for 1969 THE MULTIVERSITY 279 promotions upon senior depart mental members whose self-inter est leaves them poorly qualified to judge the merits of another pro fessor. Such forays into campus and departmental politics at the ex pense of teaching duties often are encouraged by the tenure situa tion. The tradition of tenure as a guarantee that the professor can conduct his research and publish his findings without censorship or fear for his job is a vital part of our academic heritage. But tenure was never intended as a protection for the lazy professor who read his last book while a graduate student; nor was its purpose to allow professors to engage in poli tics while neglecting teaching responsibilities.

Collective Judgment and The Committee Inside and outside the Ameri can academic community, the com mittee mentality assaults us on every hand. The highest rewards seem to go to organizers and co ordinators rather than to genu inely creative and original minds. Our worship of institutions not only gives us the multiversity, but also subjects us to nonthought by committee in the everyday conduct of our affairs. One glance at pedagogical litera ture reveals the collectivistic preoccupation: "committee," "cooperation," "integration," "teamwork," "group proj ect," "maj ority-obj ectives," "peer-group," "group-process," "group-imposed regulations," "group determined penalty," "group-accept ance," etc., etc., abound in articles, speeches, meetings, and school cata logues. Together with other ideologi cal directives, they constitute the af firmation that God and individual man do not exist apart from the col lectivity. Moreover, they imply that man's adjustment to the collectivity is the supreme guarantee that he is not in error. 8 Needless to say, committees are no better as teachers than as admin istrators.

The Quality of Teaching University teachers can be and frequently have been vigorous edu cational forces. The really effective professors prove to be those with a full understanding that genu inely effective' college teaching involves far more than lecturing before large survey classes and then quickly disappearing to the library or the faculty club. At least one aspect of the student uprising on campuses has been the teaching failure of the multi versity. In fact, the kind of stu dent protest that emphasizes body English and mass movements in 8 Thomas Molnar, The Future of Edu cation, p. 134.