May

the Freeman VOL. 20, NO.5. MAY 1970 Throttlingthe Railroads: 1. The Railroad Problem Clarence B. Carson 259 Clearly identifying the problem improves the chance that it may be resolved. The Problem Dean Russell 267 If the problem is lack of productivity, there ought to be a better solution than feeding it. Fly the Frenzied Skies Robert Poole, Jr. 273 A plea for market rather than more governmental control of the management of airports and airways. Don't Throw Out the Baby! Leonard E. Read 287 The abusive uses of wealth do not justify discarding this vital product and instrument of man's emergence. The Theology of the ExponentialCurve Gary North 293 Perpetual progress (assuming positive interest rates and no natural or man-made catastrophe)! The Measure of a Man William L. Edelen 311 "One of the most insulting cults that exists in our society today is the religion that has as its object of worship the common man."

Book Review: 317 "Religion and Capitalism: Allies Not Enemies" by Edmund A. Opitz Anyone wishing to communicate with authors may send first-class mail in care of THE FREEMAN for forwarding.

the Freeman A MONTHLY JOURNAL OF IDEAS ON LIBERTY IRVINGTON-ON·HUDSON, N. Y. 10533 TEL.: (914) 591-7230 LEONARD E. READ PAULL. POIROT President, Foundation for Economic Education Managing Editor THE F R E E MAN is published monthly by the Foundation for Economic Education, Inc., a non political, nonprofit, educational champion of private property, the free market, the profit 'and loss system, and limited government. Any interested person may receive its publications for the asking. The costs of Foundation projects and services, including THE FREEMAN, are met through voluntary donations. Total expenses average $12.00 a year per person on the mailing list. Donations are in vited in any amount-$5.00 to $10,000-as the means of maintaining and extending the Foundation's work. Copyright, 1970, The Foundation for Economic Education, Inc. Printed in U.S.A. Additional copies, postpaid, to one address: Single copy, 50 cents; 3 for $1.00; 10 for $2.50j 25 or more, 20 cents each.

Articles from this journal are abstracted and indexed in Historical Abstracts and/or America: History and Life. THE FREEMAN also is available on microfilm, Xerox University Microfilms, Ann Arbor, Mich igan 48106. Permission granted to reprint any article from this issue, with appropriate credit,except "Fly the Frenzied Skies."

CLARENCE .E. CARSON Throttling the Railroads AYN RAND put her finger adeptly on the jugular vein when she fo cused attention on the railroads in her novel about the economic breakdown in the United States, Atlas Shrugged. Surely, the colos sus of the Western Hemisphere, the United States, rose to emi nence in the world on the grid work of steel rails that spanned its length and breadth and reached out like fingers to touch the far thest corners of a vast half continent. Before the coming of the railroads, to speak of a United States was to speak in the hyper bole of politicians and dreamers. These United States were sep arated by great chains of mounDr. Carson is a frequent contributor to THE FREEMAN and other journals and the author of several books, his latest being The War 011 the Poor (Arlington House, 1969). The Railroad Problem tains, by formidable bodies of waters, by natural obstacles which carved the country into regions, sections, isolated valleys, and vast well-nigh untappable hinterlands.

Railroad builders sought out the mountain passes, followed the cuts made by streams through the ages, bridged the rivers, and laid the rails across the stretches of flatland. They united the states commercially, politically, and, may hap, fraternally. Indeed, the American railroad system is one of the marvels of the modern era. There were 23 miles of track within the United States in 1830; by 1920 there were 252,845 miles. Most of the trackage was laid between 1870 and 1910, in one of the most pro pulsive construction programs ever 259 260 THE FREEMAN May undertaken in history. By the early twentieth century, virtually every town and hamlet in the country was either on or within a few miles of a railroad, and most towns of any size had service by two or more railroads. Cities were frequently served by a half-dozen or more companies, two or more of these frequently connecting with the same distant points. Peo ples and goods moved over these lines with speed and safety which a few generations before could hardly have been conceived.

In a recent advertisement, the Association of American Railroads attempted to evoke a sense of the marvelous character of this means of transportation. It read, in part: Suppose that everybody in the United States were to learn for the first time about a marvelous method of transportation called a railroad. The idea would be sensational. High-speed tractors running on steel rails laid on privately-owned rights of-way, with minimum curves and grades, would be capable of pulling long processions of trailers full of merchandise. Imagine! Trains of trailers would be kept rolling day in and day out until they reached their destinations. They would be shuttled into and out of mar shalling yards, where the trailers would be grouped in the right com binations. Of all things! ... The high-speed tractors on their twin ribbons of steel could even haul human beings, in addition to freight. If necessary, the human being could be bedded down and hauled fron1 one place to another in special cars with comfortable seats and all the com forts of home.!

A Waning Romance Americans have not always been oblivious to the marvels of the railroads, of course. On the con trary, many have long been fas cinated with this way of trans porting people and goods. A good case could be made that many Americans have had a long ro mance with the rails. The story of the railroads is deeply .entangled in American lore, legend, and history: the buffalo hunters, the clashes with the Indians, the rush of the railroad crews to lay rails into the West, the driving of the golden spike at Promontory Point to celebrate the linking of the Union Pacific and Central Pacific, the bigger-than-life gangs of train robbers - epitomized by the James boys -, the ballads such as "Casey J ones" and "Wabash Cannon Ball." The steam engine was itself a thing for wonder and awe: steam spouting from its sides as it stood in the station, its lonely whistle in the night, the huffing and puf fing as it made a long grade, its 1 Quoted in John F. Stover, American Railroads (Chicago: University of Chi cago Press, 1961), p.248.

1970 THROTTLING THE RAILROADS 261 long sigh to let off steam as it came to a halt. Even the mighty diesels, while not so romantic as the steam engines (probably be cause they are still with us), could cause heads to turn and voices perforce to cease or be un naturally raised as they roared by. The railroads capitalized on this interest and tried to build excite ment by the names they gave to their crack passenger trains in the twentieth century, names which suggest that the trains soar, ram ble, move swiftly, and fly as they rush to make their destination against the clock, names such as Twentieth Century Limited, Silver Star, California Zephyr, Spirit of St. Louis, City of Los Angeles, South Wind, Sunset Limited, Em pire Builder, Super Chief, and Rocky Mountain Rocket. Even some freight trains have been given special names; the Mil waukee Road calls a westbound fast freight the XL Special and its eastbound counterpart the Thunderhawk.

Even so, the railroad advertise ment is probably right in what it implies: the American people are no longer generally enamored of the railroads. They have spurned many of the rail services with alacrity and taken much of their custom elsewhere. Even the men tion of railroads evokes a faint nostalgia in response. The impression grows that they are ob solete, that their ribbons of steel stretching off into the distance are becoming mute monuments to days gone by, their passenger sta tions relics of other times, their forms about to be reduced finally to toys in the basement and Sun day rides on narrow gauge lines to old abandoned mines. At any rate, the railroads are in trouble. As one writer puts it: "There can be no doubt about the severity of the railroad problem facing the nation in .\he sixties."2 The railroads have h~d a long-term trend of declining traffic, both passenger and freight, though the decline in freight has sometimes been only in the proportion of to tal freight hauled. Service has been increasingly curtailed. Rail road stocks have long failed to re spond even to proportionally high er dividend-to-cost ratio than most other stocks. These are the almost invariable signs of a dying in dustry.

Still Essential lor Transport Yet, the railroads remain an essential method of transport in America. Not only were they once crucial to the commercial unity of America; they still are. It is true these United States are now linked together by highways over which gasoline engines pull trucks and 2 Ibid., p. 47.

262 THE FREEMAN May automobiles, that these highways, presently being supplemented by an interstate system, reach more places than the railroads, and that any city of any size has many which form junctions within its borders. But these vehicles which travel on the highways are an in creasing source of trouble them selves. They pollute the air; they converge on the cities at certain hours of the day constricting movement and raising tempers; parking places for them become ever more costly and difficult to find. Trucks increase in number and size on the highways, vying with automobiles for travel space and increasing the peril of travel. The carnage on the highways is so great that anyone sensitive to the propaganda about it must set out even on a vacation trip in an auto mobile with considerable appre hension. If that portion of the freight now carried on trains should sud denly be shifted to the highways, the pace of traffic would' be dras tically slowed and much that now moves that way could hardly find a place. Weare already experi encing the impact on highways of the shift of passenger traffic from trains to private cars, for the most part; what it would be like when freight should be as preponderant ly shifted to the highways as are the passengers can only be left to the imagination. As things stand, many cities probably could not survive such a shift; many of them are already marginal as plac es to live, and transport is· one of the major reasons. This is why the railroads remain an essential method of transport for America.

Yet, the long-term trend in a shift away from them is now well es tablished. Deterioration in Quantity and Quality of Service Why should this be? To the casual observer or unwitting cus tomer it often appears that the railroads are their own worst enemies, that the management and personnel are directly to blame. Those who use the railroads fre quently get the impression that the roads are determined to be rid of them. This is most noticeably the case with passengers, but users of freight service of certain kinds may get a similar impression. Anyone who has ridden the trains often in the last decade or so prob ably has his own list of com plaints. The. list will most likely include such items as reluctant ticket sellers, difficulties in acquir ing information, late departures of trains, late arrivals, surly em ployees, inconvenient schedules, dilapidated equipment, long walks to cars past a long line of cars for mail and parcels, lackluster sur1970 THROTTLING THE RAILROADS 263 roundings from beginning to end of journey, and so on.

Stories abound of horrendous treatment of passengers by the railroads. The present writer has seen a restroom in a passenger station to which entry could be gained only by dropping a coin in a slot, has heard a porter utter such streams of profanity about the difficulty of getting a woman's luggage from one train to another that she offered to carry it her self to shut. him up, has had his rest disturbed by noisy "dead head" railroad employees on sev eral occasions, and has seen any number of waiting rooms suffi ciently gloomy to discourage all but the most intrepid traveler by rail. Some of. these might be only in dividual instances of poor service which can happen in any under taking. But there is much testi mony that they are of a kind that occurs all too frequently on the railroads. One writer notes that "except for a few crack transcon tinental and other trains, the quality of service rendered has deteriorated compared with pre war [World War II] years ....

Trains are frequently late; coach equipment is often old and some times dirty and poorly ventilated and heated. Many prewar stand ards of courtesy have gone, even in parlor and sleeping cars. . . . On some of the best coach routes, the railroads use obsolete passen ger train cars and treat customers as though the carriers were doing travelers a favor to transport them."3 Another says, "The pub lic sees the railroads as old fash ioned . . . , and as common car riers who hate passengers."4 Suicidal Practices It certainly looks as if the rail roads were trying to conlmit sui cide. They have low advertising budgets compared with other busi nesses; the uniforms of their per sonnel appear to date back to the beginnings; their passenger sta tions frequently appear to be a combination of late Victorian grandeur gone squalid and early government housing proj ects ; their freight stations are often a poor imitation of a down-at-the-heels hardware store. The following are instances of how railroads have alienated passengers: Take, for example, the process of calling on the telephone for some SCl~ap of information about a pas senger train ... ~ Some railroad clerks are evidently instructed to take their phone from its cradle, or hook, and then to forget it.... Other railroad clerks, themselves impervious to 3 James C. Nelson, Railroad Transpor tation and Public Policy (Washington: The Brookings Institution, 1959), p. 321.

4 Stover, Ope cit., p. 251.

264 THE FREEMAN May minor irritations, simply ignore a ringing phone, hour after hour. . . . Another stratagem is the disrup tion of train schedules .... Suppose you wish to travel overnight by train from Washington to Memphis. There is no through service, but the South ern Railway has a Birmingham Spe cial that arrives in Chattanooga at 8: 10 A.M. or ten minutes after the train to Memphis has left. The South ern Pacific's Sunset Limited has been so rescheduled that, eastbound, it no longer connects at New Orleans with the Gulf Wind . . . , westbound, the Sunset leaves stranded in New Or leans for about fifteen hours those passengers coming from the east on the Land N's Crescent or the South ern Railway's Southerner. 5 While freight traffic is not so cavalierly treated, ma~y small communities have lost their agents, and many kinds of pack age freight do not appear to be much wanted.

Not all railroads have been so disdainful even to their passen ger customers. But even those who have continued to serve long dis tance and commuter passengers well often say that they are losing money. Lately, a considerable movement has been mounted for governments to subsidize passen ger trains, and some of this is al ready being done. 5 Peter Lyon, To Hell in a Day Coach (Philadelphia: Lippincott, 1968), pp. 267 68. A Puzzling Performance There are two enigmas here. In the first place, it is not usual for businesses to discourage custom ers and treat them as if they were not wanted. Private enterprise succeeds by serving customers and by gaining and keeping their good will. Even losses may be sustained to provide certain kinds of service in order to gain profitable custom. When businesses behave other wise, this behavior requires ex planation. The second enigma is why any good or service that is widely needed and wanted cannot be profitably provided. Commuter trains, for example, may be filled to overflowing during rush 'hours, but many railroads no longer wish to operate them. Transportation is not the only area where the pro vision of vital goods and services has sometimes become unprofit able (others would include food provided by farmers and rental housing), but it is certainly a crucial one today. This is, to say the least, enigmatic.

There is, of course, an explana tion. To get at it, it is necessary to look into the history of the rail roads. Even the most casual stu dent of American history will re call certain facts related to rail road history. Even the most gen eral history of the United States will probably mention land grants to railroads, the Railway Strike of 1970 THROTTLING THE RAILROADS 265 1877, the Interstate Commerce Act, the Pullman Strike, the Northern Securities Case, the gov ernment takeover of the rail roads in World War I, and the Transportation Act of 1920. In short, what the casual student may discern with a little reflection is that there is a long history of gov ernment involvement with and in tervention in the affairs of the railroads. Deeper examination will show the impact of this on the railroads and provide explana tions for the strange situations that have developed. A Vital Service in Decline Plagued by Intervention There are three fundamental reasons, then, why anyone under taking to write an anti-utopian novel about the United States, as Ayn Rand did, might well focus on the railroads; and they are rea sons why a historical study of the railroads is warranted. First, the railroads were crucial in provid ing a means for commercially uniting the states, and are a still vital part of the transportation network of this country. Second, they have been in trouble for a considerable while and have suf fered a long-term decline. This has brought in its wake a host of other problems already alluded to.

And third, there is a long history of government intervention in rail transport with all its ramifying effects. Indeed, the railroads are the classic example in American his tory of the impact of government intervention on a business. They have had the longest history of in tervention by the Federal govern ment of any modern business. Theirs was one of the earliest in stances of extensive subsidies to more or less private undertakings. The first strike to have an impact on a goodly portion of the country was against the railroads - the Railway Strike of 1877. The first general act to regulate interstate commerce and the first national regulatory commission was aimed at the railroads - the Interstate Commerce Act and the Interstate Commerce Commission. One of the earliest applications of the Sher man Antitrust Act by the Supreme Court against a portion of an in dustry was made against the rail roads in the Northern Securities Case. The railroads were the first private industry to be taken over and run by the Federal govern ment for a time'- during and after World War 1. In short, except for banking and the delivery of the mails, the railroads have probably the longest history of intervention of any major business in the United States. Nor is there any better place to study the debilitat ing effects of this.

266 THE FREEMAN May Since some may suppose that government subsidies and aids were helpful in getting the rail roads underway, and since a new era of subsidies portends, it will be well to begin the account with the building of the railroads and explore some of the varied effects of this before taking up regula tion and control. , IDEAS ON LiBERTY Next: Aiding the Railroads -1830-1871. Learning by Doing IDEAS made possible our nation's growth. Weare a venturesome, valorous, risk-taking people who backed ideas with savings. If the labor unions would back their ideas with the money collected from their dues-paying members and, instead of strik ing against business, go into a business for themselves and prove that they can operate it - can run full time at all times, pay higher wages than present management, have shorter hours, better working conditions, and make enough money to keep operating and pay their shareowners (dues payers) a fair return on their investment - they would get a better education in the relationship of profits to jobs and job security, to the standard of living, and of productivity to wage increases.

Steel men, automobile men, coal-mining men, mill owners, and hundreds of others have twitted unions to make good their claims to buy a company, run it, and prove they can do so better than those they now criticize and strike against. It's wide open, and all can step in and try it. But, Mr. Unionman, don't overlook the 52 per cent Federal tax on profits. The big unions are reported to have' millions of dollars on hand. Why not buy a company, and run it, and prove that wages can be increased without setting the stage for higher inflation? E. F. HUTTON THE PROBLEM DEAN RUSSELL THE MOST difficult part of solving a problem is usually the identify ing of the problem itself. I observed this difficulty in an extreme form as a recent "wit ness" on the TV program, "The Advocates." The issue was non military foreign aid, and I was testifying against these .govern ment-to-government grants by our State Department.

The witnesses in favor of con tinuing and increasing our gov ernment's grants and gifts to other governments were three em ployees of the State Department, a famous foreign sociologist who is currently Visiting Professor at Columbia, and their lawyer. All five of them identify the problem behind our foreign aid programs as "hungry people in underdevelDr. Russell heads the Department of Eco nomics at Hillsdale College in Michigan. oped nations all around the world." Since they believe that's the prob lem, it follows automatically that their solution is to feed the hun gry people. And that's about as far as they go. I am convinced, however, that the fundamental problem is more political and economic than it is biological. And in my attempt to identify the problem, I ask myself why these people are hungry. Is their inability to produce enough food (or to produce goods and services to exchange for food) due to stupidity or laziness? .I think not. Then just what causes their continuing hunger, generation after generation?

I try to identify the probable cause in this fashion: I have a small amount of liquid capital, that is, dollars which can be con verted by labor into the real capi267 268 THE FREEMAN May tal of machines, raw materials, and finished products. For various reasons, I would like to use this modest supply of capital in India, to improve my own material well being and the material well-being of several Indian families who are now hungry. An Offer to Help and Why It Won't Se Done Over the years, I have made the following proposal to several ac quaintances in India, including a government official: If you will permit me to come in, I will im mediately hire at least four peo ple at better wages than they are now earning. Their working con ditions will be more pleasant and their employment will be steadier - than is now the case for any of them. It is self-evident that I would have to fulfill these promises before I could possibly persuade anyone to use my ma chines; obviously, no one would work for lower wages than he is already earning. Even so, I always include In my offer the posting of a performance bond. What I pro pose to do is to try to solve the cause of the hunger - the real problem - by showing a few hun gry people how to produce enough goods and services to feed them selves and their families on a con tinuing basis. And please note that I propose to back my judgment with my own capital, not the tax payers' money.

So why don't I do it? The an swer is shocking. The Indian gov ernment refuses to let me in. "No foreign imperialist is ever going to exploit us again," they proclaim in various words. and tones. Then they immediately apply to the United States Department of State for more government-to-govern ment grants-in-aid. And they al most always get them, thus con tinuing to treat the consequences of the problem instead of the prob lem itself. True enough, two of those In dian acquaintances informed me that I can enter India with my machines, under certain condi tions. First, I must produce what the government wants produced; I am not permitted to make the de cision alone. And I must locate where the government specifies; I cannot make that decision for my self. While I will be permitted to try to earn a profit, it must be "reasonable"; the figure of 4 to 8 per cent was mentioned. And fin ally, the Indian government guar antees that it will not nationalize my company for at least ten years.

And then the leaders of the In dian government wonder why for eign capital doesn't come in! They seem honestly distressed and puzzled as they pass increasingly stringent laws forbidding their 1970 THE PROBLEM 269 own citizens to send their capital abroad. This "frightened domestic capita}" goes to various places, in cluding Switzerland. That small nation, with almost no natural re sources, enjoys a high level of liv ing because its leaders decided long ago that individual capitalists with machines should be welcomed as benefactors instead of repudi ated as exploiters. Thus, the empty bellies continue to multiply in India and elsewhere, far faster than the "green revo lution" can increase the rice and wheat yields. And our State De partment officials continue to treat the symptoms rather than the dis ease itself. Instead of trying to discourage this process of destruc tive prohibitions and interferences by the various foreign govern ments in their own economies, our State Department seems deter mined to worsen the situation by imposing their own group of gov ernment officials on top of the ex isting group. And worse still, American political leaders largely direct the clamor to install a third group of officials (the United Na tions) on top of the other two.

This failure to identify the prob lem - this inability to understand what is preventing hungry people from productive efforts to help themselves - can result only in more hunger, despair, and vio lence. Confusing Money with Raw Materials and Labor A charitable explanation of this blindness of the supporters of gov ernment-to-government aid is per haps to be found in their failure to understand the difference be tween the measuring device (mon ey) and the thing being measured (raw materials and labor). In truth, of course, no one wants mere pieces of green paper with numbers printed on them. Those hungry people abroad and their officials want American raw ma terials, food, labor, and various final products .and services. The dollar figures - the "credits" re corded in various ledgers under various headings - are merely for counting purposes.W ere this not so, we could quickly print up sev eral trillion dollars marked, "Not to be used to purchase goods and services in the United States,"

and give them to hungry people. Of course, no one abroad, or at home, would even bother to pick up such worthless paper. Foreign ers don't eat dollars; they eat food, including all the labor and scarce raw materials involved in producing the fertilizers and ma chinery used to grow, harvest, and transport the food. A favorite argument of those who advocate foreign aid is that many of these grants are now made in the form of interest-bearing loans.

270 THE FREEMAN May "Why, we will even get back more than we send out," they suggest. In turn, I suggest that, for the moment, they forget the political rhetoric and examine with me the reality of these transactions. America's scarce resources - fab ricated into various shapes and forms by American labor - are collected by our government from us in the form of taxes. These re sources are then sent abroad. Not one bit of these resources will ever be returned to our shores in any form. That is the. reality of government-to-government loans, as contrasted with person-to-per son loans which are indeed even tually repaid in kind. No Way to Repay Just how would a foreign gov ernment repay to our government the grants of raw materials and labor? Even if· they wished to do so, there is simply no mechanism to handle it. We can't eat rupees, any more than Indians can eat dollars. Thus, if we are to get anything back, it must obviously be Indian raw materials and fin ished products. Just where would our State Department store them - in the basement? Of course, our officials might demand repayment in textiles, bring the cloth here to the United States, and dump it on our domestic market at low prices. But the State Department officials know, as does everyone else, that this is politically impos sible, regardless of the economics of it.

There is no possible way that foreign governments can ever re pay to this nation the raw ma terials and finished products which were granted to them in various forms by our government. That's why government-to-govern ment loans are always ultimately canceled, usually after being re negotiated a couple of times in various ways. Generally, they are canceled by the foreign nations which owe the debts - for exam ple, France's repudiation of its debts to the United States.Some times the debts are canceled by the nation that made the loans, as when the United States wrote off the debts owed to it by Finland and Great Britain. In any case, they are ultimately canceled. This lack of understanding of the economic and political reality of government-to-government transactions explains the failure of the attempt to collect "repara tions" from Germany after World War I. That ill-advised scheme w·as certainly a chief cause of the collapse of the Weimar Republic and the emergence of Hitler and World War II. It is comparatively simple for our government to col lect raw materials and labor from the American people and to send 1970 THE PROBLEM 271 them abroad; it is politically and economically impossible for the American government to receive back a like amount of resources from abroad to be used within our own borders.

What Is Not Seen The advocates of foreign aid often have no comprehension of the. first principle of economics, namely, that resources are scarce and have alternate uses. They do not seem to understand that the cement, pipes, pumps, machines, and engineering skills given away abroad by our government could' just as easily have been used here at home, perhaps to clean up our polluted water and air, or used in other ways that producers and consumers might deem more im portant. I become a bit unhappy when seemingly intelligent people deny that these governmental foreign aid programs cost you and me any thing. I try to explain to them in personal terms of a canceled edu cational trip to Europe because I had to pay my taxes, steaks not eaten because my government put a 10 per cent surcharge on top of my regular tax, and so on. I am quite willing to pay to preserve our nation at home and to protect our legitimate interests abroad, but I do not gladly tolerate un thinking people who demand that my resources be devoted only to their purpose and who claim that the only cost of governmental giveaway programs is the modest price of printing more money.

It's quite true, as has been said, that the rich United States has enough money to do all these things that need doing. Actually, we have more than enough money, and our government apparently can print more whenever it desires to do so. The difficulty is that we don't have enough raw materials, engineer~ doctors, teacher~ and the other factors required to do all of these things in reality. This "confusing of the measur ing device with the thing being measured" is all summed .. up in the argument that almost all of these foreign aid dollars - 98 per cent of them - are actually spent here in the United States, thus creating prosperity at home. What possibly could have hap pened to that other 2 per cent? Perhaps India traded a portion of its "dollar credits" to Brazil for coffee. If so, our State Department should have noted the fact that Brazil, in turn, used its "dollar credits from India" to buy Ameri can machines and ship them to Brazil.

Of course, the entire grant was spent here, in one way or another; the only reason why foreign na tions want dollars is to purchase 272 THE FREEMAN May American materials and labor in various forms. It's easy enough to explain that rather obvious fact. But how can anyone believe that we can become rich and prosper ous by working and producing goods and services to be given away without any return of other goods and services in trade? Why Not Export Everything? If prosperity could really be ad vanced in that fashion, we could easily treble our material well-be ing in the United States within one year. Our government could just put everyone to work digging up scarce raw materials, turning them into finished products, and shipping them abroad. If we would do this on an emergency double shift basis, olir annual Gross Na tional Product would surely soar above the three-trillion-dollar mark. On the records used to re cord our GNP, we would appear prosperous indeed. But only on those measuring devices; for the things being measured - goods and services - would all have been shipped out of the country, never to return. Our real level of living would plummet to zero. We would still have the paper dollars, though there would be nothing left to buy with them. Could that possibly ex plain why prices have skyrocketed in the United States over the past several years?

Well, there is nothing I can do for persons who are unable to dis tinguish between measuring' de vices and the things being meas ured. Nor can I influence persons who are unwilling to separate ef fect from cause, ·or communicate with those who will not under stand that scarce resources sent permanently abroad are thus ren dered unavailable for use at home. There is one thing I can do, however. There are about 150 freshmen every year in my classes in Introductory Economics. I can at least continue to insist that they identify a problem .before they offer a solution, and that the solution must be designed to make the problem go away instead of to make it worse. I) IDEAS ON LIBERTY Let Us Now Try Liberty AND NOW that the legislators and do-gooders have so futilely inflicted so many systems upon society, may they finally end where they should have begun: May they reject all systems, and try liberty; for liberty is an acknowledgment of faith in God and His works.

FREDERIC BASTIAT, The Law J~e frenzied .skies ROBERT POOLE, JR. A PRIVATE business whose sales volume had increased 15-20 per cent annually for seven years (and showed many signs of continuing to do so) would probably view its future with eager anticipation. In the government-controlled, pri vately "owned" cartel known as commercial avia tion, however, the expected growth in air travel is viewed, in part, in horror. For as the volume of air traffic rises, a monumental crisis appears immi nent, a crisis that threatens the complete paralysis of air trans portation. What is the source of this seeming paradox? How can it Robert Poole is a systems engineer with a California "think-tank." His previous work at a large aerospace firm brought him in contact with FAA and CAB regulations. He holds both a B.S. and an M.S. in engineering from MIT. This article is slightly condensed and reprinted by permission from its earlier pres entation in the September, 1969, issue of REASON magazine, 42 Euston Road, Brigh ton, Massachusetts, 02135.

be that the same industry that will be flying, fueling, and servicing the huge 747, is unable to solve seemingly simple problems of sup ply and demand? The answer is not at all a difficult one to arrive at, provided one views the prob lem in its full scope. "Commercial aviation" consists of three distinct parts: the air ports, the airways linking air ports, and the airlines. Although there are 10,000 airports in the U. S., many of them privately owned, all 525 of those large enough to handle scheduled air line service are owned by city gov ernments (except Dulles and Washington National which be long to the Federal government). Municipal airport financing comes primarily from three sources: municipal bonds (for basic equip ment and taxiways), airline in273 274 THE FREEMAN May vestment (for terminal buildings), and Federal tax money (for con trol towers, landing aids, and run~ ways) .

During the last ten years ,the pace of airport expansion has lagged far behind the growth in air traffic, because (1) local gov ernments have little political" in centive (or expertise) to accu" rately forecast passenger demand, (2) Congress has let the annual appropriation for airport aid gradually decrease, despite con stantly increasing requests for such aid, and (3) local taxpayers are becoming increasingly hostile to large-scale bond issues, espe cially for things which do not di rectly benefit them. Hourly capac ity restrictions have" already been imposed by the Federal govern ment at major East Coast air ports, .beca use of the increasing congestion at terminals and on runways. When the 365-passenger 747 and the300-passenger air buses go into service in the next few years, only a handful or air ports will have terminal facilities or access roads adequate for such large concentrations of people.

Radio Navigation Stations The airways consist of a number of paths' in the sky, defined by ground-based radio navigation sta tions (navaids). The Federal Avi ation Administration (FAA) _owns and operates the navaids and polices the airways. Anywhere above 3,500 feet and in the vicinity of airports, an aircraft must fly under FAA control. Although modern electronics and computer technology make nearly-automatic air traffic "'control technologically feasible,' the FAA still relies on the early 1950's method of using navaids only as references, with all control and decision-making in the hands of a (human) FAA air traffic controller. Because of lim ited funding by Congress, there aren't enough controllers, their salaries' are low,and their, train ing is poor. Combined with the high volume of air traffic" these conditions make today's controller extremely overworked, . in many cases literally a nervous wreck.

Another consequence and cause, perhaps, of the controller shortage is the fact that ~these men, are "daily forced to compromise with safety procedures"! in order to handle their .workload. The FAA's operations are· fi nanced out of general Federal tax receipts (the tax on airline tickets goes into general revenue, while the tax on aviation gasoline goes into the highway trust fund !) Thus, as long 'as there aren't many 1 F. Lee Bailey, attorney for the Pro fessional Air Traffic Controllers Organ ization, in Aviation Week, June 30, 1969, p. ~28.

1970 FLY THE FRENZIED SKIES 275 crashes,. Congress is content to appropriate meager sums for the FAA. 2 The taxpayers" 60.per cent of. whom have never flown at all, justifiably feel little desire to be taxed even further to provide air ways for the mere 15 percent who fly commercial airlines. Finally, the· airlines themselves present an interesting picture. Though nominally private com.. panies, the airlines in fact are con trolled by the Civil Aeronautics Board (CAB) in every essential aspect of their business. The routes between cities are divided up among the. airlines. as a huge cartel, originated. and enforced by the CAB, thus making free entry into .the. market. illegal. Likewise, it is nearly impossible for an air line to leave a particular market (by dropping a city from its schedule) - the "public necessity and convenience" 'must be served, apparently regardless of losses. The prices charged customers for a particular route are fixed by CAB in order to prevent "destruc tive" price competition. Price in creases are permitted to the air lines only as a group, and. price decreases, while allowed on an in dividual basis, must still be run through the mill of CAB.

2 A graph on p. 53 of the May, 1969, issue of Space/Aeronautics illustrates the direct relationship between air crashes and COBgressional appropriations for FAA facilities and equipment. If companies in the steel ind us try tried to set up such an ar rangement, they would be prose cuted by the Antitrust Division of the Justice Department. Indeed, the contradiction between the CAB's philosophy. and the anti trust laws was illustrated last summer, when the CAB had to grant the airlines temporary im munity from antitrust action so that they could meet together to discuss coordinating their sched ules, so as to relieve rush-hour air port congestion. As if this were not enough, 13 local service airlines, which were formed after World War II with surplus aircraft and "temporary" subsidies, continue to receive on the order of $50 million per year in subsidy payments out of gen eral tax revenues. Thus, taxpayers are forced to pay huge direct sub sidies, in addition to the countless indirect subsidies they provide in the form of "free" airways, weath er reports, landing aids, and mail contracts.

Victims 01 Intervention The net result of these govern ment activities is that at least three distinct groups of people are being victimized. First, the vast majority of taxpayers who do not use the airlines' are being unj ustly taxed so that those who do fly can have air travel at less than its true 276 THE FREEMAN May cost. Second, the most competent, aggressi ve airline owners (and po tential airline owners) are being prevented from engaging in com petition with the less competent companies, with the result that neither the more competent com panies nor their stockholders can benefit as fully as they could and should. Third, the people who do fly are getting less efficient and less safe air service than, in the absence of government interfer ence, they might; less efficient be cause of the lack of competition, and less safe because of the anti quated, under-funded, congested airport and airways system.

The question which should be obvious by now is: How, in "cap italist" America, did such a hor rendous tangle of vested interests and government control ever come to pass? The standard "conserva tive" mythology holds that all of America's economic troubles be gan with FDR's New Deal. The sad fact of the matter is that gov ernment interference with and subsidy to American aviation have a long "nonpartisan" history. History of a Crisis Throughout the history of American aviation the general rule has been that each expansion of government control was preceded by requests for such regulation from one or another group of peopIe involved in aviation. At each step of the way, of course, the proponents did not foresee or ad vocate any further government in volvement - they merely wished to blindly promote their own short range special interest. Federal involvement began in 1915 when President Wilson se lected a number of aviation en thusiasts to form the National Ad visory Committee on Aeronautics (NACA) to "study ... the prob lems of flight, with a view of their practical solution." The impetus for setting up NACA was World War I, but as with many govern ment agencies, NACA emerged in 1919 as a permanent entity, and became a vigorous advocate of government control of aviation.

Former wartime aircraft pro ducer, Howard Coffin, strongly supported NACA's position. Dur ing the war Coffin had been picked to head the government's Aircraft Prod llction Board, which passed out over $1 billion in aircraft con tracts to his own company and those of his fellow auto producers. 3 Coffin and his friends ignored the advice of many aircraft designers and mass-produced the Liberty aircraft engine along automotive lines, which made it a poor air craft power plant. They also pro3 Kelly, Charles J., Jr. The Sky's the Limit-The History of the Airlines (New York: Coward-McCann, 1963), pp. 25-29.

1970 FLY THE FRENZIED SKIES 277 duced 10,500 DH-4 aircraft, only a few of which ever reached Eu rope. The remaining planes were subsequently sold as war surplus for 2 per cent of their cost and the resulting postwar glut of cheap aircraft greatly depressed the market for new designs. The DH-4 with L.iberty engines won the nickname of "flaming coffin" in the postwar years. In 1918, at the urging of NACA, the Post Office inaugurated air mail service.U sing the "coffins," post office service was risky at best. By 1925, 31 of the first 40 airmail pilots had been killed in crashes. Somehow, during the same six-year period, the safety record of many of the fledgling commercial operators was much better. In 1925 a government in vestigating board recommended that the Post Office let airmail contracts to private companies, rather than flying the mail them selves; Congress agreed, and passed the Kelly Airmail Act. One of the results was the formation of three "conglomerate" aviation companies - United Aircraft and Transport, North American (un der GM control), and AVCO which proceeded to win most of the longer airmail routes.

During these years NACA con.. tinued to propose bills calling for Federal regulations. These bills received support from such diverse sources as state and local bar associations, the American Legion, Presidents Wilson and Harding, and Secretary of Com merce, Herbert Hoover. In addi tion, a number of airline owners (and would-be owners) asked Con gress for regulations and subsidy; regulation to win public confidence and subsidy to keep them in busi ness regardless of the market or their ability. One of the most com mon appeals was that the U. S. must not fall behind Europe, where governments were setting up airlines and subsidizing their operations. IIStrengthening Private Enterprise ll - by Act of Government The outgrowth of this lobbying was the Air Commerce Act of 1926, which firmly asserted the government's authority over avia tion, giving it authority to "foster air commerce," provide airways and navaids, conduct research and design, issue licenses and aircraft certificates, and investigate acci dents. Both President Coolidge and Secretary Hoover had worked for the passage of this act, con sidering it only as a means of "strengthening private enter prise." As Professor Donald Whit nah points out, "in 1926 rate-fixing and the awarding of exclusive operating franchises to airlines were hardly conceivable to the ma278 THE FREEMAN May jori ty of the framers of the legis lation." 4 By 1930, however, the govern ment had already begun to· flex its newly authorized muscle. Hoover's Postmaster General, Walter F.

Brown, decided that there was too much "chaos" and competition in aviation and decided to "foster air comme!'ce" by forcing mergers and consolidation, using airmail contracts as his "persuader." Pre viously, of course,· these contracts had been let· to the lowest bidder. Brown proposed a new law allow: ing him to se1ect contractors "by negotiation" (on the basis of co operation with his master plan), and to pay them on the basis of the size of their aircraft, rather than the amount of mail they car ried. Congress approved the latter idea but refused to allow Brown full discretion in selecting con tractors. Nonetheless, Brown pro ceeded on his own, at first attempt ing to persuade various airlines to merge. When that failed, he "ar bitrarily selected those companies he belieyed most suitable," 5 and awarded them the routes. Lines which didn't cooperate had their contracts·( and thereby their route authority) i,canceled.

4 Whitnah,. DonaldR., Safer Skyway~ ~Federal Control' of Aviation, 1926-1966 (Ames, Iowa: Iowa State University Press, 1966), p. 27. 5 Kelly, Ope cit., p. 75. When the Democra ts came to power in 1932, Senator Hugo Black· cond ucted a sweeping inves tigation of airmail contracting and exposed the entire shameful situation to public view. In the up roar which followed, Roosevelt or dered all mail contracts canceled and called upon the Army to .re sumecarrying the mail. The Army responded, but it was unprepared and poorly equipped; in the first week 12 pilots died and 6 .more were seriously injured. The Army's mail service this time lasted only a few months (at an average cost per mile of $2.21 vs. 54¢ for the airlines!) In· the Air mail Act of 1934, competitive bid ding was restored, but as a result of the previous scandals, .aircraft manufacturers were forced to sell their airline operations. Thus, with one blow, the government de stroyed the three largest aviation companies in the country.

The Civil Aeronautics Act A further consequence of the airmail scandals was the Civil Aeronautics Act· of 1938, spon sored by Senator Pat McCarran. Beginning in 1934, Senator Mc Carran began a legislativecam paign for economic regulation of scheduled air carriers. In 1935 a Federal study group recommended treating air transport as a public utility, with subsidies and fare 1970 FLYTHE FRENZIED SKIES 279 regulation. Meanwhile, with the resumption of competitive bidding for airmail contracts, and with the Depression rolling along, many airlines lost money, and began looking to Washington for help. The newly-formed Air Transport Association began lobbying for Federal regulation and subsidy, in effect threatening that if the airlines. didn't have more money available, they couldn't guarantee safe. operation. The resulting Civil Aeronautics Act "gave the airlines almost all they desired."6 It provided blank check subsidy, eliminated competi tive bidding on airmail contracts (substituting "need" as thecri terion) , and protected against competition the routes of existing airlines.

In addition to these. provisions, the act set. up an independent agency known as the Civil Aero nautics Authority to carry out the regulation of the industry. Two years later the agency was.split in two, with the Civil Aeronautics Board (CAB) performingeconom ic regulation and the Civil Aero nautics Administration (CAA) re sponsible for safety. and air traffic control. Except for the CAA being renamed the FAA in 1958 and becoming a part of the Transpor tation Department in 1966, the government's regulatory struc~ 6 Ibid, p. 102. tures have remained essentially as they were in 1940. The Non-Skeds There is one further incident in the history of aviation that de serves mention, .because it illus trates the nature of the effects of the CAB on competition. At the close of World War II a number of entrepreneurs purchased sur plus transport "planes in order to start new airlines. Since thees tablished airlines· had monopolies on the most profitable routes, the newcomers .were legally· forbidden to compete with them - as sched uled carriers. But the CAB ex empted non..:scheduled cargo and coach service from the "certifica tion"· (monopoly-granting) proce dures, as well as from subsidy.

Thus, the newcomers, with their own money, began non-scheduled cargo and coach flights, the latter service an unheard-of innovation in the 'industry. The scheduled lines, "free-en terprisers" all, attacked the con cept of coach flights as "economi cally unsound" and implored the CAB to put the non-sked-s out of business. But coach service proved to be so popular with customers tha t the scheduled' lines soon be gan to offer it themselves, under cutting their own arguments. Even so, the CAB began putting pres sure on the non-skeds, who then 280 THE FREEMAN May asked Congress for an investiga tion to determine the full extent of Federal subsidies received by the "ins." The scheduled airlines, through their lobbying group, the Air Transport Association (AT A) , conducted a massive campaign against the non-skeds, charging that they "were making no public contribution and constituted a drain and diversion of needed rev enue from the scheduled carriers."7 Eventually, this type of propa ganda was successful; the CAB adopted regulations which put most of the non~skeds out of busi ness.

Suggested Solutions, Their Flaws That a crisis in aviation is im pending is widely acknowledged; aviation and aerospace publica tions have been rife with analyses and recommendations for several years. Now newspapers and news magazines are beginning to pick up the story, alerted by growing flight delays, air controller slowdowns, and hopelessly congested airports. And so there is no dearth of pro posed solutions. In evaluating these proposals, however, it is vital to keep one point clearly in mind: the essential nature of the problem is not technological or political, but economic. As with any other case of government in tervention, the normal relation7 Ibid, p. 180. ships between supply and demand have been grossly distorted with the result that on the one hand massive needs (electronic "area navigation," larger and more mod ern airports) are being ignored, while on the other hand the pres ent consumers of airline service are not paying anything like the full costs of the service they are getting. For this reason, any solu tion that deals with only politics or technological improvements is actually dealing with effects, rather than causes.

The government's short-term approach will be some variation of the "user tax" plan developed by the Administration. Under this plan, additional taxes will be levied on tickets, a new tax levied on airfreight, and fuel for private planes taxed. About half of the money raised by these taxes (i.e., $5 billion over 10 years) will be earmarked exclusively for airports and airways improvements, with the remainder going into "general revenue." According to Transpor tation Dept. projections, some $14 billion is needed for airport and airways modernization over the next ten years - thus, the remain ing $9 billion would have to come from Congress and/or local com munities. The only real merit of the user tax proposal is that it gives token recognition to the fact that the 1970 FLY THE FRENZIED SKIES 281 users are not currently paying the full costs of the service they are receiving. But it does this in so minimal a way as to be almost worthless. It still leaves all essen tial funding decisions to be made politically, with the result that millions of taxpayers will still be forced to pay most of the costs, for the benefit of a few. Since the plan doesn't identify the principle of full-cost pricing vs. indirect subsidies, it is easy for vested in terests to attack it as costing them more than they are accus tomed to. (The Air Transport As sociation and the Aircraft Owners and Pilot's Association have al ready done just that). In addi tion, the proposal makes the error of assuming that simply providing more money is the answer to all the problems, without ever ques tioning whether the government's bureaucracies might themselves be part pf the problem.

A proposal which does raise this question was made in Decem ber, 1968, by Glen A. Gilbert, avia tion consultant and one of the originators of the existing Air Traffic Control (ATC) system. 8 After many years of experience in aviation, both in government and industry, Mr. Gilbert has con cluded that the FAA's structure 8 "Gilbert Offers ATe 'Master Plan'," American Aviation, December 23, 1968, pp.28-37. and policies are not conducive to continuing progress in developing and implementing advanced-tech nology systems. He proposes that the FAA get out of the airways business altogether, in favor of a COMSAT-type corporation fi nanced directly by the users, based on the actual costs of the services provided. This idea, predictably, has received little publicity out side of aviation circles. It is cer tain to be opposed by the same organizations and interests that opposed the user-charge taxes.

Probably the most popularized approach of 1969 is to call for a "total systems approach" to the entire ai rport/ airways / air line/ ground transportation problem. It is difficult to argue with this ap proach, per se, since all it really says is that a complex problem is not likely to be solved by piece meal solutions considered in isola tion from the total system. Yet, what most proponents of this ap proach end up calling for is merely more of the same - more "Federal spending" and more government regulations. A genuine systems approach must look beyond con ventionally perceived boundaries of the problem, and determine to what extent the established order (the FAA, the CAB, and the spe cial-interest groups) may be the cause of the problem. Political control of airports, air282 THE FREEMAN May ways, and airlines prevents the normal market mechanism from operating. It is impossible to de termine the true demand for air navigation service, since the users, the airlines and general aviation, do not pay for it. AiI~port con struction lags traffic growth by a decade - because taxpayers and traffic are very different people.

Hundreds of short-haul transport aircraft crowd airports and air ways, aircraft whose average pas senger load is too small to be profitable and whose owners would be long since bankrupt, but for 22 years of subsidy at public expense. The Proper Solution If the present system is collaps ing, and increased government intervention does not attack the core of the problem, what then is the answer? The basic economic problem cannot be solved by legis lative fiat - if supply and demand are distorted by arbitrary regu lations, they cannot be forced back to normal, since "normal" means what supply and demand would be free of force. What the govern mentmust do is to get out of the way and let the market mechan ism take over. Since men are voli tional beings, it is impossible to spell out in advance exactly how, free, they would solve these (or any other) problems. Nonethe less, it is possible to set forth the principles that apply in this case and draw some logical conclusions from them.

The first principle is that every thing 'which is of value to some one has a market value, which the objective forces of the free mar ket can and do .(and should) de termine. Any violation of this principle (by subsidy, "free" serv ices, coercive barriers to entry and exit, or enforced price-fixing) dis torts the' market process and un;. justly benefits some by the coerced sacrifice of others. The second principle is that the proper role of government in a capitalist society is to protect rights, in this case, property rights. It is impossible for men to peaceably conduct busi ness unless there is a set of ob jective ground-rules which define what constitutes particular types of property, how such rights are originally .acquired, and how the right is to be legally protected. By misunderstanding this crucial principle, modern legal theory has applied the ancient tribal concept of "public ownership" to such uniquely twentieth-century prop erty as radio and TV frequencies and air routes.

Under capitalism, airports would be private-businesses, op erated for profit,. deriving reve nues directly from customers (air lines, individual airplane owners, passengers, concessionaires, etc.) 1970 FLY THE FRENZIED SKIES 283 Such an airport would be free to float bonds and to sell stock (as does .Madison Square Garden) in order to raise capital. In order to remain profitable, the airport's management would have a strong incentive to plan for the future, developing the same type of fore casting expertise possessed by air craft manufacturers and airlines. The airport management would be free to make whatever con tracts it could with the various airlines which would compete for terminal space and landing privi leges. In the. interest of attracting the largest number of passengers, the airport company would seek the most competent. airlines in terms of quality and quantity of service. At the same time, by means of thos·e individual con tracts, the airport company could control arrival and departure times to prevent rush-hour con gestion of runways. To assure customers of convenient access to the airport, it would be in the company's interest to cooperate with local high-spe,ed transit com panies in planning and building airport access links.

It is quite likely·. that airline customers· using such airports would pay more·· for their trip than they do now. Without the power of "eminent domain," the airport company would have to ac quire' land at full value, rather than by condemnation and coer cion; in addition it would have to bear full legal liability for acci dents and noise, like any other business. And, of course, without access to tax. money,. it would be unable to force the local citizenry to make up any operating losses. On the· other. hand, .the customers, while paying their way, would en joy the benefits of well-planned, low-congestion terminals, rational scheduling, on-time operation, a wider choice of services, and prob ably greater safety. due t<;> the air port's full-liability status. Under Private Ownership As far as air traffic control is concerned, the basic concept of. an ATC "utility" has alre·ady been presented. The only flaw in the ex isting propos~ls is the automatic assumption of a nonprofit or quasi-governmental status for such a company. If AT&T can pro vide high-quality telephone service at low rates,while making a healthy profit, why couldn't the same be true of an ATC company?

(Interestingly, the existing ATe system was begun by a private company formed by .the' airlines back in the thirties. When the Fed eral government took over control of the skies, it inherited a func tioningsystem, including .. en-route navaids and control· towers.) The largest single benefit of a 284 THE FREEMAN May privately-owned ATe system is that sufficient funding and motiva tion would be available to imple ment up-to-date electronic naviga tion techniques. Much of today's air traffic congestion results from the FAA's requirement that air lines fly exclusively over the lim ited number of straight-line paths linking VOR ground stations (na vaids). For nearly 15 years, on board computers and pictorial dis plays have been available, which, when installed in an aircraft, per mit the pilot to define a new path, not restricted to the old station-to station ones. This technique, known as area navigation, has the potential of increasing the amount of navigable airspace by orders of magnitude, as well as substantially reducing air traffic controller workload (since the pilot does most of his own controlling). After years of lethargy and indifference, the FAA last summer finally began allowing limited experimental usage of area navigation, but only under the threat of total saturation of the existing airways.

With airports privately run, and airways privately defined, what would be the position of airline companies with regard to free access to specific airspace? The crucial question here is the proper definition of the property rights to an air route. Because two aircraft cannot fly over the same airway in the same place, at the same time, and because the number of air ways, though large, is ultimately limited, it is clear that individual airways constitute a class of prop erty and ought to be protected as such. Allocation 01 Routes The other important issue con cerns ,vhich airlines would serve which cities. The advocates of gov ernment control claim that under laissez-faire every airline' would attempt to serve every city, with the result that all (or most) would go bankrupt. When challenged on the absurdity of this assumption, they usually give as an alternative their fear that the airlines would form a huge cartel, dividing up the markets among them, and fix ing the prices. This is, of course, precisely what the CAB presently forces them to do.

As pointed out earlier, it is im possible to predict exactly what would happen in a free market for air service. But because' of the competition for the limited airport space, the number of airlines, or more precisely, the number of planes, serving a particular city port would probably be limited (though in many cases, more than at present). The important point to remember is that the market, rather than politicians, would be 1970 FLY THE FRENZIED SKIES 285 allocating the routes and the dif ference that would make could mean significant improvements in service. (In the early fifties East ern Airlines asked the CAB for permission to link Florida and California - a market not then served. For a number of years the CAB held hearings, hearing moun tains of inconclusive testimony from various city governments and airlines; eventually the route was awarded to National Airlines on the basis of its "need" for it.

Thus, Eastern, with three times as many planes, was completely frozen out. Examples such as this dot the history of the CAB.) The CAB's policies prevent greater service on many profitable routes, and force excess service on many marginally-profitable or loss-pro ducing routes. In the free market, the quantity and quality of service to or from any city would bear a direct relationship to the demand for service, as reflected in the prices people were willing to pay. Thus, unrestricted competition, far from causing chaos, would promote orderly, harmonious growth in air service, with every one paying his own way. It is cer tainly possible that some cartel type agreements would be at tempted .- this is a possibility in any free market. But as in any other market, neither technology nor competition stands still; no price can be fixed at a highly prof itable level for very long (except by the government) without at tracting competition. The unre stricted operation of supply and demand provide real-time feedback of information to both consumers (via prices) and producers (via profits) about the state of the market. When liberated from the distortion of government inter vention, the market mechanism will provide whatever air services people-as individuals, rather than as special-interest groups - are willing to pay for.

Steps Toward Freedom and Order If the Administration became convinced that government was the cause of the aviation crisis, there are three specific steps it could take, by way of decontrolling. The highest priority should be given to selling the FAA's air traffic control system to the highest bid der (the proceeds to be distrib uted as income tax refunds). The new owners, after a transition period in which to raise capital, could get on with a crash program to implement electronic area navi gation. As soon as the changeover was complete, they would begin charging all users for their serv ices. Once area navigation was oper ational, and the air congestion crisis over, the government's next 286 THE FREEMAN May step' would be to cancel the Federal Aid to Airports (FAAP) pro gram. This \vould leave municipali ties with the alternatives of great ly increasing local taxes (very unlikely) or selling the airports to private companies. Those cities which did neither would probably soon find their obsolescing airport competing with newly-built or newly-acquired privately owned and, operated airports. (Howard Hughes was recently acquiring land for an SST-port in Nevada until stopped by the CAB, and design firms have designed a num ber of offshore airport concepts, suitable for such cities as Los Angeles, New York, Chicago, and Cleveland. ) The government's third step would be to abolish the CAB. Not a single one of the CAB's func tions is justifiable in a free soci ety; none is without harmful economic consequences. Abolishing the CAB would immediately end millions of dollars of subsidies to smaller airlines, probably causing a 'number of mergers and acquisi tions. At the same time, with the elimination of route "certificates,"

all air routes would be opened to competition. The airlines would .be free to negotiate with all airport owners (private and government) and much new service would ,be made available in short order (and could be easily accommodated via area navigation). At the same time, the government would be obliged to promulgate an air route property law, precisely defining the means of establishing and en forcing usage priority for indi vidual airways. These steps, to be sure, would be vociferously opposed by the multitude of vested interests and their lobbyists, which have pro liferated in response .to govern ment's policies. It will take men of integrity, in business and in gov ernment, to stand up to these men and answer their pleadings of "need" and "puOIic interest" with reason and economics. Such men of integrity are essential if we are to escape the stagnation which is the end result of government control. i) LEONARD ·E. READ DON;T THROW OUT THE BABY!

THE COURSE we now follow in a careless, thoughtless, and irra tional m.anner could destroy· a recent and by far the most pro gressi ve' economic concept ever come upon by mankind! In a blindness brought on by such forces as irritation, covetousness, a false sense of justice, adherence to an outmoded value theory, and a propensity to run other people's business, we are about to throw a precious human asset - the baby -- out with the bath. The baby? It is the open as distinguished from the closed road to wealth. Were we to collapse recorded history to the average life span of Americans, the baby would· be less than two years old. As Ortega points out, it is always the latest and highest acquisitions of the mind that. are the least stable and the first to be aban doned whenever crisis threatens. But before describing the baby, let us reflect upon the bath that is forming and about to be thrown out - the baby with it.

What is the bath ?We are pres ently showered with the outbursts of anticapitaJistic mentalities from every quarter: the press, radio, TV, pulpit, classroom, politi cal chambers. So numerous and overpowering are these shallow fusillades that capitalists them selves are in retreat .. They apolo gize for profits, take refuge be hind such nonsensical notions as being in 'business for "the social good," and they support all kinds of socialistic, anticapitalistic leg islation. Wealth, which most peo ple seek for themselves, is being inundated in scorn and obloquy as if it were something evil. None of us knows all the rea sons for this anticapitalistic men tality but one of them, certainly, is the unfavorable effect affluence or wealth has on many citizens. 287 288 THE FREEMAN May Never in man's history have so many individuals experienced af fluence as in the U.S.A. today. Literally millions of persons can have all of the material embellish ments their hearts desire, and millionaires all over the place!

There are notable exceptions, of course, but not many of us can stand such affluence. Wealth, so easily come by, often tends to turn individuals away from seri ous, responsible citizenship into do-nothings and "big shots." In dividuals so afflicted bear little resemblance in character to their struggling ancestors. Further, our plunge toward all out statism with its attendant woes and troubles. seems to coin cide with the rapid ascendancy in affluence as if the latter brought on the former. This is not a cause effect sequence, but it appears to be. So, we are urged, stop this race for the almighty dollar. Cease do ing the things which lead to wealth, or which depend upon it. To follow this course as I shall try to show, is to throw out the baby with the bath. As with eating and drinking, discriminately employed wealth serves a life-saving and life-giving purpose! But wealth has built-in temptations, as ,do food and drink, which can and often do lead to overindulgence. I suspect that the real reason why affluence has such an unsavory reputation is that wealth is used more for self glorifying than for self-improving ends - a form of gluttony! 111 used wealth does more to down grade than to upgrade the people it graces. The noble purposes wealth may serve are rarely un derstood.

Smothering Poverty Consider the opposite of wealth: abject poverty, as experienced by Chinese coolies, for instance. They labor in rice paddies from morn till night toekeo out a bare animal existence. These human beings have unique potentialities no less than did our poverty-stricken an cestors. But note that there is little if any realization of these potentialities among coolies. The good earth is populated with many outstanding musicians, artists, po ets, philosophers, engineers, archi tects, scientists, and a thousand and one other specialists. Chinese coolies, be it observed, are seldom numbered among them. Why? Abject poverty! I devoutly believe that life's purpose is to grow, emerge, de velop and that poverty, so long as it persists, subverts this end. As suming that the evolution of man is our objective, then wealth, is the means to rid us of the enslave ment poverty imposes. Wealth; .when employed as a freeing agent, 1970 DON'T THROW OUT THE BABY! 289 is essential to man's march toward his destiny . Wealth may be abused and misused, yet it has a role to play in intellectual, moral, and spiritual progress; it is a vital means to these high ends.

The moral or evolutionary pur pose of wealth is not to free man from life's struggle - far from that! Its purpose is not that man may retire or allow his faculties to vegetate. And definitely it is not to substitute ease and comfort and ostentation for hard work. Rather, its purpose is to allow us to get ever deeper into life..,- to work even harder - along the lines of our creative uniqueness. This is how we evolve. As abject poverty subverts the evolution of man, so does wealth when it is worshiped and used as an end in itself rather than as a means to the higher ends. But to disparage and finally to rid our selves of this vital tool simply be cause we have failed to grasp its JTIoral purpose and application is destructi ve nonsense. The Closed Society What I refer to as the closed road to wealth dominated the world economic scene up to the Industrial Revolution. There are exceptions but, for the most part, wealth was reserved for the very few: the Maharaja, the Lord of the Manor, the master of slaves, merchant princes - the "upper crust." Theirs were political con ferments, instances of special priv ilege. Wealth was measured in size of estate and castle, jewels, ser vants, and the like - more an en slaving than a freeing agent, energy consumed to fend off predators rather than released for individual emergence. It was po litical, not private, ownership; no respect for each man's right to the fruits of his own labor! Coercive to the core, the resultant social arrangement assumed various forms: despotism, feudalism, au tocracy, the guild system, mer cantilism, wage and price controls, protectionism, and so on. Closed, indeed!

In such a closed society, the mil lions were essentially serfs; if born a shoemaker, you remained one re gardless of your talent or poten tial for any higher calling. You, poor slave, stay put! It is easy to understand why, in that dark age of economics, Saint Thomas Aquin as argued that these poor people had a right to a minimal standard of living from their lords and mas ters. Such was the sentiment which Marx later popularized: "From each according to ability, to each according to need." Given a closed - authoritarian - economy, there is no other way to disperse the wealth required to sustain life. As darkness has no resistance 290 THE FREEMAN May to .light, so has ignorance no re sistance to enlightenment. Igno rance is always upon· us in the absence of enlightenment; it re treats naturally as enlightenment increases but stands ever ready to descend again upon the blind. Open Competition About 200 years ago, a remark able political and economic en lightenment substantially removed the barriers - temporarily at least - that had closed the road to wealth. The baby was born: the open road to wealth! And it has been named the Industrial Revo)u tion. 1 Goods and services hence forth would be produced for the masses and not solely for the po litical elite.

While the order of the succes sive steps in this enlightenment might be debated, it is my view that the first step. was and had to be a recognition of human dignity. This is to say that each individual is as much a human being as any other; the son of a cobbler is en titled to opportunity no less than is the Prince; everyone equal be fore the law as before God - each his own man with a fair field and no favor . Any person, regardless of ancestry, free to rise to any 1 .For a revisionist view of the Indus trial Revolution, see Capitalism and the Historians by various authors, edited by F. A. Hayek (Chicago: University of Chicago Press, a Phoenix Book, 1963). height his energies and talents might take him. The road open! Implicit in this enlightened rec ognition is that each and every person has full and exclusive right to the fruits of his own labor. In a word, the acceptance of a moral principle - justice -led logically and positively to the economic tenet on which the open road to wealth is founded: private owner ship. Not· that private ownership displaced political ownership and special privilege entirely--- far from it! But the barricades were broken; there was not only the prospect but, far more than ever before, the reality of the open road.

Specialization, as might be ex pected, became the next step. In dividuals,as they were freed from the bondage which abject poverty imposes, began to engage in an infinite variety of activities, each according to his unique talents and abilities. Then came the next flash of en lightenment: freedom in transac tions. If a particular good or service is really mine and some other good or service is really yours, there follows logically from this private ownership the right to exchange with whomever one pleases. 2 It simply is nobody else's 2 To deny freedom to exchange is to deny private ownership. One owns only that which he controls.

1970 DON'T THROW OUT THE BABY! 291 business. Freedom in transactions tended to become the rule rather than the exception. Trade Benefits Both Parties Assuredly, the next most im portant enlightenment came about 1870 when some economists dis covered how ordinary people be have when free from controls. In other words, they discovered or came to understand the subjective theory of value. Until this time, the value of a good or service had been reckoned by cost of produc tion, that· is, by the amount of ex ertion expended. This false meas ure of value had been a real hin drance to private ownership, spe cialization, and freedom in trans actions.' Following the discovery of the subjective theory, the value of any good or service, instead of being. determined by cost of pro duction or dictated by some cartel, was whatever could be obtained in willing exchange. It is that simple. The market value of my pen?

Whatever you or some other cus tomer will give for it. If there are no willing buyers, its value is zero; if the top bidder offers two dollars, that's its value. There'S the. baby:- this recent flash of light or understanding. Its significance is seen by contrast ing what has happened in the U.S.A., where this wisdom reached its apex, with what otherwise might have been the situation. Without this economic enlighten ment, most of us either would not have been born or would have died in early childhood. Adam Smith (1776) observed tha~ the average mother in the Scottish Highlands had to' bear twenty children for a reasonable prospect that two might reach· adulthood, so great was the infant mortality rate. There simply wasn't production enough to sustain more than a relatively small population. Next, had that .closed road to wealth persisted, nearly all of us, including our millionaires, would still be in the class. of servants, serfs, armed guards, and the like.

Even the simple requirements for life-food, clothing, shelter-would be no more than the political hier archy might see fit to allot to us. Slaves! And last, born a cobbler, remain a cobbler! The unique potentiali ties of the individual dead on the vine'! The destiny of man-growth, emergence - forever stifled! Now, look around us: would .. have-been slaves - millions upon millions of us - in that advanced sta te of affairs in which each may pursue his unique talent and can receive in willing exchange those goods and servic.es required for well-being. Take, for example,one who specializes in the study and explanation of the freedom philos292 THE FREEMAN May ophy and produces nothing else, nothing whatsoever. If he receives enough for his efforts to defray the costs of shelter, food, heat, light, and countless other desider ata, he is wealthier than any Lord of the Manor of bygone days. And solely because of a practice of freedom - a baby in the realm of enlightenments - this open road to wealth!

I repeat, affluence has had a disgusting effect on a great num ber of individuals. Wealth has be come so much a god that it knows no satiety.3 Imagine, some of the wealthiest people who ever lived shouldering a debt without histor ical parallel - the combined in debtedness of U.S. citizens in ex cess of a trillion dollars! And more: an enormous siphoning off of accumulated capital assets by diluting the medium of exchange - inflation! However, we must remember that this affluence exceeds any thing mankind has heretofore ex perienced; we are not conditioned to such wealth; it is not in man's tradition. Thus, we resemble chil3 This is no merely modern defection; Plato describes the decay of an oligarchy in Book VIII of The Republic: "And so, as time goes on, and they advance in the pursuit of wealth, the more they hold that in honor the less they honor virtue ... From being lovers of victory and lovers of honor they become lovers of gain getting and money."

dren turned loose in a candy bin; if they make themselves ill, it is not the fault of the sweets or a reason to outlaw candy. It is, in stead, the occasion for some die tary sense and self-discipline. And ours is the occasion for son1e sense in political economy and morals as related to the evo lution of man. It is pitiful to observe millions of people enthusi astically working against their own interests, that is, working their way back to the closed road. And it is easy to tell which way we are heading. Substitutions of political for private Qwnership, wage and price controls, labor or business cartels, subsidies, infla tion, or other schemes that feather the nest of some at the expense of others rebuild the barricades. Such hazards preclude the several nec essary steps to the open road and turn us against our self-interest! While I deplore the way many affluent people behave, I trust their wealth to them far more than to politicians or others who had noth ing whatsoever to do with its acquisition.

Finally, regardless of how un favorably we may view the way wealth is used by its owners, let us not, under any circumstances, throw out the baby with the hath. This infant enlightenment is one of the most priceless blessings of mankind. , GARY NORTH THE THEOLOGY OF THE EXPONENTIAL CURVE Growth lor the salce 01 growth ;s the ideology of the cancer cell. Edward Abbey CARL BECKER, the late Cornell professor, was once regarded as the "dean of America's historians." His most famous work, The H eav enly City of the Eighteenth-Cen tury Philosophers (1932), was a literate defense of the idea that the "rationalism" of the Enlight enment was really a religious faith modeled after the thirteenth cen tury's theological concerns. En lightenment rationalism is best understood, Becker argued, as secularized theology; its presup positions were as unprovable as those of the scholastic philoso phers. Both systems, in the final analysis, are equally based on faith. While he has been criticized for his handling of particular ideas, most notably by Peter Gay, Becker's fundamental presentation still holds: the reigning faith of an age - the "climate of opinion"

as he called it - is no less a faith just because its devotees like to refer to themselves as rationalists. Becker believed that certain key terms reveal the true concerns of the Enlightenment: Nature, Rea son, and Progress were three of these. These were self-attesting, "self-evident" propositions. Nature, Mr. North is a Ph.D. candidate at the Univer, sity of California, Riverside. 293 294 THE FREEMAN May in·· that confident, post-Newtonian world, was seen as being under the control of universal laws, and these laws are discovered by the operation of the human mind~ We can understand the impact of Newton's law of gravitation on his age; indeed, the impact is with us still. Eugene Wigner, a -Nobel prize winner in physics, has pointed to the astounding nature of the discovery: The law of gravity which Newton reluctantly established and which he .could verify with an accuracy of about 4 per cent has been proved to be accurate to less than a ten thou sandth of a per cent and became so closely associated with the idea of absolute accuracy that only recently did physicists become .again bold enough to inquire into the limitations of its accuracy.l Understandably, men were im pressed with such a find. Wigner himself concludes his essay by saying that "the miracle of the appropriateness of the ·language of mathematics for the formulation of the laws of physics is a won derfulgift which we neither un derstand nor deserve." The vision of a universe totally under the 1 Eugene P. Wigner, "The Unreason able Effectiveness of Mathematics in the Natural Sciences," Communications on Pure and Applied Mathematics (1960), goes into the marvelous correspondence of mathematical reasoning and certain kinds of external, physical events.

reign of law - mathematical law captivated social scientists as well, as Louis Bredvold's book, The Brave New World of the Enlight enment (1961), demonstrates so forcefully. Thomas Hobbes, for example, believed that political af fairs could be predicted and con trolled if the mathematical laws of politics could be discovered. It was no doubt a dazzling vision. Coupled to this faith in mathe matical law and human reason was the idea of progress. J. B. Bury's The Idea of Progress surveyed its impact; published at the turn of the century, it still is an important study. More recently, Robert A. Nisbet, the conservative Ameri can sociologist, has examined the concept of development in West ern thought. 2 Society was viewed as an organism by Enlightenment thinkers; if unhampered by "reac tionary" human institutions ·and traditions, societies invariably progress. Social change is there fore "natural"; it is cumulative, irreversible, directional, uniformi tarian, and immanent (i.e., self. motivated). French Revolution aries drew the obvious conclusion: since progress is desir~ble (self evident truth), such reactionary institutions must be abolished.

2 Robert A. Nisbet, Social Change and History (New York: Oxford University Press, 1969). For a summary and analy sis of the book, see my review in Modern Age (Fall, 1969).

19'70 THE THEOLOGY OF THE EXPONENTIAL CURVE 295 Christian culture had 'to be de stroyed. "Crush the accursed thing" was Voltaire' s battle cry. The Loss of Faith Two events -- possibly three helped to shatter men's faith in natural progress. The, first was the publication of Darwin's Origin of the Species in 1859. The imme-· diate response was overwhelm ingly favorable; all 1,250 copies of the book were sold out on the first day. 3 Marx hailed it as the foundation in natural science of his own scientific socialism. 4 R. J. Rushdoony has commented on the intellectual effects of the idea of natural selection: Darwinism destroyed this faith in nature. The process of nature was now portrayed, not as a perfect working of law, but as a blind, un conscious energy working profligate ly to express itself. In the struggle for survival, the fittest survive by virtue of their own adaptations, not because of natural 'law. Nature pro duces many "mistakes" which fail to survive and become' extinct species 3 R. J. Rushdoony, The Mythology of Science (Nutley, New Jersey: Craig Press, 1967), p. 14.

4 "Marx to Engels, Dec. 19, 1860"; in Dona Torr (ed.), Marx-Engels Selected Correspondence (New York: Interna tional Publishers, 1935), p. 126. Marx later offered to dedicate Das Kapital to Darwin, but the latter prudently de clined the honor. and fossils. The destiny of the uni verse is extinction as its energy runs down.5 Social Darwinists like Herbert Spencer and William Graham Sumner tried to apply the princi ple of natural selection to the so cial realm, but with little ideologi cal success. M~n found its implica tions too difficult to bear. (Mises has argued that they misused their arguments: capitalism, through its great productivity, has permitted the less fit to survive, i.e., those who would have perished in a le.ss productive economicsys tem. 6 ) The Social Darwinists' de fense of capitalism fell on increas ingly deaf ears; the idea of natu ral selection had done its work: All of this served to shatter the older faith in nature. Nature as the agency of predestination was gone.

It became increasingly evident to naturalistic thinkers that man must control his own evolution and also control the evolution of plant and animal life. Moreover, man must cre ate and control his own social order, so that total statism, total socialism, is "scientific ' socialism," that is, so cialism which recognizes that man cannot exist without predestination and therefore provides for the con5 R. J. Rushdoony, The Biblical Phi losophy of History (Nutley, N. J.: ,Craig Press, 1969), p. 7. 6 Ludwig von Mises, Human Action (New Haven: Yale University Press, 1949), Ch. VIII, Sect. 6, pp. 164-65.

296 THE FREEMAN May trol of process, for total planning and predestination, by the elite men.7 Or, as the late C. S. Lewis has put it, when we hear the phrase "man must take control of man," we should watch out; it means that some men must take control of all the others. 8 The second event that broke men's faith in progress was the First World War. It combined with the third factor, Freudian ism, to convince men that the faith in the rationality of man kind was too easy, even nai vee Freud's own pessimism concern ing the possibilities of psychoa nalysis for curing men's psycholog ical problems was not adopted by the majority of his followers, but this should not blind us to the fact of Freudian pessimism: long ages of evolution, he believed, would be necessary to separate men from their irrational, bloody antece dents. 9 The War seemed to prove Freud's contention that subra tional influences guide men's deci sions.