Book Reviews

And it is a positive good if, as a Christian, one chooses the specific economic system of capitalism, which, if it can't exactly reproduce the miracle of manna from Heaven, at least does the next thing to it. People have more scope for free dom under capitalism, and freedom is at the heart of Christianity. Dr. Kershner's Div,iding the Wealth: A re You Getting Your Share? (Devin-Adair, $5.50 cloth; $2.25 paper), makes the case that free economics is a natural ex pression of Christian order. But his case, as set forth here, is an implicit case; in his study of "the means by which the production of wealth for individuals and for 1971 DIVIDING THE WEALTH 701 countries can be accelerated or re tarded," Dr. Kershner limits his theological speculation to the state ment that if you "put God first," then "the other things will be add ed, as the history of our country shows." The rest of the book, which is an uncommonly lucid one, is nicely divided into chapters that show, on the one hand, how free dom increases the capital available to each and every individual and how socialism,· on the other hand, results in "decapitalizing our selves."

The Workers' Share Dr. Kershner begins his story with an account of a hoax perpe trated way back in 1905 by the so cialist firebrand, Daniel De Leon. In a famous speech delivered in Minneapolis, De Leon produced a chart that "proved" that the Amer ican workingman in 1900 received only 17 per cent of the total na tional production of more than $13 billion. Going back to the Civil War, De Leon concluded that, on the average, the owners of Ameri can industry grabbed off 80 per cent of the wealth produced in their factories, while the workers got only 20 per ce.nt. De Leon's great error resided in his assumption that the manufac turer got everything in the final selling price of an article that was not paid out to labor in his own factory. This, of course, failed to reckon with such items as rent, in terest, the cost of raw material~, the parts made by other manufac turers, taxes, accounting overhead, and the cost of sales. Since labor costs make up a large part of al most every item in the list, De Leon had monstrously perverted things.

Taking the economic process as a whole, labor gets 87.5 cents out of every dollar divided between own ers and workers, lea.ving 12.5 cents to be reserved for company growth and for dividends. These are U. S. Department of Commerce figures. In 1968 dividends accounted for only 6.7 cents of the gross dollar. The importance of the De Leon hoax is that it still colors the thinking of the AFL-CIO and a majority of people who are polled from time to time by Dr. Gallup. In his chapter on "What Ups Prices - Wages or Profits?," Dr. Kersh ner quotes a, statement put out by the AFL-CIO at its 1969 winter meeting in Florida,. Between 1960 and 1968, so the AFL-CIO declared, profits rose 91 per cent, before-tax dividends to stockholders 84 per cent, while the after-tax take-home pay of the average nonsupervisory worker rose by only 31 per cent. Wha.t theAFL-CI 0 didn't say was that 60 per cent more capital was in use in 1968 than in 1960, and that the amount of profit per dollar of sales on a much larger volume of 702 THE FREEMAN November business had merely remained stable. The rate of return on the stockholders' equity was actually lower in 1968 than in 1960.

Professor Milton Friedman keeps saying that wage increases, even beyond productivity, do not cause inflation. Technically, of course, he is right; it is only an increase in the money and credit supply that causes inflation. But uneconomic wage increases would result in a shrinking market and consequent unemployment if the money supply were not expanded, and where is the political party that can afford to go into an election year without validating the wage increases by flushing the currency? When pro ductivity does not keep pace, it is, as Dr. Kershner says, "the higher the wage the higher the price, and the smaller the quantity of goods that can be sold." Government Intervention Precludes Voluntary Bargaining and Trade Instead of trying to exact huge wage increases to offset a rise in the cost of living, Dr. Kershner thinks that labor ought to exercise a little Christian forbearance in favor of relating wage demands to productivity. But since such for bearance will probably not be forth coming, something will have to be done to change "legislation favor ing unions" and so help restore flexibility to the competitive systern. How can employers resist un economic wage demands when com petition is destroy'ed by bureau cratic rulings that make uncoerced collective bargaining impossible?

"We are in a vicious circle," says Dr. Kershner. "To get out we must find a way to stop the growth of the money supply and to keep labor costs per unit of production from rising." The AFL-CIO's George Meany says labor would be willing to forego some of its efforts to get "more" if the manufacturers would restrain profits. But for the past five years, as Dr. Kershner says, the return on stockholders' equity "is only about 3.9 per cent." And it follows that "you can't do much about reducing prices by working on this 3.9 per cent. It is so small in comparison with the wage fac tor in prices that it would make little difference if eliminated en tirely.As an average figure, em ployee compensation is seven or eight times greater than profits." Besides, as Dr. Kershner shows, it is the drive for profits that makes the mare go. Little, if any, profit is generated by pinching wages or by overcharging the consumer.

Profit, in any nonmonopolistic sit uation, is something taken out of costs. If goods are not extensively used, there will be no profit, and no expanded factories employing more labor. Profit, says Dr. Kershner, "is proof that there has been ex1971 DIVIDING THE WEALTH 703 tensive use," which is good for everybody. If George Meany only knew, he is hurting both labor and the consumer when he attacks profit. Dr. Kershner is not hopeful for the short run. He sees us "decapi talizing ourselves" by an inflation that compels enterprisers to replace a depreciated machine that origi;.. nally cost $25,000 with a new ma chine costing $50,000. The cost of replacement means more debt and less money for expanding the eco nomic system as a whole. Mean while the population keeps grow ing. We have reached the horren dous point where we owe more than $3 trillion, which is 50 per cent more "than our entire worth as a nation and a people." "How rich,"

so Dr. Kershner asks, "is a man who owes 50 per cent more than his entire wealth ?" There used to be a word for it - it was bankruptcy. This assumes, of course, that the man couldn't work it off, as is un likely, given all our current trends. ~ UNCLE SAM, MONOPOLY MAN by William C. Wooldridge (New Rochelle: Arlington House, 1970), 160 pp., $6.95. Reviewed by Haven Bradford Gow THE POST OFFICE is a monopoly, and service deteriorates as a re sult, while deficits accumulate. Could the private sector handle the various delivery services now preempted by government, doing the job more efficiently while showing a profit? Of course, re plies Mr. Wooldridge, in a chapter describing the mess government has made of the mails, and the improvements several entrepre neurs have made· in various kinds of delivery in competition with the postal system. Another chapter tackles the government school structure and describes what the free market can ,accomplish in the field of ed ucation. Harlem Prep is a dra matic illustration. Encouraged by parents, community leaders, and charitable organizations, a pri vate school was established in Harlem. Students - most of them former dropouts - are busily studying math, English, history, and even branching out into Plato and Aristotle. In 1968, twenty seven former' dropouts received their diplomas from Harlem Prep.

All received full or partial schol arships to attend such colleges as Harvard, Vassar, Wesleyan, Ford ham, and the University of Cali fornia. In 1969, seventy-one grad uates were accepted by thirty seven colleges and universities. One of those who received his di ploma, Charles Trahan, aptly summed up the feelings of the graduates: "Next September I will 704 THE FREEMAN November be a freshmen at Wesleyan. Last year I was blind and lost. NOw I have a scholarship." This is ,a lucid book, written in an engaging style. By precept and example, the author demonstrates the suffocating power of an over grown government, and the happy consequences of relying on the creative resources of private in genuity and enterprise. He shows what the private sector can do even in such areas as highway development, arbitration, and coin age. The author is less successful, however, in his chapter on polic ing, failing to realize that policing is a unique kind of performance.

Policing deals in acts of force blows from a club or shots from a gun - and these are not the peaceful and voluntary interper sonal actions which is the market in action. The reviewer heartily concurs with the author's conclusion that "independent action encroaches on ancient habits, laws, and fiefdoms, which grew up unremarked while generations argued over whether the state should help those who wanted help. The coming genera tion is already struggling instead over whether the state can step aside when individuals prefer to serve themselves." ~ HANDSOME BLUE LEATHERLEX FREEMAN BINDERS $2.50 each ORDER FROM: THE FOUNDATION FOR ECONOMIC EDUCATION IRVINGTON-ON-HUDSON, NEW YORK 10533 the Freeman VOL. 21, NO. 12 • DECEMBER 1971 The Tale of Two Students A great teacher presents the case against price controls. Frank Chodorov 707 Charity and the Welfare State Brian Summers 712 Why not relinquish to the individual the responsibility and opportunity to be charitable?