August

No-Fault Insurance Means No Moral Responsibility Ridgway K. Foley, Jr. 486 A closer look at some of the moral and legal implications of the "no-fault" philosophy. Book Reviews: 507 "Who's Listening?" by Leonard E. Read "The Rise of Radicalism" by Eugene Methvin 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 PAUL L. 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, 1973, 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 $2.50; 25 or more, 20 cents each.

THE FREEMAN Is available on microfilm from Xerox University Microfilms, Ann Arbor, Michigan 48106. Some articles available as reprints at cost; state quantity desired. Per mission granted to reprint any article from this issue, with appropriate credit, except "How Not to Advocate a Gold Standard."

The Purposeof TrafficLaws M .C. SHUMIATCHER LIBERTY is the freedom of the in dividual - of every person - to make full use of his faculties and move where he wishes, when he wishes, how he wishes - so long as he does not harm other persons when he does so. This principle is more clearly understandable in the case of our use of motor vehicles than almost anywhere else. On the Sahara Desert or on your own farm or on the Arctic Tundra, you may drive a vehicle as, how, and where you please without regard for anyone else. You are free to maim, wound or destroy yourself if you want to. But what of others? Here, the law enters upon its appropriate role. The legisla tor sometimes be lieves that he has absolute power Dr. Shumiatcher is a prominent lawyer in Regina, Saskatchewan, well known as a lec turer, writer, defender of freedom. This· arti cle is from remarks before a recent Traffic Safety Workshop sponsored by the Saskatch ewan Safety Council.

over our persons and property. This is not so. The existence of persons and property antedated the existence of the legislator, and his function is only to concern himself with the safety of per sons and property against the as saults of aggressors. The function of law is not to regulate our con sciences, our work, our trade, our ideas, our wills, our education, our opinions, our talents or our plea sures. The true function of law is to protect the free exercise of my rights in each of these areas against infringement by any other person, and to prevent me from interfering with the free exercise of the same rights by others. Since law requires the support of force to achieve this object, its lawful domain is properly confined to those areas where the use of force is necessary. Each person has the right to use force for law ful self-defense. Therefore, collec tive force, which is only the or451 452 THE FREEMAN August ganized combination of the indi viduals' force in any society, may be lawfully used for the same pur pose, that is to say, for the de fense of the law-abiding citizen against the attacks or depreda tions of the law-breakers. The question of how far the law is able to go in any particular field de serves the careful consideration of the philosophy behind the role of the law. It requires that we con sider the purpose for which the mandatory injunction to perform or refrain from performing a par ticular act exists and the conse quences which flow from that re quirement.

Let us take the case for and against mandatory seat-belts. After all, a seat-belt is something which is designed ·principally to protect the driver of a vehicle against his own errors or faults. Assuming the purpose of the seat belt is to protect the user alone, as I believe the case to be, then why should the law require an in dividual to take steps which he, in his own judgment, good or bad, decides he ought not to take. In my view, it is not for the law to compel an individual to save either his neck or his property. If indi viduals are left to their own de vices and find that they suffer as a result of the laws of nature rather than the laws of men for acting foolishly, I believe that ultimately the message will get through to them; they will learn the error of their ways and act more provi dently in the future. Has Education a Role? Education, of course, can be a short cut to learning. It is old hat to say that the public needs more ed uca tion concerning safety.

Everyone seeks more money to educate persons on every conceiv able subject from basket weaving to nuclear fission to safety in an automobile. The faith which so many place in the miracle of edu cation can be compared only with medieval man's faith in the con cept of salvation and a life ever lasting. That was an age in which it was believed that faith would create a better and a more moral human being. Education has usurped this role and for at least two genera tions, we have come to believe that if only people were better edu cated, if only they knew more and studied more and if only they </ learned more of the facts of the world about them, they would be come better, more moral human beings. War and conflict would disappear from our society and we would forever live in peace and harmony with our fellow man. Of course, we know that this is not so. Never before in the his tory of the Western world have so 1973 THE PURPOSE OF TRAFFIC LAWS 453 many billions of money been spent in erecting the great temples ded icated to education in which mod ern man worships. The result has been not to produce graduates from our schools and universities morally superior to others, or bet ter human beings or more peaceful citizens. Quite the contrary. There is less concern for morality today, less genuine understanding of man's nature, and less peace in our homes, our cities and our so ciety generally, than ever before, whatever the educational attain ment of the public might be. To regard education as somehow pointing the way to a new mil lenium - a more reasoned attitude among individuals or a better mannered performance by drivers upon the highway - is to pin one's hopes on a hollow dream.

If education will not secure bet ter manners on the highways, then will slogans do it? It's all very well to buy and paste those bumper stickers that say, "The life you save may be your own" or "Defensive driving is the thing." But I suggest that these mean virtually nothing. What really matters is what goes on in the mind of the individual driver and what choices he makes. We Love our Cars to Death Perhaps the truth is that peo ple do not really wish to avoid death on the highways at all. In the preface to his play, Man and Superman, George Bernard Shaw suggests that man is really in love with death. He says that man spends more thought in learning how to kill, how to destroy, how to maim and wound, how to fash ion the lethal instruments of war, than he ever spent in producing or saving life. If this be so, it is little wonder that the gruesome photographs that regularly appear in the media depicting death and de struction on the highways seem to do little more than titilate the sense of morbidity. Neither they, nor the regular statistical reports of carnage by motorcar succeed in convincing drivers to show greater consideration for other users of the highway neighbor hood, or· to grow more wary of the perils that haunt it.

We know, from those clever peo ple who collect statistics and as semble them in ways that are de signed to impress or shock their readers, that Canada scores high in motor car accidents. In 1969, with 8,100,000 vehicles on the road, there were 5,696 deaths, or 27.0 deaths per hundred thousand of population. The only really in dustrialized country that racked up a higher score were our friends and cousins to the south in the United States. They were just 454 THE FREEMAN August half a point ahead of us at 27.5 deaths per hundred thousand of population. Australia was pretty high also, at 21 deaths per hun dred thousand; but countries like the United Kingdom stood at only 13.6 deaths and France - where I was always of the opinion that the wildest drivers in the world were to be found - showed only 11.3 deaths per hundred thousand of population. But what of the number of deaths per hundred thousand vehi cles on the highway? After all, population is not the important factor here. India has a very large population but very few motor vehicles; Saudi Arabia has a large population with relatively few . vehicles but a very large number of accidents - mostly with Cadil lacs - so that the population and the death .figures in a place like India or Saudi Arabia would not tell us very much about our own situation. In 1969, we witnessed 70.3 deaths per hundred thousand vehicles in Canada. Although the United States death rate from au tomobile accidents is almost iden tical with that of Canada upon a per capita basis, there were only 55 deaths per hundred thousand vehicles in that country, compared with our 70. The United Kingdom had 59 deaths per hundred thou sand vehicles, and France pro duced only 6 deaths per hundred thousand vehicles as compared with Canada's 70!

In the light of these figures, and having heard all of the pleas for an active educational program and all of the appeals for safety precautions on our highways, do we think· that anything will really be altered by these programs? I have the impression that the mes sage thus far has been that if we would only have fewer accidents we would be much better off. What of our Standards of Performance? If we really wish to improve the dismal record of performance on the highways of this country, it seems to me that we must examine our conduct and our performance and our habits there from the same point of view that we ought to be examining our activities in other fields - in the trades and occupations in which we engage, in our business practices and in our professions, and indeed, in our sports and our recreational activi ties. The standards which we have set for ourselves .in this country in each of these fields .have fallen abysmally low. For we have aban doned our search for excellence in our trades and occupations. What has become of our fine craftsmen of yesterday? Our workers in wood and silver and precious metal; our builders, our mechanics, our 1973 THE PURPOSE OF TRAFFIC LAWS 455 plumbers; those who produce the goods and offer their services to the public to meet· human needs?

What has become of their stand ards? How much can we rely upon their craftsmanship? How much are they concerned with quality? Driving is an occupation like other occupations, and indeed it is the full-time job of the taxi driver, the bus driver, the long distance trucker. What are their standards of performance? And to this question, I think our ex perience and observation must tell us that, as in other fields, they are declining. For we are rapidly abandoning our search for excel lence in our trades and our pro fessions, and those who once prided themselves for their ca pacity to produce at the highest level now have given over their efforts to other goals. The name of the game today appears to be to do the least to get the most. To give as little and to take as much as possible, and ex cellence and quality be damned. You might consider applying that slogan and those words to driving on the highway. Take as much as you can and give as little as you can - and the other fellow be damned.

Compulsion Produces Mediocrity What is most interesting to me is that, as the standards of personal excellence decline, we find that governments at every level, federal, provincial and municipal, are moving to fix the standards for the activities of men and women engaging in their busi nesses and professions with the naive expectation that this will improve human performance. Everything, from minimum wage laws to the manner in which doc tors are required to make their reports in quintuplicate for medi care commissions, is coming to be governed by laws and regulations. The result, of course, is inevita ble. Where the big stick is wielded, and government fixes minimum standards, these eventually become the maximum standards, and all who are forced to adhere to them are repelled by the concept tha t their performance is determined, not by the individual's capacity or motivation, but by the sanc tions of force.

The burdens and responsibili ties that normally rest upon the individual to perfect his tech niques and to give a fair day's work for a fair day's pay, and to produce a result in which he him self takes pride because of his craftsmanship and knowledge, these are being assumed by the state which claims a 'peculiarly omniscient capacity in the field. Government now undertakes to fix standards, to penalize those who 456 THE FREEMAN August do not measure up to them, and to make certain that each citizen gets "full value for hisnioney." But I never knew a government that was able to fix a leaky faucet, or cut ahead of hair, or grow a stalk of wheat, or milk a cow or repair a broken watch. And what is more, it seems to me that when the state holds the big stick over the individual and tells him what he mayor may not do, the result is bound to be fear, and then hos tility, and finally the kind of resig nation which convinces the indi vidual that if the only recognition he is to receive for a job well done is to avoid the penalties of the law, then whatever he will pro duce will be a model of mediocrity.

The state, in all its guises, is progressively removing the incen tives from individuals to do diffi cult jobs well. Incentives to achieve are being removed by the imposition of inordinately high taxes. On the other hand, rewards are being accorded to those who do little or nothing in a produc tive way. Uselessness, neglect, carelessness, ineptitude, sloth these are being rewarded by poIi cies geared to pay money, grant concessions and distribute praise to those who claim it as their right to take whatever they want by political blackmail if possible, and by force and violence if necessary. The welfare state dictates that no longer is achievement the passkey to reward; no longer is compe tence, or excellence or skill of any real consequence. Is it any wonder, then, that there should be a fall ing away from those high stand ards upon which a worthwhile society must depend? In the fields of recreation and sports, Canada is fast becoming a nation of cynical spectators, more interested in the spectacle of violence than in the skills of the game, be it played on the football field or on the ice.

You see, the characteristics\.that we demonstrate in our work and at our professions, in our games and sports and as spectators, are carried by us into the highways of··our land and over all the by ways of our lives. Compulsory Insurance The craftsman who isn't much interested in exceIience on his bench, is likely to be equally dis interested in excellence or profi ciency or care or good manners as a driver of an automobile. There are fewer craftsmen today because machines take care of the needs of most of us. The man today is rare who feels the responsibility of producing a product with which he can himself identify, because it is his own. So it is that the se urity that a welfare-oriented so ciety provides its citizens by way 1973 THE PURPOSE OF TRAF~IC LAWS 457 of protection removes the respon sibility of that individual for his own care and well-being. Compul sory state automobile insurance may well be an application of this same principle, leading people to say, "What difference does it make if I crumple a fender or get into trouble on the highway? It really doesn't matter. I have a govern ment package policy and I only pay $25, or $200 at the very most, and the rest of the damage I do will be looked after by the govern ment. Why should I worry?"

Protecting citizens against their own folly and stupidity condones ignorance and encourages care lessness. I am not opposed to in surance, but I am against com pulsory insurance which places no burden or onus upon the individual himself to secure it. If a man car ries insurance because the state compels him to do so, he carries it because he is told to carry it. But if he carries insurance be cause he thinks enough about the importance of his own safety and welfare and the life and safety of others as well, then he has par ticipated in the act of protecting both himself and others. He has taken the first step to take care. That step is capable of leading to other steps - to considering the dangers of high speed, the perils of heavy traffic, the consequences of drinking and driving. It will move him to consider others and to expect others to consider him. He will do so not because he is compelled to do so but because he wants to and knows why - because he has ceased to be an automaton and has become a thinking human being.

It has been said that the English defeated the Spanish Armada in Elizabeth's time, not on the sea, but on the playing fields of Eton. Whether this be true or false, the fact is that a sense of decency and fair play and of ordinary good manners are essential to any ac tivity in which men and women engage in any number. It is a lack of the ordinary sense of fair play and an ignorance of good manners that, more than any other things, are responsible for catas trophe on our roads and highways. Even lack of skill can be compen sated for by good manners. These are personal qualities. They can not be legislated. On the contrary, paraphrasing Gresham's Law that bad money drives good money out of the market, so it is my firm be lief that lega,l coercion to do good drives human desires to act fairly out of the social equation. Those traits that are causing the loss ,of lives and property on the highways today are the same traits that are making of this great country of ours a place gov erned by the platitudinous, one 458 THE FREEMAN August abandoned to the mediocre and geared to the performance and ability of the lowest common de nominator.

Needed: IIManners in the Motor Car N We are, most of us, bad drivers. We do not regard it as our duty to improve our skills. We do not take pride in our performance. We, do not consider it necessary or even desirable to play the game on the highways. Certainly, though we know a little about table manners, we still have very little interest in road manners. It is high time, I think, that a Dorothy Dix or an Emily Post add to their books on etiquette a chapter or two on "Manners in the Motor Car" - not only when parked, but when mobile. These are not matters for the law to deal with. So many people entertain the greatest expectations from the mere passage of a law. Laws are printed on paper and bound in books. They may even be read and sometimes studied and memorized. But they do not drive motor cars. It is people who drive. It is they and only they who are or can be responsible. Unless we are willing to withdraw the pro tection and the support, the direc tion and the compulsion to which laws are expected to give effect, we as individuals will be reluctant to assume our personal responsibilities. For what we are witnes sing on our highways today is an abandonment of standards of ex cellence and the renunciation of personal responsibility. This, after all, is only a reflection of the hu man scene in almost every other place in the land today.

Ours the Responsibility Why has Mr. Ralph Nader be come so popular in these times? It is because he chooses to say that motor car accidents are happen ing, not because of you or of me, because of our limitations, our ignorance, our ineptitude and our lack of skill. No, it is none of these. It is General Motors and Ford Motor Company and other big corporations who are really responsible for death and carnage on the highways. So Nader likes to make us believe. It is very much like the current attack on the cor porate welfare bums that we have been hearing so lugubriously launched by socialist candidates in the current Federal election. It is well to remember that the statists of whatever complexion have al ways sought out a plausible victim for the public to hate. It is great to reform the whole world so long as one does not have to reform himself. That's why it is always so popular to find a scapegoat, as Ralph Nader has done in the case of motor car accidents. Of course 1973 THE PURPOSE OF TRAFFIC LAWS 459 there are automobile mechanical defects which cause accidents, but I would like to suggest to you, to paraphrase Shakespeare, that The Fault dear Brutus lies not in the stars (or in the Plymouths, Buicks or Fords) but in ourselves, that we are underlings.

If it is to be found anywhere, responsibility must be found pre cisely there - in ourselves. I have said earlier that the ques tion of improved manners on the highway is not a question for the law. We have a plethora of laws, and a dearth of manners. The Saskatchewan Vehicles Act is two and a half times as thick today as it was twenty years ago and the number of accidents and deaths has increased at five times the rate at which the pages of high way legislation has grown. But there are some things that the law cannot do and that Parliament .can not do. It cannot create a great painter or a fine carpenter or a good tailor or a skillful gardener or a first class driver. Not by an act of Parliament nor by any num ber of acts of Parliament can this be done. What laws can do, however - or perhaps I should say what the ab sence or the repeal of laws can do - is to revive the natural system of rewards for performing excel lently, and of penalties for per forming negligently or for not performing at all. Unless we are will..

ing to withdraw the protection and the support of those who fail to learn to work or to act credit ably, there will be no reason why anyone should acquire any knowl edge or exert any effort to perform any act with skill or competence. We are witnessing on our high ways in Canada the abandonment of standards and the renunciation of both excellence and personal responsibility. This, unfortunate ly, is a reflection of the whole hu man scene in Canada in this day. I suggest one of the reasons for this is that we have too many laws. Who is worried about traffic laws today? We have so many laws, that as Lord Darling said, "Men would be great criminals did they need as many laws as they make." I am convinced that we really do not need all of those laws. Rather we need men and women who, as individuals, recognize their own personal responsibility to themselves and for themselves. When this is recognized, we shall be more concerned with our own personal cond uct than with the modern fetish to do good for oth ers, or to pretend that our real concern is with that anonymous amorphous distant undemanding body of beings we are pleased to call "humanity." ~ The THE DOOMSDAY CULTISTS of the rnature economy seem to be at it again. These omnipresent talismen of doom, so ea.ger to have us re turn to a pre-industrial society of agrarian primitivism, have found new fodder for their propaganda campaign.

The incentive for their most re cent burst of gloom has been the scare value of the current "energy crisis." Responding to publicized shortages in the energy field, cer tain ecologists insist we are ex ploiting our resources so rapidly that shortly there will be nothing remaining. Future generations, we are told, will surely perish unless something is done. Such pessimism has been fueled by the confusion surrounding the rather unorthodox behavior of firms which are admonishing cusMr. Anderson recently joined the staff of The Foundation for Economic Education as Executive Secretary and Director of Semi nars, following several years of college teach ing of economics and business management. 460 Crisis ROBERT G. ANDERSON tomers for excessive use of their services. Instead of seeking new customers to consume more of their services, there now is a con certed effort toward encouraging nonconsumption.

This is, to say the least, a radi cal departure from traditional marketing practices. Yet, witness the electric utility company urging customers to "turn off the lights," and the natural gas company re fusing to service new customers and reminding old ones to "turn down the thermostats." More re cently the petroleum companies, acting under orders from the Fed eral Oil Policy Committee, have adopted "voluntary-allocation plans," resulting in limiting cus tomer purchases of gasoline and early closings of retail gasoline stations. Further complicating the crisis are those ecologists, who, seeing a growing problem of pollution, hamper and harass all efforts to 1973 THE ENERGY CRISIS 461 expand supplies of energy, and plead for restrictions on the use of existing energy resources. Indeed it would seem that the enemy is the consumer, whose ex cessive wants have finally exceeded all normal limits and have threat ened to deplete a precious national inheritance. Unless these consum ers are somehow convinced to temper their consumption, there is the danger that such shortages will occur as to spell final disaster for the lot of us.

Volunteer - or Else! Numerous remedies are being advanced as popular solutions to, this crisis. The efforts by utility and petroleum companies to re strict sales voluntarily is lauded as being in "the public interest," for it is placing civic duty above mere profit-making. Through "ed ucating" the consumer to consume less, it is believed, the demand for energy resources can be lessened. Should such efforts fail, the ul timate remedy suggested is direct government regulation of con sumption by bureaucratic ration ing. Such an alternative is not idle theorizing. The Federal Govern ment has made it clear that if "voluntary" methods fail, it in tends to move in. Confronted with a picture of indivduals glutting themselves on scarce economic re sources and ravaging the earth of all its riches, there appears to be no alternative but to turn to col lective, forceful action, complete with penalties for transgressions.

The state at this point is seen as the only means available to force an adjustment to the reality of scarcity rather than endless abundance. Once again we see the threat of government intervention in order to remedy the ill effects of an ear lier government interference. The so-called "energy crisis" is a direct consequence of earlier government intrusions into the free market pricing process. To expect any good to come from further govern ment intervention at this point is to believe that a person just run down by a truck would get relief if the truck backed over him again. Market economics has always recognized the problem of scar city. Indeed, it is the sole basis for the science of economics. An individual's capacity to want is in satiable, but possessing only a limited ability to fulfill his wants, the individual is never able to sat isfy all of them. Clearly, choices must be made and resources allo cated toward the accomplishment of those chosen ends. The p,rocess by which this is done is the con cern of economics.

While a market system of eco nomic organization cannot elimi nate the problem of scarcity, it 462 THE FREEMAN August has demonstrated its superiority over all other systems of economic organization in reducing the de gree of re1ative scarci ty. The emergence of a social division of labor and concomitant price sys tem has resulted in attaining the highest degree of efficiency in al locating resources toward the sat isfaction of human wants. WitHin the framework of a market-structured society the allo cation of economic goods is accom plished through prices established by the actions of buyers and sel lers. This interaction between sup ply and demand is never static, and thus there is a continually changing price structure. As gre,ater quantities are demanded or supplies dwindle, prices tend to rise; conversely, prices tend to fall when lesser quantities are de manded or when supplies· increase.

Free market prices are constantly adj usting in order to bring toward equilibri urn these opposing forces of supply and demand. It is these free market prices that direct the actions of buyers and sellers. As long as buyers and sellers are free to act, as long as the price mechanism is unin hibited, economic goods will be al located in a fashion that will al ways assure their availability to anyone wishing to enter the mar keto Supply will always tend toward equilibrium with demand. Serving Willing Buyers This phenomenon of an equilib rium price, of course, has not eliminated the problem of scarcity. Instead, it can only assure that scarce goods will always be avail able to willing buyers. Prices serve as a means for allocating these scarce resources to those buyers who value them more highly than do others. The justice of the free market lies in the fact that the most efficient sellers will prevail in supplying scarce resources to the buyers who most urgently seek these resources over all other po tential buyers. Such a system is in a continual state of flux as new buyers and new sellers supplant one another and cause prices to correspondingly rise and fall.

The present "energy crisis" stems not from a problem of eco nomic scarcity, but instead from nonmarket forces which are inter fering with free market prices, and thus causing shortages to de velop. The problem of economic scarcity is present in nearly every situation of our lives. We are not in an "energy crisis" now because energy is scarce, but rather be cause there is a "shortage" of it. Shortages are inconceivable in a free market structure; but they do occur whenever free market methods are abandoned. The competitive actions of buy ers and sellers in a free market 1973 THE ENERGY CRISIS 463 system precludes any threat of shortages. The very essence of price allocation negates the devel opment of shortages. A greater relative scarcity of a good in a free market situation will inevita bly lead to higher prices as buyers bid against one another for the shrinking supply. For shortages to occur, some 'nonmarket force must be introduced to create the disequilibri urn.

The "energy crisis" is an ex ample of such interference. Of course energy resources are scarce; that is conceded. They al ways have been, and they always will be scarce. But the current shortages in the market have led many people to believe that we have encountered something worse than scarcity; all of a sudden there is a specter of a well running dry. Misunderstanding the Causes Popular remedies being sug gested are further confused by a misunderstanding of the causes of the problem. Certain forces which have contributed to an increase in the relative scarcity of energy, and other forces which have con tributed to an increased demand for energy, are now being blamed for causing the shortages of en ergy resources. Such is not the case, for under conditions of an unhampered market these forces would be reflected in a changing price structure. On.ly direct inter ference with free price movements can cause the shortages.

A leading example of a force not responsible for causing the energy shortage, but certainly a factor affecting its supply and de mand, is radical ecology.! Ecology is frequently blamed as the pri mary cause of the "energy crisis." As proponents for the preserva tion of natural resources, the ecol ogists have in many instances been successful in curtailing supplies of energy resources by hampering the construction of new oil refineries, electric generating plants, drilling operations, and pipe lines. Their efforts at preserving resources in their natural state, by harassment of utilities and petroleum com panies, have undoubtedly re stricted present supplies. Ironic ally, their success in forcing auto mobile manufacturers to equip engines with emission-control de vices has greatly increased the· de mand for gasoline. (Presently these devices consume an addi tional three million gallons of gas oline daily.) While a paradox can readily be seen between their efforts at pres ervation on the one hand, and the wasteful results of their efforts regarding pollution on the other 1 "A Conservationist Looks at Free dom," Leonard E. Read, The Freeman, November, 1970. 464 THE FREEMAN August hand, the fact remains that their actions cannot be held accountable for the current energy shortage.

It is certainly valid to observe tha t to the degree they have cur tailed supplies and have increased the consumption of energy, they have been a factor in causing the prices of energy resources to rise. But ecologists can no more hamper price movements than can any other private individuals. In the same context, forces such as import quotas, declining ex ploration, production controls on producing wells, tax depletion al lowances,' agreements between re fineries and dealers, and even pos sible secret cartels have been advanced as the causes of our pres ent crisis. Valid charges or not, any or all of these factors can affect only the quantities of en ergy resources supplied, and thus the ultimate market price. None of them, any more than the ecolo gist, can cause market disequili brium in the form of shortages. Shortages from Price-Fixing Shortages are a result of price fixing by government interference in the market place. Specifically, the government, through both di rect and indirect methods, has been successful in preventing the prices for energy resources to rise.

The developing energy shortage has been growing for a long period of time in the utility indus tries. The reason is obvious when we realize that direct price regu lation by government has existed far longer in this area of our en ergy resources than within the petroleum industry. State public utility commissions, the Federal Power Commission, and other government regulatory commissions have direct authority over rates charged for energy by electric power and natural gas companies. Unfortunately, these commissions mistakenly assumed low rates to be in the best inter ests of consumers of energy re sources. Under the misguided no tion that low prices for energy rather than equilibrium prices benefited the consumer, little at tention was given to the develop ing disequilibrium between energy supplies and energy demanded. For many years the disequili brium has been absorbed in the capital structures of utility com panies. This consumption of ac cumulated capital, with its ensu ing financial weakening of the utility companies, gradually af fected their capacity and willing ness to attract capital forexpan sion of their energy resources.

Production of energy became mar ginal, if not entirely uneconomic. At the same time, demand for energy at the low rates continued to expand until the inevitable dis1973 THE ENERGY CRISIS 465 equilibrium developed. Energy was being supplied in shorter quanti ties than were being demanded. Since additional quantities could not be supplied without incurring losses (at the low rates imposed on utility companies by the gov ernment commissions), these com panies had no recourse but to deny service and to urge less use by their customers. The failure of the utility indus try to meet the full market demand for energy requirements had a "spill-over" effect on the petroleum industry. Customers, fearful that electrical power and natural gas supplies would be unavailable to them, sought greater quantities of fuel oil from the petroleum in dustry to meet their energy re quirements. Two Blows at Once Unfortunately, this increased demand upon the petroleum indus try occurred at a time when price controls on their industry had just been introduced. While the method of price regulation has been less direct than that experienced in the utility industry, the problems created are similar.

After many years of a govern ment-imposed inflation of our money supply and resulting higher and higher prices, a government program of price controls was in evitably adopted. Abandoning all economic reasoning, the govern ment established a "freeze" on prices of most goods and services, including petroleum products. Throughout the various "phases" of the price-control program, pe troleum prices have not been able to reflect the changing forces of supply and demand affecting them. Few industries failed to feel the pressures of the government price freeze; but the petroleum indus try, along with other capital-inten sive industries, felt the heaviest pressure. Inflation always inflicts the severest damage on industries with a heavy capital investment in their productive processes. The capacity of such capital-in tensive industries to calculate their economic costs is seriously hamp ered by inflation. Furthermore, the erosion of capital resources by in flation discourages future produc tive efforts by such industries. Ac curate economic calculation be comes nearly impossible.

Thus, a government-imposed price freeze on the heels of a gov ernment-engineered inflation made a petroleum shortage inevitable. A . combination of factors pressuring for an upward movement of prices only worsened the disequilibrium: the peculiarly sensitive financial position of the industry to infla tionary pressures; ecological forc es affecting their capacity to in crease supplies while at the same 466 THE }4'REEMAN August time increasing the consumption of the product; and heavier con sumption on account of a diversion of demand from the natural gas and electric power industries. Obviously, had petroleum prices been completely free to respond to these changing facts and condi tions there would be no threat of shortages. However, the petroleum industry like the utility industry, having lost its entrepreneurial freedom to resolve the disequilib rium through the price mechan ism, found itself pleading with its customers to "not buy."

The IISo/u tion ll Is the Problem The real cause for concern at this point is not the "energy crisis" so much as it is the solution the government will undertake to "solve" the problem of the short ages. Rather than admit the fail ure of government price interfer ence and allow the free market to once again achieve equilibrium be tween supply and demand, the gov ernment more likely will propose the adoption of rationing. The allure of rationing seems to be based on an egalitarian ideal which rej ects the price system as a discriminatory relic of economic inequality, and thus not suitable as a means for the just allocation of resources. Regrettably, this egali tarian doctrine attracts many supporters and is one of the leading threats to the survival of in dividual liberty. The concept of rationing is predicated on an archaic and to tally refuted objective theory of value, yet its philosophical appeal has had an overwhelming influence in our political a.ffairs. The notion that an equal distribution of goods to individuals will provide equal utility is a. complete denial of mod ern theory of subjective value; but government rationing still in sists on the allocation of resources in this fashion.

If selective rationing of energy resources should materialize, the consequences are quite predicta ble. The decline of profit margins will result in a capital shift awa.y from such industries, and this will lead to additional shrinkage of supplies. Since ca.pital always moves away from low-profit indus tries and into higher-profit indus tries, future production of energy resources must decline. The low prices imposed by government edict will ultimately be meaning less as, finally, no supplies will be produced at all by private com panies. The historical response to this development has always been the same. Whenever governments have finally succeeded in making a pro ductive service completely uneco nomic for private enterprise, they assume the function for them1973 THE ENERGY CRISIS 467 selves and nationalize the indus try. (This "final solution," it might be pointed out, not only fails to solve the problem of scar city but tends rather to intensify it.) Lool< to the Marl<et The appropriate alternative to our energy crisis is. to return to free market principles. The con sequences will not be pleasant, for the most probable result will be higher prices for energy resources than exist today.

Recent price movements in those few goods that have not been cov ered by the freeze give us a good contrast to the situation with re spect to the controlled goods. For example, we have ~een as much as a fourfold increase in the prices of some agricultural products in the past yea.r because of inflation and other changes in the supply and demand picture. While such price rises have been a cause of much consternation to consumers, they have not resulted in short ages and subsequent rationing. Should supplies of these agricul tural products now increase (as well they might, because of their profitabili ty), or if demand de clines (because of consumer re sistance to the high prices), then prices will again fall in a reflec tion of market actions of buyers and sellers. While the government planners recognized the presence of these ma.rket forces in agricultural prod ucts and exempted them from di rect controls, they failed to recog nize that these same forces are at play with all economic goods and services. Instead, believing that prices of manufactured goods are somehow "administered" and im mune from the economic laws of supply and demand, the govern ment imposed the price "freeze"

upon them. As must always happen with an abandonment of economic reality, the edicts of government are fall ing victim to inexorable economic law. The ever-changing forces of supply and demand, continuing an upward pressure on the prices of energy resources, are making the "frozen prices" a relic of economic history. The growing disequilib rium between the government manipulated prices and the actual forces of supply and demand pre cipitates the inevitable shortage. If this "energy crisis" is to be resolved, there is only one alterna tive. We must return the alloca tion of scarce resources to the market. Freedom in the market place, so that the economic struc turing of society is in the hands of individuals acting as their own free agents, is the only "final solu tion." Under such a system,. the crisis of shortages is unknown. I) The MANY PEOPLE, I suspect, would rather entitle this piece, "the error of confession" than "the confes sion of error."

My thesis is that error can and should play a profound role in man's advancement toward wis dom. The~e are two doors through which the fallible individual must pass before he can behold the light of truth. The first is the discern ment (}f error; the second is the confession of the error, not only to self but to anyone influenced by his error, whether that influence extend to one or to a· few or to millions of persons. Rarely does the individual err in solitude; most of one's mistakes have a social im pact, may indeed bring harm· to others as well as to himself. So, one is socially obligated to confess as well as to correct his errors. A personal experience may help illustrate my point. In 1945 I was given the assignment of choosing 468 LEONARD E. READ two speakers to present opposing views on the U.S. foreign aid pro gram. I chose J. Reuben Clark, J f., President of the Church. of Jesus Christ of Latter-Day Saints, whose point of view coincided with mine.

The most prestigious individual I could nominate for the other side of the argument was Lord John Maynard Keynes, then on an offi cial visit to the United States. When I called on him to invite his participation, he replied, "I shall not accept your invitation, and for two reasons. First, I shall not be in this country at the. time of your meeting. And if I were here I would not accept. My mission is to obtain the British loan. Were I to stand before your audience and say what I now think, which is what I would do, I would· disparge my mission." Lord Keynes, it seemed, had changed his mind about govern ment spending. He confessed this 1973 THE CONFESSION OF ERROR 469 to himself and to me but, so far as I know, not a word of his changed position reached the hun dreds of millions who came within his orbit of enormous influence. Had he publicly confessed his error (he passed away nine months later) the reckless spending poli cies of nations all over the world might have been halted. He dis cerned his error which is the first step. But he never took the second step; he failed to make public his confession, and the light of truth did not shine forth. Lord Keynes opened but one of the two doors; and the rest of us are now the poorer for his failure to open and pass through that second door to truth.!

I would not single out the late Lord Keynes as alone in this fault. His case is simply a magnified, and thus easily observed, example of the thing I am talking about. The same inability or unwilling ness to confess error plagues most of us. Keynes' leverage over events was so great for at least two rea sons: (1) he was a prestigious professor of economics at Cam bridge University and a titled nobleman, and (2) .his error is one that all· politicians, here or else where, ardently want to believe: 1 For an enlightening account of Lord Keynes' sound money theories be fore he went "Keynesian," see "Infla tion" by John Maynard Keynes (The Freeman, April 1956). that politicians can spend the peo ple's money on anything that suits their fancy and, by so doing, as sure prosperity to the victims. Had a commoner - one without degrees and a title - made such a silly pro posal he would have been "laughed out of court."

Why the reluctance to confess error openly? Doubtless, there are more reasons than we know. Take a politician - one gaining office by promising, if elected, to do this or that for his constituents, perhaps a higher minimum wage or any of thousands of "benefits" at tax payer's expense. Later, the light dawns and he sees the error of his ways. Confess this mistake to his constituents ? Not likely! He would never be returned to office, his political power at an end. More often than not such a fateful pros pect destroys any desire or incen tive to confess error. But no one can confess an error until he sees it for what it is; and self-blindness is a trait as com mon among the electorate as among the elected. Once an error is believed and embraced as right, it is absorbed into the tissues, so to speak; it becomes a part of one's being. An immunity develops and explanations of the fallacy are warded off, not heard. Only con firmations of the error are re ceived and they become supporting evidence.· Most of us simply can470 THE FREEMAN August not stand the thought of being wrong, at least not to the point of openly confessing an error.

Often the explanation of our error is made by a political op ponent or by one having a faith or general philosophy we do not ap prove, that is, by our "enemies" persons we abhor or, at least, do not like. The very source is enough to close our eyes and mind; we will have none of it! Indeed, this lack of catholicity on the part of anyone tends to confirm him in the rightness of his mistaken views. Small chance of confessing errors thus buried in rancor! The fact that society, today, is in one of those devolutionary swings - common to history - and that countless people are propos ing remedies -of every variety and without success, suggests that the right answer has not yet been found. I venture to say that the remedy is simple; indeed, if it is not sim ple, in all probability it is not right. The first step is to remove all ob structions to the discernment of error; and the second is to confess the mistake openly. How wonder fully different would be the so cietal situation were a consider able number of us to open these two doors. It seems obvious to me that this is the way and the only way to wisdom, truth, light!

A considerable number! Yes, but a number of individuals, one by one. After all, it is not society that acts; it is only discrete hu man beings. There is no point in dwelling further on removing the obstruc tions to the discernment of error. Count him out who cannot rid himself of prej udice, bias, egotism, know-it-all-ness. Include only those who welcome exposure of error, regardless of source. The door most of us have had no practice in opening is the second: open confession of discerned error, not only to self but to all who have come under the harmful influence of the mistake. By "open confes sion," I am not referring to any maudlin wailing. Rather, I am talking about a clear explanation of one's new insight - the truth that displaces the error he had es poused and inflicted on others as well. There are two points to keep in mind. First, if the purpose of life is to grow in awareness, percep tion, consciousness, the refusal to confess error is to strangle growth; it is to nail one's self down to mediocrity, along with others under influence of one's errors. Be free!

Second, confession not only is good for the soul; it also turns out to be a joyous experience, as is any freedom from inhibitions. To prove it, try it! ~ How to Advocate a Standard PAUL STEVENS THERE ARE TWO POINTS on which probably all advocates of a gold standard agree. They are: (1) that the U.S. government should legalize gold, and (2) that govern ment should not prevent its citi zens from using gold as money if they voluntarily contract to do so. This means that banks desiring to store gold, print gold bonds, or print notes against gold should not be prevented from doing so. It means that buyers and sellers should not be prevented from con tracting in gold for the exchange of goods. These are certainly proper goals for advocates of a gold standard to pursue. Yet achviement of these goals is being undermined by statements containing a host of errors, inconsistencies, and con tradictions about gold - statements made by those very individual~ who are attempting to focus attenMr. Stevens is a freelance writer who special izes in the field of economics.

tion on gold and the virtues of a gold standard. A bad argument advocating a return to the gold standard can be more harmful to the case for gold than no argument at all. One source of such arguments is that many gold advocates look at gold through the eyes of an in vestor rather than the· eyes of an economist. Consequently, short term, superficial and sometimes misleading interest in gold is be ing encouraged at the expense of long-term education and consistent economic theory. This approach must ultimately be counter-pro ductive and self-defeating. The market is being saturated with lit erature containing misconceptions and inexact or incorrect terminol ogy. This has led to anti-gold posi tions (Le., positions inconsistent with capitalism and a free mar ket) , most of which can be traced to poorly defined concepts, discus sions drawn out of context, and misidentified cause/effect relation471 472 THE FREEMAN August ships. The following arguments, terms, and positions regarding gold, its present role in interna tional monetary matters and its proposed role in future interna tional monetary reform, have pre· sented a recurring yet self -defeat ing "defense" of gold and the gold standard.

The "Intrinsic Worth" Argument It has been said that gold has "intrinsic worth." This argument represents a theory of economics inconsistent with the free market and consequently with the gold standard. The intrinsic theory of value holds that worth or value is con tained within an object. It holds that economic goods possess .value inherently, innately, despite the market, despite supply and de mand, i.e., in spite of men's val ues, choices, and actions. Free market economists reject this argument. rf'hey hold that no man can jump outside the market and declare what a particular com modity is "worth"; that all com modities are subject to the laws of supply and demand; that in economiGs there is no such thing as "intrinsic worth", only market worth. "Worth" means "value" and value presupposes a valuer. As men's values differ and change, market values change. As supply and demand conditions change, the exchange ratios of commodities relative to one another change.

Gold is not exempt from these economic laws, and yet gold is oft en treated as if it were. By using such unscientific terms as "intrin sic worth," the gold advocate can only hurt his own case - and he has. The inability of many gold advocates to objectively answer the question, "why gold?" has led to the misunderstanding of gold and to such popular terms as "gold, the mystic metal." Gold would not be called "mys tic" if it were understood. And understanding begins with defin ing one's terms. It is only through invalid concepts such as "intrin sic worth" that absurd terms such as "mystic metal" can gain popu 1arity. The "Store of Value" Argument The argument that gold is a "store of value" is often used as a substitute for the "intrinsic worth" argument. Unless precisely qualified, the term can lead to the same errors, fallacies, and falla cious theories of the "intrinsic worth" argument. Thus, it may lead to a misunderstanding of the nature of money and of a proper theory of value.

"Store of value" is a term often used by those who argue that gold will always represent a constant 1973 HOW NOT TO ADVOCATEA GOLD STANDARD 473 value, Le., that gold is a "fixed yardstick" representing constant purchasing power. Implicit in this argument, once again, is· the idea that gold is intrinsically valuable - immune from the laws of the market. Not so. The possibilities of gold strikes, gold shortages, fiat money inflation, depression and deflation, fluctuation of industrial demand, the relative market value of other commodities, and the dif fering knowledge, values, and ex pectations of men - all these fac tors have the potential of increas ing or decreasing the value of gold for other men. Does this mean that under a gold standard the "price index" and the value of money will fluc tuate? It certainly does. But this is precisely the beauty of the free market and the case for freedom that prices are allowed to fluctuate freely, thereby corresponding to the constantly changing and di verse values of free men. The ad vocates of a free market are not Utopians - they are realists who recognize that· there are no guar antees 'of economic security in this wor ld; they are willing to accept the consequences of their actions - and to accept the verdict of a free market.

The advocates of a free market are not willing to trade their free dom for security. The "store of value" argument offers men just such a trade. While a gold stand ard does offer men more stability of value than any other free mone tary system, it does not offer men a constant value. There is no harm in stating that gold is a store of value so long as one knows and states exactly what is meant by the term - i.e., that gold has stability of value and represents perhaps the best monetary method of sav ing. In a free society, one is cer tainly free to store that which one values, so long as it is understood that the value of one's savings is not immune from the influence of the market. Thus, within the con text of a free mar ket, th'e only legitimate meaning of "store of value" is, "a commodity which is most marketable. and therefore best facilitates the exchange of goods and services."

Gold "Price" Predictions One way pro-gold advocates have been trying to attract attention to gold is by arousing investor inter est through predictions of a high er gold "price." General estimates of prices are not by themselves harmful. For example, it was a reasonable assumption that, after having been artificially held down for forty years, the "price" of gold would increase. But specific price predictions are indirectly harmful to the case for gold. The case for gold is subsumed 474 THE FREEMAN AUgU8t under the broader case for the free market. The advocates of free market economics and those econ omists concerned with economic theory take pride in the rigorous logic and objectivity of the case for the free market. But this pride is being undercut by illogical and visionary price predictions. The "price" of gold is determined by the values of those participating in the gold market. No man on earth, no group of mathematicians (no matter how many charts and graphs they employ), no computer on earth, is capable of knowing the values of all consumers and sup pliers within the market. (Russia has been trying for years to COT rectly anticipate general consumer demands and has failed.) There fore, to try to precisely predict something as specific as a price is impossible. The fact is, men's val ues are constantly changing, just as the factors of supply, demand) and cost are changing. Men cannot have precise, prior knowledge of prices, and by pretending to can only confuse and undercut the en tire concept and basis of free mar ket economic theory.

There is no place for crystal balls in science - and that includes the science of economics. Those attempting to attract attention to gold by making precise price pre dictions are contradicting and ob scuring the meaning of the free market and therefore undercut ting the case for a gold standard. The ilLegal Tender" Argument Many advocates of gold argue that if gold were made legal tender, not only would individuals be allowed to own and use gold as money, but this would necessarily lead to a gold standard. What is forgotten is that this country's legal tender laws are precisely what prevent citizens from using gold as money today. Legal tender laws established the legal preGe dent of coercive government mo nopoly over the issuance and use of Federal Reserve Notes. The free market economist does not contend that gold must be money. He contends only that money must be market-originated.

The case for the gold standard is part of the broader case for com modity money. Consistent advo cates of the gold standard hold that gold possesses those: qualities and characteristics most conducive to the function of a medium of ex change, but they do not say that gold will forever be suitable as money. Neither do they hold that gold must be-accepted as money whether men want to accept it or not. They do not ask for the police powers of state to enforce their idea of what money should be. Thus, they oppose legal tender laws.

1973 HOW NOT TO ADVOCATE A GOLD STANDARD 475 Further, legal tender laws are not necessary. All tha t is neces sary is that men possess the right of contract. For· example, if a man contracts to pay one hundred ounces of gold to another man who agrees to accept this sum in pay ment' the courts need only recog nize what has been chosen as money, and assure that the obliga tion be discharged. Legal tender laws are not what is needed to return to a gold standard. On the contrary, they are one of the major factors today preventing the world from return ing to gold. The 1I0ffidai Price of Gold ll Fetish Many advocates of gold argue that an "official price" of gold is both necessary and desirable. This posi tion accepts the premise of opponents of the gold standard: that legal tender laws should be established allowing governments to legally fix and regulate the value of money. The free market posi tion rejects this premise. It holds that the medium of exchange should be market-originated and market-regulated - not govern ment-originated and government regulated. This means that the value of money should be deter mined on the free market - not dictated by government decree.

At this point, the "official price" advocate usually says, "But if the price of gold isn't fixed, then no one will know what money is worth." And in the sense of hav ing precise, prior knowledge of gold's exchange value, this is true - just as it is true for all other commodity exchange-values. It is interesting to note that those who argue both that gold should be fixed in value and that gold is a constant store of value, hold a contradictory position in which one claim offsets the other. If gold is already a constant store of value, why should its "price" be fixed? And if it is necessary and desirable to fix the "price" of gold, then how can it be argued that gold has an intrinsically con stant value? One need not fix that which is constant, and that which one does fix cannot be defined as constant. Such inconsistency per vades pro-gold literature today. In fact, what is being advocated is that gold should be a "fixed yardstick" - a constant "store of value" - by government directive, rather than a stable store of value by market "directive." Govern ment determination to fix the pur chasing power of the monetary unit ignores, contradicts and de nies the law of the market.

Under a gold standard, no "offi cial price" of gold would exist, hence no official store of value. But this does not mean that gold offers no stability of value. On the 476 THE FREEMAN August contrary, gold has been chosen by men as a medium of exchange for over 2,500 years precisely because of its stability of value. But mar ket-determined stability must be distinguished from government "guaranteed" constancy. A "guar anteed" value is neither necessary nor possible. All that is necessary is that those who print paper claims against gold specify the quantity of gold their paper claims represent and that they adhere to their promise to pay by not un dermining their ability to convert their claims into gold - i.e., that they do not fraudulently increase their note issuance. The result would be a mild fluctuation of gold in relation to other commodities and monies. Further, to advocate "pegging"

gold to a given number of dollars would only amount to a fiction in today's inflationary climate, just as it would be a fiction to fix the price of any commodity. The free market must be allowed to deter mine the value .of gold and all money substitutes, just as it de termines the value of any and all commodities - by supply, con sumer demand, and the cost of prod uction. Just as there is no validity to the case for price con trols, there is no validity to the case for exchange controls. If men want security of pur chasing power, they need not and should not look for government guaranteed "security"; they can easily obtain security through the free market by including in all con tracts that purchases, repayments, and the like .be made in money adjusted to compensate for any changes in the value of money. Futures markets can be, and have been, established in any commod ity, money, or money substitute that men show a desire to partici pate in. Yet rarely have men sought a guaranteed protection against loss.

Those who argue for an "offi cial price" of gold can only hurt the case for a free market and therefore a gold standard. Price controls contradict a free market and therefore should be avoided. This includes control of all prices, including the "price" of money. Price controls have always been counter-productive and self-defeat ing. Worse, they establish the principle of government-provided "security" at the expense of indi vidual freedom. To argue that an "official price" of gold is necessary and desirable is to argue that the free market is not. The Devaluation Syndrome The argument that there must be and/or should be a major deval uation of the dollar is an offsboot of the "official price" argument. It accepts all the premises of that 1973 HOW NOT TO ADVOCATEA GOLD STANDARD 477 argument and therefore makes the same mistakes. But there are fur ther implications of this argument that must be examined.

First, devaluation means a re• turn to a monetary system of fixed exchange rates at a time when in flation makes it impossible to fix the value of anything, let alone the value of money. Bretton Woods is an eloquent example of what hap pens, given fixed exchange rates together with inflationary policies. It is not good enough to say, "Well, we shouldn't have inflation. Fixed exchange rates would work if gov ernment stopped printing money and adhered to the value of the monetary unit." The fact is that we do have inflation and may con tinue to have inflation for many years to come. The devaluation ar gument drops the matter out of context and reverses cause and effect by demanding a system of stable money and prices at a time when there is no reason to assume that this kind of stability is pos sible to the world. Second, the .devaluation argu ment delegates to the International Monetary Fund (IMF) the power to establish an international monetary system by law. Implicit in the devaluation argument is acceptance of the unfounded as sumption offered. by the IMF, that this time the devaluation and ex change rate realignment will be final. Many advocates of a gold standard unwittingly accept this assumption and thus believe that the way to achieve a gold standard is through a major .devaluation which would re-establish a con vertible gold dollar. This, they be lieve, is the way to eliminate in flation.

But in fact just the opposite is true. It is not a gold standard that will lead to the elimination of in flation; it is the elimination of inflation that will lead to a gold standard. To attempt to maintain an international gold standard through the IMF is impossible, given today's political context we would only end up "going off gold" again with gold getting the blame for the resulting crisis. AI low individual gold ownership and allow the use of gold and an inter national gold standard will natu rally evolve - when and only when government monetary policy be comes noninflationary. Until then, gold and exchange rates of na tional monies should be left free to seek their own levels. Fixed exchange rates will never (and should never) result from a formal international organization such as the IMF. The stability of exchange rates will be the result, not of government price-fixing, but of noninflationary adherence to the value of money - Le., the elimination of legal sanctions that 478 THE FREEMAN August permit any government agency or bank to fraudulently increase ·the money supply.

Under a gold standard in which all nations deal in weights of gold, exchange rates would necessarily be fixed by relative weight - not by law. No formal international monetary system would he neces sary and no nation would be forced into, or prevented from, us ing other monies such as silver, paper, and so forth. A gold stand ard does not require exchange rates fixed by law. It assumes only that exchange rates will be fixed as a result of adherence to the definition of money. This means that if a monetary unit is defined as one ounce of gold, it will nec essarily exchange for other mone tary units at a precise ratio - un less the monetary unit is debased and misrepresented. Thus there is no need for a for mal, Le., legal, international mone tary system. All that is needed is the free market. The way back to a gold standard is not backward toward the Bretton Woods system, but forward toward a noninfla tionary system of freely self-ad justing exchange rates in terms of currencies and gold.

Third, the argument for deval uation is inconsistent with and contradicts another main argu ment propagated today by gold advocates: that the world is headed for runaway inflation and/or depression and deflation. If it can be reasonably assumed that prices may skyrocket or plunge, as most gold advocates contend, what sense does it make to advocate raising the "price" of gold and fixing ex change rates? If it is anticipated that prices will fluctuate dramati cally, exchange rates need to be as flexible as possible to adjust quick ly to men's changing economic eval uations, to price-cost factors; and to supply and demand conditions. It makes no sense at all to advocate fixing the "price" of gold, exchange rates (or anything else ) when ex pectations are that prices will rise or fall dramatically. Such price controls are doomed to failure and can only result in dangerous eco nomic and monetary distortions that will ultimately lead to the restriction of trade and to a lower standard of living for individuals.

The IIStop Printing Moneyll Argument Inflation is the fraudulent in crease in the supply of money and credit. It is both immoral and im practical to inflate. Eventually in flation might be outlawed, but not today-and not overnight. Both rational economic analysis and his tory verify the disastrous conse quences possible given a dramatic increase or decrease in the nation's money stock. In today's context, when the 1973 HOW NOT TO ADVOCATE A GOLD STANDARD 479 whole of the American banking system and economy is geared to ward inflationary finance, it is to no one's short-term or long-term interest to advocate that govern ment should immediately stop printing money or that the infla tionary arm of government - the Federal Reserye Board - should be abolished. For, taken literally, these well-meaning intentions could result in a nightmare of eco nomic turmoil. Rather, it should be stressed that the supply of fiat money should be slowly reduced and sta bilized to correspond to increases in the gold supply, and that struc tural changes within the banking system should take place to facili tate elimination of .the artificial and arbitrary nature of note issu ance. This would reduce inflation and go a long way toward estab lishing the proper direction nec essary for a return to gold.

The case against inflation can never be stated too often and its importance to a sound monetary system can never be overempha sized. Clearly the battle against inflation must be won before the return to a gold standard can be secure. But neither can the im portance and necessity of a grad ual return to gold be overempha sized. Inflation certainly is immoral and economically impractical - but so is any proposal that aims to un leash unnecessary hardship on citi zens in the name of "morality" and "practicality." The road back to a gold standard will be long and hard, but the road should be made as smooth as possible by intelli gent guidance. Thus, advocates of a return to the gold standard should make clear their inten tions: they advocate a reduction in the fraudulent increase of the money supply - which means a reduction to the point at which this increase is based on the pro duction of a particular commodity - which means gradual departure from a government-regulated money supply and gradual return to a market-regulated money sup ply.

The "Demonetization" Threat To demonetize usually/means to remove a particular for¢ of money from circulation. In i this sense, gold has been demonetized in the U.S. for forty years. But this is not what many opponents of gold mean when they say gold should be "demonetized." They believe that, internationally, the official role of gold should be reduced and finally eliminated among govern ments; and that, nationally, gold should circulate like any other commodity. Gold advocates usually denounce this "intent to demone tize" as an attempt to undermine 480 THE FREEMAN August the principle of the gold standard in order to more effectively pursue inflationary policies. This certainly may be the intention, but in to day's context "demonetization" could be a very good thing for gold advocates and a very bad thing for the opponents of gold. Consider the following facts: (1) Gold cannot by itself pre vent inflation. If policy makers are determined to inflate, they will do so with or without gold. For the most part, the degree of inflation will depend on the lack of knowl edge or irrationality of policy mak ers and can only be combated by the knowledge and rationality of a nation's citizens.

(2) Gold has been used by gov ernments primarily to give an un warranted status and credibility to their fiat money - a status and credibility that could not be main tained if gold were "demonetized" and allowed to circulate alongside the depreciating money of govern ment. (3) If it is true that today's governments are notoriously poor money managers, why entrust them with the. maj ori ty .of the world's gold? Would it not be put to better use managed by indi viduals? Today we are farther from a gold standard than at any other time in our history. Policy makers have had decades to propagate their anti-gold theories. Most Americans have never owned gold. Thus, most Americans do not know why it should be money. It should be clear that men who do not know why gold should be money, will not demand it as such. Just as no government can prevent private ownership of gold if a ma jority of its citizens demand it, no minority group (such as the pres ent advocates of gold) can force government or citizens to return to gold if they do not desire to.

The road back to a gold stan dard is an educational one; and it may take us as many decades to return to gold as it took to aban don it. With governments as the major holders of gold in the world today, citizens derive little or none of the benefits of gold. This pre vents the kind of self-education that might occur given popular ex posure to gold. Rather .than cam paigning against "demonetization" of gold, or for legal tender gold legislation, gold advocates should seek repeal of legal tender restric tions on the use of gold in payment of private debts. In today's context, "demonetiza tion" means to return gold to indi viduals. At a time when all the evi dence points to the mismanage ment of gold by governments, when it is plain that governments are llsing gold to their citizens' disadvantage, when there is no 1973 HOW NOT TO ADVOCATE A GOLD STANDARD 481 reason to assume that policy mak ers desire or know how to return to a gold standard, why advocate a government program to return to gold? Government will be the last to realize the virtue and im portance of gold as money.

Gold has no business being in the possession of such so-called money managers. Let governments have their fiat money and receive the full responsibility and blame for their note depreciation; let individuals regain governments' gold and rediscover the benefits of gold; make the policy makers' phrase, "gold is a barbarous relic," a government position; let both gold and fiat money circulate among men and we'll then see who possesses, determines, and controls money - individuals or govern ments. "Demonetization" is no threat to Americans. Gold advocates should not fear it - they should demand it. The quickest and surest way back to a gold standard is not through the wasteland of govern ment channels, but through pri vate channels. A gold standard will evolve naturally when men are allowed to freely own and use gold, and when men desire to own and use gold as money. On Context, Cause and Effect It is important that one recog nize just how far the educational process of this country must go before a return to the gold stan dard is possible. The gold standard requires monetary stability which means that all those government domestic programs now popularly advocated, and financed through inflation, must be opposed by the majority of U.S. citizens. Further, a gold standard requires economic stability, which means all of the malinvestments, overconsumption and misallocation of resources that have resulted from years of artifi cial, government-made "booms"

and led to a multitude of economic distortions, must take their toll. This means that the anticipation of recessions, depressions, infla tion or deflation must be behind Americans and reasonable expec tations of economic stability and real growth clearly in sight. This kind of stability is a long way off - yet this is the kind of stability necessary before a gold standard can be established as a lasting monetary system. The gold stand ard could never last long without confidence in future monetary and economic stability. If those pres ently advocating gold ownership and the ownership of other invest ment hedges are doing so because they are convinced that the world is headed for great monetary and economic instability, they should be equally convinced that it still is far too soon to be advocating a 482 THE FREEMAN August full return to the gold standard. Even. more premature is the at tempt to submit specific proposals of exactly how to return to the gold, standard. This problem must be seen in context. Even assuming that men desire to return to gold, any specific plans for implement ing a return to gold will depend greatly on such factors as inter national monetary arrangements and conditions, domestic monetary and economic conditions, and the legal, financial and structural con ditions of the banking system.

These conditions change. Thus, a good proposal today may be sadly lacking a year from now. Until fundamental political changes oc cur in this country, it is unreason able for anyone to assume he must address himself to the question of specifically how to return to a gold standard. Rather, one should concern him self with eliminating those laws which are preventing men from using gold as money and attacking those policies which encourage gov ernment inflation. The legalization of gold and its use as money, an end to legal tender laws, the freedom of individuals to mint coins, and the elimination of laws that prevent banks from existing independently of the Federal Reserve System all these are valid interim measures one can advocate. But the problem of how to return to a gold standard will be solved, for the most part, through solving more fundamental problems. A full gold standard cannot re turn until economic stability re turns; we cannot return to eco nomic stability until we return to monetary stability. Monetary sta bility cannot be secured until the source, nature and immorality of inflation is exposed to and under stood by Americans. But the evils of inflation cannot be understood until individuals grasp the mean ing of money and the nature of property rights. And property rights will not be secured without a full understanding and defense of individual rights. Thus, nothing less than a return to laissez-faire capitalism and a free market will insure a return to and defense of the gold standard. Therefore, a massive and extensive educational task on the virtues of capitalism confronts all those who desire to effectively fight for a gold stand ard.

Men will want to return to gold only when they rediscover what money is, and men will not re discover what money is until they understand why what they have is not money. ~ BRIAN SUMMERS ONE of the notions commonly held by critics of the free enterprise system is that the more complex an economy becomes, the more government intervention is need ed. If this assertion, which sounds perfectly natural to many people, is in fact true, then economic free dom in America is a relic of a sim pler past. Let us examine this no tion by considering what it means for an economy to be "compli cated." Let us begin by considering a free enterprise system. In such an economy capital is privately owned and the government re stricts itself to protecting people from humanly initiated force and fraud. In this atmosphere of lais sez faire, capitalists compete with Mr. Summers is writing his Ph.D. thesis in mathematics at the State University of New York at Stony Brook.