Book Reviews

A REVIEWER'S NOTEBOOK JOHN CHAMBERLAIN The Public Interest At most of the recent Mont Pelerin Society conferences a battle royal has taken place between the Friedmanites, who insist that infla tion is a purely monetary phenom enon, and the wage-push critics, who discover the prime villain in the monopolistic labor union. The two sides rather miss each others' points. Obviously Milton Friedman and Enoch Powell are right when they say that there could be no in flation without an increase in the money supply. Since it is govern ment that controls the currency, the villains come clear: the politi cians and the bosses of the Federal Reserve are to blame for their profligate public spending and their pusillanimous refusal to ride herd on the availability of credit. 440 But the wage-push is. there, too: wages are a cost, and costs must be recovered in prices. If the monopolistic labor union can ex tort a beyond-productivity wage increase, the same politico who lacks the nerve to veto high public spending will hardly have the for titude to tell the unions that they must accept a penalty in jobless ness for pricing themselves out of the market. Friedman and the wage-pushite actually have the same Statist villain, but each per sists in emphasizing a different activity of that villain. Friedman says the politico shouldn't go hog wild on inflationary welfare state spending in the first place. The wage-pushite would agree that wel farism is bad .. But he insists that 1973 UNIO~ POWER AND THE PUBLIC INTEREST 441 the villain really sends the infla tion racing when, fearful of mass unemployment, he forces a second ary flushing of the money supply in order to let the customer pay a wage-inflated price.

The Friedmani tes and the wage pushites need a moderator, and where could they find a better one than Emerson P. Schmidt, whose Union Power and the Public Inter est (Nash, $10) combs over all phases of a complicated subject? Schmidt begins by noting that the aim of most union leaders is to take labor out of competition. This has been done in both craft and mass production industries by laws that exempt the working man (de fined as something more than a commodity or a factor) from the Sherman Antitrust Act. The ex empted working man achieved a very special favoritism in the de pressed Thirties, when the Wag ner Act, seeking to "equalize" his power vis-a-vis the big corpora tion, in reality stacked the process of collective bargaining in his fa vor. The right to strike was never intended to justify the use of goons and dynamiters, but a so ciety that is far gone in permis siveness does so little to prevent violence on the picket line that businessmen have been thoroughly intimidated. They don't dare to keep factories open for those brave souls who are willing to work after union "enforcers" have appeared on the scene with their brass knuckle tactics. So the "bargain ing" usually ends with acquies cence to union demands.

Abuse of Special Privilege As a result of legal exemption fronl the antitrust laws and the general permissiveness of society, the unions are in a position to push extortionate policies no matter what the level of inflationary pub lic spending. Having made this point clear by his analysis of the "wage-lag myth," Dr. Schmidt is in a position to arbitrate between the Friedmanites and those who insist on the wage-push theory of inflation. When Friedman argues that he knows of no instance in history where inflation was not preceded by a substantial expan sion in the money stock in excess of production, Schmidt says "few scholars would disagree." He also accepts Friedman's contention that an abatement of inflation invari ably follows when the money stock is brought under control. None theless, Gottfried Haberler's amendment to the Friedman posi tion has impressed Dr. Schmidt. Haberler agrees that "inflation is basically a monetary phenomenon,"

and that it must be fought by Friedmanite means. But, so Haber ler adds, the wage-push is a reality on top of the monetary inflation, 442 THE FREEMAN July and if union power is not reduced "all the other measures suggested for fighting inflation would be in vain." Dr. Schmidt notes the propen sity of economists to change posi tions' but the "law of cost" ("the price of a commodity tends to equal its cost") necessarily dic tates such changes when monopo listic unions become extortionate. Schmidt quotes Dr. Edward H. Chamberlin as saying that both monetary expansion (creating "de mand-pull") and monopolistic wage bargaining (wage-push) can exist simultaneously. "Both are possible and neither excludes the other," says Chamberlin. It is not a mat ter of "either-or." To which Hab erler adds that there is a mone tary element in both demand-pull and wage-push inflation. The only difference is in the timing: for "demand-pull," the flushing of the money supply comes first, for "wage-push" it comes after the monetary authorities have, out of fear of unemployment, decided to "create enough money to permit the rise in prices that is compat ible with the rise in wages."

Dr. Schmidt's chapter on "Mone tary and Fiscal Policies Versus the Wage Push" should end all the arguments between the Friedman ites and the wage-pushites. The "freedom philosophy" economists are not in any significant disagreement about fundamentals. The bridge to concord is supplied by Haberler in his observation about the timing of the monetary ele ment in the two types of inflation. Faulty Attitude toward Work Dr. Schmidt thinks the unions' misuse of their inordinate power is due to a most defective view of man's attitude toward work. The average union boss rejects the idea that there can be real on-the job satisfactions, such as ego needs, the desire to grow and cre ate and to achieve a well-rounded experience. Samuel Gompers once defined union policy as "more," which has been altered in recent years to "more for less." The pes simistic view of work dominates the union agendas. Professor Douglas McGregor of MIT calls the pessimistic view "Theory X."

The other view, which concen trates on job satisfactions and op portunities, is "Theory Y." The trouble with Theory X is that it actually leads to getting less for less instead of more for less. The arithmetic is obvious: when production is diminished by more paid holidays, paid vacations, sick leave, paid personal-birthday time off, paid time for jury duty, for funerals, for the day before or after a holiday, there is less for the totality of the working force to share. In slacking off on pro1973 UNION POWER AND THE PUBLIC INTEREST 443 ductivity while hourly wages go up, the worker cheats himself. He also cheats the totality of the working force when he com pels his political representatives to raise the minimum wage. The "aristocrats" of labor don't need the minimum wage anyway. But those at the other end of the scale - the untrained apprentice, the eighteen-year-old black from the slum - can't find jobs when the minimum wage is high. It does not pay an employer to hire and train a man at a wage price that cannot be recovered in the mar ketplace.

Dr. Schmidt thinks that undue union power must be dispersed. He advocates changes in our basic la bor law that would permit local wage settlements, and asks for a discontinuance of the annual wage increase. But, first, the intellec tual climate must be changed, which is another story. ~ History of the Canadian National Railways by G. R. Stevens (New York: The Macmillan Company, 1973) 523 pp., $12.95. Rev'iewed by Joseph M. Canfield Railway history is generally con sidered a highly specialized sub ject and of no general interest. Most works fall into either of two categories. First, the economic study, of interest only to the statistically minded. Second, there is the hobbyist study which goes into details interesting only to a dedicated collector of switch keys or railroad tickets like myself. However, anyone who wishes to be informed about the work ings of the economy in which he lives should know more-about rail roads. They are absolutely essen tial to the economy and its func tioning. Macmillan has started a series called "Railroads in Amer ica." The first two volumes avoid the extremes mentioned - they are designed for the general reader. The human side of rail roading is present and provides light touches which keep up the interest. But a reader can get a clear view of the importance of railways to a developed or a devel oping economy. For that reason, readers of The Freeman should be aware of the series.

History of the Canadian Na tional Railways by G. R. Stevens, 444 THE FREEMAN July second in the series, relates a story which confirms the validity of Clarence Carson's thesis in Throttling the Railroads - that government land grants and sub sidies for railways are upsetting and wrong. In Canada, they were disastrous. The Canadian National Rail ,-,rays came into being as an entity simply because expansion of rail ways, encouraged by subsidies (both cash and land) failed. 'The failure resulted in confiscation by the Canadian Government, of Britain's largest single private overseas investment, the Grand Trunk Railway. Its stock, valued at $629,950,532 was declared worthless by that act. The first step on the slide was taken by Sir Wilfred Laurier, Prime Minister. He wanted to fill the prairies of Canada with set tlers, thus binding the Provinces into a Canadian nation. The set tlers surged into an area virtu ally devoid of railways. Eastern Canada wouldn't agree to public funds for new railways. British capitalists wouldn't invest. To forestall construction of a branch of an American railroad into the area, Laurier did get a subsidy for a Canadian Pacific branch through Crows Nest Pass. In re turn, the Railway agreed to low rates on grain eastbound from the prairies to the ports. And those "Crows Nest Pass" rates of 1897 on grain hold today for the Ca nadian Pacific and also for other railways undreamed of and un built in 1897, in defiance of mar-' ket factors and economic reality.

The Canadian Pacific Railway, after this one flirtation with sub sidy, went its own way as a pri vate enterprise transport com pany. But many farmers did not like the Canadian Pacific. Capital izing on this feeling, Mackenzie and Mann, .Contractors, started building lines into the area of new settlement, with government subsidy. They were welcomed with open arms - until they tried to set realistic freight rates for their Canadian Northern Railway. From 1903 until the collapse of the Canadian' Northern in 1917 and of the Grand Trunk in 1919, and their incorporation into the Canadian National Railways, there was a mad sequence of political ma neuvers; building of needless rail ways, many in previously unex plored territory; interest charges mounting to astronomical figures; managerial stupidity. Millions and millions of dollars of private· in vestments were wiped out (or confiscated). The Canadian tax payers were placed under growing burdens which they have carried ever since. A review cannot con vey the story. The book must be read to see the demoralizing effect 1973 OTHER BOOKS 445 the open government purse had on managers, contractors and di rectors. The denouement was in credible. The moral qualities which we consider inherent in our Anglo Saxon tradition seemed to have evaporated at Crows Nest Pass.

The years since the Canadian government took over the railways have been remarkable for two men, Sir Henry Thornton and Donald Gordon. Both men tried (and were substantially success ful) running the railways as much like a privately owned sys tem as was possible. And consid ering the property they headed and the problems they faced, each did, in his own time, a remark able job. But it is a sad comment on the supposed democratic proc ess to read of the abuse and false hood heaped on Thornton and Gor don for doing well a job that poli tics had made almost impossible in the first place - another in stance of the political corruption that generally follows government interference in economic life. A closing note: In the face of all the government activity, the Canadian Pacific Railway is today virtually the last bastion of pri vate enterprise railway in the world. It has at times had govern ment help, but has generally paid its own way and paid its stock holders in the process. It has always received more attention from historians. A study was issued about two years ago, one is planned for this series and still another study is in preparation on the opera tion of the Canadian Pacific Railway. In contrast, the Canadian National story, told by Mr. Stevens, should be noted as a. warning on the role of govern ment and the consequences thereof.

* * * * * The first volume of the Macmillan series is the History of the Louisville & Nashville Railroad by Dr. Maury Klein (New York: The Macmillan Company, 1972) - $10.95. Throttling the Railroads by Clar ence B. Carson is available from The Foundation for Economic Education, Irvington-on-Hudson, New York 10533 at $4.00 clothbound or $2.00 in paperback. ~ THE CASE FOR AMERICAN MEDICINE by Harry Schwartz (N. Y.: David McKay Co., Inc., 1972).240 pp., $6.95. Reviewed by Allan C. Brownfeld RECENTLY there has been a mount ing attack upon the American sys tem of private medical practice. While many Americans have ac cepted at face value the idea that there is, in some sense, a "health care crisis" in the United States, a few have sought to look at the facts. One of these is Harry Schwartz, the distinguished corre446 THE FREEMAN July spondent of The New York Times. In his volume, The Case For American Medicine, Schwartz dis cusses in detail each of the charg es leveled against the American medical system.

Responding to critics who say tha t Americans are less healthy than they were twenty years ago, Schwartz provides some illuminat ing data. On the average, an American baby born in 1971 could expect to Iive 11.4 years longer than an American baby born in 1930. Concerning infant mortality, he notes that in 1930, 64.6 Ameri can babies out of every 1,000 live births died before the age of one year. In 1950, the toll had been cut to less than half and in 1970 it was significantly lower than in 1950, an improvement that trans lated into the survival of 35,000 babies who would have died in 1970 if there had been no progress in the past twenty years. While doctors are frequently charged with profiteering, the data in this book shows that physicians' fees actually increased slightly less rapidly between 1965 and 1967 than average hourly compen sation in the total pri vate economy of the country. They rose more slowly than hourly earnings of construction workers and local transit workers, and slightly more rapidly than wages of printers and truck drivers.

Showing the failure of govern ment involvement in medicine, Schwartz discusses in detail the blunders made by the Medicare and Medicaid systems - the man ner in which they have increased demand without increasing sup ply, leading to an increase in costs. If there is, in any sense, a "crisis" in medical care today it is one which has been brought about by government involvement in this field. The author quotes Dr. Sidney Garfield, founder of the Kaiser Permanente prepaid grou p medi cal plan: "The cause of today's nledical care crisis has been the inexorable spread of free care. The effect is an expanded and al tered demand that is incompatible with the existing sick-care deliv ery system - wasting its medical manpower and threatening the quality and economics of the serv ice it renders . . . The result should not be surprising to any one. Picture what would happen to air transportation if fares were eliminated and travel became a right. What chance would you have of getting any place if you really needed to? Even the highly automated telephone service would be staggered by removal of fees; necessary calls would become prac tically impossible. The change from fee to free would disrupt any system, no matter how well or1973 OTHER BOOKS 447 ganized, and this is particularly true of medicine with its highly personalized sick-care service."

To those who would like to sub stitute a system of socialized med icine for our current system of private practice, Harry Schwartz urges a careful look at countries such as Great Britain and Sweden. While visiting in Stockholm, the author was told, "Don't get sick in Sweden. You have never seen such impersonal care and such long waits in your life. Every time you go to the clinic, you see a differ ent doctor. And if you're hospital ized and are seen by a physician three times in one day, it will al most certainly be three different doctors." The experience in socialized sys tems shows clearly that increasing demand by making medical care a "free" commodity simply makes it impossible to obtain for those really in need - and dramatically increases the real cost, expressed in higher taxes, as well. The health problems we see around us, states the author, are usually not the fault of our med ical system, but are factors of our society and economy . We ride in cars when we should bicycle or walk. We overeat. We smoke too many cigarettes. Then we blame the medical system for our self inflicted difficulties.

To reorganize what is probably the most effective and efficient medical system in the world makes little sense - it ignores the fact that medical service, because it is both wanted and scarce, is an eco nomic good and that the market is the best device for conserving and allocating such goods. Harry Schwartz has made an impressive case for continuing to permit the market to work in this area. ~ THE ESSENTIAL VON MISES by Murray N. Rothbard (Lansing, Mich. 48904, Box 836: Oakley R. Bramble, 1973) 62 pp., single cop ies $l. Reviewed by Henry Hazlitt Two FESTSCHRIFTS have been is sued in honor of the great econ omist Ludwig von Mises, now in his ninety-second year. The first, On Freedom and Free Enterprise, edited by Mary Sennholz, appeared in 1956, and contained essays by nineteen distinguished scholars. The second appeared in 1971, on the occasion of Mises' ninetieth birthday of that year. It was in two volumes, published by the In stitute for Humane Studies at Menlo Park, California, and car ried essays by no fewer than 66 contributors from 17 countries.

Both publications contained many fine essays. In addition, there have been other tributes to the achievements of Ludwig von 448 THE FREEMAN July Mises. But no one has yet done what Murray N. Rothbard has so brilliantly succeeded in doing in this little tribute of about 11,000 words. He has given us, in a brief but remarkably comprehensive form, an outline of Dr. Mises' out standing contributions to the sci ences of human action. Biography, history, exposition and criticism are superbly interwoven. Dr. Rothbard begins with the birth of Mises in 1881 in Lem berg, reminds us that Mises grew up during the high tide of the "Austrian School" of economics, describes what this was, contrasts it with the classical Ricardian eco nomics that it displaced, explains what Carl Menger and Boehm Bawerk, Mises' teacher, had al ready contributed,and then, point by point, tells us how Mises pushed beyond this: his unification of monetary theory with the 'Aus trian analysis, his new theory of business cycles, his demonstration that socialism was not a viable system because it could not solve the problem of economic calcula tion, his great contributions to methodology, and a score of other illuminations to be found especi ally in his three masterpieces, The Theory of Money and Credit, So cialism: An Economic and Socio logical Analysis, and Human Ac tion.

Rothbard's pamphlet is a beautiful exposition of Mises' thought and an admirable introduction to his writings. It is ,more than that. It is a compact history of eco nomics since the 1880's; it pays tribute to others who made con tributions; and it briefly indicates the fallacies in such fashionable diversions as Keynesianism, insti tutionalism, econometrics, and mathematical economics. But with all the territory that it covers, it never loses sight of Mises the man, reacting "to the darkening world around him with a lifetime of high courage and personal integrity," never bending to the winds of change, never swerving a single iota from pur suing and propounding the truth as he saw it, and never complain ing about the shameful neglect of his contributions by the bulk of the academic world. Rothbard concludes by quoting a tribute from the eminent French economist Jacques Rueff: "Ludwig von Mises has safe guarded the foundations of a ra tional economic science .... By his teachings he has sown the seeds of a regeneration which will bear fruit as soon as men once more begin to prefer theories that are true to theories that are pleasing.

When that day comes, all econ omists will recognize that Mises merits their admiration and grat itude." , the Freeman VOL. 23, NO.8. AUGUST 1973 The Purpose of Traffic laws M. C. Shumiatcher 451 Bad driving is a reflection of declining standards of excellence in all aspects of our lives, as laws displace personal responsibility. The Energy Crisis Robert G. Anderson 460 Not the changing conditions of supply and demand, but the increasing governmental controls give rise to "shortages." The Confession of Error leonard E. Read 468 The confession of an error to all who may have been influenced by it is essential to its correction. How NOT to Advocate a Gold Sta,ndard Paul Stevens 471 Concerning some inconsistencies among proponents of monetary stability and market principles. Complications Brian Summers 483 Change is inevitable, and the market enables men to adjust if not hampered by coercive intervention.