Book Reviews

To begin with the negative the inability of the political arm to solve our problems - the theme is sounded by a couple of political theorists who had plenty of prac tical grounding in public affairs (Thomas Jefferson, Woodrow Wilson), by historians (Clarence Car son is an example), and by econo mists (~urray Rothbard and others) . Jefferson and Wilson did not al ways practice what they preached, but what. they preached was good. So ignore the fact that Wilson, as a wartime President, once spoke about "force, force to the utter753 754 THE FREEMAN December most, force without stint or limit" (My quotation is from memory), and concentrate on Leonard Read's exact quotation from Wilson as a political theorist: "The history of liberty is a history of the limita tion of governmental power, not the increase of it. When we resist, therefore, the concentration of power, we are resisting the proc esses of death, because concentra tion of power is what always pre cedes the destruction of human liberties ... Government, in its last analysis, is organized force."

Why does the "organized force" of government lead to the stagna tion that is the forerunner of death? Clarence Carson says it forthrightly: "Government is not capable, by nature, of being productive or constructive it acts to restrain and restrict " Murray Rothbard and David A. Stig nani put it more whimsically. Rothbard notes that no private firm would dream of trying to solve a "shortage" by telling peo ple to buy less. It is "only govern ment that 'solves' its traffic prob lems ... by forcing trucks ... off the road ... the 'ideal' solution to traffic congestion is to outlaw all vehicles!" Stignani, leaving a de partment store just before Christ mas, noted the salesgirl's reaction to the crowd ("Our best day yet," she said). But the postman, de positing a heavy mail at Stignani's home, remarked that it was "the worst day we've ever had!" The Self-Starting Individual Turning to positive entries, and beginning with the self -starting individual, Mr. Read prints Alexis de Tocqueville on the "greatness and genius of America." The ge nius was not, in Tocqueville's day, to be found in fertile fields and boundless forests, nor even in schools or the "matchless Consti tution." Not until he had gone to the churches of America did Toc queville understand that "America is great because America is good."

(Query: what would he find in the churches today, where the preoc cupation of many a pastor is with the "social," not the personal gospel ?) Mr. Read finds plenty of modern Tocquevilles around. Says Frank Chodorov: "There cannot be a 'good' society until there are 'good' men." Says Cardinal Gib bons: "Reform must come from within, not from without. You can not legislate virtue."The morality on which Tocque ville, Chodorov and Cardinal Gib bons have been all agreed is grounded in the grain of the uni verse as it applies to human soci ety. William Graham Sumner sometimes talked against "natural rights," but, fundamentally, he be lieved in natural law, from which 197J" THE FREE MAN'S ALMANAC 755 natural rights must be deduced. Said Sumner, about the accumula tion of property: ". . . the devel opment of character, or of any other good whatever, is impossible without property. The invectives against capital in the hands of those who have it, are doublefaced, and when turned about are no thing but demands for capital in the hands of those who have it not, in order that they may do with it what those who have it are now doing with it." (Doesn't this amount to a recognition of the "natural right" to capital?) The Origin of Rights Clarence Carson is clearer than Sumner on the origin of "rights."

"If government can create rights," he says, "it can withhold and de stroy rights." Shortsighted or stupid people can, of course, give up their rights to organized force. Edmund Burke, quoted by Leon ard Read, tells us how this hap pens. "Men," wrote Burke, "are qualified for civil liberty in exact proportion to their disposition to put moral chains upon their own appetites ... it is ordained in the eternal constitution of things, that men of intemperate minds cannot be free. Their passions forge their fetters." The government that is "organ ized force" takes over by insens ible degrees as men let their greed master their better impulses. John Adams, a greatly neglected source of political wisdom, said that "to expect self-denial from men, when they have a majority in their fa vor and consequently power to gratify themselves, is to disbelieve all history and universal experi ence."

Once a maj ori ty has turned to government to satisfy its desires, we are on our way to the condi tion noted by Herbert Spencer: "The more numerous public in strumentalities become, the more is there generated in citizens the notion that everything is to be done for them, and nothing by them. Every generation is made less familiar with the attainment of desired ends by individual ac tions or private agencies; until, eventually, governmental agencies come to be thought of as the only available agencies." So, if you want to strike a blow for freedom, stop asking Wash ington for protection of all sorts. The protection may help you for the moment - but, multiplied over thousands of individuals, it will most assuredly "forge your fet ters." Trust Freedom Freedom alone is to be trusted to serve the individual. Montes quieu said it long ago: "Countries are well cultivated, not as they are 756 THE FREEMAN December fertile, but as they are free." Lud wig von Mises, speaking for free production, wrote that "the very principle of capitalist entrepre neurship is to provide for the com mon man. In his capacity as con sumer the common man is the sovereign whose buying or absten tion from buying decides the fate of entrepreneurial activities. There is in the market economy no other means of acquiring and preserv ing wealth than by supplying the masses in the best and cheapest way with all the goods they ask for."

Paul Poi rot, expanding on Mises, remarks on the extra-mar ket value of a market place kept free from compulsion. "The free market," he says, "and not its displacement by governmental controls, is the only route to the kind of personal security which makes for harmonious social re lationshi ps." President Ford believes in WIN buttons. But it is Leonard Read who knows that you don't "win" by sloganeering; you need the sort of wisdom that he has assembled for all the days of the year in The Free Man's Almanac. ~ COMPETITION AND ENTRE PRENEURSHIP by Israel M. Kirzner (Chicago: University of Chicago Press, 1973) 246 pages, $7.95 Reviewed by Henry Hazlitt THIS IS A FIRST-RATE contribution to the theory of competition and entrepreneurship. Professor Kirzner is a former student of the late Ludwig von Mises. He tells us in his Preface that his book can be viewed as a critique of contemporary price theory from an "Austrian" per spective, and he modestly declares: "Above all I owe whatever under standing I have of the market process to almost two decades of study under L. Mises, whose ideas as expounded in a lifetime's work are only beginning to be properly appreciated."

This does not mean that Kirz ner's own work lacks originality. On the contrary, by applying his "Austrian" concepts and analysis very thoroughly and patiently to the immense body of literature on price theory that has appeared in England and America over the last generation, he has not only succeeded in exposing its central fallacies but has arrived at pene trating insights and advances in market theory. His first attack is on the "ortho dox" theory of marketequilibri um. (By "orthodox" he means the 1974 OTHER BOOKS 757 bulk of the technical economic lit erature of the last few decades. This may be confusing to older readers brought up to regard classical or neo-classical economics as orthodox. But he is right in his implication that this recent price theory, which began as hetero doxy, has itself become a new orthodoxy. ) The central error of this new orthodoxy is that it regards mar ket "equilibrium" as a situation that tends to be arrived at auto matically, because every person in the market must recognize and do what is to his own advantage.

Kirzner points out that this "me chanical" theory of decision-mak ing unconsciously assumes a world of perfect knowledge and predic tion. In such a world there would be no need or scope for the entre preneur. As defined by Kirzner, the en trepreneur is the decision-maker who is alert to hitherto unnoticed opportunities. His function is to increase productivity by providing consumers with types of goods with which they have not previ ously been provided, or goods of a better quality or at a cheaper cost. Contrary to the theory of Joseph Schumpeter, the entrepreneur's actions move the economy closer toward equilibrium rather than away from it. The reward for his alertness is profits. The Market Process The error of the current "mar ket equilibrium" doctrine, Kirzner emphasizes again and again, is that it overlooks or takes for granted the proc1essthat moves the market toward equilibrium.

Kirzner goes on to analyze cur rent theories of competition and monopoly. He politely points out the fallacies both in theconcep tions of "perfect competition" and of "monopolistic competition." Both arise from regarding com petition as a "situation" rather than as a process. Both are equi librium theories. "The theory of monopolistic competition was on balance a decidedly unfortunate episode in the history of modern thought." One insight of Kirzner's helps beget others. In a chapter on Sell ing Costs, Quality and Competi tion he points out that so-called "selling costs" are an essential part of production costs, and can not be legitimately separated from them in economic theory. In the final analysis, all costs are "sell ing costs." Pushing this still further, he shows that advertising is not only an inseparable part of selling costs, but on net balance a service to the consumer. It makes him aware of a buying opportunity, at the same time as it is an essential part of the process which spurs the indi758 THE FREEMAN December vidual producer to try to turn out a better product than his competi tors.

A chief function of competition and entrepreneurship, as Kirzner sees it, is to bring a closer and clos e coordination in the decisions of ~ ~~';/ ers and sellers through which og..,~£C/ bo~h secure an advantage. It is ~J 'c: ,r:~e heady scent of profits" that Vvl,.(/~"<>\/'\:,pt!omotes alertness to hitherto un ~~~t,/.v,(\, discovered opportunities for re 1~ vt"/'~lducing costs or developing new or 1lTV 0 !~1bet ducts. o Among other things, Kirzner iJ~ makes a devastating attack on the ~' ~criticism by socialists and others ~0-4 that competition is "wasteful." ~I)~J(I' J During the competitive process (0" y1-' t~rough which the market ap ~ ,,*~roaches equilibrium, he points ~ \.0-," 2Y' out, there is imperfection of ~{(!'k\nowledge. But it is the market ~., 1.~OV.\Y~1ocess itself that steadily moves et.lit' L't,li)oward eliminating previous ig-t 'ftl)"'" (l."( \.' norance. :1.\ From the point of view of an ,,;.t~4jIL o"mniscient observer, the market ~. \ \ t' t, ,would indeed display waste and mis\ allocation at every stage. We in the "1970's, for example, can look back amused condescension on the 1920's, when a thousand inven tions and discoveries known today had not been made. We can see that any number of resources were not then being put to the best uses now known for them. But it was the competitive process that led to these discoveries. Even the best economists (not to speak of engi neers or other technicians) of the 1920's did not then recognize these "wastes" and "inefficiency." Sure ly the efficiency of the competitive process is entitled to be judged, as Kirzner puts it, "not on the degree of conformity to the ideal alloca tion as seen from the perspective of omniscience, but on the degree to which currently known informa tion is being optimally deployed."

In a similar way, critics often declare that it is obviously waste ful for someone to put up a new competing factory to make wid gets when the first could produce all that are needed. But we cannot know until after the competing production starts which of the two factories, the old or the new, is truly "wasteful." I have· a few minor criticisms. Professor Kirzner believes that the function of the "entrepreneur" can be completely separated from the function of the "capitalist." The "pure entrepreneur," he tells us (p. 40), can be "a decision maker who starts out without any means whatsoever" (his italics). And again (p. 99), "purely entre preneurial activity involves no element of resource ownership." This is questionable. The en trepreneur-producer is by defini tion a man who takes risks, and with his own capital. If he is tak1974 OTHER BOOKS 759 ing risks simply with other peo-on an assumed future condition.

pIe's capital he is merely a hired 'What he acts on may not be a per manager. True, he may borrow his eeption but a guess. As Kirzner capital from others; but if his himself concedes at one place (p. project fails he must pay back, 86), the entrepreneur's action and he must have previous capital "must to some extent constitute of his own to do that. The entre-a gamble." preneur, in short, must be a capi-The point is important, particu talist plus. He is a capitalist will-larly in view of Kirzner's criticism ing to take unusual risks. Kirzner of Frank H. Knight's emphasis on seems to me sometimes to reserve uncertainty and his view of pure the term "entrepreneur" merely profit as a residual. Kirzner re for the successful entrepreneur. plies that "every entrepreneurial Again, Kirzner identifies the decision taken envisages only distinguishing feature of the en-profits.... Treating profits as a trepreneur as alertness (which residual fails to disclose that from he frequently italicizes). He is the the point of view of the pro spec one who perceives an opportunity. tive entrepreneur the profit op (Kirzner also usually italicizes portunity is, with all its uncer"perceives.") tainty, there."

/ But two qualifications shoul But this is precisely the quespe made. It is not enough that th tion. /s it there? Every entre~ntreprenuer be "alert" and tha preneur is pitting his own guess the "perceive" an opportunity; he or "perception" against the com must act on his alertness and per-posite guess or perception of all ception. No doubt Kirzner means the rest. As Knight saw, they can to imply this, but does not always not all be right. make it sufficiently explicit. By Yet Kirzner seems to me to be omitting this link he tends to justified in his criticism of overstress the entrepreneur's Knight, though for a different rea alertness and perception while son than he himself explicitly under-emphasizing his courage in gives. Net pure profit, as Knight taking risks. pointed out, may come to only half This brings us to the second the entrepreneurs: those who qualification. It is not always true follow the pioneers too late may that the entrepreneur perceives suffer comparative losses. But an opportunity. He thinks he per-pure profits are, after all, essen ceives it. He perceives an a/pparent tially a by-product of increased opportunity. In fact, he is be~;:~C_~:~4 -in reducing the cost of 760 THE FREEMAN December a product, improving its quality, or inventing or exploiting a com pletely new product. It is this in creased efficiency or productivity that individual entrepreneurs strive for in order to increase their profits. The successful pio neers do reap increased profits; their followers and imitators may not. Yet, regardless of what it finally does or does not do to in crease overall profits, the whole process immensely benefits all of us as consumers, as the history of the last two centuries so dramat ically demonstrates. Profit-seeking may not always lead to profits, but it does lead to progress.

Some of my criticisms may ap ply more to oversights in Dr. Kirzner's exposition than to de fects in his theories. In making them I hope I do not draw atten$2.50 each ORDER FROM: THE FOUNDATiON FOR ECONOMIC EDUCATION IRVINGTON-ON-HUDSON, NEW YORK 10533 In de THE FREEMAN - Volume 24, January-December1974 Prepared by BETTINA BIEN GREAVES of the Foundation staff NOTE: In page references, the number preceding the colon designat~s the mo~th, those fol~ow ing refer to pages. All articles have at least three entries-aut~or, subJec~, and tttle-except In a few cases when title clearly indicates subject matter. Books reviewed are ltsted on page 768. A ALIENATED, right to feel (Rubanowice) 11:670-673 ALL different (Ellis) 11:691 ANARCHY In quest of justice (Foley) 5:301-310 Necessity of government, The (Kelley) 4: 243-248 ANDERSON, C. W. Price, the peaceful regulator. 5:265-266 ANDERSON, Robert G.