Book Reviews

THIS, in rhymed capsule, is the gist of the proceedings of the first International Monetary Seminar, which was sponsored last spring by the Committee for Monetary Research and Education, Inc., at the Arden House campus of Co lumbia University. The semina.r was held some time before the Arabs, contemptuous of paper money whether called Paper Gold or not, decided to use the "oil weapon" to force the western world to let Israel go down the drain. But the handwriting was on the wall even before the Arab ukase. With not a single western nation dedicated to disciplining its econ~ omy, why would the raw material owners in the so-called Third World go on, giving their riches away for what John Exter calls, not IOUs, but "Who-owes-you nothings"? The,publication in book form of the Arden House proceed ings (Toward a New World Mone tary System, edited by G. C. Wie gand and issued by the Enginee·r ing and Mining Journal of the Mc Graw-Hill Publications Company; 249 250 THE FREEMAN April $8.95) is a not-so-gentle reminder that the oil-producing countries of the world, having achieved what is close to a corner on exportable energy, could use their dominant position to pick up most of the loose gold in the world. They would then .proceed to hold their gold, along with their oil, until the West had ceased to deal in "Who owes-you-nothings."

The contributors to Toward a New World Monetary System can't quite spell out what the money of account, or the numeraire, of the future will be, but most of them seem to agree that gold will be either the official or the unofficial standard. There may be no such thing as an objective store-of-value (value is always subjective, as Carl Menger and Ludwig von Mises both taught), but, histori cally, most people have agreed that a basic medium of exchange must have purity, rarity and in built resistance to rot. Gold fills the bill better than silver, which is more abundant and tends to drift off into use in industrial and commercial forms. Basie Disagreement The authorities who debated with each other at Arden House were not of one mind on the sub ject of the Bretton Woods system, which was viable· until a distrust ful world, uncertain of what to do about a seventy-billion "Eurodol lar" overhang due to the scandal ous monetary behavior of Wash ington, began to worry about the persistently adverse international balance of the U.S. Henry Hazlitt and John Exter, I gather, would agree that Bretton Woods, with its central bank manipulation of currency "swaps," its "special drawing rights," and so forth, is beyond resurrection. Fritz Mach lup, on the other hand, seems to be saying, along with Professor David Meiselman, that there could be life in the old dog yet. I am not enough of a technical student of banking to follow Professor Machlup on "gliding parities" and the various degrees of "managed floating" (isn't that a contradic tion in terms?), but I can see that politicians in past eras have not always respected a gold numeraire.

Says Fritz Machlup, "In my read ing of economic history neither the gold standard nor any other system of fixed exchange rates have [sic] ever effectively curbed gov ernments in their extravagant spending policies ...' when eventu ally the inflation of credit, prices and incomes threatened to deplete the country's gold and exchange reserves, the gold parities or dol lar parities were changed or given up. A barrier which is lifted, when ever it really bars is hardly worth having."

197J,. MONEY 251 Professor Machlup's knowledge: of history may be good, but there: are tides in the affairs of nations. When indiscipline has resulted in chaos, there is nothing to do but to agitate for a discipline that would permit people to protect themselves - against the further depredations of irresponsible pol·· iticians. Without peering too far ahead into the mist, can't it be said that the time has come to let U.S. citizens own gold if theY' so choose? Weare now off the~ gold exchange standard,· so what is the objection to letting people establish their own private hedges: against a continuing inflation? If Arabs can hold gold, why not John Doakes in Kokomo? Helpful Suggestions Henry Hazlitt's contribution to the Arden House deliberations seems to me to··be eminently sound simply· because he does not striv€~ to combine a lot of things into "a higher synthesis" that would be a blueprint for a better inter·· national monetary system. What Mr. Hazlitt does is to suggest that we stop doing a number of things: on the national scene before wor·· rying about great international conclaves. He says that establish·· jng a sound currency is an ethical problem that begins at home. Peo·· pIe have a moral right to make contracts in anything they choose;: that is what personal liberty means .. One of the things that Congress could do without waiting upon international cooperation would be to restore the right of American citizens to buy gold on whatever terms they choose. This, says Mr. Hazlitt, would open gold markets everywhere in the world, and it would immediately estab lish gold as a de facto interna tional money, whether monetized arnot.

The second thing advocated by Hazlitt would be to balance the Federal budget. He would do this not by raising taxes but by slash ingexpenditures. If we were to discipline. ourselves by balancing the budget .over a fairly long period, the dollar would be re spected in world markets, and it would become possible at some point to return to a full gold standard. Poor Reception What Mr. Hazlitt has to say is, of course, not being listened to in Washington. Nixon, in his des perate effort to find favor with some of his "liberal" enemies, has asked for a whopping budget that can be paid for in full only by running up some more Keynesian deficits. The little spending trickles will flow together to become broad rivers. As our "pols" see it, it w:ould be a desirable thing to 252 THE FREEMAN April protect people against· "catastroph ic" illness, so why not a "national" health plan? Poor people should have access to lawyers, so why not a private (Le., a government financed)·· corporation, something comparable to the Post Office, to provide "free" legal service to those who can't afford good coun sel? And why not a .Family As sistance Plan to put a "floor"

under everybody? This is the way the tide now runs on Capitol Hill. So what Mr.. Hazlitt proposes will probably not be listened to until we have had another round of inflation, culminating eventually in an inflationary crisis. Even though we have not reached the point where it is likely that the majority of our politi cians are ready to listen to Mr. Hazlitt's common sense, some things may be done to improve the U.S. position in the' world. William J. Casey, Jr., our Under Secretary for Economic Affairs, suggests, in an interesting paper on the "Internationalization of the Capital Markets," that we bal ance off the investments that we make abroad by attracting foreign investors to our own shores. He thinks we "have enormous assets not the least of which" is a "high standard of disclosure and fair dealing." Will the Arabs, who have gold to invest, listen? We'll see. ~ THE PEOPLE FACTOR: Manag ing the Human Climate by Philip Lesly (Dow-J ones-Irwin, Inc., Homewood, Illinois, 1974) $9.95.

Reviewed by Charles Hull Wolfe IN THIS book, an unusually per ceptive, knowledgeable and articu late public relations man has at tempted to tell how a private insti tution can do an effective com municatiq~s job in a relatively new situation - in a human atti tude-climate no longer peaceful and mild but essentially hostile and stormy. As the author puts it in his in troduction, "In an era when most men and women seem to have be come assertive, when every kind of viewpoint has a movement and a loud voice," the gap between in stitutions and their publics "is threatening to undermine all of our organizations and the-society they compose. It seems not only pertinent but urgent that· the causes of this estrangement be diagnosed, and a course of treat ment sought." From time to time the author reveals considerable understand ing of the American "miracle" which simultaneously "produced the greatest degree of individual freedom and the greatest range of individual choice of any major so ciety in history/' He is also aware 1974 OTHER BOOKS 253 that this society's foundations are threatened by those on the "left,"

and that their activism includes physical militancy and the pre sumption that private institutions are "guilty until they have gone through an inquisition." But Philip Lesly manages to trace this attack to a variety of secondary causes, terming the "es trangement" between private or ganizations and their publics "a direct consequence of the growth and complexity of our institu tions," the failure of business to communicate the need for profits, and the fact that "in some areas business has not performed ade quately in the public interest." Nowhere, as far as I could de tect, did the author bluntly and boldly portray the under lying cause - the deliberate, long-stand ing attack by collectivist-minded intellectuals determined to destroy our traditional, religiously-ori ented society and system of indi vidual liberty, and replace it with secularism and statism. Had the author worked from this premise, he could have better interpreted various phenomena which he has correctly observed but not adequately explained, such as the promulgation by contempo rary intellectuals of two contra dictory articles of faith : 1) That the average individual cannot be relied on to assume responsibility for his own actions, and 2) That the average individual must be given power to determine how all our institutions are operated.

While contradictory in and of themselves, in today's mental cli mate both contentions tend· to further the cause of socialism, and thus are consistent as precepts of socialist propaganda. Just as the author leaves some thing to be desired in explaining root causes of the worsening busi ness climate, he also fails to make some important recommendations for improving the mental atmos phere. For example, as far as I'm aware, he never urges those who prefer responsible freedom to de vote themselves to a systematic, in-depth study of liberty, and to develop their ability to intelligent ly present the case for a free so ciety and a free market. Again, in titling his book, the author may have violated one of his own precepts -:. that to lessen our social problems, we must stop creating unattainable expectations - for surely his title implies that the human climate in America can be managed. In an authoritarian country, "managing" the human attitude-climate - controlling or directing it, rendering it subservi ent to one's will-would be hard enough;· but in a relatively free society, no one - and certainly no businessman or corporation - has 254 THE FREEMAN April the power to make such clear-cut guidance possible.

Nonetheless, Philip Lesly is a most interesting and well-read man who appreciates ·liberty and fair play, and who reveals considerable writing· skill and a gre,at deal of insight· on a wide variety of sub jects. Most friends of freedom should be able to gain from his book useful ideas on how to com municate more effectively. ~ PSYCHO-CHEMICAL WAR FARE: THE CHINESE COM MUNIST DRUG OFFENSIVE AGAINST ·THEWEST by A. H. Stanton Candlin (New Rochelle, N. Y.: Arlington House, 1974) 540 pp., $14.95. Reviewed by Allan C..Brownleld IN THIS VOLUME, the author argues persuasively that the Chinese Com munists are engaged in a massive campaign aimed at the West with narcotic drugs as the primary weapons. A. H. Stanton Candlin, a native of Tientsin, North China, and a long-time member of the British Foreign Service who was at one time Chemical Advisor to the Brit ish High Commission in Germany, and held important intelligence re sponsibilities, makes an impressive case.

The use of narcotics as a politi cal weapon by the Chinese Commu nists, Mr. Candlin points out, is not·unique in world history. "His tory," he writes, "is replete with examples of the use of drugs to at tain political ends ... consider in this regard, examples of the use of drugs for political purposes, such as provided by the sect of the As sassins in Syria, Persia, and else where; the Roshaniyeh in Afghan istan; and, in more recent times, the Japanese narcotics or psycho chemical warfare offensive." Marco Polo wrote in his Travels of the Assassins: "The Grand Mas ter· of the Assassins, whenever he discover~ a young man resolute enough to belongto his murderous legions, invites the youth to his table and intoxicates him with the plant Hashish. Having been secret ly transported to the pleasure gar dens; the young man imagines that he has entered the paradise of Mahomet .... he is informed that he can enjoy, perpetually, the de lights he has just tasted if he will take part in the war against the Infidel as commanded by the Prophet."

It is from the Japanese, how ever, that the Chinese Communists learned how drugs could he used as an effective political weapon. The principal characteristics of the Japanese campaign, the. author notes, were that, "It provided a 197J" OTHER HOOKS 255 means of exploiting Chinese sus ceptibility to,wards drugs ... whereby theY,could undermine the fabric of Chinese society and liqui date the authority and influence of the National Government ... By it they could weaken the Chinese will to resist at all levels ... It was a means of inducing collective de featism among their enemies." Mr. Candlin warns that the nar cotics offensive being launched by the Chinese Communists embodies in a special Marxian sense the ap plication of the ancient military maxim of Sun Tzu (c. 500 B.C.), sometimes called the Chinese Clausewitz: "To fight and conquer in all your battles is not supreme excellence. Supreme excellence con sists in breaking the enemy's re sistance without fighting."

The book is filled with documen tary evidence and statements such as that from Harry J. Anslinger, the U.S. Commissioner for Nar cotics for many years. In 1950, after the Chinese Com munists established control of the Mainland, Mao Tse'-tung forbade opium smoking in China and a few opium growers were executed with great publicity. Yet shortly after this, Commissioner Anslinger placed an American complaint be fore the United Nations to the ef fect that the Communist Chinese were smuggling narcotics into Ja pan. His evidence was overwhelming and proved that during the early 1950s China was heavily en gaged in the illicit drug trade. When Mr. Anslinger made these charges at the U.N., the Soviet Union vigorously denied them. Af ter the Sino-Soviet split, however, Pravda, in its issue of September 12, 1964, charged that Communist China was the biggest opium, mor phine, and heroin producer in the world. Total proceeds from the illic it narcotics traffic were alleged to yield some $500 million annual revenue.

Drugs in Vietnam Mr. Candlin expresses the view that the Chinese Communists were largely responsible for the drug offensive carried out against Amer ican servicemen in Vietnam. He re ports of the investigation by John Steinberg of the Senate Subcom mittee on Juvenile Delinquency who discovered that heroin which was 99.5% pure was being sold for as little as $1.00 a vial. Heroin which was only 10% pure, he noted, could be sold for at least $10.00 a vial. It was, states Candlin, thus clear that the increase in narcotics was by no means only a money mak ing venture, but had other pur poses. The volume contains such eye witness reports as that of Miss Yuan Moun-ru, who testified be fore the Asian and Pacific Affairs 256 THE FREEMAN April Subcommittee of the House For eign Affairs Committee in May, 1972. A refugee from Communist China, Miss Yuan reported that, "My route of escape from China to Burma is via Yunnan Province. I rode through Lu River Valley and the district of Kaonigon Moun tains. I saw with my own eyes the Chinese Communist liberation army growing opium in that area.

So were the Burmese Communists and their mountain army under Chinese Communist influence." Another statement of the Chi nese Communist policy came on December 13,1961 from Lawrence Sullivan, Coordinator of Informa tion for the U.S. House of Repre sentatives, who declared that, "For the first time in human history, the systematic production and distri bution of narcotic drugs has be come an organized government monopoly in Red China. In ten years, Mao Tse-tung has built up a virtual monopoly in opium, heroin, and morphine." Prior to "detente," the author notes, there was real concern .in Washington over Communist China.'s role in the narcotics traffic. This increased when Egyptian edi tor Mohammed Heikal reported a conversation in which Chou En-Lai had told President Nasser that, "We are planting the best kinds of opium especially for the Ameri cans." Now, however, there is an at tempt to ignore this materIal. "The threat," Mr. Candlin writes, "has apparently been concealed from the public by persons who evidently had the desire to cultivate better relations with the Red Chinese."

With the publication of this im portant book, however, the burden of proof is placed upon those who deny such a role for the Peking regime. It seems unlikely that they will be able to meet it. ~ tt1e Freeman VOIL. 24, NO.5· MAY 1974 Livingwith Shortages Dick Sabroff 259 An engineer sees no reason why we should try to live with shortages. FED and the Gas Lines Milton Friedman 263 If we wait for Uncle Sam to provide, the lines will be interminable. Price, the Peaceful Regulator C. W. Anderson 265 When parties are not permitted to trade at the price agreeable to both, violence will erupt. Made in Washington Paul L. Poirot 267 Washington can lead us into crisis, if we so empower the government. The Puritan Experimentwith Price Controls Concerning the search in early New Englandl for a "just price." Gary North 270 WindfallProfits Robert G. Anderson 286 Erratic changes in consumer evaluations create profit opportunities for alert entre preneurs.