Business and Its Image; V. O. Watts

On non-election days, however, Americans show amazing confi dence in business, even - or per haps especially - in big business. They buy from the shops and stores, including the biggest, ea gerly and happily; and they dis play great indignation if a pur chase fails to perform according to the businessman's promises, as though this were so unusual that the seller must "make it right" as he usually does. Similarly, they apply for jobs and appear to be particularly pleased and proud when they get a job in a big con cern. They entrust their savings to banks, insurance companies, and many other kinds of busi nesses; and in this, too, they ap pear to prefer to deal with the bigger concerns. In short, most Americans - like the people of other countries with certain capitalistic traditions and large remnants of business free dom - know from experience that business enterprises help them get a large and essential part of what they want in life. They know it as humans knew, long before the apple fell on Isaac Newton's head, about the effects of gravity.

Still lacking, however, is suf ficient understanding of business operations in free markets to pro tect them from political 'witch doctors who cause worse maladies than they promise to cure. What "Business" Means We use the term "business" in many ways. It may mean any type of work, occupation, or profession. But when we speak of a business course or business college, or refer to the business office of a factory or university, we use the word in a much narrower sense; and it is in this restricted sense that busi ness is "controversial." In this narrow meaning of the word, business means buying and selling - the marketing of com modities and services. In this sense of the term, little Sally engages in a business transaction when she gives her dime to the store clerk in exchange for a candy bar. When we say that the suc cessfulAmerican farmer must be a good businessman as well as a good farmer, we mean that he 1974 BUSINESS AND ITS IMAGE 395 must know his markets; he must watch his costs and prices as well as soils and fertilizers; and he must adapt .hisoperations to changes in market conditions as he does to changes in weather or new invasions of bugs and bac teria.

As a specialized occupation dis tinct from farming or industry, education or politics, business car ries on the marketing operations: advertising, selling, banking and credit management, speculation, and accounting. The .. specialization is seldom, if ever, complete. A merchant, for example,· may carryon the work of transportation by employing truckers and delivery men; and trucking companies must help market their services by advertis ing. Similarly, every mechanic, engineer, teacher and scientist must engage to some extent in business - in buying and selling. Buying and selling, of course, are merely two ways of looking at the same transaction, and as we shift from one side to the other, we complete our exchanges of goods for g90ds. These exchanges are the aim, or purpose of all commerce, or business. A wage earner sells his services for money; then he uses the money somewhere else to buy commodi ties and services from grocers, shoe stores, dentists, or the teachers of his children. By using money we can split every ex change of goods into two sta.ges, and we can complete the second stage (buyin.g the goods we want for our work) in places far re moved from the place of the first stage (selling our own services or products), and we can complete that second stage with many dif ferent producers or their com mercial agents.

By using money, therefore, and learning to buy and sell, we in crease enormously our opportuni ties for completing exchanges con veniently and economically. Essential For Peace and Progress In fact, without money and the "money-making" specialists we call "businessmen," the high costs of exchanges by barter, trading goods for goods, would make division of labor and exchange impossible ex cept in very simple forms within a small group, such as a family or clan. For this reason, communi ties whose members do not learn to buy and sell for money remain small, isolated, and poor, holding lands which commercial groups do not want or grant them for a time for charitable reasons. Conversely, as people learn to buy and sell, and to respect one another's rights to conduct their business transactions free of mo lestation, they can obtain the ap396 THE FREEMAN July parently unlimited advantages of the division of labor.

Now, division of labor (spe cialization) and exchange of the products are two aspects of coop eration. They are as inseparable as two sides of a coin. We can't have one without the other. And cooperation is generally supposed to be the way of peace and progress. Why, then, are the business specialists, who promote the ex changes necessary for cooperation so often held in less esteem than the farmers, engineers, industrial ists, doctors, and politicians whom they serve? Sometimes, it is true, requests for cooperation turn out to be proposals for someone to give or serve without return. Such a one sided arrangement is an opera tion, not cooperation. Cooperation means working to gether, a pooling of effort for mu tual benefit. In this sense of the term, cooperation is necessary for human progress. But if we are to cooperate, we must bring together and distrib ute our products and services. We should suppose, therefore, that those who specialize in promoting and arranging this pooling and distribution - the businessmen would stand high in public esteem as promoters of human progress.

Consider some of the leading activities of the business world: 1. Market study. Businessmen study what buyers want, what they may want in the future, what may be useful to other persons, what producers can supply, and how producers may supply at the least cost what buyers most want. 2. Promotion and investment. Businessmen persuade producers to exert effort; they persuade sav ers to supply capital; and they guarantee payments as induce ments. 3. Selling. They inform poten tial buyers (most of whom are producers in one way or another, or dependents of producers) as to what is available for purchase, and tell them how the goods may be enj oyable, useful, and beneficial. 4. Accounting. They keep rec ords of their operations in terms of money as a means of comparing costs and selling prices, and they use these records to help them plan their future operations. In performing these operations, individuals find unlimited oppor tunities to use and develop any and every human talent - talents for research, invention, and dis covery, talents for knowing and explaining, talents for speaking and writing, talents for under standing, appraising, and persuad1974 BUSINESS AND ITS IMAGE 397 ing other persons, talents for solv ing problems and making difficult decisions.

Honesty Pays in Free Markets To win the cooperation of oth ers, as business enterprisers must do, the first trait required is that of integrity: keeping one's prom ises, punctuality, paying one's debts, and speaking the truth. For cooperation continues only where there is mutual trust, and trust requires that individuals be trust worthy as well as trusting. Business success also requires fairness, ability to do justice; and the greater the individual's suc cess in winning promotion or building his own business, the more important becomes this sense of justice and the strength of character necessary to act justly. This requires intelligence and un derstanding, for the just man must perceive the indirect and long-run effects of his decisions and acts, so that he will not give a favor to one person at the expense of less than justice to another. Opportunities for success, of course, provide equal opportuni ties for failure; and individual failures to understand and take advantage of the opportunities and rewards for right conduct ex ist wherever we find human be ings. Fraud, weakness, and in justice appear in business as they do in education, politics, family life, and church activities. But in' freedom, the failures are penal ized ; weaklings and the unj ust are held accountable as customers, creditors, suppliers, associates, and employees are free to with draw their cooperation and form new business relationships with the more efficient, prudent, and wise.

Business enterprise in arrang ing, stimulating, and guiding co operation through exchanges in free markets has been therefore, the foundation or wellspring of human progress in every conceiv able way. Humans rise from ani mal levels, in character and ways of living, as they ahandon violence as a means of getting what they want from their fellows and turn to the ways of peaceful, voluntary exchange. And these are the ways of business. Why, then, should the special ized activities we call business be a principal target for attack by intellectuals and politicIans in all eras and nations? No one can supply the final de fense for any social institution, however, necessary or useful it may be. Humans will continue to doubt and challenge because they seek to know, understand, and learn. Skepticism helps keep, with in tolerable limits the useless and uneconomic experiments of curi398 THE FREEMAN July ous, fallible humans. Every hu man advance brings also new problems, new abuses of oppor tunities, and new deficiencies of understanding; and these prob lems, abuses, and gaps in our knowledge give rise to denuncia tions even of progress itself and the ways it comes about.

Business institutions and prac tices are no exception. They must always be subject to continuing study and criticism to correct abuses of new opportunities so that the way may be cleared for new advances. Therefore, I shall list only a few of what appear to me to be the more dangerous and enduring mis conceptions concerning business in general, and suggest answers that may warrant special attention. (J) The Technological Concept and it's Implications Technicians with little under standing of economics and busi ness tend to look upon the produc tion and distribution of goods as a variety of mechanical techniques which experts can teach and direct in terms of hours of robot effort, types of machines, and processes for shaping and transporting spe cified numbers and kinds of com modities and services to specified users and consumers. Knowing the technical advan tages of certain materials, methods, and products, they may resent the restraints of business man agers who must think in 'terms of costs and selling prices, and who know that a business must make a profit to survive and grow.

Thorstein Veblen expounded the technologist's point of view in his little book, The Engineers and the Price System,l written shortly after World War I. In this and in his earlier writings he argued that profit-seeking businessmen were holding back industrial prog ress in order to keep goods scarce and high-priced, and he tried to explain why engineers, not owners and investors, should control pro duction and distribution. His work helped to inspire the "Technocrats," an organization of engineers and others who cam paigned for this idea in the 1930s. These, along with Stuart Chase and other antibusiness writers have had much to do with the denigration of business in the past 40 years and more. This technological concept of economic activities is essentially that of Karl Marx and other so cialists. It is the view that Lenin, Stalin, and the Chinese Commun ists have tried to put in practice, with disastrous results.

In this view, the experts in physiology and psychology can 1 New York: Viking Press, 1921.

1974 BUSINESS AND ITS IMAGE 399 even provide stronger incentives for the general run of producers than those of the price system. These experts can know .better than the layman what work he can do best and with greatest satisfaction; and they know bet ter than the average person what he needs in the way of food, cloth ing, shelter, and even entertain ment to keep him healthy, happy, and industr.ious. In an economy of trusting, co operative producers, directed by scientists and expert technicians, there would be no need for wages, rents, interest rates, fees, profits, or other prices to guide and moti vate producers. There would be no need for advertisers, salesmen, peddlers, promoters, brokers, spec ulators, merchants, or bankers. Producers would deliver every thing consumers might need, either in the right proportions or in such abundance that no one would suffer from shortages.

The abundance would result from shifting to productive pur suits the useless workers who, in capitalism, are employed in com merce and finance. And, supposed ly, any mistakes which experts might make would be less costly than the continuing costs of ad vertising and selling in free mar kets, the wastes of duplication of effort by competing firms, and the losses in output resulting from the desires of business owners to keep goods scarce and high-priced. Why Experts Grow Less Competent to Dictate As many scientists and tech nicians know, the socialist's faith in the "expert" fails to take into account the countless differences between human beings in regard to their abilities, tastes, and in terests. These differences in human capacities and interests, moreover, become greater and more signifi cant as humans progress in knowl edge and control of their environ ment; and they increase, not in proportion to the progress of science and technologies, but far more than in proportion. These differences make more and more difficult the task of the specialist who tries to manipulate other per sons without their active coopera tion.

For this reason, if for no other, each individual must more and more learn to govern himself in a progressive society - to choose his vocations, to pursue self-selected goals, and to choose the means to achieve those goals. The further humans progress, the .less compe tent the "experts" will become in deciding what others should or must do to develop their human qualities. In other words, slavery is profitable, if ever, only when 400 THE FREEMAN July the victims are reduced to a near animal level of understanding. But a citizenry of such a character can build no "great society." Attempts at central planning and direction, therefore, become more costly as the economy pro gresses, as individuals gain in knowledge and opportunity, as they engage in more varied and complicated activities, and as their exchanges of services become more numerous and roundabout. Humans are worth little, if not actually a menace, to masters who try to treat them as sheep or cat tle, as if their imaginations and ingenuity were of little impor tance. One person becomes useful in cooperating with others in pro portion as he is eager to invent better ways of doing what they want done. Then he provides serv ices which they did not know they wanted or needed, and· which they could not possibly describe or or der. What master could have told his slaves a century ago how to make an automobile or airplane, a radio or television set? Even to day, no individual can tell others all of the steps necessary to make even such simple things as a pen cil, pen, or pocketknife. 2 Producers must make number2 Cf. Leonard E. Read, Anything That's Peaceful (Irvington, New York: The Foundation for Economic Education, 1964), ch. 11. "Only God Can Make a Tree - Or a Pencil."

less adj ustments every day in their work in order' merely to maintain output, let alone increase it. These adjustments call for countless decisions. In freedom, these decisions and adj ustments affect the supplies and kinds of goods offered in the markets; prices offered and asked respond to these changes in output but they respond also to changes in the humans themselves. Producers and consumers, sellers and buyers, in turn respond to the price changes and thereby react to the decisions of other members of the economy with little or no need to know or understand the numberless factors which entered into the making of those decisions. Among their other activities, businessmen watch-and anticipate these price changes, publicize them, and help to speed the ad justments. A rising price in free markets is a call to increase out put or to find substitutes; a fall ing price has the opposite effect.

This economic organization of actions and reactions is now com plex beyond any imagining, and it is neither mechanical nor auto matic. The price system is not merely a computer, and it cannot be manipulated like a computer. It is a system only insofar as indi vid uals choose to cooperate and respond to one another's sugges tions, inducements, and state1974 BUSINESS AND ITS IMAGE 401 ments: and attempts to manipu late it by force or fraud are self defeating and destructive. Experience with central plan ning in Russia and Red China shows that market prices are es sential for economic coordination, and the Communist planners get a modicum of economic cooperation only as they permit individuals to profit from their enterprise in ad j usting their techniques to price changes that respond to changes in the informed choices of other producers and consumers. (2) Intolerance For Other People's Tastes Similar to the socialist's notion that technical experts should dic tate to the general run of prod uc ers and consumers is the conten tion that freedom for profit-seek ing businessmen wastes "society's"

resources by pandering to the vul gar tastes of the ignorant masses. The intellectual who likes to at tend symphony concerts, or play chess, or read the writings of Plato, Kant, or Hegel, may scorn the tastes of baseball fans, bowl ers, or movie goers. He may pro pose, therefore, that government take from them money which peo ple use to gratify such low tastes and spend it for the intellectual's better purposes. Businessmen. know that they do not have the power often attributed to them to compel consumers to spend their money in any particu lar way. Nor are all of them with out scruple in their choices of goods which they offer for sale. And we may ask, with Professor Stigler, whether it is any more reasonable to blame businessmen for the tastes of their customers than to blame the waiter who serves a meal to an overweight customer. 3 We should recognize, however, that free markets do actually pro vide incentives for business and industry to cater to tastes for wholesome rather than demoraliz ing products. Consequently, we find tastes rising in eras and na tions notable for the people's free dom to buy and sell for profit.

Profit-seeking enterprise in free markets tends to increase more rapidly the output of more whole some goods because the more effi cient and industrious producers in a capitalistic society are better customers, generally speaking, than the less efficient and less in dustrious. And these producers do not become more efficient and in dustrious by indulging tastes for what is base and demoralizing. If we consider all lines of in dustry in the United States, for 3 George J. Stigler, "The Intellectual and the Market Place," Selected Papers, No. :1 (Graduate School of Business, Uni versity of Chicago, 1965).

402 THE FREEMAN July example, we find that by far the greater part of the business car ried on in private markets with self-supporting producers is in commodities· and services designed to maintain and improve the health, vigor, knowledge,. and pro ductivity of the more industrious and prudent persons. and! their families. Among such items are food, clothing, and shelter, tools, machinery, and equipment, text books, scientific works, the endless number of "how to" books, in formative periodicals, newspapers, and servic~s of doctors, dentists, and teachers. When we find a disproportion ate growth of occupations cater ing to less wholesome tastes, such as for gambling and excessive con sumption of alcohol, we are likely to find that governmental policies are restricting freedom of enter prise in more productive direc tion.s by taxes, wage-hour laws, regulations, .and government-pro tected monopolies, and that wel fare-state policies are encouraging idleness. As the "bread and cir cuses" provided by the emperors of ancient Rome helped debase popular tastes for entertainment in that era, so governments in other ages debase tastes or retard improvement as they restrict in dividual freedom to invest, pro duce, and exchange services, and as they tax the productive and prudent to support the idle and improvident.

(3) Exaggeration of Business Costs and Profits Surveys of opinion have often shown that most persons in all na tions believe that business profits are several times as large as is actually the case. First, they often confuse gross mark-up of a merchant's goods with his net pronto The gross mark-up, of course, must cover the costs of operating his business. Net profit, however measured, is a much smaller figure. Second, statistical estimates of the total expenditures· on·· adver tising, an activity most subject to attack by critics of .business, gen erally involve double counting. For example, figures for total costs of advertising often include most of the costs of publishing newspa pers and magazines, and the costs of maintaining the television and radio industries and providing the programs of information and en tertainment. Similarly, the social ist's estimates of the amount of duplicated effort among competing firms and of excess capacities greatly exagge·rate the facts.

Third, the figures of the United States Treasury exaggerate the amount of business profits. (a) Nearly half of the total profits reported for corpo1974 BUSINESS AND ITS IMAGE 403 rations consists of taxes paid to the United States Government, and another slice of considerable size is paid by dividend receivers as taxes on personal in come. (b) By requiring producers to use original cost rather than replacement cost in calculating the costs of re placing worn-out equip ment, the Treasury forces business owners, in times of rising prices, to report as profits and pay in taxes receipts which·· are neces sary to cover costs and which should not be count ed as profits. Fourth, from one-third to one half of business profits remaining after taxes is reinvested in the business which earns them, and stockholders reinvest part of the remainder, which is paid to them as dividends. When we allow for .taxes and reinvested profits, we find that owners of corporations, which con duct most of the business done in this country, keep considerably less than one-third of their re ported profits for personal con sumption. If we may assume that they pay 20 per cent of their divi dends in personal taxes, their in comes from their stocks has ranged between 2 and 3 per cent of the total national income dur ing the past 20 years. Much of this they return to business by invest ing in new stock issues.

Yet demagogues can easily arouse covetousness. and direct it toward suicidal attacks on busi ness as long as people fail to un derstand the difference between business capital and wealth avail able for personal use, and as long as they fail to understand the dif ference between the way in which a businessman regards his profits and the manner in which wage earners and salaried workers gen erally look upon their own in comes. (4) Misunderstanding of Capital Business capital has value only to the extent that it produces goods for the market or can be used to produce such goods. Sel dom is it in a forPl which the owner can use for personal enjoy ment and consumption. Furthermore, the capital has value only insofar as it can be used to produce goods at a profit. Ignorant and unthinking per sons, noting the stocks of mer chandise and· handsome buildings, may envy the supposed riches of the merchant who owns it. They may conclude, since most others in the community have little wealth, that the merchant has done little for his neighbors, or that he has 404 THE FREEMAN July somehow gained his supposedly great wealth at their expense.

Such envy may be misdirected, and the suspicions are generally unjust. Some of the capital may be borrowed from creditors, per haps from creditors who live in a foreign land. Another part of the capital may belong to partners or stockholders. But a man may be the sole own er of an imposing establishment and be free of debt, yet have no more than his poorest neighbors if the business cannot operate at a profit. The equipment of a losing business may not be worth the cost of scrapping it, and the build ing not worth the cost of demol ishing it, so that neither the equip ment. nor the building has a sales value. In any case, business capital must serve mainly persons other than the owner if it is to have sales 'value; and it is a possible source of personal income to the owner only to the extent that it supplies other persons with goods worth more than the cost of pro ducing them. When, for any of many possible reasons, it ceases to earn a profit, the owner is gen erally unable to use much of it for his own subsistence.

Inability to understand these facts about business capital is a principal barrier to the economic progress of the so-called "underprivileged," or "underdeveloped" nations. The successful merchant's neighbors or the politicians think to enrich themselves by seizing his capital, only to find that it van ishes as they reach for it. And they equally eat into capi tal as they tax profits. The mis understanding of the peculiar na ture and function of business earnings, which gives rise to dis criminatory taxes universally lev ied upon them, is a principal ob stacle to economic progress even in the most capitalistic countries. (5) Misunderstanding of Profits The notion that profits serve mainly as a personal incentive for business efficiency and enterprise not only supports uneconomic tax policies but is a handicap to any businessman who entertains it or whose partners, stockholders, or family persuade him to act upon it.

Consider the effect of this idea upon the thinking of a wage earner, clergyman, or school teach er who hears that the profits of a particular businessman or small group of stockholders amount to many millions of dollars per year. "No one needs so much income," the teacher or clergyman is likely to think, "to induce him to do his best in work such as that of busi ness management." As a result, politicians find widespread support as they take 1974 BUSINESS AND ITS IMAGE 405 half or more of profits and divi dends for "public" use, or when their tax policies compel business owners to make huge donations for nonbusiness purpose ("philan thropies") so that their heirs may retain control of a going concern, or when unions stage a mass hold up to force a profitable company to pay more than free market rates for labor. The individual businessman who uses his profits as most employees use their wages, mainly to buy goods for the personal use of him self and his family, achieves little business success. His business does not grow, his profits remain mod est or small, and his enterprise is likely to exist but for a brief time in a progressive economy.

The flourishing and enduring businesses are those whose owners make use of their profits primar ily as a measure of business effi ciency, a guide for business policy, and a source of the equity capital necessary for growth and stabil ity. Profits are the earnings which remain after deducting the own ers' salaries for their own man agerial efforts, costs of replacing worn-out equipment, payments in to reserve funds to pay for prob able losses, and such interest as their capital might earn in risk free investments, or loans. Most businesses actually return Iittle to the owners beyond sal aries for their personal services and a modest rate of interest on their investment. In fact, many owners continue in business only by taking out of it for their per sonal use less than they could earn as salaried employees in some other firm, and they get no return for interest on their invested capi tal. These businesses operate at a loss, and the, owners make up the deficits out of their own wages and other income.

These are the kinds of busi nesses that are typical of poor countries. Governments of these so-called backward countries per mit few really profitable busi nesses to exist. By taxes, costly regulations, license restrictions, or outright confiscation, they pre vent businessmen from earning or reinvesting profits, and thereby prevent the growth of business capital. This is why these coun tries remain "underdeveloped." Businesses grow only as the in vested capital grows. The owner's capital is sometimes called "equity capital" to distinguish it from the "loan capital" which he may bor row from nonowners by selling bonds or notes. Growth of the owner's equity is necessary for business expansion, not merely in the form of new buildings and equipment, but to guarantee payments to the grow406 THE FREEMAN July ing numbers of employees and sup pliers with whom he contracts to pay fixed wages and prices before he sells the products. He needs equity capital also to guarantee re payment of borrowed funds in case the investments financed in this way prove to be unprofitable.

In freedom, such as the people of the United States enjoyed prior to the great increase in tax bur dens after 1930, business capital grew at unprecedented rates. As a result, the wages and other in comes in this country rose more rapidly than in any other country. How Business Grows This rapid growth of capital came about mainly in the form of reinvested profits 4 • The Ford Motor Company, for example, re invested profits at the rate of nearly 70 per cent, compounded annually, in its first 20 years. In this way the original capital of $28,000 increased to approximately $1 billion. If the founder had paid out in dividends to himself and other stockholders one-half of these profits each year as they were earned, and invested only the remaining 35 per cent, his total capital from this source at the end of 20· years would have been only a little over one per cent as great - approximately $11,000,000 in4 Cf. Carl Snyder, Capitalism the Cre ator (N. Y.: Macmillan, 1940).

stead of $1 billion. For the 20-year period the total dividends also would have been approximately $11,000,000,· only a small fraction of the several hundreds of millions of dollars now paid in dividends to Ford Company stockholders every year. And, of course, the' Company could have produced little more than one per cent as many cars. If present tax rates had pre vailed from the beginning, they would have cut off nearly 99 per cent of the Company's growth. Yet the total tax receipts from the Company for the 20-year period would have been only $11,000,000, instead of the hundreds of millions (more than $600,000,000 in 1965) which the Government now rakes in every year from this one con cern. When we examine the history of other leading businesses in this country, we find that they were similarly built mainly out of profits reinvested by management as they were earned or by stockholders who used part of their dividends to buy new issues of stocks.

Anyone who looks for these re invested profits finds only a small part in the form of currency in vaults or bank deposits. As forms of wealth, he would find them mainly in the buildings, machin ery, and equipment, materials in process of production, and re search laboratories - capital goods 1974 BUSINESS AND ITS IMAGE 407 used to produce commodities and services for persons other than the owners. True, owners of successful busi nesses and their heirs generally use part of their incomes for per sonal consumption: mansions, yachts, costly cars, travel, and en tertainment. But their expendi tures for such purposes have been generally but a small fraction of their profits. Often the amounts were no greater than the salaries they might have earned as man agers for other employers. In other cases they spent part of the in terest on their investments. Those who spent for personal consump tion total sums comparable to the reinvested profits generally had to surrender control of the business.

Successful businessmen are no more motivated by desire for profits than skillful surgeons by desire for fees. Men like Henry Ford, Andrew Carnegie, John D. Rockefeller, James J. Hill, Wana maker, Filene, as well as the lesser business leaders, had the motives of great achievers in art, music, religion, and education - the mo tives of the builder, the architect, the organizer, the mountain climber. They used the profits as indexes of the wants, tastes, inter ests, and capa.cities of customers, associates, investors, employees, and suppliers. They used them as measures of efficiency in their efforts to maximize value at least cost. And as they managed more efficiently, their rising profits pro vided increased means for further increases in productive capacity and business security. Therefore, policies which com pel distribution of business profits to consumers - whether to wage earners, to the families of stock holders, or to governments - may have little effect in reducing the intensity of effort put forth by business leaders, but they do re duce their capacity to do their job.

(6) Statism vs. Business Every increase in the size and cost of government relative to pri vate enterprise increases the temp tation for officials and politicians to foster antibusiness sentiment among the people at large. The cause of the rise in scope and costs of government may be war or threat of war. A natural disaster may causesome mechani calor economic breakdown and provide an opportunity for govern ment to expand its powers and functions. An organized clique may gain office and grant them selves political privileges - govern mental subsidies or restraints on competitors - before taxpayers know or understand what is going on. Whatever the cause may be, every rise in government costs 408 THE FREEMAN July prompts politicians to impose new taxes on places where money is easiest to find. These places are likely to be where individual streams of money converge: the centers of buying and selling, the places of business.

To win popular support for these new raids on business in come, politicians pose as heroic Robin Hoods seeking only to re store to the poor the ill-gotten gains of the rich. To produce in the public mind the appropriate images of themselves and of those whom they propose to tax, they hire speech writers and pay sub sidies to pUblicists and pedants. As the special privileges or wars and rising taxes increase business costs and prices, trade declines. Producers learn to make things for themselves or to do without. As they lose the advantages of specialization and trade, their out put declines, unemployment rises, and pauperism spreads. Tax receipts fall, but the greater the decline, the more strenuously a powerful government may strive to maintain its income by new taxes and higher tax rates. At the same time, it intensifies its efforts to make business enterprise the scapegoat for the mischief wrought by its own policies.

During the past half-century, these antibusiness policies have produced famine and every other form of human misery in Soviet Russia and Red China. The same results, to a. somewhat lesser de gree, followed similar policies en forced with less determination in Egypt, Algeria, Bolivia, Cuba, so cialist India, and other countries. But for a far longer period, we now have authenticated, detailed records of the retreat toward sav agery which followed similar con quests by statists and paternalis tic despots during the 2,000 years preceding the modern era. In par ticular, we should know of the long period of economic disintegration, recurring famines and plagues, and brutalized tastes and manners that, over much of the western world, followed the long war against busi ness from the time of Plato to the rise of new, business-oriented, city states at the beginning of the modern era. f) Reprints of this article available 4-for $1.00; 25 or more, 15 cents each.