Book Reviews

The course, however, seemed to me overweighted on the "macro" side. There was a lot about "GNP." Samuelson is strong on the de scription of things-as-they-are, and, after forty-five years of in terventionism, the tendency is to take such things as inflation (say at a three per cent annual rate), fractional reserve banking and some government "stimulation" for granted. The indi vid ual tends to get lost in the "macro" approach, and the critical faculty inevitably gets dulled. We see things in terms of aggregates and large contours, and individual purpose gives way to supposed group needs and desires. The accent on the group leads, by slow degrees, to socialism. But socialism ignores the human start635 636 THE FREEMAN Oc'tober ing motor, which is always inside the mind and body of a single, separate person. The Uncoerced Individual What is obviously needed, in high schools, is economic instruc tion that begins with the starting motor of the uncoerced individual.

To overcome the deficiency, Bet tina Bien Greaves of the Founda tion for Economic Education staff has prepared a two-volume work, Free Market Economics (FEE, $10.00 per set), comprising a text book plus an anthology. The Sylla bus, a wide-ranging arid deeply penetrating treatise, takes off un abashedly from Ludwig von Mises' "Austrian" economics. And to sup plement the Syllabus, Mrs. Greaves has compiled a companion Free Market Economics Basic Reader consisting of material drawn largely from The Freeman. Lest the reader get the idea that the eighty-one selections in the Basic Reader are from purely con temporary sources, it should be noted that such ancients as Fred eric Bastiat, David Ricardo, James Madison, Abraham Lincoln and Jean Baptiste Say are represented here, along with a FEE "Clipping of Note" taken from Karl Marx's and Friedrich Engels' Communist Manifesto, which, like Adolf Hit ler's Mein Kampf, provided ample warning of what totalitarians intend for the underlying population whenever or wherever they achieve power. The Manifesto dates back to 1848, and it is still deluding people.

The syllabus begins with "bas ics" (Le., the nature of the indi vid ual, the need for private prop erty if there is to be free ex change, and the voluntary coopera tion that creates the miraculous "interconnectedness-" of the free market). Then comes a section on "principles" (pricing, savings, the role of tools, labor and wages, money and credit, coml?etition and monopoly, and cross-border trad ing). Finally, there is a section on historical and political aspects, de signed to give the teacher some grasp of both economic history and the history of economic thought. Like musical motifs, the root ideas of Ludwig von Mises are sounded again and again through out the text. Men act purposefully within the limits imposed by the natural and social orders, each one of them trying to relieve "felt uneasinesses" of one sort or the other. The effort to satisfy as many wants, both material and nonmaterial, as is possible with the means at hand is enough to ex plain pricing, which varies with the individual's need and will to trade.

The seller has his "felt uneasi ness," too - he has his living to 1975 FREE MARKET ECONOMICS 637 make. He will, naturally, have more of a product to sell if he has the advantage of good tools and a ramifying division of labor. The "felt uneasiness" of empty stom achs means that workers will have the incentives to take jobs and to specialize in accordance with their native skills. And the difficulty of arranging for barter leads to the special commodity known as money. The "Invisible Hand" Individuals become interconnect ed and interrelated through the market, which seems to be regu lated by an "invisible hand." In visibility does not mean that things are 'haphazard. Men have logical faculties, and can reason from axioms, or self-evident truths. They know there is regu larity in the universe; the sun rises in the east and sets in the west. There is causality. And all things take place within a context of time and change. Men's subj ec tive desires are arranged accord ing to a scale of personal values.

And it is the subjective nature of value. that decides where economic "margins" will lie. If not enough people want a given good or serv ice at a price, the seller will have to come down a peg or two in or der to keep from being stuck with inventory. Marginal utility defines what will be made. It does not guarantee that the seller will always recover the labor costs that go into the making of a prod net. So there can be no "labor theory of value." But if there is no recov ery of cost at the margin, the margin itself will change. The von Mises system is, of course, the refinement of the "Aus trian" system, which was pio neered by Carl Menger. Menger was a Charles Darwin in a school that had its Alfred Russel Wal laces, co-discoverers of a theory that provided the missing key to free market economics. The co-dis coverers - J evans and Walras used mathe'matics to explain mar ginal utility. Menger favored the "literary" approach, couching his arguments in terms of logic. Since mathematics means statistics, and statistics are "past history," the Menger approach is handier for those who want to direct their at tention to the individual as the creator of the future.

No Instantaneous Miracle There is so much in Mrs. Greaves' syllabus that one ques tions the ability of the average high school teacher to impart its wisdom to students in the course of a single year. But the idea is to get prospective teachers to open their minds to the whole neglected panorama of free market thought, which. necessarily entails applica tion over many, many years.

638 THE FREEMAN October Mrs. Greaves is profuse with her recommendations for supple mentary reading of all the great and near-great texts. The teacher of free market economics can hardly bite off Adam Smith's Wealth of Nations and Ludwig von Mises' Human Action in a couple of months. But Mrs. Greaves is not looking for an instantaneous miracle. Her own Basic Reader makes use of the small gem to illustrate the important truths. Roger Wil liams tells us how completely in dividual everyone of us is. (Exit, the "planned" economy.) Henry Hazlitt explains why a broken win dow, though it may be a boon to the glass manufacturer,means a lost sale for a tailor . John Camp bell brilliantly illuminates the case for tools by noting the role of the horse collar in expanding traf fic in medieval Europe. Percy Greaves, Jr. proves in depth the common sense of William Graham Sumner's random remark that the "amount of money in a country will do the work of the country."

A single passage from Ricardo es tablishes the law of comparative advantage in foreign trade. J. B. Say shows that production creates all the income needed to "clear the market." And so it goes. If there is one thing that seems to be missing in Mrs. Greaves' an thology, it is Friedrich Hayek's bit from The Road to Serfdom that shows why, under State plan ning, it is the "worst" that get to the top. Gustavo Velasco's "Inter vention Leads to Total Control" tells us all we need to know about the economic end of State inter ference, but Hayek's essay is need ed to remind us that it takes a gang of hardened thugs to make control stick. ~ THE GROWTH OF THE AMER ICAN GOVERNMENT by Roger A. Freeman. (Stanford, California 94305: Hoover Institution Press), 228 pages, $8.95 hardcover; $5.95 paperback. Rev·iewed by William H. Peterson BUSINESS ANALYSTS fear a critical capital shortage in the U.S. within ten years. What is the cause?

Where has the potential capital gone? Roger Freeman, Stanford Hoov er Institution economist, supplies one hard answer: It's been de voured by government with its enormous appetite for the nation's resources. It's gone into taxes that impede "individual productivity and industrial success." It's gone into a massive redistribution of national income from producers to nonproducers, from production in to consumption, from capital for mation into a raft of programs 1975 OTHER BOOKS 639 like Food Stamps, Aid to Families with Dependent Children, and the biggest domestic program of them all with a truly prodigious appe tite for resources and potential capital - Social Security. Consider Social Security and other federal payroll taxes, which, as Dr. Freeman notes, have been growing faster than any other federal levy. This payroll "take" is estimated by the Office of Man agement and Budget at $86.3 bil lion for 1975, which amounts to more than twice as much as ex pected corporation income tax re ceipts of $38.5 billion estimated for 1975, and about three-quarters of the expected individual income tax receipts of $117.7 billion. Fed eral payroll taxes amount to about three-quarters of the $116.0 billion expected to be spent on fixed capi tal formation this year, meaning, expenditures for new plant and equipment planned by American businessmen in 1975, as surveyed by the Commerce Department's Bureau of Economic Analysis. The national government diverts $86.3 billion into "transfer payments"

instead of permitting individuals to invest this sum as they decide in job-producing industry. There are solid grounds for be lieving that Social Security re cipients would be better off in their old age if they had not put their "contributions" into current government expenses but into cap ital formation - directly into stocks and bonds, or indirectly via private insurance annuities or pen sion plans. Either way, not only would these people likely be better off but the country and especially the American worker would also be better off - thanks to greater productivity, rising wages, and less inflation. But the $86.3 billion payroll tax is but one facet of the federal bud get, which, according to a recent House-Senate Budget Committee conference, will come to $367 bil lion in the 1976 fiscal year which began July 1st (involving a defi cit of $68.8 billion). Related to the problem of gov ernment absorbing an ever larger percentage of GNP - and potential capital - is a continuing increase of what Dr. Freeman calls "wel fare dependency," with its attend ant disincentives to work, save and invest. He draws a distinction be tween genuine welfare needs and actual welfare programs. Econom ic growth has already greatly re duced the number of families at the poverty level. The rub is that the Government keeps redefining and generally easing the definition of poverty. This means lowering qualifications for eligibility for most any given welfare program, so that the welfare population burgeons in good times and bad.

640 THE FREEMAN October Dr. Freeman is alarmed and writes: "The sharp rise in the number of female-headed families - between 1970 and 1973 at more than twice the annual rate of· the 1960s - is an ominous sign for prospects in welfare dependency." There are literally hundreds of programs on the books, but there is always room for more; mass transit, environmental improve ment, a nationally guaranteed an nual income and national health insurance, among many other pro posed programs. The cost of pend ing health insurance bills alone varies from $6.5 billion annually for the Administration's Com prehensive Health Insurance Bill to an estimated $60 billion for the Kennedy-Griffiths Health Security Bill. The irony of such proliferation is its persistence in the face of a rising tide of program failures. Shiny new public housing projects become instant slums. Major cit ies, under the impact of federal policies and by their own actions, are increasingly transformed into islands of poverty, crime, decay and other social ills. (Dr. Free man bemoans the plight of bank rupt New York City, as a case in point.) The quality of education sinks as federal aid to the schools mounts. (Dr. Freeman notes that mean scores on college board en trance tests declined dramatically during the decade 1962-1973.) The Hoover Institution econo mist is concerned by the fact that economic growth is being choked off by the rising welfare state, but he is also alarmed over implica tions for national security. From 1952 to 1972 defense expenditures dropped from 14% to 7% of GNP, while domestic expenditures in creased from 12 % to 26 % . Russia has meanWhile been building up its war-making powers, so that under current trends "the Soviets are headed for a decisive military superiority."

Whither America? asks Roger Freeman in this important book, and the serious reader echoes the question: Whither, indeed! @ the Freeman VOL. 25, NO. 11 • NOVEMBER 1975 AMatterof Choice let us choose and be responsible individuals. Ruth E. Hampton 643 Common Sense - Whatever Happened to It? Ralph Bradford 646 A Bicentennial call for a return to the values of the Founding Fathers. The Story of Gunch and His Magical Scheme The other side of something for nothing. Alice Stephen Gifford 657 Tht Search for an Ideal Money Henry Hazlitt 660 The trick is to keep our money out of the hands of political controllers. A Freedom Under Fire The pros and cons of gun-control laws. Ronald F. Cooney 673 Police Power: Sovereignty'sSledgehammer Ridgway K. Foley, Jr. 677 The nature of police power and how it encroaches on freedom, if unlimited. EngineeringRegUlation:The Return to Medievalism Larry W. Sarner 688 A serious look at the likely consequencesof licensing and regulation of engineers.