Book Reviews

In World War II Winston Churchill, a hero-politician, stood up to Hitler, who had floated to power in a Germany that had been through the inflationary mill and couldn't find the means to pay for World War I reparations. But ,vhere would Churchill have been if certain "wizards" had not, in 1940, been able to equip some sev en hundred Royal Air Force planes with a mysterious device called radar? It was radar tha t gave eyes to the air pilots on whom the West depended. It was, as Church ill himself acknowledged, the "war of the wizards." The Fascists were licked, not because they 185 186 THE FREEMAN March lacked wizards of their own, but because their theories of social organization, which stressed the collective rather than the individ ual, did not give full scope to the creativity of the "boffins," as the scientific innovators of the day were called. Radar was a British invention, but it was an American company, little Raytheon of Massachusetts, that refined it and produced it in a volume that not only saved Eng land but enabled the crippled U.S.

Navy to stop the Japanese in the Pacific. And radar was only one example of the wizard contribu tions of Raytheon technicians. The war at sea could have been lost if it had not been for underseas de tection devices provided by the same Yankee boffins. Eventually Raytheon moved into all sorts of homing devices that enabled mis siles to strike airborne intruders without outside guidance, thus en abling the defense to catch up with the attack in the never-end ing seesaw of war. The story of the Raytheon com pany has been told in a beautifully inspiriting book. The Creative Or deal, by Otto J. Scott (Atheneum, $12.95) , that is even more the his tory of an era than it is of a single corporation. The indispensable company is probably as much of a myth as the indispensable man, but if the Raytheon. story had not been what it was we would all be living in a vastly different world. Research and Development I confess that the nature of what goes on inside the mysteri ous tubes and semi-conductors and guidance systems that a.re the heart of the electronic revolution seems as ultimately unknowable to me as electricity itself. But men don't have to know what electri city is to use it, and electronics is more of the same. Furthermore, men don't have to know where they are going to start things; it is enough that they let their curi osity carry them along. Raytheon's predecessor company, the Ameri can Research and Development Corporation, hoped to make some thing by selling radio transmi t ters, but its prime asset at the start was Dr. Vannevar Bush of MIT, whose ideas about research and development ramified in sev eral directions. Bush had a college roommate and partner, Laurence Marshall, who was a physics ma j or in search of something more challenging than life in a class room or a laboratory. Before Bush and Marshall and other men of AMRAD moved on to become Ray theon they tinkered with thermo static discs and refrigerators, not realizing that the professorial C.

G. Smith, their refrigerator in1975 THE CREATIVE ORDEAL 187 ventor, had a better role in his mysterious thermionic tubes. Smith's new tubes were destined to push the radio industry into many unforeseen directions. But it was Laurence Marshall, the phys ics maj or turned entrepreneur, who became the soul of Raytheon. The Demands of War -Space Flights and Kitchenware Raytheon remained a mixed bag of interests, making welding ma chines, rectifier tubes, miniature components for hearing aids and whatnot until war broke out in Europe in 1938. It was the war that brought Raytheon into its own. Whole navies had to be pro vided with radar eyes to protect themselves. The war in the air de manded radar tracking stations. When the buzz bombs began to descend on Britain, gun-laying radars developed by Raytheon were able to direct a barrage that destroyed ninety per cent of the bombs before they could .land and do any damage. If the military had only known how to use the radar it already had in Hawaii in 1941, the Japanese attack on Pearl Har bor would have been a monumen tal fiasco. Young radar watchers followed the incoming Japanese planes on a screen for fateful miles and precious minutes, but they could not get anyone to take the blips seriously. The planes were thought to be American planes, even though they were coming from a strange quarter of the compass. Proving, no doubt, that the technological achieve ments of man often outrun the ability to make simple common sense applications of the most marvelous devices.

After WorId War II there were other crises, even other wars. Ray theon's Lab 16 moved into the world of Sparrow and Hawk, mis siles that could rise in the air and seek out low-flying enemy planes that had penetrated below the or dinary radar defenses. The moon shots provided further opportun ity for Raytheon experimentation. And, on a more mundane level, Raytheon microwave ovens en abled restaurants and housewives to. provide well-cooked meals al most in the blinking of an eye. Woven info History Otto Scott might have spoiled his story by drowning it in tech nical details. The narrative is in credibly crowded, but it is light ened and enlivened by its fusion with general history. The glitter ing Twenties give way to the trib ulations of theThirties, with New Deal Washington doing little or nothing to keep U.S. industry in a creative mood. But the industrial system kept working in spite of a politics that failed to comprehend 188 THE FREEMAN March its intimate needs. When the war came, the suppressed energies of the businessrnen were fully equal to the task of backing up the mili tary.

In Mr. Scott's story the men of Raytheon come clear even though some of their inventions seem vir tually indescribable to those whose native language does not happen to be mathematics. The unknown heroes who provided the tools which known heroes such as Win ston Churchill used to finish the job include Percy Spencer, an un tutored genius whose 138 patents enabled little Raytheon to keep up with General Electric, Westing house and other giants of the in dustry. Laurence Marshall, Dr. Vannevar Bush's sidekick, carried Raytheon on his sturdy entrepre neur's shoulders until he became diverted by anthropological under takings. His successor, Charles Francis Adams, Jr., a descendant of John and John Quincy Adams, brought aNew England rectitude to the company that enabled it to survive the attempts of conglom erators to move it into channels that would have made it a stock market liability when times turned bad.

Through it all, the men of Ray theon continued to be patriots even more than they were scien tists and businessmen. Part of a military-industrial complex, they were not in it for the money, al though the money happened to be a useful by-product of sound sense. If the U.S. ceases to breed such dedicated men, it will surely succumb in a future that is cer tain to see laser weapons sup planting the atomic missile. It took the wizards to win World War II, and if our wizardry falt ers, we will lose World War III before it ever comes down to the first battle. ~ CONFESSIONS OF A PRICE CONTROLLER by C. Jackson Grayson, Jr., with Louis Neeb (Homewood, Ill.: Dow Jones-Irwin) Inc., 1974) 265 pp., $9.95. Reviewed by Melvin D. Barger BACK in mid-October, 1971, C. Jackson Grayson, Jr., was sur prised to receive an urgent call from Washington offering him the post· of Chairman of the Price Commission. The Phase I price freeze was ending in a few weeks, and the Nixon Administration was now moving down the rocky road towards the country's first peace time experiment with formal price controls. As Grayson remembers it, the offer - which he refused at first - was· a "chance that will never come again."

1975 OTHER BOOKS 189 Confessions of a Pric'e Control ler is a highly readable, interest ing account of what happened after Jack Grayson left his job as Dean of the Southern Metho dist University business adminis tration school and went to Wash ington to fix the nation's prices. The book is a valuable addition to the literature of free market eco nomics because it shows how and why things go wrong when Gov ernment sets out to stabilize prices. Like many business-school professionals, Grayson is a be liever in the free market who is willing to accept some govern ment intervention for pragmatic reasons. But one does get the im pression that Grayson's 15 months as a price controller had the effect of transforming him into a more outspoken advocate of the free marketplace, because he has since warned repeatedly against a rein statement of price controls in any form. Grayson's arguments will not sway those who insist on rigid price and wage controls. In this camp, it is a rule of faith that price controls can be administered effec tively only by persons who believe in them. Grayson obviously looked on his Phase II mission as a tem porary venture that should be phased out as soon as possible. A true believer in price controls would have regarded the moderate Phase II program as the launch ing pad for permanent and exten sive controls.

For a nonbeliever, Grayson car ried out his assignment heroically and honestly. Starting from scratch, he put together an organ ization and developed a basic pro gram in only 16 days. At the very outset, however, the Price Com mission became engulfed in the practical problems of price con trols. There was the thorny prob lem of establishing a "base" period for the prices of each industry; as it turned out, there was almost no way to do this in an equitable manner for each company. There was the problem of deciding which companies should be under pre notification, reporting and sur veillance. The decision to require prenotification for firms of $100 million or more in annual sales, rather than only those above the $250 million level, tripled the Price Commission's workload. There was also the problem of de ciding which wage increases would be allowed to "pass through" as costs in price increases.

The Phase II Price Commission functioned with a staff of about 600, a lean organization for the complex task of "stabilizing" -prices at predetermined levels throughout the U.S. economy. Grayson admits that Phase II con trols relied heavily on "voluntary 190 THE FREEMAN March compliance," and he goes on to point out that a rigid, highly en forceable price control program would have required a staff of a hundred thousand people or more. As each price boost prenotification came to the Commission's atten tion, it always proved to have spe cific problems that were charac teristic of a single company or a particular industry. Dow Chemi cal, for example, was granted a flat two per cent increase across its entire product line when the Commission was informed that as many as one hundred thousand applications might be needed to cover every Dow product. Costs soared in the construction indus try, and pricing problems devel oped in petroleum, zinc, sugar, silver, wheat, fish, poultry, and cement. There was a reasonable attempt to make pricing excep tions to avoid hardship for vari ous industries, but each exception, of course, helped give rise to the demand for others.

Grayson also gives the impres sion that the Commission and staff members were often divided or confused on key policy matters, and sometimes changed course as a matter of political expediency. In a very revealing comment, he explains that economic policy mak ing in Washington "is a compro mise - and often a heated one of various points of view, many times with a paucity of data, gun slinging, interpersonal bickering, and widely differing recommenda tions . . . I had assumed - and I think it's true of the average citi zen - that wise, gray-headed eco nomic elders, assembled around a polished mahogany table, would lead the way to truth via factual logic and calm discussion ... Of course it doesn't happen that way." The way it did happen was that price control regulations were be coming more of a sieve than a barrier by the end of 1972, and both the public and the Adminis tration were ready for the end of Phase II in January, 1973. Gray son helped preside over the liqui dation of his own position, and one cannot help feeling that the timing for his departure was ex cellent. By mid-1973, prices were beginning to snowball, although the Administration still talked hopefully through Phases III and IV.

.It was probably no chance thing that Grayson got out just in time. A man with excellent political in stincts, he can sense when a move ment or an idea has run its course. Price control wasn't working, and it is doubtful that the Price Com mission could have retained more than a shred of its credibility into 1973. Grayson undoubtedly real ized this, and the demise of Phase 1975 OTHER BOOKS 191 II also left him free to speak out against price controls and to point out the contradictions in any price control system. In the closing pages of his book, Grayson makes a good· defense of the free market system. He also admitted, shortly before closing out the Commission, that "Even with its imperfections, the mar ketplace· is still better than we are." Like Dr. Ben Rogge, of Wa bash College, he also harks back to Joseph A. Schumpeter's warnings about the threats of price control and other measures to the private enterprise system.

The major shortcoming of Gray son's book is in his failure to in dict government's arbitrary ex pansion of the money supply and credit as the cause of inflation. He admits that "stimulating demand to achieve low unemployment risks inflation." He would have per formed a valuable service by ex plaining what "stimulating de mand" really means and how this basically Keynesian approach has steadily eroded the American dol lar. Despite this flaw, Grayson has given an honest portrayal of his 15 months as Chairman of the Price Commission~ Now that infla tion has reached double-digit rates, there will be renewed at tempts to resort to self-defeating and contradictory price control measures. We may someday find ourselves under a price control system managed by a person who really believes in controls. But at least Grayson has given some con vincing reasons for being a non believer. Editor's Note: When the same mail brings reviews of the same book, and when the subject is as urgent as the matter of price controls, it seems appropriate to share both reviews. The one which follows is by Dr. Hans F. Sennholz.

C. JACKSON GRAYSON'S and Louis Neeb's Confessions of A Price Controller is a remarkably honest report on the way price controls were created and operated in the Nixon Phase II. Their honesty, which shines through their many admissions of price control chaos, the influence of power, pressure and politics, and finally, their repentance of it all, makes it a re demptive book that affords new hope to the reader. They became honest men which, you may be sure, left two rascals less in Wash ington. The book sheds some light on the economic rationale that led the Nixon Administration to the price control system. It was expressed 192 THE FREEMAN March by Paul McCracken and Herb Stein of the Council of Economic Advisors in their first meeting with newly appointed Chairman Grayson: "Not much in classical economics seems to be working, why don't you come up with some thing on your own rather than be prejudiced by our views." (p. 7) Surely it is difficult to fathom the reasoning of Nixon lieuten ants. But it is incredible that they should have believed sincerely that they were conducting classical economic policies. They were run ning the biggest budgetary defi cits in peacetime history, at double the Johnson rates during the Viet nam War, and were inflating the money supply at two-digit rates, and then conclude - without even blushing or suffering a stroke that "not much in classical eco nomics seems to be working."

The truth is that classical econ omists, yea even Mercantile and Medieval economists, have ex plained the consequences of such wild spending and inflating rather well. Goods prices must rise and the purchasing power of the mon etary unit must fall. Classical economists, such as Smith and Ricardo, even explained the con sequences of government price controls, the inevitable shortages and the ensuing economic disin tegration. Could it be that the professors of economics serving on the Nixon Council of Economic Advisors had forgotten their classical economics? Or were they motivated by personal or political considerations? They obviously confused their Keynesian economic recipes which they were following faithfully with "classical economics." If they would have had the courage to ad mit openly to the world that Keynesian policies had failed con clusively, they would be long re membered for honesty and cour age. But instead, they preferred to hold on to the discredited re cipes and to the confusion. What Haldeman and Ehrlichman did at Watergate, McCracken, Stein, and Shultz perpetrated in the economy.

Grayson's role in the price con trols system was that of the mas ter sergeant. He drilled the pro ducers and merchants of peanut butter, applesauce, lumber, frozen foods, and a million other commo dities. He drilled them-in the cities and in the country, from coast to coast, millions of Americans of all ages. And like most sergeants he gave them much noise and many words, but little argument and less sense. There is probably nothing absurd or ridiculous in economic life that has not at some time been said and done by him and the other price commissioners. His book is a cogent brief on the absurdities of price controls.