The Organization of the Individual? W. Peterson

As one interventionist scheme after another misfires - from the War on Poverty to the War on Inflation people are bewildered and forlorn under the impact of "stagflation/' a vicious combination of rising prices and rising unemployment. The dilemma of the economic managers can be seen in the state ment of Dr. Walter Heller, Presi dent Kennedy's chief economic ad viser and former president of the American Economic Association, to the Association's annual meet ing in December 1973: "Econo mists are distinctly in a period of re-examination. The energy crisis caught us with our parameters down. The food crisis caught us, too. This vias a year of infamy in inflation forecasting. There are Dr. Peterson holds the John David Campbell Chair in American Business at the American Graduate School of International Management in Glendale, Arizona. many things we really just don't know." Or consider the conflicting coun sel fed to President Ford during his period of Economic Summitry.

An editoral writer for The Wall Street Journal (September 27, 1974) called the counsel a "Tower of Babel." The nation's leading economists, bankers, industri alists, labor leaders and consumer representatives counseled the President to cut taxes, raise taxes, leave taxes unchanged, reduce some taxes while increasing others. Again, the President was advised to allocate credit, leave credit alone, tighten credit, ease credit. Or again, he received recommenda tions to re-impose wage-price con trols, set wage-price guidelines, let wages and prices find their own levels. Plainly, something is wrong with modern economics; really many things are wrong with the dismal science in the 20th century. But it is beyond my scope here to 105 106 THE FREEMAN February try to spell out and correct all the manifest errors of modern eco nomics, save for one point - its basic approach. I submit that one reason for the breakdown of cur rent economic policies lies in their fundamental unit of analysis the decided preference for the or ganization over the individual.

In economic analysis, the indi vidual is It, the unit of account, the centerpiece of understanding, the raison d'etre of all activity. Without his direct incentive and whole-hearted participation, no "social" scheme or economic plan is likely to work. In fact, the daz zling failure of Keynesianism in the 1960's and 70's can be direct ly traced to Keynes' virtual omis sion of the individual as such in his General Theory, published in 1936. Premonitions of this omission can be found in Keynes' earlier state ment in 1933: The decadent international but indi vidualistic capitalism, in the hands of which we found ourselves after the war, is not a success. It is not intelli gent, it is not beautiful, it is not just, it is not virtuous - and it doesn't de liver the goods. In short, we dislike it and are beginning to despise it. But when we wonder what to put in its place, we are extremely perplexed.!

(Italics added.) 1 John Maynard Keynes, "National Self-Sufficiency," The Yale Review, Sum mer 1933, pp. 760-61. focus on Individual Mind you, my focus on the indi vid ual in no way is intended to dis parage the need for social organi zation to achieve greater coopera tion. Yet such organizations must appeal to the self-interest of in dividuals to elicit their coopera tion. Moreover, that cooperation has to be voluntary if an organi zation is to succeed. Unfortunately, many economists and ccmmentators not only over look the individual but compound the error by speaking of the "de cisions" of various organizations. These organizations include busi nesses, newspapers, clubs, unions, nations, and so on. For example, economists and non-economists talk of the actions of IBM and ITT, of France and Germany, of the Or ganization of Petroleum Export ing Countries and the United Na tions as thinking and acting enti ties. In this vein, people talk of what Chrysler has to say on auto emission standards, or what The New York Times had to say on some issue. But the Times is an aggregation of thousands of em ployees and stockholders. Hence it is more accurate to talk of what some editorial writer for the Times had to say on a specific issue.

The key to my argument is that all organization decisions are, in the final analysis, individualistic.

1975 THE ORGANIZATION OR THE INDIVIDUAL? 107 That is, any decision, whether made in the name of the UN or in the name of Chrysler, can be made only by individuals. This means that each individual, whether he is a delegate to the UN or an ex ecutive of Chrysler, must make up his own mind. To be sure, his boss may pressure or even direct him; but his boss is still another indi vidual, and so the principle holds. Moreover, as the individualistic approach in economics makes clear, only individuals can think and act. Organizations, on the other hand, cannot think or, in a fundamental sense, act. As Ludwig von Mises noted: A collective operates always through the intermediary of one or several in dividuals whose actions are related to the collective as the secondary source. It is the meaning which the acting individuals and all those who are touched by their action attribute to an action, that determines its character.

It is the meaning that marks one ac tion as the action of an individual and another action as the action of the state or the municipality. The hang man, not the state, executes a crim ina1.2 The relevance of this statement to economic issues becomes clear er. The "wars" on poverty, unem2 Ludwig von Mises, Human Action (Chicago: Henry Regnery Company, 1966), p. 42. ployment, inflation, pollution and so on can only be understood in light of the collective approach to economic analysis - the preference for the organization over the in dividual. To be sure, this approach is fre quently put forth in the name of "the public interest," and, after all, the public is of course an aggrega tion of individuals. Scores of in terventionist acts by parliaments, assemblies and congresses are so passed - and so fail. Yet the rea son that these acts misfire lies in a fundamental misapprehension of the individual and his motiva tion.

An Invisible Hand Oftentimes, legislators and eco nomic managers, acting under this misapprehension, appeal for al truism and "the common good" rather than self-interest. But as Adam Smith observed in The Wealth 0 f Nations: As every individual ... endeavors as much as he can both to employ his capital in the support of domestic in dustry, and so to direct that industry that its produce may be of the great est value; every individual necessari ly labours to render the annual rev enue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic tothat of foreign industry, he intends 108 THE FREEMAN February only his own security; and by direct ing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to pro mote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the soci ety more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. 3 Two historic examples of appeals to individuals to work for "the public interest" are the experi ences of the Plymouth and Virgin ia colonists in the early Seven teenth Century. In each case, the colonists were asked to cultivate the fields in common, with the har vests going into a common store house. Communal cultivation failed in both cases despite the religious fervor of the colonists. As Gov ernor Bradford wrote in his his tory of the Plymouth experience: For the yong-men that were most able and fltte for labour and service did repine that they should spend their time and streingth to worke for other 3 Adam Smith, The T¥ealth of Nations (New York: The Modern Library, 1937), p.423.

mens wives and children, with out any recompense. The strong, or man of parts, had no more in divission of vic tails and cloaths, than he that was weake and not able to doe a quarter the other could; this was thought in juestice ... They Tried Freedom The elders of the Plymouth col ony were in a quandary, with fa mine and extinction facing them. How could they get the colonists to apply themselves for their own salvation? With luck they hit up on the idea of free enterprise and private ownership. The outcome was spectacular: By the time harvest was come, and instead of famine, now God gave them plentie ... And the effect of their par ticuler [private.] planting was well seene, for all had, one way and the other, pretty well to bring the year aboute, and some of the abler sorte and more industrious had to spare, and sell to others, so an any generall wante or famine hath not been amongst them since to this day.

Similar results marked the ex perience of the Virginia colony, as reported by Captain John Smith: When our people were fed out of the common store, and laboured jointly together, glad was he could slip from his labour, or slumber over his taske he cared not how, nay, the most hon1975 THE ORGANIZATION OR THE INDIVIDUAL? 109 est among them would hardly take so much true paines in aweeke, as now for themselves they will doe in a day... Does all this mean that the free and responsible individual follow ing his self-interest puts aside any feeling for cooperation with others and for the plight of oth ers? No, it doesn't. It means that the free and responsible individ ual recognizes his duties and ob ligations in all relationships he has voluntarily entered. He recog nizes that he benefits from co operation with other individuals, that he shares in the knowledge of others, that he consumes the production of others, and that he enjoys the company of others.

But the free and responsible individual naturally objects to be ing his brother's keeper - by law. He objects to being made to do good - by law. He objects to being re quired to sacrifice for others - by law. In all these instances, he is taken for granted - treated as a cog in a state machine. The individual can become re sentful. As he loses freedom, he tends to shed responsibility. Recall the era of Prohibition when Uncle Sam issued the 11th Command ment, "Thou Shalt Not Drink." But the individual drank as never before, and today we justly re member the era as the "Roaring Twenties." For the Good of the Whole Still, the appeal to the individ ual to suppress his own interests for the "good" of all goes on and on - no matter, it seems, what the form of government. Proclaimed Joseph Goebbels, Nazi minister of propaganda and an official of the National Socialist Workers Party: "To be a socialist is to submit the I to the thou; socialism is sacrificing the indi vidual to the whole."4 Said Stalin: "True Bolshevik courage does not consist in plac ing one's individual will above the will of the Comintern. True cour age consists in being strong enough to master and overcome one's self and subordinate one's will to the will of the collective, the will of the higher party body."5 Hitler: "It is thus necessary that the individual should finally corne to realize that his own ego is of no importance in comparison with the existence of his nation ... that the higher interests in volved in the life of the whole must here set the limits and lay down the duties of the interests of the individual."6 4 Quoted by Susan Love Brown and others in The Incredible Bread Machine (San Diego: World Research, Inc. 1974), p.135.

5 Ibid. 6 Ibid., p. 136.

110 THE FREEMAN February Yet political thoughts predi cated on the submergence of the individual are not alien to de mocracies. In our own country, for example, President Johnson declared: "Weare going to take all of the money that we think is unnecessarily being spent and take it from the 'haves' and give it to the 'have-nots' that need it so much."7 And, in a similar vein, President Kennedy said: "Ask not what your country can do for you - ask what you can do for your country/'8 As the authors of The Incredi ble Bread Machine comment: "It is by taking humanitarianism to its logical political consequence that dictatorships are established and the rights of individual peo ple ravaged. Controlled housing. Controlled prices. Controlled wages. Controlled business. Con trolled unions. Controlled money. Controlled banking. Controlled tel evision. Controlled news. Control led people."9 Controls, in other words, fail to comprehend the inescapable indi vidualistic nature of human ac tion. Inadvertently or advertently the controllers accept the doctrine of behaviorism - the idea that men react rather than act, that, bluntly, people are sheep. In one 7 Ibid., p. 135.

8 Ibid., p. 136. 9 Ibid., p. 138. degree or another, the controllers move along the pathways of the Behaviorist School of psychology. Let me, then, set forth two con trasting propositions relating to the organization or the individual. Proposition Number 1: There are no mysteries to human nature because there is no human nature .... I pro pose to abolish autonomous man, the man who believes in freedom and dig nity. His abolition is long overdue. He has been constructed from our ignor ance and as our understanding in creases, the very stuff of which he is composed vanishes. To man qua man we .readily say good riddance. "How like a god!" said Hamlet. Pavlov, the behavioral scientist, emphasized "How like a dog!" That was a step for ward. lO Proposition Number 2: Human action is necessarily always rational. ... Man is a being capable of subduing his instincts, emotions and impulses; he can rationalize his behavior. He renounces the satisfaction of a burn ing impulse in order to satisfy other desires. He is not a puppet of his ap petites. A man does not ravish every female that stirs his senses; he does not devour every piece of food that entices him; he does not knock down every fellow he would like to kill. He 10 B. F. Skinner, Beyond Freedom and Dignity, (New York: Knopf, 1971), pp.

200-201. Quoted and slightly paraphrased by Albert H. Hobbs, "Dignity and Degra dation," The Intercollegiate Review, Sum mer 1973, pp. 243-54.

1975 TIlE ORGANIZATION OR THE INDIVIDUAL? 111 arranges his wishes and desires into a scale, he chooses; in short, he acts. What distinguishes man from beasts is precisely that he adjusts his be havior deliberately.ll Skinner's Behaviorism The first proposition, viewing man as little more than a white rat in a laboratory maze, as a reactor rather than an actor, is penned by America's leading pro ponent of behaviorism, B. F. Skin ner. Dr. Skinner tells us the indi vidual behaves according to his environment and the stimuli of the moment. This individual be havior is supposedly quite pre dictable and hence quite controll able - by others. Accordingly, Dr. Skinner refers approvingly to "operant conditioning" and "en vironmental determinism." The good Doctor tells us environmental factors "are the things which make the individual behave as he does. For them he is not respon sible and for them it is useless to praise or blame him."12 So good-bye responsibility, self determination and self-control.

Man is beyond freedom and dig nity. He responds but he is not 11 Mises, op. cit., pp. 16-19. 12 B. F. Skinner, Science and Human Behavior, (New York: Macmillan, 1953), p. 448. Quoted by Albert H. Hobbs, op. cit., idem. responsible. He is but an animal, anything but a thinker. This ap proach extended to economic anal ysis renders man into little more than a statistic, buried in a letter symbol in a Keynesian formula. In sharp contrast to the be haviorist view of the world is the work of Ludwig von Mises, epitom ized in Proposition Number 2. The Misesian man is a thinker - to be sure, rarely a profound thinker, but a thinker nonetheless. Mises also points out that man is the only animal who has a highly in dividualized scale of values and system of goals. In fact, man is the only animal who conceptual izes scarcity as a law of life, who ranks his preferences, who is aware of time, who is aware of his mortality.

Accordingly, man is the only animal who engages in division of labor and exercises what Adam Smi th called "the propensi ty to truck, barter and exchange one thing for another ."13 Smith also noted that man is the only animal who makes bar gains: "Nobody ever saw a dog make a fair and deliberate ex change of one .bone for another with another dog. Nobody ever saw one animal by its gestures and natural cries signify to an13 Smith, op. cit., p. 13.

112 THE FREEMAN February other, this is mine, that yours; I am willing to give this for that." This idea of man as thinker and trader breaks with the dictates of logical positivism. Mises rejected the strictures and approaches of the physical sciences as wholly inappropriate to the science of human action. The individual sim ply can not be tested in the labor atory, molded by "human engi neering," or predicted by statisti cal inference. To Mises, man thinks before he acts. He choos es, rightly or wrongly, conditioned by his own unique value scale. These choices interact and combine with other individuals' choices to constitute consumer demands for the entire range of goods and services, in cluding the derived demand for capital goods. In other words, these choices give sweep, scale, shape and substance to economic activity. Opportunity Cost Moreover, every individual choice, while conferring some util ity or benefit, involves an oppor tunity cost - the cost of some benefit foregone by his being able to do but one thing at a time. In the words of Mises : " ... acting man chooses, determines and tries to reach an end. Of two things of which he cannot have together he selects one and gives up the other., Action therefore always involves both taking and renunciation."14 This searching analysis of in dividual motivation is precisely the type of analysis missing in modern economics, including gov ernment interventionism.

Wage-price controls, for exam ple, have failed a thousand times. The repeated failures can be en tirely explained in terms of the overlooked individual. Typically the government, in the name of anti-inflation, sets a full panoply of "maximum prices." These prices are usually set below those that would have prevailed in a free market. Moreover, they are expected to prevail while the cen tral bank allows credit to expand and the money supply to increase. But the wage-price control ra tionale doesn't jibe at all with individual subjective values in real-world price determination. This subjective determination spans not only the supply of and demand for goods but the equally crucial supply of and demand for money. Naturally, as the money stock rises, subjective valuations of each currency unit tend to fall, both on the demand and on the supply sides of the market. Ac cordingly, individual buyers bid more for all available goods and 14 Mises, Ope cit., p. 12.

1975 THE ORGANIZATION OR THE INDIVIDUAL? 113 services, including capital goods and the factors of production. In dividual sellers find their costs rising and their profits increas ingly squeezed. Sooner or later these sellers find it necessary to export their goods to uncontrolled markets overseas, cut corners on quality, do business in "black markets" at horne, or go out of business altogether. In any event, the controls lead to shortages, shipment delays, quality lapses, multiplying bureaucratic inter ferences and, ultimately, break down of the controls themselves. "Contracyclical Poli cy" Like price-controls, the Key nesian rationale also ignores the individual, as noted. Today the world is aflame with double-digit inflation directly attributable, I submit, to Keynesian policies. Broadly, Keynesianism swings on macroeconomic "contracyclical policy." This policy calls for budget surpluses in good times and budget deficits in bad times so as to maintain "effective demand"

and thus "full employment." Hence Keynesianism emphasizes spending rather than production as the source of income and breaks sharply with Say's Law (supply tends to create equivalent de mand) . But the "G" in Keynes' "full employment" formula of Y = C+ I + G (National Income = Con sumption Spending + Investment Spending + Government Spend ing) works out to be about the most unstable, inflationary, poli tics-ridden and unscientific bal ancing mechanism that the eco nomic managers could possibly utilize. Specifically, as a cure of unemployment, government spend ing simply assumes that jobless ness reflects the failure of de mand - never the overpricing of labor which individual consumers reject. So as employment contin ues to lag, government spending tends to get ever larger - and ever more inflationary. As Mises noted: At the bottom of the interventionist argument there is always the idea tha t the government or the state is an entity outside and above the social process of production, that it owns something which is not derived from taxing its subjects, and that it can spend this mythical something for definite purposes. This is the Santa Claus fable raised by Lord Keynes to the dignity of an economic doctrine and enthusiastically endorsed by all those who expect personal advantages from government spending)5 Too, the cons umer spending and the investment spending in the Keynesian formula subsume the 15 Mises, op. cit., p. 744.

114 THE FREEMAN February thoughts and actions of millions of consumers and businessmen. These individuals have their own values, preferences and cost-price relationships which strongly tend to obviate the "contracyclical pol icy." This obviation comes partly from the subjectively determined forces of supply and demand. These forces, of course, are never repealed but are distorted by Keynesian policies. "Contracyclical policy" also tends to exacerbate the very busi ness cycle it is supposedly stabil izing. Expanded government spending involves as a rule deficit finance. The central bank accom modates the swollen debt instruments of government and allows commercial bank reserves to ex pand. The resulting credit expan sion leads to false interest and profit signals to entrepreneurs; it leads to industrial expansion and price pressures, especially on cap ital goods and the factors of pro duction. The upshot is inflation, soaring interest rates and, in the end, industrial contraction -re cession or depression.

This is precisely the predica ment in which the Western "'~orld finds itself today. In sum, economic analysis which ignores or downplays the individ ual and his subjective values is almost certainly doomed to failure. ~ IDEAS ON LIBERTY Imprisoned Ideas THERE are many classifications into which men and women may be divided ... But, as I think, the only categorization which really matters is that which divides men as between the Servants of the Spirit and the Prisoners of the Organization. That classification, which cuts right across all the other classifications, is indeed the fundamental one. The idea, the inspiration, originates in the internal world, the world of the spirit. But, just as the human spirit must incarnate in a body, so must the idea incarnate in. an organization. Whether the organization be political, religious, or social is immaterial to my present argulnent. The point is that, the idea having embodied itself in organization, the organization then proceeds gradually to slay the idea which gave it birth.

W. J. BROW N, from the Spectator September 19, 1947 The Concept of Value In Ethics and Economics RIDGWAY K. FOLEY, JR. THE CONCEPT OF SUBJECTIVE VALUE provides one of the most striking characteristics differentiating vol untarists from statists. One's defi nitionof value colors his individ ual view of reality and accounts for many, if not all, of the choices made in a lifetime. Despite eluci dation by notable persons, the con cept remains elusive, rendering reiteration more than an idle gesture. One tends to offer apologies for mining tunnels seemingly exhaust ed in the past. Subjective value appears, at a glance, to resemble one of those tunnels consisting of a few specks of played-out ore and a host of useless residue. Were this assessment accurate, mere re capitulation of the subjective theMr. Foley, a partner in Souther, Spaulding, Kin sey, Williamson & Schwabe, practices law in Portland, Oregon.