Socialiazed Hot Dogs; D. Scholl

The student government began to discuss elaborate plans for a quick-food-service in a proposed student union building, but the im mediate need was not being met. Mr. Scholl is a businessman from Buffalo, Wy oming.

1976 SOCIALIZED. HOT DOGS? 117 Meanwhile, one of the students faced dropping out of school for lack of funds; and once again Mother Necessity bore the fruit of invention. Drawing on his experi ence behind snack bars du.ring summer vacations and football games, the young entrepreneur set up a makeshift stand near the ex isting student ·lounge. He served quality hot dogs, soft drinks, can dies, and other goodies - all at prices comparing favorably with those of the· distant short-order houses. The students had their snacks, at savings to them of time and money; and the young busi nessman was able to finish his education. But the outcome might have been different. Officers of the stu dent government, seeing the small private business succeed, quietly met with a Dean of the college, demanding that the hot dog· stand be turned over to them on behalf of "the students." They proclaimed it "immoral" for one student to profit from the needs of his fel lows; the profits should be used "forthe good of all."

The same leaders had offered no practical solution to the snack problem. They lacked experience in operating such a complex enter prise, lacked knowledge of sources of supplies and equipment, lacked the time and desire to operate the hot dog· stand· themselves, and were unlikely to find a manager and staff motivated to doa proper job. Fortunately, the Dean was both observant and practical. Declaring the. hot dog stand one of the best things to happen to the college within his recollection, he refused the demands of the student gov ernment officers, allowing the small business to succeed. Several Lessons Taught The hot dog stand and the pro posal to "socialize" it teach many lessons of broad applicability: 1. Through franchises, regula tions, and special privileges, gov ernment creates monopolies, there by reducing both service and prod uct· quality while preventing price competition. In our case the "gov ernment" was the college adminis tration which had allowed only the one vending firm to sell on campus, thus precluding a more satisfac tory means of supplying the stu den ts' needs.

2. When free to operate, individ ual initiative will analyze consumer needs and provide for them wit,h the most efficient use of resources. The student, seeking to fill his own desire for an education, recognized the opportunity to profitably serve others and did so with an initial investment of less than $50.

118 THE FREEMAN February The capital available to private businessmen is extremely limited. While a government enterprise can use its police power to coerce tax payers to finance it, private enter prise must convince potential in vestors that the expected return on their investment is satisfactory. The private firms, therefore, must allocate their limited resources in the most efficient and productive manner. 3. An exchange has indirect ob jecaves, the obtaining of values not obviously involved and seldom recognized by socialist planners. In the exchanges at the hot dog stand, the seller's immediate need was for money, which he accepted in trade for food which served the immediate need of the buyer. But the ultimate objective of each was his own education. Thus, "led by an invisible hand," each indirectly advanced his own and the educa tional wealth of the nation through specialization and trade. In a so cialist plan, as envisioned by the student officers, the hidden objec tives would have been overlooked.

Deprived of the opportunity to serve others' needs, the young busi nessman would have had to forgo his education, reducing not only his personal wealth but also that of the community for years to come. 4. Socialism means waste. Blind to the hidden objectives, socialists see only the direct exchange itself. This results in grandiose schemes requiring excessive resources for the "seen" need. In our situa tion, a minimal investment was required by the enterprising student, while the socialists proposed an elabor ate facility which would require high investment and a long time for completion. This is why socialist nations suffer such tremendous wastes and shortages. The well-known case of nail production in the USSR is a prime example. The planners called for so many tons of nails. The re sult - a small number of large, heavy nails, excellent for railroad spikes, but useless for building homes and furniture. The planners then called for a specified number of nails. That resulted in an im mense supply of small nails, which would have made good tie tacks with some modification.

The planners were too anxious about political prestige to see that nails are produced to enable mil lions of people to satisfy their in dividual desires. The nails them selves were so far removed from the true goals, and the goals were so personal and subjective, that it was impossible for a handful of isolated bureaucrats to properly determine their production. The free market acts to filter and 1976 SOCIALIZED HOT DOGS? 119 accumulate the billions of bits and pieces of dem~nd required in ful.,. filling millions of personal plans. Each individual seeks various re sources to serve his plans, but each requires a different combination of resources. The businessman does not need to kno\v what the plans are, or even what combina tion of resources is needed for any one proj ect. He only needs to ascertain and provide for the cumulative demand for the items in which he specializes. In this way, the free market makes it pos sible to cooperate while each of us seeks only to fulfill his own needs.

5. Each individual in a free ex cha,nge receives a profit,. the busi nessm,an's profit is made by reduc ing the consumer's cost. While the entrepreneur earned the money to finance his education, the other students also profited in the form of snacks to maintain their stam ina during long hours of study, and a saving of time which might have been spent traveling to the nearest short-order house. Thus the businessman made his profit by reducing the costs in time, money, and discomfort to his customers. Profit is not just the difference between price and costs in mone tary terms. It also means the alle viation of physical and psychologi cal uneasiness, the fulfilling of desires by effort which is less unpleasant than the consequences of not making the exertion. The businessman earns his profit by cooperating with his cus tomers in relieving their discom forts. Each individual could strive to satisfy all his own needs di 1'ectly and without cooperation with others; but he is unlikely in that way to fill any but his sim plest needs,. perhaps not even those. The specialization which de velops from the free exchange economy enables each person to maximize his profits - in every sense - while aiding others to do likewise.

Neither party to a free exchange would bother to make the trade unless he believed he benefited in some manner. If he can elsewhere obtain a greater value - conven ience, lower price, higher quality, more pleasant atmosphere, greater psychological pleasure - he will do business there. Only under com pulsion, such as theft or socialism, will an exchange normally result in a net loss in satisfaction to either of the participants. 6. Socialism encourages current consumption rather than invest ment and production. While the student businessman would have been prevented from completing college, the student government would likely have used the profits (if any) for short-term projects or 120 THE FREEMAN February consumption - a party, dance, ath letic uniforms, and the like. Such a result is almost inevi t able. Political office holders know their time in power is limited, so they naturally tend to seek imme diate and visible results, both to lengthen their stay in office and to show they have "accomplished something." The result of this pressure is to increase consump tion and expenditures and to over look the "unseen" potential value of saving and investment. People are made to feel prosperous while consuming their capital. Socialism has no means to determine the proper balance between consump tion and investment.

A distinction should be made between investment in a free mar ket and the quasi-investments in totalitarian societies. An invest ment, as we use the term, is the voluntary allocation of scarce re sources to the process of produc tion, based on an economic calcu lation of current costs and expect ed future returns. In Socialist soci eties, the allocation is compulsory and political, rather than volun tary and economic. The greater the degree of socialization, the more difficult the calculation of costs and returns. In the case of totalitarian socialism, the costs are ignored al together, even in terms of human suffering and life, in order to at tain an ideological goal and to further the political careers of the planners. Such socialist "invest ments" consume capital. Only in a free economy is there maximum incentive to create and invest capi tal to better serve consumers. 7. Socialism harms rather than helps the poor. The student officers were not pressed financially. Most of them were from prosperous families or had ample scholarships or loans. They had sufficient free time to be involved in student ac tivities. The entrepreneur lacked those advantages. In order to ob tain the education which hopefully would allow him to advance from a lower economic level, he sought funds through his own productive efforts.

When a socialist, fascist, com munist, or any totalitarian system is imposed, it freezes economic status. Social advancement comes by way of political influence rather than personal merit and effort. This is a major reason why many ,vealthy businessmen, especially those who inherited their wealth, oppose free enterprise and press for governrnent intervention. In a free economy they constantly face a challenge from less wealthy in dividuals and groups who are more highly motivated, skilled, or intel ligent. Political intervention allows those on top to nip any such chal lenge in the bud, regulating it out 1976 SOCIALIZED HOT DOGS? 121 of· existence while retaining their own positions. Freedom encourages self-im provement and advancement and thus benefits the poor. Socialism relegates the poor to a form of serfdom. 8. Socialism encourages base motives. While the reasons why the student officers sought to so cialize the hot dog stand were never mentioned publicly, and may not have been mentioned privately, two unpleasant possibilities ex isted.

The student businessman had opposed the election of those offi cers, and continued to oppose many of their policies in office. As a fur ther "insult," he offered an imme diate and successful solution to the snack problem, which they had been unable to do. Political revenge, envy, frustra tion, and face-saving are charac teristic of socialized economies. The purges in communist nations are simply an extreme example, and logical result, of these motives. While claiming to protect the peo ple from "saboteurs, profiteers, and greedy speculators," commu nists eliminate political rivals and establish scapegoats for their own failures. The intelligent and pro ductive are physically destroyed, or prevented by fear from taking the risks necessary for productive effort and economic advancement. The talented hide their abilities, so as not to be caught in the purges. The result is stagnation and decline to bare subsistence or even lower.

9. Socialism "produces" only when it expropriates the results of individual creativity. Freedom creates, socialism expropriates. The student government sought the use of other people's capital, time, talent, and effort to imple ment its proposal of a quick-food service in a new student union. When a more practical solution was found independently, they sought to confiscate the plan and its income. Russian officials recently ad mitted that while they have large petroleum reserves they lack the technology to extract oil efficiently from either the undeveloped areas or the currently producing wells. Their solution is to import the technology, materials, and supplies from economies more free than their own - their usual solution since seizing power over fifty years ago. There are recent proposals to establish a government-run oil company in the United States to act as a guideline for private firms. But few of those who make the proposal could distinguish a cracking tower from a storage 122 THE FREEMAN Febrruarry tank, let alone explain an octane rating and how it is produced. The socialist scheme would have to rely on the technology developed by "greedy" capitalists during the past century and extort from tax payers the funds to finance con struction and operation.

Noone can be compelled to think, create, and invent. Thought is not communal, but personal and individualistic. Compulsion is counter-productive in intellectual matters. With no hope of reward, but sure punishment for failure, an individual will not attempt to create. As a rule he seeks to maxi mize pleasure and minimize pain. Improvement has occurred in socialist societies when, contrary to their theories, rewards have been granted for individual merit and achievements. In free societies, those firms are most success ful which offer employees wide lati tude in achieving corporate goals, and which reward achievement most directly. Socialism contains the seeds of its own destruction. To the extent that it follows its theories, it causes a decline in thought - man's most basic tool of survival-and with it knowledge and production. A totally socialist world would be of short duration, collapsing into anarchy and feudalism. But it would inflict unimaginable suf fering.

So, let us learn the amazing eco nomic lesson of the hot dog stand. Neither a student government nor a cumbersome bureaucracy in Wash ington is a reasonable alternative to competitive private enterprise. f) IDEAS ON LIBERTY Economic Ends and Means THE PROPER AIM of economic life is an overall aim; the use of limited human and material resources in such a way as to serve nlost effectively the needs and desires of all the people. This aim tends to be achieved automatically in a regime of free markets where the people's needs and desires can express themselves in price offers to which producers are forced by economic necessity to conform. When political authority, even with the best of intentions, interferes with this self-regulating flow of goods and services, it sets up chains of cause and effect which it can neither foresee nor control except by constantly widening its authority. The final outcome is a regimented society fronl which all objective and valid guides to human effort have vanished, along with human freedom.

The Guaranty Survey. March 1956 A REVIEWER'S NOTEBOOK Steel FOR BETTER OR WORSE, the Amer ican system is built on adversary relationships. There is the well known antipathy between the press and government. There is also the adversary relationship between business and government. Curi 0usIy' the press, which is liber tarian when it comes to defending its rights unde~ the First Amend ment, crosses the line to side with government whenever there is a wave of skirmishes between Wash ington, D.C., and the productive forces of the country. You would think the libertarians of the media and the laissez faire partisans of business would sometimes combine in a common understanding, but they seldom do. J 0 H N C HAM B E R l A I N Every generation or so the liber tarian press guardians of the First Amendment choose to cooperate with the politicos in mounting an antibusiness crusade. They did so in the pre-World War I muck rake era. They did so again in the New Deal period, when FDR lashed at the "money-changers in the temple." Now they are enlisted under the banner of Ralph Nader in the third anticapitalist jihad of the century.