Book Reviews

It is the story of the spin-offs that fascinates Joseph Borkin, a Wash ington attorney who once worked for Thurman Arnold's antitrust divi sion in the U.S. Department of Jus tice. The spin-offs-nitrates from the air, gasoline, oil and rubber from coal-have a tremendous potential for good. Synthetic nitrogen fertiliz ers, coming when they did, put the ghost of Malthus back in its shroud for a considerable stay, and the hy drogenization process of getting gasoline from coal may be the an swer to the so-called energy crisis if A PERVERSION OF TECHNOLOGY 633 oil and natural gas ever do run out. But highly dangerous explosives can be made from nitrogen; and when gasoline from coal was comman deered by the Nazi state, it almost succeeded in making Hitler's Thousand-Year Reich a horrifying reality. It is the perversion of chemistry and technology to political ends that is the subject of Mr. Borkin's The Crime and Punishment of I. G. Far ben (The Free Press-Macmillan, 866 Third Avenue, New York, N.Y.

10022, 250 pages, $10.95). The car tel idea is menacing enough in itself, but when a great cartel and a truly imperial state with pretensions to world rule combine in unholy mat rimony the results, as we know from the experience of two world wars, can be devastating. In a lean and disciplined prose that drives straight to the heart of the matter, Mr. Borkin offers us both an excit ing action story and a warning fable. This is the Faust legend in modern dress. And in the telling Mr. Borkin makes note of some tremendous ironies. Patriotic Intentions The biggest irony of all is that the companies that were combined in I. G. Farben were started by good men. Fritz Haber and Carl Bosch, who together worked out the Haber Bosch process for getting nitrogen out of the air, were good patriots. Haber, a Jew, had ideas about feed ing the world with his nitrogen fix ing discoveries, and' Bosch, though he believed in industrial combina tion, always resisted the politiciza tion of his company. The Nazi man ias were furthest from their thoughts as they went about the patriotic business of freeing the Kaiser's Germany from dependence on mined nitrates from Chile.

If it hadn't been for the Farben laboratories and factories, World War I would have ended without the protracted slaughters of trench war fare. The German Schlieffen Plan was to wheel through Belgium and take Paris in a month. Stored ni trates from Chile would be enough to carry the Schlieffen Plan to a quick success. But the French taxicab army stopped the Germans at the Marne, and, with both sides digging trenches like mad, the Schlieffen Plan was dead. The Kaiser had to face up to the appalling fact that his army didn't have enough gunpowder to last a year of trench warfare. So it was up to the German chemi cal industry. Fritz Haber and Carl Bosch leaped into the breach. When it became apparent that there would be a ticklish gap in time between the disappearance of gunpowder made from imported Chilean nitrates, now cut off by the British blockade, and the free flow of Haber-Bosch factory-produced nitric acid, Fritz Haber was confronted with a moral 634 THE FREEMAN October crisis. Chlorine gas was in plentiful supply in the dyestuff plants, and it could be used at the front as a sub stitute for gunpowder. The chlorine that killed or wounded 15,000 Allied troops at Ypres was a desperation weapon, and could have been jus tified as such. But when Haber, still wrestling with his conscience, went along with a decision to use poison gas in the Russian East, his wife, Clara, committed suicide.

The price of patriotism came high to Fritz Haber, who was forced out of I. G. Farben to keep the Nazis from proclaiming it a uJew company." He died in exile in Switzerland, a bro ken man. Bosch's fate was to be sidetracked after he made the mis take of telling Hitler to his face that the Nazi campaign against the Jews would set German chemistry back a hundred years. In dismissing Bosch Hitler roared, ((Then we'll work a hundred years without physics and chemistry ." Slavery and Murder There were others in I. G. Farben who decided, some of them eagerly, some out of prudence, to hunt with Hitler to the end. Without Farben made gasoline from ·coal and a bun~ rubber substitute from the same source, the Nazis could not have embarked on the conquest of Europe. One compromising thing led to another, and I. G. found itself building a huge industrial complex next door to the Nazi death camp at Auschwitz. The decision to build at Auschwitz was dictated by a plenti ful supply of water, which was needed in abundance for chemical processes. But Auschwitz also of fered I. G. Farben an unending sup ply of slave labor. The company plumbed its own depth of depravity when it set up its own concentration camp, with a gallows to remind workers that hanging could be the penalty for even the most innocent disruption of shop routine.

For their crimes in abetting Hit ler's murder policies and plunder ing the chemical companies of France and Poland, key I. G. Farben officials got off lightly enough. Bor kin strains to be objective in report ing the sentences-uguilty of . . . slavery and mass murder, sentenced to imprisonment for six years." The excuse of some of the convicted offi cials could have been ((duress," but if the Farben high command had cho sen another site in preference to Auschwitz would the Nazis have in tervened? It was not uduress" that had the company casting sheep's eyes at a source of cheap labor that could be literally worked to death. Mr. Borkin leaves no doubt that there was considerable hanky panky about the return of I. G. Farben-owned property, both inside Germany and in the United States, to German owners after both the big wars. Some mighty big names were 1978 A PERVERSION OF TECHNOLOGY 635 involved in deals that, in retrospect, seem more than faintly discredit able. Bribes were passed after World War I to shady hangers-on in the Harding Administration. And an ef fort was made to use a relative of the Kennedys to regain General Aniline and Film, seized by the U.S. during the second war.

The return of Farben properties after World War I had disastrQus consequences to the allies during the Hitler years. We have been luck ier in our post-World War II relin quishments. But Mr. Borkin won ders about the precedents we have set. THE ANTITRUST PARADOX by Robert H. Bark (Basic Books, Inc., 10 E. 53rd Street, New York, N.Y. 10022, 1978) 388 pages. $18.00 Reviewed by Melvin D. Barger WHEN it passed the Sherman Act in 1890, the U.S. Congress set the gov ernment on a new course attempting to control the size and market influence of business or ganizations. The other early mile stones in antitrust legislation were the Clayton Act and the Federal Trade Commission Act, both passed in 1914. Clayton involved the government in pricing decisions and was reinforced by the Robinson Patman amendment in 1936, while the Federal Trade Commission Act mandated the setting up of an ad ministrative agency to regulate competitive business practices. Ex cept for occasional subsequent tin kering and threats, Congress has stayed out of the antitrust field, and antitrust policy has really been shaped by a series of landmark Su preme Court decisions.

According to Robert H. Bork,· a large number of these Supreme Court decisions have been wrong, resulting in an antitrust policy that is at war with itself. Judicial per formance on key antitrust decisions has been both inept and contradic tory, seriously impairing business efficiency and imposing heavy penalties on the American con sumer. The original purpose of anti trust legislation was the promotion of ((consumer welfare," but any such ideal has long since been diluted by a complex chain of court decisions aimed at reaching various other so cial and political goals. The Antitrust Paradox is a well organized, well-written study ofjust how this happened, with some final thoughts about the general problem. Mr. Bork brings impressive creden tials to this task. A full-time profes sor at the Yale Law School, he is a former Solicitor General of the United States and more recently 636 THE FREEMAN October was a resident scholar at the Ameri can Enterprise Institute. Highly re garded in the legal profession, he is emerging as one of the new dissident intellectuals who can find some good things to say about the American business system. Like Milton Friedman and Irving Kristol, Mr.

Bork is not a purist libertarian, but he is heavily oriented in free market principles and his writings clearly call for considerable freedom in business. Mr. Bork opens his argument with some powerful comments about the current crisis in antitrust. We learn something about the antitrust en terprise, the lawyers, judges, economists and legislators who work unceasingly in antitrust to impose a complexity of rules ·on business. ((Generally, these rules ignore the obvious fact that more efficient methods of doing business are as valuable to the public as they are to businessmen," Mr. Bork writes. ((In modem times the Supreme Court, without compulsion by statute, and certainly without adequate explana tion, has inhibited or destroyed a broad spectrum of useful business structures and practices. Internal growth to large market size has been made dangerous. Growth by merger with rivals is practically im possible, as is growth by acquisition of customers or suppliers. Even ac quisitions for the purpose of moving into new markets have been struck down, as the law evolves a mythol ogy about the dangers of conglomer ate mergers." There are other ques tionable Court positions: against cooperative ventures by indepen dent businesses, against manufac turer control of product distribution, in favor of pricing behavior that actually leads to higher prices.

But even this unpleasant state of affairs may be only temporary. The current populist hostility to busi ness makes it easy to blame every hardship on the major corporations, paving the way for further antitrust assaults on business. Indeed, there are a number of antibusiness people who might admit that antitrust has some intellectual problems but is a good idea because it keeps busi nessmen on the defensive. And among those professionally con cerned with antitrust, Professor Bork says, there is disagreement about two basic questions: (1) the goals or values the law may legiti mately and profitably implement; and (2) the validity of the law's vi sion of economic reality. Professor Bork obviously feels that consumer welfare should be the primary goal of antitrust, and he takes issue with much of the economic theory that guided many of the antitrust land mark decisions. A large part of the problem is that any antitrust legislation requires making severe tradeoffs. If the an titrust policy is aimed at maintain1978 OTHER BOOKS 637 ing a certain number of producers in an industry, it may be at the cost of business efficiency and hence con sumer welfare. Professor Bork does not pretend that a free market will always allow for a certain num ber of rivals to survive in an indus try, but he does show that most successful firms become dominant largely through efficiency rather than as a result of predatory be havior. Again and again, however, this business success has been penalized by the courts simply be cause the judges failed to focus on the single· goal of consumer welfare or used an unsound basis for economic reasoning.

While the goal of consumer wel fare has its drawbacks, it would at least give the business community fair warning about the probable legal ity of its operations, it would tend to place intensely political and legisla tive decisions in Congress instead of in the courts, it would maintain the integrity of the legislative process, it would require more realistic economic reasoning, and it would avoid arbitrary or anticonsumer rules, Mr. Bork writes. But with antitrust policy pursuing many so cial and political goals, none of these things are being achieved. Mr. Bork then goes on to analyze, case by case, the landmark Supreme Court decisions that led to the cur rent crisis. Writing in a brisk, highly readable style, he dissects these important decisions in such a way that the ordinary layman can understand them. There was the famous United Shoe Machinery de cision, for example, which under mined machinery leasing practices without really determining whether the firm was being efficient or pre datory. In the Brown Shoe case, a merger was ruled a threat to compe tition even though the acquiring firm and the firm being acquired had, respectively, only 4 and 0.5 percent of the nation's shoe output!

And in one of the most well publicized decisions of all, the Su preme Court ruled against Procter & Gamble's acquisition of Clorox on the grounds that Procter had advan tages in advertising and promotion which would be anticompetitive. Professor Bork mentions or analyzes about 80 cases which relate to the key topics of his book, and the effect is one of brilliant revisionism. He knocks down first one well established argument and then another, demonstrating that in case after case the courts systematically destroyed consumer welfare while pursuing goals aimed at preserving competition, ~~protecting" the small businessman, or eliminating bar riers to entry. The conclusion is in escapable that many of the antitrust landmark decisions which formed antitrust policy have been disasters for the consumer, as well as being destructive to business freedom.

638 THE FREEMAN October In his Summation (what other term could a lawyer use for closing remarks!), Professor Bork calls for a sweeping reform of antitrust policy based on making consumer welfare the only policy goal. He specifies several forms of behavior that should continue to be proscribed by the law, but he goes on to argue that many of the practices that are now prohibited should be permitted, in cluding agreements on prices, ter ritories, refusals to deal (with cer tain qualifications), small horizon tal mergers, all vertical and con glomerate mergers, vertical price maintenance and market division, and many other actions which most corporation lawyers now regard as off limits. Moreover, he does not feel that antitrust should be concerned with any firm size or industry struc ture created by internal growth or by a merger more than ten years old. Professor Bork also acknowledges, in his final thoughts, that current antitrust policy was influenced by something deeper than erroneous reasoning. ~~To study antitrust at length, to wonder at the manifold errors of economics and logic dis played, to see that the errors move the law always in one direction, is to begin to suspect that a process much deeper than mere mistaken reason ing is at work," he writes. ~~It seems as though the intellectual terrain is regarded as important not in and for itself but as a field of action upon which the political order moves against the private order."

Mr. Bork leaves no doubt that his sympathies also move in one direc tion, at least much of the time. He wants to protect and preserve the good in the private order and the free society. Most of the time, the private order loses in the antitrust struggle. But with heavyweight de fenses such as The Antitrust Paradox, the private order may have a fighting chance. ® THE INFLATION CRISIS, AND HOW TO RESOLVE IT by Henry Hazlitt (Arlington House Publishers, New Rochelle, New York) 192 pages • $8.95 Reviewed by Mark Spangler NOW ADA YS people from every walk of life are concerned about in flation. What actually is inflation? Is it inherent in a free market economy? Who or what is the cause-unions, government regulations, merchants, federal deficits, or middlemen? Can inflation be stopped, and how? What to do? Most people are des perately confused and searching for answers. Society is facing nothing short of a crisis. In answer to this 1978 OTHER BOOKS 639 grave situation comes Henry Haz litt's latest book, The Inflation Crisis, and How to Resolve It. As Mr.

Hazlitt himself begins the book, uNo subject is so much discussed today-or so little understood-as inflation." Henry Hazlitt estimates that a dollar of today is worth less than 25 cents of a 1940 dollar, and certainly no one has to be told that a dollar continues to buy less and less. Yet, how many people realize that since 1940 the federal government has increased the money stock by well over a thousand percent? Hazlitt re ports that at the end of 1939 the total number of dollars in the econ omy was 63.3 billion, and at the end of 1977 that figure stood at 806.5 billion. Anyone who is aware of these events should surely sense a logical connection between con stantly rising prises and a continu ous expansion of the money supply. Mr. Hazlitt points out. that there are two sides to every price: HA ~price' is an exchange ratio between a dollar and a unit of goods. When people have more dollars, they value each dollar less. Goods then rise in price,not because goods are scarcer than before, but because dollars are more abundant, and thus less val ued." He clearly explains that the present predicament of ever-soaring prices results from a deliberate gov ernment policy to flood the economy with more and more dollars simply by Hprinting" them, so to speak.

In fact, the term ((inflation" origi nally meant increasing (inflating) the money supply. Today the term is commonly used to mean the most evident consequence of creating money, generally rising prices. So, nothing at all is mysterious about inflation; it is government in tervention pure and simple. Why, then, do government' leaders con tinue to inflate and why do the Uprinting presses" go undetected by the general public? Inflation serves the immediate interests of· vote-seeking politicians. Most office seekers promise scores of handouts in return for being elected, but the federal budget has become so ominous that financing by direct taxation is politically im possible. The federal government resorts to printing money to help cover any deficits, and that is done in a very complicated way through the Federal Reserve and commercial banking system so as to hide the process from most people.

Henry Hazlitt devotes a great deal of The Inflation Crisis to discussing government spending, deficit financing, and the fallacies in gen eral of a government-managed monetary system .. In addition, he explains the benefits of a market determined gold standard. His text ranges from presenting simple principles of money and in flation to refuting sophisticated 640 THE FREEMAN Keynesian doctrines, especially the notion that monetary expansion is necessary to employ idle workers and resources. Equally important, Hazlitt analyzes policies of monetarists, generally led by Chicago School economist Milton Friedman. The distinction between monetarists and other advocates of free enterprise is often muffled. Henry Hazlitt makes plain that monetarists are infla tionists, who advocate a certain an nual rate of monetary expansion by government officials: «The central flaw· of the Monetarist proposal is its extreme political naivete. It puts the power of controlling the quan tity, the quality, and the purchasing power of our money entirely in the hands of the State, that is, of the politicians and bureaucrats in of fice." A consistent free market economist, on the other hand, would argue to let individuals, voluntarily acting in the marketplace, choose what commodity they will accept as money.

Hazlitt cautions about using false remedies to combat inflation. PAt tacking rising prices with wage and-price controls misses totally the heart of the problem. They do noth ing to halt the monetary expansion. Moreover, the controls themselves have the disastrous consequences of creating shortages, discouraging production, and moving ever toward a complete command economy. Mr. Hazlitt also explains how in flation disrupts production, inhibits economic calculation, distorts inter est rates, malemploys workers and resources, and consumes capital. Just as serious as the economic disruption are the social conse quences of inflation. It destroys thrift, promotes gambling, disheart ens the spirit to work, and breeds social unrest, envy, and crime. «Under inflation ... only a handful of people realize clearly what is going on. The majority tend to blame their plight, not on govern ment, but on those of their neighbors who appear to be prof iteering from inflation."

From the standpoint of economics, the cure for inflation is simple-stop it! Stop the politicians from printing money to pay for their spending pro grams; but herein lies the difficulty. The problem of inflation extends be yond economics, as Henry Hazlitt concludes, «A major part of the solu tion . . . will be how to get the monetary system out of the hands of politicians. Certainly as long as we retain our nearly omnipotent redis tributive State, no sound currency will be possible." @ Editor's Note: The Inflation Crisis, and How to Resolve It is available at $8.95 from The Founda tion for Economic Education, Irvington-on-Hudson, N.Y. 10533.