Book Reviews

A REVIEWER'S NOTEBOOK mE SQUEEZE JOHN CHAMBERLAIN JAMES DALE DAVIDSON, the chair man of the National Taxpayers Union, is a forceful man of action, as those who have watched his efforts in behalf of a constitutional conven tion to balance the budget are well aware. He is also a true man of letters. His The Squeeze (Summit Books, 1230 Avenue of the Americas, New York, N.Y. 10020, 281 pp., $11.95) is both a trenchant and witty analysis of what happens when the money system of a great country goes sour and an item-by item prescription for dealing with ills that are most uncomfortably close to reaching a point of no re turn. We are, says Mr. Davidson, vic timized by nine separate squeezes (he lists them as money, taxes, qual ity, underemployment, health-care, housing, legal, bureaucratic and energy), though it is obvious that all of them derive from the central fal lacy that money is something that should be under the control of politi cians. Since Mr. Davidson's concern here is not with international poli tics, he does not mention the biggest squeeze of all, which is the one exerted by the Russian bear hug.

That, however, is the unspoken part of his picture; if we don't do some thing about the nine domestic squeezes, our general debility will be such that the bear hug will get us with only a perfunctory effort on the part of the bear. Mr. Davidson's theory is that most of our woes derive from a system that allows the government an ex treme latitude in monetizing its debt. This results in an ever accelerating emission of paper which represents no production. What happens is that Say's Law the law that says production creates its own purchasing power in the form of wages, payments for raw materials, dividends and interest is sabotaged. The money created by 443 444 THE FREEMAN July political fiat enters the bidding stream, disrupting the closed circuit of J. B. Say's truism. The original beneficiaries of the government's paper emissions such as bureaucrats, government contractors-cash in before the gen eral populace is aware that the sig nals of exchange have been dis torted. What Mr. Davidson calls the Hinformation deficit" could be avoided ifthe federal budget were bal anced. With government income equaling government outgo, there would be no need for the federal borrowing that creates usecurities"

that can be used as the basis for inflationary bank credits. Balancing the budget, however, would not be enough to rid ourselves of the nine squeezes. Theoretically, the budget would be in balance if the government were to tax the underly ing population at 100 percent, giv ing back to people whatever it chose to leave to individual discretion in spending. There would, of course, be no production under such a dispen sation, for the incentives to invest and earn would be nil. It is obvious, then, that the place where the budget is balanced is all-important. Mr. Davidson recognizes this when he gets to talking about the CCthree species of capital." Three Forms of Capital The individual trying to get along in the world has three choices. He can, says Mr. Davidson, throw in his lot with productive capital, which was the way favored by the nineteenth century. But in an in flationary age, with productive capi tal earning little if anything in ex cess of the inflationary gap, the temptation is to divert one's wealth into static capital (Le., gold, silver, diamonds, works of art). Finally, with the growth of the State, there is a third alternative. Financial writer Scott Burns has used the phrase CCtranscendentalcapital" to describe the right of those favored by politi cians to latch on to money laid out by the government in one form or another. Bureaucrats, of course, are prime beneficiaries of transcendental capital. But the Chrysler Corpora tion, which is attempting to avoid bankruptcy by applying to Wash ington, is seeking a transcen dentalcapital claim to a cash-flow that the market has denied to it.

Inflation means less money for productive capitalists for the simple reason that people can do better for themselves by seeking a store of value in precious metals, fallow land and old masterpieces. Those who lack capital to put into static forms will, of course, be tempted to settle for bureaucratic employment that carries with it all sorts of perqui sites. The typical federal employee, says Mr. Davidson, receives almost twice as much vacation pay $1,14o-as the typical employee of 1980 THE SQUEEZE 445 business-$636. And government sick leave is more than 200 percent more generous than that provided by most private firms. The illusions that one can perma nently better one's self by betting on the market for old masterpieces or latching on to an early-retirement government pension must, at some point, be shattered. For it is produc tive capital that provides the money needed to keep people housed, fed and clothed. When the productive side of the economy falters, general impoverishment results. So it is im portant to balance the budget at a point that will leave plenty of money in the hands of producers. We need, in addition to a constitutional amendment to balance the budget, an overall limitation on the per centage of the gross national pro duct that politicians are entitled to seize. When they grab more than thirty percent of the GNP the result is chronic stagflation.

Interventions That Fail Mr. Davidson's treatment of the nine squeezes is generally brilliant. He warns us that any effort to halt inflationary price rises by compul sory wage and price controls will result in a severe quality deprecia tion. Enterprisers who are forbidden to pass the cost of qualitative im provement along to the buyer will simply degrade their wares. It is the only way that bankruptcy can be avoided in a controlled economy. We have a health-care squeeze, says Mr. Davidson, because the monopoly achieved by our doctors precludes experimentation with ttparamedics" who are perfectly qualified to do hospital work with out spending four years in medical school to get a physician's license. We have a housing squeeze because building codes and zoning regula tions deprive people of the right to make their own decisions about how and where to build. We have a bu reaucratic squeeze because of the built-in incentives that federal commissions and bureaus have to extend their empires. We have an energy squeeze because it is profit able for government to create crises that can be used to extend the reach of the professional allocator and price fixer.

Accepting the ttimperative" to free productive capital, Mr. Davidson urges people to strike out for them selves as their ancestors did when they built sod houses on the prairie. He wants to see a compulsory budget-balancing amendment com bined with a provision for propor tional taxation. He favors a redeem able currency based on silver and gold. He would abolish capital gains taxes. He would do away with monopoly forms of medical licens ing. He does not say that lawyers should be denied the right to enter Congress, but he does think that 446 THE FREEMAN July voters should be aware that if they send a lawyer to represent them he will have a vested professional interest in passing more compli cated laws. Finally, Mr. Davidson would limit government service. This would force people to give up their trans cendental right to squeeze the pro ductive side of the economy for a lifetime.

All in all, Mr. Davidson has writ ten a great book. It is both analytic and constructive, in a heartening blend that allo\vs for just enough optimism to have a creative effect. Ii LAW, LEGISLATION AND LIB ERTY, Volume 3: The Political Order of a Free People by F. A. Hayek (The University of Chicago Press, 5801 S. Ellis Ave., Chicago, III. 60637) 244 pages. $14.00 cloth Reviewed by Paul Westman F. A. HAYEK, 1974 Nobel laureate in economics, is the foremost living ex ponent of classical liberalism, the philosophy which largely dominated economic and political thinking and policies during the nineteenth cen tury in Great Britain, America, and to a large extent the Continent until World War I. The ideal of classical liberalism was individual liberty, promoted through limited government and the free market. Among Hayek's intel lectual forebears, as the footnotes to this volume testify, are John Locke, David Hume, Adam Smith and John Stuart Mill.

The aim of the volume under re view is to provide ((a guide out of the process of degeneration of the exist ing form of government, and to con struct an intellectual emergency equipment which will be available when we have no choice but to re place the tottering structure by some better edifice rather than re sort in despair to some sort of dic tatorial regime." He continues, ((Government is of necessity the product of intellectual design. If we can give it a shape in which it provides a beneficial framework for the growth of society, without giving to anyone power to control this growth in the particu lar, we may well hope to see the growth of civilization continue." In 1960 Hayek wrote The Con stitution ofLiberty, a major attempt to restate the principles of classical liberalism for modern readers. Law, Legislation and Liberty in three slender volumes, was intended to fill the gaps left by that work, but is actually a comprehensive philosoph ical statement in its own right.

The first volume in the series, Rules and Order (1973), deals with the distinction between legislative law and natural or ((grown" law, and 1980 OTHER BOOKS 447 its implications for freedom. Volume 2, The Mirage of Social Justice (1976), attacks the widespread con temporary belief in political redis tribution and ((social justice" (the latter a myth, Hayek argues). Hayek argues persuasively that modern society has destroyed the original conception of the legisla ture, and that as a consequence there has been a miscarriage of the democratic ideal. Ours has become a ((bargaining democracy," in which government is little more than the football of special interests. In tracing precisely how and why this situation arose, Hayek con fronts the central flaw of modern democracy: the notion of govern ment as sugar daddy, confiscating income and doling it out to those with the greatest political clout. To halt this destructive process, Hayek urges Hthe containment of power and the dethronement of politics,"

together with the rules which per mit the formation of a ((spontaneous order" in which law is king and government has neither a mandate nor the power to achieve particu lar-as opposed to general-ends. He logically demonstrates the in consistency of a centralized, gov ernmentally-controlled society with freedom. The two, he insists, are incompatible. Hayek's astounding intellectual range encompasses politics, philoso phy, economics, anthropology, sociology and the history of ideas. His language is nontechnical, pos sessing clarity of style and thought. The book has a consistency, bril liance, insight and accessibility rarely found among thinkers of any age, much less our own. Reading Hayek is a bracing experience, something like the intellectual equivalent of drinking from a cold, clear brook. i POWER GRAB: THE CONSERVER CULT AND THE COMING ENERGY CATASTROPHE by James A. Weber (Arlington House, 333 Post Road West, Westport, Connecticut 06880) 1979 407 pages • $12.95 cloth Reviewed by Tommy W. Rogers THE author contends that the energy crisis confronting the United States today is not due to insur mountable scientific or technical problems, nor is it the result of dwindling energy sources. The energy crisis is in large measure attributed to a power grab by an ideological (tConserver Cult," which serves a variety of constituents ranging from utopians envisioning a low-energy, low-technology future to those who would erect a totalitarian police state in the present. Since the United States must either grow in domestic energy use or go down the drain of history for lack of energy 448 THE FREEMAN capabilities, the wrong energy pol icy would be catastrophic in its re sult for the American people.

The Conserver Cult is said to be fueled by the aversion of elite, upper class members of society to anything which might adversely affect their positions and comforts, including advancement of people lower than themsel ves on the socio-economic ladder. Having already attained a high standard of living, most of the conserver cultists see little gain for themselves if others should improve their economic standard. Those who can afford the hot tub under the trees, pastoral sequestration, and installation of solar energy provi sions may find it virtuous for others to trim the fat off their hoped-for consumption; but note that the clamor for doing without energy is not heard from blacks, the poor, the elderly, or the retirees-people for whom self-denial is imposed as a steady, grinding, daily way of life. It is, of course, one thing to select a lifestyle for oneself, quite another thing to impose a lifestyle on some one else who neither chooses nor desires it. What changes would the Conserver Cult impose on America?

Mr. Weber quotes a recommenda tion-typical of its silliness-of a HLow Energy Scenario for the United States: 1975-2050," which envisions the ((phase out of fast food services and other Junk' commerce. The popular fact that McDonald's hamburger chain uses enough energy a year-largely for packag ing-to provide electricity for the cities of Pittsburgh, Boston, Wash ington, and San Francisco illus trates the American penchant for throwaway containers." Defending the youngsters who happen to like hamburgers with all the trimmings, Weber asks, HWho would have thought that Ronald McDonald was an enemy of the people?" Weber comes to factual grips with such issues as the Carter policy on energy, the realities of fthard" energy and ((soft" energy, energy and environment, energy and safety, energy and price controls, energy and conservation, the turn ing off of growth in the production of domestic energy in the Uni ted States, and the motivation of the elitist elements who would summar ily turn off growth in hard energy production.

Insofar as government has insti tuted laws, regulations and controls which have retarded energy de velopment, it has hurt the American public by denying them needed and vital energy resources. The author examines the techniques, vision, ideology, and programs of those who would squelch energy production, and provides a convincing argument that ((the price of the Conserver Cult utopia is not only the throttling of future energy production but the end of our free society." , the Freeman VOL. 30, NO.8 • AUGUST 1980 International Terrorism: The Deadliest Plague Ben Barker 451 Virulent ideas sown in a susceptible populace can produce deadly plagues. Spending Limits Are Not Enough John semmens 459 Reduced spending and taxation should enable government to function more appropriately. Totalitarian Collectivism in America Jack D. Douglas 463 How freedom is lost to the two great political deceptions of mass equality and mass welfare.