November

Socialist Games Kenneth McDonald 660 Cutting it into "fair shares" diminishes the pie. Unbinding Prometheus: Productivity through Morality William H. Peterson 662 How can we release productivity from the snarls of the welfare state? Supply Side Economics: Miracle Cure or More of the Same? Robert G. Anderson 673 A new approach that could free us from excessive government in tervention. Government Empowers Unions Clarence B. Carson 677 How governmental powers of coercion were vested in unions-with harmful consequences. Against All Enemies, Part III Robert Bearce 690 A call for the better practice of freedom in the United States within the framework of the Constitution. Book Reviews: 698 "Planning for Freedom" by Ludwig von Mises "The Gold Clause: What It Is and How to Use It Profitably" edited by Henry Mark Holzer "Farm and Food Policy, Issues of the 1980s" by Don Paarlberg "Those Gasoline Lines and How They Got There" by H. A. Merklein and William P. Murchison, Jr.

Anyone wishing to communicate with authors may send first-class mail in care of THE FREEMAN for forwarding.

FOUNDATION FOR ECONOMIC EDUCATION Irvington-on-Hudson, N.Y. 10533 Tel: (914) 591-7230 Leonard E. Read, President Manag'ing Editor: Paul L. Poirot Production Editor: Beth A. Hoffman Contributing Editors: Robert G. Anderson Bettina Bien Greaves Edmund A. Opitz (Book Reviews) Roger Ream Brian Summers THE FREEMAN is published monthly by the Foundation for Economic Education, Inc., a non political, nonprofit, educational champion of pri vate property, the free market, the profit and ioss system, and limited government. The costs of Foundation projects and services are met through donations. Total expenses aver age $18.00 a year per person on the mailing list. Donations are invited in any amount. THE FREEMAN is available to any interested person in the United States for the asking. For foreign delivery, a donation is required sufficient to cover direct mailing cost of $5.00 a year. Copyright, 1980. The Foundation for Economic Education, Inc. Printed in U.S.A.

Additional copies, postpaid: 3 for $1.00; 10 or more, 25 cents each. THE FREEMAN is available on microfilm from University Microfilms International, 300 North Zeeb Road, Ann Arbor, Mich. 48106. Some articles available as reprints at cost; state quantity desired. Permission granted to reprint any article from this issue, with appropriate credit except "Socialist Games" and "Government Empowers Unions."

the Government the Market and thePoor David Osterfeld WHEN one argues that the govern ment has become too large and ought to be reduced inevitably the first question that comes to the minds of most people is: what would happen to the poor? This is certainly a legit imate question. What would be the condition of the poor if all govern ment ttpoverty" programs were abol ished? An accurate assessment of the im pact of such a change in policy can best be obtained by dividing this broad question into two parts: (1) what is the· actual impact on the poor of existing government policies and (2) what would be the probable impact of a program of laissez-faire? This paper will attempt to deal with both of these questions. Dr. Oaterfead is Assistant Professor of Political Sci ence, St. Joseph's College, Rensselaer, Indiana. Part I: The Government and the Poor 1. The "Ideal" Model: The Way Government Is Supposed to Work In the area of the market econ omy, or the ttprivate arena," we are constantly told, the proper concern of the individual is with satisfying his own personal needs. Thus, in the economic arena the individual is as sumed to behave egotistically in order to maximize his individual utility. In contrast, since the proper concern of government and politics, or the ttpublic arena," is the well being of the entire society, individ uals in this arena are assumed (or perhaps ttsupposed" is a better word) to act altruistically. Politicians and government bureaucrats are no~ 643 644 THE FREEMAN November concerned so much with maximiz ing their own personal utilities but with maximizing ffsocial utility," Le., with pursuing something called the ((public good."! Thus, the individual is divided, as it were, into two parts: the egotistical, which is given free rein in the private, or market, arena, and the altruistic, which dominates the public or governmental arena.

The ramifications of this ((ideal" model for analyzing the politico-eco nomic world are significant. In the competitive struggle that prevails in the open market between egotis-· tically-motivated individuals, the economically strong, Le., the wealthy, the well-educated, the cun ning, and the unscrupulous, emerge as the victors, while the weak, Le., the physically and mentally handi capped, ethnic minorities, the un and under-educated, and the poor in general, are piteously ground un derfoot. But since individual behav ior in the governmental sphere is assumed to be altruistic, an impor tant function of the government be comes that of helping the casualties of the economic conflict by adopting policies, sometimes referred to as the ((bucket" method of eliminating poverty, which transfer wealth from the economic winners to the eco nomic victims. Thus, according to the ((ideal" model, while the egotis tical behavior of the individual in the private, economic sphere creates poverty among the weak, the altruistic behavior of individuals in the public sphere serves to eliminate, or at least ameliorate, it.

2. The Problem: Assumptions about Individual Behavior The fatal flaw in the foregoing model lies in the assumption that while individual behavior in the pri vate arena is egotistical, that in the public sphere is altruistic. Regard less of how one believes that individ uals ought to act, there is no reason to suppose that individuals actually compartmentalize their lives after the fashion of the ((ideal" model. True, individual behavior is always a combination of egoism and altru ism, with the particular ((mix" of each not only varying from individ ual to individual but within the same individual over time. But it is unwarranted to assume that indi viduals act altruistically in one realm and egotistically in the other. Surely, individuals can, and do, behave ((altruistically" in the pri vate arena, as is demonstrated by any voluntary contribution to a charitable cause. And just as surely, and far more importantly, individu als can, and do, behave ((egotisti cally" in the public sector. Aside from the daily revelations of the scandal ous behavior of many of those in the public arena-Watergate, Korea gate, Abscam, etc.-one has simply to note, after all, that to get elected a politician must try to convince a 1980 THE GOVERNMENT, THE MARKET AND THE POOR 645 majority of the voters that more benefits will accrue to them from his election than from the election of his opponent. One may, as a Plato, or a Rousseau, adopt the moral pos ture of condemning such ttegotisti cal" behavior as unsuitable for the ttpuplic arena," but it is scarcely deniable that such behavior is no less prevalent in the public than the private arena. "

The recognition that ((egotistical" behavior exists in both arenas en tails an entirely different way of viewing government which, as we shall see, has significant ramifica tions for the ((ideal"perspective. According to this alternative per spective, which Professor James Buchanan has termed the ((logical" or ttindividualist" model,2 there ex ists no such thing as Uthe public in terest." In fact, government, as such, has no ttgoals." Individuals and only individuals possess goals, which may run the gamut from purely selfish to purely altruistic. And just as the market is an instrument which the participants use to attain their goals, so government is viewed as an in strument which the participants in the political process try to use to their own benefit. The critical question then be comes not, as in the ttidealist" model, which type of behavior, egotistical or altruistic, or which type of goals, individual or social utility, ought to take precedence, but which instrument, the market or government, can best, or most efficiently, satisfy the needs and wants of the members of society. Economic tools, in other words, are brought to bear on the political process. 3 3. The "Logical" Model: The Way Government Actually Works The first thing to be noted in de veloping an alternative view of gov ernment is the fundamental differ ence between government and the market. The market is nothing more than the nexus of exchanges. Force is absent. Not only can anyone offer to make an exchange, anyone can refuse any offer. This means that for any exchange to occur, each party must value what he obtains in the exchange more highly than what he gives up. Thus market or voluntary exchange must, ipso facto, entail benefit to both parties.

In contrast, government is pre cisely that agency in society which claims a monopoly on the use of force. This unique position of gov ernment means that while it does not, in fact cannot, create wealth its monopoly on the use of force can be used to transfer wealth from .one group to another. It is this aspect of government which makes it a poten tially valuable instrument for any group or groups that can obtain con trol of it. An important question is: who is likely to obtain control? (a) The Process of Politics. Even 646 THE FREEMAN November though based on different assump tions regarding individual behavior it might seem that the results of the ((logical"model would be identical to those expected by the ((idear' model. Democracy means rule by the ma jority. And if those who are rela tively poor are in a majority they should be in a position to benefit themselves by seeing to it that the government adopts and follows a policy of transferring wealth from the relatively rich to the relatively poor.

Reality, however, is far more com plex. To understand the flaw in the foregoing we must look a little more closely at the concept of ((majority rule." There is, in fact, no such thing as ((the majority." Rather, each indi vidual has various interests which he desires to see protected and fur thered. Since single individuals sel dom have much influence in the po litical process, those individuals who possess the same or similar inter ests tend to join together to form in terest groups, such as the Nation al Association of Manufacturers (NAM), the AFL-CIO, the National Organization for Women (NOW), etc. The purpose or goal of the interest group is, of course, to advance the interests of its members. This can be done in any number of ways but one of the chief means is by influencing government policy. Thus, labor groups like the AFL-CIO desire such things as increases in the minimum wage, closed or union shops, or a na tional health care program; busi ness groups, like the NAM, the Fatty Acid Producers Council, or the Un derwear Negligee Association, gen erally push for such things as sub sidies or licensing restrictions to shield themselves from domestic competition and tariffs to protect themselves from foreign competi tion, although it must be borne in mind that ((business" is not monolithic. Department stores like Sears benefit from the lower prices that foreign competition brings and therefore oppose tariffs while such industries as clothing and TV man ufacturers are hurt by such compe tition and therefore favor tariffs. 4 If a primary goal of an interest group is to influence government policy one would quite naturally ex pect that they would endorse only those politicians who promise to support their demands. It can be seen that there is no such thing as ((the majority" to which a politician must appeal to be elected. Rather, the goal of the politician is to pledge his support for the demands of enough interest groups to create a coalition of groups totaling a major ity of the voters in an election.:> (b) Who Influences Govern ment? We are now in a position to answer the question: who is most likely to influence or even control government? Superficially, it still might seem that since the relatively 1980 THE GOVERNMENT, THE MARKET AND THE POOR 647 poor would be a fairly large group which politicians could not· afford to ignore, the result of interest group politics would be the governmental transfer of wealth from the wealth ier segments of society to the poorer.

The data, however, belie this as sumption. While it is no doubt true that some government programs do benefit some groups of poor, nearly all studies indicate that the poor as a whole do not benefit. Although the federal income tax appears on the surface to be pro gressive, much of this progressivity is eliminated by loopholes. And when this is combined with the regressive nature of most state and local taxes, the. overall effect is that the tax bur den is ((essentially proportional for the vast majority of families."6 But government revenues are only half of the story; there are also govern ment expenditures. The venerable John Calhoun rec ognized long ago that what is cru cial is not solely what one pays in taxes but what one pays in taxes rel ative to the government benefits one receives. And he also realized that if some groups are net tax benefici aries, other groups must be net tax losers.7 This means that while all in come groups pay approximately the same percent of their income in taxes, the poor could still be consid ered gainers from the political pro cess if the benefits they received from government exceeded the taxes they paid to it. While the evidence is somewhat mixed, .this seems un likely.

When one considers the direct ef fect of such programs as subsidies to businesses, and the indirect effect in terms of higher prices, of such poli cies as tariffs and licensing restric tions, it is likely that the overall im pact of government policies is a slight transfer of wealth from the less well off to the better off. As a dramatic illustration, economist Walter Williams has determined that $250 billion is spent annually at all levels of government simply to Ufight poverty." Now, if all of this were divided equally among those families with incomes below the poverty line, each poor family would receive a yearly stipend of $34,000.8 Of course very little of this ever reaches the poor. Most of it gets eaten up in bureaucratic overhead or siphoned off by private contrac tors. 9 The ((bucket" is clearly very leaky. In brief, far from showing that government helps the poor, the evi dence indicates the opposite: the poor tend to be the net losers in the polit ical process. The significant ques tion is: why are the less well off, who would appear to be a potentially powerful interest group, unable to exercise any effective control over government policy? Two related principles of the ((logical"model ex plain this seeming paradox rather 648 THE FREEMAN November well: the ((IronTriangle" and ((Olson's Law."

(c) The "Iron Triangle." Political scientist, Theodore Lowi, has pointed out 10 that if a particular interest group desires a particular policy it goes, not to Congress as a whole, but to the Congressional committee or subcommittee with jurisdiction over this policy area. Since it is normal for Congressmen to be placed on committees that deal with the con cerns of their districts, those repre senting farming districts get on the Agricultural Committee, those rep resenting districts or states that are primarily urban desire to be placed on, say, the Banking, Housing and Urban Affairs Committee, etc. This, of course, makes the committee quite sympathetic to the concerns of the interest groups that appear before them, and it is common for the Com mittee to deal with a particular con cern simply by adopting the policy recommended by the interest group and then instructing the bureau cratic agency to carry it out.

Typically, the agency will then go to the interest group that initially proposed the policy for information and guidance in implementing the new policy.The Tobacco Institute and the Retail Tobacco Distributors of America, for example, desire contin ued or expanded government subsi dies for tobacco. Since seven of the eight members of the House Sub committee on Tobacco come from tobacco growing states, it is hardly surprising that the Subcommittee is sympathetic to this. And since, in administering the program, agen cies in the Department of Agricul ture have nearly daily contacts with tobacco growers it is also quite nat ural for them to see themselves as protectors of the interests of the to bacco growers. 11 But the best known ((triangle" is probably the ((military-industrial complex." Between 1969 and 1973, 1,406 Pentagon officials left govern ment to take positions in defense in dustries. Given this close connec tion between government and the defense industry it is not surprising that, a recent study disclosed, prof its in the aerospace industry were 12.5 percent higher than for Ameri can industry as a whole. One de fense corporation, in fact, averaged 245 percent profit on 22 government contracts. 12 These are only two ex amples where an ((iron triangle"

composed of an interest group, com mittee and bureaucratic agency, has emerged. The public is locked out and the interest group is left to, in effect, regulate itself. The problem, in so far as the poor are concerned, is that to influence government in this fashion requires three things: time, money and ex pertise. Both time and money are required to put together an effective interest group; money is also re quired to hire the services of a lob1980 THE GOVERNMENT, THE MARKET AND THE POOR 649 byist; and some expertise. is needed to know how to manipulate the po litical system. Usually, the poor lack all three: by definition they do not have money; their working sched ules tend to be inflexible; and since the poor tend also to be the less well educated, they lack expertise. Con sequently, as one commentator has put it, the interest group system is ((skewed, loaded, and unbalanced in favor of a fraction of a (wealthy) mi nority." And, he adds, probably ((about 90 percent of the people can not get into the pressure system."13 (d) Olson's Law. Reinforcing the effect of the ((iron triangle" is ((Olson's Law of small groups." Isn't it possible for the poor to compen sate in numbers for what they lack in wealth? After all, it's ultimately votes that count and each vote counts equally. The flaw here stems from the fail ure to distinguish between the potential and the actual group.

For instance, since everyone is a consumer, the potential member ship of a consumer group is the en tire population. But the actual membership is only a tiny fraction of this. Why? This can best be seen by way of an example. Assume that a tariff on the importation of foreign cars would cost consumers $10 mil lion per year. If we assume that about 50 million Americans will buy a car in a year the cost·of the tariff to each car-buyer would be about 20¢. But since there are only three American auto manufacturers, the benefits to each would be approximately $3.5 million. It is easy to see which side would devote the greater time and resources to influence Congress on the passage of the tariff. Thus, as economist Mancur Olson has pointed out,14 when the benefits of a law or policy are concentrated on a particular group, while its costs are dispersed to the larger popula tion, the interest group will have an incentive to work for its passage while the larger population will have little or no incentive to oppose the policy. This is so because it would cost each member of the larger group more in time and money to oppose the tariff or policy than he would gain by the defeat. In brief, accord ing to ((Olson's Law" there is an in verse relationship between size and political effectiveness: the larger the group the less effective it tends to be.

(e) Conclusions. Lowi's ((Iron Triangle" and ((Olson's Law of Groups" help to explain why the poor, as a group, have not and do not ben efit from government policies. We live in an interest group system. Yet the poor lack the three elements time, money, and expertise-needed to participate effectively. But we can go even further. Since small, well-fi nanced interest groups are able to influence government, and since, ac cording to the niron triangle," they are also able, literally, to regulate 650 THE FREEMAN November themselves, one would expect to see many interest groups actually wanting to be regulated by govern ment. And this is exactly what we see. Milton Friedman has noted that ttthe pressure on the legislature to license an occupation rarely comes from the members of the public ... On the contrary, the pressure in variably comes from the occupation itself."15 Since regulatory boards typically set maximum rather than minimum prices, and since licen sing boards serve to limit rather than encourage. competition, their effect is to raise prices. It's been es timated that the cost of such regu lation is about $130 billion per year.16 And since the poor can least afford high prices they are the ones most severely hurt by these agencies.

Thus, not only do the poor not bene fit from government policies, as a rule, they are actually hurt by them. Part II: The Market and the Poor Before one can appreciate the manner in which the plight of the poor is eased through the workings of the market process, a few prelim inary observations are necessary. 1. The Culture of Poverty Although it is a truism to say that the poor are those without much wealth the most important thing to realize is that poverty is not so much an economic as a sociological prob lem. Professor Edward Banfield, among others, has distinguished be tween lower, middle, and upper class individuals on the basis of their time orientation. While middle and upper class individuals are future-ori ented, the lower class individual lives in and for the present. A fu ture-oriented culture is one which emphasizes hard work and delayed gratification, i.e., discipline in the present for the attainment of a larger ttpayoff' in the future. Such a cul ture, Banfield notes, Uteaches the in dividual that he would be cheating himself if he allowed gratification of his impulses ... to interfere with his provision for the future."17 In contrast, he continues, the Hlower-class individual lives from moment to moment. If he has any awareness of a future, it is of some thing fixed, fated, beyond his con trol: things happen to him, he does not make them happen. Impulse governs his behavior, either because he cannot discipline himself to sac rifice a present for a future satisfac tion or because he has no sense of the future. He is therefore radically improvident: whatever he cannot use immediately he considers valueless.

His bodily needs . . . and his taste for taction' take precedence over ev erything else-and certainly over any work routine. He works only as he must to stay alive, and drifts 1980 THE GOVERNMENT, THE MARKET AND THE POOR 651 from one unskilled job to another, taking no interest in his work."18 In brief, the goal for those in the middle class is ~~to get ahead;" to suc ceed; the means are hard work and delayed gratification. The goal for those in the lower class is ~~to enjoy now," i.e., immediate gratification; the means are to work as little as possible and to spend whatever you make as soon as you make it. These are, of course, pure types. But while all individuals are mixtures of the two life styles, a lower class individ ual lives far more in the present than a middle or upper class person. Although there are many reasons for poverty, what is important is that it is found disproportionately among those exhibiting the values of the ((lower class mentality." Perception of this fact has significant ramifica tions both for determining the num ber of those who are actually poor and the ability of the government, even assuming the best of intentions, to deal with the problem. It is to these two issues that we now turn.

2. Government Poverty Statistics Approximately 12 percent of the population of the United States have, according to official statistics, in comes below the poverty line. 19 ~tThe poor," however, must not be thought of as a permanent economic class. Given the affinity of a lower class individual for risk, action, and im pulse behavior, it is not surprising to discover that, as Professor (now Senator) Daniel Moynihan has noted, many who are classified as poor have high risk and/or seasonal jobs and therefore that their cCin_ comes rise and fall with changing employment conditions ... "20 The result is that the turnover rate among those whose income is below the official poverty line is about one third per year. This means that if poverty statistics were measured on, say, a two or three, instead of a one year, Period, the actual number of poor would be significantly less. Also, since people must pay tax on their incomes there is a built-in in centive for people to underreport their incomes. While this is true for all income groups and not just the poor, what is significant is that bas ing poverty statistics on reported in come inflates those statistics. In tes timony, a few years ago, before the House Hearings on the Economic Opportunity Act of 1964, Margaret Reid disclosed that those reporting incomes of under $1,000 per year were actually spending an average of approximately $2,500 each per year. And reinforcing this is the fact that such high-risk, action-oriented occupations as gambling, loan sharking, prostitution and the like, naturally attract a disproportionate share of cClower class" individuals.

But since these activities are ille gal, this income cannot be reported. Although the amount of income from 652 THE FREEMAN November such activities is difficult to gauge there is no doubt that it is in the billions. Regardless of what one may think of these activities one thing is clear: If such income could be taken into consideration ((a considerable percentage of the (poor' in some of the large cities would turn out to be well-off."21 There is no doubt that there are people in this country who are poor. Yet, it is also clear that the official figure of approximately 12 percent is highly inflated. This is due to the basing of poverty statistics on (1) one-year periods and (2) reported in come rather than actual spending. 3. The Poor and the "Ideal" Model of Government The concept of the ((culture of pov erty" also indicates just how limited is the ability of the government to help the poor, even assuming the best of circumstances, i.e., that the government follows the altruistic policy prescribed by the ideal model.

Consider the government policy regarding education. One of the rea sons for compulsory, ((free"grade and high school education, and zero or minimal tuition, taxpayer sup ported, state universities, was to make education accessible to chil dren of poor families. This, so it was reasoned, would break the ((cycle of poverty" by providing such children with the skills needed to enter high paying occupations. What happened was instructive. The payoffs from education lay several years in the future. Consequently, while middle and upper class individuals began attending state-run universities in droves, the poor were not particu larly attracted, even when it was free. Instead, they entered the work force and began paying taxes, some of which went to provide low-cost ed ucation for middle and upper class children at state universities. 22 Another government program was (Jobs training," which began with much fanfare in the ((War on Pov erty" programs of the 1960s. This too proved a failure and for the same reason: like education, the payoffs from training programs lay months, maybe years, in the future. In fact, the entire program was based on a contradiction. A program designed to train the poor for good jobs could not succeed for the same reason that the poor do not have good jobs in the first place: both good jobs and suc cessful training are future-oriented; the poor live in the present. 23 One final anti-poverty policy might be mentioned: the minimum wage. This is probably the most per nicious of all ((anti-poverty" legisla tion. Wages are determined by the marginal productivity of labor. And since the poor as a rule do not have the skills that would enable them to become highly productive members of the labor force the only jobs for which they are suited are low-pay1980 THE GOVERNMENT, THE MARKET AND THE POOR 653 ing ones. This is most unfortunate but good intentions are not enough.

Since minimum wage legislation does not, and can not, increase the marginal productivity of the poor, its only effect is to eliminate their jobs. If an individual worker's mar ginal value to the firm is $3.00 per hour, an increase in the minimum wage from $2".90 to $3.10 per hour means that that worker will lose his job. Thus, the ones most hurt by minimum wage laws are the least productive members of society, i.e., the poor. If the foregoing is correct, then the ability of government to elimi nate poverty is most limited, in deed. It should therefore not be too surprising to discover that while the percentage of the population classi fied as cCpoor" had declined steadily for decades, its rate of decline ac tually slowed down during the vaunted government cCWar on Pov erty" program of the mid-1960s. And, despite the continued increases in the Hanti-poverty" budget through out the 1970s, the percent of those classified as poor has remained at 12 percent for the past decade. 24 Once the cultural basis of poverty is recognized, the government ap pears to have but two options: (1) to insure everyone a minimum income and/or (2) to somehow change the time-frame of the poor from a present to a future orientation. The problem with the former is that if the minimum is set high enough to eliminate poverty it would also be high enough to have a disincentive effect on those whose incomes are only slightly above the minimum. If some of this group quit not only would this increase the number of those receiving handouts from the government, it would also impose increased taxes on those who con tinued to work, thereby encourag ing still others to quit. The result would be an ever-increasing number of Hbeneficiaries" living off an ever dwindling number of producers until the whole pyramid collapsed. As Milton Friedman is fond of pointing out, if you pay people to be poor, you will have no shortage of poor people.

But, if the minimum were set low enough to preserve the incentive to work, it would no doubt be too low to eliminate poverty. But what of the second option? Since values are picked up very early in childhood, usually from the par ents, the cCweedingout" of the cClower class mentality" would require nothing short of the seizing, proba bly at birth, of all children born to (~lower class" parents. These chil dren would then be placed in homes or schools and inculcated with mid dle class values. While this could work, the medicine is probably far worse than the disease. At the very least such a draconian measure raises significant moral and ethical questions.

654 THE FREEMAN November In brief, there is next to nothing that the government, even assum ing the best of circumstances, can do to help the poor: if one is poor but doesn't have a lower class mentality, he will not need government help to succeed; but if he does have such a mentality, no amount of aid will work. 4. The Market Process and the "Culture of Poverty" Even though government statis tics exaggerate the amount of pov erty in America there is no doubt that there are people who are needy. Given the ~~culture of poverty," gov ernment efforts at dealing with this problem have been ineffective. The question therefore becomes: given this same condition, would pure market measures prove any more ef fective than government policies? There is reason to believe that this is so. There prevails on the unham pered market a tendency to employ every factor of production, including labor, at its most value productive point. Since people only buy what is useful to them there can be no dis tinction between production for use and production for profit. Profits re sult from successfully supplying consumers with what they most in tensely desire at the time of their evaluations; losses from the failure to do so. In the quest for profit, labor and capital perpetually flow to areas where they can reap the most lucra tive returns on investment and away from areas manifesting loss. In the same way the market also deter mines prices for the factors of pro duction.

Since what the entrepreneur can bid for factors is limited by his ex pected yield from the sale of his product, those making the most profits can make the highest bids. Thus· the factors of production are channeled into the production of the most intensely desired goods. Since it is precisely the poor who can least afford the lower standard of living caused by the squandering of scarce resources, they are the economic class most benefited by the market process.25 But, it might be objected, this is all very well for the ~~able-bodied" poor, but most who are poor today have limited education and/or phys ical· or mental handicaps. Such un skilled workers do not benefit from the market process since their pro ductivity tends to be so low that they cannot even find jobs. This line of reasoning is based on a fallacy. The reason that such individuals cannot find jobs is not because of their low productivity but because minimum wage laws establish wage rates in excess of their productivity.

For example, in the 1950s and early 1960s, most elevators were op erated manually and many restau rants had their dishes washed by 1980 THE GOVERNMENT, THE MARKET AND THE POOR 655 hand. These jobs were filled by the unskilled: the young, uneducated and the handicapped. They did not pay much, of course, but that is just the point. As the minimum wage was raised to 75¢, then to $1.00 and then to $1.25 per hour, the building owners discovered that it now was economical to automate their eleva tors, thereby eliminating the jobs in that field. And the same was true with dishwashers: as the minimum wage was pushed upward, dish washers were replaced with auto mated dish washing machinery. 26 The root of the problem, therefore, is not the low productivity of the un skilled worker, but the fact that the minimum wage prevents the worker from offering a ((compensating dif ference" for his low productivity. As Walter Williams points out, uLess preferred chuck steak can compete with more-preferred filet mignon only by offering a compensating dif ference-a lower price. If we had a minimum price law for steak of, say, $4 a pound, sales of chuck steak would fall relative to sales of filet."

Chuck steak, in other words, would be ((unemployed" under those condi tions. The same thing applies to minimum wages. Since an unskilled worker cannot offer a ((compensating difference," his labor, under those conditions, is overpriced and he is therefore unemployed. 27 Thus, while a worker's productiv;. ityhas a bearing on his wage rate, it would not affect his ability to get a job provided the market were free. Unemployment rates are especially high among the handicapped and the unskilled because of such gov ernment restrictions on the market as the minimum wage. But, it might be objected, in the absence of the minimum wage the unskilled might find jobs. Such jobs would pay so little, however, that the workers would still have to rely on the government for assistance. This, too, is a fallacy. First, most of the lowest-paying jobs are not had by the breadwinner but by other members of the family desiring to supplement the family income. And second, wage rates, Ludwig von Mises noted, do ((not depend on the individual worker's (productivity,' but on the marginal productivity of labor."

A barber, Mises comments, ((shaves a customer today in the same man ner his predecessors used to shave people two hundred years ago. A butler waits at the table of the Brit ish prime minister in the same way which once butlers served Pitt and Palmerston ... Yet the wage rates earned by all such workers are today much higher than they were in the past. They are higher because they are determined by the marginal productivity of labor. The employer of a butler withholds this man from employment in a factory and must therefore pay the equivalent of the 656 THE FREEMAN November increase in output which the addi tional employment of one man in a factory would bring about."28 This means that, while the un skilled worker would seldom become wealthy his wage rate would tend to be higher than commonly thought, provided there were alternative means of employment open to him. What is needed are more jobs avail able for the unskilled. But the effect of such regulations as the minimum wage and licensing restrictions is to eliminate just those jobs. Repeal of such legislation would be expected to provide adequate, but not lucra tive, wages for the unskilled.

The market process would also help the poor in their capacity as consumers. Consider, for example, the ~~ghetto merchant." Since prices in the ghetto average about 10 per cent more than prices for goods in other neighborhoods, the ghetto merchant is often excoriated for ex ploiting the poor. But the key ques tion is why is the ghetto merchant able to charge, and receive, such prices; why don't such prices attract additional competitors? The answer is that higher prices do not mean higher profits. Ghettos are high crime areas and this means higher insurance premiums, expensive padlocks, safes, etc. The higher prices, economist Walter Block points out, merely reflect the addi tional expenses of doing business in the ghetto. If, in the name of ~~fairness," the government imposed ~~equal" prices between neighborhoods, profit mar gins in the ghetto would be reduced, forcing the bankruptcy of many ghetto merchants. The resulting shortages would, of course, entail severe hardships on the poor. Con versely, if the market operated un impeded, higher profit margins in the ghetto would lure additional merchants into that neighborhood, thereby lowering prices. This means that the ghetto merchant is actually a benefactor of the poor, for his pres ence serves to keep prices lower than they otherwise would be. And the more such merchants, the lower the prices. 29 The same is true, Block has dem onstrated, of many other commonly condemned occupations. The ~~slum lord" is another example. This per son is usually depicted as charging exorbitant rents for dirty unsani tary apartments, located in old, di lapidated buildings. But the prob lem of slum housing ~~is not really a problem of slums or of housing at all. It is a problem of poverty." This is unfortunate but not only is he not responsible for this condition, the slumlord, regardless of his motives, helps the poor make the best of their bad situation.

Consider what would happen, Block asks, if slums and slumlords suddenly disappeared. If the slum lord truly harmed his tenants, then 1980 THE GOVERNMENT, THE MARKET AND THE POOR 657 his disappearance should increase their well-being. But exactly the re verse would occur. For the poor would then ttbe forced to rent more expen sive dwelling space, with conse quent decreases in the amount of money available for food, medicines and other necessities."30 But this is just what occurs when the govern ment imposes rent controls, housing codes, and the like. Forced to charge lower rates, some landlords will go bankrupt; others will employ their property in alternative uses. The re sulting housing shortage can only leave the poor worse off. These two examples could be mul tiplied many times over. But they demonstrate how the unhampered market works to the benefit of the poor. 5. Care for the Truly Poor There is one final question to be dealt with. What would happen to those few who were (almost) com pletely incapacitated and could not take care of themselves? Regardless of the socio-economic system, such people can be provided for only out of usurplus production." The com plete elimination of government in tervention would have two effects: (1) it would eliminate the poverty unnecessarily created by such gov ernment policies as minimum wages and licensing restrictions; and (2) it would increase output and thus tcsurplus production." There is, of course, no guarantee that this ttsur_ plus" would go to the truly need}: Yet, in 1977 Americans donated $32 billion to charity.31 If one assumes that under a pure laissez-faire econ omy. there would still be about 6 million poor, this would prorate out to over $5,000 for every poor indi vidual in the country. And, given an even more productive economy cou pled with the significantly lower taxes resulting from the disman tling of the welfare state, it is likely that this figure would be even greater under pure laissez-faire.

Conclusion The ttideal" model depicts a gov ernment implementing policies de signed to help the poor. But this model is based on the faulty behav ioral assumption that people act al truistically in the ttpublic sphere." In fact, the poor are more commonly the victims rather than the benefi ciaries of government programs. Further, what is important are re sults, not intentions. Even assum ing that the government operates as envisioned by the ideal model, the cultural basis of most poverty not only renders the government inca pable of benefiting the poor, it ac tually increases the incidence of poverty.. The market, on the other hand, has the capability of both re ducing poverty to those few who are completely incapacitated, or nearly so, and creating the economic sur658 THE FREEMAN November Cited in Murray Rothbard, For a New Liberty (New York: Macmillan, 1978), p. 161. 7John C. Calhoun, Disquisition on Govern ment (Indianapolis: Bobbs-Merrill, 1953), pp.

16-19. 8Walter E. Williams, ~~Commentary," News week (September 24, 1979), pp. 57-59. See also Thomas Sowell,Race and Economics (New able, however, are James Buchanan and Gor don Tullock, The Calculus of Consent (Ann Arbor: University of Michigan Press, 1974); and Gordon Tullock, Private Wants, Public Means (New York: Basic Books, 1970). 4Robert Lineberry, Government in America (Boston: Little, Brown and Company, 1980), pp.27S-83. SThe interest group model is developed in far more depth in such works as Robert Dahl, A Preface to Democratic Theory (Chicago: University of Chicago Press, 1956); David Truman, The Governmental Process (New York: Alfred Knopf, 1971). For a provocative article using economic tools to analyze inter est-group politics see William Landes and Richard Posner, "The Independent Judiciary in an Interest-Group Perspective," The Jour nal of Law and Economics (December 1975), pp. 875-901.

6Joseph Pechman and Benjamin Okner, Who Bears the Tax Burden? (Washington D.C.: Brookings Institution, 1974), p. 10. Also see Robert Sherrill, Why They Call It Politics (New York: Harcourt Brace and Jovanovich, 1979), p. 300; and Michael Parenti, Democ racy for the Few (New York: St. Martin's Press, 1977), p. 97. A recent study by R. A. Herriott and H. :P. Miller shows the following relation ship between income classes and total tax takes: plus necessary for the care of those few. In short, there is every reason to believe that the poor would fare con siderably better under the market than under the government ap proach. , -FOOTNOTESlWhile this model is something of a hybrid, it runs throughout much popular as well as academic literature. Jacques Maritain, The Person and the Common Good (New York: Schriber, 1947), and Mortimer J. Adler, The Common Sense of Politics (New York: Holt, Rinehart and Winston, 1971), are two, of many, philosophers for whom the notions of the ~~common good" and "altruistic" behavior in the political sphere are central. Also see Roland J. Pennock, Democratic Political The ory (Princeton: Princeton University Press, 1970), pp. 183-91, for overview of this ap proach.

2James Buchanan, ~~n Individualistic The ory of Political Process," Varieties of Political Theory (Englewood Cliffs: Prentice-Hall, 1968) ed. David Easton, pp. 25-37; and James Buchanan, ~~ Economist's Approach to ~Sci entific Politics' ," Perspectives in the Study of Politics (Chicago: Rand McNally, 1968) ed. Malcolm Parsons, pp. 77-88. aWhile the economic approach to govern ment can be traced back to the writings of Thomas Hobbes and John Locke in the sev enteenth and eighteenth centuries, it was not until the mid-twentieth century that eco nomic tools began to be applied to the study of politics in a systematic way. The landmark book was Anthony Downs' An Economic The ory ofDemocracy (New York: Harper and Row, 1957). The number of works employing this economic or "public choice" approach to the study of government has mushroomed since 1957. Two of the more important, and readSelected Income Classes Under $2,000 $ 4,000-$ 6,000 $ 8,000-$10,000 $15,000- $25,000 $50,000 and over Percent of Income Paid in all Taxes 50 31 29 30 45 1980 THE GOVERNMENT, THE MARKET AND THE POOR 659 York: David McKay, 1975), pp. 19~200.

98ee Tom Bethell, '<TheWealth of Washing ton," Harper's (June 1, 1978), pp. 41-60; also see Tom Alexander, "Why Bureaucracy Keeps Growing" Fortune (May 7, 1979). For a study that cond udes that the poor are net tax pay ers see Gabriel Kolko, Wealth and Power in America (New York: Praeger, 1962). But for a contrasting conclusion see Morgan Reynolds and Eugene Smolensky, "The Post Fisc Dis tribution, 1961 and 1970 Compared," Na tional Tax Journal (1974), pp. 515-30. lOTheodore Lowi, The End of Liberalism (New York: Norton, 1979). llLineberry, pp. 26S-69. 12Philippa Strum, Presidential Power and American Democracy (Santa Monica, Cal.: Goodyear, 1979), pp. 51-54. 13E. E. Schattschneider, The Semisovereign People (Hinsdale, Ill.: Dryden Press, 1975), pp.34-35. 14Mancur Olson, The Logic of Collective Ac tion (Cambridge: Harvard University Press, 1965). 15Milton Friedman, Capitalism and Free dom (Chicago: University of Chicago Press, 1962), pp. 13S-44.

16See mThe Regulators,'They Cost You $130 Billion a Year," U.S. News and World Report (June 30, 1975), pp. 24-28. 17Edward Banfield, The Unheavenly City Revisited (Boston: Little, Brown and Com pany, 1974), p. 57. 18Ibid.,p. 61. 19See Robert Lineberry, pp. 490-92; also see Herman P. Miller, Ulnequality, Poverty and Taxes," Dissent (Winter, 1975), p. 45. The "poverty line" is calculated by determining how much it co~ts to feed a typical family of four and then multiplying that figure by three. 2°Daniel Patrick Moynihan, "Poverty in Cities," The Metropolitan Enigma (New York: Anchor, 1970) ed., James Q. Wilson, p. 369. 21Banfield,pp. 128-29. 22The same holds true for programs like so cial security. First, since the tax is regres sive, the poor pay a higher percentage of their earnings in social security taxes. Sec ond, since the poor usually do not go to col lege, they tend to enter the workforce earlier than middle or upper class individuals, and therefore begin paying social security taxes much sooner. And finally, statistics show that the poor have a shorter life expectancy than other economic classes. The result is that the poor tend to pay the most into social security and receive the fewest benefits.

23See, for example, Reo Christenson, Chal lenge and Decision (New York: Harper and Row, 1976), pp. 79-86. Especially see p. 80: ttabout one-fourth of the (Job Corps) recruits stayed less than a month. Less than half stayed for six months, though strongly en couraged to stay for nine months." 24Miller,p. 45. 25See, for example, Ludwig von Mises, Human Action (Chicago: Regnery, 1966); and Murray Rothbard, Man, Economy and State (Los Angeles, 1971). 26See Yale Brozen, ttWage Rates, Minimum Wage Laws, and Unemployment," The Liber tarian Alternative (Chicago: Nelson-Hall, 1974) ed., Tibor Machan, pp. 380-99; and Walter Block, Defending the Undefendable (New York: Fleet Press, 1976), pp. 232-33. 27Williams,pp. 58-59; and Banfield, p. 107 08. 28Ludwig von Mises, The Anti-Capitalistic Mentality (New York: Van Nostrand, 1956), pp.88-89. 29Block,pp. 162-70. 30Ibid., pp. 154-61. See also Sowell, pp.

184-189. 31In Help: the Useful Almanac (Washing ton, D.C.: Consumer News, Inc., 1978) ed. Ar thur Browse, p. 356.

Kenneth McDonald SOCIALIST GAMES DEAR to the hearts of socialists is the phrase ((social justice." It strengthens belief in their cause and gives them a stick to beat their op ponents with. Like many high sounding phrases, however, it. is never defined. Social embraces society, its orga nization, and all the people who live in it. Justice is a rendering of what is due or merited, as in ((Render unto Caesar the things which are Cae sar's." Who is to decide what is due to all the people or what they merit? Will Tom decide what sort of house Dick ought to live in? Will Dick deter mine the reward that Harry should get from his labor? Will Dick and Kenneth McDonald is a Toronto freelance writer. This article first appeared in ,The Toronto Sun, July 10,1980. 660 Harry combine to order Tom's af fairs? Experience tells us that any such attempts would be resisted. Good fences make good neighborn.

How is it, then, that otherwise sensible people, who are on exeel lent terms with their neighbors, will raise no objection to a comparable interference in their lives by politi cians and civil servants they have never met, in short, by the state? They have been led to believe not only t.hat the state is wise and just but also that it has wealth of its own. They are encouraged' to forg'et that it consists of politicians and civil servants who are people much like themselves and every bit as prone to error. Social justice means what the so cialists want it to mean and that, usually, is ((fair shares," not equality SOCIALIST GAMES 661 of opportunity but equality of re sult. Tom, Dick and Harry live by a free exchange of the goods they make or the services they provide. In the process they create the wealth of the society they live in. The money they save (financial capital) is converted into the productive capital (land, tools, machines, factories) that keeps the wealth growing.

The state's job is to set the rules of exchange and to see that they are obeyed. But when the state, which produces nothing, uses its arbitrary power to change the results, ex change is neither as free nor as pro ductive as otherwise. The society's wealth ceases to grow because more and more of its people are assured of rewards whether they produce or not. Suppose that the same principle were applied to games. The support ers of an unsuccessful team would demand social justice for their side and that the results be adjusted to Ralph Waldo Emerson equalize wins and losses. Without competition there would be no point in playing. Yet we have come to admit the same principle to the much more important game of life. Baseball and other games are played to rules that everyone under stands. Umpires and referees are employed to enforce them. In the game of life, too, there are rules that everyone used to understand.

Heading the list is: ~~In the sweat of thy face shalt thou eat bread." Now the politicians and civil ser vants who are supposed to enforce the rules have changed them. In the name of social justice they take what some have earned and give it to oth ers. When it is no longer politic to increase the take they print money instead. The recipients are per suaded they need sweat no more. But the game of life is like any other game. The challenge and the joy are in the playing. By trying to fix the outcome the state spoils the game for everyone. @) IDEAS ON LIBERTY THERE is a time in every man's education when he arrives at the conviction that envy is ignorance; that imitation is suicide; that he must take himself for better for worse as his portion; that though the wide universe is full of good, no kernel of nourishing corn can come to him but through his toil bestowed on that plot of ground which is given to him to till. The power which resides in him is new in nature, and none but he knows what that is which he can do, nor does he know until he has tried.

William H. Peterson Unbinding Prometheus: ProductivitythroughMorality How can we unfetter productivity? How can we unleash the inborn in centives dwelling in each and every one of us? How can we release the job-creating, prosperity-induc ing genie of savings, of business in vestment, of capital formation? How can we, in other words, un hamper our much hampered system of capitalism? I think the answer is, in a sense, as simple as saying, lais sez faire-laissez passer, as Adam Smith and the French Physiocrats said more than 200 years ago. (Or saying, in five cCD's"-deregulate, de control, despend, detax and disin flate.) We know, in other words, what Dr. Peterson is the director of the Center for Eco nomic Education at the University of Tennessee at Chattanooga. He adapted this article from a paper for the Committee on Monetary Research and Edu cation at Arden House, Columbia University, given on March 23, 1980.

662 has to be done. After all, our prob lem is not really economic; it is po litical, and beyond that it is moral. Even so, I think we who believe in a free society are perhaps at a loss (I know I am) as to just how to tell all concerned-and, really, every body is concerned-how to unravel the endless, counterproductive snarls of our mixed or, rather, mixed up economy or, better yet, mixed-up man. Somehow, then, we must unbind this bound Prometheus that is America. .. this so-called Superpower humbled by Iran, bullied by the So viet-Union, hoodwinked by the Third World, and stretched over a barrel of oil by OPEC, . .. this nation with about the lowest personal saving, business inUNBINDING PROMETHEUS 663 vestment and employee productivity rates in the last decade of any na tion in the Western industrial world, · .. this pitiful seemingly helpless giant economy just wracked by un precedented double-digit inflation and extremely high interest rates* and now plunged into its seventh recession since the end of World War II, this increasingly ((under ground" economy, many of whose citizens commit criminal tax eva sion in unreported transactions equivalent to more than 10 percent of the GNP or currently more than a quarter-trillion dollars, according to an estimate by economist Peter M. Gutmann of City University of New York, · . . this increasingly confiscatory economy whose central government soak-the-rich progressive income tax rates stretch from 14 to 70 percent and whose taxpayers year by year pay soak-everybody higher and higher de facto if unlegislated rates as inflation surges ahead, · .. this socially disturbed society whose once sacred institutions of home and family are being battered by rising divorce and desertion rates and whose literature mirrors a trou bled society, *The Consumer Price Index was up 18% at an annual rate in the early months of 1980, a time when the prime interest rate at major banks hit 20%.

... this increasingly criminalistic society whose serious crime rate against both persons and property has about tripled since 1960, ... this huge amorphous Welfare State doling out an ever larger share of its precious national income in the form of politically-entangled in centive-destroying transfer pay ments, payments for which the Fed eral Government receives no goods or services in return, payments in an amount, by the way, of some $350 billion at an annual rate currently, or about 60 cents out of the Federal expenditure dollar, up from 35 cents in 1960, today at 16 percent of the national income, up from 7 percent in 1960. So the question is-can this once mighty industrial colossus possibly rediscover the lost genius of its own creation? Indeed, I think the question boils down to----canAmerica save itself? Or maybe the larger question is if America represents the quintes sence of Western Civilization, if it represents the only military might that could conceivably dissuade the Soviets from their dream of world conquest, now advanced by the sub jugation of Afghanistan, if it repre sents the only island of freedom and free enterprise, however emaciated, to which an increasingly Marxian world can hopefully repair-then the larger question is: can man save himself?

664 THE FREEMAN November Productivity, you see, represents survival. It cuts to the very soul and eons-long heritage of man who, not that long ago, emerged from a cave, and began to cultivate crops and do mesticate animals. Man the thinker, the human actionist, you see, is the answer to productivity-or its lack. And that answer, again, is ulti mately not economic but moral. In my judgment, our age is marked by a profound moral crisis, a crisis in volving a free-lunch philosophy of something-for-nothing and a rising misuse of the state to that end, hence a crisis involving the sanctity of property and the dignity and free dom of the individual. And on ques tions of morals, I believe we must look to the nature of man, to his goals, values and traditions, to his fears, confusions and misapprehen sions. As Alfred Marshall said at the outset of his classic Principles of Economics some 90 years ago: uEco nomics is concerned, on the one side, with the study of wealth, and on the other and more important side, with the study of man." (My italics.) Inordinate Action In this discussion let me reintro duce man in his ancient and modern moral dilemma of using the state not for preservation of life, liberty and property a la John Locke but, advertently or inadvertently, for usurpation of life, liberty and prop erty via the basically immoral process of redistribution of wealth. Let me first provide some background for my point of reference.

Again, our problem is how to un bind Prometheus or, if you wish, un fetter productivity. Recall the story from Greek mythology of Prome theus, the Titan who stole fire from Olympus and presented it to man. The act was inordinate and it infu riated the great god Zeus who pun ished Prometheus by chaining him to a rock. There each day an eagle tore at Prometheus' liver until he was finally rescued by Hercules. To me the message of Prome theus-read the Western democra cies-is the temptation of inordi nacy. Inordinacy-the word and the idea are to be found in The Reigning Error, the classic 1974 work on in flation by William Rees-Mogg, edi tor of the London Times-means man's temptation to reach beyond his grasp, to seek to go beyond the rules and limits of nature and eth ics, i.e., to knowingly commit wrong at the expense of right. Such inordi nacy is not only fraught with frus tration, it is fraught with the great est danger to the Western world, a danger mirrored today in the high price of gold.

To get back to right and wrong: The key wrong, in my judgment, is the apparently inborn human pen chant for lapsing into defiance of principle, into avoidance of re straint, into derision of tradition, 1980 UNBINDING PROMETHEUS 665 into a philosophy of statism, into the undermining of property, into a dis dain of work, into, in a word, inor dinacy. Today that penchant is seen in surging crime. It is seen in swell ing government budgets. It is seen in mounting waste, bureaucracy, corruption. It is seen in galloping inflation. As Rees-Mogg has noted: ((Inflation is an inordinacy of money. It is money without order." So inordinacy is a form of human folly, an abandonment of reserve, a loss of self-control, even a crime of sorts, a crime against the inherent limits of man, of nature, of law, a folly of robbing Peter to pay Paul. It is manifest in the Old Testament, which, broadly, is a message against inordinacy, a rebuke from the Lord Jehovah to the children of Israel.

BiblicalCall for Discipline The Israelites are told the story of Adam and Eve who had partaken of the Forbidden Fruit, were banished from Paradise and condemned to eternal scarcity «((By the sweat of thy face shalt thou eat bread"). They are told the story of how Cain slew his brother Abel and became a fugi tive from justice, the story of the Great Flood that covered the earth and wiped out every living thing save the family of Noah and the creatures in his ark, and the story of Noah's descendents who sought to build a tower reaching up to Heaven, and how their inordinacy of this Tower of Babel suddenly made their words incomprehensible to many. These and other Biblical stories add up to a call for discipline over self. For order. Control. Restraint. The Law of Moses proclaims dietary restrictions, including prohibition of the partaking of swine and camels. The Ten Commandments spell out limits, boundaries, restraints, moral scruples, ((Thoushalt not do this ...

thou shalt not do that." So it is in Greek mytholo~ Greek tragedy is concerned with the inex orable retribution of hubris, the in ordinacy of extreme human pride, of daring to reach beyond the limits of man and nature. So it was, then, that Icarus flew so close to the sun that his wings melted and he plunged to his death, that Phaethon borrowed the chariot of the sun only to be struck down by a thunderbolt from Zeus to prevent the world from catching fire, that Zeus punished the aforementioned Prometheus for stealing fire from Olympus and giving it to man. All these myths are in the nature of admonitions, of warnings, of cau tions that life is perishable, that man is fallible, that judgment is dif ficult, that power is corrupting, that human nature has a dark side, that the immoralist wreaks retribution sooner or later, that rob-the-rich give-to-the-poor Robin Hood can re lieve the rich merchants traversing Sherwood Forest once or twice but 666 THE FREEMAN November soon the merchants wise up, travel a different route, and the poor are worse off than ever, that life, you see, is inevitably bound by checks and balances, by built-in feedbacks and controls. As Emerson noted in his essay on Compensation: ((Dual ism underlies the condition of man.

Every sweet has its sour; every evil its good. For everything you have missed, you have gained something else; and for everything you gain, you lose something. All things are moral." Social Limits and Controls In the social world, all things are indeed moral. Thus morals, ethics, values, traditions are social con trols, evolved through the hard knocks of man's experience; and all systems of control have in common one simple principle: they set limits; they establish boundaries; they re quire norms; they condition behav ior. And morals, I submit, bear heav ily on the problem of unfettering our much fettered productivity. Some limits are conventional, as in the provisions of the U. S. Consti tution, or in measurements of foot ball fields and tennis courts, the provision of so many points for a touchdown, of so many games in a set. Some limits are physical, as in the application of physics to theengi neering of a given internal combus tion engine, for example, so that gasoline explosions can be converted into· sustained energy that propels your car. Limits are strict. Thin the walls of the engine enough and the engine-will blow up.

Says Rees-Mogg on this point: ((Sanity consists in limitation; the inordinate is always insane and al ways ends in destruction." Or as Samuel Johnson observed in 1751 (thereby supplying the title to the Rees-Mogg book): ((The reigning error of mankind is, that we are not content with the conditions on which the goods of life are granted." On the other hand, while just laws, political and moral, set bounds to human conduct, they nonetheless allow that conduct to be free within those bounds. Man is free where he is not legally or morally prohibited; but it is up to him how he pursues that freedom, how he, to paraphrase the Declaration of Independence, pursues that happiness. For in truth, freedom and order are two sides of the· same coin. Free dom is a function of law, civil and moral. Without this rule of law, where anything goes, where noth ing is sacred, where nothing is pro hibited, where property and con tract are unprotected, where personal responsibility counts for little, then human cooperation breaks down, and with it civiliza tion, quite apart from productivity.

Beginnings or extensions of such breakdown trends are evident in our 1980 UNBINDING PROMETHEUS 667 times, especially in the progressive removal of limits in our once-limited system of government. The irony of this condition is that the greatest threat to freedom today is law-in ordinate law, extortionate law, reg ulatory law, tax law, monetary law, situational ethics, warped civil and moral law transformed into a Fran kensteinian monster of a Welfare State. For, it is still argued, as it has been for millennia, that if we could only release ourselves from Moloch capitalism, from the vices of greed, avarice and selfishness, and if we would just put our trust in princes, into a benevolent state, we would be gloriously able to distribute income on the basis ofjustice , righteousness and fairness. Then altruism would replace naked self-interest, then all would be good and lovely in the world. Such is the message derived from a host of writers including Plato, Sir Thomas More and Karl Marx.

Theory of Public Choice Strange, all such Brave New Worlds of which we have a historical record, all such attempts to strike down profit-seeking and elevate selflessness and the ((commongood," have met frustration if not disaster. Yet the siren-song of statism goes on: Private choices are obviously selfish; public choices are clearly al truistic. Or so we are told. Indeed, a fairly new development to undo such mythology in the his tory of economic thought came in 1962 when JamesM. Buchanan and Gordon Tullock wrote their Calcu lus of Consent and expounded their ((theory of public choice." All too often political scientists and profes sional economists have held, say Buchanan and Tullock, that ~(the representative individual seeks not to maximize his own utility, but to find the ~public interest' or ~common good.' Moreover, a significant factor in the popular support for socialism throughout the centuries has been the underlying faith that the shift of an activity from the realm ofpri vate to that of social choice involves the replacement of the motive ofpri vate gain by that of social good.... "

In other words, Buchanan and Tullock believe that People do not change their self-centered thinking when they shift from the market place to the polling booth. In both places people aim at their own ad vantage and interest. The rational pursuit of self-interest not only holds for individual voters but for politi cians, bureaucrats and other gov ernment officials as well, whatever platitudes about the ~~common good" they may voice. Thus the art of government, espe cially in this sanctimonious age of democracy unlimited, springs from a moral void and increasingly fol lows the dictum of Voltaire: to take 668 THE FREEMAN November from some to give to others, to en gage in the trade of conferring of privileges and immunities, to fash ion government into a game or racket, of quid pro quo, of protec tionism, of a benefit for a vote. So vote yourself better housing, cheaper food, free medical care; and, whether citizen or legislator, vote all this in the holy name of the public interest.

Or as the Romans observed in the context of ttbread and circuses," Be neficium invito non datur (a benefit cannot be conferred on an unwilling person). Thus does statism progres sively overwhelm capital creation and smother productivity. Elusive "Social Justice" Let us suppose, however, altruism somehow does replace sel~interest as at least the nominal economic modus operandi. Let us further sup pose a public-spirited government planning board is thus charged with altruism as its guiding light to fix wages and prices and allocate pro duction. Social justice. That would be the' only criterion. Ah, but economists from Adam Smith to Ludwig Mises have pointed out the inherent inability of just wages andjust prices to clear mar kets. Human nature and market place dynamics simply do not allow such clearance. Utopia is not of this earth. Planning-that sweet-sound ing euphemism for socialism-is therefore vain, even though many continue to equate planning with Christian charity and brotherly love.

As Hayek wrote in his Road to Serfdom, the alternative is not plan or no plan. The question is, whose plan? Should each individual plan for himself, or should a benevolent Big Brother plan for him? Mises said the issue is not automatism versus conscious action; it is freedom ver sus government omnipotence. Said Mises: ttLaissez faire does not mean: Let soulless mechanical forces oper ate. It means: Let each individual choose how he wants to cooperate in the social division of labor; let the consumers determine what the en trepreneurs should produce. Plan ning means: let the government alone choose and enforce its ruling by the apparatus of coercion and compulsion. " Unlimited Democracy The devil of this truth lies in the Zeitgeist of the 20th century-a spirit of unlimited democracy, of democratic interventionism or, if you wish, interventionistic democracy. Democratic planning does not lessen the force of what Mises calls Uthe ap paratus of coercion and compulsion,"

but the problem is people think, in ordinately, it does. Vox pop, vox Dei. And so a few years ago, in a tribute to that perennial gladiator, Senator Hubert Horatio Humphrey, we passed, however emasculated, the Humphrey-Hawkins Full Employ1980 UNBINDING PROMETHEUS 669 ment and Balanced Growth Act, which calls upon the President to set 5-year goals for the U.S. econ omy. Planning of a foot-in-the-door sort, apart from extensive interven tionism, is now an official doctrine of the land. Witness, then, inordinate democ racy at work. Observe how orga nized minorities work their de mands on cowed (or, should I say, cowardly) politicians. Observe pow erful organized minorities repre senting farmers, veterans, blacks, educators, women, elderly (euphe mistically called ttsenior citizens"), unions, businessmen (usually sub divided into industries), bankers, doctors, lawyers, Indians, Mexican Americans, Italian-Americans, Irish-Americans and scores, if not hundreds, of other hyphenated and unhyphenated interest groups, ex ercising their public choice, ever anxious to wangle some contract, grant, tariff, subsidy, minimum wage, privilege, immunity, excep tion, welfare benefit or what have you from Congress and various leg islatures and bureaucracies. Such wangling, such dark-sided human nature, serves to deter capital for mation and individual incentive i.e., to fetter productivity.

To be sure, all these organized mi norities add up to majority rule. Naturally enough, the politician curries favor with these voting groups, frequently and ironically by giving them grants out of their very own tax money. The extent of this mutual milking process in America is seen in figures prepared by econ omist William A. Niskanen, Jr. of Ford Motor Company in 1976 based upon 1975 figures. He found that there are more Americans being supported by tax dollars than there are workers in the private sector who support them. He toted up civil servants at all lev els of government, members of the armed forces, the unemployed and disabled, public pensioners and those on welfare. He sought to eliminate double-counting-i.e., those on more than one welfare program. (How ever, he did not allow for nominally private sector employees of govern ment contractors such as defense suppliers.) He then found that these tax dependents, including family members, outnumbered working nongovernment taxpayers by a healthy-or, rather, unhealthy margin, of about 81.3 million tax de pendents against 70.2 million pri vate sector taxpayers. The numbers and the margin are of course greater today, five years later.

Spend, Tax, and Elect Can there be any doubt that these tax dependents, through their elected representatives, will con tinue, most inordinately, to vote themselv~s goodies from the U.S. Treasury? Is this not the theory of 670 THE FREEMAN November public choice in action? Is this not but a logical consequence of public choice, of ((voterrationality," of might makes right, of incipient moral bankruptcy? The situation brings to mind the remark attributed to Harry Hopkins, the intimate of Franklin D. Roosevelt: ((We shall spend and spend, tax and tax, elect and elect." As a wealth redistribution scheme, I think we can agree that the process is none too efficient. It breeds bureaucrac~ It breeds red tape. It breeds social friction. It breeds the crassest politics. It breeds immorality. Moreover, as noted, it significantly destroys human incen tive and capital formation-the very foundation of our productivity and well-being. And yet for all of us who think we're getting too much gov ernment, let us be thankful we are not getting all the government we are paying for.