Book Reviews

Every assent is coupled with a dis sent. Yes, we must cut taxes, BUT not at the expense of unbalancing the budget. Yes, we must reduce the cost of welfare, BUT not by pushing anybody below the poverty line. Yes, we must go back to capitalism, BUT labor cannot be despoiled of its gains-and it would risk too much in unemployment if a corporation the size of Chrysler were allowed to fail. It is too much to hope that we will escape at least two or three years of dubious political battle, but maybe the key to America's future exists somewhere outside of Washington. True enough, we need some help from a Reagan regime dedicated, even though the BUTs abound, to getting the government offthe peoples' backs. We need at least a diminution of in flation. But benign neglect would 124 help, too. The creative society (Rea gan used to talk about that in Cali fornia) depends on the free play of a social power that is not constrained by the politicians.

Luckily, at this juncture, we have a seminal book, George Gilder's Wealth and Poverty (Basic Books, 10 East 53rd Street, New York, N.Y. 10022,306 pp., $16.95), that could be to the Age of Reagan what Stuart Chase's A New Deal and George Soule's The Planned Society were to the Age of Roosevelt. What Mr. Gilder has done in vital and vivid style is to smash all the models that have treated capitalism as something that is destined to mod ulate into socialism, with or without the help of Marxian conflicts. He does not deny that the big corporations of ten become bureaucratized, preoccu pied with problems of marketing a given product when the world is really clamoring for something new. Gal braith is right, he says, in observing the existence of a technostructure that resists change. But in a brilliant WEALTH AND POVERTY 125 chapter on nthe entrepreneurial fu ture" Mr. Gilder shows how the small entrepreneurs continue to swarm. in.

Change, despite the Biggies, is what we get. The infiltration comes even when investment capital is hard to come by. There is the phenomenon of Cal ifornia's Silicon Valley, for example, where, as Gilder says, ttworlds in deed unfold in grains of sand." The sand refers to the silicon chip, some thing no bigger than a fly, that will store thousands of bits of informa tion for computer use. The silicon chip owed nothing to either the gov ernment or huge IBM-it began with tta second-rank camera firm, Fair child," and ttachieved its crucial breakthrough in 1971 at a tiny firm, Intel." It is ttnot only a product but also a producer of science ... with multifarious industrial and commer cial uses . . . from astrophysics to medicine." And on the heels of the microprocessor are coming other new technologies-lasers, for example, and the photovoltaic cell. The point that Mr. Gilder is mak ing is that it is men and ideas, and common faith or ((animal spirits,"

that continue to create jobs and plenty. Mr. Gilder does not rely on statistics to prove his contentions, but when he does invoke them he uses them tellingly. Between 1969 and 1976 smaller firms created 7.4 million new jobs. This was at a time when the businesses on Fortune's list of one thousand largest corporations 'were experiencing practically no igrowthat all. 'The MoralCasefor Capitalism Mr. Gilder's case for capitalism is fundamentally a moral case. It is based on giving. The enterpriser can't know that he has a market waiting for him. He ponies up the energy, the brains and the capital, and in an act of faith floats them out into the un lltnown. ttThe essence of his giving," says Mr. Gilder, nis not the absence of all expectation of return, but the 1ackof a predetermined return." As a ttsupplyside" economist, Gilder g'oes back to Say's Law of Markets. Supply creates its own demand by re leasing claims on goods into the mar ketplace in the form of wages, inter est, dividends and outlays for raw Inaterials. People may not even know they want something until they see ~lVhat is being offered, but when they 8ee it the money is already there to buy it. Purchasing power cannot be created apart from supply, for any paper claims in excess of the money that supply calls into being will have an inflationary effect.

Mr. Gilder does his painting in bold strokes for the most part. But he is also goodat miniature brush work. In his chapter on ttthe nature of ~lVea1th" he centers on a small com munity in the Berkshires, where there are few CCnatural resources." lie tells about a Lebanese family who 126 THE FREEMAN February arrived in Lee, Massachusetts, with few dollars and fewer words of En glish. The family bought an aban doned shop beside the road. Every day the father of the family drove over to the Connecticut Valley, a hundred miles away, to load up with vegetables, which he bought cheaply. With the help of six children the roadside shop prospered. Today, the family owns the biggest officebuild ing in town, a large clothing store, and what amounts to a small shop ping center at the original shop site. In the same town ofLee a man named Kelley parlayed a business of mak ing scratch pads out of refuse paper into a variety of businesses. And an other man, named Sprague, turned a small patrimony into a huge con glomerate which began with a chicken hatchery in Iran.

By focusing on the Berkshire town of Lee, Massachusetts, Mr. Gilder is telling us how England and Japan, Taiwan and Hongkong, all of them relatively barren islands, became wealthy without having any natural resources that might be called riches. Saudi Arabia does have riches in its oil. Whether it will ever become wealthy in the Berkshire-British sense is a question. Wealth begins as a state ofmind and a state of will. The SenselessWar AgainstWealth Only in the uzero sum" thinking of modern uliberals" does wealth create poverty. In the real dynamic world one man's fortune is a boon to all. The savings ofthe rich create jobs for the poor. So the ~~war against wealth," as Mr. Gilder sees it, is senseless. We tax the producer to pay for a welfare that keeps women and dependent children locked into dingy ghetto life, with the men taking offbecause they can't stand the feeling of being un needed as breadwinners. As long as welfare payments to women are a cut above what a family can earn in the market, the government, says Gilder, will continue to cuckold men.

This is strong stuff, and no politi cian, even in the Age of Reagan, is going to succeed in abolishing wel fare. But we can hope that supply side economics, helped by tax cuts that will give productive people something to play with, will float a few families off the relief rolls. Meanwhile the new atmosphere in Washington may make some of Mr. Gilder's observations on welfare seem less hardhearted than they would have seemed in the days ofthe Great Society. When Mr. Gilder says that ~~aid for families with dependent children makes more families de pendent and fatherless," or that ((un_ employment compensation promotes unemployment," he isn't being mean. He is merely being accurate about the ttmoral hazards" of some of our best intentions. What he is saying is that the Welfare State has become counterproductive. It is time for something new and more inventive.

1981 OTHER BOOKS 127 BLACK AMERICA AND ORGA NIZED LABOR: A FAIR DEAL? by Walter E. Williams, Loren A. Smith and Wendell W. Gunn (The Lincoln Institute for Research and Ed ucation, 1735 DeSales, N.W., Suite 500, Washington, D.C. 20036) 60 pages. $5.00 paper Reviewedby Allan C. Brownfeld THE importance of this slim volume is not to be measured by the number of pages it contains, but by the po tency of the ideas it releases. The sponsor of this study, The Lincoln Institute, was set up in 1978, to as sess the impact of public policy is sues on the black community. Two of the authors are black, and all three offer persuasive arguments for the thesis that the free market econ omy provides the best hope for bringing minorities into the nation's economic mainstream. Their case against welfarism and unions is de vastating, and marks one more bit of evidence of the growing disillusion ment of black Americans with the liberal establishment.

Unions have all but eliminated competition in the labor market, locking those at the bottom-mainly members ofminoritygroups--into a situation of hopelessness. Organized labor, pursuing its narrow interests by means of the powers conferred upon it by government, has the power, in many parts of the country, to determine who shall be employed and who shall be denied work. This unpleasant truth is emphasized by Senator Hayakawa in the Preface he contributes to this book. ((Racial ,exclusion is not simply a part of union history but remains a reality today. In 1967, for example, statis tics on black membership in some lmajor craft unions were as follows: electricians, 1.6 per cent; ironwork lers, 1.7 per cent; plumbers, 0.2 per cent; and sheetmetal workers, 0.2 per cent. In 1979, 58 per cent of local lllnions reporting to the Equal Em lployment Opportunity Commission had no black members at all."

Professor Williams, one of the na tion's keenest economists, furnishes other considerations: (tA consider able part of the activities of the la bor movement ... has been that of attempting to thwart competition among workers. One of the ways this has been done is through the use of union political power to lobby for laws that confer monopoly power on labor unions." He continues: ((To the extent the union is successful in negotiating 1Jvages that are higher than those 1Jvhich employees would obtain in the absence of monopoly power, unions must also devise means of e~ntry restrictions. The reason is simple: the higher wages will at tract entry by workers from other sectors of the economy.Ifothers were permitted freely to enter the union128 THE FREEMAN ized labor markets, the increased supply of labor would mean less em ployment and downward pressure on wages ... Whatever the purpose for granting unions the sort of mo nopoly power they now possess, the result is weak minority participa tion."

Labor unions support programs such as welfare, food stamps, un employment benefits and a host of other ((maintenance" devices, Dr. Williams argues, so that those who are unemployed as a result of mar ket restriction policies will remain docile: UIf the alternative to not working were starvation, it would present a socially volatile climate. Thus it is very probable that labor unions will lead the support for in come subsidy programs which rep resent a redistribution of income from society at large to those who have restricted the labor market in the first place. They disguise the HANDSOME BLUE LEATHERLEX true effects of market entry restric tions caused by unions and other economic agents by casting a few crumbs to those denied jobs in order to keep them quiet, thereby creating a permanent welfare class." Wendell Gunn does not condemn union officials, most of whom are sincere; but he does criticize union policies, which bring about unfore seen consequences. ((Forblack work ers, who have been denied their ba sic right to work in many fields by the actions of labor unions over the years, to be forced to join unions against their will . . . is to make a mockery of the civil rights which have, we are repeatedly told, been achieved. Compulsion and coercion are alien to a free society."

Everyone has a stake in the free society, rich as well as poor. But as these essays make clear, the ((dis advantaged" have the greatest stake of all. FREEMAN BINDERS $3.00 Order from: THE FOUNDATION FOR ECONOMIC EDUCATION, INC. IRVINGTON-ON-HUDSON, NEW YORK 10533 t1le Freeman VOL. 31, NO.3 • MARCH 1981 What's This About Solar Energy? Clarence B. Carson 131 It often is more efficient to achieve our ends in a roundabout way, through the use of capital. ... To Pay Paul Leland Browne, Jr. 139 A concerned citizen takes a stand against political plunder. The Anti-ConsumerLobby Gary McGath 143 "Protecting" the consumer by denying his choice is a doctrine of contempt. The Dogma of Our Times Frank ChodoroY 148 If 1956 was the age of collectivism, what of today? The Assault on Free Choice Roger Ream 153 To lose the freedom to choose is to fall into servitude. Planningfor an EmergencyLet the Market Work! Joe Cobb 157 Especially in an emergency is there need for the efficiency of market pricing.