Book Reviews

A REVIEWER'S NOTEBOOK JOHN CHAMBERLAIN Instead of Regulation FOR all its good work in pushing tax cuts and putting a hold on some forms of public spending, the Rea gan Administration may be missing a bet in failing to give deregulation a high priority on its list of "musts." The costs of regulation are so far reaching that they must challenge the over-issue of money as a cause of stagflation. If they could be done away with, the drain on the federal budget would be considerably light ened, and David Stockman, Rea gan's budget director, might find his labors considerably more reward ing. Fortunately, the way to a wide spread dismantling of our regula tion agencies has been charted in a collection of eleven searching essays by experts assembled by Robert W. Poole, Jr. of the Reason Foundation of Santa Barbara, California. The book, Instead of Regulation: Alter122 natives to Federal Regulatory Agen cies (Lexington Books, D. C. Heath and Co., 125 Spring St., Lexington, Mass. 02173, 404 pp., $25.95), could, if its recommendations were to be acted upon, make eleven regulatory bureaucracies superfluous.

Lest his readers might feel that he is dealing with political impos sibilities, Poole makes Stephen Breyer's and Leonard Stein's ac count of an already partially accom plished airline deregulation the lead off piece in his collection. A phase out of the powers of the Civil Aero nautics Board has already begun, with the Board itself ticketed for burial in 1985. Despite many an guished predictions that small cities would lose their access to air trans port, the airline deregulation has been followed by an explosive growth of local-service and intrastate air lines. Former local-service carriers INSTEAD OF REGULATION 123 such as U.S. Air (once called Alle gheny), Hughes Airwest, Texas In ternational, Piedmont, Frontier, Ozark and Republic flew 32 per cent more revenue-passenger miles in 1979 than they did in 1978. Deregulation Under Way The airline success is not the only evidence that deregulation acts as an energizing prod. We are still pay ing for an expensive Department of Energy, but'the lifting of controls on oil prices has already had its effect on well-drilling in the U.S. "lower 48" states. And trucking deregula tion has already been authorized, with some semblance of compliance in the matter of accepting new en tries in a field dominated by the Teamsters Union.

The successes enumerated by Mr. Poole's contributors, however, are only a bare beginning. In spite of the start on truck deregulation, George Hilton, in his essay on "Ending the Ground-Transportation Cartel," la ments that the Interstate Commerce Commission-the daQ9YQof all our regulatory agencie.~~stifl prevents a real revolutiod' in surface trans portation. Containerization, which gets rid of stevedoring costs, has brought new vitality to ocean ship ping, but it has yet to hit the rail road freight business. If there were no ICC to prevent it, Mr. Hilton thinks there might be a prolifera tion of "true intermodel shipping companies." These would lease track rights from railroads, and freight would move to 'the ultimate con signee in containers that could be off-loaded between train and trucks with a minimum ,ofstrain. In the Energy Field The new oil wells that are being drilled as a result of the lifting of price controls give pleasure to Alan Reynolds, but his essay on "A Free Market in Energy" reminds us that we are still a lorig way from an un controlled energy market. Natural gas has not yet' been deregulated.

And there are continuing threats of investment controls. IfSenator Teddy Kennedy could have his way, hori zontal divestituIte would be forced on oil companies to prohibit their entry into coal, uranium, oil shale, solar and geothermal competition. Divestiture, says Mr. Reynolds, would be "an attempt to hold capital hostage-a form of political alloca tion of capital." When it comes to communica tions, we are technologically ready to end the curreht monopoly of the airwaves that is iperpetuated by the Federal Communications Commis sion. The FCC: has discriminated against pay-as-you-see TV for years, but the claims of cable-TV could not be denied forever. The use of satel lites in broadc&sting means that programs can be "bounced" into backyards anywHere. Property rights 124 THE FREEMAN February in wave lengths could be established without fear that a few companies would gain eternal monopoly posi tions. Ida Walters, in her essay on "Freedom for Communications,"

makes a most persuasive case for freedom in TV and radio broadcast ing. Her efforts to tell us how mon opolies in local telephone service can be ended are labored, and it is not entirely clear to this reader how es tablished phone facilities could be shared between competing compa nies without some degree of regula tion. Airline Safety Mr. Poole's essay on airline safety suggests that if air traffic control were to be turned over to private companies, such as Radio Schweiz in Switzerland, we might get better service with the taxpayer relieved of the cost. And the inspection of air craft might be more trustworthy if private insurance companies were to do the job. There is even a case for competi tion in pollution control and for es tablishing liability laws combined with free market insurance methods of bringing safety to drug manufac ture. It will take time for Mr. Poole's contributors to be heard in appropri ate Congressional committee hear ings. But Mr. Poole's book makes a glorious beginning. It will have its impact in saving us a big part of the $100 billion per year which Council of Economic Advisors Chairman Murray Weidenbaum says we now spend on maintaining 136 federal regulatory agencies employing 141,000 people who might be more productively employed in private in dustry.

SEEDS OF THE HOLOCAUST: THE GERMAN ECONOMY, 1916-23 by Stanton Brody. Edited by Don Venes. (Published privately, 1979. Glencoe, Illinois. Copies available from The Foundation for Economic Education, Inc., Irvington-on-Hudson, N.Y. 10533) 42 pages- $3.50 Reviewed by Bettina Bien Greaves THE GERMAN INFLATION of 1923 is the classic illustration of what to ex pect when a government pursues a policy of inflation to the bitter end. It evokes vivid pictures of panicky buying, wheelbarrows overflowing with the paper money needed to buy a day's food, workers' wives taking their husbands' pay each morning and rushing out immediately to buy something, anything, before prices rose still more. By the end of 1923, 1982 OTHER BOOKS 125 prices of many everyday items were reckoned in the billions and trillions of Marks. Fantastic! Incredible! But true! Yet these descriptions reveal little or nothing of the effects the in flation had on the people them selves-on their mental, psycholog ical and moral attitudes.

By the end of World War· I, the defeated Germans were war-weary, exhausted and famished. Millions had been killed, maimed or were missing in battle. The Allied block ade had reduced their diet to "er satz" foods, horse and dog meat. Many had not had a decent meal since 1916. The Kaiser was ousted. The new government was weak and insecure. Yet it did what it thought best to help the people recover from the ef fects of four long years of fighting and deprivation. It tried to increase food supplies by imposing land re forms, subsidizing cereal imports and buying produce from farmers to sell cheap to the poor. But these pro grams cost money. And the govern ment was as destitute as the people. Tax collections fell far short of what it spent. To finance its domestic ex penditures, therefore, it continued the practice of printing paper money. By 1921, the German Mark-worth about 24¢ in U. S. money before the war-had fallen in value to about 1/15th of the U. S. dollar (6.6¢). A year later it had dropped to 1/450th of the dollar.

When England and the United States brought t~eir wartime infla tions to an end, both experienced economic depressions. Many were out of work while bl;lsiness enterprises were readjusting in 1921-1922. As a result, German officials concluded that inflation was the way to insure "full employment" and to expand exports-as inde~d it was in the very short run. So th~ German govern ment continued inflating. By this time, every German was speculating on still more inflation and still higher prices for -all goods and services. No (pne was saving any more. The demands of the Allies for reparations was an added blow to a people already! beaten, impover ished and nervously exhausted by having to cope daily with the prob lems of inflation~ They grew bitter at the heavy pepalties exacted by the Allies. To pay the reparations, real goods-gold* minerals, factory products, investment securities-not paper money, ha«1l to be delivered to former enemies. The government had to impose heavy taxes for this pur pose. Yet little or nothing remained for domestic expenditures. So the government cont~nued inflating.

Discontent anq political turmoil, already rife thrCj)ughout the land, mounted. Restless agitators of every ideological hue-right, left, com munist, fascist-attempted periodi cally to overthrow national and re gional governments. Political mur126 THE FREEMAN February ders or assassinations were commonplace-about 300 in four years. Noone was able to escape the cat astrophic effects of the inflation and political unrest. The farmers, per haps in the best position to weather the storm, had their savings wiped out and they themselves were worn down by government regulations. Laborers and salaried employees be came destitute, for no wage or sal ary could keep pace with the spiral ling cost of living. Landlords and tenants suffered as the quality of housing declined, because the gov ernment imposed ceilings on rents while all other prices were rising through the roof. Universi ty profes sors and students had to dig ditches, work in mines and factories or on farms in the summer to survive, and the quality of their library and re search materials suffered. Because of the volatility of prices, business men found it impossible to calculate or plan. As they used up their in vestments, enterprises that had been profitable suffered losses. Even Ger man bureaucrats who had always enjoyed prestige and high salaries were destitute. Less food was brought to the stores to be sold and the avail able consumer goods were of poorer quality. Standards of nutrition de clined. Susceptibility to disease and infection increased. Children, al ways hungry, grew up undernour ished and physically debilitated.

Only those few Germans with in vestments abroad were able to avoid complete impoverishment. By October· 1923, the Mark was worth less than one four-billionth of its pre-war value. Inflation had ut terly destroyed the German people financially, economically and mor ally. A people long known for their energy, industry, education and cul ture were destitute and degraded. Traditional methods of providing for themselves and their families-hard work and saving-proved useless. The people were emotionally, men tally and morally prepared to wel come a charismatic leader who of fered hope. They were ready to believe HitIer's lies and promises of economic rescue and pride in the "Thousand Year Reich." By choos ing Hitler over the economic disas ter they knew, they accepted in time the consequences of that choice controls, censorship, war and even the "holocaust." Stanton Brody, the author of this booklet, was an established busi nessman in his mid-40s when he re turned to college to study history.

He became fascinated with this pe riod in German history. In his desire to bring readers the important mes sage-that inflation must be stopped lest we lay the groundwork for an other world war and holocaust-he wrote this account and published it privately. Mr. Brody's booklet is well worth reading. i 1982 OTHER BOOKS 127 PRINCIPLES OF ECONOMICS by Carl Menger (Reprintedby The Institutefor Humane Studiesand New York UniversityPress; distributedby ColumbiaUnjversityPress, 136 South Broadway,Irvington,New York 10533), 1981 328 pages- $20.00 cloth; $7.00 paper Reviewedby RogerR. Ream THE PUBLICATION of Adam Smith's The Wealth of Nations in 1776 is considered the starting point of the science of economics. However, it was Menger's Grundsiitze (1871), along with the works of Leon Walras and William Stanley J evons, that began the modern period of economic thought. Significantly, Menger's ideas provided the foundation for what.is today classified as the Aus trian School of economics. This im portant book of Menger's, not trans lated into English until almost eighty years after it was written, has now been reprinted by The Institute for Humane Studies and the New York University Press.

Menger is perhaps best known for his development of marginal utility theory, discovered almost simulta neously by J evons and Walras. However, to comprehend fully the importance of· Menger's achieve ment one must understand the con text into which it fits. It was Menger who elaborated the logical founda tionsof marginal utility theory and it was his Principlles specifically that served as the basic textbook for the Austrian econolmists (Bohm-Ba werk, Mises, and! Hayek in particu lar) who followed him. Menger beganj his formulations with a stress on methodology. He treated economic~ as a science: "The phenomena of economic life, like those of nature,. are ordered strictly in accordance with definite laws." The purpose of the study of econom ics is to understand "the conditions under which meJ\l engage in provi dent activity directed to the satis faction of their rieeds." Due to the scarcity of avaiUible means, espe cially time, but also labor and re source goods, indiyiduals must choose which ends to attempt to satisfy.

IVlenger calls thi~ choosing "econo lnizing" and focuses his study on the economizing individual. Value theory is I central to econom ics: What gives a thing value? Is value· intrinsic to ian object, as early economists surmiised?No, replies Menger, because ~'goods of the same kind and in the same place lose their economic character with changing circumstances." Is.ithevalue of a good related to the amount· of labor re quired to produce it, as Ricardo thought? No again, says Menger, for "experience tells us that many goods on which no labor was expended dis play economic character whenever they are available!!in quantities that do not meet our requirements."

128 THE FREEMAN Menger concludes that the value of goods "is entirely subjective in na ture." He continues: "Value is thus nothing inherent in goods, no prop erty of them, -nor an independent thing existing by itself. It is a judg ment economizing men make about the importance of the goods at their disposal for the maintenance of their lives and well-being. Hence, value does not exist outside the conscious ness of men." Contained in the previous passage is what Israel Kirzner calls Men ger's Law. It is an important aspect of Austrian economics. The value a person attaches to a good at his dis posal is based upon the value he places on the end it will enable him to satisfy. If certain goods cannot in any way satisfy a person's ends, he will not attach value to those goods. If, however, someone lacks only one good that is necessary to satisfy a specific end which presently is val ued more than any other end, and if no substitutes to that good are available, the value he attaches to the good (the means to his end) will be considerable.

From Menger's Law it follows that resource goods and producer goods are valued according to the value of the ends they serve. Furthermore, the ends they will ultimately serve are determined by the consumer. Therefore, the consumer is the source of value and the guiding force in a market economy. Austrian eco nomic thought places consumer de mand in the role of guiding the pro duction in an unhampered economic system. Although Menger is acclaimed primarily for his role in developing what is now known as "marginal utility" theory, his writings on methodological individualism, sub jective value,and the economic character of goods (Menger's Law) deserve more attention. His Princi ples is so lucid and understandable that it can serve as an introduction to economics for the intelligent lay men with no background in the sub ject. This new edition, with an intro duction by F. A. Hayek, should guarantee that the work that has served as the basic text of successive generations of Austrian students and scholars will continue to improve economic understanding for years to come. , the Freeman VOL. 32, NO.3 • MARCH 1982 EconomicGrowth in Taiwan Shih Cheng Liu 131 Invisible factors contributing to economic development in the Republic of China.