Cut Throat Opportunities; G. North

Very often, something already was done about it. An obvious example is Federally financed urban renewal projects. The Federal government in the 1960s began an extensive pro-· ©Gary North, 1982. Gary North, Ph.D., is President 01' the Institute for Christian Economics. The ICE pub.. Iishes a newsletter, Biblical Economics Today. A free six-month trial sUbscription is available by writing to Subscription Office, ICE, P.O. Box 8000, Tyler, Texas 75711. gram of tearing down. older neigh borhoods' which disrupted the resi dents, many of whom were forced to move out. 1 Wnen the Federal budget constraints subsequently hampered the completion of downtown reno vation projec~s, some cities were stuck with gaping holes in the ground, or the scattered remains of demolished buildings. In the meantime, giant shopping malls were b~ing built in the sub urbs, closer to the more affluent neighborhoods in the community.

Parking space, always a problem for downtown businesses, was available in these residential shopping cen ters. Downtown businesses could no longer compete so effectively for middle-class dollars. The familiar business establishments of the inner city-pawnshops, taverns, porno graphic book stores and theaters, and discount stores selling low-quality ~47 348 THE FREEMAN June goods-began to take over the empty stores that had been vacated by those establishme:p.ts that had moved to the shopping malls, or that had gone bankrupt because they hadn't moved. City councils attempted to retal iate. They spent money on the con struction of downtown malls, reno vating the fading buildings that had once been the pride of the city. They established low-cost urban transit facilities, such as buses, that were supposed to bring lots ofshoppers into the downtown areas. They built benches for people to sit on and en joy watching the pedestrians. In most instances, these tactics failed. The more successful of these experi ments have been marked by private entrepreneurship, when profession als such as architects or lawyers, whose firms do not depend heavily on "walk-in" traffic, have bought or leased abandoned space, and have converted this space into office buildings. But the retail shops that cater to the middle class and upper class have not returned, despite the face-lifting operations of the reno vators.

The "Destroyers" Whose fault was it? Who killed off the downtown businesses? The orig inal town planners, who neglected to build sufficient parking space? The real estate speculators, who poured billions of dollars into shopping malls all over the country? Henry Ford, who created the initial mass-market demand for the automobiles that carried Americans into the suburbs? The designers and builders of tract houses, who made middle-class housing available to a generation of post-war buyers? Someone must have been guilty of unfair competition. Someone employed the tactics of cut throat competition. Who was guilty? The answer should be obvious. Consumers did it. Consumers de cided that they preferred to live in the suburbs, in three-bedroom, ranch style tract houses. They decided that they enjoyed the mobility offered to them by the automobile, rather than the limited-route, mass-transit trol lies and buses. They wanted the con venience of driving to one location and walking through huge air-con ditioned buildings that housed hun dreds of retail establishments. They grew tired of walking in the heat, or the rain, or the cold of winter, in or der to get to and from retail stores.

They decided that "free" parking in a large parking lot was preferable to paying for space in crowded down town parking lots, or worrying about putting a coin in a parking. meter every hour. (They actually do pay for parking when they make their purchases from the· shops in the shopping malls, since store owners pay for their share of the parking lot costs in their monthly rental fees, and consumers make the funds available to the store owners when 1982 CUT-THROAT OPPORTUNITIES 349 they make purchases. But few shop pers spend much time thinking about the hidden costs offree parking. They think of the shopping mall parking space as free. The space downtown clearly is not free, and this clarity makes a difference in the decisions of shoppers.) We can blame the shopping mall builders for the plight of the down town stores only by blaming entre preneurs for making available new opportunities for consumers. The builders and lenders took risks. They believed that their malls would be profitable because consumers would enjoy the advantages of shopping in suburban locations. They might have been incorrect. If so, the first malls would have lost fortunes, and few new ones would have been built. But the malls made fortunes, and the projects were imitated by entrepre neurs who wanted to make similar opportunities available to con sumers in their regions.

Kirznervs. Schumpeter Is a man who takes a risk and makes an opportunity available to consumers really a destroyer? Some economists have used this termin01 ogy. Joseph Schumpeter called the entrepreneurial process of innova tion "the process of creative destruc tion."2 But isn't it misleading to dis cuss the role of the entrepreneur primarily in terms of the process of destruction rather than a process of making available new opportunities to consumers! who might not have perceived theT1l? This distinction is the heart of I~rael Kirzner's impor tant critique pf Schumpeter's anal ysis. Kirzner writes: ... Schumpeter's entrepreneur acts to disturb an existing equilibrium situa tion. [Note: "equilibrium" is a technical term used here i to specify a hypothetical and actually unobtainable situation in which all market participants have per fect knowledge, of all prices, and there fore the economy offers no profit oppor tunities, except through technological or organizational innovation which leads to a new "production mix" of scarce eco nomic resourc~s-G.N.] Entrepreneu rial activity disrupts the continuing cir cular flow. The!entrepreneur is pictured as initiating change and as generating new opportunit~es. Although each burst of entrepreneurrial activity leads eventu ally to a new equilibrium situation, the entrepreneur i~ presented as a disequili brating, rather than an equilibrating, force. Econo~ic development, which Schumpeter of course makes utterly de pendent upon entrepreneurship, is "en tirely foreign to what may be observed in ... the tendency towards equilibrium."

[Schumpeter, The Theory of Economic Development (Cambridge, Mass.: Har vard University Press, 1934), p. 64.] By contrast 1:nY own treatment of the entrepreneur e~phasizes the equilibrat ing aspects of his role. I see the situation upon which th~ entrepreneurial role im pinges as one ot inherent disequilibrium rather than of equilibrium - as one churning with: opportunities for desir able changes rather than as one of placid 350 THE FREEMAN June evenness. Although for me, too, it is only through the entrepreneur that changes can arise, I see these changes as equili brating changes. For me the changes the entrepreneur initiates are always to ward the hypothetical state of equilib rium; they are changes brought about in response to the existing pattern of mis taken decisions, a pattern characterized by missed opportunities. The entrepre neur, in my view, brings into mutual ad justment those discordant elements which resulted from prior market ignorance. 3 Entrepreneurship The entrepreneur is anyone who struggles with the problem of uncer tainty. Anyone who tries to predict the future and then acts in terms of his prediction is an entrepreneur. He sees opportunities for profit that others miss. He can "buy low" and "sell high" because others do not recognize the existence of a higher than-normal price spread between wholesale and retail. They do not perceive that "producer goods" are underpriced in relation to what some consumer will be willing to pay for the "final product" in the future. (Of course, the "producer good" may be identical physically and technically to the "final product"-land, for ex ample, or a gold coin, or an an tique-but the purchase price for the entrepreneur is lower than what he expects to be able to sell it for in the future.) This means that entrepreneurs are not innately a separate class of peopIe within the economy. Every per son is to some extent a speculator, since we all make predictions about the uncertain future, and we all act in terms of our perception of that fu ture. There are those people, how ever, who are so adept at predicting the uncertain future, and acting in terms of unexpected (by others) fu ture consumer demand, that they can become specialists. They become full time speculators, in the sense that other people are full-time manual laborers or full-time accountants, or whatever.

Entrepreneurs deal in opportuni ties-specifically, opportunities that are not perceived as such by compet itors. The entrepreneur is like a per son who knows where a rare gold coin is lying in a gutter. He then makes plans: to walk to that gutter, bend down, pick the coin up, put it into his pocket, take it to a coin shop, sell it for cash, take the cash to a store, and make a purchase with it. He also hopes to do this without calling attention to himself, so that someone else who is physically closer to that gold coin than he is will not take action sooner. He also has to plan for the possibility that a robber will steal it before he can spend it. He must plan for "unforeseen con tingencies." Consider this question: Is the en trepreneur engaged in cut-throat competition when he picks up that gold coin, sells it for cash, and then 1982 CUT-THROAT OPPORTUNITIES 351 goes out and spends it? After all, anyone could have picked it up. All he had to do was to shout to a passer by: "Hey, buddy, look down in the gutter. Yes, that gutter. See that gold coin? Can you think of anything you could do with the money it's worth?

You can? So can I. So why don't we both go down to the coin shop, cash it in, split the money, and go our own ways?" Would you call atten tion to the gold coin under such cir cumstances? And if you would, do you think the passer-by would call out to a third person, and would that person call out to a fourth, and so on, until "cut-throat" competition becomes "friendly" competition, by mutual-let alone universal agreement? If you think it would be foolish to call attention to the coin lying in the gutter, but you also think it would be immoral to pick it up for your use, since this would mean engaging in cut-throat competition, you could leave it in the gutter. But who ben efits? Not the person who lost it. Af ter all, since you have decided to leave it in the gutter, you are in no position to call the police and tell them that you found a coin in the gutter, and ask them to inform you should someone report the loss. And even if you did this, as you should, what if no one claims it? Then what do you do? You refused to call atten tion to it as it sat there in the gutter.

Should you give it to the State? Should you give it to charity? Should you put it bac~ in the gutter? Who benefits now? Maybe it will be washed down adrain and out to sea. Maybe it will bie found by a criminal who will use the money to buy a gun and rob someone. In short, once you know about an iopportunity, you can not escape from the responsibility of taking advantage of it or misusing it. Taking Advantage This is true for every entrepre neurial possibility. Anyone who sees an opportuni~y to enrich himself must make a Q-ecisionabout taking advantage of the situ;ltion. Ques tion: Is takingiadvantage of a situa tion the same las taking advantage of a person? If you refuse to call out and tell a passer-by about the gold coin in the gutter, have you taken advantage of him? After all, the ad vantage was "within his grasp." He simply failed to recognize it. But if you refuse to qall out, and you also refuse to pick 'Up the coin, you are very possibly passing along the op portunity to someone else. Further more, if you miss this opportunity, and so does eyeryone else, and the coin washes down the drain, then you are responsible for not having of fered the coin qealer the opportunity of making avai[able the coin for pur chase by his c~stomers. No matter what you do, ypu are going to "take advantage" of someone, even if you only take away his option of taking 352 THE FREEMAN June advantage of the situation himself (e.g., the coin collector's opportunity to add to his collection).

What do we mean when we speak about "taking advantage" of some one? If we argue that by acting to benefit ourselves, we have hurt all those who might have made the same use of the economic resource in question, then the concept becomes ethically useless. Did my wife "take advantage" of all unmarried women when she married me? (My ego tells me it must be so; my mind sends out a warning against this approach to the question.) After all, she removed a tremendous opportunity - in my view-from the "market." If the mere personal use ofa scarce resource is understood as "taking advantage" ofanyone or everyoneelse, then life as such is morally question able. Those who are living above a subsistence level are "taking advan tage" of those on the margin of life. When I eat, a starving person is not eating. When I turn up the heat in my home, I am using fuel that might have saved a poor person whose fuel is gone. In fact, we, the living, are responsible, in this view, for the deaths of all those whose lack of funds or medical attention (at what ever price) led to their demise.

This is not a hypothetical exam ple. Consider the words of theolo gian-historian Ronald Sider, whose best-selling book, Rich Christians in an Age of Hunger (1977), has become one of the most influential books on seminary and Christian college campuses all over the United States. His introduction· to the book sets forth the problem: The food crisis is only the visible tip of the iceberg. More fundamental problems lurk just below the surface. Most serious is the unjust division of the earth's food and resources. Thirty per cent of the world's population lives in the developed countries. But this minority of less than one-third eats three-quarters of the world's protein each year. Less than 6 per cent of the world's population lives in the United States, but we regularly de mand about 33 per cent of most minerals and energy consumed every year. Amer icans use 191 times as much energy per person as the average Nigerian. Air con ditioners alone in the United States use as much energy as does the entire coun try of China annually with its 830 mil lion people. One-third of the world's peo ple have an annual per capita income of $100 or less. In the United States it is now about $5,600 per person. And this difference increases each year. 4 Production and Consumption I can remember reading textbooks written in the 1950s that affirmed the wonders of American capital ism, and that pointed with pride to the fact that 6 per cent of the world's population produced 40 per cent (or 33 per cent) of the world's goods. But that argument grew embarrassing for those who proclaimed the sup posed productivity of socialism. 801982 CUT-THROAT OPPORTUNITIES 353 cialist nations just never caught up.

So the socialist critics now complain that 6 per cent of the world's popu lation (Americans) annually uses up one-third of the world's annual pro duction, as if this consumption were not simultaneously a process of pro duction, as if production could take place apart from the using up of pro ducer goods. This is word magic. It makes productivity appear evil. It is true that Westerners eat a large proportion of the protein that the world produces each year. This has been used by vegetarian social ists to create a sense of guilt in Western meat-eating readers of so cialist literature. You see, our cattle eat protein-rich grains. "Corn-fed beef' is legendary -or notorious, in the eyes of the critics. Because of this, argues Sider, the "feeding burden" of the United States is not a mere 210 million (the number of human mouths to feed), but 1.6 billion. 5 "No wonder more and more people are beginning to ask whether the world can afford a United States or a Western Europe."6 The psalmist proclaimed a poetic truth about God's ownership of the world, by identifying these words as God's: "For every beast of the forest is mine, and the cattle upon a thou sand hills" (Psalm 50:10). But "lib eration theologians" are not im. pressed. You see, Sider informs us: "The U.S. Department of Agricul ture reports that when the total life of the animal is considered, each pound of edible beef represents seven pounds of grain. That means that in addition to aU the grass, hay and other food involved, it also took seven pounds of grain to produce a typical pound of beef purchased in the su permarket. Fortunately, the conver sion rates for' chicken and pork are lower: two or 'three to one for chicken and three or. four to one for pork.

Beef is the cadillac of meat products. Should we mpve to compacts?"? He would apparently prefer to rewrite the words of the psalm: "For every chicken of the!forest is mine, and the soybeans on seven thousand hills." (With the seven-to-one ratio in ef fect.) Changing Just One Thing Unquestio~ably, Third World populations &ometimes suffer pro tein deficienciies. But any program of "social sahration through protein exports" is going to encounter prob lems that the iwealth-redistribution ists never consider. People's food is fundamental to their culture. Trying to stay on a djet has confounded mil lions of Ameriicans. Eating habits are very difficult to alter, even when the eater knows that he should change. An education program to get Third World peasants to change their diets is going to be incredibly expensive, and probably futile. "Rice-eating people would <:>ftenrather starve than eat wheat or barley , which are un354 THE FREEMAN June known to them," writes biologist Richard Wagner. 8 This problem goes beyond mere habits. Sometimes we find that peo ple's diets. have conditioned their bodies so completely that the intro duction of a new food may produce biological hazards for them. This is sometimes the case with protein.

Wagner comments: Another even more bizarre instance was seen in Colombia, where a population was found with a 40 percent infestation of Entamoeba histolytica, a protozoan that generally burrows into the intestinal wall, causing a serious condition called amoe biasis. However, despite the high level of Entamoeba infestation, the incidence of amoebiasis was negligible. The answer to this puzzle was found in the high-starch diet of the people. Because of the low pro tein intake, production of starch-digest ing enzymes was reduced, allowing a much higher level of starch to persist in the intestine. The protozoans were found to be feeding on this starch rather than attacking the intestinal wall. If this pop ulation had been given protein supple ments without concurrent efforts to con trol Entamoeba infestation, the incidence of amoebiasis would probably have soared, causing more problems than the lack of protein. 9 Cultures are "package deals."

When a foreign culture introduces a single aspect of its culture into the life of another, there will be compli cations. Changing people's eating habits, apart from their understand ing of medicine, costs of production, agricul tural technology, risks of blight, marketing, and an indetermin ate number of other contingent aspects of the recommended change, is risky when possible, and fre quently impossible. The Third World peasants recognize the implications of this "cultural wedge" perhaps better than the Western "mission ary": it may have a far-reaching im pact on the culture as a whole-an impact which traditional peasants may choose to avoid. Unless the op portunity being offered by the inno vator is seen by the recipient as being worth the risks of unforeseen "ripple effects," the attempt to force a change in the recipient's buying or eating habits may lead to a disaster. Or more likely, it will probably lead to a wall of resistance. Missionaries, whether Christian or secular, whether sponsored by a church or the Peace Corps, had better under stand one fundamental principle be fore they go into the mission field: You cannot change only one thing.

The Sub-Sahara Sahel Famine One of the classic horror stories that illustrates this principle is the Sub-Sahara Sahel famine of the 1970s. For 25 years, from the early 1950s through the mid-1970s, the West's civil governments poured hundreds of millions of dollars into this region. Yet between the late 1960s and 1974, several hundred thousand people starved, along with 1982 CUT-THROAT OPPORTUNITIES 355 20 million head of livestock. Why? As with most agricultural tragedies, there was no single cause. But one factor stands out. The area gets lit tle rain: perhaps 25 inches in its southernmost regions, tapering off to an inch per year the closer you get to the Sahara. The nomads needed water for their herds, as they had from time immemorial. The West gave them water. It destroyed them. Beneath the rock and clay and sand, there is water. A subterra nean lake of half a million square miles underlies the eastern end of the Sahara. Mechanical rigs can hit water at 1,000 or 2,000 feet down.

These boreholes were drilled with Western foreign aid money, at $20,000 to $200,000 apiece. About 10,000 head of cattle at a time can drink their fill. Therein lies the problem. Claire Sterling describes what happened: The trouble is that wherever the Sahel has suddenly produced more than enough for the cattle to drink, they have ended up with nothing to eat. Few sights were more appalling, at the height of the drought last summer [1973], than the thousands upon thousands of dead and dying cows clustered around Sahelian boreholes. Indescribably emaciated, the dying would stagger away from the wa ter with bloated bellies to struggle to fight free of the churned mud at the water's edge until they keeled over. As far as the horizon and beyond, the earth was as bare and bleak as a bad dream. Drought alone didn't do that: they did. What 20 milliop. or more cows, sheep, goats, donkeys, a:pd camels have mostly died of since this :grim drought set in is hunger, not thirst; Although many would have died anyway, the tragedy was com pounded by a fierce struggle for too little food among Sahelian herds increased by then to vast numbers. Carried away by the promise of unilimited water, nomads forgot about the Sahel's all too limited forage. Timeless ~ules, apportioning just so many cattle toigraze for just so many days within a COW's walking distance of just so much wat~r in traditional wells, were brushed as~de. Enormous herds, converging upon ~he new boreholes from hundreds of miles away, so ravaged the surrounding land by trampling and ov ergrazing that ea~h borehole quickly be came the center of its own little desert forty or fifty mile$ square. lO In Senegal, soon after boreholing became popular, around 1960, the number of cows,:sheep and goats rose in two years froln 4 million to 5 mil lion. "In Mali, during the five years before 1960, the increase had been only 800,000. Over the next ten years the total shot up another 5 million to 16 million, more than three ani mals for every Malien man, woman, and child."ll It is not just Americans and West Europeans who raise and eat "protein on the hoof."

The tradition~l nomad way of life is dead. Western specialists know it; the nomads knowit. They live in tent camps no~, dependent on handouts from their governments, which in turn rely heavily on the West's for eign aid programs. The West and the 356 THE FREEMAN June nomads forgot to honor (and deal with) the principle: You cannot change only one thing. The Goal The goal of charitable organiza tions that deal in foreign aid should be to bring the culture of the West to the underdeveloped nations. This means that these organizations can not be run successfully by cultural and philosophical relativists. They should seek to impart a specifically Western way of looking at the world: future-oriented, thrift-oriented, ed ucation-oriented, and responsibil ity-oriented. This world-and-life view must not be cyclical. It must offer men hope in the power of human reason to understand the external world and to grasp the lawB of cause and effect that control it. To try to bring seed corn to a present-oriented culture that will eat it is futile. With the seed corn must come a world and-life view that will encourage men to grow corn for the future.

It does no good to give these cul tures Western medicine and not Western attitudes toward personal hygiene and public health. It does no good to send them protein if their internal parasites will eat out their intestines. The naive idea that we can simply send them money and they will "take off into self-sus tained economic growth" cannot be taken seriously any longer. 12 To at tack the West because it is somewhat less willing today to continue to honor the tenets of a naive faith in foreign aid-a faith in the power of confiscation, in the power of using Western tax revenues to prop up so cialist regimes in Third World na tionsis itself immoral. P. T. Bauer has made the study of economic development his life's work. He has emphasized what all econo mists should have known, but few acknowledged until quite recently, namely, that attitudes are more im portant for economic growth than money. His list of what ideas and attitudes not to subsidize with West ern capital is comprehensive. No program of foreign aid, public or pri vate' should be undertaken apart from an educational program to re duce men's faith in the following list of attitudes: Examples of significant attitudes, be liefs and modes of conduct unfavourable to material progress include lack of in terest in material advance, combined with resignation in the face of poverty; lack of initiative, self-reliance and a sense of personal responsibility for the economic future of oneself and one's family; high leisure preference, together with a lassi tude found in tropical climates; rela tively high prestige of passive or contem plative life compared to active life; the prestige of mysticism and of renuncia tion of the world compared to acquisition and achievement; acceptance of the idea of a preordained, unchanging and un changeable universe; emphasis on per formance of duties and acceptance of ob1982 CUT-THROAT OPPORTUNITIES 357 ligations, rather than on achievement of results, or assertion or even a recogni tion of personal rights; lack of sustained curiosity, experimentation and interest in change; belief in the efficacy of super natural and occult forces and of their in fluence over one's destiny; insistence on the unity of the organic universe, and on the need to live with nature rather than conquer it or harness it to man's needs, an attitude of which reluctance to take animal life is a corollary; belief in per petual reincarnation, which reduces the significance of effort in the course of the present life; recognized status of beg gary, together with a lack of stigma in the acceptance of charity; opposition to women's work outside the home. I3 A long sentence, indeed. If the full time promoters of Western guilt understood its implications, there would be greater hope for both the West and the Third World. What is remarkable is the extent to which these guilt-manipulators have adopted so many of the very attitudes that Bauer says are responsible for the economic backwardness of the Third World.

Guilt-Manipulation Yes, the West continues to eat. The Third World finds it difficult to grow sufficient food. But Christians in the West are complacent. They are well fed, while their "global neighbors"14 go hungry. It appears that the Christians and rich Westerners in general were very smart: they all moved to those regions of the world where food is abundant. The plains Indians, before the white man came on the scene, experienced frequent famines. There! were under half a million of them at the time. I5 Yet, somehow, the 'Westerners arrived just in time to ~ee agricultural pro ductivity flourish. They now con sume more· than their "fair share" of the food, and th~ir only excuse is that they produce it. iThis, it seems, is not a good enough answer-certainly not a morally valid answer. The West needs to come up with a cure for the hungry masses fOf the world, but not the one that worked in the West, namely, the prilyate ownership of the means ofprodut:tion.

Professor Sider (he teaches at a Baptist theological seminary) has a cure-if not fOIT the world's hungry masses, then at least for the now guilty consciences of his readers, not to mention the not-yet-guilt-bur dened consciences of the American electorate. "W~ ought to move to ward a personal lifestyle that could be sustained for!a long period of time if it were share<l by everyone in the world. In its controversial Limits to Growth, the Club of Rome suggested the figure of $1,800 per year per per son. In spite of the many weak nesses of that !study, the Club of Rome's estimate may be the best available."16 Apd which agencies should be responsible for collecting the funds and f$ending them to the poor in foreign' lands? United Na358 THE FREEMAN June tions channels. 17 Private charity is acceptable-indeed, it is better than the United States government, which sends food and supplies to "repres sive dictatorships"18-but not pref erable. We need State-enforced "in stitutional change," not reliance on chari ty, because "insti tutional change is often morally better. Per sonal charity and philanthropy still permit the rich donor to feel supe rior. And it makes the recipient feel inferior and dependent. Institu tional changes, on the other hand, give the oppressed rights and power."19 But if the United States government is not really a reliable State to impose such institutional change, what compulsory agency is reliable? He conveniently neglects to say. But the one agency he mentions favorably in this context is the United Nations. 20 The Zero-Sum Economy A zero-sum game is a game in which the winners' earnings come exclusively from the losers. But what applies to a game of chance does not apply to an economy based on vol untary exchange. Unfortunately, many critics of the free market so ciety still cling to this ancient dogma.

They assume that if one person prof its from a transaction, the other per son loses proportionately. Mises ob jects: ... the gain of one man is the damage of another; no man profits but by the loss of others. This dogma was already ad vanced by some ancient authors. Among modern writers Montaigne was the first to restate it; we may fairly call it the Montaigne dogma. It was the quintes sence of the doctrines of Mercantilism, old and new. It is at the bottom of all modern doctrines teaching that there prevailed, within the frame of the mar ket economy, an irreconcilable conflict among the interests of various social classes within a nation and furthermore between the interests of any nation and those of all other nations .... What produces a man's profit in the course of affairs within an· unhampered market society is not his fellow citizen's plight and distress, but the fact that he alleviates or entirely removes what causes his fellow citizen's feeling of uneasiness.

What hurts the sick is the plague, not the physician who treats the disease. The doctor's gain is not an outcome of the ep idemics, but of the aid he gives to those affected. The ultimate source of profits is always the foresight of future conditions. Those who succeeded better than others in anticipating future events and in ad justing their activities to the future state of the market, reap profits because they are in a position to satisfy the most ur gent needs of the public. The profits of those who have produced goods and ser vices for which the buyers scramble are not the source of losses of those who have brought to the market commodities in the purchase of which the public is not pre pared to pay the full amount of produc tion costs expended. These losses are caused by the lack of insight displayed in anticipating the future state of the mar ket and the demand of the consumers. 21 1982 CUT-THROAT OPPORTUNITIES 359 The "Montaigne dogma" is still with us. The economic analysis pre sented by Ronald Sider assumes it.

He can be regarded as a dogmatic theologian, but his dogma is Mon taigne's. Consider for a moment his statistics, such as the Club of Rome's assertion that $1,800 a year would just about equalize the living stan dards of the world. The capital of the rich in the West-roads, educa tional institutions, communications networks, legal systems, banking facilities, monetary systems, manu facturing capital, managerial skills, and attitudes toward life, wealth, and the future-cannot be divided up physically. Furthermore, there is little evidence that it would be suf ficient to produce worldwide per capita wealth ofthis magnitude, even if it could be physically divided up and redistributed. 22 RedistributionIs Temporary If we divided only the shares of ownership held by the rich-stocks, bonds, annuities, pension rights, cash-value life insurance policies, and so forth-we would see a mar ket-imposed redistribution process begin to put the shares back into the hands of the most efficient produc ers. The inequalities of ownership would reappear, rapidly.

The Club of Rome .assumes tre mendous per capita wealth in the hands of the rich-so much wealth, that a program ofcompulsory wealthredistribution could make the whole world middle class. The important issue, howevetr, is the Montaigne dogma. It view~ the world as a zero sum game, in: which winnings ex actly balance losses. Then how do societies advance? If life is a zero sum game, how can we account for economic growth? A free market economy is not ia zero-sum game. We exchange with each other because we expect to gain an advantage. Both parties expect ~o be better off after the exchange lias taken place. Each party offers an opportunity to the other person. If each person did not expect to bet~er himself, neither would make the exchange. There is no fixed quantity of economic bene fits. This is not:a zero-sum game. We understalnd this far better in the field of edu~ation. For example, if I learn that ,two plus two equals four, I have not harmed anyone. In the area of knqwledge, we all know that the only people who lose when someone gains new, accurate knowl edge are those Who have invested in terms of older~ inaccurate knowl edge. Could anyone seriously argue that the acquisition of knowledge is a zero-sum ga$e (except, perhaps, in the case of q competitive exami nation)? Would anyone argue that we should suppress the spread ofnew, accurate knowledge in order to pro tect those who have made unfortu nate investments in terms of old in formation?

360 THE FREEMAN June Suppressing Knowledge Sadly, the answer is "yes." There are people who advocate policies that do suppress new knowledge. They argue that it is immoral for one man to "take advantage" of specialized knowledge in order to reap a return on this knowledge. They want the civil government to impose restric tions on profits- "obscene profits," they are sometimes called-that one man or a firm can reap. But this re stricts the spread of the information that benefits consumers, and which they are willing to pay for. The exis tence of profits alerts other profit seeking entrepreneurs to the exis tence of specialized knowledge that had previously been ignored. Profits tell producers that an opportunity is available-an opportunity that they can take advantage ofby entering the producer goods markets, buying up producer goods, restructuring them (if necessary), and selling them, in the form of "final" goods and ser vices, to consumers. The lure of making profits is the control mech anism by which consumers get pro ducers to serve them efficiently.

High profits, in a free market economy, are normally associated with low prices and high wages. The classic example is Henry Ford's Model T. He offered wages of $5 per day-unheard-of in 1913, when hourly wages were as low as 15 cents 23-to lure men onto Ford's as sembly lines that were producing cars that middle-class families could at last afford to buy. (When men said "afford" in 1914, they meant "a Ford.") He made his money the same way Sears, Roebuck had made its money, and which Ford may have used as a production model.24 He used mass-production techniques, captur ing a huge market by means of price competition. This had been capital ism's distinguishing trademark from the 1600s, but Ford's implementa tion of the high-wage version cre ated a revolution. Drucker describes it: Before Ford changed the whole labor economy of the United States with one announcement, labor turnover at the Ford Motor Company had been so high that, in 1912, 60,000 men had to be hired to retain 10,000 workers. With the new wage, turnover almost disappeared. The resulting savings were so great that de spite sharply rising costs for all materi als in the next few years, Ford could produce and sell its Model T at a lower price and yet make a larger profit per car. It was the saving in labor cost produced by a drastically high wage that gave Ford market domination. At the same time Ford's action transformed American industrial society. It estab lished the American working man as fundamentally middle class. 25 What if the Federal government had passed a windfall profits tax on automobile production in 1912?

Would Ford have taken the risk of this revolutionary experiment? And if he had taken it, and the Federal 1982 CUT-THROAT OPPORTUNITIES 361 government had extracted its tax, would this revolutionary innovation have been imitated by Ford's com petitors? Fortunately for the Amer ican worker, and unfortunately for Ford's competitors in the automo bile business, the Sixteenth Amend ment had gone into force only that year, 1913, and the top rate of ex traction was only 6 per cent on all income above $500,000. There were no "windfall profits taxes" then. The Ford Formula Did Ford "take advantage" of all those people who had invested in auto firms that were bankrupted by Ford's successful experiment? Or did he simply make a better offer to work ers and automobile buyers? How can anyone distinguish "taking advan tage or' from "making a better offer to"? There is little doubt that Henry Ford's offer to workers represented cut-throat wage competition to all other buyers of labor services. There is also no doubt that his price-com petitive Model T represented a dev astating blow to the producers of hand-crafted, high-priced autos. Was Ford immoral in making his offer to consumers? And was he immoral in making a billion dollars-in pre-New Deal purchasing power-as a direct result of his grand experiment?26 Should we condemn the "greedy consumers," who bought Ford cars in preference to those produced by his competitors?

The success ofFord's grand exper iment drew imitators. How did they know that his experiment had been successful? By the astronomically high profits that his company was making. And how did they know in the late 1920s that the experiment was incomplete, ~nd that his old of fer- "You can get a Ford in any color you want, just so long as you want it :in black"-was no longer competi tive? By the losses Ford Motor Com pany sustained, and by the massive profits made by! General Motors, which was in the process of creating a managerial revolution almost as significant as Ford's labor revolu tion. 27 Another form ()f information -sup pression is the p(l)pular government expedient of price!controls. These can be price "floors,"· such as minimum wage laws, or price "ceilings," such as the rent contrqls or the ceiling on the price of natural gas. Price floors create "gluts": m~re supply of a par ticular item offered for sale than the market can absorb, at the legal, ar tificial price. Pri~e ceilings produce shortages: more demand for a par ticular item than the market can provide, at the legal, artificial price.

The artificial, State-enforced prices give offmisleadi~g signals that con fuse both potential buyers and po tential seUers-"potential" at the artificial prices. Walter Wriston offers an impor tant insight into one implication of 362 THE FREEMAN June price controls: their effect on the communication of vital knowledge. Prices and wages represent an essen tial form of econoniic speech; money is just another form of economic informa tion. When the freedom of this economic speech is restricted, we are not only pe nalized, we are misled .... Prices enable consumers to communicate with produc ers and tell them what they want or don't want. If prices are censored, or frozen, they cannot tell producers what goods or services people want or don't want to purchase. 28 The spread of consumer-satisfying information is enhanced by the lure of profits. The modern stock market is probably the most efficient and rapid communicator of new knowl edge in the history of man. 29 When civil governments attempt to put re strictions on profits, they· necessar ily restrict the consumers' access to information, and the economic re sults of information, that they, by their demonstrated preferences, are willing to pay for in the market place. The "marketplace for ideas" is not limited to newspapers, televi sion news rooms, and college class rooms, although some intellectuals employed by these organizations would have us believe so. The mar ketplace for ideas, above all, is found in the competitive interplay of mar ket offers and market responses.

Competition as Substitution When a person offers another per son an opportunity to spend money, or trade goods, or whatever, the ini tiator is asking the second person to alter his existing pattern of expen ditures. He is asking that person to take money that would have been spent or invested in one way, to spend or invest it differently. The initiator is asking the second person to sub stitute a new expenditure pattern for the previously dominant pattern. Competition invariably possesses this element of substitution. The prospective worker asks an em ployer to hire him, even if this should mean that another person in the employment line is not hired. It may even mean that someone already employed by the firm gets fired,or demoted, or transferred. He may of fer the prospective employer an in triguing offer:·"Hire me for less than you are paying somebody already on the production line." Or: "Hire me and I will work during hours that everyone else complains about." Or: "Hire me, and I will guarantee in writing that I will not join a labor union." Or (in a "union shop"): "Hire me, and I will guarantee in writing that I will join a labor union." In short, hire me. "Substitute me for someone on the production line or in the employment line; substitute me for the money that the firm intended to spend on labor-saving equipment, or advertising, or managerial bo nuses. It will pay the company to substitute me for any of those other possible expenditures."

1982 CUT-THROAT OPPORTUNITIES 363 THE "vulgar calculus of the market place," as its,critics have de scribed it, is still the most humane way man has yet found for solving those questions of economic allocation and division which are ubiquitous in human society. By what must seem fortunate coincidence, it is!also the system most likely to produce the affluent society, to move mankind above an existence in which life is mean, nasty, brutish, and short. But, of course, this is not just coincidence. Under economic freedom, only man's destructive instincts are curbed by la)N. All of his cre ative instincts are released and freed to work ttiose wonders of which free men are capable. In the controlled society only the creativity of the few at the top can be utilized and much of this creativity must be expended in maintaining control and in fending off rivals. In the free society, the creativity of every man can be expressed-and surely by now we know that we cannot predict who will prove to be the most creative.

BENJAMIN A. ROGGE, "The Case for l=conomic Freedom" Does anyone ever complain about "cut-throat substitution"? As a slo gan to call revolutionaries to the barricades, it lacks something. What about "cut-throat opportunities"? That one is even worse. It makes the process sound beneficial to con sumers. Better stick with "cut-throat competition." That one gets legisla tors concerned about the terrible damage being done by "ruthless ex ploiters" (another top-flight incan tation in the word-magic business) against innocent suppliers. It is not easy to get legislation "in the public interest" against cut-throat oppor tunities. So when we hear the phrase, "cut throat competition," we should think twice. Whose throat is being cut? The consumer's? Not very often. The supposed cut-throat-in pirate's garb, a knife in his teeth-is usually just someone who offers the consumers a better opportunity. No doubt, he is resented by his ~ompetitors, who are unwilling or unable to offer the con sumers a comparable deal. But this should not send us rushing to the barricades, or into the halls of Con gress, to demand action against these antisocial "cut-throats." Legisla tion against cut..throat suppliers re duces their freedom of action, and it ultimately reduces our freedom, as consumers, to r¢spond to offers that we might have 4ccepted. Legislation against cut-throat competition re364 THE FREEMAN suits in the cut throats ofconsumers: reduced opportunities.

Therefore, when we hear the phrase, "cut-throat competition," let us mentally substitute the word "op portunities" for "competition." It re minds us of what we are being asked to destroy through legislation: "New Opportunities: Void where prohib ited by law!" , -FOOTNOTES1Martin Anderson, The Federal Bulldozer (New York: McGraw Hill, 1967), ch. 4. This study was published originally by MIT Press in 1964. 2Joseph Schumpeter, Capitalism, Socialism, and Democracy (3rd ed.; New York: Harper Torchbook, (195011962), ch. 7: "The Process of Creative Destruction." 3Israel Kirzner, Competition and Entrepre neurship (Chicago: University of Chicago Press, 1973), pp. 72-73. 4Ronald Sider, Rich Christians in an Age of Hunger (Downers Grove, Illinois: Inter-Varsity Press, 1977), p. 18. This book was co-published by the liberal Roman Catholic publishing house, the Paulist Press. Unquestionably, it represents an ecumenical venture. Inter-Varsity is per haps the largest campus organization ofthe "neo evangelical" branch of Protestantism.

5Ibid., p. 152. 6Ibid., p. 153. 7Ibid., p. 43. 8Richard H. Wagner, Environment and Man (3rd ed.; New York: Norton, 1978), p. 523. 9Ibid., pp. 518-19. lOClaire Sterling, "The Making of the Sub Sahara Wasteland," Atlantic (May, 1974), p. 102. I assume she means 50 square miles, not 50 miles square (2,500 square miles). llIbid., p. 103. 12W. W. Rostow, The Stages of Economic Growth: A Non-Communist Manifesto (Cam bridge: At the University Press, 1960). This was a best-seller of the early 1960s. For a critique, see the essays by several economic historians in Rostow (ed.), The Economics of Take-Off into Sustained Growth (New York: St. Martin's, 1963). 13p' T. Bauer, Dissent on Development (Cam bridge, Mass.: Harvard University Press, 1972), pp.78-79. 14Sider,Rich Christians, p. 30. 15R. J. Rushdoony, The Myth of Over-Popula tion (Fairfax, Virginia: Thoburn Press, f19691 1978), pp. 1-3. 16Sider, "Living More Simply for Evangelism and Justice," the Keynote Address to the Inter national Consultation on Simple Lifestyle, En gland (March 17-20,1980), mimeographed pa per, p. 17.

17Sider,Rich Christians, p. 216. 18Idem. 19Sider, "Ambulance Drivers or Tunnel Builders" (Philadelphia: Evangelicals for So cial Action, no date), p. 4. 2°For a critical analysis of Sider's views, see David Chilton, Productive Christians in an Age of Guilt-Manipulators: A Biblical Response to Ronald Sider (rev. ed.; Tyler, Texas: Institute for Christian Economics, 1982). 21Ludwig von Mises, Human Action (3rd ed.; Chicago: Regnery, 1966), pp. 664-65. 22Gary North, "Trickle-Down Economics," The Freeman (May, 1982). 23Peter F. Drucker, Management: Tasks, Re sponsibilities, Practices (New York: Harper & Row, 1974), p. 338. 24Ibid.,p. 53n. 25Ibid.,p. 339. 26Dean Russell, "The Last Billionaire," The Freeman (December, 1959), p. 32. 27Drucker,Management, pp. 209-10,380-84. 28Walter B. Wriston, "Repressing Economic News," The Freeman (July, 1979), p. 394. 29Frederick C. Klein and John A. Prestbo, News and the Market (Chicago: Regnery, 1974).

On the ill-effects on the spread of information as a result of the government's attempt to re strict "insider trading," see Henry Manne, In sider Trading and the Stock Market (New York: The Free Press, 1966).