They Solve Tomorrow's Problems; B. Summers

Brian Summers 30 My NEIGHBOR JOE is a friendly chap with a sharp eye on current affairs. Thus, one Saturday morning after I had mowed the lawn, I strolled over to get his considered views on the state of the world. "This country faces a lot of prob lems," he told me as he slid under his car to change the oil. "Every thing seems to be falling apart. Last night I was an hour late getting home because the subway broke down. I don't know why they can't maintain those trains any better." "You seem to be doing a pretty goodjob maintaining your car," I ob served. "Sure," he said. "I have to keep this car in good condition. I want to sell it next year." "Too bad we can't sell the sub ways." ''What?'' he asked, poking his head from under the chassis. "Suppose you held a share in a privately owned subway. Wouldn't you want the managers to maintain the value of your share by keeping the trains in good working order?"

"Sure. If they didn't, I-would sell my stock." "Of course. And as people sold their shares, the price of the company's stock would fall. This could lead to a stockholder revolt or corporate take over. Either way, management would Mr. Summers is a member of the staff of The Foun dation for Economic Education.

THEY SOLVE TOMORROW'S PROBLEMS 31 be compelled to fix the trains. As a general rule, when things are pri vately owned, people try to main tain their value by anticipating fu ture maintenance problems." "What about the apartments across town?" he asked as he reached for an oil filter. "Why don't the owners maintain them?" "Rent controls have destroyed the incentive," I answered. "The owners know that controls will keep them from getting higher rents, even if they make extensive repairs. Fur thermore, they can't get full market value if they try to sell. Who wants to buy a rent controlled apartment building, even if it is in perfect con dition?" "A free market may encourage people to maintain their own prop erty," Joe allowed, "but this country faces some bigger problems. We are running low on natural resources. Each year, for instance, loggers cut down more trees." "Yes," I agreed, "but each year forest product companies plant more trees. They try to maintain the value of their land, the same as you try to maintain the value of your car. Here again, private ownership is the key to heading off tomorrow's problems."

"What about the energy short age?" he asked as he opened a can of oil. "Private owners don't go around planting more oil." "Yes, but with price controls being lifted, they do 'go around looking for more oil. AnQ. you and I may be helping in the!search." "How is that?" "When we save our money, we make more capital available for pri vate investment. The money you put into yourban~ may help provide the loan capital. oil companies need to lease equipment." "I never thought of it that way. I am just trying to make some invest ments to provide for my retirement." "Sure. But by trying to provide for your own future, you help solve to morrow's prOblems." "Come again?" "Well, consider your mutual fund. The fund's managers try to antici pate tomorrow's problems, and try to invest in the corporations most likely to profit by solving these problems. For instance, some of your money may I be furnishing equity capital for ani oil exploration firm."

"You make it sound as if free en terprise will solve all our problems." "No, people will have problems under any social system. But we should examine the incentives in herent in each system. Some incen tives tend to create problems; others will solve them." "This is all very new to me," Joe said as he closed the hood. "I'll have to think about it." , THE CIVIL WAR was a watershed in American economic history. During the war, and the Reconstruction of the South which followed, the stage was set for major economic develop ments. The political nationalization which occurred provided the frame work for large-scale economic devel opment. A nationwide rail trans portation network was soon formed. Interstate commerce grew rapidly, and some businesses became nation wide in scope. Foreign investment and domestic accumulation pro vided the capital for large indus tries. It would be a mistake, however, to attribute these developments to the warfare itself. At least, that is not my meaning. Warfare is destructive Dr. Carson has written and taught extensively, spe cializing in American intellectual history. He is the author of several books and a frequent contributor to The Freeman and other scholarly Journals.