Book Review

Though the Kirzner levels may overlap in gifted individuals, a case can be made that only the third Kirzner type of operator deserves to be called the true entrepreneur. The arbitrage dealer creates nothing by his trades as such, though he may use his profits creatively at a different time. The pure speculator may help his own bank account to grow, but it will be the bank's business to use the speculator's profits creatively. In his The Start-Up Entrepreneur (New York, E. P. Dutton, 306 pp., $18.95) James R. Cook pays his respects to all types of enterprisers, including managers such as Alfred P. Sloan of General Motors who also had crea tive flair. But for the most part Cook is con cerned with people who, perceiving market gaps and unsatisfied wants, bring improved or new products and services into existence. There is a strong autobiographical thread to Mr. Cook's book. He had been a small-town insurance agent in Minnesota, but he yearned to start a manufacturing and servicing company of his own. Without doing any research what soever in the field of water purification he plunked down some of the cash he had received from selling his insurance agency for a fran chise to market "Crest Water" in the Miami Fort Lauderdale area of Florida. The Crest Wa ter machine that went with the franchise could really do a purifying job, but it soon became apparent that Cook and his partner Jay Ander son didn't know Florida. They thought they could sell to the restaurants. After a score of turn-downs and some unfortunate encounters with antagonistic Health Department inspectors they decided to concentrate on condominiums and apartments. When they finally made sev eral inroads in North Miami, they discovered that the machines they sold rusted within weeks. And there was a fish taste when the de ionization tanks wore out.

There had to be corrections in the machines. Before the manufacturers came through with something workable the problem of getting cus tomers remained acute. Luckily Cook and his partner got a tip that the thoroughbred horses at the Tropical Park race track were drinking bot tied water. Cook's partner made the rounds of the trainers, and in a few days he had a life saving order. After further trials and tribula tions Cook found a Key Biscayne developer who was willing to test a coin-operated machine in one of his flagship buildings. The coin operated concept proved the breakthrough. There were still other difficulties, both of money-raising and manufacture, to survive, and the business never did become a gold mine. But fourteen months after they had started Cook and his partner found someone to buy their business for $120,000. What Cook learned from his Florida experi ence was persistence. Back home again in Min nesota he began to keep a notebook compilation of "needs" and "errors. " As a gun collector he noticed there was no market price guide for pro spective gun purchasers. So he began to publish the Blue Book of Gun Values. He formed a group to offer insurance on safe deposit boxes after he had gone into the business of selling gold and silver to investors. Market gaps seemed to open up everywhere. He put up the capital to help start a company that sold nonal coholic mouthwash to members of Alcoholics Anonymous. The company - Morning Magic Mouthwash of Colorado - is still prospering.

During the oil crisis he beat a formidable com petitor in providing wood stoves. The market gap here lasted all too short a time, but, with his Investment Rarities Incorporated, which does a lot more than buy and sell precious metals, Cook has never been at a loss for new diversi fied entrepreneurial ventures. As a "how to" book as well as an autobiogra phy The Start-Up Entrepreneur is filled with all sorts of valuable advice to beginners. The prob lem of diversification must be handled care fully. Oddly, investment capital for small enter prises never seems to depend on interest rates. If the "cut in" prospects seem good to friends and relatives of small-time enterprisers, the money comes through. This probably explains why the vast increase in jobs under Reagan has come from small companies that have not had to borrow at particularly high interest rates. Much of Cook's advice comes in the form of quotations from the famous entrepreneurs and free market thinkers of both past and present history. Ray Kroc of McDonald's is quoted so often that he might well have been listed as a co-author. In certain sections the book reads like an anthology, with wisdom coming in short and effective spurts from Andrew Carnegie, Peter Drucker, Cyrus· McCormick, J. C. Pen ney, Napoleon Hill, Ludwig von Mises, Leonard Read, Conrad Hilton, Henry Ford, Stanley Marcus, George Gilder, and Dale Carnegie, just to name a few of Cook's chosen mentors.

397 Cook seems to have done superlatively well for himself despite government regulation and the depredations of the Internal Revenue Ser vice. He is always mindful, however, that he might have started more businesses if the State had not asked for half his profits. He surmises that if Thomas Edison had been bothered with modern taxation he would have failed to carry through on half his inventions. The paperwork involved in keeping track of the many Edison false starts would have driven the man crazy.0 MONEY AND FREEDOM by Hans F. Sennholz Libertarian Press, Inc., Spring Mills, PA 16875 • 1985. Also avail able from The Foundation for Economic Education. 102 pages • $6.00 paperback Reviewed by Richard A. White M oney is the most marketable eco nomic good in society. Individuals attach value to money with the future expectation of obtaining with it goods and ser vices in the market; money is valuable because of its purchasing power. Money facilitates ex change and makes possible an advanced divi sion of labor.

Since the creation of the Federal Reserve Sys tem in 1913, the federal government has en joyed a money monopoly. The government, which controls the Federal Reserve, may inflate the currency seemingly at will, since legal ten der laws force individuals to accept the state's devalued money. But inflation has dire consequences. As Pro fessor Hans F. Sennholz points out in his latest, provocative book, Money and Freedom, infla tionary booms lay the groundwork for recession and depression. With more money available on the loan market, interest rates decline, and busi nesses are lured into making bad capital invest ments. Because the investments are not accom panied by corresponding increases in savings, capital costs will rise to meet increasing de mand. The boom, therefore, must lead to a bust, a time of adjustment to correct previous malinvestments. If the government continues to inflate, then hyperinflation and eventually the . total destruction of the currency will follow.

398 THE FREEMAN • OCTOBER 1986 In order to restore stability and integrity to money, Sennholz advocates monetary freedom, that is, the private issuing of coins and bank notes. A "parallel standard" of competing monies would replace the government monop oly. Legal tender laws would apply only to the issuers of currencies, who would be required to redeem their monies at face value. Thus, the government would be required to accept its fiat paper money at face value, but could not force it on anyone else. A particular form of money, like any other economic good, will be driven out of the market if it fails to satisfy consumer demand. Given monetary freedom, individuals will likely choose gold as their money, as they have in the past. Gold is highly marketable, easily divisi ble, and cannot be "created" out of thin air by the government. Furthermore, gold does not re quire coercion to gain acceptance. As Sennholz states, "Gold does not need legal tender force; no honest money needs legal tender, but it needs to be free from government regulation, taxation, manipulation, intervention, and threat of confiscation. " (p. 83) In a section entitled, "False Solutions: Man aged Money," Sennholz examines reform pro posals of economists from the monetarist, sup ply side, and social credit camps. While the proposals vary widely, they all fail to take into account the main problem: the government money monopoly. Sennholz's critique of au thors such as Milton Friedman, Robert Mun dell, and Wickliffe B. Vennard is excellent, and though current Austrian proposals remain un mentioned, the section serves as a fine over view of the popular monetary solutions being set forth today.

Books which espouse sound economic analy sis are essential if the present monetary system is to be reformed. Sennholz's Money and Free dom is such a book. It provides explanations of past mistakes and solutions to present prob lems. The clarity with which Sennholz ex presses his ideas makes complicated economic ideas understandable to the reader, and even those who disagree with Sennholz will benefit from his analysis. The government money mo nopoly has failed. Only when freedom is re stored to·money will a sound currency be estab lished. 0 DESTROYING DEMOCRACY: HOW GOVERNMENT FUNDS PARTISAN POLITICS by James T. Bennett and Thomas J. DiLorenzo Cato Institute, 224 Second St., SE, Washington, D.C. 20003 • 1985 • 561 pages, $24.95 cloth, $11.95 paperback Reviewed by Daniel Klein D estroying Democracy provides a de tailed account of the thousands of hid den and diverse ways Federal agencies hand over billions of taxpayer dollars to special interest advocacy organizations. This practice subverts whatever fairness we may have in American politics. Moreover, it is against the law, as shown by passages from laws enacted by Congress and rulings of the Supreme Court.

Behind the facade of representative govern ment, political bodies playa major role in shap ing public opinion. They do so by funding spe cial interests which, in turn, lobby for the handouts on which they depend. To obtain tax dollars, the special interest groups engage in a masquerade, claiming that their intent is to aid the less fortunate, advance the public interest, protect the consumer, improve the environ ment, uplift minorities, and so on. Actually, pressure groups use the taxpayers' money pri marily to further their own interests. "Virtually without exception, the recipients of government grants and contracts advocate greater governmental control over and interven tion in the private sector, greater limitations on the right of private property, more planning by government, income redistribution, and pOliti cal rather than private decision making." (The exceptions are a handful of right-wing organiza tions which have responded to the lure of politi cal handouts.) Some examples: One government agency gave a Ralph Nader "public interest research group" $1,287,000 in the period 1979-8l.

Jesse Jackson's People United to Save Human ity received more than $5 million during 1977 81 from the departments of Education, Labor, Health and Human Services, and Commerce. The National Organization of Women and its affiliates have received considerable grants, one of which (for $105,000) was used to finance a media campaign publicizing NOW's positions. Tom Hayden's Campaign for Economic De mocracy was awarded $500,000, and its activist training arm, The Center for New Corporate Priorities, received a separate grant of $126,000. This book details the realm of tax-funded po liticking, and in so doing offers something much broader. Since most advocacy groups re ceive taxpayer support, the work serves as a handbook of hundreds of activist organizations, from the most remote grassroots campaigns to the most prestigious Washington think tanks. In addition to the text, there is. a hundred page appendix listing the recipient organiza tions, the Federal agency which gave the money, the amount, and the dates.

Before we can successfully oppose "the engi neering of consent" we must identify the engi neers and know how they operate. This book tells us. 0 MAKING SENSE OF MARX by Jon Elster Cambridge University Press, 32 E. 57th Street, New York, NY 10022 • 1985 • 556 pages, $15.95 paperback Reviewed by John K. Williams T his volume is the second contribution to a series, Studies in Marxism and Social Theory, being jointly published by the Cambridge University Press and the Editions de la Maison des Sciences de l'Homme. The edi tors of the series hope that it will "exemplify a new paradigm in the study of Marxist social theory, " liberating such theory from what they describe as "the increasingly discredited . . . presuppositions" of Marxist orthodoxy. Jon Elster-a Professor of Political Science at the University of Chicago and research director of the prestigious Oslo-based Institute for Social Research-designates himself a Marxist, albeit noting that the sense in which he feels able so to describe himself" has undergone a change over the years. " Many readers may, however, won der precisely what Elster's radically revised "Marxism" signifies. His scholarship is aweA REVIEWER'S NOTEBOOK 399 some; his language is precise; his argumenta tion is cogent. Yet his Marxism is to the writ ings of Marx what the ethereal smile of the Cheshire Cat is to that enchanting creature.

"For many readers," observes Elster, "Marxist economics will be more or less syn onymous with the labour theory of value. " One might challenge the term "synonymous" but one both could and should be excused for sug gesting that this theory is central to the eco nomic thought of Marx. One is thus somewhat relieved to discover that Elster concedes this centrality. Yet he bluntly asserts that "the the ory is useless at best, harmful and misleading at its not infrequent worst," and proceeds rigor ously to defend this judgment. Elster's unqualified rejection of both the spe cial and general labor theory of value is extraor dinarily significant. The grand old man of Marxist economics in the United States-Paul Sweezy-is indubitably correct to insist that Marxist economics without the labor theory of value and the associated concept of surplus value is Hamlet without the Prince. The insis tence of Marx that the capitalist mode of pro duction necessarily involves the exploitation of labor by capital depends, in his economic writ ings, utterly upon the labor theory of value. Yet Elster firmly and decisively rejects that theory.

Elster's criticisms of Marx's class analysis of capitalist society are no less stringent than his criticisms of the labor theory of value. Yet he clearly is anxious to retrieve the notion of class conflict from the dismembered cadaver left when his dissecting exercises are complete. Sadly, Elster is either unaware of, or chooses to ignore, the class (or "caste") war stressed by classically liberal thinkers, particularly such nineteenth-century French thinkers as Jean Baptiste Say, Gustave de Molinari, Charles Comte, and Alexis de Tocqueville. Indeed Thomas Paine, writing in 1792 of the United States, insisted that "[t]here are two distinct classes of men in the Nation, those who pay taxes and those who receive and live upon the taxes. " As against the "high Tories," the clas sical liberals perceived in any government able to appropriate goods and services the root cause of social division and "class" struggle, insist ing that unless structures limiting the power of government could be created, conflict between 400 THE FREEMAN • OCTOBER 1986 those controlling the statist apparatus and those subject to that apparatus is inevitable.

A case can be made for asserting that the in sights Elster most values in Marx are remark ably familiar to students of the freedom philoso phy. No student of Ludwig von Mises or reader of Joseph Schumpeter will be amazed to learn that the world studied by economists is a world of dynamic and ongoing change. No person fa miliar with the rich heritage of classical liberal ism will find astonishing the notion that, the moment government's task is perceived as go ing beyond that of defending through laws equally applicable to all the equal rights of all, special interest groups seeking to forge an un holy alliance with government will emerge, each warring against the others. No reader of Adam Smith will greet the insistence that a vital relationship exists between a nation's political and economic structures with other than a somewhat tired, "So what's new?" -for after all, the market economy rests upon precisely defined and efficiently enforced private prop erty rights.

In short, Elster perhaps unwittingly raises the extraordinary but enchanting possibility that what the editors of the series to which his book is a singularly distinguished contribution wish to establish-namely, "what is true and impor tant in Marxism"-might be aspects of the clas sical liberal heritage absorbed by the eclectic Marx. Be that as it may, Elster's volume is a work serious students of the freedom philoso phy would do well carefully to read, thought fully to ponder, and mightily to enjoy! D Money and Freedom by Hans F. Sennholz Money and Freedom is a remarkable study of money an some fateful errors of popular monetary doctrines. Profe~ sor Sennholz argues forcefully and convincingly that suc control, which amounts to a money monopoly, causes mor etary destruction. Money and Freedom is published by Libertarian Pres and is also available from The Foundation for Economi Education.

102 pages, paperback $6.C Order from: The Foundation for Economic Education Irvington-on-Hudson, New York 10533 FEE pays postage on all prepaid orders.