July

263 A Strange Indifference Andrew E. Barniskis What happens when we don't care anymore? 265 Mandated Benefits: The Firm as Social Agent of the State Richard B. McKenzie Extending the reach of the welfare state. 267 Bumper-Sticker Economics Cecil E. Bohanon and T. Norman Van Cott Who really pays ,those road-use taxes? 269 The Political Economy of Protectionism Thomas J. DiLorenzo The ethical and economic ramifications of stifling free trade. 276 The Burden of Bureaucracy M. E. Bradford Fighting the war against an entrenched government "army." 277 Hong Kong Reflections Michael Walker What will happen to Hong Kong's free market economy-and the civil freedoms of its citizens-when China assumes control of the colony in 1997? 279 Government Regulation of Business: The Moral Arguments Tibor R. Machan Why politicians and bureaucrats should not formulate and enforce standards for conducting legitimate activities.

283 The Rise (and Fall?) of the Video Store William B. Irvine Library loans of video-taped movies pose a threat to private suppliers. 286 Paradoxical Taxi Fares Joseph S. Fulda Supply and demand at work. 287 Books Capitalism for Kids by Karl Hess. The New China by Alvin Rabushka. Right Minds by Gregory Wolfe. CONTENTS JULY 1988 VOL. 38 NO.7 THEFREEMAN IDEASON LIBERTY Published by The Foundation for Economic Education Irvington-on-Hudson, NY 10533 President of the Board: Bruce M. Evans Vice-President: Robert G. Anderson Senior Editors: Beth A. Hoffman Brian Summers Contributing Editors: Bettina Bien Greaves CarlO. Helstrom, III Jacob G. Hornberger Edmund A. Opitz Paul L. Poirot The Freeman is the monthly publication of The Foundation for Economic Education, Inc., Irvington-on-Hudson, NY 10533 (914) 591-7230. FEE, founded in 1946 by Leonard E. Read, is a nonpolitical educational champion of private property, the free market, and limited govern ment. FEE is classified as a 26 USC 501 (c) (3) tax-exempt organization. Other officers of FEE's Board of Trustees are: Thomas C. Stevens, chairman; Ridgway K. Foley, Jr., vice-chairman; Paul L. Poirot, secretary; H.F. Langenberg, trea surer.

The costs of Foundation projects and services are met through donations. Donations are invited in any amount. Subscriptions to The Freeman are available to any interested person in the United States for the asking. Additional single copies $1.00; 10 or more, 50 cents each. For foreign delivery, a donation of $15.00 a year is required to cover direct mailing cos{s. Copyright © 1988 by The Foundation for Economic Education, Inc. Printed in U.S.A. Permission is granted to reprint any article in this issue, except "The Sound of the Machine," pro vided appropriate credit is given and two copies of the reprinted material are sent to The Founda tion. Bound volumes of The Freeman are available from The Foundation for calendar years 1969 to date. Earlier volumes as well as current issues are available on microfilm from University Micro films, 300 North Zeeb Road, Ann Arbor, MI 48106. The Freeman considers unsolicited editorial sub missions, but they must be accompanied by a stamped, self-addressed envelope. OUf author's guide is available on request.

PERSPECTIVE Chip Cartel: An Update In the February 1987 issue of The Freeman, Michael Becker reported on the agreement be tween the United States and Japan to fix min imum prices for computer memory chips, as sign market quotas for these chips, and guar antee that the Japanese would not undercut the agreement with sales in third countries. He pre dicted that "consumers will likely pay hundreds of millions of dollars more for home computers, videocassette recorders, microwave ovens, and other products which use computer chips. " Little more than a year later, on March 12, 1988, The New York Times reported: ,'Prices for memory chips have doubled or tripled in recent months as customers clamor for supplies. Soaring prices and limited sup plies of vital components have prompted manu facturers of computers and other electronic equipment to raise their own prices, slow their assembly lines and delay introducing products that require large amounts of memory. Profits are likely to suffer and some layoffs may follow.

"Although the shortage reflects several forces within the electronics industry, the one receiving the most attention is the agreement signed by the Governments of the United States and Japan in the summer of 1986." Funny Money "Last month, the newspaper Sovetskaya Kultura published a letter from a dispirited Odessa film director complaining about all the privileges available to foreign tourists and to Russians who use foreign currencies or coupons. , 'Reporting that ordinary Soviet citizens were refused service at many places along the Black Sea coast because they lacked foreign money, he recalled a brief conversation with a Russian child from the area. 'Vovochka, what do you want to be when you grow up?' he asked. 'A foreigner,' she replied." -from The New York Times, July 22, 1987.

Training Wheels In the late 1970s, the National Highway Traffic Safety Commission, a federal regula tory agency, became alarmed by the high acci dent rate of motorcyclists. At great expense, NHTSC ordered the construction of a radically new motorcycle, which would steer. with the rear wheel, not the front. The prototype was found to be much safer, far more stable, at all speeds over 30 m.p.h. However, at all speeds less than 30 m.p.h., the prototype fell over, crushing the rider's leg. The Commission was undaunted: it added two training wheels to the machine. Thus it succeeded in producing the world's safest motorcycle, while at the same time proving beyond doubt that the safest mo torcycle is an automobile. -JOHN ADAMS WETIERGREEN of San Jose State University, speaking before The Heritage Foundation, February 11, 1988 Medicare in Australia State hospitals require a large share of the taxpayer's dollar. The government has many ways of controlling hospital expenditures, but the most effective is simply by closing them under the guise of "rationalization." In hos pitals that still are functioning, wards are closed and many beds are empty, despite ever longer waiting lists. While the government makes excuses that the wards need repainting or refurbishing, the truth is that there are not enough nurses willing to accept current salaries and working conditions.

Not content with controlling just the state owned hospitals, the Socialists now are trying to control the private hospitals. Private pa tients' Medicare reimbursements have been re duced for procedures done in private hospitals, while their contributions to private hospital in surance funds have soared because of the di minishing pool of contributors. Physicians who own private hospitals are accused of profiteer ing, and patients are warned away. Small pri vate hospitals face closure when they fail to PERSPECTIVE meet standards set by a government-supported committee-standards that state hospitals are not required to meet. Meanwhile, state hospitals are so besieged with people wanting free treatment that their waiting lists have become a public scandal. -PETER C. ARNOLD, M.D., writing in the February 1988 issue of Private Practice An Army of Principles ,'An army of principles will penetrate where an army of soldiers cannot. Neither the Channel nor the Rhine will arrest its progress. It will march on the horizon of the world and it will conquer. " This is the inscription on one side of Rose Wilder Lane's tombstone in a Mansfield, Missouri cemetery.

-CARL WATNER, Editor The Voluntarist Clarification "Freedom Footnote," by Paul Rux, which appeared in the April 1988 Freeman, contained a quotation from School Finance: The Eco nomics and Politics of Public Education, by Walter I. Garms, James W. Guthrie, and Lawrence C. Pierce. The article should have mentioned that the original source of the quota tion is James M. Buchanan, "Economics and Its Scientific Neighbors," in Sherman Roy Krupp, ed., The Structure of Economic Science: Essays on Methodology. We apolo gize for this oversight. -BJS Reader's Digest Reprints "David" "David: From Beggar to Entrepreneur-In a Day" by Bruce Alan Johnson was reprinted in the June 1988 Reader's Digest. This article originally appeared in the November 1987 issue of The Freeman. We have extra copies of the Digest version of Mr. Johnson's article. Please write to FEE, stating the quantity you'd like.