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THEFREE IDEAS ON LIBERTY 332 Penalty of Surrender Leonard E. Read Compromise has no application whatever in the moral sense. 336 Leonard Read Changed My Life Jacob G. Hornberger The discovery of freedom and the process of self-improvement. 338 On the Foundations of Economic Liberty Roger Pilon The ideas that enable the judiciary to protect our liberties. 346 The Monitor: America's Socialized Shipwreck Gary Gentile Fighting for freedom under the seas. 350 Charles Schwab and the Steel Industry Burt Folsom The fall and rise of an entrepreneur. 360 What Should We Do About Luck? James L. Payne What should we do about the fact that some people are able to earn more money than others? 362 Origins of the Chinese Hyperinflation Jay Habegger How the Nationalist government gained monopoly power over the Chinese currency in the 1930s. 367 The International Debt Crisis Ken S. Ewert The consequences of the worldwide splurge of credit during the 1980s.

373 A Reviewer's Notebook John Chamberlain A review of Revolution by Martin Anderson. 375 Other Books Perestroika: New Thinking for Our Country and the World by Mikhail Gorbachev. CONTENTS SEPTEMBER 1988 VOL. 38 NO.9 THEFREEMAN IDEAS ON 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 Carla. 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 costs. 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 "Charles Schwab and the Steel Industry, " provided appropriate credit is given and two copies of the reprinted material are sent to The Foundation. 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. Our author's guide is available on request. PERSPECTIVE Bruce M. Evans The Power of Principle Consistency of thought and behavior is in deed rare. The vagaries of life often are charac terized by a continual shifting of principles and practices "to meet the demands of our modem world." There is today, perhaps as always, a dearth of exemplars of principled life-role models of internal and social consistency and integrity. The 90th anniversary of Leonard Read's birth reminds us of a lifetime devoted to the practice and promotion of principled freedom. Through The Foundation for Economic Educa tion, Mr. Read devoted almost 40 years to de scribing and calling for an ideal. He took the time and exerted the effort to analyze daily ac tivities-personal, social, and political-in the context of principles and moral philosophy.

It seems somewhat ludicrous that we readily accept group action which would be considered unconscionable if initiated by individuals. Yet, the political agenda is generally shaped by spe cial interest focus on outcomes with little thought for the violation and destructive aban donment of principles. Rarely do we ask, "Is this morally right?" in a discussion of proposed legislation. Our preoccupation is rather with good intention and popular appeal. Thus, un principled behavior often becomes the law of the land through action without thought and the anonymity of group process. In the absence of principle, power rules. FEE continues to carry the banner for princi pled lives, public and private. The example and heritage provided by Leonard Read require our thoughtful perseverance in a cause served best by responsible, principled individuals. -BRUCE M. EVANS President "I, Pencil" Gets Around In December 1958, FEE's founder and long time president, Leonard E. Read, wrote a short piece about an ordinary wooden lead pencil. He wrote in the first person, as if the pencil itself were writing. "I, Pencil," he wrote, "am a complex combination of miracles: a tree, zinc, copper, graphite, and so on. But," the pencil continued, "to these miracles which manifest themselves in Nature an even more extraordi nary miracle has been added"-the "miracle"

of uninhibited creative energy, bringing to gether millions of tiny know-hows of countless individuals. No human being could mastermind the complexities of making a pencil, Read wrote, any more than he could put molecules together to create the tree which is cut into small slats from which pencils are formed. Read's explanation of the complicated divi sion of labor and international cooperation re quired to produce something as simple as a pencil has struck a responsive chord with many people all over the world. "I, Pencil" has been reprinted in anthologies for school children, translated into foreign languages, and parodied in an ad several years ago in Review of the News. A diagram of a pencil was used by Hillsdale College, with quotes from the article, to illustrate why the free market is essential. Milton Friedman mentioned "I, Pencil" in his 1980 TV series, Free to Choose, and in his book of the same name. Thomas Sowell re ferred to it in his profound and thoughtful Knowledge and Decisions, when he wrote, "It has been said that no one knows how to make even a simple lead pencil. ' , ,'I, Pencil" has even been used in a recent best-selling Japanese comic book, Japan Inc., Introduction to Japanese Economics, which has been translated into English and is now available in this country. Several panels de scribe the ingredients, the tools, and the interPERSPECTIVE national cooperation needed to make a pencil.

Then the legend reads, "It's not that each person works for the sake of making pencils. All of them work for the goods they want. . . . we make the goods they want so they'll make the pencils we want. . . . It's not that someone somewhere gives an order. Pencils are made right before our eyes, but it seems like a mir acle." -BBG The Loss of Freedom Much of the loss of freedom with the growth of big government has been concealed because the direct losses have been suffered by interme diary decision-makers-notably businessmen -and it is only after the process has gone on for a long time that it becomes blatantly ob vious to the public that an employer's loss of freedom in choosing whom to hire is the worker's loss of freedom in getting a job on his merits, that a university's loss of freedom in selecting faculty or students is their children's loss of freedom in seeking admission or in seeking the best minds to be taught by.

- THOMAS SOWELL Knowledge and Decisions While They Starve The Government of Ethiopia has so severely restricted emergency relief operations in the country's north, a region ravaged by both drought and war, that as many as two million people are out of reach of any known system of food distribution, aid officials and Western dip lomats say. Because of the restrictions, these officials say, hundreds of thousands of tons of donated food are piling up at ports and may never reach those in need. Agricultural seeds, too, are not being distributed. This means that farmers who must soon plant crops cannot do so, which could lead to even greater problems next year. -The New York Times, April 29, 1988 332 THEFREEMAN IDEAS ON LIBERTY Penalty of Surrender by Leonard E. Read Editors' Note: Leonard E. Read founded The Foundation for Economic Education in 1946 and served as its President until his death in 1983. He was a philosopher, teacher, and exemplar.