August

IDEAS ON LIBERTY 292 Gray Markets and Greased Pigs John Hood Governmentfightsa losingbattle when it grappleswith the disciplineof the market. 294 Crimeand Consequences II. The CriminalJustice System RobertJames Bidinotto In the secondof his three-part series,Mr. Bidinottoexamineshow the Excuse Makers' support for bail,parole, and other rehabilitativemeasurescatersto criminals. 305 Private Property: In Need of HistoricPreservation Lee Ownby A restaurant owner'sprivate property rightstake a back seat to aestheticconsid erations. 307 Private Preservationof Wtldlife: A Visitto the South AfricanLowveld Nancy Seijasand Frank Vorhies 'Lessonsin private sector managementof publicgoods. 313 A Taleof Two Revolutions RobertA. Peterson The successof 1776and the failureof 1789. 320 ShouldWe Stop SellingReal Estate to Foreigners? C. BrandonCrocker Foreignreal estate investmentposesno threat to Americaninterests.

321 Readers'ForulD 323 A Reviewer'sNotebook John Chamberlain A reviewof Jacob Viner'sReligiousThoughtand EconomicSociety. 325 Other Books Time and PublicPolicyby T. AlexanderSmithand Memoirsofan Unregulated Economistby George J. Stigler. CONTENTS AUGUST 1989 VOL. 39 NO.8 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 Carl O. Helstrom, III Edmund A. Opitz Paul L. Poirot Editorial Intern: Jeffrey J. Ziegler 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 limit ed government. FEE is classified as a 26 USC 501 (c) (3) tax-exempt organization. Other of ficers of FEE's Board of Trustees are: Thomas C. Stevens, chairman; Ridgway K. Foley, Jr., vice-chairman; Paul L. Poirot, secretary; H.E Langenberg, treasurer.

The costs of Foundation projects and services are met through donations. Donations are in vited 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 © 1989 by the Foundation for Eco nomic Education, Inc. Printed in the U.S.A. Permission is granted to reprint any article in this issue, except "Crime and Consequences," 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 is sues are available on microfilm from Universi ty Microfilms, 300 North Zeeb Road, Ann Ar bor, MI 48106. The Freeman considers unsolited editorial sub missions, but they must be accompanied by a stamped, self-addressed envelope. Our au thor's guide is available on request.

FAX: (914) 591-8910 PERSPECTIVE The JohnstownFlood This year marks the 100th anniversary of the great flood that inundated Johnstown, Pennsylva nia, on May 31, 1889, killing 2,209 people. Don ald Dale Jackson, writing in the May 1989 issue of Smithsonian, describes the relief efforts: "At a time when federal disaster relief didn't exist, Johnstown's recovery was achieved through one of the greatest private charity cam paigns ever mounted. The American Red Cross, only recently founded, won renown as a nation al disaster relief agency for its work in Johns town.... "By . . . June 2, railroad crews had repaired the tracks connecting Johnstown to Pittsburgh, 55 miles west. By then the press and the initial de tachment of relief workers were in town, Ameri cans were starting the read the first shrill. dis patches from Johnstown and a cavalcade of help was on the way. . . . "The exhaustive press coverage stimulated a rush of private benevolence that eventually threatened to overwhelm Flood City.Food, cloth ing, medicine and other provisions began arriving immediately. Morticians came-Johnstown's first call for help requested coffins and undertakers.

Demolition expert 'Dynamite Bill' Flinn and his 900-man crew cleared the wreckage at the stone bridge. At its peak the army of relief workers to taled about 7,000. They carted off debris, dis tributed food, erected temporary housing and oc casionally made a heartening discovery-a parrot named Bob was found alive in the wreck of one house, complaining that it had had 'a devil of a time.' " On Speculators Manias such as the Tulipmania, the South Sea Bubble, the Mississippi Bubble, the Gold Panic of 1866, the stock market crashes, and violent swings in the value of the dollar are frequently cited as examples of·occasions when speculators contributed to instability and imbalance. But who could do the job better? Selected government officials might want to see a different outcome. But their track record of setting prices is invariably one of famines, endless shortages of what people want, and gluts of dull, low-quality products. The bureaucrats have little incentive to improve or innovate.

When speculators are wrong, however, they are punished severely for their mistakes by loss es. Over time, the large speculators would tend to be those who were most prescient in their cal culations. Through competition, the energies and talents of numerous speculators - all inspired by their selfish desire to profit - are channeled into the public good. - VICfOR NIEDERHOFFER Control or Economic Law? Shortly before he died, the noted Austrian economist, Eugen von Boehm-Bawerk (1851 1914), wrote a brilliant article, "Control or Eco nomic Law?" He carefully dissected market op erations, analyzing the effect of coercive outside interferences. Government intervention doesn't suspend the Law of Price, he concluded; it merely alters the conditions under which it operates. By changing the available alternatives, govern ment coercion affects individual choices. Produc tion plans musf be revised, and purchasing deci sions have to be altered. Nevertheless, the Law of Price continues to prevail: The price of every good traded still falls somewhere between the top price a potential buyer is willing to pay and the bottom price at which a potential seller is willing to sell.

Today's market prices are affected by countless government regulations, taxes, and subsidies. Yet when trades take place in spite of these interven tions, the prices agreed upon by seller and buyer still comply with the Law of Price; they still re flect the respective values of buyer and seller. In Brazil, where inflation is rampant and con trols have been placed on the prices of many items, eggs, among other products, have disap peared from the shops. But enterprising street peddlers now offer eggs at about twice the con trolled price, $2 per dozen. Although illegal and PERSPECTIVE exorbitant in the eyes of the Brazilian price con trollers, this price serves consumers and conforms with the Law of Price. It is above the peddlers' minimum acceptable price and below the maxi mum price the buyers are willing to pay. When our government started requiring seat belts and pollution control devices on automo biles, the manufacturers' asking prices rose. Of course, potential buyers weren't pleased by the increase. Some dropped out of the market, set tled for used cars, or turned to other means of transportation. But the Law of Price still pre vailed. Although fewer cars were sold at the higher prices, and fewer consumers were served, those higher prices were still below the top prices the actual buyers were willing to pay.

In India, government approval and licenses are needed to operate most sizeable businesses. Large manufacturers must spend a great deal of time lobbying in New Delhi, which increases their costs and compels them to raise their asking prices. These higher asking prices, in turn, cause some potential buyers to drop out of the market. However, one Indian soap manufacturer has avoided the need for licensing and has benefited from tax breaks available to small firms. He manufactures on a small scale with hand labor at several locations and economizes on packaging. His price falls below the maximum price that many potential buyers on the Indian market are willing to pay, and he has become India's largest detergent maker. There is no denying that government interven tions affect market prices. If coercion raises costs, producers must ask higher prices. Fewer items will be sold, and fewer consumers will be served. Yet although today's mongrel prices are blends of market forces and government coer cion, they do nothing to refute the Law of Price.

The prices at which goods and services are ex changed are always above the bottom prices of the sellers and below the top prices of the buyers. Economic law prevails. - BETIINA BIEN GREAVES 292 THEFREEMAN IDEASON LIBERTY Gray Marketsand Greased Pigs by John Hood H ailing a taxi in Boston can be tricky.It helps to be pushy, even rude. Tight city regulation of taxicabs has kept their number at 1,525 since 1934. Because gov ernment has prevented supply from rising to meet growing demand, there's an artificial taxi shortage. But the story doesn't end there. Business travelers and tourists can still find transporta tion in Boston. Hotels, such as the Bostonian Hotel downtown, have begun operating their own limousines to take guests to airports, eateries, or other destinations around town. "I could not in good conscience sit there in the hotel watching guests stand on the street for 30 minutes to get to an airport that is five minutes away," Tim Kirwan, manager of the Bostonian, told The WashingtonPost.