Book Reviews

76 A REVIEWER'S NOTEBOOK Population Matters by John Chamberlain " Life on earth is gettingbetter, not worse." So proclaims Julian L. Simon of the University of Maryland in a book called Population Matters: People, Resources, Environ ment, and Immigration (Transaction Publishers, New Brunswick, N.J., 577 pages, $34.95 cloth). This sounds like Emile Coue speaking back in the Twenties, but Simon depends on much more than facile inspiration for his optimism. He lists some obvious things. The improvement in the life expectancy figures is on his side. Pollution is prob ably more and more under control. We are getting tpore wealth for less work. Diseases such as typhoid and polio have ceased to be menaces. The only trouble (and here Simon gives a per sonal twist to his writing) is that there are not enough·people around to enjoy the better life. We have been listening to the likes of Paul Ehrlich, who wrote The Population Bomb. But Ehrlich's own figures contradict his worries. We are not even producing two children· per family in some nations of the West.

This fact sets things up for Simon's theories about immigration. If we can't reproduce our selves, we can make up the deficiency by an immi gration policy that would let people of talent and personal resources into the country. We can con tinue to wink at illegalentries. The Mexicans aren't overwhelming, and besides, most of thf(mgo home again to put their newfound grubstakes into land. Simon thinks we should auction off entry permits and possibly use the money to do something about the national debt. If talented immigrants can't come up immediately with the needed auction funds, they could be allowed to payout of future incometax deductions. Talk about selling entry at Ellis Island may not sound very altruistic. But Simon says the famous Emma Lazarus poem about welcoming the refuse of a teeming shore is a phony anyway. Our immi grants of the late 19th and early 20th centuries were mostly in their robust 20s and 30s. They had brawny arms and a willingness to work without asking for welfare. In taking jobs, they began to earn money that paid more in taxes than was set aside for welfare.

Simon is extremely critical of what he thinks is a national commitment to family planning. The Ehrlichs want to keep families small. Simon's own theory is that people should have as many children as they want, provided they can pay for their food and educate them. The limitation of family num bers cuts down on the total citizenry that can be the source of new and creative ideas. Soichino Honda, founder of the automotive firm, put it apt 1y when he said, "Where 100 people think, there are 100 powers; if 1,000 people think there are 1,000powers." In his interchange with Ehrlich, Simon does a job on those who hold, with the authors of the Global 2000 Report, that the future will bring scarcities. "About 'loss of land' and 'desertifica tion, '" says Simon, "some arable land surely is deteriorating. But Ehrlich and current news stories imply a more general proposition: that the world's total supply of arable land is decreasing.

Yet the truth is exactly the opposite: [Joginder] Kumar (1973) made a country-by-country survey of the changes in arable land from 1950 to 1960. His finding: there was 9 percent more total arable land in 1960than in 1950in the 87 countries (con stituting 73 percent of the land area of the world) for which he could find data-a gain of almost 1 percent per year.... And the increase in effective crop area was greater yet, because of the increase in multiple cropping in Asia and elsewhere." Some of Ehrlich's past prophecies now seem particularly ludicrous. In 1969 he wrote in a "sce nario" of the future: "The end of the ocean came late in the summer of 1979,"and he went on to pre dict "the final gasp of the whaling industry in 1973"; "the end of the Peruvian anchovy industry in 1975";a reduction of the fish catch to 30 million metric tons by 1977-all this contributing to "50 million people per year ... dying of starvation" in 1977.These were crazy guesses.By 1977,for exam ple, the fish catch was 73 million tons.

There is a valid criticism of Simon's way of writ ing a book, which is to send his readers backward and forward to recapitulate material that should have been presented in simple chronological order even at the risk of repetition. A final criticism: Simon doesn't show how life for victims of socialism can be getting better. D ECONOMICS ON TRIAL: LIES, MYTHS, AND REALITIES by Mark Skousen Business One Irwin, Homewood, IL 60430 • 1991 • 314 pages $21.95 cloth Reviewed by David M. Brown "N0comment," says Paul Samuelson. What he's declining comment on is Mark Skousen's Economics on Trial, a trenchant analysis of the concepts, theories, and delinquencies of the "top 10" economics texts used in college classrooms today. But it's a work that Samuelson would do well to study carefully. Samuelson's Economics, which has been through 13 editions since its original publication in 1948,is the leader of the pack, the neo-Keynesian template for the modern textbook approach.

Samuelson was among the first of the "armchair economists" to sic such Keynesian notions as "the paradox of thrift" and the wonders of deficit 77 spending on the unsuspecting college students of the postwar world. John Maynard Keynes' mammoth-and mam mothly misleading-General Theory saw print in 1936, at a time of growing intellectual hostility toward capitalism. Economists and other profes sional thinkers of the day were vastly susceptible to plausible-seeming rationalizations of govern ment intervention in the economy. Although only the Austrian school of economic thought, as rep resented by Ludwig von Mises and Friedrich Hayek, had successfully predicted the scourge of the Great Depression and could now prescribe the needed policy antidote, the anti-interventionist analysis of the Austrians was washed aside in the wake of the Keynesian theoretical tsunami. And so, even though many of the Keynes-inspired "models" of economic activity blatantly contradict observable reality and common sense, they have nonetheless emerged as standard textbook fare.

Mark Skousen is an emissary from the real world. Far from being a mere subsidized armchair theorist, he has actually engaged in extensive entrepreneurial activity in what we call the econo my, the realm of goods and exchange and profit seeking. He has built his reputation as a financial analyst and is intimately acquainted with market conditions and the consequences of government controls. He has also traveled quite a bit and done some savvy comparison-shopping of the world's economies. And as far as theories go, Skousen is most sympathetic to the Austrian school, which defines economic value as "subjective" (i.e., dependent upon personal valuation and action rather than being intrinsic in any good or service), spurns mathematical formulae in favor of verbal deductive reasoning, and emphasizes the crucial role of production and the entrepreneur in a healthy market economy. Economics on Trialshould be required reading in all Econ 101 courses. Skousen has supplied a need that he himself felt as an economics stu dent-the need for "a book that would simply but thoroughly dissect the large number of dubious theories and questionable doctrines taught in the classroom." He takes on about 20 concepts or per spectives of modern economics and devotes a chapter to each, first givingthe textbook version of things, then stripping away the rationalistic veneer of officialdoctrine to expose its logical and factual deficiencies.

78 THE FREEMAN • FEBRUARY 1991 Take, for example, the Keynesian notion of the "paradox of thrift." This is a conceptual glass house that has been popularized by Samuelson. The contention is that, while savings may well be beneficial on an individual level, the effects can be deleterious for "society as a whole," at least during economic downtums. Instead of thrift and savings, therefore, during slow times we should stress and encourage the demand side of the economy (buy ing). Elsewise, businesses will be deprived of the funds that have been tucked away in savings. Says Samuelson, "If people try to increase their saving and lower their consumption for a given level of business investment, sales ... will fall. Businesses will cut back on production. How far will produc tion fall? GNP will fall until people stop trying to save more than businesses are investing." Skousen has no trouble disposing of this strange claim. First, he notes, Samuelson ignores the prob ability that an individual's savings, rather than merely moldering in a bank vault, will be lent out to business enterprises and thus contribute to pro duction. "Second, investment under Keynesian theory is primarily a function of business expecta tions of consumer demand. An increase in con sumption willstimulate investment, and vice versa.

This is contrary to classicaleconomic theory, which contends that investment decisions are deter mined by the profit margin of business opportuni ties. Demand is just one side of the equation. Busi nesses also consider such factors as the level of interest rates and the costs of production-not just final demand-to determine their profit margins." But the most central objection that can be raised against the Keynesian approach is that it imposes its own blindered short-term outlook on economic actors in the market: The Keynesian model assumes that the only thing that matters is currentdemand for final consumer goodsand the higher the consumer demand the better. But this view fails to recog nize another force that is just as strong as current demand-the demand for future con sumption.... [I]f every attempt to curtail con sumption results in a proportional decline in production, as the Keynesian theory contends, then no addition to a nation's wealth could ever occur from increased savings. By the same token, if everyone went on a buying spree at the local department store or grocery store, investment would not necessarily expand. Certainly, investment in consumer goods would expand, but increased expenditures for consumer goods will do little or nothing to construct a bridge, build a hospital, pay for a research program to cure cancer, or provide funds for a new inven tion or a new production process.

What the Keynesians have overlooked is that the decision to save is an act of time preference, the choice between current spending and future spending. Savings do not disappear from the economy; they are merely channeled into a dif ferent avenue. Savings are spent on investment capital now and then spent on consumer goods later. How do the textbook writers manage to get away with such sophistries as the view that plan ning for the future is an economic ill? One reason is that policy-makers are looking for ways to ratio nalize their indulgence in short-term expediency. Another is that students come to classwith little or no real-world economic experience, and usually without the intellectual wherewithal to challenge the conventional wisdom. This wisdom is wrapped up in arcane terminology and then formally repre sented in forbidding-looking graphs, with the rele vant fallacy neatly plotted along the x and y axes; it's easier to memorize the graph than to argue with the professor and risk a bad grade.

There's a huge question as to the intellectual utility or propriety of graphic representations in economics-even when they represent economic truths-inasmuch as these models tend to hint at or presuppose constant relationships that simply do not exist in the realm of human action. Mises eschewed such visual tools completely, although, as Skousen notes, many of his followers have not been so finicky.Perhaps graphs do have some kind of heuristic role if not taken literally, but to avoid misconception the stress has to be on verbal ratio cination. Stu~ents must be able to spell out causal connections in step-by-step fashion if they are to attain and demonstrate real economic understand ing. Skousen thus makes the proMisesian reader a little uneasy when he occasionally overturns a neoclassical model only to offer a new and improved version of his own; the lines are still too neat. A few other objections could be raised about Skousen's own theoretical approach, but thankfully these add up to a very minor and peripheral flaw in the book. Overall, Economics on Trial achieves its goal of providing simply and clearly argued objections to the textbook orthodoxy, and it does so with eminent fairness. Skousen gives credit where credit is due, and when he critiques an idea he often mentions which texts feature it and which ones (if any) adopt a more sensible perspective. He also provides much that is just plain missing from the official version of things, such as discussions on the history of money, the workings of the world's healthier economies, and the relevance of the Austrian school of eco nomics. No economics student-or, for that mat ter, textbook author-should be without a copy of Economics on Trial. 0 DavidM. Brownis the managingeditorof the LaissezFaire Books cataloganda free-lancewriter.

IDEAS, INTERESTS & CONSEQUENCES by Andrew Gamble, et al. London:InstituteofEconomicAffairs;North AmericanDistributor: Atlas Foundation,4210 Roberts Road, Fairfax,VA • 22032 • 1989 • 133 pages•$15.00paper Reviewed by PeterJ. Boettke T his collection of essaysfrom a Liberty Fund symposium held at Windsor Castle on June 26-29, 1989, addresses one of the most important theoretical and practical problems of our day. If political decisions are largely the out come of interestgroup pressure, then what role is left for ideas in changing the polity? Do ideas make a difference? All six authors-Andrew Gamble, Mancur Olson, Norman Barry, Arthur Seldon, Max Hartwell, and Andrew Melnyk address this problem from various historical, theo retical, philosophical, and practical perspectives. John Maynard Keynes concludes his General Theory of Employment, Interest and Money with the famous statement that [t]he ideas of economists and political philoso phers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influOTHER BOOKS 79 ences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interestsis vast ly exaggerated compared with the gradual encroachment ofideas. (emphasis added) But can we be so sure? Consider the socalled Thatcher and Reagan popular freemarket "revo lutions." Neither constituted any fundamental change in the basic institutions of the polity or instituted constitutional changes in the rules. As a result, despite whatever short-term gains, with regard to releasing the power of free markets, might have been achieved-a very doubtful proposition even at that level-the long-term prospect is simply more of the same welfare/war fare policies that preceded Thatcher and Reagan.

It is "policy within politics" as usual. The evidence from these "revolutions" suggests the analytical power and empirical relevance of the extreme interpretation of public choice eco nomics. This argument stated in the extreme pro claims the victory of interests over ideas. Indeed, the world is ruled by little else. Politicians are vote seeking "entrepreneurs," and most voters are rationally ignorant of the preponderance of issues-eoncentrating instead on only those issues that are of specialinterest to them. The interaction between rationally ignorant voters and vote-seek ing politiciansproduces a bias in government deci sion-making toward policies that yield short-term and easily identifiable benefits at the expense of long-term and hidden costs.This usually produces policies that result in concentrated benefits to well-informed and well-organized interest groups, with costs dispersed among the ill-informed and ill-organized mass of voters.

This public choice argument is a powerful one, but one that is generally misunderstood. It is not the case that interests rule out the influence of ideas, just that within any existing polity interests have certain advantages over rational argument when it comes to satisfyingthe demands of politi cal actors. But ideas can and do make a difference. Political actors must make decisionsconcerning their political future within a climate ofopinion. If the climate of opinion were one that questioned redistribution of income, then politicians who were exposed as advocates of redistribution would 80 THE FREEMAN • FEBRUARY 1991 be easily challenged. On the other hand, if the cli mate of opinion were such that collectivist policies and redistribution were the accepted norm, then a politician favoring individual freedom and free markets would be considered reactionary and suf fer at the voting booth. Ideas matter in changing the constraints in which political actors seek to maximize their personal gains in terms of votes, campaign contributions, and prestige.

Organizations such as FEE, therefore, are not assigned a negligible role in society. Instead, they assume a role of fundamental importance by influencing the climate of opinion. But in addi tion to determining the climate of opinion, ideas also play an extremely important role within the political economy. Most scholars and intellectuals misunderstand the methodological perspective of public choice economics, and particularly the branch of public choice economics termed constitutional political economy. Public choice scholars, such as the 1986 Nobel Laureate James Buchanan, want to exam ine decision-making at both the pre-and post constitutional level. The pre-constitutional level deals with ideas concerning good and appropriate rules by which to organize society. Post-constitu tional analysis, on the other hand, seeks to under stand and explain the various strategies actors will employ within an already existing set of institu tions ,or rules. The weaving together of pre-and post-constitutional analyses to tackle the prob lems at hand constitutes the method of the consti tutional political economist.

The extreme variant of the public choice argu ment presented above is a correct representation of the role of interests in the political processes that occur in the post-constitutional arena. Ideas conGet Organizedl cerning what is moral and good, or simply what would be the most effective way to organize society,affect the rules of social interaction. Intel lectual advances and the promotion of ideas repre sent remote stagesin a time structure of production that eventually produces public policies. The investments in ideas are capital investments, which can yield great returns for those investors in the long run. It is in the interestof some to invest in ideas. Depending on the nature of those ideas liberalism or socialism,for example-their impact can be of great benefit. In the end, therefore, Keynes's statement con tains great truth. The individual papers in this vol ume all demonstrate this with notable clarity. On the surface the paradox between interests and ideas confronts a serious problem to liberalism pointing out its inherent fragility in the face of interestgroup pressure. But, the problem, while serious, is not so deadly as one might suspect. An understanding of the role of interests is funda mental to developing ideas that can protect us from the rule of special interests. At the constitu tionallevel, as the American founders sought to do, we can establish rules that reduce the negative role of interests. To do that requires a-victoryin the battle of ideas: both in the academic community where social philosophy emerges and in the gener al populace where the climate of opinion is formed. Ideas can .anddo make a difference, they do have consequences, as this volume of essays conveys with force. D PeterJ. Boettke is a professorof economicsat New York Universityand authorof The PoliticalEconomyof Soviet Socialism:The Formative Years, 1918·1928(KluwerAca demicPublishers,1990). ' Attractive blue binders for twelve issues of The Freeman will keep your 1991 issues in order. Price: $12.00 postpaid.

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