Book Reviews

The chief, if not the sole beneficiaries of foreign aid, Hancock shows, are the local elites in the recipient countries, special interest groups in the developed counties, and the aid bureaucracy itself. The chief losers? The First World taxpayers and the poverty-stricken in the Third World. The aid "industry" is quite lucrative for those who administer its programs. Incomes for employ ees of international agencies are determined by the "Noblemaire Principle," named after Georges Noblemaire, an employee of the League of Nations in the 1920s. According to this principle, salaries for employees of international organiza tions should be high enough "to attract as employ ees citizens of the country with the best-paid national civil service." United Nations pay rates, Hancock notes, must therefore exceed "those of the· federal civil service of the richest country on earth-the United States."

As a result, not only does base pay for U.N. offi cials exceed that for U.S. civilservants by an average of 25 percent, but the fringe benefits are also far more lucrative. Promotion comes twice as fast for U.N. employees than for U.S. civil servants. It takes a U.S. civilservant 14 years to accumulate as much sick pay as a U.N. staffer is entitled to on his very first day. U.N. pensions exceed those of the U.S. civil servant by 43 percent. And this is only the beginning. An increasingly large part of aid budgets is for travel (first class, of course). And most of the travel is not to poverty-stricken areas in the less developed world, but to poverty seminars normal ly held at posh hotels in exotic and very attractive locations. In just one year, Hancock notes, the Executive Board of the Educational, Scientific and Cultural Organization received $1,759,584 for travel and lodging. During the same time it spent $49,000on education for handicapped children in Africa, and $1,000to train teachers in Honduras.

Interestingly, despite the Noblemaire Principle which is supposed to attract experts, U.N. agencies increasingly rely on the expertise of "outside con sultants." The minimum salary for a consultant is $100,000.The average salary is probably closer to $150,000.Since the number of consultants exceeds 150,000,this puts the cost at more than $22 billion. When the salaries of the regular employees are combined with the costs of consultants, the amount is well over half of all that is spent by gov ernments on aid each year. In fact, "personnel and associated costs," Hancock notes, "today absorb a staggering 80 percentof all U.N. expenditures." Groups with political clout in the First World are also major recipients. The purpose of food aid was and is to help dispose of farm surpluses in the First World. The tragedy of this is that struggling Third World farmers are often driven out of busi ness by the influx of food aid. Similarly, the real rationale of other aid projects, as Hancock amply demonstrates, is not to help the poor in the Third World but the giant corporations in the First. Thus, between 80 percent and 99 percent of all aid mon ey distributed to the Third World is actually spent in the First World in the form of purchase orders.

"Western aid," as Hancock puts it, is used "to cre ate profits for Western companies." And finally,Hancock shows that it is no accident that some of the world's richest people live in the world's poorest nations. Aid has been regularly siphoned off by Third World leaders. Often this has been done, it should be noted, with the knowledge and thus implicit approval of the aid agencies themselves. The agency term for this larceny is "leakage." The figures reach into the billions of dollars: an estimated $10 billion for the Marcoses in the Philippines and perhaps $4 billion for Presi dent Mobutu in Zaire, to name just two. Who pays the cost? The taxpayers in the First World and, more important and tragic, the poor in the Third World. To cite just a single example, the Akosombo Dam on the Volta River in Ghana was built with World Bank and other agency money.Its purpose was to provide inexpensive power to the U.S.-owned VALCO aluminum plant and to the wealthy sections of Accra, Ghana. In the process thousands of villagers were displaced, without compensation, when the dam flooded their lands.

And since the dam's completion, well over 100,000 people livingin the vicinity have been permanent ly incapacitated by river blindness. This is far from a unique case. Aid programs in places such as Indonesia and Brazil have resulted in massive losses of life. Brazil has received $434.3million to fund its huge reset dement program. The result was the needless destruction of millions of acres of tropical rain forest (3.6million acres a year) and the decimation of many of the indigenous Indian tribes. Of the 13,000 settlers arriving in the resettlement areas each month, Hancock writes, "Their prospects for supporting themselves are virtually zero and, in addition, more than 200,000are estimated to have contracted a particularly virulent strain of malaria ... to which they have no resistance." Even the World Bank has acknowledged that the program has been "an ecological, human and economic dis aster of tremendous dimensions."

Verysimilar has been the Bank-funded resettle ment program in Indonesia: the destruction of mil lions of acres of rain-forest, bloody and savage fighting between ethnic tribes, and the death of 150,000indigenous Timorese who opposed having their land used as a resettlement area for Javanese. Hancock's conclusion is that the aid programs are so corrupt they are "utterly beyond reform" and should be abolished. If there is any criticism of Lordsof Povertyit is that, as John Hogan wrote in Commonweal(June 15, 1990), Hancock "offers no alternative." And since the problems are so immense, criticscontend, it would be inhumane to abolish all aid. The point is welltaken. The reader is left with the feeling that 237 if only the rascals could be thrown out (admittedly a big if) and replaced by good, public-spirited bureaucrats, foreign aid could achieve its noble purpose. What is needed in Lordsof Povertyis an explanation why foreign aid, by its verynature-by politicizingsociety,by generating large bureaucra cies, by encouraging or even requiring recipient governments to pursue highly interventionist poli cies that scare off private investors and generate inefficiency-retards economic development.

But perhaps one shouldn't criticize an author for not doing what he never intended to do. As the book's subtitle indicates, the Lords of Pover ty focuses on the "power, prestige, and corruption of the international aid business." Hancock does a remarkable job. His book deserves wide read ership. D Professor Osterfeld teaches political science at Saint Josephs College in Rensselaer,Indiana. THE MARKETECONOMY:A READER edited by James L. Doti and Dwight R. Lee Roxbury Publishing Company, P. O. Box 491044, Los Angeles, CA 90049 • 1991 • 375 pages • $26.95 cloth; $17.95paper Reviewedby WilliamH. Peterson T his anthology lives up to its title. It outlines the characteristics and philosophical premises of a free society insofar as its political and economic ramifications are con cerned. It points up how the world works better under freedom, under a regimen of social cooper ation and division of labor; and it does so through the reprinted essays and thoughts of a good num ber of champions of liberty.

Here, to cite some examples, are Frederic Bas tiat and his satirical "Candlemakers' Petition" pleading with the French government to stop the "unfair foreign competition" of the sun; here's David Ricardo on comparative advantage demon strating the gains for international society stem ming from free trade; here's John Stuart Mill set ting down the limits of government so the free individual can live and let live. Of more recent vintage the editors-Professor Doti of Chapman College and Professor Lee of The University of Georgia-serve up "Roofs or Ceilings? The Current Housing Problem" by Mil ton Friedman and George 1. Stigler, a 1946 attack on the rent controls established by the World War 238 THE FREEMAN • JUNE 1991 The Market Economy: A Reader edited by James L. Doti and Dwight R. Lee is available from The Foundation for Eco nomic Education in paperback at $17.95 plus $2.00 postage and handling. Visa and MasterCard orders are accepted. Please give your card number and its expiration date when ordering. Send or phone your order to The Foundation for Economic Education, 30 South Broadway, Irving ton-on-Hudson, NY 10533.

II price-fixing agency, the U.S. Office of Price Administration. The Friedman-Stigler article, originally published by The Foundation for Eco nomic Education, is still timely and relevant as the idea and application of rent controls continue to repress the supply of homes and thereby exacer bate the urban housing problem today from New York City to various cities in California. Or here is an excerpt from Charles Murray's Losing Ground in which Murray observes the dif ficulties of fighting poverty through "helping the poor." One difficulty is the bureaucratic problem of defining eligibilitywhich almost alwaysincludes some who are not truly needy and excludes others who are. Another difficulty seen by Murray is the problem of inadvertently subsidizing poverty i.e.,extending it indefinitely by inducing some wel fare recipients to give up the search for indepen dent livelihoods, to become wards of the state as long as they can.

Economists Doti and Lee reach out to non economists to bolster their case for a market soci ety. They include some of Ayn Rand's thinking in the form of the Hank Rearden statement on the moral meaning of capitalism as it appears in her novel, Atlas Shrugged. And they present Henry David Thoreau's case for civil disobedience in which Thoreau defends withholding his taxes so as not to help finance slavery or the Mexican War, an action which led to Thoreau's spending a night in the Concord jail. In all,the 44 selections here add up to invaluable insights to the classicalliberal philosophy of limit ed government and free markets. D Dr. Peterson,an adjunctscholaroftheHeritageFoundation, holdsthe Lundy ChairofBusinessPhilosophyat Campbell University,BuiesCreek, North Carolina. CAPITALISM by Arthur Seldon Basil Blackwell, 3 Cambridge Center, Cambridge, MA 02142 -1990 - 419 pages - $29.95 cloth Reviewed by CarlO. Helstrom, III T his book outlines the great ideological struggle between individualism and collec tivism.Written with originality and vigor,it presents the latest arguments for capitalism and against socialism.The author, a leading libertarian thinker, clearly demonstrates capitalism's superi ority over socialism,not only in theory, but in prac tice as well.

Seldon's education, his experience in private industry,and hispioneering work with the Institute of Economic Affairs (lEA) in Great Britain lend special forcefulness to his exposition. Born in 1916, a year before the Russian Revolution, Seldon grew up around London -where the teachings of Fabian socialism inculcated British society. His secondary school history instructor, an old style liberal, first emphasized the benefits of capi talism to the young Seldon, whose personal belief in socialismbegan to wane even as socialisticideas continued their ascendancy in Great Britain. He entered the London School of Economics in 1934, with a budding interest in classical liberalism and capitalism. Seldon's growing suspicions about socialism were confirmed during World War II. "The inter lude of war," he writes, "provided a practicalles son in socialism as it would be in real life." The wartime command system was continued after the war by socialists enamored with its accomplish ments. As Seldon explains, "The intellectuals taught it; the public was led to think it was desir able; therefore the politicians acquiesced in it for electoral expediency even more than from philo sophic conviction; and the bureaucracy reveled in its extended powers."

After World War II, Seldon became an econom ic adviser to British retail and brewing companies. In 1956, he became acquainted with the newly formed lEA, founded by agricultural entre preneur Antony Fisher. Moved by Friedrich Hayek's Road to Serfdom, Fisher started the lEA to promote classicalliberal ideas. He hired Arthur Seldon and Ralph Harris to run it, beginning an "intriguing partnership of complementing con trasts ... [that] led for over 30 years to the most rewarding work that could have been wished for a life's career." The history of the lEA is an important and interesting story in itself. A small and isolated voice at first, the lEA utilized a broad-based, edu cational approach, and eventually flourished thanks to Harris's knack for public relations and Seldon's research and publishing leadership. It has been instrumental in rekindling academic and popular interest in the freedom philosophy and market economics.

"Over the century," writes Seldon, "socialist thinking has prevailed over liberal teaching on the consequences, in all human behaviour, of state coercion, concentration of power, monopoly and producer myopia," mainly because people could see the imperfections of capitalism in the world around them. The socialists promised a perfect world, free from selfishness, struggle, and want, through centrally directed programs. Socialists, however, built their case on the theo ry that the breakdown of capitalism and the suc cess of socialism are inevitable. Over time every socialist experiment failed, proving that socialism as a system is not only illogical, but also impracti cal. According to Seldon, "... the vision of social ism not only remains a vision after a century or more of proselytizing; it is never likely to become reality until it resolves the unending circular rea soning in which it is entrapped: that human nature willnot become selflessuntil scarcity is replaced by superabundance, but superabundance will not replace scarcity until human nature becomes self less.... "

The crucial question has become: Which system, based on real historical evidence, can make the best guarantees for the most people? Seldon's answer, of course, is capitalism. He presents a clear, revitalized vision of capitalism by synthesiz ing new ideas, especially the innovations of Friedrich Hayek and the public choice theorists in the United States, with older classical liberal prin ciples. He also systematically analyzes socialism, emphasizing particularly the empirical and histor ical proof that socialism has failed. Despite his predilection for the capitalist sys tem, Seldon tests capitalism as rigorously as social ism. Both systems claim to solve the same inherent human problems-ignorance, scarcity, unfairness, and want. So capitalism must prove itself with more than economic arguments. He finds the BOOKS 239 modern theory of capitalism to be imperfect, but concludes that capitalism is better than socialism because it offers relatively more to the world-more goods and services, more freedom, more security, and more opportunity.

Seldon's arguments are comprehensive and sig nificant. He lays the groundwork for further intel lectual advancement, and inspires classicalliberals to continue the fight for a truly free society. D Mr. Helstromis Directorof Developmentat the Atlas Eco nomic ResearchFoundationin Fairfax, Virginia. THE POLITICAL ECONOMY OF SOVIET SOCIALISM: THE FORMATIVE YEARS, 1918-1928 by Peter 1. Boettke Kluwer Academic Publishers,101 Philip Drive, Assinippi Park, Norwell,MA 02061 •1990 •246 pages. $49.95cloth Reviewed by Aaron Wildavsky I t has generally been thought that the Com munist command economy that Joseph Stalin introduced into the Soviet Union in the early 1930s, with its nationalized industries, multi-year plans, and administered prices, was the epitome of socialism. Not so. The only effort to implement socialism-cum-communism (as it was understood by Karl Marx and the foremost socialist thinkers of the last quarter of the 19th century) was the ear 1ierabolition of monetary exchange for commodi ties in favor of production for use, Le., bypassing markets and money in favor of direct exchange of goods. For Marx believed that it was the process of exchange through money and markets that pol luted human relationships by alienating workers from the products they produced.

Following the pioneering ideas of Michael Polanyi, Paul Craig Roberts, and Boris Brutzkus, Peter Boettke has written what must now be the major introduction to the ideas animating Com munist economies. His first proposition is that Marx and his followers did indeed wish to substi tute direct for monetary exchange. His second is that Lenin and his followers, taking Marx serious ly, did indeed attempt to abolish resource alloca tion via market prices in favor of central direction by intellectual calculation via direct exchanges of commodities. His third proposition, the obverse of the second, is that the deliberate introduction of a Communist economic system wasn't forced on 240 THE FREEMAN • JUNE 1991 Lenin by the exigenciesof civilwar,but that he did what he and his followers always intended to do. Why does this seemingly abstruse historical point matter? If Boettke and the tiny band of his predecessors are right in holding that socialist cum-communist economics was actually tried, then they can also show that it failed, for all stu dents of this period agree that war communism was a disaster. There is a great difference in claim ing that the Stalinist political economy that failed was a deviation from true·socialism and acknowl edging that the real thing was a disaster. What about the evidence?

"The policies of war communism, I hope to demonstrate," Boettke writes, "were not born 'in the crucible of military expediency,' [as the major Western historians argue] but were born instead in the political economy of Karl Marx and were transformed into praxis [that funny word Marxists use to show they are serious] by Vladimir Ilyich Lenin from 1918to 1921 in Soviet Russia." Among the many pieces of evidence Boettke cites are these: banks were nationalized during the last days of 1917, foreign trade monopolized in April 1918, and large-scale industry nationalized in June. Private trading was forbidden and a monopoly on exchange granted to the Commis sariat of Supply in November. The Supreme Eco nomic Council declared in August 1918 that accounting had to be carried out without use of monetary measures. A vast expansion of the mon ey supply cut the purchasing power of the ruble by 99 percent between October 1917 and October 1920, thereby demonstrating the low regard in which money was held. Everything that was then circulating as a form of money,at least among state enterprises, had to be handed over to the Peoples' Bank in May 1918. In August 1918, according to the Supreme Economic Council, receipts of goods and settlements (one hardly dare say "payments") for deliveries were to consist of accounting entries.

In this way was made good the common belief of Marx, his followers, and radical socialists that money would no longer be required once produc ers made goods directly for users. Hence, in the Marxist image, the fall of mankind, the split between private and public selves,would be made whole by workers not merely metaphorically but physically, by directly giving the work of their hands, minds, and bodies·to other workers for the things they needed. What, by contrast, is the Stalinist command economy? It is an effort to mimic the operation of markets by providing from central direction the same sorts of commands that a market system might were it allowed to operate. Money is there (albeit reduced somewhat in importance but by no means entirely); so is the price system. What is missingare only those things that make capitalism work and worthwhile-private property, the mar ket price system, interest rates to ration capital, and capital markets. The devices of market exchange that simultaneously operate to elucidate preferences, to calculate marginal exchanges, to get rid of the worst products as resources are bid away to more productive uses and users, are abol ished. With what result? There emerges an econo my of shortages characterized by negative selec tion in which the .least valued products, produced by the most politically powerful factories, get the most resources. Some call this state capitalism. A better way to express what has happened is that Stalin'smisunderstanding of capitalism as a system that exploits workers by decreasing their con sumption while coercing them to increase produc tion, thus freeing up investments for economic growth, led him and his allies to use Communist collectivist forms to imitate individualist opera tions.

The PoliticalEconomy of SovietSocialism.is so good that it deserves a new chapter specifying in detail the operations of war communism. It is not enough to know that production decreased by any where from two-thirds to four-fifths; it is also important to understand the ways in which this proved unsatisfactory. It is true that Marx never had an opportunity to observe a Communist econ omy; one of the few benefits of the Bolshevik rev olution is that it left behind a historical legacy of what such an economy was lik!e. This fine book whets our appetite for more. D Dr. Wildavskyis Professorof PoliticalScienceand Public Policy, Universityof Californiaat Berkeley.