Book Reviews

BOOKS Cauldron by Larry Bond Warner Books. 1993 • 592 pages. $22.95 Reviewed by George C. Leef T he Left has long used popular fiction as a means of communicating and popu larizing its egalitarian-statist philosophy. To cite but one well-known example, Upton Sinclair's The Jungle was intended to make people believe that laissez-faire capitalism was horribly unjust and dangerous to our health as well. Appeals to fear and envy, the Left's stockin-trade, are easily woven into novels and the impact of such works on the outlook of the masses cannot be denied. Writers of a libertarian bent have not ventured into fiction as frequently, with the notable exception of science fiction, where many novels have demonstrated the dysto pian nature of socialism. Alas, for every Robert Heinlein or Ayn Rand, there have been many Upton Sinclairs. Most of the intellectual energy of the defenders of lib erty has gone into scholarly works refuting the contentions of the socialists and expos ing the counterproductivity of their nos trums. That is important, but as long as the opponents of liberty are on the attack, we risk losing the crucial battle for the hearts and minds of the populace.

That is why the appearance of Larry Bond's Cauldron is such a happy event. Cauldron is an elaborate working out of the disastrous consequences of a breakdown in free trade internationally. The bad guys in this book are opportunistic politicians who revel in power and despise the idea of the free market. They are ruthless scoundrels who will sacrifice thousands of innocent lives in order to attain their objectives. They fight dirty. Although war is not their desire, they are inexorably led to engage in it by the ripple effects of their anti-market policies. Brutal warfare is the result of governmental 709 meddling in the peaceful operations of the free market. Bastiat once wrote that ifgoods don't cross borders, soldiers will. This book is an excellent illustration of the truth of that statement. The villain of the piece is Nicolas Desaix, the French foreign minister. He dreams of Napoleonic glory for France-the statist's glory of hegemony over one's neighbors.

The advanced age and poor health of the French President allows Desaix to seize de facto control over the government and he quickly sets about solving the many eco nomic problems which beset France with, naturally, more coercion. He is especially eager to protect French industry from for eign competition. He has no use for' 'bub ble-headed" economists who advocate free trade. What he desires is a European Con federation (EurCon), a French-dominated monetary union and trading bloc. His plans go awry, however, when sev eral nations-Poland, the Czech Republic, and Slovakia-decline to join EurCon. To bend Poland to his will, he engineers a natural gas shut-offfrom Russia. The United States and Britain attempt to keep Poland supplied by shipping liquified natural gas to Gdansk. When his orchestrated environ mentalist campaign against the shipments fails to stop them, he has one of the tankers blown up.

Conflict erupts when the Hungarians overthrow their pro-Desaix government. French and German EurCon forces invade to restore their version of law and order. But aided by the U.S.-trained and equipped Polish air force, the Hungarians put up a surprisingly stiff battle. Desaix next attacks Poland to knock out their air bases and ultimately to subdue the independent Poles. That precipitates full-scale U.S. involve ment, but Desaix is confident that he can win before American forces can intervene. Bond is a talented writer and the military action on land, sea, and in the air is gripping. The issue is long in doubt, but eventually the anti-EurCon leaders find a way to exploit EurCon's internal weaknesses. It crumbles under an unanticipated counterattack. De saix and likeminded authoritarians are 710 THE FREEMAN • DECEMBER 1994 swept from power. In the aftermath, the u.S. President proclaims that he seeks a new international alliance based on four firm principles: "free trade, free e,nterprise, free markets, and free governments. " Put one in the win column for Frederic Bastiat! D Mr. Leef is an Adjunct Scholar with the Mack inac Center for Public Policy in Midland, Mich igan.

The Right Data by Edwin S. Rubenstein, et al. National Review Books. 1994.409 pages. $17.95 paper Reviewed by Robert Batemarco D id you know that 82 percent of the jobs created between 1982and 1989required highlevels of skilland paid accordingly? . . or that in 1990, there was one tax consumer for every 1.3 taxpayers? ... or that during the 1980s housing became more affordable for those of middle income? . . . or that charitable giving during that same period increased by more than can be accounted for by higher incomes? If you did, you did not learn it from the mainstream press, whose constant refrain was that the '80s were a period of greed and indifference in which government programs were slashed, the rich got richer, the poor gotpoorer, and the middle class got shafted. If you didn't, reading Ed Rubenstein's The Right Data, will expose you to these facts plus many more. The first half of this book consists of Rubenstein's "The Right Data" columns which appeared in National Review be tween 1988and 1993,grouped by topic. This is followed by a series of articles published by various authors in a special 1992issue of that same fortnightly, entitled "The Real Reagan Record. " Contributors include Paul Craig Roberts, Martin Anderson, William Niskanen, Alan Reynolds, and Rubenstein, among others. The remainder of the book presents raw data tables with a minimum of commentary.

Although a supply-sider, Rubenstein tran scends the caricature of that position by placingmore emphasis on how hightax rates depress private economic activity, and less on how they cost the government revenue. Indeed, I found his discussion of the impact of various policies on job formation most enlightening. He cites OMB data which put the cost of the jobs government public work projects "create" at anywhere from $136,000 to $400,000 (versus $40,000 for the private sector), makingit clear why such projects are net job destroyers. He also cogently illus trates how freer trade with Mexico has created jobs-both directly through exports (to which he attributes almost 400,000 new jobs between 1986and 1990)and through the cost-cutting it made possible. In the same vein, Glenn Yago's essay on that most maligned of financial innovations, high-yield bonds (pejoratively and more commonly dubbed junk bonds by their de tractors), pinpoints how they led to employ ment gains, withjob growth six times higher than industry averages among those firms whose debt is classified as "junk." He also puts the lie to James Stewart's contention that junk bond-financed takeovers were a major contributor to unemployment, noting that only 6.6 percent of jobs lost in the '80s were lost as a result of takeovers (p. 250).

While, as I said earlier, the theoretical framework binding together the facts and figures presented here is basically sound, there are a number of unfortunate lapses. One of the worst is that the author seems to have a soft spot for the nearly oxymoronic idea of government investment. This leads him to downplay the harm done by govern ment deficits so long as they' 'finance roads, bridges, defense installations, schools, and other capital projects that will increase fu ture GNP ... " (p. 57). But what about those roads and urban rail systems costing thousands of dollars more per rider per year than their customers are willing to pay for them, the bridges which are investments not in future GNP but rather in votes and campaign contributions for the legislators who "bring home the bacon," the military bases that even the Pentagon considers useless (Rubenstein himself cites the De fense Department's claim that fewer than one tenth of our bases are essential), and the schools whose inefficacyis a national scan dal? The nature of government guarantees that such waste will constitute a large por tion of government spending. And it renders absurd Paul Craig Roberts' suggestion that we should adopt the Japanese practice of counting government spending as invest ment (p. 230).

Most of the articles in this book are two pages long, with none longer than twelve pages. This, plus a thorough index, makes it easy for one to quickly find out what one wishes to know about a specifictopic. It also means that the seeker after an in-depth treatment of these issues will have to look elsewhere. Nevertheless, anyone looking for the facts that can poke holes in the most common misrepresentations of our recent economic record would find this book a good place to start. D In addition to editing the book review section of The Freeman, Robert Batemarco is a marketing manager for economic analysis at J. Crew in New York City and teaches economics at Mary mount College in Tarrytown, New York. Money Meltdown: Restoring Order to the Global Currency System by Judy Shelton The Free Press. 1994 • 399 pages. $24.95 Reviewed by Raymond J. Keating T he importance of a sound monetary system should not be underestimated.

Without a solid monetary foundation, mar kets cannot operate properly and economies crumble. Nonetheless, monetary policy of ten receives short shrift outside academia and off currency trading floors. The mach inations of the Federal Reserve, for exam ple, at times seem too arcane for the average taxpayer or concerned citizen. Fortunately, Judy Shelton, a research fellow at the Hoover Institution, has come forward with a clear, substantive look at developments in the international monetary system since World War II, as well as balanced assessments of the various schools of monetary thought. BOOKS 711 Money Meltdownpresents compellingar guments against both floating exchange rates and a pegged rate system based on nothingmore than government acclamation. Regarding floating rates, Shelton concludes that "governments cannot resist the temp tation to intervene and . . . government intervention causes perverse financial ef fects. Who ends up paying the price? Con sumers, of course, who are deprived of the benefits of genuine comparative advantage.

But also producers-the individuals who would prefer to avoid the risk of currency gyrations altogether and concentrate in stead on delivering products that are com petitive on their own merit." The floating exchange rate system turns out to be a "dirty float"-with governments attempt ing to manipulate currency values in vain efforts to achieve often mythical advantages in the international marketplace. Devalua tion seems to be the last bastion of accept able trade protectionism. Shelton notes the fundamental difference between a stable exchange rate system based on government fiat and an anchored system: "Turning to an outside anchor per mits trading partners to safely transcend politics in their monetary relations. Unlike a peggedrate system, an outside anchor offers an objective monetary point of reference instead of requiring countries to coordinate policies or subjugate their own economic agenda to the domestic priorities of the dominant regional power." As Europeans attempt to pick up the pieces after the disintegration of their pegged rate system, they should take serious note of Shelton's arguments.

Though sympathetic in many ways to the theory of privately supplied money, Shelton doubts whether a system of private curren cies is workable. She is especially con cerned as to whether competing currencies would be accepted by the average person. More critically, though, Shelton under stands that price stability isjust as necessary in international markets as in domestic mar kets. The author explains, "If you can't evaluate competitive goods and services across borders in terms of their prices, you 712 THE FREEMAN • DECEMBER 1994 cannot have a functioning free market." Shelton continues, "Risk and uncertainty are needlessly increased when firms are unable to discern the real costs of produc tion or estimate potential rewards from investment because they operate in a global economic environment characterized by un predictable currency values." The result is slower economic growth around the globe, as the benefits of free trade and invest ment-the benefits of comparative advan tage-are haDlpered.

Shelton concludes that, "given the disad vantages of other systems-the corruptness of floating rates, the superficiality of pegged exchange rates, the confusion of competi tive private currencies-an international gold standard emerges as the most attractive option. " She goes on to neatly sUDlDlarizea key benefit of gold: "A gold standard, in short, would prevent governments froDl us ing their currencies as tools of short-terDl economic policy, trading the teDlporary ad vantage of cheap exports against the longer term problems of decreased purchasing power for their citizens in the global econ ODlY. The eDlphasis aDlong participants in the international Dlarketplace would rightly turn to comparative advantage and genuine competence. " Shelton's idea for a gold standard would seek to remove two fundaDlental flaws of the Bretton Woods system by extending the right of convertibility to private citizens and avoiding reliance upon a single anchor cur rency. The author explains, "Had private citizens enjoyed the same convertibility rights as foreign central banks under the Bretton Woods agreement, their individual actions would have brought about a more diffused adjustment to changes in the U.S.

money supply and alerted officials to dan gerous developments long before the integ rity of the entire system came under threat." On the second point of a single anchor currency, Shelton observes, "Monopoly power has an inherent tendency to be abused; this fact is no less true for the key currency issuer than for suppliers of other economic goods." Shelton views the economy from a comprehensive supply-side perspective. As such, she not only understands the benefits of lower taxes and less regulation, but also the rewards of sound money-both domes tically and internationallY. Though the au thor goes too far in arguing that the govern ment could no longer run a budget deficit under a gold standard; she is correct to note that "the government could not monetize a budget deficit." Therefore, the incentive to run deficits would be greatly reduced. Shel ton also understands how best to eliminate a deficit, as noted in a passage that ventures into the realm of fiscal policy: "Instead of shrinking the nation's level of productive economic activity by imposing higher tax rates in a misguided attempt to raise gov ernment revenues, private business activity should be spurred through lower tax rates.

Despite the drubbing supply-side economics has been subjected to, lower marginal tax rates can lead to higher overall levels of tax revenue as individuals respond to opportu nities to reap greater personal rewards from their entrepreneurial activities." The implementation of a gold standard will enhance the rewards for entrepreneur ship as well by maintaining price stability and reducing currency risks in the interna tional marketplace. In Money Meltdown, Shelton adeptly explores the benefits of an choring currencies to gold, and thereby has added another valuable tODle to the expand ing library of supply-side economics. D Mr. Keating is Director ofNew York Citizens for a Sound Economy, and partner with Northeast Economics and Consulting. Lost Rights: The Destruction of American Liberty by James Bovard St. Martin's Press. 1994 • 408 pages. $24.95 Reviewed by William H. Peterson "The most cogent reason for restricting the interference of government is the great evil of adding unnecessarily to its power. Every function superadded to those already exercised by the government causes its influence over hopes and fears to be more widely diffused, and converts, more and more, the active and ambitious part of the public into hangers-on of the government, or of some party which aims at becoming the government. "

So wrote John Stuart Mill in 1859. Con curring is policy analyst James Bovard who has written a whale of a book, at once courageous, entertaining, and thoroughly documented. Bovard, author of The Fair Trade Fraud (1991) and a frequent contrib utor to the Wall Street Journal and New York Times, holds that Americans pay dearly for idolizing the State and treating its interventionist laws as gospel. He argues that the more we glorify gov ernment, the more liberties we lose, that the central issue of our times is between letting people build their own lives and compelling them to build their lives as the state dictates, that people are drowning in a flood of legislative and administrative law, that the American government wars on private prop erty rights which are at the very heart of liberty, and that the vast effort of govern ment intervention to improve society is "a dismal failure. "

In the war on property, Bovard cites the case of S1. Bartholomew's Church on New York's Park Avenue. The parish tried to sell its community house next to the church and replace it with a high-rise officebuilding which would have netted $100 million. But the New York City Landmarks Preservation Commission denied the church's petition because of its historic designation. The church sued that the designation amounted to an illegal seizure under the Fifth and Fourteenth Amendments, only to face an adverse federal appeals court ruling in 1991: "The church has failed to prove that it cannot continue its religious practice in its existing facilities. . . . So long as the church can continue to use its property in the way that it has been using it-to house its char itable and religious activities-there is no unconstitutional taking." In other words, BOOKS 713 bye-bye $100million. Bovard sees the ruling as effectively Q.andingover to local govern ments almost unlimited power to selectively place private property-and human free dom-in limbo.

As evidence of the flood of legislative and administrative law, the author points out that the Federal Register publishes each year some 70,000 pages of fine print of new laws, rulings, regulations, and proposals. The average citizen could hardly read this legal outpouring, let alone understand it; but it nonetheless silently gnaws at his life, liberty, and property as presumably enun ciated by the Declaration of Independence and the Bill of Rights. Bovard wonders how liberty fares when Equal Employment Opportunity Commis sion officials can levy a fine of $145,000on an owner of a small business in Chicago because he did not have 8.45 African Americans on his payroll, when U.S. Agri culture Department agents can prohibit Ar izonafarmers from selling58 percent of their lemon crop to other Americans, when gov ernment subsidies become a major factor in squeezing out unsubsidized developers, schools, theater producers, and farmers, when total federal spending has jumped in nominal terms, from $100 billion in 1963 to over $1.5 trillion in 1994. And this jump is before enactment of a Clintonlike health plan which would federalize (read socialize) one-seventh of the nation's Gross Domestic Product.

Clearly, government in America over reaches, overtaxes, overgoverns-with abysmal results. James Bovard closes with an apt quotation from Henry David Tho reau: "If you see a man approaching you with the obvious intent of doing you good, run for your life." D Dr. Peterson, Distinguished Lundy Professor of Business Philosophy Emeritus at Campbell University in North Carolina and a Freeman Contributing Editor, is completing a book manu script entitled Peterson's Law: Why Things Go Wrong.