May

THEmE ............ IDEASON LIBERTY 220 Lodge Doctors and the Poor by David T. Beito A look at the "lodge practice evil" and medical care before the Welfare State, 1900-1930. 226 A Feminist Lesson from Economics by Deborah Walker Women and the "knowledge problem." 231 The Incredible Ticket Machine by Jerry Ellig Are computerized reservation systems a threat to competition in the airline industry? 236 Ideas and Consequences by Lawrence W. Reed 238 The Moral Consequences of Paternalism by Daniel B. Klein Why we should reject government's offer to lend us a helping hand. 241 The Past Is Prologue by K. Maureen Heaton What happened when the Planners came to Our City. 244 King Charles' Ax: Property Rights, Human Freedom, and the Quality of Life by John Robson Property rights are not a human right; they are the human right. 251 Owls, Ferrets, and Free Markets by K. L. Billingsley Battling the bureaucrats who seek to regulate every facet of the environment.

253 Post-Communist Traumas East and West by Tibor R. Machan Few people in the West seem to fully appreciate just how horrible the Soviet experiment was and how difficult it is to recover from it. 256 The Economic Way of Thinking, Part 8 by Ronald Nash Dr. Nash concludes his series with thoughts on the importance of asking what the long-term consequences of any economic action will be. 259 Lending Discrimination: The Unending Search by Robert Batemarco Recent regulatory follies. 263 Correction, Please! by Mark Skousen 266 Book Reviews Steven Horwitz reviews Monetary Policy in the United States: An Intellectual and Institutional History by Richard Timberlake; Cities without Suburbs by David Rusk, reviewed by Dean Stansel; The Fortune Encyclopedia of Economics, edited by David R. Henderson, reviewed by Raymond J. Keating; Playing the Field by Charles Euchner, reviewed by Jeff A. Taylor. CONTENTS MAY 1994 VOL. 44 NO.5 THEFREEMAN IDEASON LIBERTY Published by The Foundation for Economic Education Irvington-on-Hudson, NY 10533 Phone (914) 591-7230 FAX (914) 591-8910 President: Hans F. Sennholz Managing Editor: Beth A. Hoffman Guest Editor: Peter J. Boettke Editor Emeritus Paul L. Poirot Lewisburg, Pennsylvania Book Review Editor Robert Batemarco Marymount College, Tarrytown, New York Associate Editors John Chamberlain Cheshire, Connecticut Bettina Bien Greaves Resident Scholar, FEE Edmund A. Opitz Chatham, Massachusetts Columnists Gary North Institute for Christian Economics Tyler, Texas Lawrence W. Reed Mackinac Center for Public Policy Midland, Michigan Mark Skousen Rollins College, Winter Park, Florida Contributing Editors Charles W. Baird California State University, Hayward Doug Bandow Cato Institute, Washington, D.C.

E. Calvin Beisner Covenant College, Chattanooga, Tennessee Peter J. Boettke New York University Clarence B. Carson American Textbook Committee Wadley, Alabama Thomas J. DiLorenzo Loyola College, Baltimore, Maryland Joseph S. Fulda New York, New York Roger W. Garrison Auburn University Robert Higgs Seattle University John Hospers University of Southern California Los Angeles, California Tibor R. Machan Auburn University Ronald Nash Reformed Theological Seminary Maitland, Florida William H. Peterson Heritage Foundation, Washington. D.C. Richard H. Timberlake University of Georgia Lawrence H. White University of Georgia The Freeman is the monthly publication of The Foundation for Economic Education, Inc., Irvington-on-Hudson, NY 10533. FEE, established in 1946 by Leonard E. Read, is a non-political, educa tional champion of private property, the free market, and limited government. FEE is classified as a 26 USC 501(c)(3) tax-exempt organization.

Copyright © 1994 by The Foundation for Economic Education. Permission is granted to reprint any article in this issue, provided appropriate credit is given and two copies of the reprinted material are sent to The Foundation. The costs of Foundation projects and services are met through donations, which are invited in any amount. Donors of$25.oo or more receive a subscription to The Freeman. Student subscriptions are $10.00 for the nine-month academic year; $5.00 per semester. Additional copies of single issues of The Freeman are $2.00. For foreign delivery, a donation of $40.00 a year is suggested to cover mailing costs. Bound volumes of The Freeman are available from The Foundation for calendar years 1972 to date. The Freeman is available on microfilmand CD-ROM from University Microfilms, 300 North Zeeb Road, Ann Arbor, MI 48106. PERSPECTIVE Shifting the Terms of the Debate An ancient legend has it that a Roman emperor, asked to judge a singing contest between two entrants, heard only one con testant and gave the prize to the second under the assumption that the second singer could be no worse than the first. The prob lem with the Emperor's judgment, of course, was that his assumption was unwar ranted. The second contestant might have been much worse.

Unfortunately, much of the popular de bate concerning whether the market or gov ernment should be relied on to provide certain goods and services follows the same myopic pattern of behavior as that of the Emperor. When the market economy can be shown to "fail" in some area, it is simply assumed that the government can provide the service better. One of the most impor tant tasks of economic education is to re verse this lopsided way of thinking. Adam Smith, for example, argued in The Wealth of Nations that not only would the government not be in a position to efficiently judge the best use of scarce resources, but that' 'The statesman, who should attempt to direct private people in what manner they ought to employ their capitals,. would not only load himself with a most unnecessary attention, but assume an authority which could be safely trusted, not only to a single person, but to no council or senate what ever, and which would nowhere be so dan gerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it."

The great French economic journalist, Frederic Bastiat, wrote in his classic essay, "What is Seen and What is Not Seen," in Selected Essays on Political Economy that "There is only one difference between a bad economist and a good one: the bad econo mist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen." The full extent of the harmful effects of such government 218 policies as taxes, public works, and re straints of trade unfortunately can only be gleaned by a careful and thorough examina tion of interventionism and its effects (both direct and indirect) on the economy. Though the debate over government ver sus free market is old it is never ending. Each generation must fight the battle anew. The free market response to advocates of government intervention is twofold. First, it must be pointed out that many so-called market failures are not really failures of the market but instead the consequence of gov ernment failure to clearly define and strictly enforce private property rights. Second, it must be stressed that even in situations where the market could be said to fall short of the optimality conditions of the best of all possible worlds, the proposed government remedy may actually worsen the situation.

This type of argument has been put forth by generations of economists from Adam Smith to J. B. Say to Ludwig von Mises to F. A. Hayek to Milton Friedman to James Buchanan. Sometimes their arguments have carried the day-if not in policy implemen tation at least in policy discussion. At other times, the teachings of economists who possess a boundless optimism concerning the ability of the government to solve our problems dominate. Economists who favor government intervention in a wide array of economic affairs, such as John Maynard Keynes, Paul Samuelson, and John Ken neth Galbraith, have more or less dictated the terms of the debate for most of the post World War II era. During the 1980s, the terms of the debate shifted so that the burden of proof was on those who proposed government interven tion. Unfortunately, the debate has shifted back again so that the presumption in the policy debate is that the government can provide an easy and efficient remedy to economic ills. The recently released Eco nomic Report of the President, written by the administration's leading economists Laura D' Andrea Tyson, Joseph Stiglitz, and Alan Blinder, officially signaled the shift in PERSPECTIVE the terms of the debate. The Report calls for economic intervention by the government, including "microeconomic initiatives to promote efficiency and productivity." As the New York Times (February 15, 1994) pointed out, the Report does not examine the age-old free market litmus test for jus tifying government action (i.e., identifying the market failure, and then examining whether the government could outperform the market in dealing with the problem).

Instead, the Report identifies market fail ures alone. As Laura D'Andrea Tyson stated herself in the press conference to announce the publication of the Report, "I think there is something different in the whole tone of this. . . . There is a lot here implicitly about the role of Government to do something that would be beneficial. . . " Laura D'Andrea Tyson, Joseph Stiglitz, and Alan Blinder are accomplished econo mists-in many ways leading representa tives of their generation. Their arguments must be addressed in the most scholarly manner possible. We willfind neither a com plete nor effective answer to their arguments in Mises or Hayek or Friedman or Bucha nan, let alone Smith or Bastiat. Repeating the basic principles of the free society taught by these great thinkers is not enough (though, of course, it is a good start). Instead, we must find the answer to these "new" chal lenges to the market economy ourselves.

As Mises pointed out in his preface to the Henry Regnery edition of Adam Smith's great treatise, "the reader will [not] find in the Wealth of Nalions a refutation of the teachings of Marx, Veblen, Keynes, and their followers. . . . Read the great book of Smith. But don't think that this may save you the trouble of seriously studying mod ern economics books." Similarly, the de bate has now shifted to a new generation. Free market thinkers must address the ques tions of 1994 and beyond, with fresh refu tations of modern theorists who favor gov ernment solutions over the voluntary choices of individuals within the market. ----PETERJ. BOETTKE 219 THEFREEMAN IDEASON L1BERlY LODGE DOCTORS AND THE POOR by David T. Beito Medical Care Before the Welfare State, 1900-1930 On the face of it, a historical study of fraternal societies seems to be a subject fit only for connoisseurs of the arcane. Few Americans these days come into contact with such groups. When many of us hear the word lodge, we think of it as a place where television characters from our youth, such as Ralph Kramden (of the Loyal Order of Raccoons) and Fred Flintstone (of the Loyal Order of Water Buffalos), escaped from their more sensible wives to engage in child ish hijinks-parading around with silly hats and mouthing pretentious rituals.