A Solution to the Incentives War; A. Cline

In all likelihood, the biggest problem gold proponents face is that people simply aren't .ready to go back to gold. Most people aren't aware of the extent of our monetary disarray and many of those who are don't understand its source. Two generations of Americans have known nothing but unbacked paper as money; few realize that there is an alternative. In contrast, when the United States restored gold convertibility in 1879 and when Britain did so in 1821 and· 1926, gold money was still seen as the norm. That is no longer the case. It might take a hyperinflationary disaster to shake people's faith in fiat money. Let's hope not. In addition to the horrendous costs of such a "learning experience," it's not even a sure thing that it would lead us back to gold. Recent hyperinflations in places as disparate as Russia and Bolivia have not done so. The desire to get something for nothing dies hard. Governments use central banks with the unlimited power to issue fiat money as their way to get something for nothing. By "sharing" some of that loot with us, those governments have convinced us that we too are getting something for nothing. Until we either wise up to the fact that governments can't give us something for nothing or, better yet, when we realize the moral folly of taking government handouts when of fered, we will continue to get money as base as our desires. D 1. Arsen J. Damay, editor, Economic Indic(J(ors Hand book (Detroit, London: Gale Research Inc., 1992), p. 232 and Survey of Current Business, vol. 75, February 1995, p. C-5.

2. The Wall Street Journal, April 7, 1995, and The Eco nomic Report of the President, 1995. 3. As measured by the National Bureau of Economic Research. 4. Robert J. Shapiro, "Politics and the Federal Reserve, " The Public Interest, Winter 1982, p. 123. 5. Shapiro, pp. 126-127. 6. Federal Reserve Bulletin, February 1995, p. A30. 7. Murray N. Rothbard, "The Federal Reserve as a Cartellization Device: The Early Years, 1913-1930," in Barry N. Siegel, editor, Money in Crisis (Cambridge: Ballinger Publishing Company, 1984), p. 107. 8. Rothbard, pp. 105-106. 9. Richard M. Salsman, Gold and Liberty (Great Bar rington, Mass.: American Institute for Economic Research, 1995), p. 26. 10. Michael David Bordo, "The Classical Gold Standard: Some Lessons for Today," Federal Reserve Bank of St. Louis Review, May 1981, pp. 8-9. 11. Steve H. Hanke, "Critics Err-Mexico Still Needs a Currency Board," The Wall Street Journal, February 22, 1995.

12. For a fuller treatment of this issue, see Roger Garrison, "The Cost of a Gold Standard," in Llewellyn H. Rockwell, Jr., editor, The Gold Standard: An Austrian Perspective (Lexing ton Books, 1985), pp. 61-79. 13. Alan Reynolds, "Gold and Economic Boom," in Sie gel, p. 256. 14. Hans Sennholz, Money and Freedom (Spring Mills, Pa.: Libertarian Press, 1985), pp. 81-83. A Solutionto the IncentivesWar? by Andrew Cline I n 1936, the Mississippi state legislature attempted to minimize the effects of the Great Depression by enacting the "Balance Agriculture With Industry" act, the nation's Mr. Cline is research fellow at the John Locke Foundation in Raleigh, N.C., and managing editor of Carolina Journal Weekly Report, a newsletter ofpolitics and policy delivered by fax and e-mail. first state-sponsored economic develop ment plan. Fifty-nine years later, each of the 50 states runs its own economic development pro gram, a government-controlled effort to ac tively recruit business. As was the case with the federal government, the role of the state governments was redefined in the 1930s.No longer were they relegated to providing infrastructure and education. Legislators of The Foundation for Economic Education Irvington-on-Hudson, New York 10533 Tel. (914) 591-7230 Fax (914) 591-8910 E-mail: freeman@westnet.com November 1995 Counting OUf Blessings C riticism is said to be a basic amuse ment in which we like to indulge.

We are quick to point out the faults of others, denounce their views, and decry their blunders. We enjoy lamenting the state of affairs, bewailing public policies, raising our voices against legislators and regulators, and deploring their motives and misunderstandings. We rarely are mindful that it is easier to destroy than to build up. There is much to pull down when we view our society in the light of our ideals. We are guided by a set of ideals which are innate or acquired, and measure all things by them. We judge our society and its institutions by our ideal concepts of wis dom/ righteousness, justice, and liberty. When seen in the bright light of the ideal, we are saddened by the wide gulf that sep arates the ideal from the real, particularly, by how the ways and injunctions of the Founding Fathers differ from the machina tions of the Hoover and Roosevelt Deals and all others since. We lament the rise of the omnipresent, omnipotent polity and the politicization of many aspects of our lives. As political command and coercion encompass our lives, individual freedom is diminished.

If we compare our conditions with those of all other nations around the globe, we are tempted to sing about America, the beautiful. A brief look at our next-door neighbors and NAFTA partners as well as our trade partners in Europe and Asia makes us appreciate our lot. In Canada, the Liberal Party of Jean Chretien, with a comfortable majority in the House of Commons, is pursuing its stale tax-and-spend objectives. It is forg ing ahead with social assistance, unem ployment insurance, and other transfer programs. As it labors under a heavy bur den of federal, provincial, and local taxa tion and regulation, economic life stag nates and real wages fall. Unemployment is hovering about the 10 percent mark, fed eral deficits are running at 5.5 percent of GDP, and the Canadian dollar is changing hands at 74 U.S. cents. Nationalized healthcare is deteriorating, with thousands of doctors leaving for the U.S. Only two economic sectors continue to prosper: gov ernment and the underground economy.

In Quebec, Ontario, and the three Maritime Provinces, merchandise worth many billions of dollars moves from the United States to Canada through the Akwesasne Indian reserve straddling the border. The smuggling is bringing new life to the St. Lawrence River valley. The migration of Canadian business to U.S. border states is bringing jobs and activity to the U.S. In Mexico, the political difficulties usu ally permeate all aspects of life. Foreign observers raise concerns about Mexico' s one-party dominance, corruption, and human rights abuses. The vast majority of its population of 93 million make ends meet on labor income of less than one-fifth of U.S. incomes. The rate of inflation often exceeds 10 percent per year. In 1994 the peso fell.by some 45 percent against the U.S. dollar, causing the financial markets to plunge precipitously, interest rates to soar, and economic activity to sink into deep depression. Millions of workers man aged to escape their wretched conditions in Mexico by seeking survival as illegal aliens in the U.S.

If we compare our plight with that of our British friends, we cannot help count ing our blessings. Although the U.K.'s eco nomic statistics tell a story of some progress, they reveal an unemployment rate of 9 percent. The chronic economic problems that plague the country are reces sion, high inflation, a rising tax burden, and record levels of government borrow ing, exceeding 5 percent of GDP. Wage rates are some 25 percent lower than in the United States, with interest rates generally higher by one or two percentage points. The pound sterling which used to be the world's most trusted currency is one of the weakest now, losing exchange value even against the shrinking U.S. dollar. Social and economic conditions in Germany are said to be among the best in Europe, even better than in the U.S. Productivity and income per capita are about the same. The crime rate is substan tially lower, but the unemployment rate much higher since the reunification of East and West Germany in 1989. Yet, the ideo logical and political forces of socialism are very much alive, clouding the future of Germany.

The reunification created a double-bar relled welfare state which is paving the way for a new command system. One bar rel was crafted by the advocates of the "social market economy" or "middle of the road" after the pure market economy ala Erhard had transformed the country dev astated by war into a wonderland of miraculous recovery. The other barrel was added after the reunification when the leg islators and labor leaders turned East Germany into a huge social asylum. They decreed a currency union on an exchange rate of 1:1, which made prodigious gifts to all East Germans, and ordered a rapid wage parity in East and West, which condemned many Easterners to chronic unem ployment. A massive transfer of West German wealth sustains the asylum but does not invigorate and elate its inhabi tants. Many are yearning for an early return of the command system. Japan reports a per capita production of $31,450,which compares with only $24,700 in the U.S.A. But if we bear in mind that these statistics are based on the yen/ dollar exchange rate, which undervalues the dol lar in Japan by more than one third in terms of purchasing power, we realize that Japanese real wages and standards of liv ing are still lower than those in the U.S.

Yet, Japanese society is one of the most harmonious and peaceful in the world. The crime rate per 100,000 population is a small fraction of the U.S. rate: homicide 1 rather than 9.3, rape 1.3 rather than 42.8, robbery 1.5 rather than 263.6. The Japanese are a naturally orderly people who obey the rules, which may contribute to the popUlarity of the Socialist Party, the sec ond largest party in the House of Representatives. The Socialist Tomiichi Murayama is the prime minister who heads the government formed by thr"ee allied parties. Looking abroad to the political, social, and economic conditions of neighbors and friends, Americans are counting their blessings. Away from home, there is no happiness for them. At home the warm winds of change are blowing. There are real indications that we are reversing the anti-business climate which has depressed economic life throughout the Democratic and Republican Deals. The sixty-year-old death grip of government is loosening. We are witnessing the reduction of govern ment on all levels; even labor unions which build on the Marxian exploitation doctrine are in retreat. There is new hope that tomorrow will be better yet.

Hans F. Sennholz College Course in January January 2-20, 1996 The Foundation for Economic Education is conducting a special three-credit course taught by FEE professors and staff in MicroEconomics at Mercy College Dobbs Ferry, NY 10522 (one mile south of FEE headquarters) Tuition, fees, housing, and meals $1,150.00 I f you are interested, make application for admission to The Foundation for Economic Education and submit a letter of good standing from the institution in which you are currently enrolled. Special, non-credit students of all ages are welcome. Application deadline: December IS, 1995 Decetnber Round-Table at FEE D on't miss the last chance to join us for our final Round Table of the Fall season. Our evenings begin with a reception at 5:00 P.M., followed by dinner at 6:00. Weare then entertained by a presentation given by our featured speaker. After that, the floor is opened for an exciting exchange of ideas. Charge is $40 per person per event; certain discounts are available. Attendance is limited; call or write Dr. Barbara Dodsworth at FEE for reservations (phone 914-591-7230; address, 30 South Broadway, Irvington, NY 10533).

December 2 Round Table Doug Bandow of the Cato Institute in Washington, D.C., will entertain us with his discussion of foreign aid in "Foreign Aid: New Bottles, Old Wines.

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