July

THEFREEMAN IDEAS ON LIBERTY FEATURES 412 416 419 422 426 429 433 439 444 448 451 452 456 461 467 472 Center 424 442 454 474 410 476 The Trouble with Keynes by Russell Shannon A dubious legacy of political activism and short-run solutions. Macroeconomics Reconsidered by Kyle S. Swan Toward formulating a defensible theory of capital. Cholecystectomy, How Is It Made? by LeonardA. Metildi A surgeon applies the lesson of "I, Pencil" to gall bladder surgery. A Sales Pitch for Laissez-Faire Health Care by Daniel B. Klein The benefits of establishing freedom of property, consent, and contract in medical care. Is Environmental Pollution the Principal Environmental Problem? by Hugh Macaulay Rethinking pollution as an economic problem. The Greening of the Cross by E. Calvin Beisner Misstatements of a new environmental movement. The Rise of Market-Based Management by Jerry Ellig and Wayne Gable Looking to the free market system for business management insights.

The Economic Safety Net (a parable) by Jes Beard The dangers of trading liberty for security. Special Interests and the Internment of Japanese-Americans During World War II by Steven B. Caudill and Melody Hill National security was not the primary motivating factor. Peace for Europe? by William J. Watkins, Jr. The centralizing effort of the European Union could generate the very conflict it seeks to avoid. Economics 101: A True-False Test by Ralph R. Reiland How much do you know about the American economy of the 1980s? Hail to Prices! by Jeffery G. Lee In Pangbae, as in Peoria, prices convey vital information about supply and demand. Don't Believe the Hysterical Preservationists by James D. Saltzman Supplanting the aesthetic choices of the property owner with government edict is bad economics and bad political philosophy. Free Banking and Economic Development by David Glasner Why free banking is so well suited for less-developed and former Eastern Bloc countries.

Thomas Jefferson's Sophisticated, Radical Vision of Liberty by Jim Powell A tribute to Jefferson's monumental accomplishments. Forrest Gump: A Subversive Movie by Aeon J. Skoble A review of one of the year's most celebrated films. COLUMNS NOTES from FEE-Degenerate Democracy by Hans F: Sennholz IDEAS and CONSEQUENCES-Block Grants Are Not the Answer by Lawrence W Reed A MAITER of PRINCIPLE-Beyond the Pale by Robert James Bidinotto POTOMACPRINCIPLES-Freedomfrom Taxes? by Doug Bandow ECONOMICS on TRIAL-Sorry, Charley, But That's Not Capitalism! by Mark Skousen DEPARTMENTS Perspective-James M. Buchanan, Randall G. Holcombe, Paul Heyne, Henry Hazlitt, Christopher DeMuth Book Reviews -Cliches ofPolitics edited by Mark Spangler, reviewed by Robert Batemarco; Death by Government by R. 1. Rummel, reviewed by Doug Bandow; Beyond Politics, by William C. Mitchell and Randy T. Simmons, reviewed by Gregory P. Pavlik; Investment Biker by Jim Rogers, reviewed by Richard A.

Cooper.

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: Donald J. Boudreaux Editor Emeritus Paul L. Poirot Lewisburg, Pennsylvania Book Review Editor Robert Batemarco Marymount College, Tarrytown, New York Assistant Editor Gregory P. Pavlik Columnists Doug Bandow Cato Institute, Washington, D.C. Robert James Bidinotto 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 E. Calvin Beisner Covenant College, Chattanooga, Tennessee Peter J. Boettke New York University Donald J. Boudreaux Clemson 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 Bettina Bien Greaves Resident Scholar, FEE Robert Higgs The Independent Institute, Oakland, California John Hospers University of Southern California Tibor R. Machan Auburn University Ronald Nash Reformed Theological Seminary Maitland, Florida Edmund A. Opitz Chatham, Massachusetts James L. Payne Sandpoint, Idaho William H. Peterson Adjunct Scholar, Heritage Foundation, Washington, D.C.

Jane S. Shaw PERC, Bozeman, Montana 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 © 1995 by The Foundation forEconomic Education. Permissionisgranted to reprint any articlein this issue, except' 'Thomas Jefferson's Sophisticated, Radical Vision of Liberty," provided appro priate 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 $30.00or more receive a subscription to TheFreeman. 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 $40.00a year is suggested to cover mailing costs.

Bound volumes of The Freeman are available from The Foundation for calendar years 1972to date. The Freeman is available in microform from University Microfilms, 300 N. Zeeb Rd., Ann Arbor, MI 48106. PERSPECTIVE Liberty and Individual Potential Man wants liberty to become the man he wants to become. He does so precisely because he does not know what man he will want to become in time.... Man does not want liberty in order to maximize his utility, or that of the society of which he is a part. He wants liberty to become the man he wants to become. -JAMES M. BUCHANAN "Natural and Artifactual Man" What Should Economists Do? (Liberty Press, 1979) Freedom and Responsibility In a free society, individuals should have the right to make choices, even if their choices might harm them. With freedom comes responsibility, and if we tum our responsibility over to the government, we turn our freedom over at the same time.

-RANDALL G. HOLCOMBE Public Policy and the Quality of Life (Greenwood Press, 1995) Theory into Practice We can successfully ride [a bicycle] with out knowing how we do it. Moreover, we can hold a totally erroneous theory about bicycle balancing without getting into any trouble, unless we try to design the bicycle in accordance with our faulty theory. That is when we will get into trouble. In the econ omy, we can enrich one another without knowing how we do it. And we can maintain completely fallacious views of how any economy works without creating any great difficulties for anyone. But if our practical success generates excessive confidence in our erroneous theory, and we try to use that theory to improve the operation of the system, we can do a great deal of damage. When we put faulty theories about bicycle riding into practice, we are instantly refuted. Few of us are either stubborn or stupid enough to persist in a faulty theory that is 410 skinning our elbows or bruising our bot toms. We admit our ignorance. There is nothing similar, however, to correct faulty theories that are applied to the reconstruc tion of economic systems. The links be tween causes and effects are too numerous and too difficult to trace.

-PAUL HEYNE "Why Johnny So Rarely Learns Any Eco nomics," in Richard M. Ebeling, Ed., Eco nomic Education: What Should We Learn About the Free Market? (Hillsdale College Press, 1994). Competition and Cooperation Now what the critics of economic com petition overlook is thatwhen it is con ducted under a good system of laws and a high standard of morals-it is itself a form of economic cooperation. . . . General Motors and Ford are not cooperating di rectly with each other; but each is trying to cooperate with the consumer, with the potential car buyer. Each is trying to con vince him that it can offer him a better car than its competitor, or as good a car at a lower price. Each is "compelling" the oth er-or, to state it more accurately, each is stimulating the other-to reduce its pro duction costs and to improve its cars. Each, in other words, is "compelling" the other PERSPECTIVE to cooperate more effectively with the buy ing public. And so, indirectly,-triangu larly, so to speak-General Motors and Ford cooperate. Each makes the other more efficient.

-HENRY HAZLITT The Foundations of Morality The New ManifestDestiny Traditionally, the nation-state provided two major benefits, both of which tended to increase with the state's territory . . . phys ical protection against external enemies and an extensive internal market. . . . But the first. . . is becoming less important with the spread of democratic forms of government, because democracies are highly disinclined to make war on their neighbors; and the second is becoming less important with the growth of international trade and com merce-some of it due to the liberalizing actions ofgovernments, some ofit due to the emergence of technologies resistant to gov ernment control, all of it tending to make the economic benefits of extended markets available without regard to the geographic size of the individual state. -CHRISTOPHER DEMUTH President of the American Enterprise In stitute. The American Enterprise, Vol. 6, March/April 1995.

411 THEFREEMAN IDEASON L1BER1Y The Troublewith Keynes by Russell Shannon "In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again." -John Maynard Keynes (1923)1 K eynes' remark about the inevitability of death is now famous. It is, however, a statement not of defeat but of denial. Rather than indulge in resignation and gloom, Keynes urges action. The market economy, he believes, may at least occasionally re quire some judicious nudging. If we can temper the impact of economic malaise, why wait? At first glance, this position seems rea sonable. Why not use human intelligence to alleviate problems? After all, isn't that what we do with medicine? Then why not let the doctors of economics prescribe rem edies appropriate for our economic ills? Did not the founder of modern economics, Adam Smith, suggest a strong dose of lais sez faire?