Book Reviews

With his book Business as a Calling:Work and the Examined Life, Michael Novak offers one of these precious exceptions. Novak is a trained philoso pher and theologian with a sound understanding of economics. In his introduction he notes the pre vailing weaknesses in the two camps that at least supposedly ponder the mix of business, economics, and morality. He criticizes business and economics faculties for being "complacently concerned al most exclusively with means rather than with ends," and also observes that, "religious leaders speak inadequately about business-more so than about almost anything else they preach on." Busi ness as a Calling attempts to fill some of the void left by both these camps. Novak captures the ultimate and critical pur pose of the business enterprise: "Business is about creating goods and services,jobs and benefits, and new wealth that didn't exist before." In contrast to today's predominant views, Novak illustrates clearly that businessis neither morallybankrupt nor amoral.

Instead, business is "a morally serious enterprise" that "requires moral conduct." Indeed, since he rightlyidentifiesbusiness as "the singlelargest insti tution of civil society" under the project of self government,Novakconcludesthat the "moral health of society,therefore, depends to a great extent on the moral character of business leaders." The author cites seven responsibilities of the business enterprise which spring from the ubiqui tous nature of business as an economic association serving "the common good of the community": (1) satisfyingcustomers with goods and services of real value, (2) earning a reasonable return on the funds entrusted to the business corporation by its investors, (3) creating new wealth, (4) creating 243 new jobs, (5) defeating envy-which Novak cor rectly identifies as the ultimate destroyer of repub lics-by generating upward mobility and empirical evidence that hard work and talent are fairly rewarded, (6) promoting invention and ingenuity, and (7) diversifying"the interests of the republic."

Novak lists "seven further sets of moral respon sibilitiesproper to the business worker as Christian or Jew": (1) establish a sense of community and respect within the firm, (2) "protect the political soil of liberty," (3) "exemplify respect for the law," (4) practice social justice as a social virtue, (5) communicate with investors, shareholders, pensioners, customers and employees, (6) make the surrounding community a better place, and (7) "protect the moral ecology of freedom." All of these responsibilities can sound almost trite at first glance. But as described, discussed, and examined by Novak in Business as a Calling, they carry a great weight and deserve serious attention. For example, Novak makes a very important Madisonian economic point as to why business is important to "the interests of the republic": "The sheer dynamism of economic invention makes far less probable the coalescing of a simple majority, which could act as a tyrant to minorities. The economic interests of some citizens are, in an important sense, at cross-purposes with the eco nomic interests of others, and this is crucial to preventing the tyranny of the majority."

As for protecting the "political soil of liberty," the author sagaciously advises: "Since the survival of business depends on the survival of free insti tutions, the responsibilities of people in business include the need to build majorities well informed about the principles of free society." Many busi nesses take this responsibility quite seriously. Business as a Calling can be appreciated for many reasons. This reviewer, though, was most satisfied by its understanding and explanation of individuals as creators, and that only the free market economic system allowsindividuals to fully unleash their creative energies and abilities for the good of all. Religious leaders who too often look down upon the business vocation need to understand Novak's following point: The dynamism driving a capitalist system for ward ... is the virtue of creative initiative. The other side of that virtue is the responsibilities it imposes. Implicit in that dynamism is a commit ment to make things better. The assumption behind it is that the Creator did not make the world finished but to be finished.His purpose in makingwomen and men in his imagewas to draw them into his own creative work as co-creators.

244 THE FREEMAN • APRIL 1997 Michael Novak proves to be far closer to the original concept of the economist as exemplified by Adam Smith, than are many of today's narrow economists who see economics as only dealing with aggregate demand theories or econometric mod els. Novak understands that economics ultimately is about human actions. 0 Mr. Keating, as chief economist for the Small Busi ness Survival Foundation, is the author ofNew York by the Numbers: State and City in Perpetual Crisis (Madison Books, 1997). The Truth About the National Debt: Five Myths and One Reality by Francis X. Cavanaugh Harvard Business School Press. 1996 • 192 pages • $22.95 Reviewed by Robert Batemarco "The last temptation is the greatest treason: to do the right deed for the wrong reason." In this book, Francis X. Cavanaugh, an astute former Treasury Department economist, applies these words of T. S. Eliot to most of the popular discussion of federal budget deficits. In using economic analysis like a bowling ball to mow down fallacious arguments, he leaves just one standing.

And it is a non-fallacious one: the ability to run deficits lets politicians have "the pleasure of spend ing (getting votes) without the pain of taxing (losing votes). Without that discipline, federal spending is out of control." On the other hand, a budget which must be balanced forces legislators to ask the necessary questions before embarking on new projects: "Is it essential? Is it good for the country, for now and for the future: Should it be done by government or by the private sector?" One of the virtues of this book is that it sees government spending as a burden regardless of how it is financed. The author makes clear that whenever the government acquires resources that could be put to better use in the private sector, it makes at least some of us poorer. Moreover, when it uses resources for consumption that would otherwise have gone for investment, it reduces future production possibilities as well. This focus on spending as the burdensome aspect of deficits demonstrates the absurdity of fighting deficits through tax increases. Whether government fi nances resource acquisition through taxes, selling bonds in the open market, or selling those bonds to the central bank in exchange for newly created money merely determines which of us it makes poorer.

This redistributionist aspect seems to underlie most of the arguments regarding the deficit the author sees as fallacious. Indeed, it seems to me that one of his blind spots is the failure to see an economic or moral problem with using state power to redistribute income. This causes him to repeat an old falsehood about the deficit-that, "we owe it to ourselves." (The phrase smacks of Keynesi anism at its worst.) While he does not let aggre gation run amok to the point of suggesting that "we" and "ourselves" are the very same people, he does giveshort shrift to the disincentive effectsthat result from the higher taxes needed to repay the debt, including the interest on it. He also fails to recognize the injustice of making future taxpayers pay for current government spending. He percep tively notes that deficits cannot literally shift re sources from the future to the present. But he fails to mention that deficits do create a two-way redistribution (of present resources from bond holders to taxpayers, and of future resources from taxpayers to bondholders), which makes it seem that way from the taxpayers' viewpoint.

Still, for a man who spent his career in the government's employ and probably learned his economics at a time when Keynesianism ruled the roost, Cavanaugh steers clear of many of Keynes's pet notions. Thus, he denies in no uncertain terms that fiscal policy has any role to play in fine-tuning the economy. He also refutes the notion that full employment is necessary in order for government spending to crowd out private spending. This is not to say that the author has completely risen above the "conventional wisdom." He repeats the silly notions that the Fed is concerned with fighting inflation, that inflation is caused by in creased economic activity, and that the American people collectively own the government. He also suggests that there is such a thing as government investments that actually pay for themselves (while this is not a logical impossibility, my guess is that it would be harder to find than kind words for socialism in The Freeman).

On balance, this book makes a valuable contri bution to our understanding of a crucial subject. By shifting the emphasis from deficits to government spending as the problem, it should reduce the appeal of tax increases as a solution. Or at least it would in a more rational world. 0 Dr. Batemareo is director of analytles at a marketing research firm in New York City and teaches econom ics at Marymount College in Tarrytown, New York.

Slouching Towards Gomorrah: Modern Liberalism and American Decline by Robert H. Bork ReganBooks/HarperCollins. 1996 • 382 pages. $25.00 Reviewed by Jessica Schupak R obert Bork's Slouching Towards Gomorrah thoroughly chronicles how modern .liberalism has corrupted American culture and set the coun try on the road to moral chaos. In the 1960sthe Left developed its two main tenets: radical individual ism and radical egalitarianism. The first describes the decreasing limits individuals place on personal gratification, and the second refers to the growing emphasis on equality of outcomes rather than opportunity. Together they have formed the new religion of the Left. It is logically impossible to be both a radical individualist and a radical egalitarian. In trying to do so, the Left has become what Harold Rosenberg termed the "herd of individual minds." It recom mends a leveling of income not out of genuine compassion for the poor, but an aversion for the successful. As Bork observes, liberals are driven not by what they lack, but what others have. Their strategy has been to vilifythe rich, in an attempt to stop anyone from attaining such status. It is, after all, easier to arrive at the Left's utopia by prevent ing success than by engaging in mass redistribution of wealth.

Likewise, as Bork notes, liberals are opposed to any real achievement in academia. Self-esteem overrides learning not only in the Ivory Tower, but in elementary and secondary education as well. Learning also succumbs to politics as universities disparage Western civilization, and academic bankruptcy and political correctness plague their curricula, perpetuating facets of liberal ideology such as radical feminism and Afrocentrism, not to mention blatant historical inaccuracies like the myth of the "robber barons." Such revisionism comes without remorse. The Left, having renounced any claims to objective truths, embraces moral relativism and eschews institutions that once defined moral constraints on liberty, including religion, family, and community. Consequently, it ignores fact for political expedi ency-in this case, that laws indeed impose a morality and that a public morality is both un avoidable and necessary.

Liberalism, asserts Bork, is incompatible with true democracy because it seeks to concoct conBOOKS 245 ditions that no individual would actually desire. In fact, the radical egalitarian element of liberalism is necessarily statist because it cannot be imple mented and enforced by any entity other than the government. Bork cites Alexis de Toqueville's observation that Americans are more obsessed with equality than freedom, and notes that this misguided prioritization did not pose a threat to liberty until the twentieth century. Liberals now view inequality of income as one of the most pressing issues that need attention and rectifica tion-by politicians, of course. Bork does an excellent job relaying the compo nents of America's cultural demise. He lacks solutions, however, and many of those he does offer are dubious, such as his proposal for a constitu tional amendment allowing Congress to override state and federal court decisions. More disappoint ing is his unadulterated pessimism about America's cultural future. He dismisses the popular conser vative theory that because modern liberalism is predicated on intellectual dishonesty and moral nihilism it will fail on its own. Instead he proposes that only an unlikely "optimism of the will" can divert America from the highway to Gomorrah.

Judge Bork gives liberalism too much credit. 0 Miss Schupak is a junior at Tufts University in Medford, Massachusetts. The Last Monopoly: Privatizing the Postal Service for the Information Age edited by Edward L. Hudgins Cato Institute. 1996 • 140 pages. $9.95 paperback Reviewed by William H. Peterson "private Postal Service in the 21st Century." That was the brave title of a 1995 Cato conference seeking privatization of the vast verti cally integrated, largely unionized 800,000 employee U.S. Postal Service. The USPS fights back. Its newspaper ads trum pet the claim that it gets not a dime of federal subsidies. Oh. Edward Hudgins, Cato director of regulatory studies and editor of this volume of conference papers, begs to differ. He points to federal support of some $1.2 billion, mainly to offset revenue forgone by federally mandated free or reduced-rate mail such as Congress's franking privileges. Still, with annual revenues at about $56 billion, that two percent or so of federal support seems not too tiny.

246 THE FREEMAN • APRIL 1997 Hudgins also takes note of many indirect sub sidies. He observes, for example, that the Postal Service is virtually tax-free, gets preferential fed eral borrowing treatment, and has billions of dollars of unfunded pension liabilities backed by Uncle Sam. Too, the USPS boasts monopoly power dating back to the private express statutes of 1845. This power has long enabled the post office to raise its prices, have a grip over all residential and company mail boxes, and allowno competitors on its exclusive turf. Today, however, the Information Age intrudes more and more on this slipping monopoly via faxes, E-mail, Internet, telephone calls, electronic check deposits, and overnight delivery couriers such as United Parcel Service and Federal Express. A key argument for maintaining the USPS monopoly is that it is "a natural monopoly," so competition would fragment its ability to serve the public. Conferee-economist Thomas J. DiLorenzo of Baltimore's Loyola College disagrees. He views the natural monopoly idea as a fiction. Why? He says that prices are not set by historical costs but by the interplay of supply and demand, that a free-market monopoly is an oxymoron because competition is a discovery process of dynamic rivalrous entrepreneurship.

DiLorenzo notes, for example, that California and other states are transforming the regulated electric utility industry of fixed-area franchises into a free market of price-cutting interstate and intra state competition. He also sees that while cable TV operators complain of "duplication" and ac cordinglywin franchise monopolies, prices tend to fall fast whenever new operators break into local franchises. So, is USPS "the last monopoly," as claimed in the title? Maybe. One proposed congressional bill would create the world's largest ESOP or employee stock ownership plan and transfer the entire Postal Service to its 800,000 employees. They would get comparable retirement benefits and a spur to control costs and raise productivity. Postal unions show some interest, even if after a five-yeargrace period their industry would be open to all comers. For his part, conferee-U.S. Postmaster General Marvin T. Runyon rejects the proposal. Mr. Run yon asserts that universal mail service must be "backed by the full faith and trust of the U.S.

Government." He calls for "the right amount of deregulation" that will allow the USPS to "com pete on an equal footing with other couriers and alternative communication." But what's meant by "the right amount" and "equal footing"? Enter politics. Or willuninhibited competition with its cleansing action be at last allowed to enter the postal industry? In a sense, it already has, if imperfectly. So shouldn't Congress act to privatize the USPS and avoid what Milton Friedman calls "the tyranny of the status quo"? D Mr. Peterson, a HeritageFoundation adjunct scholar, is the Distinguished Lundy Professor Emeritus of Business Philosophy at Campbell University. The Industrial Revolution and Free Trade Edited by Burton W. Folsom, Jr. The Foundation for Economic Education. 1996 • 178 pages. $14.95 paperback Reviewed by Gene Smiley B y the mid-1800s, socialists had initiated an attempt to show that the industrial revolution and concomitant rise of free trade had worsened the lives of British workers. Great Britain's adop tion of free trade internationally with the repeal of the Corn Laws in 1846 only made detractors more determined to show that a society built on private property and free exchange did not improve the general lot of workers. For years historians taught this as fact. But modern scholarly research has shown that this simply was not true.

Unfortunately, myths tend to persist. Some contemporary historians continue to believe and teach that the industrial revolution harmed, rather than helped, workers. Government officials and others, not understanding the true nature of the industrial revolution of the last half of the eigh teenth and first half of the nineteenth centuries, continue to call for restrictions on internal and international trade to improve the wellbeing of their citizens. These individuals would do well to read the collection of essays, primarily from The Freeman, that Burton W. Folsom, Jr., has assem bled in this volume. The book is divided into three sections: "The ories and Theorists," "The Industrial Revolution and Its Consequences," and "The Case for Free Trade." In the first essay on theory, Murray Roth bard points out the similarities between mercan tilism and Keynesianism and then describes a number of the restrictive practices that mercantil ists employed which were incompatible with the industrial revolution and free trade. John Mont gomery's essay on Adam Smith describes how The Wealth of Nations undermined the legitimacy of mercantilism and led to the development of a science of economics focused on freedom and free trade. Smith provided the intellectual foundations and legitimacy for the industrial revolution already underway in Great Britain and for the breaking down of trade barriers. Nick Elliott's and John Chodes's essays on John Bright and Richard Cob den describe two individuals at the center of the movement toward free trade in nineteenth-century Britain. They focus on Bright and Cobden's suc cessful battle for the elimination of restrictive British trade practices, most importantly the ces sation of the Corn Laws. Henry Hazlitt's essay describes how Marx took the labor theory of value from Smith and Ricardo and developed it into a theory of the exploitation of the worker. It was the development of the theory of marginal pro ductivity that overturned the labor theory of value and strengthened the case for capitalism and free trade.

The essays in the second section of the book examine the nature and consequences of the industrial revolution. Ludwig von Mises points out that the true facts about the industrial revolution show that the rise of the British factory system improved the lives of the workers who came to the factories and created cheap goods to improve the lives of people in general. It was not the case that government interference brought about these im provements. Lawrence W. Reed shows that the problem with child labor was one of apprentices in the custody of parish government officials, not free voluntary labor. F. A. Hayek makes it clear that the industrial revolution began in the eigh teenth century and was probably a by-product of the increased freedom brought about by seven teenthcentury limitations on government power. Any deplorable conditions in the Midlands man ufacturing populations of the 1830s and 1840s cannot be attributed to the industrial revolution.

Although many Christian leaders seem to de plore capitalism, James Gwartney argues that Christians would do well to defend an economic system that "reinforces Christian virtues, improves living standards, and provides for minority views." James Robbins describes how capitalist technology saved the whales, while Stephen Gold shows that the improvements brought about by capitalist market developments facilitated the decline of infectious diseases. Bettina Bien Greaves argues BOOKS 247 that the true liberation of women was brought about by the market advances and economic growth of capitalist societies. George Winder shows how Ferdinand de Lesseps struggled to privately build the Suez Canal against the desires of the most powerful government in the world, and how government support was only forthcoming after the canal had demonstrated its profitability and importance to world commerce. Robert A.

Peterson argues that Hong Kong, Southeastern Asia's jewel of capitalism, is further demonstration of the importance of free-market economics. The final section of the book presents essays that make the case for free trade. Donald Billings and Ellis Lamborn consider the arguments for subsi dization and protection of domestic industries against foreign competition. They cite Frederic Bastiat's satiric plea to the French government in 1846 to protect French producers of lighting and lighting equipment from the sun. Steven Daskal argues that free trade inevitably brings prosperity and needs to be applied on a global scale. Thomas J. DiLorenzo demolishes ten common myths that politicians have used to justify protectionism. Hans Sennholz explains how protectionism does not reduce unemployment, while John Finneran re counts how the Irish potato famine helped Robert Peel's government end the Corn Laws. Jo Kwong explains how free trade and environmental con cerns are not antagonistic and S. J. Cicero takes a closer look at "dumping" as a justification for protectionism. In the final essay, Mark Skousen points out that even though some producers may have benefited from recent protectionist moves by the government, consumers on the whole were harmed. He argues that a far better way to provide relief for domestic businesses would be to give domestic tax and regulatory relief to them. Imag ine, says Skousen, the economic growth that would ensue with reductions in corporate income and capital gains taxes and with reductions in red tape and streamlined regulations.

Overall this is an excellent set of essays which I highly recommend to anyone who wishes to learn more about the interrelationships between the industrial revolution, the freeing up of trade, and the market system. 0 Professor Smiley teaches economics at Marquette University.

Back in Print ... from The Freeman ClassicsSeries THE MORALITY OF CAPITALISM Edited by Mark W. Hendrickson Introduction by Hans F. Sennholz "Ethicalconsiderationsgive essentialjustificationto privateproperty in the means of production,to marketcompetition,and the profitsys tem. They grant the capitalisticeconomicorderan importantplace within a moral order, a place with one systemof ethicsfor rulersand subjectsalike-to be honestand peaceful,refrainingfrom any action that would do harm to afellow man. In fact, the capitalisticorder gives rise to a moral systemof rewardsand punishmentbased on integrity,effort, talent,learning,and thrift. By lendingprotectionto economicfreedom it also becomesthe ultimateguarantorof the noneconomicelementsoffree dom such as thefreedom of speech,of religion,the press,and personalbehavior./I -HANS F. SENNHOLZ (from the Introduction) D espite Communism's recent setbacks, the moral arguments of Marxist thought-the reality of class struggle and the need for col lective government action due to capitalism's exploitation of the masses-still persist in the Western mind. This collection of essays by pow erful writers attacks that "moral" foundation of Marxism. Capitalism, with its emphasis on personal responsibility, respect for an individual's rights, and protection of the fruits of one's labors, makes moral as well as econom ic sense.

Contributors include: Edmund A. Opitz, John K. Williams, Leonard E. Read, F.A. Hayek, Perry E. Gresham, Garet Garrett, Norman S. Ream, Robert A. Sirico, Paul L. Poirot, Peter J. Hill, BillAnderson, Hans F. Sennholz, Allan Levite, Ludwig von Mises, Israel M. Kirzner, Steven Yates, and John Attarian. Published by The Foundation for Economic Education, Inc. Irvington-on-Hudson, NY 10533 ISBN 1-57246-055-5 216 pages (indexed) paperback $14.95 Availablein bookstoresnationally,or call (800) 452-3518 • Fax (914) 591-8910 252 256 260 266 270 276 279 281 285 287 290 293 295 299 302 Center 264 283 314 250 316 THEFREEMAN IDEAS ON LIBERTY FEATURES Free Trade and Human Rights in China by James A. Dorn How free trade promotes human rights around the world. What We Know, When We Know It by Llewellyn H. Rockwell, Jr. Another Nobel Prize for irrelevant trivia. Wisdom of a "Liberal" Giant by William H. Peterson The economic principles of Ludwig von Mises.