We Have Yet to Learn; G. McDonald

quipped Mark Twain. "When he said some thing good, he knew nobody else had said it before." One would think we would have learned something after 5,000years, but it just hasn't happened. As the nineteenth-century philosopher Georg Hegel observed, "What experience and history teach us is that people and governments never have learned anything from history, or acted on principles deduced from it." Hegel was right. People and governments never learn from history, and go on repeating the same mistakes. If we had learned anything at all from the past, we would know that every economy must sooner or later rely upon some sort of profit and-loss system to spur groups or individuals to productivity. Slavery, police supervision, or ideological enthusiasm have alwaysturned out to be too unproductive, or too expen sive-not to mention too immoral. Prosperity depends on the incentive of profit, but more than that, it depends on freedom. Those who failed to learn this from the past should certainly learn it from the present by looking at the collapse of commuMr. MacDonald, a trustee of The Foundation for Economic Education, residesin Issaquah, Washing ton.

nism in Russia, the failure of communism 90 miles offour coast in Cuba, or the tragic legacy of communism in China. What We Can Learn from Rome When we think of the Roman Empire (and it seems that everybody today tries to draw an analogy between the decline of America and the fall of the Roman Empire), we think of Roman citizens as being free, even though there were a great many slaves in the Empire. Roman politicians lusted after citizens' votes and support just as politicians do today. Commerce and business thrived in this "free" economy. Farmers, shoemakers, estate agents, bakers, manufacturers, builders, inn keepers, and a host of other tradesmen and professionals flourished. In the early centu ries of the Empire, just as in the early days of the United States, the farmers were the backbone of the nation, providing stability and food as well as strong, free men to defend Rome and fight its battles.

Under the Emperor Diocletian, however, Rome succumbed to outright socialism. Gov ernment spending led to inflation and increas ing poverty. In A.D. 301, Diocletian issued an Edictum de pretiis, which set maximum prices and wages for all important goods and ser vices. (In today's world such measures are simply called wage and price controls.) The results were disastrous and set the stage for the fall of the Empire and the beginning of serfdom in the Middle Ages. 152 The Foundationfor EconomicEducation Irvington-on-Hudson,New York 10533 Tel. (914) 591-7230 Fax (914) 591-8910 E-mail:freeman@westnet.com March 1997 Balancing the Budget I t is difficult to deceive other people without their finding out. It is well nigh impossible for politicians to deceive the people who have been beguiled and disap pointed innumerable times. Yet, some fed eral politicos do not easily break the habit. They want us to believe that the annual budget deficits are declining although the national debt continues to soar. According to today's financial press (January 13, 1997), the federal deficit for this fiscal year is given at $107 billion, and the federal debt at $5.31 trillion, $324 billion higher than last year.

Such deceptions when practiced by bankers and businessmen undoubtedly would be felonious and punishable with fines and imprisonment. In politics, deceit and hypocrisy often are the royal road to success on which political statistics are assembled and propagated. The politicians who practice this decep tion are using trust funds, in particular, Social Security revenue, to finance some of the deficits. The small budget deficits they are gloating about merely are the deficits which are not fully covered by trust fund surpluses. The federal government spends more than ever before, but uses trust funds that are set aside for certain purposes. In fis cal year 1997,the Social Security Trust Fund is expected to have surpluses of about $70 billion which the government will spend, leaving only more IOUs. Altogether the fed eral government has spent some $550billion of Social Security money. The spenders use these funds to help subsidize agriculture, health and human services, housing and urban development, labor, and numerous other federal activities. But can Social Security be expected to help finance these outlays indefinitely?

The growing federal indebtedness to trust funds is tantamount to growing trust fund surpluses which the intended beneficiaries are itching to spend. Pointing at the surplus es, they are clamoring for ever greater out lays on their behalf which tends to increase federal spending and deficits. The years of trust fund surpluses are followed by years of deficits, which in time raise the specter of trust fund bankruptcy and call for more tax boosts. The chronic fears of Social Security bankruptcy call for ever higher Social Security taxes. The new angle in federal financing should not surprise us; all administrations since the Great Society of the 1960s readily turned against future generations in order to bolster their own image and popularity. The Balanced Budget Amendment, intro duced as S.J.Res.l, which is a big issue of the new Congress, even would sanction the use of trust fund revenue for any spending purpose. Section 7 reads: "Total receipts shall include all receipts of the United States government except those derived from borrowing. Total outlays shall include all outlays of the United States government except for those for repayment of debt prin cipal." In short, the amendment would per mit the spenders to incur trillion-dollar debts to the trust funds, call their budgets "balanced," and ignore the soaring national debt.

This observation of growing federal indebtedness to trust funds must not be interpreted as a defense of the Social Security system in any form. It constitutes the very cornerstone of the American welfare system on which all other programs rest. It also reveals the poisonous handicraft of politics which seizes income and wealth by majority vote. The Social Security surplus consists of payments by workers recently and presently employed and taxed for the benefit of retirees, most of whom did not contribute a penny to the surplus. Having received many multiples of what they paid in, some aged never tire of demanding their cost-of-living adjustments. In the halls of politics, their voices drown out all calls for reform and warnings of ultimate disaster. Social Security and Medicare always are "off the cutting table." You can judge the craftiness of a politi cian by his or her behavior at the cutting table. You can judge the moral fiber of a political party by the way it vies with others for the votes of the elderly. If Social Security as the oldest, most expensive, and most inequitable transfer system is untouchable, all others following in its footsteps can be expected to stubbornly resist attempts to place them on the table. They merely need to repeat the Social Security rationale and join the transfer coalition to repel the wouldbe reformers.

To restore a commonplace truth and real ism to the transfer system and enhance the prospects for balanced budgets, we must reject all transfer schemes. They breed social conflict and gnaw at the root of democratic institutions. They have made youth the pri mary beast of burden and victim of transfer; the most monstrous burdens, Social Security and Medicare, have been placed squarely on the shoulders of young people. Genuine budget control necessitates an early abolition of all political transfer pro grams. There are several roads that lead back to a free society. One would first lead to gen uine privatization of all welfare functions; all social services would be transferred from politicians and bureaucrats to private pro ducers. The privatization of federal health and human services alone would balance the budget. Another road would lead to a temporary freeze of all transfer expenditures at the pre sent level. Economic expansion together with price inflation would raise tax revenues which, in just a few years, would catch up with the frozen expenditures. The temporary freeze would have to be followed by a per manent freeze of both revenues and expendi tures which would shrink the transfer system at the annual rates of inflation. In just a decade or two the inflation would rescind all but a few traces of the welfare state.

On yet another road to fiscal responsibili ty and stability the welfare system would be made to respect the religious and moral prin ciples of conscientious objectors and allow them to withdraw. It also would grant relief to the primary victims of the system, to young people, and permit them to choose between joining the system or remaining free, independent, and self-reliant. A system which allows its victims to go free is no longer a transfer system. Despite all the noise about the federal deficits and the Balanced Budget Amendment, there is no indication that the American public and the Congress are seri ous about the importance of balancing the budget. Public pressures for ever more trans fer benefits signal the coming of ever larger deficits. Hans F. Sennholz March Book Sale Classics from Henry Hazlitt Henry Hazlitt (1894-1993),a Founding Trustee of The Foundation for Economic Education, began his distinguished career in 1913 at The Wall StreetJournal.He went on to write for several newspapers, including The New York EveningPost, The New York EveningMail, The New York Herald, and The Sun.

In the early 1930she was literary editor of The Nation,and suc ceeded H.L. Mencken as editor of the AmericanMercuryin 1933. From 1934to 1946 he served on the editorial staff of The New York Times, and from 1946 to 1966 he was the "Business Tides" columnist for Newsweek.Mr. Hazlitt will be remembered as an eloquent writer, an incisive economic thinker, and a tireless defender of freedom. &50th AnniversaryEdition ~ Economics in One Lesson Foreword by Steve Forbes Few authors have done as much for liberty as Henry Hazlitt. In this book, written in 1946,he explains simply yet with great sophistication how free markets deliver both liberty and prosperity, while government intervention tends to hurt people. 205 pages $9.95 The Wisdom of Henry Hazlitt Introduction by Hans F. Sennholz A collection of some of the most incisive Hazlitt articles and essays prepared by The Foundation for Economic Education. 350 pages $11.95 The Foundations of Morality The author presents a consistent moral philosophy based on the principles required for voluntary social interaction. 388 pages $11.95 The Conquest of Poverty Capitalist production has been the real conqueror of poverty, not government programs. 240 pages $10.95 The Inflation Crisis and How to Resolve It Introduction by Hans F. Sennholz Hazlitt lays bare the facts about the New Inflation and analyzes problems the media scarcely skim. This is an updated and expanded version of What You ShouldKnow AboutInflation. 192 pages $9.95 The Failure of the "New Economics" Foreword by Hans F. Sennholz A brilliant analysis of the Keynesian fallacies. 458 pages $12.95 The Critics of Keynesian Economics Foreword by Hans F. Sennholz Edited with an Introduction and new Preface by Henry Hazlitt Leading economists (Ludwig von Mises, F.A. Hayek, Wilhelm R6pke, et a1.) explore the fallacies and implications of Keynesian theory. 427 pages $12.95 All titles listed are available in paperback edition - Sale ends March 31, 1997 Please add $3 per order of $25 or less; $4 per order of $26-$50;$5 per order of more than $50.

Send your order, with accompanying check or money order, to FEE, 30 South Broadway, Irvington-on-Hudson, NY 10533.Visa and MasterCard telephone and fax orders are welcomed: (800) 452-3518;fax (914) 591-8910. Booksellers and others who wish to order in quantity should call Renee Oechsner, at 914-591-7230.

New from FEE! UP FROM POVERTY Reflections on the Ills of Public Assistance Edited by Hans F. Sennholz From the beginning of history sincere reformers as well as demagogues have sought to abolish or at least to alleviate poverty through state action. In most cases their proposed remedies have only served to make the problem worse. The most frequent and popular of these proposed remedies has been the simple one of seizing from the rich to give to the poor. This remedy has taken a thousand different forms, but they all come down to this. The wealth is to be "shared," to be "redistributed," to be "equalized." In fact, in the minds of many reformers it is not poverty that is the chief evil but inequality. In the last generation there has been enacted in almost every major country of the world a whole sackful of "social" measures, most of them having the ostensible purpose of "helping the poor" in one respect or another. These include not only direct relief, but unemployment benefits, old-age benefits, sickness benefits, food subsidies, rent subsidies, farm subsidies, veterans' subsidies in seemingly endless profusion. Many people receive not only one but many of these subsidies. The programs often overlap and duplicate each other.

What is their net effect? All of them must be paid for by that chronically Forgotten Man, the taxpayer. The mounting burden of taxation not only undermines individual incentives to increased work and earnings, but in a score of ways discourages capital accumulation and distorts, unbalances, and shrinks production. Total real wealth and income is made smaller than it would otherwise be. On net balance there is more poverty rather than less. Up From Poverty includes a compelling introduction by Hans F. Sennholz and powerful essays by Henry Hazlitt, Leonard E. Read, Clarence B. Carson, Lawrence W. Reed, Bertel M. Sparks, and others. Published by The Foundation for Economic Education, Inc. 30 South Broadway, Irvington-an-Hudson, NY 10533 ISBN 1-57246-060-1 • 208 pages • paperback $14.95 Availablein bookstoresnationally,or call (800) 452-3518 Diocletian put extensive public works into operation to boost employment, and food was given to the poor at little or no cost. The government brought nearly all major indus tries and guilds-unions- under explicit con trol. Paul-Louis, in hisAncient Rome at Work, tells us that in "every large city, the state became a powerful employer ... standing head and shoulders above the private indus trialists, who were in any case crushed by taxation." Will Durant noted that business men "predicted ruin, but Diocletian ex plained that the barbarians were at the gate, and that individual liberty had to be shelved until collective liberty could be made secure."

Diocletian's expanding, expensive, and cor rupt bureaucracy proved to be too much to handle. To support all this government-the army, courts, public works, and welfare taxes rose so high that men lost the incentive to work or earn. Lawyers kept finding ways to evade taxes, but other lawyers formulated laws to prevent evasion. To escape the tax men, thousands of Romans fled over the frontiers to find refuge with the barbarians Diocletian said were at the walls of Rome. (It makes one wonder why the barbarians wanted to get in.) In an effort to stem the tide of fleeing citizens, and to facilitate regulations and taxation, the government issued decrees bind ing the farmers to their fields and the workers to their shops until all their debts and taxes had been paid in full. And, as mentioned, serfdom entered its initial stage. The Modern Welfare State Technologically, the modern world, and the Western world especially, are no more like ancient Rome than the moon is like the sun.

But, technology and science aside, the civili zation of Rome in the time of Diocletian vividly reminds us how much our own gov ernment parallels the Roman government that existed then. The welfare state, the huge bureaucracy to run it, stifling government 153 regulations, and exorbitant taxes to pay for it all-is there that much difference between our present-day American government and the regime that prevailed in Diocletian's Rome? And, again, technology and science aside, ideas and thoughts seem to have changed little. There can be no lasting, healthy economy without freedom. When we are told by gov ernment bureaucrats just what we are allowed to do on our property, told whom we must employ, and where we must send our children for an education-can we honestly say we are free? The average American worker pays gov ernment forty-seven percent out of each dol lar he or she earns. This money is taken by the IRS, FICA, local and state taxes, property taxes, sales taxes, and on and on. Many people don't realize this. How can you say you are free if half of everything you earn is taken away from you by government?

A healthy economy, in order to grow and spread and benefit the most people without taking away from others, needs freedom to expand. What we have in the United States today is an economy that has evolved through government control to satisfy self-indulgence and greed. Nor is it an economy embedded in freedom. Somerset Maugham warned us that "If any nation values anything more than freedom, it willlose its freedom; and the irony of it is that if it is comfort or money that it values more, it will lose that too." The people of the United States at the end of the twentieth century have certainly placed a high value on comfort and money. Entitle ments, golden parachutes, and rich govern ment pensions are just a few of the programs and schemes that are relentlessly driving our economy onto dangerously thin ice. If enor mous bureaucracies on the local, state, and federal levels are the price we are willing to pay for government contracts, welfare, and entitlements in order to retain comfort, then can a sick economy be far behind? And is the loss of freedom even closer? 0 THEFREEMAN IDEAS ON LIBERTY On TrialAgain by Meredith Kapushion F or the last three years, beginning at age fifteen, I have taught myself philosophy straight from the great works of Western thought, and have formally and informally studied economics. Fortunately, my back ground shielded me from some highlyvolatile rhetoric being espoused at the state university where I took a philosophy course last year.