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Copyright © 1973, 1978 by Murray N. Rothbard, and 2002 this online edition by The Ludwig von Mises Institute.
All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording or by any information storage and retrieval system, without permission in writing from the Publisher.
Macmillan Publishing Co., Inc.
866 Third Avenue, New York, N.Y. 10022
Collier Macmillan Canada, Ltd.
Library of Congress Cataloging in Publication Data
Rothbard, Murray Newton, 1926?
For a new liberty.
Includes bibliographical references and index.
1. Liberty. 2. Laissez-faire. 3. United States — Economic policy. 4. United States — Social policy.
JC599-U5R66 1978 320.5'1'0973 78-12225
Printed in the United States of America
For a New Liberty, in its original version, is available in a hardcover edition from Macmillan Publishing Co., Inc.
First Collier Books Edition 1978 10 9 8 7 6 5 4 3 2
still the indispensable framework [p. vii]
The Libertarian Heritage:
The American Revolution and Classical Liberalism 1
PART I: THE LIBERTARIAN CREED
Property and Exchange 23
The State 45
PART II: LIBERTARIAN APPLICATIONS TO CURRENT PROBLEMS
The Problems 73
Involuntary Servitude 79
Personal Liberty 94
Welfare and the Welfare State 142
Inflation and the Business Cycle:
The Collapse of the Keynesian Paradigm 171 [p. viii]
The Public Sector, I: Government in Business 194
The Public Sector, II: Streets and Roads 201
The Public Sector, III: Police, Law, and the Courts 215
Conservation, Ecology, and Growth 242
War and Foreign Policy 263
PART III: EPILOGUE
A Strategy for Liberty 297
Appendix: The Libertarian Movement 322
Index 327 [p. ix]
When the original edition of this book was published (1973), the new libertarian movement in America was in its infancy. In half a dozen years the movement has matured with amazing rapidity, and has expanded greatly both in quantity and quality. Hence, while the discussion of libertarianism in this book has been strengthened and updated throughout, the greatest change is in our treatment of the libertarian movement. The original chapter i, on "The New Libertarian Movement," is now irrelevant and outdated, and it has been transformed into an appendix providing an annotated outline of the complex structure of the current movement. The new chapter 1, on "The Libertarian Heritage," provides a brief but badly needed historical background of the American and Western tradition of liberty, and of its successes and failures, setting the stage for our discussion of its rebirth in today's movement. A new chapter 9 has been added on the vital topic of inflation and the business cycle, and the roles of government and of the free market in creating or alleviating these evils. Finally, to the concluding chapter on strategy has been added a presentation and explanation of my recently gained conviction that liberty will win, that liberty will be making great strides immediately as well as in the long run, that, in short, liberty is an idea whose time has come.
I owe the origin and inspiration of this book to my first editor, Tom Mandel, who had the vision to anticipate the recent enormous growth [p. x] of interest in libertarianism. The book would neither have been conceived nor written without him. For the revised edition, Roy A. Childs, Jr., editor of Libertarian Review, was extremely helpful in suggesting needed changes. I would also like to thank Dominic T. Armentano, of the economics department of the University of Hartford, Williamson M. Evers, editor of Inquiry, and Leonard P. Liggio, editor of The Literature of Liberty, for their welcome suggestions. Walter C. Mickleburgh's unbounded enthusiasm for this book was vitally important in preparing the revised edition; and Edward H. Crane HI, president of Cato Institute, San Francisco, was indispensable in providing help, encouragement, sound advice, and suggestions for improvement.
Murray N. Rothbard
Palo Alto, California
February 1978 [p. 1]
For a New Liberty
Chapter 1: The Libertarian Heritage: The American Revolution and Classical Liberalism
On election day, 1978, Libertarian party candidates for congressional, state, and local offices amassed 1.25 million votes throughout the country. Richard Randolph was elected to the Alaska House of Representatives on the LP ticket, and Edward Clark piled up 377,960 votes for governor of California. After the LP presidential ticket gained 174,000 votes in 32 states in 1976, the sober Congressional Quarterly was moved to classify the fledgling Libertarian party as the third major political party in America. The remarkable growth rate of this new party may be seen in the fact that it only began in 1971 with a handful of members gathered in a Colorado living room. The following year it fielded a presidential ticket which managed to get on the ballot in two states. And now it is America's third major party.
Even more remarkably, the Libertarian party achieved this growth while consistently adhering to a new ideological creed — "libertarianism" — thus bringing to the American political scene for the first time in a century a party interested in principle rather than in merely gaining jobs and money at the public trough. We have been told countless times by pundits and political scientists that the genius of America and of our party system is its lack of ideology and its "pragmatism" (a kind word for focusing solely on grabbing money and jobs from the hapless taxpayers). How, then, explain the amazing growth of a new party which is frankly and eagerly devoted to ideology?
One explanation is that Americans were not always pragmatic and nonideological. On the contrary, historians now realize that the American [p. 2] Revolution itself was not only ideological but also the result of devotion to the creed and the institutions of libertarianism. The American revolutionaries were steeped in the creed of libertarianism, an ideology which led them to resist with their lives, their fortunes, and their sacred honor the invasions of their rights and liberties committed by the imperial British government. Historians have long debated the precise causes of the American Revolution: Were they constitutional, economic, political, or ideological? We now realize that, being libertarians, the revolutionaries saw no conflict between moral and political rights on the one hand and economic freedom on the other. On the contrary, they perceived civil and moral liberty, political independence, and the freedom to trade and produce as all part of one unblemished system, what Adam Smith was to call, in the same year that the Declaration of Independence was written, the "obvious and simple system of natural liberty."
The libertarian creed emerged from the "classical liberal" movements of the seventeenth and eighteenth centuries in the Western world, specifically, from the English Revolution of the seventeenth century. This radical libertarian movement, even though only partially successful in its birthplace, Great Britain, was still able to usher in the Industrial Revolution there by freeing industry and production from the strangling restrictions of State control and urban government-supported guilds. For the classical liberal movement was, throughout the Western world, a mighty libertarian "revolution" against what we might call the Old Order — the ancien régime — which had dominated its subjects for centuries. This regime had, in the early modern period beginning in the sixteenth century, imposed an absolute central State and a king ruling by divine right on top of an older, restrictive web of feudal land monopolies and urban guild controls and restrictions. The result was a Europe stagnating under a crippling web of controls, taxes, and monopoly privileges to produce and sell conferred by central (and local) governments upon their favorite producers. This alliance of the new bureaucratic, war-making central State with privileged merchants — an alliance to be called "mercantilism" by later historians — and with a class of ruling feudal landlords constituted the Old Order against which the new movement of classical liberals and radicals arose and rebelled in the seventeenth and eighteenth centuries.
The object of the classical liberals was to bring about individual liberty in all of its interrelated aspects. In the economy, taxes were to be drastically reduced, controls and regulations eliminated, and human energy, enterprise, and markets set free to create and produce in exchanges [p. 3] that would benefit everyone and the mass of consumers. Entrepreneurs were to be free at last to compete, to develop, to create. The shackles of control were to be lifted from land, labor, and capital alike. Personal freedom and civil liberty were to be guaranteed against the depredations and tyranny of the king or his minions. Religion, the source of bloody wars for centuries when sects were battling for control of the State, was to be set free from State imposition or interference, so that all religions — or nonreligions — could coexist in peace. Peace, too, was the foreign policy credo of the new classical liberals; the age-old regime of imperial and State aggrandizement for power and pelf was to be replaced by a foreign policy of peace and free trade with all nations. And since war was seen as engendered by standing armies and navies, by military power always seeking expansion, these military establishments were to be replaced by voluntary local militia, by citizen-civilians who would only wish to fight in defense of their own particular homes and neighborhoods.
Thus, the well-known theme of "separation of Church and State" was but one of many interrelated motifs that could be summed up as "separation of the economy from the State," "separation of speech and press from the State," "separation of land from the State," "separation of war and military affairs from the State," indeed, the separation of the State from virtually everything.
The State, in short, was to be kept extremely small, with a very low, nearly negligible budget. The classical liberals never developed a theory of taxation, but every increase in a tax and every new kind of tax was fought bitterly — in America twice becoming the spark that led or almost led to the Revolution (the stamp tax, the tea tax).
The earliest theoreticians of libertarian classical liberalism were the Levelers during the English Revolution and the philosopher John Locke in the late seventeenth century, followed by the "True Whig" or radical libertarian opposition to the "Whig Settlement" — the regime of eighteenth-century Britain. John Locke set forth the natural rights of each individual to his person and property; the purpose of government was strictly limited to defending such rights. In the words of the Lockean-inspired Declaration of Independence, "to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed. That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it . . ."
While Locke was widely read in the American colonies, his abstract philosophy was scarcely calculated to rouse men to revolution. This [p. 4] task was accomplished by radical Lockeans in the eighteenth century, who wrote in a more popular, hard-hitting, and impassioned manner and applied the basic philosophy to the concrete problems of the government — and especially the British government — of the day. The most important writing in this vein was "Cato's Letters," a series of newspaper articles published in the early 1720s in London by True Whigs John Trenchard and Thomas Gordon. While Locke had written of the revolutionary pressure which could properly be exerted when government became destructive of liberty, Trenchard and Gordon pointed out that government always tended toward such destruction of individual rights. According to "Cato's Letters," human history is a record of irrepressible conflict between Power and Liberty, with Power (government) always standing ready to increase its scope by invading people's rights and encroaching upon their liberties. Therefore, Cato declared, Power must be kept small and faced with eternal vigilance and hostility on the part of the public to make sure that it always stays within its narrow bounds:
We know, by infinite Examples and Experience, that Men possessed of Power, rather than part with it, will do any thing, even the worst and the blackest, to keep it; and scarce ever any Man upon Earth went out of it as long as he could carry every thing his own Way in it . . . . This seems certain, That the Good of the World, or of their People, was not one of their Motives either for continuing in Power, or for quitting it.
It is the Nature of Power to be ever encroaching, and converting every extraordinary Power, granted at particular Times, and upon particular Occasions, into an ordinary Power, to be used at all Times, and when there is no Occasion, nor does it ever part willingly with any Advantage . . . .
Alas! Power encroaches daily upon Liberty, with a Success too evident; and the Balance between them is almost lost. Tyranny has engrossed almost the whole Earth, and striking at Mankind Root and Branch, makes the World a Slaughterhouse; and will certainly go on to destroy, till it is either destroyed itself, or, which is most likely, has left nothing else to destroy.1
Such warnings were eagerly imbibed by the American colonists, who reprinted "Cato's Letters" many times throughout the colonies and down to the time of the Revolution. Such a deep-seated attitude led to what the historian Bernard Bailyn has aptly called the "transforming radical libertarianism" of the American Revolution.
For the revolution was not only the first successful modern attempt [p. 5] to throw off the yoke of Western imperialism — at that time, of the world's mightiest power. More important, for the first time in history, Americans hedged in their new governments with numerous limits and restrictions embodied in constitutions and particularly in bills of rights. Church and State were rigorously separated throughout the new states, and religious freedom enshrined. Remnants of feudalism were eliminated throughout the states by the abolition of the feudal privileges of entail and primogeniture. (In the former, a dead ancestor is able to entail landed estates in his family forever, preventing his heirs from selling any part of the land; in the latter, the government requires sole inheritance of property by the oldest son.)
The new federal government formed by the Articles of Confederation was not permitted to levy any taxes upon the public; and any fundamental extension of its powers required unanimous consent by every state government. Above all, the military and war-making power of the national government was hedged in by restraint and suspicion; for the eighteenth-century libertarians understood that war, standing armies, and militarism had long been the main method for aggrandizing State power.2
Bernard Bailyn has summed up the achievement of the American revolutionaries:
The modernization of American Politics and government during and after the Revolution took the form of a sudden, radical realization of the program that had first been fully set forth by the opposition intelligentsia . . . in the reign of George the First. Where the English opposition, forcing its way against a complacent social and political order, had only striven and dreamed, Americans, driven by the same aspirations but living in a society in many ways modern, and now released politically, could suddenly act. Where the English opposition had vainly agitated for partial reforms . . . American leaders moved swiftly and with little social disruption to implement systematically the outermost possibilities of the whole range of radically liberation ideas.
In the process they . . . infused into American political culture . . . the major themes of eighteenth-century radical libertarianism brought to realization here. The first is the belief that power is evil, a necessity perhaps but an evil necessity; that it is infinitely corrupting; and that it must be controlled, limited, restricted in every way compatible with a minimum of civil order. Written constitutions; [p. 6] the separation of powers; bills of rights; limitations on executives, on legislatures, and courts; restrictions on the right to coerce and wage war — all express the profound distrust of power that lies at the ideological heart of the American Revolution and that has remained with us as a permanent legacy ever after.3
Thus, while classical liberal thought began in England, it was to reach its most consistent and radical development — and its greatest living embodiment — in America. For the American colonies were free of the feudal land monopoly and aristocratic ruling caste that was entrenched in Europe; in America, the rulers were British colonial officials and a handful of privileged merchants, who were relatively easy to sweep aside when the Revolution came and the British government was overthrown. Classical liberalism, therefore, had more popular support, and met far less entrenched institutional resistance, in the American colonies than it found at home. Furthermore, being geographically isolated, the American rebels did not have to worry about the invading armies of neighboring, counterrevolutionary governments, as, for example, was the case in France.
After the Revolution
Thus, America, above all countries, was born in an explicitly libertarian revolution, a revolution against empire; against taxation, trade monopoly, and regulation; and against militarism and executive power. The revolution resulted in governments unprecedented in restrictions placed on their power. But while there was very little institutional resistance in America to the onrush of liberalism, there did appear, from the very beginning, powerful elite forces, especially among the large merchants and planters, who wished to retain the restrictive British "mercantilist" system of high taxes, controls, and monopoly privileges conferred by the government. These groups wished for a strong central and even imperial government; in short, they wanted the British system without Great Britain. These conservative and reactionary forces first appeared during the Revolution, and later formed the Federalist party and the Federalist administration in the 1790s.
During the nineteenth century, however, the libertarian impetus continued. The Jeffersonian and Jacksonian movements, the Democratic-Republican and then the Democratic parties, explicitly strived for the [p. 7] virtual elimination of government from American life. It was to be a government without a standing army or navy; a government without debt and with no direct federal or excise taxes and virtually no import tariffs — that is, with negligible levels of taxation and expenditure; a government that does not engage in public works or internal improvements; a government that does not control or regulate; a government that leaves money and banking free, hard, and uninflated; in short, in the words of H. L. Mencken's ideal, "a government that barely escapes being no government at all."
The Jeffersonian drive toward virtually no government foundered after Jefferson took office, first, with concessions to the Federalists (possibly the result of a deal for Federalist votes to break a tie in the electoral college), and then with the unconstitutional purchase of the Louisiana Territory. But most particularly it foundered with the imperialist drive toward war with Britain in Jefferson's second term, a drive which led to war and to a one-party system which established virtually the entire statist Federalist program: high military expenditures, a central bank, a protective tariff, direct federal taxes, public works. Horrified at the results, a retired Jefferson brooded at Monticello, and inspired young visiting politicians Martin Van Buren and Thomas Hart Benton to found a new party — the Democratic party — to take back America from the new Federalism, and to recapture the spirit of the old Jeffersonian program. When the two young leaders latched onto Andrew Jackson as their savior, the new Democratic party was born.
The Jacksonian libertarians had a plan: it was to be eight years of Andrew Jackson as president, to be followed by eight years of Van Buren, then eight years of Benton. After twenty-four years of a triumphant Jacksonian Democracy, the Menckenian virtually no-government ideal was to have been achieved. It was by no means an impossible dream, since it was clear that the Democratic party had quickly become the normal majority party in the country. The mass of the people were enlisted in the libertarian cause. Jackson had his eight years, which destroyed the central bank and retired the public debt, and Van Buren had four, which separated the federal government from the banking system. But the 1840 election was an anomaly, as Van Buren was defeated by an unprecedentedly demagogic campaign engineered by the first great modern campaign chairman, Thurlow Weed, who pioneered in all the campaign frills — catchy slogans, buttons, songs, parades, etc. — with which we are now familiar. Weed's tactics put in office the egregious and unknown Whig, General William Henry Harrison, but this was clearly a fluke; in 1844, the Democrats would be prepared to counter [p. 8] with the same campaign tactics, and they were clearly slated to recapture the presidency that year. Van Buren, of course, was supposed to resume the triumphal Jacksonian march. But then a fateful event occurred: the Democratic party was sundered on the critical issue of slavery, or rather the expansion of slavery into a new territory. Van Buren's easy renomination foundered on a split within the ranks of the Democracy over the admission to the Union of the republic of Texas as a slave state; Van Buren was opposed, Jackson in favor, and this split symbolized the wider sectional rift within the Democratic party. Slavery, the grave antilibertarian flaw in the libertarianism of the Democratic program, had arisen to wreck the party and its libertarianism completely.
The Civil War, in addition to its unprecedented bloodshed and devastation, was used by the triumphal and virtually one-party Republican regime to drive through its statist, formerly Whig, program: national governmental power, protective tariff, subsidies to big business, inflationary paper money, resumed control of the federal government over banking, large-scale internal improvements, high excise taxes, and, during the war, conscription and an income tax. Furthermore, the states came to lose their previous right of secession and other states' powers as opposed to federal governmental powers. The Democratic party resumed its libertarian ways after the war, but it now had to face a far longer and more difficult road to arrive at liberty than it had before.
We have seen how America came to have the deepest libertarian tradition, a tradition that still remains in much of our political rhetoric, and is still reflected in a feisty and individualistic attitude toward government by much of the American people. There is far more fertile soil in this country than in any other for a resurgence of libertarianism.
Resistance to Liberty
We can now see that the rapid growth of the libertarian movement and the Libertarian party in the 1970s is firmly rooted in what Bernard Bailyn called this powerful "permanent legacy" of the American Revolution. But if this legacy is so vital to the American tradition, what went wrong? Why the need now for a new libertarian movement to arise to reclaim the American dream?
To begin to answer this question, we must first remember that classical liberalism constituted a profound threat to the political and economic interests — the ruling classes — who benefited from the Old Order: the kings, the nobles and landed aristocrats, the privileged merchants, the military machines, the State bureaucracies. Despite three major violent [p. 9] revolutions precipitated by the liberals — the English of the seventeenth century and the American and French of the eighteenth — victories in Europe were only partial. Resistance was stiff and managed to successfully maintain landed monopolies, religious establishments, and warlike foreign and military policies, and for a time to keep the suffrage restricted to the wealthy elite. The liberals had to concentrate on widening the suffrage, because it was clear to both sides that the objective economic and political interests of the mass of the public lay in individual liberty. It is interesting to note that, by the early nineteenth century, the laissez-faire forces were known as "liberals" and "radicals" (for the purer and more consistent among them), and the opposition that wished to preserve or go back to the Old Order were broadly known as "conservatives."
Indeed, conservatism began, in the early nineteenth century, as a conscious attempt to undo and destroy the hated work of the new classical liberal spirit — of the American, French, and Industrial revolutions. Led by two reactionary French thinkers, de Ronald and de Maistre, conservatism yearned to replace equal rights and equality before the law by the structured and hierarchical rule of privileged elites; individual liberty and minimal government by absolute rule and Big Government; religious freedom by the theocratic rule of a State church; peace and free trade by militarism, mercantilist restrictions, and war for the advantage of the nation-state; and industry and manufacturing by the old feudal and agrarian order. And they wanted to replace the new world of mass consumption and rising standards of living for all by the Old Order of bare subsistence for the masses and luxury consumption for the ruling elite.
By the middle of and certainly by the end of the nineteenth century, conservatives began to realize that their cause was inevitably doomed if they persisted in clinging to the call for outright repeal of the Industrial Revolution and of its enormous rise in the living standards of the mass of the public, and also if they persisted in opposing the widening of the suffrage, thereby frankly setting themselves in opposition to the interests of that public. Hence, the "right wing" (a label based on an accident of geography by which the spokesmen for the Old Order sat on the right of the assembly hall during the French Revolution) decided to shift their gears and to update their statist creed by jettisoning outright opposition to industrialism and democratic suffrage. For the old conservatism's frank hatred and contempt for the mass of the public, the new conservatives substituted duplicity and demagogy. The new conservatives wooed the masses with the following line: "We, too, favor industrialism and a higher standard of living. But, to accomplish such ends, [p. 10] we must regulate industry for the public good; we must substitute organized cooperation for the dog-eat-dog of the free and competitive marketplace; and, above all, we must substitute for the nation-destroying liberal tenets of peace and free trade the nation-glorifying measures of war, protectionism, empire, and military prowess." For all of these changes, of course, Big Government rather than minimal government was required.
And so, in the late nineteenth century, statism and Big Government returned, but this time displaying a proindustrial and pro-general-welfare face. The Old Order returned, but this time the beneficiaries were shuffled a bit; they were not so much the nobility, the feudal landlords, the army, the bureaucracy, and privileged merchants as they were the army, the bureaucracy, the weakened feudal landlords, and especially the privileged manufacturers. Led by Bismarck in Prussia, the New Right fashioned a right-wing collectivism based on war, militarism, protectionism, and the compulsory cartelization of business and industry — a giant network of controls, regulations, subsidies, and privileges which forged a great partnership of Big Government with certain favored elements in big business and industry.
Something had to be done, too, about the new phenomenon of a massive number of industrial wage workers — the "proletariat." During the eighteenth and early nineteenth centuries, indeed until the late nineteenth century, the mass of workers favored laissez-faire and the free competitive market as best for their wages and working conditions as workers, and for a cheap and widening range of consumer goods as consumers. Even the early trade unions, e.g., in Great Britain, were staunch believers in laissez-faire. New conservatives, spearheaded by Bismarck in Germany and Disraeli in Britain, weakened the libertarian will of the workers by shedding crocodile tears about the condition of the industrial labor force, and cartelizing and regulating industry, not accidentally hobbling efficient competition. Finally, in the early twentieth century, the new conservative "corporate state" — then and now the dominant political system in the Western world — incorporated "responsible" and corporatist trade unions as junior partners to Big Government and favored big businesses in the new statist and corporatist decision-making system.
To establish this new system, to create a New Order which was a modernized, dressed-up version of the ancien régime before the American and French revolutions, the new ruling elites had to perform a gigantic con job on the deluded public, a con job that continues to this day. Whereas the existence of every government from absolute monarchy [p. 11] to military dictatorship rests on the consent of the majority of the public, a democratic government must engineer such consent on a more immediate, day-by-day basis. And to do so, the new conservative ruling elites had to gull the public in many crucial and fundamental ways. For the masses now had to be convinced that tyranny was better than liberty, that a cartelized and privileged industrial feudalism was better for the consumers than a freely competitive market, that a cartelized monopoly was to be imposed in the name of antimonopoly, and that war and military aggrandizement for the benefit of the ruling elites was really in the interests of the conscripted, taxed, and often slaughtered public. How was this to be done?
In all societies, public opinion is determined by the intellectual classes, the opinion moulders of society. For most people neither originate nor disseminate ideas and concepts; on the contrary, they tend to adopt those ideas promulgated by the professional intellectual classes, the professional dealers in ideas. Now, throughout history, as we shall see further below, despots and ruling elites of States have had far more need of the services of intellectuals than have peaceful citizens in a free society. For States have always needed opinion-moulding intellectuals to con the public into believing that its rule is wise, good, and inevitable; into believing that the "emperor has clothes." Until the modern world, such intellectuals were inevitably churchmen (or witch doctors), the guardians of religion. It was a cozy alliance, this age-old partnership between Church and State; the Church informed its deluded charges that the king ruled by divine command and therefore must be obeyed; in return, the king funneled numerous tax revenues into the coffers of the Church. Hence, the great importance for the libertarian classical liberals of their success at separating Church and State. The new liberal world was a world in which intellectuals could be secular — could make a living on their own, in the market, apart from State subvention.
To establish their new statist order, their neomercantilist corporate State, the new conservatives therefore had to forge a new alliance between intellectual and State. In an increasingly secular age, this meant with secular intellectuals rather than with divines: specifically, with the new breed of professors, Ph.D.'s, historians, teachers, and technocratic economists, social workers, sociologists, physicians, and engineers. This reforged alliance came in two parts. In the early nineteenth century, the conservatives, conceding reason to their liberal enemies, relied heavily on the alleged virtues of irrationality, romanticism, tradition, theocracy. By stressing the virtue of tradition and of irrational symbols, the conservatives could gull the public into continuing privileged hierarchical [p. 12] rule, and to continue to worship the nation-state and its war-making machine. In the latter part of the nineteenth century, the new conservatism adopted the trappings of reason and of "science." Now it was science that allegedly required rule of the economy and of society by technocratic "experts." In exchange for spreading this message to the public, the new breed of intellectuals was rewarded with jobs and prestige as apologists for the New Order and as planners and regulators of the newly cartelized economy and society.
To insure the dominance of the new statism over public opinion, to insure that the public's consent would be engineered, the governments of the Western world in the late nineteenth and early twentieth centuries moved to seize control over education, over the minds of men: over the universities, and over general education through compulsory school attendance laws and a network of public schools. The public schools were consciously used to inculcate obedience to the State as well as other civic virtues among their young charges. Furthermore, this statiz-ing of education insured that one of the biggest vested interests in expanding statism would be the nation's teachers and professional educationists.
One of the ways that the new statist intellectuals did their work was to change the meaning of old labels, and therefore to manipulate in the minds of the public the emotional connotations attached to such labels. For example, the laissez-faire libertarians had long been known as "liberals," and the purest and most militant of them as "radicals"; they had also been known as "progressives" because they were the ones in tune with industrial progress, the spread of liberty, and the rise in living standards of consumers. The new breed of statist academics and intellectuals appropriated to themselves the words "liberal" and "progressive," and successfully managed to tar their laissez-faire opponents with the charge of being old-fashioned, "Neanderthal," and "reactionary." Even the name "conservative" was pinned on the classical liberals. And, as we have seen, the new statists were able to appropriate the concept of "reason" as well.
If the laissez-faire liberals were confused by the new recrudescence of statism and mercantilism as "progressive" corporate statism, another reason for the decay of classical liberalism by the end of the nineteenth century was the growth of a peculiar new movement: socialism. Socialism began in the 1830s and expanded greatly after the i88os. The peculiar thing about socialism was that it was a confused, hybrid movement, influenced by both the two great preexisting polar ideologies, liberalism and conservatism. From the classical liberals the socialists took a frank [p. 13] acceptance of industrialism and the Industrial Revolution, an early glorification of "science" and "reason," and at least a rhetorical devotion to such classical liberal ideals as peace, individual freedom, and a rising standard of living. Indeed, the socialists, long before the much later corporatists, pioneered in a co-opting of science, reason, and industrialism. And the socialists not only adopted the classical liberal adherence to democracy, but topped it by calling for an "expanded democracy," in which "the people" would run the economy — and each other.
On the other hand, from the conservatives the socialists took a devotion to coercion and the statist means for trying to achieve these liberal goals. Industrial harmony and growth were to be achieved by aggrandizing the State into an all-powerful institution, ruling the economy and the society in the name of "science." A vanguard of technocrats was to assume all-powerful rule over everyone's person and property in the name of the "people" and of "democracy." Not content with the liberal achievement of reason and freedom for scientific research, the socialist State would install rule by the scientists of everyone else; not content with liberals setting the workers free to achieve undreamt-of prosperity, the socialist State would install rule by the workers of everyone else — or rather, rule by politicians, bureaucrats, and technocrats in their name. Not content with the liberal creed of equality of rights, of equality before the law, the socialist State would trample on such equality on behalf of the monstrous and impossible goal of equality or uniformity of results — or rather, would erect a new privileged elite, a new class, in the name of bringing about such an impossible equality.
Socialism was a confused and hybrid movement because it tried to achieve the liberal goals of freedom, peace, and industrial harmony and growth — goals which can only be achieved through liberty and the separation of government from virtually everything — by imposing the old conservative means of statism, collectivism, and hierarchical privilege. It was a movement which could only fail, which indeed did fall miserably in those numerous countries where it attained power in the twentieth century, by bringing to the masses only unprecedented despotism, starvation, and grinding impoverishment.
But the worst thing about the rise of the socialist movement was that it was able to outflank the classical liberals "on the Left": that is, as the party of hope, of radicalism, of revolution in the Western World. For, just as the defenders of the ancien régime took their place on the right side of the hall during the French Revolution, so the liberals and radicals sat on the left; from then on until the rise of socialism, the libertarian classical liberals were "the Left," even the "extreme Left," [p. 14] on the ideological spectrum. As late as 1848, such militant laissez-faire French liberals as Frederic Bastiat sat on the left in the national assembly. The classical liberals had begun as the radical, revolutionary party in the West, as the party of hope and of change on behalf of liberty, peace, and progress. To allow themselves to be outflanked, to allow the socialists to pose as the "party of the Left," was a bad strategic error, allowing the liberals to be put falsely into a confused middle-of-the-road position with socialism and conservatism as the polar opposites. Since libertarian-ism is nothing if not a party of change and of progress toward liberty, abandonment of that role meant the abandonment of much of their reason for existence — either in reality or in the minds of the public.
But none of this could have happened if the classical liberals had not allowed themselves to decay from within. They could have pointed out — as some of them indeed did — that socialism was a confused, self-contradictory, quasi-conservative movement, absolute monarchy and feudalism with a modern face, and that they themselves were still the only true radicals, undaunted people who insisted on nothing less than complete victory for the libertarian ideal.
Decay From Within
But after achieving impressive partial victories against statism, the classical liberals began to lose their radicalism, their dogged insistence on carrying the battle against conservative statism to the point of final victory. Instead of using partial victories as a stepping-stone for evermore pressure, the classical liberals began to lose their fervor for change and for purity of principle. They began to rest content with trying to safeguard their existing victories, and thus turned themselves from a radical into a conservative movement — "conservative" in the sense of being content to preserve the status quo. In short, the liberals left the field wide open for socialism to become the party of hope and of radicalism, and even for the later corporatists to pose as "liberals" and "progressives" as against the "extreme right wing" and "conservative" libertarian classical liberals, since the latter allowed themselves to be boxed into a position of hoping for nothing more than stasis, than absence of change. Such a strategy is foolish and untenable in a changing world.
But the degeneration of liberalism was not merely one of stance and strategy, but one of principle as well. For the liberals became content to leave the war-making power in the hands of the State, to leave the education power in its hands, to leave the power over money and banking, and over roads, in the hands of the State — in short, to concede to [p. 15] State dominion over all the crucial levers of power in society. In contrast to the eighteenth-century liberals' total hostility to the executive and to bureaucracy, the nineteenth-century liberals tolerated and even welcomed the buildup of executive power and of an entrenched oligarchic civil service bureaucracy.
Moreover, principle and strategy merged in the decay of eighteenth-century and early nineteenth-century liberal devotion to "abolitionism" — to the view that, whether the institution be slavery or any other aspect of statism, it should be abolished as quickly as possible, since the immediate abolition of statism, while unlikely in practice, was to be sought after as the only possible moral position. For to prefer a gradual whittling away to immediate abolition of an evil and coercive institution is to ratify and sanction such evil, and therefore to violate libertarian principles. As the great abolitionist of slavery and libertarian William Lloyd Garrison explained: "Urge immediate abolition as earnestly as we may, it will, alas! be gradual abolition in the end. We have never said that slavery would be overthrown by a single blow; that it ought to be, we shall always contend."4
There were two critically important changes in the philosophy and ideology of classical liberalism which both exemplified and contributed to its decay as a vital, progressive, and radical force in the Western world. The first, and most important, occurring in the early to mid-nineteenth century, was the abandonment of the philosophy of natural rights, and its replacement by technocratic utilitarianism. Instead of liberty grounded on the imperative morality of each individual's right to person and property, that is, instead of liberty being sought primarily on the basis of right and justice, utilitarianism preferred liberty as generally the best way to achieve a vaguely defined general welfare or common good. There were two grave consequences of this shift from natural rights to utilitarianism. First, the purity of the goal, the consistency of the principle, was inevitably shattered. For whereas the natural-rights libertarian seeking morality and justice cleaves militantly to pure principle, the utilitarian only values liberty as an ad hoc expedient. And since expediency can and does shift with the wind, it will become easy for the utilitarian in his cool calculus of cost and benefit to plump for statism in ad hoc case after case, and thus to give principle away. Indeed, this is precisely what happened to the Benthamite utilitarians in England: beginning with ad hoc libertarianism and laissez-faire, they found it [p. 16] ever easier to slide further and further into statism. An example was the drive for an "efficient" and therefore strong civil service and executive power, an efficiency that took precedence, indeed replaced, any concept of justice or right.
Second, and equally important, it is rare indeed ever to find a utilitarian who is also radical, who burns for immediate abolition of evil and coercion. Utilitarians, with their devotion to expediency, almost inevitably oppose any sort of upsetting or radical change. There have been no utilitarian revolutionaries. Hence, utilitarians are never immediate abolitionists. The abolitionist is such because he wishes to eliminate wrong and injustice as rapidly as possible. In choosing this goal, there is no room for cool, ad hoc weighing of cost and benefit. Hence, the classical liberal utilitarians abandoned radicalism and became mere gradualist reformers. But in becoming reformers, they also put themselves inevitably into the position of advisers and efficiency experts to the State. In other words, they inevitably came to abandon libertarian principle as well as a principled libertarian strategy. The utilitarians wound up as apologists for the existing order, for the status quo, and hence were all too open to the charge by socialists and progressive corporatists that they were mere narrow-minded and conservative opponents of any and all change. Thus, starting as radicals and revolutionaries, as the polar opposites of conservatives, the classical liberals wound up as the image of the thing they had fought.
This utilitarian crippling of libertarianism is still with us. Thus, in the early days of economic thought, utilitarianism captured free-market economics with the influence of Bentham and Ricardo, and this influence is today fully as strong as ever. Current free-market economics is all too rife with appeals to gradualism; with scorn for ethics, justice, and consistent principle; and with a willingness to abandon free-market principles at the drop of a cost-benefit hat. Hence, current free-market economics is generally envisioned by intellectuals as merely apologetics for a slightly modified status quo, and all too often such charges are correct.
A second, reinforcing change in the ideology of classical liberals came during the late nineteenth century, when, at least for a few decades, they adopted the doctrines of social evolutionism, often called "social Darwinism." Generally, statist historians have smeared such social Darwinist laissez-faire liberals as Herbert Spencer and William Graham Sumner as cruel champions of the extermination, or at least of the disappearance, of the socially "unfit." Much of this was simply the dressing up of sound economic and sociological free-market doctrine in the then-fashionable [p. 17] trappings of evolutionism. But the really important and crippling aspect of their social Darwinism was the illegitimate carrying-over to the social sphere of the view that species (or later, genes) change very, very slowly, after millennia of time. The social Darwinist liberal came, then, to abandon the very idea of revolution or radical change in favor of sitting back and waiting for the inevitable tiny evolutionary changes over eons of time. In short, ignoring the fact that liberalism had had to break through the power of ruling elites by a series of radical changes and revolutions, the social Darwinists became conservatives preaching against any radical measures and in favor of only the most minutely gradual of changes.5
In fact, the great libertarian Spencer himself is a fascinating illustration of just such a change in classical liberalism (and his case is paralleled in America by William Graham Sumner). In a sense, Herbert Spencer embodies within himself much of the decline of liberalism in the nineteenth century. For Spencer began as a magnificently radical liberal, as virtually a pure libertarian. But, as the virus of sociology and social Darwinism took over in his soul, Spencer abandoned libertarianism as a dynamic, radical historical movement, although without abandoning it in pure theory. While looking forward to an eventual victory of pure liberty, of "contract" as against "status," of industry as against militarism, Spencer began to see that victory as inevitable, but only after millennia of gradual evolution. Hence, Spencer abandoned liberalism as a fighting, radical creed and confined his liberalism in practice to a weary, conservative, rearguard action against the growing collectivism and statism of his day.
But if utilitarianism, bolstered by social Darwinism, was the main agent of philosophical and ideological decay in the liberal movement, the single most important, and even cataclysmic, reason for its demise was its abandonment of formerly stringent principles against war, empire, and militarism. In country after country, it was the siren song [p. 18] of nation-state and empire that destroyed classical liberalism. In England, the liberals, in the late nineteenth and early twentieth centuries, abandoned the antiwar, antiimperialist "Little Englandism" of Cobden, Bright, and the Manchester School. Instead, they adopted the obscenely entitled "Liberal Imperialism" — joining the conservatives in the expansion of empire, and the conservatives and the right-wing socialists in the destructive imperialism and collectivism of World War I. In Germany, Bismarck was able to split the previously almost triumphant liberals by setting up the lure of unification of Germany by blood and iron. In both countries, the result was the destruction of the liberal cause.
In the United States, the classical liberal party had long been the Democratic party, known in the latter nineteenth century as "the party of personal liberty." Basically, it had been the party not only of personal but also of economic liberty; the stalwart opponent of Prohibition, of Sunday blue laws, and of compulsory education; the devoted champion of free trade, hard money (absence of governmental inflation), separation of banking from the State, and the absolute minimum of government. It construed state power to be negligible and federal power to be virtually nonexistent. On foreign policy, the Democratic party, though less rigorously, tended to be the party of peace, antimilitarism, and antiimperial-ism. But personal and economic libertarianism were both abandoned with the capture of the Democratic party by the Bryan forces in 1896, and the foreign policy of nonintervention was then rudely abandoned by Woodrow Wilson two decades later. It was an intervention and a war that were to usher in a century of death and devastation, of wars and new despotisms, and also a century in all warring countries of the new corporatist statism — of a welfare-warfare State run by an alliance of Big Government, big business, unions, and intellectuals — that we have mentioned above.
The last gasp, indeed, of the old laissez-faire liberalism in America was the doughty and aging libertarians who banded together to form the Anti-Imperialist League at the turn of the century, to combat the American war against Spain and the subsequent imperialist American war to crush the Filipinos who were striving for national independence from both Spain and the United States. To current eyes, the idea of an antiimperialist who is not a Marxist may seem strange, but opposition to imperialism began with laissez-faire liberals such as Cobden and Bright in England, and Eugen Richter in Prussia. In fact, the Anti-Imperialist League, headed by Boston industrialist and economist Edwad Atkinson (and including Sumner) consisted largely of laissez-faire radicals who had fought the good fight for the abolition of slavery, and [p. 19] had then championed free trade, hard money, and minimal government. To them, their final battle against the new American imperialism was simply part and parcel of their lifelong battle against coercion, statism, and injustice — against Big Government in every area of life, both domestic and foreign.
We have traced the rather grisly story of the decline and fall of classical liberalism after its rise and partial triumph in previous centuries. What, then, is the reason for the resurgence, the flowering, of libertarian thought and activity in the last few years, particularly in the United States? How could these formidable forces and coalitions for statism have yielded even that much to a resurrected libertarian movement? Shouldn't the resumed march of statism in the late nineteenth and twentieth centuries be a cause for gloom rather than usher in a reawakening of a seemingly moribund libertarianism? Why didn't libertarianism remain dead and buried?
We have seen why libertarianism would naturally arise first and most fully in the United States, a land steeped in libertarian tradition. But we have not yet examined the question: Why the renaissance of libertarianism at all within the last few years? What contemporary conditions have led to this surprising development? We must postpone answering this question until the end of the book, until we first examine what the libertarian creed is, and how that creed can be applied to solve the leading problem areas in our society.
1. See Murray N. Rothbard, Conceived in Liberty, vol 2, "Salutary Neglect": The American Colonies in the First Half of the 18th Century (New Rochelle, N.Y.: Arlington House, 1975), p. 194. Also see John Trenchard and Thomas Gordon, Cato's Letters, in D. L. Jacobson, ed., The English Libertarian Heritage (Indianapolis: Bobbs-Merrill Co., 1965).
2. For the radical libertarian impact of the Revolution within America, see Robert A. Nisbet, The Social Impact of the Revolution (Washington, D.C.: American Enterprise Institute for Public Policy Research, 1974). For the impact on Europe, see the important work of Robert R. Palmer, The Age of the Democratic Revolution, vol. 1 (Princeton, N.J.: Princeton University Press, 1959).
3. Bernard Bailyn, "The Central Themes of the American Revolution: An Interpretation," in S. Kurtz and J. Hutson, eds., Essays on the American Revolution (Chapel Hill, N.C.: University of North Carolina Press, 1973), pp. 26-27.
4. Quoted in William H. Pease and Jane H. Pease, eds., The Antislavery Argument (Indianapolis: Bobbs-Merrill Co., 1965), p. xxxv.
5. Ironically enough, modern evolutionary theory is coming to abandon completely the theory of gradual evolutionary change. Instead, it is now perceived that a far more accurate picture is sharp and sudden flips from one static species equilibrium to another; this is being called the theory of "punctuational change." As one of the expounders of the new view, Professor Stephen Jay Gould, writes: "Gradualism is a philosophy of change, not an induction from nature . . . . Gradualism, too, has strong ideological components more responsible for its previous success than any objective matching with external nature . . . . The utility of gradualism as an ideology must explain much of its influence, for it became liberalism's quintessential dogma against radical change — sudden flips are against the laws of nature." Stephen Jay Gould, "Evolution: Explosion, Not Ascent," New York Times (January 22, 1978). [p. 20] [p. 21] [p. 22] [p. 23]
The Libertarian Creed
Chapter 2: Property and Exchange
The Nonaggression Axiom
The libertarian creed rests upon one central axiom: that no man or group of men may aggress against the person or property of anyone else. This may be called the "nonaggression axiom." "Aggression" is defined as the initiation of the use or threat of physical violence against the person or property of anyone else. Aggression is therefore synonymous with invasion.
If no man may aggress against another; if, in short, everyone has the absolute right to be "free" from aggression, then this at once implies that the libertarian stands foursquare for what are generally known as "civil liberties": the freedom to speak, publish, assemble, and to engage in such "victimless crimes" as pornography, sexual deviation, and prostitution (which the libertarian does not regard as "crimes" at all, since he defines a "crime" as violent invasion of someone else's person or property). Furthermore, he regards conscription as slavery on a massive scale. And since war, especially modern war, entails the mass slaughter of civilians, the libertarian regards such conflicts as mass murder and therefore totally illegitimate.
All of these positions are now considered "leftist" on the contemporary ideological scale. On the other hand, since the libertarian also opposes invasion of the rights of private property, this also means that he just [p. 24] as emphatically opposes government interference with property rights or with the free-market economy through controls, regulations, subsidies, or prohibitions. For if every individual has the right to his own property without having to suffer aggressive depredation, then he also has the right to give away his property (bequest and inheritance) and to exchange it for the property of others (free contract and the free market economy) without interference. The libertarian favors the right to unrestricted private property and free exchange; hence, a system of "laissez-faire capitalism."
In current terminology again, the libertarian position on property and economics would be called "extreme right wing." But the libertarian sees no inconsistency in being "leftist" on some issues and "rightist" on others. On the contrary, he sees his own position as virtually the only consistent one, consistent on behalf of the liberty of every individual. For how can the leftist be opposed to the violence of war and conscription while at the same time supporting the violence of taxation and government control? And how can the rightist trumpet his devotion to private property and free enterprise while at the same time favoring war, conscription, and the outlawing of noninvasive activities and practices that he deems immoral? And how can the rightist favor a free market while seeing nothing amiss in the vast subsidies, distortions, and unproductive inefficiencies involved in the military-industrial complex?
While opposing any and all private or group aggression against the rights of person and property, the libertarian sees that throughout history and into the present day, there has been one central, dominant, and overriding aggressor upon all of these rights: the State. In contrast to all other thinkers, left, right, or in-between, the libertarian refuses to give the State the moral sanction to commit actions that almost everyone agrees would be immoral, illegal, and criminal if committed by any person or group in society. The libertarian, in short, insists on applying the general moral law to everyone, and makes no special exemptions for any person or group. But if we look at the State naked, as it were, we see that it is universally allowed, and even encouraged, to commit all the acts which even nonlibertarians concede are reprehensible crimes. The State habitually commits mass murder, which it calls "war," or sometimes "suppression of subversion"; the State engages in enslavement into its military forces, which it calls "conscription"; and it lives and has its being in the practice of forcible theft, which it calls "taxation." The libertarian insists that whether or not such practices are supported by the majority of the population is not germane to their nature: that, regardless of popular sanction, War is Mass Murder, Conscription is [p. 25] Slavery, and Taxation is Robbery. The libertarian, in short, is almost completely the child in the fable, pointing out insistently that the emperor has no clothes.
Throughout the ages, the emperor has had a series of pseudoclothes provided for him by the nation's intellectual caste. In past centuries, the intellectuals informed the public that the State or its rulers were divine, or at least clothed in divine authority, and therefore what might look to the naive and untutored eye as despotism, mass murder, and theft on a grand scale was only the divine working its benign and mysterious ways in the body politic. In recent decades, as the divine sanction has worn a bit threadbare, the emperor's "court intellectuals" have spun ever more sophisticated apologia: informing the public that what the government does is for the "common good" and the "public welfare," that the process of taxation-and-spending works through the mysterious process of the "multiplier" to keep the economy on an even keel, and that, in any case, a wide variety of governmental "services" could not possibly be performed by citizens acting voluntarily on the market or in society. All of this the libertarian denies: he sees the various apologia as fraudulent means of obtaining public support for the State's rule, and he insists that whatever services the government actually performs could be supplied far more efficiently and far more morally by private and cooperative enterprise.
The libertarian therefore considers one of his prime educational tasks is to spread the demystification and desanctification of the State among its hapless subjects. His task is to demonstrate repeatedly and in depth that not only the emperor but even the "democratic" State has no clothes; that all governments subsist by exploitive rule over the public; and that such rule is the reverse of objective necessity. He strives to show that the very existence of taxation and the State necessarily sets up a class division between the exploiting rulers and the exploited ruled. He seeks to show that the task of the court intellectuals who have always supported the State has ever been to weave mystification in order to induce the public to accept State rule, and that these intellectuals obtain, in return, a share in the power and pelf extracted by the rulers from their deluded subjects.
Take, for example, the institution of taxation, which statists have claimed is in some sense really "voluntary." Anyone who truly believes in the "voluntary" nature of taxation is invited to refuse to pay taxes and to see what then happens to him. If we analyze taxation, we find that, among all the persons and institutions in society, only the government acquires its revenues through coercive violence. Everyone else [p. 26] in society acquires income either through voluntary gift (lodge, charitable society, chess club) or through the sale of goods or services voluntarily purchased by consumers. If anyone but the government proceeded to "tax," this would clearly be considered coercion and thinly disguised banditry. Yet the mystical trappings of "sovereignty" have so veiled the process that only libertarians are prepared to call taxation what it is: legalized and organized theft on a grand scale.
If the central axiom of the libertarian creed is nonaggression against anyone's person and property, how is this axiom arrived at? What is its groundwork or support? Here, libertarians, past and present, have differed considerably. Roughly, there are three broad types of foundation for the libertarian axiom, corresponding to three kinds of ethical philosophy: the emotivist, the utilitarian, and the natural rights viewpoint. The emotivists assert that they take liberty or nonaggression as their premise purely on subjective, emotional grounds. While their own intense emotion might seem a valid basis for their own political philosophy, this can scarcely serve to convince anyone else. By ultimately taking themselves outside the realm of rational discourse, the emotivists thereby insure the lack of general success of their own cherished doctrine.
The utilitarians declare, from their study of the consequences of liberty as opposed to alternative syst
|Posted on May 14, 2012 at 12:15 AM|
National Platform of the Libertarian Party
Adopted in Convention, May 2004, Atlanta Georgia
As Libertarians, we seek a world of liberty; a world in which all individuals are sovereign over their own lives, and no one is forced to sacrifice his or her values for the benefit of others.
We believe that respect for individual rights is the essential precondition for a free and prosperous world, that force and fraud must be banished from human relationships, and that only through freedom can peace and prosperity be realized.
Consequently, we defend each person's right to engage in any activity that is peaceful and honest, and welcome the diversity that freedom brings. The world we seek to build is one where individuals are free to follow their own dreams in their own ways, without interference from government or any authoritarian power.
In the following pages we have set forth our basic principles and enumerated various policy stands derived from those principles.
These specific policies are not our goal, however. Our goal is nothing more nor less than a world set free in our lifetime, and it is to this end that we take these stands.
Table of Contents
Statement of Principles
Individual Rights and Civil Order
FREEDOM AND RESPONSIBILITY
THE WAR ON DRUGS
SAFEGUARDS FOR THE CRIMINALLY ACCUSED
JUSTICE FOR THE INDIVIDUAL
GOVERNMENT AND MENTAL HEALTH
FREEDOM OF COMMUNICATION
FREEDOM OF RELIGION
THE RIGHT TO PROPERTY
THE RIGHT TO PRIVACY
THE RIGHT TO KEEP AND BEAR ARMS
CONSCRIPTION AND THE MILITARY
FREEDOM OF ASSOCIATION AND GOVERNMENT DISCRIMINATION
WOMEN'S RIGHTS AND ABORTION
FAMILIES AND CHILDREN
AMERICAN INDIAN RIGHTS
Trade and the Economy
INFLATION AND DEPRESSION
FINANCE AND CAPITAL INVESTMENT
UNIONS AND COLLECTIVE BARGAINING
POVERTY AND UNEMPLOYMENT
OCCUPATIONAL SAFETY AND HEALTH ACT (OSHA)
A. Diplomatic Policy
INTERNATIONAL TRAVEL AND FOREIGN INVESTMENTS
PRESIDENTIAL WAR POWERS
C. Economic Policy
D. International Relations
Statement of Principles
We, the members of the Libertarian Party, challenge the cult of the omnipotent state and defend the rights of the individual.
We hold that all individuals have the right to exercise sole dominion over their own lives, and have the right to live in whatever manner they choose, so long as they do not forcibly interfere with the equal right of others to live in whatever manner they choose.
Governments throughout history have regularly operated on the opposite principle, that the State has the right to dispose of the lives of individuals and the fruits of their labor. Even within the United States, all political parties other than our own grant to government the right to regulate the lives of individuals and seize the fruits of their labor without their consent.
We, on the contrary, deny the right of any government to do these things, and hold that where governments exist, they must not violate the rights of any individual: namely, (1) the right to life -- accordingly we support the prohibition of the initiation of physical force against others; (2) the right to liberty of speech and action -- accordingly we oppose all attempts by government to abridge the freedom of speech and press, as well as government censorship in any form; and (3) the right to property -- accordingly we oppose all government interference with private property, such as confiscation, nationalization, and eminent domain, and support the prohibition of robbery, trespass, fraud, and misrepresentation.
Since governments, when instituted, must not violate individual rights, we oppose all interference by government in the areas of voluntary and contractual relations among individuals. People should not be forced to sacrifice their lives and property for the benefit of others. They should be left free by government to deal with one another as free traders; and the resultant economic system, the only one compatible with the protection of individual rights, is the free market.
^ Top | Table of Contents
Individual Rights and Civil Order
No individual, group, or government may initiate force against any other individual, group, or government.
Freedom and Responsibility
Individuals should be free to make choices for themselves and to accept responsibility for the consequences of the choices they make.
The appropriate way to suppress crime is through consistent and impartial enforcement of laws that protect individual rights.
Only actions that infringe on the rights of others can properly be termed crimes.
The War on Drugs
The War on Drugs is a grave threat to individual liberty, to domestic order, and to peace in the world.
Safeguards for the Criminally Accused
Until such time as persons are proved guilty of crimes, they should be accorded full respect for their individual rights.
Justice for the Individual
We support restitution for the victim to the fullest degree possible at the expense of the criminal or wrongdoer. We oppose the prosecution of individuals for exercising their rights of self-defense.
We favor all-volunteer juries and urge the assertion of the common-law right of juries to judge not only the facts but also the justice of the law.
We favor an immediate end to the doctrine of "Sovereign Immunity" which ignores the primacy of the individual, and holds that the State may not be held accountable for its actions.
Government and Mental Health
We oppose the involuntary treatment for mental health by health officials or law enforcement.
Freedom of Communication
We defend the rights of individuals to unrestricted freedom of speech, freedom of the press, and the right of individuals to dissent from government.
Freedom of Religion
We defend the rights of individuals to engage in or abstain from any religious activities that do not violate the rights of others.
The Right to Property
All rights are inextricably linked with property rights. Property rights are entitled to the same protection as all other human rights.
The Right to Privacy
The individual's rights to privacy, property, and to speak or not to speak should not be infringed by the government.
We condemn the government's use of secret classifications to keep from the public information that it should have.
The defense of the country requires that we counter threats to domestic security; however, we call for repeal of legislation that violates individual rights under the color of national security.
The Right to Keep and Bear Arms
We affirm the right to keep and bear arms and oppose all laws at any level of government restricting, regulating, or requiring the ownership, manufacture, transfer, or sale of firearms or ammunition.
Conscription and the Military
We oppose any form of compulsory national service.
We hold that human rights should not be denied or abridged on the basis of nationality and welcome all refugees to our country.
Freedom of Association and Government Discrimination
Individual rights should not be denied or enhanced at the expense of other people's rights by government.
Women's Rights and Abortion
Individual rights should not be denied or abridged on the basis of sex. Recognizing that abortion is a very sensitive issue and that people, including libertarians, can hold good-faith views on both sides, we believe the government should be kept out of the question.
Families and Children
We believe that families are private institutions, which should be free from government intrusion, and that parents have the right to raise their children according to their own standards and beliefs.
We believe that adults have the right to private choice in consensual sexual activity.
American Indian Rights
American Indians should be free to determine their own system of governance and should have their property rights restored.
Trade and the Economy
The only proper role of existing governments in the economic realm is to protect property rights, adjudicate disputes, and provide a legal framework in which voluntary trade is protected.
Government intervention in the economy imperils both the personal freedom and the material prosperity of every American.
All persons are entitled to keep the fruits of their labor. We oppose all government activity that consists of the forcible collection of money or goods from individuals in violation of their individual rights.
Inflation and Depression
Government control over money and banking is the primary cause of inflation and depression.
Finance and Capital Investment
Regulation of financial and capital markets represses capital ventures.
We support a constitutional amendment requiring government budgets be balanced by cutting expenditures and not by raising taxes.
Government is the source of monopoly, through its grants of legal privilege to special interests in the economy. We advocate a strict separation of business and State.
The unrestricted competition of the free market is the best way to foster prosperity. We oppose all government subsidies.
Tariffs and quotas give special treatment to favored special interests and diminish the welfare of consumers and other individuals.
We advocate the termination of government-created franchise privileges. The right to offer services on the market should not be curtailed by law.
Unions and Collective Bargaining
We support the right of free persons to associate or not associate in labor unions. An employer should have the right to recognize or refuse to recognize a union.
Current problems in such areas as energy, pollution, health care delivery, decaying cities, and poverty are not solved, but are primarily caused, by government.
We oppose all government control of energy pricing, allocation, and production.
Pollution of other people's property is a violation of individual rights. Strict liability, not government agencies and arbitrary government standards, should regulate pollution.
We support strong and effective laws against fraud and misrepresentation.
We advocate the complete separation of education and State.
The American people are not a collective national resource. We oppose all coercive measures for population control.
We support transit competition and deregulation.
Poverty and Unemployment
We support the repeal of all laws that impede the ability of any person to find employment. The proper source of aid to the poor is voluntary efforts of private groups and individuals.
We favor restoring and reviving a free market health care system. We advocate a complete separation of medicine and State.
Resource management is properly the responsibility and right of the legitimate owners of land, water, and other natural resources.
Farmers and consumers alike should be free from the meddling and counterproductive measures of the federal government -- free to grow, sell, and buy what they want.
Occupational Safety and Health Act (OSHA)
We call for the repeal of OSHA, which denies the right to liberty and property to both employer and employee and interferes in private contractual relations.
Replace the fraudulent, bankrupt Social Security system with a private, voluntary system.
We propose allowing free competition in all aspects of postal service.
The Civil Service system entrenches a permanent and growing bureaucracy and is inherently a system of concealed patronage.
We call for an end to government control of political parties, consistent with First Amendment rights to freedom of association and freedom of expression, and propose electoral systems that are more representative.
We recognize the right to political secession by political entities, private groups, or individuals.
The United States government should return to the historic libertarian tradition of avoiding entangling alliances, abstaining totally from foreign quarrels and imperialist adventures, and recognizing the right to unrestricted trade and travel.
The important principle in foreign policy should be the elimination of intervention by the United States government in the affairs of other nations.
International Travel and Foreign Investments
We call upon the United States government to adhere rigidly to the principle that all U.S. citizens travel, live, and own property abroad at their own risk.
We recognize the right of all people to resist tyranny and defend themselves and their rights against governments or political and revolutionary groups.
We oppose U.S. government participation in any world or international government. We oppose any treaty under which individual rights would be violated.
Any U.S. military policy should have the objective of providing security for the lives, liberty and property of the American people in the U.S. as inexpensively as possible and without undermining the liberties it is designed to protect.
Presidential War Powers
We favor limiting the presidential role as Commander-in-Chief to its original meaning, namely that of the head of the armed forces in wartime.
We support the elimination of tax-supported military, economic, technical, and scientific aid to foreign governments or other organizations.
We favor withdrawal of the United States from all international money and credit schemes, the World Bank, and the International Monetary Fund.
Individuals have the right to homestead unowned resources, both within the jurisdictions of national governments and within unclaimed territory.
We favor immediate self-determination for all people living in colonial dependencies and the termination of subsidization of them at taxpayers' expense.
We would end the current U.S. government policy of foreign intervention, including military and economic aid, guarantees, and diplomatic meddling. We make no exceptions.
We oppose all government restrictions upon voluntary, peaceful use of outer space.
Our silence about any other particular government law, regulation, ordinance, directive, edict, control, regulatory agency, activity, or machination should not be construed to imply approval.
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I. Individual Rights and Civil Order
No conflict exists between civil order and individual rights. Both concepts are based on the same fundamental principle: that no individual, group, or government may initiate force against any other individual, group, or government.
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Freedom and Responsibility
The Issue: Personal responsibility is discouraged by government denying individuals the opportunity to exercise it. In fact, the denial of freedom fosters irresponsibility.
The Principle: Individuals should be free to make choices for themselves and to accept responsibility for the consequences of the choices they make. We must accept the right of others to choose for themselves if we are to have the same right. Our support of an individual's right to make choices in life does not mean that we necessarily approve or disapprove of those choices. We believe people must accept personal responsibility for the consequences of their actions.
Solutions: Libertarian policies will promote a society where people are free to make and learn from their own decisions.
Transitional Actions: Repeal all laws that presume government knows better than the individual how to run that person's life. Encourage private sector dissemination of information to help consumers make informed decisions on products and services. Enforce laws against fraud and misrepresentation.
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The Issue: The continuing high level of violent crime -- and the government's demonstrated inability to deal with it -- threatens the lives, happiness and belongings of Americans. At the same time, governmental violations of rights undermine people's sense of justice with regard to crime. Victimless crime laws themselves violate individual rights and also breed genuine crime.
The Principle: The only justified function of government is the protection of the lives, rights and property of its citizens.
Solutions: The appropriate way to suppress crime is through consistent and impartial enforcement of laws that protect individual rights. We applaud the trend toward private protection services and voluntary community crime control groups.
Transitional Action: We call for an end to "hate crime" laws that punish people for their thoughts and speech, distract us from real crimes, and foster resentment by giving some individuals special status under the law. Laws pertaining to "victimless crimes" should be repealed. We support institutional changes, consistent with full respect for the rights of the accused, which would permit victims to direct the prosecution in criminal cases.
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The Issue: Activities which do not affect anyone but the actor have been criminalized by government on the basis of encoding a particular morality into law.
The Principle: Only actions that infringe on the rights or damage the property of others can properly be termed crimes.
Solutions: We favor the repeal of all federal, state and local laws creating "crimes" without victims.
Transitional Action: In particular, we advocate:
A. the repeal of all laws prohibiting the production, sale, possession, or use of drugs, and of all medicinal prescription requirements for the purchase of vitamins, drugs, and similar substances; the repeal of all laws restricting or prohibiting the use or sale of alcohol, requiring health warning labels and signs, making bartenders or hosts responsible for the behavior of customers and guests, making liquor companies liable for birth defects, and making gambling houses liable for the losses of intoxicated gamblers; the repeal of all laws or policies authorizing stopping drivers without probable cause to test for alcohol or drug use; the repeal of all laws regarding consensual sexual relations, including prostitution and solicitation, and the cessation of state oppression and harassment of homosexual men and women, that they, at last, be accorded their full rights as individuals; the repeal of all laws regulating or prohibiting the possession, use, sale, production, or distribution of sexually explicit material, independent of "socially redeeming value" or compliance with "community standards";
B. the repeal of all laws regulating or prohibiting gambling;
C. the repeal of anti-racketeering statutes such as the Racketeer Influenced and Corrupt Organizations Act (RICO), which punish peaceful behavior -- including insider trading in securities, sale of sexually explicit material, and nonviolent anti-abortion protests -- by freezing and/or seizing assets of the accused or convicted; and
D. the repeal of all laws interfering with the right to commit suicide as infringements of the ultimate right of an individual to his or her own life.
We demand the use of executive pardon to free and exonerate all those presently incarcerated or ever convicted solely for the commission of these "crimes." We condemn the wholesale confiscation of property prior to conviction by the state that all too often accompanies police raids, searches, and prosecutions for victimless crimes. Further, we recognize that, often, the Federal Government blackmails states which refuse to comply with these laws by withholding funds and we applaud those states which refuse to be so coerced.
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The War on Drugs
The Issue: The suffering that drug misuse has brought about is deplorable; however, drug prohibition causes more harm than drugs themselves. The so-called "War on Drugs" is in reality a war against the American people, our Constitution and the Bill of Rights. It is a grave threat to individual liberty, to domestic order and to peace in the world.
The Principle: Individuals should have the right to use drugs, whether for medical or recreational purposes, without fear of legal reprisals, but must be held legally responsible for the consequences of their actions only if they violate others' rights.
Solutions: Social involvement by individuals is essential to address the problem of substance misuse and abuse. Popular education and assistance groups are a better approach than prohibition, and we support the activities of private organizations as the best way to move forward on the issue.
Transitional Action: Repeal all laws establishing criminal or civil penalties for the use of drugs. Repeal laws that infringe upon individual rights to be secure in our persons, homes, and property as protected by the Fourth Amendment. Stop the use of "anti-crime" measures such as profiling or civil asset forfeiture that reduce the standard of proof historically borne by government in prosecutions. Stop prosecuting accused non-violent drug offenders, and pardon those previously convicted.
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Safeguards for the Criminally Accused
The Issue: Instant-punishment policies deprive the accused of important checks on government power -- juries and the judicial process.
The Principle: Until such time as persons are proved guilty of crimes, they should be accorded full respect for their individual rights. We oppose any concept that some individuals are by nature second-class citizens who only understand instant punishment and any claim that the police possess special insight into recognizing persons in need of punishment. We oppose reduction of constitutional safeguards of the rights of the criminally accused.
Solutions: Cases must no longer be treated as "civil" strictly to avoid the due process protections of criminal law. Government must no longer be allowed to seize property for criminal offenses, prior to civil or criminal proceedings. Full restitution must be made for all loss suffered by persons arrested, indicted, tried, imprisoned, or otherwise injured in the course of criminal proceedings against them that do not result in their conviction. When they are responsible, government police employees or agents must be liable for this restitution.
Transitional Action: Police officers must be prohibited from using excessive force on the disorderly or the criminally accused, handing out what they may consider to be instant punishments on the streets, or using preventive detention and no-knock laws. The judicial system must be reformed to allow criminal defendants and civil parties to a court action a reasonable number of peremptory challenges to proposed judges, similar to their right under the present system to challenge a proposed juror.
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Justice for the Individual
The Issue: The present system of criminal law is based almost solely on punishment with little concern for the victim.
The Principle: The purpose of a justice system is to provide restitution to those suffering a loss at the expense of those who caused that loss. In the case of violent crimes, an additional purpose is to defend society from the continued threat of violence.
Solutions: We support the following:
a) restitution for the victim to the fullest degree possible at the expense of the criminal or wrongdoer;
b) an end to the prosecution of individuals for exercising their rights of self-defense; and
c.) an affirmation of the right of the victim to pardon the criminal or wrongdoer, barring threats to the victim for this purpose.
Transitional Action: End all "no-fault" insurance laws, which deprive the victim of the right to recover damages from those responsible in the case of injury. Affirm the right of the victim to pardon the criminal or wrongdoer, barring threats to the victim for this purpose. Change rape laws so that cohabitation will no longer be a defense against a charge of rape.
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The Issue: The right to a trial by a citizen jury is an important check on the infringement of our rights by government. Current practice has seriously eroded that protection.
The Principle: Juries should be composed of volunteers, not forced jurors. In addition, the common-law right of juries, to judge not only the facts but also the justice of the law, should be recognized and encouraged.
Solutions: In all cases to which the government is a party, the judge should be required to inform the jurors of their common law right to judge the law, as well as the facts, and to acquit a criminal defendant, and to find against the government in a civil trial, whenever they deem the law unjust or oppressive.
Transitional Action: End the practice in capital cases of excluding jurors who are opposed to the death penalty (referred to as "death qualification"), which denies capital defendants the right to a trial before a jury representative of community values.
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The Issue: The government has placed itself in a position of superiority above its citizens, has denied our rights under a policy of "compelling state interest" (thereby becoming the primary threat to our rights, rather than the protector of them), and has denied its citizens their right to sue their government for redress of grievances, claiming a position of sovereign immunity.
Principle: The only legitimate use of force is in defense of individual rights -- life, liberty, and justly acquired property -- against aggression, whether by force or fraud. This right inheres in the individual, who -- with his or her consent -- may be aided by any other individual or group. The right of defense extends to defense against aggressive acts of government.
Solutions: Government must be returned to its proper role as protector of rights, and once again be made accountable for its actions to the individual citizen. Individual elected officials and bureaucrats must be held accountable if their actions directly violate the rights of individual citizens.
Transitional Action: We advocate an immediate end to the doctrine of "Sovereign Immunity" which ignores the primacy of the individual over the abstraction of the State, and holds that the State, contrary to the tradition of redress of grievances, may not be sued without its permission or held accountable for its actions under civil law.
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Government and Mental Health
The Issue: Individuals are forcibly medicated or denied medication, not based on medical need, but based rather on a social agenda as enforced by government.
The Principle: Medication must be voluntary.
Solutions: We oppose the involuntary commitment of any person to or involuntary treatment in a mental institution. We strongly condemn Involuntary Outpatient Commitment (IOC), where the patient is ordered to accept treatment, or else be committed to a mental institution and forcibly treated. We oppose government pressure requiring parents to obtain counseling or psychiatric drugs for their children. We also oppose forced treatment for the elderly, the head-injured, or those with diminished capacity. We are against the invasion of people's homes and privacy by health officials or law enforcement to either require or deny drug taking.
Transitional Action: We advocate an end to the spending of tax money for any program of psychiatric, psychological, or behavioral research or treatment. We favor an end to the acceptance of criminal defenses based on "insanity" or "diminished capacity" which absolve the guilty of their responsibility.
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Freedom of Communication
The Issue: We oppose any abridgment of the freedom of speech through government censorship, regulation or control of communications media, including, but not limited to, laws concerning:
a) Obscenity, including "pornography", as we hold this to be an abridgment of liberty of expression despite claims that it instigates rape or assault, or demeans and slanders women;
b) Reception and storage equipment, such as digital audio tape recorders and radar warning devices, and the manufacture of video terminals by telephone companies;
c) Electronic bulletin boards, communications networks, and other interactive electronic media as we hold them to be the functional equivalent of speaking halls and printing presses in the age of electronic communications, and as such deserving of full freedom;
d) Electronic newspapers, electronic "Yellow Pages", file libraries, websites, and other new information media, as these deserve full freedom; or
e) Commercial speech or advertising. We oppose speech codes at all schools that are primarily tax funded. Language that is deemed offensive to certain groups is not a cause for legal action.
We strongly oppose the government's burgeoning practice of invading newsrooms, or the premises of other innocent third parties, in the name of law enforcement. We further oppose court orders gagging news coverage of criminal proceedings -- the right to publish and broadcast must not be abridged merely for the convenience of the judicial system. We deplore any efforts to impose thought control on the media, either by the use of anti-trust laws, or by any other government action in the name of stopping "bias." The Principle: We defend the rights of individuals to unrestricted freedom of speech, freedom of the press and the right of individuals to dissent from government itself. We recognize that full freedom of expression is possible only as part of a system of full property rights. The freedom to use one's own voice; the freedom to hire a hall; the freedom to own a printing press, a broadcasting station, or a transmission cable; the freedom to host and publish information on the Internet; the freedom to wave or burn one's own flag; and similar property-based freedoms are precisely what constitute freedom of communication. At the same time, we recognize that freedom of communication does not extend to the use of other people's property to promote one's ideas without the voluntary consent of the owners.
Solutions: We would provide for free market ownership of airwave frequencies, deserving of full First Amendment protection. We oppose government ownership or subsidy of, or funding for, any communications organization. Removal of all of these regulations and practices throughout the communications media would open the way to diversity and innovation. We shall not be satisfied until the First Amendment is expanded to protect full, unconditional freedom of communication.
Transitional Action: We advocate the abolition of the Federal Communications Commission.
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Freedom of Religion
Issue: Government routinely invades personal privacy rights based solely on individuals' religious beliefs. Arbitrary tax structures are designed to give aid to certain religions, and deny it to others.
Principle: We defend the rights of individuals to engage in (or abstain from) any religious activities that do not violate the rights of others.
Solution: In order to defend freedom, we advocate a strict separation of church and State. We oppose government actions that either aid or attack any religion. We oppose taxation of church property for the same reason that we oppose all taxation. We condemn the attempts by parents or any others -- via kidnappings or conservatorships -- to force children to conform to any religious views. Government harassment or obstruction of religious groups for their beliefs or non-violent activities must end.
Transitional Action: We call for an end to the harassment of churches by the Internal Revenue Service through threats to deny tax-exempt status to churches that refuse to disclose massive amounts of information about themselves.
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The Right to Property
The Issue: We oppose all violations of the right to private property, liberty of contract, and freedom of trade, especially those done in the name of national security. We also condemn current government efforts to regulate or ban the use of property in the name of aesthetic values, risk, moral standards, cost-benefit estimates, or the promotion or restriction of economic growth. We specifically condemn all government interference in the operation of private businesses, such as restaurants and airlines, by either requiring or prohibiting designated smoking or non-smoking areas for their employees or their customers. The taxation of privately owned real property actually makes the State the owner of all lands and forces individuals to rent their homes and places of business from the State. We condemn attempts to employ eminent domain to municipalize sports teams or to try to force them to stay in their present location.
The Principle: There is no conflict between property rights and human rights. Indeed, property rights are the rights of humans with respect to property, and as such, are entitled to the same respect and protection as all other human rights. All rights are inextricably linked with property rights. Such rights as the freedom from involuntary servitude as well as the freedom of speech and the freedom of press are based on self-ownership. Our bodies are our property every bit as much as is justly acquired land or material objects. The owners of property have the full right to control, use, dispose of -- or in any manner enjoy -- their property without interference, until and unless the exercise of their control infringes the valid rights of others.
Solutions: We demand an end to the taxation of privately owned real property. Where property, including land, has been taken from its rightful owners by the government or private action in violation of individual rights, we favor restitution to the rightful owners.
Transitional Action: Repeal property tax laws and force government to fund property protection services with user fees.
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The Right to Privacy
The Issue: Privacy protections have been eroded gradually over many years. The Social Security Number has become a universal ID number, causing rampant and massive identity theft. Government routinely keeps records on the bank accounts, travel plans, and spending habits of law-abiding civilians, for no other reason than they "might" commit a crime in the future.
The Principle: The individual's right to privacy, property, and right to speak or not to speak should not be infringed by the government. The government should not use electronic or other means of covert surveillance of an individual's actions or private property without the consent of the owner or occupant. Correspondence, bank and other financial transactions and records, doctors' and lawyers' communications, employment records, and the like should not be open to review by government without the consent of all parties involved in those actions.
Private contractual arrangements, including labor contracts, must be founded on mutual consent and agreement in a society that upholds freedom of association. On the other hand, we oppose any use of such screening by government or regulations requiring government contractors to impose any such screening.
Solutions: We support the protections provided by the Fourth Amendment and oppose any government use of search warrants to examine or seize materials belonging to innocent third parties. We oppose all restrictions and regulations on the private development, sale, and use of encryption technology. We specifically oppose any requirement for disclosure of encryption methods or keys, including the government's proposals for so-called "key escrow" which is truly government access to keys, and any requirement for use of government-specified devices or protocols. We also oppose government classification of civilian research on encryption methods. If a private employer screens prospective or current employees via questionnaires, polygraph tests, urine tests for drugs, blood tests for AIDS, or other means, this is a condition of that employer's labor contracts. Such screening does not violate the rights of employees, who have the right to boycott such employers if they choose. We oppose the issuance by the government of an identity card, to be required for any purpose, such as employment, voting, or border crossing. We further oppose the nearly universal requirement for use of the Social Security Number as a personal identification code, whether by government agencies or by intimidation of private companies by governments.
Transitional Action: We also oppose police roadblocks aimed at randomly, and without probable cause, testing drivers for intoxication and police practices to stop mass transit vehicles and search passengers without probable cause. So long as the National Census and all federal, state, and other government agencies' compilations of data on an individual continue to exist, they should be conducted only with the consent of the persons from whom the data is sought. We oppose government regulations that require employers to provide health insurance coverage for employees, which often encourage unnecessary intrusions by employers into the privacy of their employees.
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The Issue: We condemn the government's use of secret classifications to keep from the public information that it should have.
The Principle: Government is the servant of the individuals who own this country; withholding information that the public has a right to know is dishonest, deceptive and a perversion of the proper relationship between government and its employers.
Solutions: We favor substituting the present secrecy system with one in which no individual may be convicted for violating government secrecy classifications unless the government discharges its burden of proving that the publication either:
a.) Violated the right of privacy of those who have been coerced into revealing confidential or proprietary information to government agents; or
b.) Disclosed defensive military plans so as to materially impair the capabilities to respond to attack. It should always be a defense to such prosecution that information divulged shows that the government has violated the law.
Transitional Action: Abolish the entrenched system of classification of information except for all matters that pass a private sector citizen review board and are determined as true national security.
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The Issue: Lacking appropriate citizen oversight, government bureaucracies have deprived citizens of their privacy, property, and freedom, under the pretense that such action is necessary to protect us from our enemies. Such actions include the suspension of the right of habeas corpus during the Civil War, the internment of Japanese-American citizens during World War II, the Patriot Act and the classification of "enemy combatants" today.
The Principle: The rights of due process, a speedy trial, legal counsel, trial by jury, the legal presumption of innocence until proven guilty, personal privacy, the freedoms of assembly, expression and religion; and other individual liberties and rights must not be denied on the basis of national security. The Bill of Rights provides no exceptions for a time of war.
Solutions: Wherever possible, private security agencies should replace public institutions. Agencies, public or private, duly constituted to preserve the security of the nation must be subject to independent oversight, accountable to the citizenry whom they serve, and subject to the law, including full responsibility for any violations of individual rights. Individual awareness of the requirements of security must be the ultimate supplement to any public protection.
Transitional Action: We opposed the establishment of a new cabinet level Department of Homeland Security and now call for its elimination. Abolish the subpoena power as used by Congressional committees against individuals or firms. We oppose any efforts to revive the House Internal Security Committee (or its predecessor the House Committee on Un-American Activities), and call for the destruction of its files on private individuals and groups. We also call for the abolition of the Senate Subcommittee on Internal Security. Intelligence and law enforcement agencies like the CIA, NSA, and FBI must be prevented from abusing individual rights or else be abolished.
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The Right to Keep and Bear Arms
The Issue: Governments at all levels often violate their citizens' right of self defense with laws that restrict, limit or outright prohibit the ownership and use of firearms. These "gun control" laws are often justified by the mistaken premise that they will lead to a reduction in the level of violence in our society.
The Principle: The Bill of Rights recognizes that an armed citizenry is essential to a free society. We affirm the right to keep and bear arms.
Solutions: We oppose all laws at any level of government restricting, regulating or requiring the ownership, manufacture, transfer or sale of firearms or ammunition. We oppose all laws requiring registration of firearms or ammunition. We support repeal of all gun control laws. We demand the immediate abolition of the Bureau of Alcohol, Tobacco and Firearms.
Transition: We oppose any government efforts to ban or restrict the use of tear gas, "mace" or other self-protection devices. We further oppose all attempts to ban weapons or ammunition on the grounds that they are risky or unsafe. We favor the repeal of laws banning the concealment of weapons or prohibiting pocket weapons. We also oppose the banning of inexpensive handguns ("Saturday night specials") and semi-automatic or so-called assault weapons and their magazines or feeding devices.
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Conscription and the Military
The Issue: We oppose any form of national service, including conscription into the military, a compulsory youth labor program, or any other kind of coerced social program.
The Principle: Impressment of individuals into the armed forces is involuntary servitude.
Solutions: Recognizing that registration is the first step toward full conscription, we oppose all attempts at compulsory registration of any person and all schemes for automatic registration through government invasions of the privacy of school, motor vehicle, or other records. We call for the abolition of the still-functioning elements of the Selective Service System. We call for the destruction of all files in computer-readable or hard-copy form compiled by the Selective Service System. We oppose adding women to the pool of those eligible for and subject to the draft, not because we think that as a rule women are unfit for combat, but because we believe that this step enlarges the number of people subjected to government tyranny.
Transitional Action: We call for the immediate and unconditional exoneration of all who have been accused or convicted of draft evasion, desertion from the military in cases of conscription or fraud, and other acts of resistance to such transgressions as imperialistic wars and aggressive acts of the military. Members of the military should have the same right to quit their jobs as other persons.
We call for the end of the Defense Department practice of discharging armed forces personnel for homosexual conduct. We further call for retraction of all less-than-honorable discharges previously assigned for such reasons and deletion of such information from military personnel files. We recommend the repeal of the Uniform Code of Military Justice and the recognition and equal protection of the rights of armed forces members. This will thereby promote morale, dignity, and a sense of justice within the military.
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The Issue: We welcome all refugees to our country and condemn the efforts of U.S. officials to create a new "Berlin Wall" which would keep them captive. We condemn the U.S. government's policy of barring those refugees from our country and preventing Americans from assisting their passage to help them escape tyranny or improve their economic prospects.
The Principle: We hold that human rights should not be denied or abridged on the basis of nationality. Undocumented non-citizens should not be denied the fundamental freedom to labor and to move about unmolested. Furthermore, immigration must not be restricted for reasons of race, religion, political creed, age or sexual preference. We oppose government welfare and resettlement payments to non-citizens just as we oppose government welfare payments to all other persons.
Solutions: We condemn massive roundups of Hispanic Americans and others by the federal government in its hunt for individuals not possessing required government documents. We strongly oppose all measures that punish employers who hire undocumented workers. Such measures repress free enterprise, harass workers, and systematically discourage employers from hiring Hispanics.
Transitional Action: We call for the elimination of all restrictions on immigration, the abolition of the Immigration and Naturalization Service and the Border Patrol, and a declaration of full amnesty for all people who have entered the country illegally.
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Freedom of Association and Government Discrimination
The Issue: Discrimination imposed by government has caused a multitude of problems. Anti-discrimination laws create the same problems.
The Principle: Individual rights should not be denied, abridged or enhanced at the expense of other people's rights by laws at any level of government based on sex, wealth, race, color, creed, age, national origin, personal habits, political preference or sexual orientation. The right to trade includes the right not to trade -- for any reasons whatsoever. The right of association includes the right not to associate, for exercise of this right depends upon mutual consent.
Solutions: While we do not advocate private discrimination, we do not support any laws which attempt to limit or ban it.
Transitional Action: We support repealing any laws imposing discrimination by government, rather than extending them to all individuals.
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Women's Rights and Abortion
The Issue: Recognizing that abortion is a very sensitive issue and that people, including libertarians, can hold good-faith views on both sides, we believe the government should be kept out of the question. We condemn state-funded and state-mandated abortions. It is particularly harsh to force someone who believes that abortion is murder to pay for another's abortion.
The Principle: We hold that individual rights should not be denied or abridged on the basis of sex. It is the right and obligation of the pregnant woman, not the state, to decide the desirability or appropriateness of prenatal testing, Caesarean births, fetal surgery, voluntary surrogacy arrangements and/or home births.
Solutions: We oppose all laws likely to impose restrictions on free choice and private property or to widen tyranny through reverse discrimination.
Transitional Action: We call for repeal of all laws discriminating against women, such as protective labor laws and marriage or divorce laws which deny the full rights of men and women.
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Families and Children
The Issue: Government involvement in traditional parenting responsibilities has weakened families and replaced family-taught morals with government-taught morals.
The Principle: Families and households are private institutions, which should be free from government intrusion and interference. Parents, or other guardians, have the right to raise their children according to their own standards and beliefs, without interference by government -- unless they are abusing the children. Because parents have these rights, a child may not be able to fully exercise his or her rights in the context of family life. However, children always have the right to establish their maturity by assuming administration and protection of their own rights, ending dependency upon their parents or other guardians, and assuming all responsibilities of adulthood. A child is a human being and, as such, deserves to be treated justly.
Parents have no right to abandon or recklessly endanger their children. Whenever they are unable or unwilling to raise their children, they have the obligation to find other person(s) willing to assume guardianship.
Solutions: We recognize that the determination of child abuse can be very difficult. Only local courts should be empowered to remove a child from his or her home, with the consent of the community. This is not meant to preclude appropriate action when a child is in immediate physical danger.
Transitional Action: We would repeal all laws that impede these processes, notably those restricting private adoption services. In particular, we call for the repeal of all laws restricting transracial adoption. We oppose laws infringing on children's rights to work or learn, such as child labor laws and compulsory education laws. We also oppose the use of curfews based on age.
We call for an end to the practice in many states of jailing children not accused of any crime. We call for repeal of all "children's codes" or statutes which abridge due process protections for young people.
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The Issue: Government has presumed to decide acceptability over sexual practices in personal relationships, imposing a particular code of moral and social values and displacing personal choice in such matters.
The Principle: Adults have the right to private choice in consensual sexual activity.
Solutions: We advocate an end to all government attempts to dictate, prohibit, control or encourage any private lifestyle, living arrangement or contractual relationship.
Transitional Action: We would repeal existing laws and policies intended to condemn, affirm, encourage or deny sexual lifestyles, or any set of attitudes about such lifestyles.
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American Indian Rights
The Issue: The rights of American Indians have been usurped over the years.
The Principle: Individuals should be free to select their own citizenship, and tribes should be free to select the level of autonomy the tribe wishes.
Solutions: Indians should have their property rights restored, including rights of easement, access, hunting, and fishing.
Transition: The Bureau of Indian Affairs should be abolished leaving tribal members to determine their own system of governance. Negotiations should be undertaken to resolve all outstanding differences between the tribes and the government.
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II. Trade and the Economy
We believe that each person has the right to offer goods and services to others on the free market. Therefore we oppose all intervention by government into the area of economics. The only proper role of existing governments in the economic realm is to protect property rights, adjudicate disputes, and provide a legal framework in which voluntary trade is protected.
Efforts to forcibly redistribute wealth or forcibly manage trade are intolerable. Government manipulation of the economy creates an entrenched privileged class -- those with access to tax money -- and an exploited class -- those who are net taxpayers.
We believe that all individuals have the right to dispose of the fruits of their labor as they see fit and that government has no right to take such wealth. We oppose government-enforced charity such as welfare programs and subsidies, but we heartily applaud those individuals and private charitable organizations that help the needy and contribute to a wide array of worthwhile causes through voluntary activities.
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The Issue: Government intervention in the economy imperils both the personal freedom and the material prosperity of every American.
The Principle: The free market, which respects individual rights in voluntary trade with other individuals, should be allowed to function unhindered by government. The only proper role of government in the economic realm is to protect property rights, adjudicate disputes and provide a legal framework in which voluntary trade is protected.
Solutions: To ensure the economic freedom and enhance the economic well-being of Americans, we would implement the following policies:
a. Dramatic reductions in both taxes and government spending;
b. An end to deficit budgets;
c. A halt to inflationary monetary policies;
d. The elimination of all government impediments to free trade; and
e. The repeal of all controls on wages, prices, rents, profits, production and interest rates.
Transitional Action: We call for the repeal of the income tax, the abolishment of the Internal Revenue Service and all federal programs and services not required under the US Constitution.
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The Issue: Government manipulation of the economy creates an entrenched privileged class -- those with access to tax money -- and an exploited class -- those who are net taxpayers.
The Principle: All persons are entitled to keep the fruits of their labor. Government activity should not include the forcible collection of money or goods from individuals in violation of their individual rights. No tax can ever be fair, simple or neutral to the free market.
Solutions: Specifically, we: a.) support the right of any individual to challenge the payment of taxes on moral, religious, legal or constitutional grounds; b.) oppose all personal and corporate income taxation, including capital gains taxes; c.) support the repeal of the Sixteenth Amendment, and oppose any increase in existing tax rates and the imposition of any new taxes; d.) support the repeal of all taxation; and e.) support a declaration of unconditional amnesty for all those individuals who have been convicted of, or who now stand accused of, tax resistance. We oppose as involuntary servitude any legal requirements forcing employers or business owners to serve as tax collectors for federal, state, or local tax agencies. We oppose any and all increases in the rate of taxation or categories of taxpayers, including the elimination of deductions, exemptions or credits in the spurious name of "fairness," "simplicity," or alleged "neutrality to the free market."
Transitional Action: As an interim measure, all criminal and civil sanctions against tax evasion should be terminated immediately. In the current fiscal crisis of states and municipalities, default is preferable to raising taxes or perpetual refinancing of growing public debt.
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Inflation and Depression
The Issue: Government control over money and banking is the primary cause of inflation and depression.
The Principle: Individuals engaged in voluntary exchange should be free to use as money any mutually agreeable commodity or item, such as gold coins denominated by units of weight. We support the right to private ownership of and contracts for gold.
Solutions: We call for the repeal of all legal tender laws and of all compulsory governmental units of account, as well as the elimination of all government fiat money and all government minted coins. All restrictions upon the private minting of coins must be abolished, so that minting will be open to the competition of the free market. We favor free-market banking, with unrestricted competition among banks and depository institutions of all types. The only further necessary check upon monetary inflation is the consistent application of the general protection against fraud to the minting and banking industries.
Transitional Action: We call for the abolition of the Federal Reserve System, Federal Deposit Insurance Corporation, the National Banking System, and all similar national and state interventions affecting banking and credit. Our opposition encompasses all controls on the rate of interest. We also call for the abolition of the Federal Home Loan Bank System, the Resolution Trust Corporation, the National Credit Union Administration, the National Credit Union Central Liquidity Facility, and all similar national and state interventions affecting savings and loan associations, credit unions, and other depository institutions. To complete the separation of bank and state, we favor the Jacksonian independent treasury system, in which all government funds are held by the government itself and not deposited in any private banks. Pending its abolition, the Federal Reserve System, in order to halt inflation, must immediately cease its expansion of the quantity of money. As interim measures, we further support: a.) the lifting of all restrictions on branch banking; b.) the repeal of all state usury laws; c.) the removal of all remaining restrictions on the interest paid for deposits; d.) the elimination of laws setting margin requirements on purchases and sales of securities; e.) the revocation of all other selective credit controls; f.) the abolition of Federal Reserve control over the reserves of non-member banks and other depository institutions; and g.) the lifting of the prohibition of domestic deposits denominated in foreign currencies.
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Finance and Capital Investment
The Issue: Government regulation of capital markets inhibits investment, and creates marketplace advantage for those with political access, through exemptions to laws against fraud and breach of contract.
The Principle: Free markets should operate unhindered by government regulation, while government should punish fraud, theft and contractual breach without exception.
Solutions: We call for the abolition of all regulation of financial and capital markets. What should be punished is the theft of information or breach of contract to hold information in confidence, not trading on the basis of valuable knowledge.
Transitional Action: We call for the abolition of the Securities and Exchange Commission, of state "Blue Sky" laws which repress small and risky capital ventures, and of all federal regulation of commodity markets. We oppose any attempts to ban or regulate investing in stock-market index futures or new financial instruments which may emerge in the future. We call for repeal of all laws based on the muddled concept of insider trading. We support the right of third parties to make stock purchase tender offers to stockholders over the opposition of entrenched management, and oppose all laws restricting such offers.
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The Issue: Government debt forces individuals to assume debt that they did not choose to incur; distorts capital markets and rates and ruins the economy.
The Principle: Government must not incur debt, nor should it be allowed to hold assets, for these are debts incumbent on and assets taken away from the individuals of this country.
Solutions: We support the drive for a constitutional amendment requiring the national government to balance its budget, and also support similar amendments to require balanced state budgets. To be effective, a balanced budget amendment should provide:
a. that neither Congress nor the President be permitted to override this requirement;
b. that all off-budget items are included in the budget;
c. that the budget is balanced exclusively by cutting expenditures, and not by raising taxes; and
d. that no exception be made for periods of national emergency.
Governments facing fiscal crises should always default in preference to raising taxes.
Transitional Action: The Federal Reserve must be forbidden to acquire any additional government securities, thereby helping to eliminate the inflationary aspect of the deficit. At a minimum, the level of government should be frozen.
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The Issue: We recognize that government is the source of monopoly, through its grants of legal privilege to special interests in the economy.
The Principle: Anti-trust laws do not prevent monopoly, but foster it by limiting competition. We defend the right of individuals to form corporations, cooperatives and other types of companies based on voluntary association.
Solutions: We condemn all coercive monopolies. In order to abolish them, we advocate a strict separation of business and State. Laws of incorporation should not include grants of monopoly privilege. In particular, we would eliminate special limits on the liability of corporations for damages caused in non-contractual transactions. We also oppose state or federal limits on the size of private companies and on the right of companies to merge. We further oppose efforts, in the name of social responsibility or any other reason, to expand federal chartering of corporations into a pretext for government control of business.
Transitional Solutions: We call for the repeal of all anti-trust laws, including the Robinson-Patman Act, which restricts price discounts, and the Sherman and Clayton Anti-Trust acts. We further call for the abolition of both the Federal Trade Commission and the anti-trust division of the Department of Justice.
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The Issue: The unrestricted competition of the free market is the best way to foster prosperity.
The Principle: In order to achieve a free economy, in which government victimizes no one for the benefit of any other, we oppose all government subsidies to business, labor, education, agriculture, science, broadcasting, the arts, sports, or any other special interest. In particular, we condemn any effort to forge an alliance between government and business under the guise of "reindustrialization" or "industrial policy." Relief or exemption from taxation or from any other involuntary government intervention, however, should not be considered a subsidy.
Solutions: We call for
|Posted on May 14, 2012 at 12:10 AM|
Economics in One Lesson
Economics In One Lesson
By HENRY HAZLITT
SPECIAL EDITION FOR
THE FOUNDATION FOR ECONOMIC EDUCATION, INC.
POCKET BOOKS, INC., ROCKEFELLER CENTER, N. Y.
The Printing History of
ECONOMICS IN ONE LESSON
Harper & Brothers edition published July, 1946
1ST PRINTING………………….……………… JULY, 1946
2ND PRINTING………………….……………… JULY, 1946
3RD PRINTING………………….……………… AUGUST, 1946
4TH PRINTING………………….……………… OCTOBER, 1946
5TH PRINTING………………….……………… FEBRUARY,1947
6TH PRINTING………………….……………… FEBRUARY, 1948
Reader’s Digest condensed version published August, 1946: February, 1948
Spanish edition (Editorial Kraft, Buenos Aires ) published December, 1947
Pocket Book edition published November, 1948
1ST PRINTING………………….……………… October,1948
Special edition for:
The Foundation for Economic Education, Inc.
This Pocket Book edition is published by arrangement with Harper & Brothers
Henry Hazlitt has been interpreting business trends for the American people for the past 35 years. Starting in the field of economics as a reporter on the Wall Street Journal, he has served on the financial and editorial staffs of several of the great New York newspapers, including the Sun, the Herald, and the Times. In addition, he has been associated with The Nation and edited American Mercury and the Freeman. Mr. Hazlitt has traveled extensively in Europe and South America for on- the-spot studies of world economic conditions. Since 1946, he has been a contributing editor to Newsweek magazine, where his weekly column, “Business Tides,” is a regular feature. Born in Philadelphia, in 1894, he attended the College of the City of New York and served with Air Service, U. S. Army, in World War I. He is the author of many books and pamphlets dealing with economics, among which are Will Dollars Save the World? and The Great Idea. We is also well known as a lecturer and literally critic.
PART ONE : THE LESSON
I. The Lesson
PART TWO: THE LESSON APPLIED
II. The Broken Window
III. The Blessings of Destruction
IV. Public Works Mean Taxes
V. Taxes Discourage Production
VI. Credit Diverts Production
VII. The Curse of Machinery
VIII. Spread-the-Work Schemes
IX. Disbanding Troops and Bureaucrats
X. The Fetish of Full Employment
XI. Who’s “Protected” by Tariffs?
XII. The Drive for Exports
XIII. “Parity” Prices
XIV. Saving the X Industry
XV. How the Price System Works
XVI. “Stabilizing” Commodities
XVII. Government Price-Fixing
XVIII. Minimum Wage Laws
XIX. Do Unions Really Raise Wages?
XX. “Enough to Buy Back the Product”
XXI. The Function of Profits
XXII. The Mirage of Inflation
XXIII. The Assault on Saving
PART THREE: THE LESSON RESTATED
XXIV. The Lesson Restated
XXV. A Note on Books
This book is an analysis of economic fallacies that are at last so prevalent that they have almost become a new orthodoxy. The one thing that has prevented this has been their own self-contradictions, which have scattered those who accept the same premises into a hundred different “schools,” for the simple reason that it is impossible in matters touching practical life to be consistently wrong. But the difference between one new school and another is merely that one group wakes up earlier than another to the absurdities to which its false premises are driving it, and becomes at that moment inconsistent by either unwittingly abandoning its false premises or accepting conclusions from them less disturbing or fantastic than those that logic would demand.
There is not a major government in the world at this moment, however, whose economic policies are not influenced if they are not almost wholly determined by acceptance of some of these fallacies. Perhaps the shortest and surest way to an understanding of economics is through a dissection of such errors, and particularly of the central error from which they stem. That is the assumption of this volume and of its somewhat ambitious and belligerent title.
The volume is therefore primarily one of exposition. It makes no claim to originality with regard to any of the chief ideas that it expounds. Rather its effort is to show that many of the ideas which now pass for brilliant innovations and advances are in fact mere revivals of ancient errors, and a further proof of the dictum that those who are ignorant of the past are condemned to repeat it.
The present essay itself is, I suppose, unblushingly ” classical,” “traditional” and “orthodox”: at least these are the epithets with which those whose sophisms are here subjected to analysis will no doubt attempt to dismiss it. But the student whose aim is to attain as much truth as possible will not be frightened by such adjectives. He will not be forever seeking a revolution, a “fresh start,” in economic thought. His mind will, of course, be as receptive to new ideas as to old ones; but he will be content to put aside merely restless or exhibitionistic straining for novelty and originality. As Morris R. Cohen has remarked: “The notion that we can dismiss the views of all previous thinkers surely leaves no basis for the hope that our own work will prove of any value to others.”* Because this is a work of exposition I have availed myself freely and without detailed acknowledgment (except for rare footnotes and quotations) of the ideas of others. This is inevitable when one writes in a field in which many of the world’s finest minds have labored. But my indebtedness to at least three writers is of so specific a nature that I cannot allow it to pass unmentioned. My greatest debt, with respect to the kind of expository framework on which the present argument is hung, is to Frédéric Bastiat’s essay Cequ’on voit et ce qu’on ne voit pas, now nearly a century old. The present work may, in fact, be regarded as a modernization, extension and generalization of the approach found in Bastiat’s pamphlet. My second debt is to Philip Wicksteed: in particular the chapters on wages and the final summary chapter owe much to his Common Sense of Political Economy. My third debt is to Ludwig von Mises. Passing over everything that this elementary treatise may owe to his writings in general, my most specific debt is to his exposition of the manner in which the process of monetary inflation is spread.
When analyzing fallacies, I have thought it still less advisable to mention particular names than in giving credit. To do so would have required special justice to each writer criticized, with exact quotations, account taken of the particular emphasis he places on this point or that, the qualifications he makes, his personal ambiguities, inconsistencies, and so on. I hope, therefore, that no one will be too disappointed at the absence of such names as Karl Marx, Thorstein Veblen, Major Douglas, Lord Keynes, Professor Alvin Hansen and others in these pages. The object of this hook is not to expose the special errors of particular writers, but economic errors in their most frequent, widespread or influential form. Fallacies, when they have reached the popular stage, become anonymous anyway. The subtleties or obscurities to be found in the authors most responsible for propagating them are washed off. A doctrine becomes simplified; the sophism that may have been buried in a network of qualifications, ambiguities or mathematical equations stands clear. I hope I shall not be accused of injustice on the ground, therefore, that a fashionable doctrine in the form in which I have presented it is not precisely the doctrine as it has been formulated by Lord Keynes or some other special author. It is the beliefs which politically influential groups hold and which governments act upon that we are interested in here, not the historical origins of those beliefs.
I hope, finally, that I shall be forgiven for making such rare reference to statistics in the following pages. To have tried to present statistical confirmation, interfering to the effects of tariffs, price-fixing, inflation, and the controls over such commodities as coal, rubber and cotton would have swollen this book much beyond the dimensions contemplated. As a working newspaper man, moreover, I am acutely aware of how quickly statistics become out-of-date and are superseded by later figures. Those who are interested in specific economic problems are advised to read current “realistic” discussions of them, with statistical documentation: they will not find it difficult to interpret the statistics correctly in the light of the basic principles they have learned.
I have tried to write this hook as simply and with as much freedom from technicalities as is consistent with reasonable accuracy, so that it can be fully understood by a reader with no previous acquaintance with economics.
While this book was composed as a unit, three chapters have already appeared as separate articles, and I wish to thank The New York Times, The American Scholar and The New Leader for permission to reprint material originally published in their pages. I am grateful to Professor von Mises for reading the manuscript and for helpful suggestions. Responsibility for the opinions expressed is, of course, entirely my own.
March 25, 1946
PART ONE : THE LESSON
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Economics is haunted by more fallacies than any other study known to man. This is no accident. The inherent difficulties of the subject would be great enough in any case, but they are multiplied a thousand fold by a factor that is insignificant in, say, physics, mathematics or medicine-the special pleading of selfish interests. While every group has certain economic interests identical with those of all groups, every group has also, as we shall see, interests antagonistic to those of all other groups. While certain public policies would in the long run benefit everybody, other policies would benefit one group only at the expense of all other groups. The group that would benefit by such policies, having such a direct interest in them, will argue for them plausibly and persistently. It will hire the best buyable minds to devote their whole time to presenting its case. And it will finally either convince the general public that its case is sound, or so befuddle it that clear thinking on the subject becomes next to impossible.
In addition to these endless pleadings of self-interest, there is a second main factor that spawns new economic fallacies every day. This is the persistent tendency of men to see only the immediate effects of a given policy, or its effects only on a special group, and to neglect to inquire what the long-run effects of that policy will be not only on that special group but on all groups. It is the fallacy of overlooking secondary consequences.
In this lies almost the whole difference between good such shallow wisecracks pass as devastating epigrams and the ripest wisdom.
But the tragedy is that, on the contrary, we are already suffering the long-run consequences of the policies of the remote or recent past. Today is already the tomorrow which the bad economist yesterday urged us to ignore. The long-run consequences of some economic policies may become evident in a few months. Others may not become evident for several years. Still others may not become evident for decades. But in every case those long-run consequences are contained in the policy as surely as the hen was in the egg, the flower in the seed.
From this aspect, therefore, the whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence. The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.
Nine-tenths of the economic fallacies that are working such dreadful harm in the world today are the result of ignoring this lesson. Those fallacies all stem from one of two central fallacies, or both: that of looking only at the immediate consequences of an act or proposal, and that of looking at the consequences only for a particular group to the neglect of other groups.
It is true, of course, that the opposite error is possible. In considering a policy we ought not to concentrate only on its long-run results to the community as a whole. This is the error often made by the classical economists. It resulted in certain callousness toward the fate of groups that were immediately hurt by policies or developments which proved to be beneficial on net balance and in the long run.
But comparatively few people today make this error; and those few consist mainly of professional economists. The most frequent fallacy by far today, the fallacy that emerges again and again in nearly every conversation that touches on economic affairs, the error of a thousand political speeches, the central sophism of the “new” economics, is to concentrate on the short-run effects of policies on special groups and to ignore or belittle the long-run effects on the community as a whole. The “new” economists flatter themselves that this is a great, almost a revolutionary advance over the methods of the “classical” or “orthodox” economists, because the former take into consideration short-run effects which the latter often ignored. But in themselves ignoring or slighting the long run effects, they are making the far more serious error. They overlook the woods in their precise and minute examination of particular trees. Their methods and conclusions are often profoundly reactionary. They are sometimes surprised to find themselves in accord with seventeenth-century mercantilism. They fall, in fact, into all the ancient errors (or would, if they were not so inconsistent) that the classical economists, we had hoped, had once for all got rid of.
It is often sadly remarked that the bad economists present their errors to the public better than the good economists present their truths. It is often complained that demagogues can he more plausible in putting forward economic nonsense from the platform than the honest men who try to show what is wrong with it. But the basic reason for this ought not to be mysterious. The reason is that the demagogues and bad economists are presenting half-truths. They are speaking only of the immediate effect of a proposed policy or its effect upon a single group. As far as they go they may often be right. In these cases the answer consists in showing that the proposed policy would also have longer and less desirable effects, or that it could benefit one group only at the expense of all other groups. The answer consists in supplementing and correcting the half-truth with the other half. But to consider all the chief effects of a proposed course on everybody often requires a long, complicated, and dull chain of reasoning. Most of the audience finds this chain of reasoning difficult to follow and soon becomes bored and inattentive. The bad economists rationalize this intellectual debility and laziness by assuring the audience that it need not even attempt to follow the reasoning or judge it on its merits because it is only “classicism” or “laissez faire” or “capitalist apologetics” or whatever other term of abuse may happen to strike them as effective.
We have stated the nature of the lesson, and of the fallacies that stand in its way, in abstract terms. But the lesson will not be driven home, and the fallacies will continue to go unrecognized, unless both are illustrated by examples. Through these examples we can move from the most elementary problems in economics to the most complex and difficult. Through them we can learn to detect and avoid first the crudest and most palpable fallacies and finally some of the most sophisticated and elusive. To that task we shall now proceed.
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PART TWO : THE LESSON APPLIED
THE BROKEN WINDOW
Let us begin with the simplest illustration possible: let us, emulating Bastiat, choose a broken pane of glass.
A young hoodlum, say, heaves a brick through the window of a baker’s shop. The shopkeeper runs out furious, but the boy is gone. A crowd gathers, and begins to stare with quiet satisfaction at the gaping hole in the window and the shattered glass over the bread and pies. After a while the crowd feels the need for philosophic reflection. And several of its members are almost certain to remind each other or the baker that, after all, the misfortune has its bright side. It will make business for some glazier. As they begin to think of this they elaborate upon it. How much does a new plate glass window cost? Fifty dollars? That will be quite a sum. After all, if windows were never broken, what would happen to the glass business? Then, of course, the thing is endless. The glazier will have $50 more to spend with other merchants, and these in turn will have $50 more to spend with still other merchants, and so ad infinitum. The smashed window will go on providing money and employment in ever-widening circles. The logical conclusion from all this would be, if the crowd drew it, that the little hoodlum who threw the brick, far from being a public menace, was a public benefactor.
Now let us take another look. The crowd is at least right in its first conclusion. This little act of vandalism will in the first instance mean more business for some glazier. The glazier will be no unhappy to learn of the incident than an undertaker to learn of a death. But the shopkeeper will be out $50 that he was planning to spend for a new suit. Because he has had to replace a window, he will have to go without the suit (or some equivalent need or luxury). Instead of having a window and $50 he now has merely a window. Or, as he was planning to buy the suit that very afternoon, instead of having both a window and a suit he must be content with the window and no suit. If we think of him as a part of the community, the community has lost a new suit that might otherwise have come into being, and is just that much poorer.
The glazier’s gain of business, in short, is merely the tailor’s loss of business. No new “employment” has been added. The people in the crowd were thinking only of two parties to the transaction, the baker and the glazier. They had forgotten the potential third party involved, the tailor. They forgot him precisely because he will not now enter the scene. They will see the new window in the next day or two. They will never see the extra suit, precisely because it will never be made. They see only what is immediately visible to the eye.
THE BLESSINGS OF DESTRUCTION
So we have finished with the broken window. An elementary fallacy. Anybody, one would think, would be able to avoid it after a few moments’ thought. Yet the broken window fallacy, under a hundred disguises, is the most persistent in the history of economics. It is more rampant now than at any time in the past. It is solemnly reaffirmed every day by great captains of industry, by chambers of commerce, by labor union leaders, by editorial writers and newspaper columnists and radio commentators, by learned statisticians using the most refined techniques, by professors of economics in our best universities. In their various ways they all dilate upon the advantages of destruction.
Though some of them would disdain to say that there are net benefits in small acts of destruction, they see almost endless benefits in enormous acts of destruction. They tell us how much better off economically we all are in war than in peace. They see “miracles of production” which it requires a war to achieve. And they see a post-war world made certainly prosperous by an enormous “accumulated” or “backed-up” demand. In Europe they joyously count the houses, the whole cities that have been leveled to the ground and that “will have to be replaced.” In America they count the houses that could not be built during the war, the nylon stockings that could not be supplied, the worn-out automobiles and tires, the obsolescent radios and refrigerators. They bring together formidable totals.
It is merely our old friend, the broken-window fallacy, in new clothing, and grown fat beyond recognition. This time it is supported by a whole bundle of related fallacies. It confuses need with demand. The more war destroys, the more it impoverishes, the greater is the postwar need. Indubitably. But need is not demand. Effective economic demand requires not merely need but corresponding purchasing power. The needs of China too are incomparably greater than the needs of America. But its power, and therefore the, “new business” that it can stimulate, are incomparably smaller.
But if we get past this point, there is a chance for another fallacy, and the broken-windows usually grab it. They think of “purchasing power” merely in terms of money. Now money can be run off by the printing press. As this is being written, in fact, printing money is the world’s biggest industry–if the product is measured in monetary terms. But the more money is turned out in this way, the more the value of any given unit of money falls. This falling value can be measured in rising prices of commodities. But as most people are so firmly in the habit of thinking of their wealth and income in terms of money, they consider themselves better off as these monetary totals rise, in spite of the fact that in terms of things they may have less and buy less. Most of the “good” economic results which people attribute to war are really owing to wartime inflation. They could be produced just as well by an equivalent peacetime inflation. We shall come back to this money illusion later.
Now there is a half-truth in the “backed-up” demand fallacy, just as there was in the broken-window fallacy. The broken window did make more business for the glazier. The destruction of war will make more business for the producers of certain things. The destruction of houses and cities will make more business for the building and construction industries. The inability to produce automobiles, radios, and refrigerators during the war will bring about a cumulative post-war demand for those particular products.
To most people this will seem like an increase in total demand, as it may well be in terms of dollars of lower purchasing power. But what really takes place is a diversion of demand to these particular products from others. The people of Europe will build more new houses than otherwise because they must. But when they build more houses they will have just that much less manpower and productive capacity left over for everything else. When they buy houses they will have just that much less purchasing power for everything else. Wherever business is increased in one direction, it must (except insofar as productive energies may be generally stimulated by a sense of want and urgency) be correspondingly reduced in another.
The war, in short, will change the post-war direction of effort; it will change the balance of industries; it will change the structure of industry. And this in time will also have its consequences. There will be another distribution of demand when accumulated needs for houses and other durable goods have been made up. Then these temporarily favored industries will, relatively, have to shrink again, to allow other industries filling other needs to grow.
It is important to keep in mind, finally, that there will not merely be a difference in the pattern of post-war as compared with pre-war demand. Demand will not merely be diverted from one commodity to another. In most countries it will shrink in total amount.
This is inevitable when we consider that demand and supply are merely two sides of the same coin. They are the same thing looked at from different directions. Supply creates demand because at bottom it is demand. The supply of the thing they make is all that people have, in fact, to offer in exchange for the things they want. In this sense the farmers’ supply of wheat constitutes their demand for automobiles and other goods. The supply of motor cars constitutes the demand of the people in the automobile industry for wheat and other goods. All this is inherent in the modern division of labor and in an exchange economy.
This fundamental fact, it is true, is obscured for most people (including some reputedly brilliant economists) through such complications as wage payments and the indirect form in which virtually all modern exchanges are made through the medium of money. John Stuart Mill and other classical writers, though they sometimes failed to take sufficient account of the complex consequences resulting from the use of money, at least saw through the monetary veil to the underlying realities. To that extent they were in advance of many of their present-day critics, who are befuddled by money rather than instructed by it. Mere inflation–that is, the mere issuance of more money, with the consequence of higher wages and prices–may look like the creation of more demand. But in terms of the actual production and exchange of real things it is not. Yet a fall in post-war demand may be concealed from many people by the illusions caused by higher money wages that are more than offset by higher prices.
Post-war demand in most countries, to repeat, will shrink in absolute amount as compared with pre-war demand because post-war supply will have shrunk. This should be obvious enough in Germany and Japan, where scores of great cities were leveled to the ground. The point, in short, is plain enough when we make the case extreme enough. If England, instead of being hurt only to the extent she was by her participation in the war, had had all her great cities destroyed, all her factories destroyed and almost all her accumulated capital and consumer goods destroyed, so that her people had been reduced to the economic level of the Chinese, few people would be talking about the great accumulated and backed up demand caused by the war. It would be obvious that buying power had been wiped out to the same extent that productive power had been wiped out. A runaway monetary inflation, lifting prices a thousand fold, might none the less make the “national income” figures in monetary terms higher than before the war. But those who would be deceived by that into imagining themselves richer than before the war would be beyond the reach of rational argument. Yet the same principles apply to a small war destruction as to an overwhelming one.
There may be, it is true, offsetting factors. Technological discoveries and advances during the war, for example, may increase individual or national productivity at this point or that. The destruction of war will, it is true, divert post-war demand from some channels into others. And a certain number of people may continue to be deceived indefinitely regarding their real economic welfare by rising wages and prices caused by an excess of printed money. But the belief that a genuine prosperity can be brought about by a “replacement demand” for things destroyed or not made during the war is none the less a palpable fallacy.
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PUBLIC WORKS MEAN TAXES
There is no more persistent and influential faith in the world today than the faith in government spending. Everywhere government spending is presented as a panacea for all our economic ills. Is private industry partially stagnant? We can fix it all by government spending. Is there unemployment? That is obviously due to “insufficient private purchasing power.” The remedy is just as obvious. All that is necessary is for the government to spend enough to make up the “deficiency.”
An enormous literature is based on this fallacy, and, as so often happens with doctrines of this sort, it has become part of an intricate network of fallacies that mutually support each other. We cannot explore that whole network at this point; we shall return to other branches of it later. But we can examine here the mother fallacy that has given birth to this progeny, the main stem of the network.
Everything we get, outside of the free gifts of nature, must in some way be paid for. The world is full of so-called economists who in turn are full of schemes for getting something for nothing. They tell us that the government can spend and spend without taxing at all; that it can continue to pile up debt without ever paying it off, because “we owe it to ourselves.” We shall return to such extraordinary doctrines at a later point. Here I am afraid that we shall have to be dogmatic, and point out that such pleasant dreams in the past have always been shattered by national insolvency or a runaway inflation. Here we shall have to say simply that all government expenditures must eventually be paid out of the proceeds of taxation; that to put off the evil day merely increases the problem, and that inflation itself is merely a form, and a particularly vicious form, of taxation.
Having put aside for later consideration the network of fallacies which rest on chronic government borrowing and inflation, we shall take it for granted throughout the present chapter that either immediately or ultimately every dollar of government spending must be raised through a dollar of taxation. Once we look at the matter. In this way, the supposed miracles of government spending will appear in another light.
A certain amount of public spending is necessary to perform essential government functions. A certain amount of public works-of streets and roads and bridges and tunnels, of armories and navy yards, of buildings to house legislatures, police and fire departments-is necessary to supply essential public services. With such public works, necessary for their own sake, and defended on that ground alone, I am not here concerned. I am here concerned with public works considered as a means of “providing employment” or of adding wealth to the community that it would not otherwise have had.
A bridge is built, If it is built to meet an insistent public demand, if it solves a traffic problem or a transportation problem otherwise insoluble, if, in short, it is even more necessary than the things for which the taxpayers would have spent their money if it had not been taxed away from them, there can be no objection. But a bridge built primarily “to provide employment” is a different kind of bridge. When providing employment becomes the end, need becomes a subordinate consideration. “Projects” have to he invented. Instead of thinking only where bridges must be built, the government spenders begin to ask themselves where bridges can be built. Can they think of plausible reasons why an additional bridge should connect Easton and Weston? It soon becomes absolutely essential. Those who doubt the necessity are dismissed as obstructionists and reactionaries.
Two arguments are put forward for the bridge, one of which is mainly heard before it is built, the other of which is mainly heard after it has been completed. The first argument is that it will provide employment. It will provide, say, 500 jobs for a year. The implication is that these are jobs that would not otherwise have come into existence.
This is what is immediately seen. But if we have trained ourselves to look beyond immediate to secondary consequences, and beyond those who are directly benefited by a government project to others who are indirectly affected, a different picture presents itself. It is true that a particular group of bridge workers may receive more employment than otherwise. But the bridge has to be paid for out of taxes. For every dollar that is spent on the bridge a dollar will be taken away from taxpayers. If the bridge costs $1,000,000 the taxpayers will lose $1,000, 000. They will have that much taken away from them which they would otherwise have spent on the things they needed most.
Therefore for every public job created by the bridge project a private job has been destroyed somewhere else. We can see the men employed on the bridge. We can watch them at work. The employment argument of the government spenders becomes vivid, and probably for most people convincing. But there are other things that we do not see, because, alas, they have never been permitted to come into existence. They are the jobs destroyed by the $1,000,000 taken from the taxpayers. All that has happened, at best, is that there has been a diversion of jobs because of the project. More bridge builders; fewer automobile workers, radio technicians, clothing workers, farmers.
But then we come to the second argument. The bridge exists. It is, let us suppose, a beautiful and not an ugly bridge. It has come into being through the magic of government spending. Where would it have been if the obstructionists and the reactionaries had had their way? There would have been no bridge. The country would have been just that much poorer.
Here again the government spenders have the better of the argument with all those who cannot see beyond the immediate range of their physical eyes. They can see the bridge. But if they have taught themselves to look for indirect as well as direct consequences they can once more see in the eye of imagination the possibilities that have never been allowed to come into existence. They can see the unbuilt homes, the unmade cars and radios, the unmade dresses and coats, perhaps the unsold and ungrown foodstuffs. To see these uncreated things requires a kind of imagination that not many people have. We can think of these non-existent objects once, perhaps, but we cannot keep them before our minds as we can the bridge that we pass every working day. What has happened is merely that one thing has been created instead of others.
The same reasoning applies, of course, to every other form of public work. It applies just as well, for example, to the erection with public funds of housing for people of low incomes. All that happens is that money is taken away through taxes from families of higher income (and perhaps a little from families of even lower income) to force them to subsidize these selected families with low incomes and enable them to live in better housing for the same rent or for lower rent than previously.
I do not intend to enter here into all the pros and cons of public housing. I am concerned only to point out the error in two of the arguments most frequently put forward in favor of public housing. One is the argument that it “creates employment”; the other that it creates wealth which would not otherwise have been produced. Both of these arguments are false, because they overlook what is lost through taxation. Taxation for public housing destroys as many jobs in other lines as it creates in housing. It also results in unbuilt private homes, in unmade washing machines and refrigerators, and in lack of innumerable other commodities and services.
And none of this is answered by the sort of reply which points out, for example, that public housing does not have to be financed by a lump sum capital appropriation, but merely by annual rent subsidies. This simply means that the cost is spread over many years instead of being concentrated in one. It also means that what is taken from the taxpayers is spread over many years instead of being concentrated into one. Such technicalities are irrelevant to the main point.
The great psychological advantage of the public housing advocates is that men are seen at work on the houses when they are going up, and the houses are seen when they are finished. People live in them, and proudly show their friends through the rooms. The jobs destroyed by the taxes for the housing are not seen, nor are the goods and services that were never made. It takes a concentrated effort of thought and a new effort each time the houses and the happy people in them are seen, to think of the wealth that was not created instead. Is it surprising that the champions of public housing should dismiss this, if it is brought to their attention, as a world of imagination, as the objections of pure theory, while they point to the public chousing that exists? As a character in Bernard Shaw’s Saint Joan replies when told of the theory of Pythagoras that the earth is round and revolves around the sun: “What an utter fool! Couldn’t he use his eyes?
We must apply the same reasoning, once more, to get projects like the Tennessee Valley Authority. Here, because of sheer size, the danger of optical illusion greater than ever. Here is a mighty dam, a of steel and concrete, “greater than anything capital could have built,” the fetish of photographers, heaven of socialists, the most often used miracles of public construction, ownership Here are mighty generators and power ho whole region lifted to a higher economic level, attracting factories and industries that could not otherwise have existed. And it is all presented, in the panegyrics of its partisans, as a net economic gain without offsets.
We need not go here into the merits of the TVA or public projects like it. But this time we need a special effort of the imagination, which few people seem able to make, to look at the debit side of the ledger. If taxes are taken from people and corporations, and spent in one particular section of the country, why should it cause surprise, why should it be regarded as a miracle, if that section becomes comparatively richer? Other sections of the country, we should remember, are then comparatively poorer. The thing so great that “private capital could not have built it” has in fact been built by private capital –the capital that was expropriated in taxes (or, if the money was borrowed, that eventually must be expropriated in taxes). Again we must make an effort of the imagination to see the private power plants, the private homes, the typewriters and radios that were never allowed to come into existence because of the money that was taken from people all over the country to build the photogenic Norris Dam.
I have deliberately chosen the most favorable examples of public spending schemes–that is, those that are most frequently and fervently urged by the government spenders and most highly regarded by the public. I have not spoken of the hundreds of boondoggling projects that are invariably embarked upon the moment the main object is to “give jobs” and “to put people to work.” For then the usefulness of the project itself, as we have seen, inevitably becomes a subordinate consideration. Moreover, the more wasteful the work, the more costly in manpower, the better it becomes for the purpose of providing more employment. Under such circumstances it is highly improbable that the projects thought up by the bureaucrats will provide the same net addition to wealth and welfare, per dollar expended, as would have been provided by the taxpayers themselves, if they had been individually permitted to buy or have made what they themselves wanted, instead of being forced to surrender part of their earnings to the state.
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TAXES DISCOURAGE PRODUCTION
There is a still further factor which makes it improbable that the wealth created by government spending will fully compensate for the wealth destroyed by the taxes imposed to pay for that spending. It is not a simple question, as so often supposed, of taking something out of the nation’s right-hand pocket to put into its left-hand pocket. The government spenders tell us, for example, that if the national income is $200,000,000,000 (they are always generous in fixing this figure) then government taxes of $50,000,000,000 a year would mean that only 25 per cent of the national income was being transferred from private purposes to public purposes. This is to talk as if the country were the same sort of unit of pooled resources as a huge corporation, and as if all that were involved were a mere bookkeeping transaction. The government spenders forget that they are taking the money from A in order to pay it to B. Or rather, they know this very well; but while they dilate upon all the benefits of the process to B, and all the wonderful things he will have which he would not have had if the money had not been transferred to him, they forget the effects of the transaction on A. B is seen; A is forgotten.
In our modern world there is never the same percentage of income tax levied on everybody. The great burden of income taxes is imposed on a minor percentage of the nation’s income; and these income taxes have to be supplemented by taxes of other kinds. These taxes inevitably affect the actions and incentives of those from whom they are taken. When a corporation loses a hundred cents of every dollar it loses, and is permitted to keep only 60 cents of every dollar it gains, and when it cannot offset its years of losses against its years of gains, or cannot do so adequately, its policies are affected. It does not expand its operations, or it expands only those attended with a minimum of risk. People who recognize this situation are deterred from starting new enterprises. Thus old employers do not give more employment, or not as much more as they might have; and others decide not to become employers at all. Improved machinery and better-equipped factories come into existence much more slowly than they otherwise would. The result in the long run is that consumers are prevented from getting better and cheaper products, and that real wages are held down.
There is a similar effect when personal incomes are taxed 50, 60, 75 and 90 per cent. People begin to ask themselves why they should work six, eight or ten months of the entire year for the government, and only six, four or two months for themselves and their families. If they lose the whole dollar when they lose, but can keep only a dime of it when they win, they decide that it is foolish to take risks with their capital. In addition, the capital available for risk-taking itself shrinks enormously. It is being taxed away before it can be accumulated. In brief, capital to provide new private jobs is first prevented from coming into existence, and the part that does come into existence is then discouraged from starting new enterprises. The government spenders create the very problem of unemployment that they profess to solve.
A certain amount of taxes is of course indispensable to carry on essential government functions. Reasonable taxes for this purpose need not hurt production much. The kind of government services then supplied in return, which among other things safeguard production itself, more than compensate for this. But the larger the percentage of the national income taken by taxes the greater the deterrent to private production and employment. When the total tax burden grows beyond a bearable size, the problem of devising taxes that will not discourage and disrupt production becomes insoluble.
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CREDIT DIVERTS PRODUCTION
Government “encouragement” to business is sometimes as much to be feared as government hostility. This supposed encouragement often takes the form of a direct grant of government credit or a guarantee of private loans.
The question of government credit can often be complicated, because it involves the possibility of inflation. We shall defer analysis of the effects of inflation of various kinds until a later chapter. Here, for the sake of simplicity, we shall assume that the credit we are discussing is non-inflationary. Inflation, as we shall later see, while it complicates the analysis, does not at bottom change the consequences of the policies discussed.
The most frequent proposal of this sort in Congress is for more credit to farmers. In the eyes of most Congressmen the farmers simply cannot get enough credit. The credit supplied by private mortgage companies, insurance companies or country banks is never “adequate.” Congress is always finding new gaps that are not filled by the existing lending institutions, no matter how many of these it has itself already brought into existence. The farmers may have enough long-term credit or enough short-term credit, but, it turns out, they have not enough “intermediate” credit; or the interest rate is too high; or the complaint is that private loans are made only to rich and well-established farmers. So new lending institutions and new types of farm loans are piled on top of each other by the legislature.
The faith in all these policies, it will be found, springs from two acts of shortsightedness. One is to look at the matter only from the standpoint of the farmers that borrow. The other is to think only of the first half of the transaction.
Now all loans, in the eyes of honest borrowers, must eventually he repaid. All credit is debt. Proposals for an increased volume of credit, therefore, are merely another name for proposals for an increased burden of debt. They would seem considerably less inviting if they were habitually referred to by the second name instead of by the first.
We need not discuss here the normal loans that are made to farmers through private sources. They consist of mortgages; of installment credits for the purchase of automobiles, refrigerators, radios, tractors and other farm machinery, and of bank loans made to carry the farmer along until he is able to harvest and market his crop and get paid for it. Here we need concern ourselves only with loans to farmers either made directly by some government bureau or guaranteed by it.
These loans are of two main types. One is a loan to enable the farmer to hold his crop off the market. This is an especially harmful type; but it will be more convenient to consider it later when we come to the question of government commodity controls. The other is a loan to provide capital-often to set the farmer up in business by enabling him to buy the farm itself, or a mule or tractor, or all three.
At first glance the case for this type of loan may seem a strong one. Here is a poor family, it will be said, with no means of livelihood. It is cruel and wasteful to put them on relief. Buy a farm for them; set them up in business; make productive and self-respecting citizens of them; let them add to the total national product and pay the loan off out of what they produce. Or here is a farmer struggling along with primitive methods of production because he has not the capital to buy himself a tractor. Lend him the money for one; let him increase his productivity; he can repay the loan out of the proceeds of his increased crops. In that way you not only enrich him and put him on his feet; you enrich the whole community by that much added output. And the loan, concludes the argument, costs the government and the taxpayers less than nothing, because it is “self-liquidating.”
Now as a matter of fact this is what happens every day under the institution of private credit. If a man wishes to buy a farm, and has, let us say, only half or a third as much money as the farm costs, a neighbor or a savings bank will lend him the rest in the form of a mortgage on the farm. If he wishes to buy a tractor, the tractor company itself, or a finance company, will allow him to buy it for one-third of the purchase price with the rest to be paid off in installments out of earnings that the tractor itself will help to provide.
But there is a decisive difference between the loans supplied by private lenders and the loans supplied by a government agency. Each private lender risks his own funds. (A banker, it is true, risks the funds of others that have been entrusted to him; but if money is lost he must either make good out of his own funds or be forced out of business.) When people risk their own funds they are usually careful in their investigations to determine the adequacy of the assets pledged and the business acumen and honesty of the borrower.
If the government operated by the same strict standards, there would be no good argument for its entire field at all. Why do precisely what private agencies already do? But the government almost invariably operates by different standards. The whole argument for its entering the lending business, in fact, is that it will make loans to people who could not get them from private lenders. This is only another way of saying that the government lenders will take risks with other people’s money (the taxpayers’ that private lenders will not take with their own money. Sometimes, in fact, apologists will freely acknowledge that the percentage of losses will be higher on these government loans than on private loans. But they contend that this will be more than offset by the added production brought into existence by the borrowers who pay back, and even by most of the borrowers who do not pay back.
This argument will seem plausible only as long as we concentrate our attention on the particular borrowers whom the government supplies with funds, and overlook the people whom its plan deprives of funds. For what is really being lent is not money, which is merely the medium of exchange, but capital. (I have already put the reader on notice that we shall postpone to a later point the complications introduced by an inflationary expansion of credit.) What is really being lent, say, is the farm or the tractor itself. Now the number of farms in existence is limited, and so is the production of tractors (assuming, especially, that an economic surplus of tractors is not produced simply at the expense of other things). The farm or tractor that is lent to A cannot be lent to B. The real question is, therefore, whether A or B shall get the farm.
This brings us to the respective merits of A and B, and what each contributes, or is capable of contributing, to production. A, let us say, is the man who would get the farm if the government did not intervene. The local banker or his neighbors know him and know his record. They want to find employment for their funds. They know that he is a good farmer and an honest man who keeps his word. They consider him a good risk. He has already, perhaps, through industry, frugality and foresight, accumulated enough cash to pay a fourth of the price of the farm. They lend him the other three-fourths; and he gets the farm.
There is a strange idea abroad, held by all monetary cranks, that credit is something a banker gives to a man. Credit, on the contrary, is something a man already has. He has it, perhaps, because he already has marketable assets of a greater cash value than the loan for which he is asking. Or he has it because his character and past record have earned it. He brings it into the hank with him. That is why the hanker makes him the loan. The banker is not giving something for nothing. He feels assured of repayment. He is merely exchanging a more liquid form of asset or credit for a less liquid form. Sometimes he makes a mistake, and then it is not only the banker who suffers, but the whole community; for values which were supposed to be produced by the lender are not produced and resources are wasted.
Now it is to A, let us say, who has credit, that the banker would make his loan. But the government goes into the lending business in a charitable frame of mind because, as we saw, it is worried about B. B cannot get a mortgage or other loans from private lenders because he does not have credit with them. He has no savings; he has no impressive record as a good farmer; he is perhaps at the moment on relief. Why not, say the advocates of government credit, make him a useful and productive member of society by lending him enough for a farm and a mule or tractor and setting him up in business?
Perhaps in an individual case it may work out all right. But it is obvious that in general the people selected by these government standards will be poorer risks than the people selected by private standards. More money will be lost by loans to them. There will be a much higher percentage of failures among them. They will be less efficient. More resources will be wasted by them. Yet the recipients of government credit will get their farms and tractors at the expense of what otherwise would have been the recipients of private credit. Because B has a farm, A will be deprived of a farm. A may be squeezed out either because interest rates have gone up as a result of the government operations, or because farm prices have been forced up as a result of them, or because there is no other farm to be had in his neighborhood. In any case the net result of government credit has not been to increase the amount of wealth produced by the community but to reduce it, because the available real capital (consisting of actual farms, tractors, etc.) has been placed in the hands of the less efficient borrowers rather than in the hands of the more efficient and trustworthy.
The case becomes even clearer if we turn from farming to other forms of business. The proposal is frequently made that the government ought to assume the risks that are “too great for private industry.” This means that bureaucrats should he permitted to take risks with the tax payers’ money that no one is willing to take with his own./p>
Such a policy would lead to evils of many different kinds. It would lead to favoritism: to the making of loans to friends, or in return for bribes. It would inevitably lead to scandals. It would lead to recriminations whenever the taxpayers’ money was thrown away on enterprises that failed. It would increase the demand for socialism: for, it would properly be asked, if the government is going to bear the risks, why should it not also get the profits? What justification could there possibly be, in fact, for asking the taxpayers to take the risks while permitting private capitalists to keep the profits? (This is precisely, however, as we shall later see, what we already do in the case of “non-recourse” government loans to farmers.)
But we shall pass over all these evils for the moment, and concentrate on just one consequence of loans of this type. This is that they will waste capital and reduce production. They will throw the available capital into had or at best dubious projects. They will throw it into the hands of persons who are less competent or less trustworthy than those who would otherwise have got it. For the amount of real capital at any moment (as distinguished from monetary tokens run off on a printing press) is limited. What is put into the hands of B cannot be put into the hands of A.
People want to invest their own capital. But they are cautious. They want to get it back. Most lenders, therefore, investigate any proposal carefully before they risk their own money in it. They weigh the prospect of profits against the chances of loss. They may sometimes make mistakes. But for several reasons they are likely to make fewer mistakes than government lenders. In the first place, the money is either their own or has been voluntarily entrusted to them. In the case of government-lending the money is that of other people, and it has been taken from them, regardless of their personal wish, in taxes. The private money will be invested only where repayment with interest or profit is definitely expected. This is a sign that the persons to whom the money has been lent will be expected to produce things for the market that people actually want. The government money, on the other hand, is likely to be lent for some vague general purpose like “creating employment;” and the more inefficient the work-that is, the greater the volume of employment it requires in relation to the value of product-the more highly thought of the investment is likely to be.
The private lenders, moreover, are selected by a cruel market test. If they make bad mistakes they lose their money and have no more money to lend. It is only if they have been successful in the past that they have more money to lend in the future. Thus private lenders (except the relatively small proportion that have got their funds through inheritance) are rigidly selected by a process of survival of the fittest. The government lenders, on the other hand, are either those who have passed civil service examinations, and know how to answer hypothetical questions hypothetically, or they are those who can give the most plausible reasons for making loans and the most plausible explanations of why it wasn’t their fault that the loans failed. But the net result remains: private loans will utilize existing resources and capital far better than government loans. Government loans will waste far more capital and resources than private loans. Government loans, in short, as compared with private loans, will reduce production, not increase it.
The proposal for government loans to private individuals or projects, in brief, sees B and forgets A. It sees the people in whose hands the capital is put; it forgets those who would otherwise have had it. It sees the project to which capital is granted; it forgets the projects from which capital is thereby withheld. It sees the immediate benefit to one group; it overlooks the losses to other groups, and the net loss to the community as a whole. It is one more illustration of the fallacy of seeing only a special interest in the short run and forgetting the general interest in the long run.
We remarked at the beginning of this chapter that government “aid” to business is sometimes as much to be feared as government hostility. This applies as much to government subsidies as to government loans. The government never lends or gives anything to business that it does not take away from business. One often hears New Dealers and other statists boast about the way government “bailed business out” with the Reconstruction Finance Corporation, the Home Owners Loan Corporation and other government agencies in 1932 and later. But the government can give no financial help to business that it does not first or finally take from business. The government’s funds all come from taxes. Even the much vaunted “government credit” rests on the assumption that its loans will ultimately he repaid out of the proceeds of taxes. When the government makes loans or subsidies to business, what it does is to tax successful private business in order to support unsuccessful private business. Under certain emergency circumstances there may be a plausible argument for this, the merits of which we need not examine here. But in the long run it does not sound like a paying proposition from the standpoint of the country as a whole. And experience has shown that it isn’t.
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THE CURSE OF MACHINERY
Among the most viable of all economic delusions is the belief that machines on net balance create unemployment. Destroyed a thousand times, it has risen a thousand times out of its own ashes as hardy and vigorous as ever. Whenever there is a long-continued mass unemployment, machines get the blame anew. This fallacy is still the basis of many labor union practices. The public tolerates these practices because it either believes at bottom that the unions are right, or is too confused to see just why they are wrong.
The belief that machines cause unemployment, when held with any logical consistency, leads to preposterous conclusions. Not only must we be causing unemployment with every technological improvement we make today, but primitive man must have started causing it with the first efforts he made to save himself from needless toil and sweat.
To go no further back, let us turn to Adam Smith’s The Wealth of Nations, published in 1776. The first chapter of this remarkable book is called “Of the Division of Labor,” and on the second page of this first chapter the author tells us that a workman unacquainted with the use of machinery employed in pin-making “could scarce make one pin a day, and certainly could not make twenty,” but that with the use of this machinery he can make 4,800 pins a day. So already, alas, in Adam Smith’s time, machinery had thrown from 240 to 4,800 pin makers out of work for every one it kept. In the pin making industry there was already, if machines merely throw men out of jobs, 99.98 per cent unemployment. Could things be blacker?
Things could he blacker, for the Industrial Revolution was just in its infancy. Let us look at some of the incidents and aspects of that revolution. Let us see, for example, what happened in the stocking industry. New stocking frames as they were introduced were destroyed by the handicraft workmen (over 1,000 in a single riot), houses were burned, the inventors were threatened and obliged to fly for their lives, and order was not finally, restored until the military had been called out and the leading rioters had been either transported or hanged.
Now it is important to bear in mind that insofar as the rioters were thinking of their own immediate or even longer futures their opposition to the machine was rational. For William Felkin, in his History of the Machine Wrought Hosiery Manufactures (1867), tells us that the larger part of the 50,000 English stocking knitters and their families did not fully emerge from the hunger and misery entailed by the introduction of the machine for the next forty years. But insofar as the rioters believed, as most of them undoubtedly did, that the machine was permanently displacing men, they were mistaken, for before the end of the nineteenth century the stocking industry was employing at least a hundred men fur every man it employed at the beginning of the century.
Arkwright invented his cotton-spinning machinery in 1760. At that time it was estimated that there were in England 5,200 spinners using spinning wheels, and 2,700 weavers-in all, 7,900 persons engaged in the production of cotton textiles. The introduction of Arkwright’s invention was opposed on the ground that it threatened the livelihood of the workers, and the opposition had to he put down by force. Yet in 1787–twenty-seven years after the invention appeared–a parliamentary inquiry showed that the number of persons actually engaged in the spinning and weaving of cotton had risen from 7,900 to 320,000, an increase of 4,400 per cent.
If the reader will consult such a book as Recent Economic Changes, by David A. Wells, published in 1889, he will find passages that, except for the dates and absolute amounts involved, might have been written by our technophobes (if I may coin a needed word) of today. Let me quote a few:
During the ten years from 1870 to 1880, inclusive, the British mercantile marine increased its movement, in the matter of foreign entries and clearances alone, to the extent of 22,000,000 tons . . . yet the number of men who were employed in effecting this great movement had decreased in 1880, as compared with 1870, to the extent of about three thousand (2,990 exactly). What did it? The introduction of steam-hoisting machines and grain elevators upon the wharves and docks, the employment of steam power, etc.
In 1873 Bessemer steel in England , where its price had not been enhanced by protective du
|Posted on October 25, 2010 at 1:54 PM|
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