Features8 Money and Inflation:What’s Going On in the World? by Gerald P. O’Driscoll, Jr.

11 Don’t Worry About the Yuan by Robert P. Murphy

16 How Intellectual Property Hampers the Free Market by Stephan Kinsella

20 Abolitionist Sisters by John Blundell

27 Is a Nation Something That Can Be Built? by Steven Horwitz

30 “Big Meat” and Big Government by Paul Schwennesen

35 Jury Nullification: Right, Remedy, or Danger? by Wendy McElroy

Columns4 Ideas and Consequences ~ Liberty and the Power of Ideas by Lawrence W. Reed

14 Thoughts on Freedom ~ Stop the Bad Guys by Donald J. Boudreaux

25 Our Economic Past ~ Economic Analysis and the Great Society by Robert Higgs

33 Peripatetics ~ The Wrong Lesson from Egypt by Sheldon Richman

38 Give Me a Break! ~ Gun Owners Have a Right to Privacy by John Stossel

47 The Pursuit of Happiness ~ Crony Unionism: Private Sector by Charles W. Baird

Departments2 Perspective ~ Had Enough Yet? by Sheldon Richman

6 We Need to Build Society for “Shared Prosperity”? It Just Ain’t So! by George Leef

40 Capital Letters

Book Reviews

42 Were You Born on the Wrong Continent? How the European Model Can Help You Get

a New Life

by Thomas Geoghegan Reviewed by Kevin A. Carson

43 The Politics of Cocaine: How U.S. Foreign Policy Has Created a Thriving Drug Industry

in Central and South America

by William L. Marcy Reviewed by Ivan Eland

44 Six Political Illusions: A Primer on Government for Idealists Fed Up with History

Repeating Itself

by James L. Payne Reviewed by George Leef

45 The Politics of Happiness: What Government Can Learn from New Research on

Well-Being

by Derek Bok Reviewed by Bruce Yandle

Page 43

Page 8

Page 14

VOLUME 61, NO 5 JUNE 2011

Regarding the looming fiscal disaster, it’s best tokeep one’s eyes on the forest and not get lostin the trees. It’s easy to become overwhelmed

by the numbers, but one thing looks certain: Mosteveryone understands the current situation is unsustain-able in the ruling establishment’s own terms. If nothingchanges, in perhaps a little more than a decade all thecentral government’s revenues will be consumed byMedicare, Medicaid, Social Security, and interest on theburgeoning debt, which, at more than $14 trillion, isclosing in on 100 percent of GDP. (The central govern-ment now borrows 40 cents of every dollar it spends.)

Imagine how upset the ruling elite will be when itcan spend money on nothing but so-called entitlements andinterest? That would leave nothing for the military-industrial complex, nothing for business and farm subsi-dies, nothing for all the ways that politicians buy offconstituents so they can be reelected over and over. Ifthey try to keep spending on everything, total govern-ment expenditures would have to rise to half or eventhree-quarters of GDP.

Thus the ruling elite’s concern and the variousreform fantasies. But the elite has few good options.Default on the debt would mean no more borrowing.Inflation won’t work (tinyurl.com/68xdkx3). Raisingtaxes won’t do it either. Revenues as a percentage ofGDP have been virtually constant since World War IIregardless of tax rates, indicating that people adjust tothe tax environment. (Revenues are historically lownow because of the recession.)

Why couldn’t the politicians dramatically cut spend-ing? The political system doesn’t typically reward spending cutters. People say they want government tospend less—on the things they don’t depend on.Amongthe biggest-ticket items are Social Security andMedicare (with tens of trillions in unfunded promises).Elderly people, made dependent on the State, vote inhigh numbers, and they will vote defensively. The spe-cial interests that live off a trillion dollars in annual“defense/security” spending—another big item—won’tlet go easily either.

Let us then acknowledge the debt of gratitude dueevery politician who put us in this predicament. Each

2T H E F R E E M A N : w w w. t h e f r e e m a n o n l i n e . o r g

Had Enough Yet?Perspective

Published byThe Foundation for Economic Education

Irvington-on-Hudson, NY 10533Phone: (914) 591-7230; E-mail: freeman@fee.org

www.fee.org

President Lawrence W. ReedEditor Sheldon Richman

Managing Editor Michael NolanBook Review Editor George C. Leef

ColumnistsCharles Baird David R. Henderson

Donald J. Boudreaux Robert HiggsStephen Davies John Stossel

Burton W. Folsom, Jr. Thomas SzaszWalter E.Williams

Contributing EditorsPeter J. Boettke Dwight R. Lee

James Bovard Wendy McElroyThomas J. DiLorenzo Tibor Machan

Joseph S. Fulda Andrew P. MorrissBettina Bien Greaves James L. Payne

Steven Horwitz William H. PetersonJohn Hospers Jane S. Shaw

Raymond J. Keating Richard H.TimberlakeDaniel B. Klein Lawrence H.White

Foundation for Economic Education

Board of Trustees, 2010–2011Wayne Olson, Chairman

Harry Langenberg Walter LeCroyWilliam Dunn Frayda Levy

Jeff Giesea Kris MaurenEthelmae Humphreys Roger Ream

Edward M. Kopko Donald Smith

The Foundation for Economic Education (FEE) is anonpolitical, nonprofit educational champion ofindividual liberty, private property, the free market,

and constitutionally limited government.The Freeman is published monthly, except for combined

January-February and July-August issues. Views expressed by the authors do not necessarily reflect those of FEE’s officers and trustees. To receive a sample copy, or to have The Freemancome regularly to your door, call 800-960-4333, or e-mail mnolan@fee.org.

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Copyright © 2011 Foundation for Economic Education,except for graphics material licensed under Creative CommonsAgreement. Permission granted to reprint any article from this issue, with appropriate credit, except “Gun Owners Have aRight to Privacy.”

3 J U N E 2 0 1 1

P E R S P E C T I V E : H a d E n o u g h Ye t ?

spending vote dug the hole deeper and made it harderto get out.

But aren’t the voters ultimately to blame? In a way,yes, but there’s more to the story. People are left nochoice but to pay taxes, so when virtually every politi-cian promises “benefits” in return for those coercedpayments, what will most people do? The politicalestablishment has implicitly sold the system as a bigmutual-aid society. Most people don’t realize that gov-ernment’s forced transfers are as much acts of robberyas those that occur in dark alleys. Nor do they under-stand the harm done or the opportunities forgonewhen government distributes the money. The well-heeled, well-organized, and well-connected have notrouble securing their subsidies and tax preferences,while sundry “benefits” are bestowed on others inreturn for their acquiescence in the corrupt process.

Some now call for spending cuts—modest in thescheme of things—while others would rather seehigher taxes on the rich coupled with even more mod-est spending reductions. In its own way, each side seeksto preserve the welfare-warfare state. Several objectionsleap forth regarding the case for higher taxes: It’s not thepoliticians’ money, so taking it is immoral; hiking tax rateswon’t raise as much money as they think (peopleadjust); the politicians can’t be trusted with the moneyanyway; and leaving it in the private economy wouldyield general benefits.

It’s hard to be optimistic. Until there is a deep rethink-ing of government, the public will not accept the drasticnear-term budget cutting required to head off a fiscalcrisis, much less the longer-term structural steps neededto prevent a repetition of what we’ve been through.People will need to learn that while the wish for “socialsecurity” in an uncertain world is entirely reasonable,the route to it is not Medicare, Medicaid, and SocialSecurity—which tether people to the political class—but freed markets and voluntary mutual aid.

The fiscal problems have more than a fiscal solution.People would be less attracted to government succor ifthe barriers that raise the cost of initiative and independ-ence were removed and individuals were freed to livewithout having to kowtow to power and privilege.

* * *

Commodity prices are rising worldwide but theFederal Reserve chief claims he’s not responsible. Ger-ald O’Driscoll says Ben Bernanke shouldn’t be let offthe hook.

Economic hardship engenders xenophobia, and themost popular target right now is China. Robert Mur-phy examines the charge that Americans are harmed byChinese currency manipulation.

Patents and copyrights are often defended in termsof liberty, but they began as State privileges and havenever been anything else. Stephan Kinsella explains.

Women have played key roles throughout the his-tory of the struggle for liberty. Sarah and AngelinaGrimké are prime examples. John Blundell tells theirstory.

A good deal of what the U.S. government doesabroad these days comes under the rubric of “nation-building.” Is that something we should expect govern-ment to be good at? Steven Horwitz says no.

Whenever the government wants to do you a favor,watch out. The more it meddled with beef cattle andmeatpacking, for instance, the more consolidated thoseindustries became. Paul Schwennesen speaks from per-sonal experience.

Jury nullification—the principle that lets jurorsacquit defendants when they find the law unjust—hasbeen a popular cause with libertarians.Wendy McElroysees the appeal but she also sees some risks.

Here’s what our columnists have come up with:Lawrence Reed celebrates the power of ideas. DonaldBoudreaux critiques the interventionists of all parties.Robert Higgs dissects the political economy of theGreat Society. John Stossel says gun owners have a rightto privacy, too. Charles Baird skewers crony unionism.And George Leef, seeing Paul Krugman’s call for“shared prosperity,” retorts,“It Just Ain’t So!”

Books coming under scrutiny focus on Europeansocial democracy, the drug war abroad, political illu-sions, and happiness research.

Capital Letters asks the question: Must formal lawprecede prosperity?

—Sheldon Richmansrichman@fee.org

B Y L AW R E N C E W. R E E D

Liberty and the Power of Ideas

Ideas and Consequences

Abelief that I stress again and again is that we areat war—not a physical, shooting war, butnonetheless a war that is fully capable of

becoming just as destructive and just as costly.The battle for the preservation and advancement of

liberty is a battle not against personalities but againstopposing ideas. The French author Victor Hugodeclared that “One resists the invasion of armies; onedoes not resist the invasion of ideas.”This is often ren-dered as, “More powerful than armies is an idea whosetime has come.”

In the past ideas have had earth-shaking consequences. They havedetermined the course of history.

The system of feudalism existed fora thousand years in large part becausescholars, teachers, intellectuals, educa-tors, clergymen, and politicians propa-gated feudalistic ideas. The notion“once a serf, always a serf ” kept mil-lions of people from ever questioningtheir station in life.

Under mercantilism, the widelyaccepted concept that the world’swealth is fixed prompted men to take what they wantedfrom others in a long series of bloody wars.

The publication of Adam Smith’s The Wealth ofNations in 1776 is a landmark in the history of thepower of ideas.As Smith’s message of free trade spread,political barriers to peaceful cooperation collapsed, andvirtually the whole world decided to try freedom for achange.

Marx and the Marxists would have us believe thatsocialism is inevitable, that it will embrace the worldas surely as the sun will rise in the east tomorrow. Aslong as men have free will (the power to choose rightfrom wrong), however, nothing that involves thishuman volition can ever be inevitable! If socialism

comes it will come because men choose to embraceits principles.

Socialism is an age-old failure, yet the socialist ideaconstitutes the chief threat to liberty today. As I see it,socialism can be broken into five ideas.

1. The Pass-a-Law Syndrome. Passing laws has becomea national pastime. Business in trouble? Pass a law togive it public subsidies or restrict its freedom of action.Poverty? Pass a law to abolish it. Perhaps America needsa law against passing more laws.

Almost invariably a new law means: a) more taxes tofinance its administration; b) addi-tional government officials to regu-late some heretofore unregulatedaspect of life; and c) new penalties forviolating the law. In brief, more lawsmean more regimentation, morecoercion. Let there be no doubtabout what the word coercion means:force, plunder, compulsion, restraint.Synonyms for the verb form of theword are even more instructive:impel, exact, subject, conscript,extort, wring, pry, twist, dragoon,

bludgeon, and squeeze.When government begins to intervene in the free

economy, bureaucrats and politicians spend most oftheir time undoing their own handiwork.To repair thedamage of Provision A, they pass Provision B. Thenthey find that to repair Provision B, they need ProvisionC, and to undo C, they need D, and so on until thealphabet and our freedoms are exhausted.

The Pass-a-Law Syndrome is evidence of a mis-placed faith in the political process, a reliance on force,which is anathema to a free society.

4T H E F R E E M A N : w w w. t h e f r e e m a n o n l i n e . o r g

Lawrence Reed (lreed@fee.org) is the president of FEE.This column isreprinted, with some editorial revision, from the February 1979 issue ofThe Freeman.

The battle for thepreservation andadvancement ofliberty is a battle notagainst personalitiesbut against opposing ideas.

2. The Get-Something-from-Government Fantasy. Gov-ernment by definition has nothing to distribute exceptwhat it first takes from people.Taxes are not donations.

In the welfare state this basic fact gets lost in therush for special favors and giveaways. People speak of“government money” as if it were truly free.

One who is thinking of accepting something fromgovernment that he could not acquire voluntarilyshould ask, “From whose pocket is it coming? Am Ibeing robbed to pay for this benefit or is governmentrobbing someone else on my behalf?” Frequently theanswer will be both.

The end result of this “fantasy” is that everyone insociety has his hands in someone else’s pockets.

Everyone Else’s Problem3. The Pass-the-Buck Psychosis.

Recently a welfare recipient wroteher welfare office and demanded,“This is my sixth child.What are yougoing to do about it?”

An individual is victim to the Pass-the-Buck Psychosis when he aban-dons himself as the solver of hisproblems. He might say, “My prob-lems are really not mine at all.They are society’s, and ifsociety doesn’t solve them and solve them quickly,there’s going to be trouble!”

Socialism thrives on the shirking of responsibility.When men lose their spirit of independence and initia-tive, their confidence in themselves, they become clayin the hands of tyrants and despots.

4. The Know-It-All Affliction. Leonard Read, in TheFree Market and Its Enemy, identified “know-it-allness”as a central feature of the socialist idea.The know-it-allis a meddler in the affairs of others. His attitude can beexpressed in this way: “I know what’s best for you, butI’m not content to merely convince you of my rightness;I’d rather force you to adopt my ways.”The know-it-allevinces arrogance and a lack of tolerance for the greatdiversity among people.

In government the know-it-all refrain sounds likethis: “If I didn’t think of it, then it can’t be done, and

since it can’t be done, we must prevent anyone fromtrying.” A group of West Coast businessmen once raninto this snag when their request to operate barge serv-ice between the Pacific Northwest and Southern Cali-fornia was denied by the (now-defunct) InterstateCommerce Commission because the agency felt thegroup could not operate such a service profitably.

The miracle of the market is that when individualsare free to try, they can and do accomplish great things.Read’s well-known admonition that there should be“no man-concocted restraints against the release of cre-ative energy” is a powerful rejection of the Know-It-AllAffliction.

5. The Envy Obsession. Coveting the wealth andincome of others has given rise to a sizable chunk oftoday’s socialist legislation. Envy is the fuel that runs the

engine of redistribution. Surely, themany soak-the-rich schemes arerooted in envy and covetousness.

What happens when people areobsessed with envy? They blamethose who are better off than them-selves for their troubles. Society isfractured into classes and faction preyson faction. Civilizations have been

known to crumble under the weight of envy and thedisrespect for property it entails.

A common thread runs through these five socialistideas. They all appeal to the darker side of man: theprimitive, noncreative, slothful, dependent, demoraliz-ing, unproductive, and destructive side of humannature. No society can long endure if its people practicesuch suicidal notions.

Consider the freedom philosophy. It is an uplifting,regenerative, motivating, creative, exciting philosophy. Itappeals to and relies on the higher qualities of humannature such as self-reliance, personal responsibility, indi-vidual initiative, respect for property, and voluntarycooperation.

The outcome of the struggle between freedom andserfdom depends entirely on what percolates in thehearts and minds of men.At the present time the jury isstill deliberating.

5 J U N E 2 0 1 1

L i b e r t y a n d t h e P o w e r o f I d e a s

When individuals arefree to try, they canand do accomplishgreat things.

In a recent New York Times column (“Degrees andDollars,” March 6), economist Paul Krugman sur-prisingly had an “it just ain’t so” moment of his

own, taking issue with the widely accepted but erro-neous idea that more education is the key to increasingprosperity. While he was right about that, his conclu-sion that technological changes will so “hollow out”the middle class that massive new government pro-grams are needed to “directly” build a society of “shared prosperity” does not follow at all.

Proponents of the megastate like Krugman simplycannot acknowledge that the coercive, redistributivepolicies they love have adverse conse-quences. As we will see, his proposed“shared prosperity” will furtherundermine the prosperity we stillhave, reduce incentives for individualeffort, and create new opportunitiesfor political rent-seeking. If you wouldlike to see America become more likeGreece, Krugman’s ideas are a perfectrecipe.

Let’s look first at what Krugman gets right, though.One of the greatest conceits of modern liberalism is

that more education (formal education, especially ofthe sort run and funded by government) is always goodbecause it gives people “higher skills,” thus making theUnited States “more competitive.” To his credit Krug-man joins a growing number of critics who argue thatsuch education doesn’t necessarily produce goodresults. President Obama keeps saying the nation mustmake more “investments” in education to increaseemployment and keep up with other countries. Not so,says Krugman.

But why has Krugman broken ranks? In the lastfew months evidence has strengthened the contrariancase by showing that a large and increasing percentageof college degree holders end up having to take jobsthat don’t call for any advanced academic preparationand that many college students coast through with lit-tle or no gain in human capital.Those are among thereasons why I long ago concluded that America hasoversold higher education, principally by heavily sub-sidizing it.

Krugman, however, points to a different reason forhis turn. He contends that technology and “globaliza-

tion” are eliminating the middle-classjobs college-educated people used totake, thus “hollowing out” the middleclass. As a result, he argues, we can’trely on education for social mobility.

Exhibit A is Krugman’s discoverythat technology is having an impacton the legal profession. Computers,he reports, are increasingly used inlegal research, scanning cases and

documents for possible relevance much faster than peo-ple can. He says that this shows how technology “isactually reducing the demand for highly educatedworkers.”

It’s perfectly true that technology is changing the legal profession. Decades ago, lawyers had to manu-ally hunt for relevant cases and other documents, thenread them. Beginning more than 20 years ago, thatlaborious work was made easier with the advent ofcomputerized research engines that would almost

We Need to Build Society for “Shared Prosperity”?It Just Ain’t So!

6T H E F R E E M A N : w w w. t h e f r e e m a n o n l i n e . o r g

B Y G E O R G E L E E F

George Leef (georgeleef@aol.com) is book review editor of The Freeman.

One of the greatestconceits of modernliberalism is thatmore education isalways good.

7 J U N E 2 0 1 1

instantly compile lists of cases. Now computers canapparently even do some of the preliminary analysis.

Krugman’s conclusion that this is reducing thedemand for educated workers does not follow, however.Just because technology has made a part of lawyers’work faster does not mean there will be fewerlawyers—any more than the technological improve-ments that have made writing and editing easier andfaster than in the days of typewriters and erasers hasreduced the number of writers and editors.

America already has a surplus of lawyers, but thatisn’t because of technology. It is because governmentsubsidizes students who want to go to law school,and some law schools practice decep-tion with regard to the employ-ment and earnings prospects for theirgraduates.

Technological improvements cer-tainly can lead to the elimination ofsome jobs in the legal profession (andothers), but they simultaneously openup new jobs for educated workerselsewhere.

Krugman’s other argument is thatglobalization is going to wipe outsome middle-class jobs because it isnow possible to offshore work for-merly done by American workers. Hegives no examples or evidence of themagnitude of this phenomenon, butlet’s assume that he is correct. Do we need to worryand insist on government action?

No, we don’t. The number of middle-class jobs isnot fixed, dictating that if some are done by robots orforeigners or computers, the number remaining mustbe lower. You might think an economics professor and international trade specialist with a Nobel Prizeto his name would know that people have beenwringing their hands over the supposed harms of freetrade in goods and services for centuries, but despitethe apocalyptic predictions, the dynamism of theeconomy always produces new jobs to replace thosethat are lost.

In sum there is very little support for Krugman’sclaim that the middle class is being hollowed out, but

that doesn’t keep him from leaping to the conclusionthat we need more government intervention.

He first declares that labor needs more “bargainingpower.” That’s vague language, but what Krugmanundoubtedly means is that the government shouldenact pro-union legislation. Make that more pro-unionlegislation, since existing law (unchanged since 1959) isalready highly pro-union. Bargaining power has notbeen taken from unions over the last 30 years. Rather,many old, unionized companies have had to faceincreasing competition. They have shed workers andsome have gone out of existence. Simultaneously, manynew firms have come into existence, and their workers

have often shown so little interest inunionization that union organizershave given up.

Furthermore, can Krugman believethat unions automatically and costlesslyraise worker earnings? They can’t. Aseconomist W. H. Hutt showed in hisbook The Strike-Threat System, even ifunions can temporarily exploit investedcapital (as was the case in the autoindustry), in the long run investors willput their money elsewhere.

Finally, Krugman writes that gov-ernment must “guarantee the essen-tials, above all health care, to everycitizen.” Even if it were true that tech-nology and global competition were

hollowing out the middle class, why should govern-ment assume this role? Back in the 1960s the federalgovernment began a “War on Poverty” that entailedgiving “the essentials” to the poor. Rather than con-quering poverty, the policies exacerbated it, as recipi-ents of government benefits reduced their own effortsat improving their circumstances and interest groupslearned how to game the system. Krugman’s coercivelyshared prosperity ideas would give America more of that.

Instead of resorting to federal handouts and unionthreats to increase the middle class, I suggest we abolishthe many governmental barriers to entrepreneurshipand entry into occupations so that more Americans cansucceed on their own.

W e N e e d t o B u i l d S o c i e t y f o r “ S h a r e d P r o s p e r i t y ” ? I T J U S T A I N ’ T S O !

The number ofmiddle-class jobs isnot fixed, dictatingthat if some are doneby robots orforeigners orcomputers, thereamaining numbermust be lower.

Are America and the world at risk for anotherinflationary episode similar to the 1970s andearly 1980s? Or do current low rates of infla-

tion portend low inflation for the foreseeable future?David Wessel revisited this question in his “Capital”

column in the February 24 Wall Street Journal. He cor-rectly stated that the Federal Reserve under ChairmanBen Bernanke takesthe position that thecourse of inflationdepends on expec-tations: Inflationwill stay low if peo-ple expect it to stay low. Wessel quotesBernanke: “Thestate of inflationexpectations greatlyinfluences actualinflation and thusthe central bank’sability to achieveprice stability.”

The Fed chair-man has the causa-tion precisely back-wards. Fed policysystematically shapes inflation expectations. His state-ment focuses on the short-run and ephemeral over thelong-run and permanent. In so doing, Bernanke followsin a long line of central bankers.

In A History of the Federal Reserve (volume 1: 1913-51), Carnegie-Mellon University Professor AllanMeltzer summarizes the central-bank mindset. To the

degree there is theory behind the policies of centralbankers, it derived from the nineteenth-century bank-ing school thinkers. Chief among them was ThomasTooke, who “denied that money, credit, or base moneybore any consistent relation to prices. Most FederalReserve officials remained in this tradition in the1920s. They denied that their actions affected prices”

(57–58).Unfortunately for

defenders of currentFed policy, inflation isaccelerating aroundthe world.Singapore’seconomy has bene-fited from revivedglobal trade, but con-sumer price inflationis now running at anannual rate of 5.5percent. In Vietnam,an emerging econ-omy of note, con-sumer price inflationis running at 12 per-cent. Food riotsplague India. EvenAmerican consumers

are starting to feel the lash of inflation, as anyone who goesto the grocery store can attest. It is not a question ofwhether inflation is on the horizon. Inflation is here.

B Y G E R A L D P. O ’ D R I S C O L L , J R .

Money and Inflation:What’s Going On in the World?

8T H E F R E E M A N : w w w. t h e f r e e m a n o n l i n e . o r g

Gerald P. O’Driscoll, Jr. (godriscoll@cato.org) is a senior fellow at the CatoInstitute and a former vice president of the Federal Reserve Bank of Dallas.This article, which first appeared at TheFreemanOnline.org, expands on apost at ThinkMarkets (thinkmarkets.wordpress.com).

In a February 23 Wall Street Journal op-ed, retiredJournal editorial writer George Melloan explained how economics has contributed to the turmoil in theMiddle East. Consumer price inflation in Egypt rose to 18 percent annually in 2009 from 5 percent in 2006. In Iran inflation rose to 25 percent in 2009 from an already high 13 percent rate in 2006. Inflationsurges hit family budgets hard, especially for the manyin these countries living at the margin. Desperate peo-ple take to the street. As Melloan wryly observes,“About the only one failing toacknowledge a problem seemsto be the man most responsible,Federal Reserve Chairman BenBernanke.”

Monetary policy is not thesole culprit in the rise of foodprices.There have been a num-ber of negative supply shocksaffecting the supply of variousfoodstuffs, and these shockshave certainly contributed tohigher prices. Central bankersoften point the finger at theseto deflect accusations that mon-etary policy is at fault.

Two points must be made.First, global food productionand prices have been rising.Rising prices and output reflectrising demand relative to sup-ply. Second, nearly all com-modities, not just agriculturalcommodities, have been caughtin a monetary updraft.Along with food prices we haveseen rising prices of oil (even before the Middle Eastturmoil), gold, silver, copper, and a whole range ofother commodities used in production. One notewor-thy laggard is natural gas, whose price has been keptdown by positive supply shocks of new discoveries.This, contrary to the narrative of central bankers, is thesupply story.

Commodities, along with most globally tradedgoods, are priced in dollars. The Fed creates “basemoney”: bank reserves plus currency. Banks then

expand on base money by lending out reserves. Themore base money and bank money produced, thehigher the dollar prices of commodities and othergoods. It is the old story of too much money chasingtoo few goods and driving up their prices.That is infla-tion conventionally defined.

The inflation story this time has been complicatedby a weak U.S. economy, whose growth is still damp-ened by the consequences of the housing boom andbust. The bank expansion of the money supply

through lending has occurrednot in the U.S. economy but inemerging economies, particu-larly in Asia and Latin America.Bernanke promised his easy-money policy would createjobs, and it has—but not in theUnited States. Of course, tothe degree that prosperity inthese countries has dependedon the Fed’s easy-money pol-icy, it has been a false prosper-ity. The citizens of thesecountries are paying for it nowin the form of inflation.

The Fed has been paying alow interest rate on reserves,which to some extent hasrestrained lending by banks.With loan demand weak or ofpoor quality, banks have chosento keep money on deposit attheir local Federal Reservebank and earn a safe return. As

loan demand picks up, however, banks will likely beginlending out their reserves. That appears to be happen-ing as this is being written.

Here are some details of the linkage between Fedpolicy and global inflation. The currencies of manycountries are pegged to the dollar.Their exchange ratesare either a constant or change only slowly.The HongKong dollar is an example of the former, the Chineseyuan of the latter. Even so-called floating currencies arenot really floating. Central banks intervene to preventtheir value from rising rapidly against a flagging U.S.

9 J U N E 2 0 1 1

M o n e y a n d I n f l a t i o n : W h a t ’s G o i n g O n i n t h e W o r l d ?

Inflation has already helped set off riots in Tunisia andelsewhere.commons.wikimedia.org

dollar. The only important central bank that seems tobe letting its currency float freely against the U.S. dollaris the Swiss, and the Swiss franc is appreciating againstthe dollar fairly steadily.

Thus, as a practical matter, when the Fed createsdollars it results in an increased money supply in othercountries. It is not necessarily one for one, but it is pro-portional. The Fed’s low-interest policy has fueled notonly a commodities boom but a real-estate bubble inAsian countries and elsewhere. Some countries haveimposed capital controls to counteract Fed policy, butthese are seldom fully effective.

The Fed chairman argues that foreign central bankscan offset Fed policy. Doing so confronts them with a

Hobson’s choice. Foreign central banks pegged to thedollar can break the peg and let their currencies appreci-ate and domestic interest rates increase. If they act effec-tively they risk sending their own economies into thetank. Based on experience, it is equally likely that higherinterest rates in those countries would attract more spec-ulative capital, fueling asset bubbles, commodity prices,and eventually consumer price inflation.The last is whathas in fact been happening. Small, open economies inpractice are unable to offset a tsunami of dollars.

Bernanke is being disingenuous about the optionsforeign central banks and governments have to coun-teract the Fed’s easy-money policy, which threatens aglobal outbreak of inflation similar to the 1970s.

10T H E F R E E M A N : w w w. t h e f r e e m a n o n l i n e . o r g

G e r a l d P. O ’ D r i s c o l l , J r.

Especially during dismal economic times, manyAmericans—goaded by media figures and politi-cians—look with suspicion on foreigners. This

tendency is most obvious in anti-immigrant sentiment,but also manifests itself in a drive for protective tariffsand other trade restrictions.

Over the past few years China’s “currency manipu-lation” has been a particularly hot-button issue. Punditsclaim the Chinese government, by artificially suppress-ing the value of its currency, unfairly subsidizes Chineseexporters while destroying American jobs. Althoughthere is truth to this claim it overlooks the benefits toAmerican consumers from the Chinesepolicy. Americans should stop frettingabout the Chinese currency.

To get a sense of the accusationsleveled at the Chinese, we don’t needto scour letters to the editor written byeconomic illiterates. We can turn toPaul Krugman, who won a NobelPrize for his work on international trade theory. Krug-man has been leading the charge for punitive actionagainst China—including retaliatory tariffs unless its gov-ernment changes its ways. In a particularly bellicose col-umn last year,“Taking on China,” Krugman wrote . . .

China’s policy of keeping its currency underval-ued has become a significant drag on global eco-nomic recovery. Something must be done. . . .This isthe most distortionary exchange rate policy anymajor nation has ever followed. . . . [I]f sweet reasonwon’t work, what’s the alternative? In 1971 theUnited States dealt with a similar but much lesssevere problem of foreign undervaluation by impos-

ing a temporary 10 percent surcharge on imports,which was removed a few months later after Ger-many, Japan and other nations raised the dollar valueof their currencies. At this point, it’s hard to seeChina changing its policies unless faced with thethreat of similar action—except that this time thesurcharge would have to be much larger, say 25 percent.

Before continuing we should clarify Krugman’scharges:The Chinese government uses some of its rev-enues in its own currency (collected from taxation,

State-owned enterprises, and so on)to augment its stockpile of foreigncurrency reserves. In other words, inaddition to spending its (yuan-denominated) revenues on tanks,bombers, and infrastructure, the Chi-nese government also spends some onacquiring more dollars, euros, and

other currencies.Just as the Chinese government’s purchases of, say,

gasoline for its military equipment would tend to pushup the yuan-price of gasoline, its efforts to buy dollarswith yuan will push up the yuan-price of a dollar. Byhaving more yuan chase U.S. dollars in the foreign-exchange market, the Chinese government’s purchasestend to make the dollar appreciate against the yuan.

Because China’s currency is weaker than it other-wise would be, Chinese exports are cheaper: The

B Y R O B E R T P. M U R P H Y

Don’t Worry About the Yuan

11 J U N E 2 0 1 1

Robert Murphy (rpm@consultingbyrpm.com) is an adjunct scholar of theLudwig von Mises Institute and runs the blog Free Advice(consultingbyrpm.com/blog).

China’s currencypolicy benefitsAmerican consumers.

stronger dollar allows Americans to buy more Chinesegoods, and so they will favor Chinese over domesticproducers. On the other hand, Chinese consumers willview American goods as more expensive because theyultimately are priced in dollars and it takes more yuanto buy one dollar at the (allegedly) distorted exchangerate.

Consequently countries with overvalued currencies(such as the United States) tend to export less andimport more, while China—having the supposedlyundervalued currency—tends to export more andimport less. This disturbs some people because itenlarges the trade imbalance between China and theUnited States.

Even if weclassify the Chi-nese govern-ment’s policies asnothing but apure subsidy to its exporters, theybenefit Americanson net. The harmimposed on U.S.exporters is morethan offset in dol-lar terms by thebenefits to U.S.importers andconsumers.

The standard arguments for free trade apply, even incases where foreign governments give money directlyto their exporters. For example, rather than using theirrevenues to prop up the dollar in the foreign-exchangemarket, suppose instead that the Chinese governmenttold major Chinese exporters that they could cut theirprices to foreign customers and it would make up theshortfall with tax-financed subsidies.

Note that this policy too would “destroy Americanjobs” in particular sectors—namely, the ones competingwith the subsidized Chinese exporters—but it wouldgenerally make Americans richer. To see why, considerthe extreme case, where the Chinese government usedits tax receipts to buy TVs, cars, and computers from itsown producers, then sent the goodies to the United

States for free. This would be an unambiguous gift to theAmerican people. If the policy persisted, the U.S. econ-omy would adapt itself to the new reality. Particular pro-ducers might be worse off, but Americans would clearlybe richer in general, just as surely as if brand new carsmagically fell from the sky.The American workers whopreviously made the goods that we could now obtainfor free would be available to produce other items,increasing the total amount of consumption possiblefrom the same amount of labor and other resources.

So if we analyze Chinese currency policies as merelya hidden subsidy to exporters, the standard argumentsfor free trade show that the U.S. government can onlyhurt Americans by retaliating (by, for example, imposing

tariffs on Chi-nese imports).This doesn’t meanthe Chinese pol-icy is efficient ona global scale. Onthe contrary, theChinese are poorerbecause the lossesimposed on themas taxpayers andconsumers arehigher than thegains to the Chi-nese exporters,as measured in

terms of material output. But it is simply wrong to con-clude that “China” is hurting “America.”

In fairness, Krugman has a sophisticated Keynesiantwist to the accusations, whereby the “classical” analysisI’ve conducted here breaks down because the wholeworld is stuck in a “liquidity trap.” I’m going to ignorethis subtlety of his argument, largely because most of thepeople complaining about the Chinese don’t rely on it.

Now that we’ve established that the “worst case”scenario is nothing to fear, we can introduce some fur-ther complications. In the first place, the Chinesehaven’t made their own currency fall against the dollar,but have merely pegged the one currency to the other,so that the yuan/dollar exchange rate was constant (forlong stretches).

12T H E F R E E M A N : w w w. t h e f r e e m a n o n l i n e . o r g

R o b e r t P. M u r p h y

As the graph on p. 12 indicates, from 1995 through2005 the yuan/dollar exchange rate was roughly con-stant, and this peg was maintained by Chinese, not U.S.,officials. If the yuan started to appreciate against thedollar the Chinese would sell yuan to buy dollars. Onthe other hand if the yuan started falling against thedollar Chinese officials would sell dollars to buy yuanand restore the exchange rate to the desired target.

To maintain their peg the Chinese needed to have alarge stockpile of dollar-denominated assets. The safestsuch asset has been U.S.Treasury securities.To convinceinternational investors that it is safe to put their moneyin China—especially after the wild currency fluctuationsduring the “Asian contagion” of the late 1990s—Chinaquite understandably needed to accumulate more andmore Treasury securities.

The Dollar Standard

The situation for China was analo-gous to when the United States

was on the gold standard. To reassureinvestors of the integrity of the dollar,the government for a long periodpegged it to gold at a constant“exchange rate” of $20.67 an ounce.To back up the peg U.S. authoritiesobviously needed to accumulate large stockpiles ofgold. If there had been only one country in the worldthat exported gold, the United States every year mighthave sent over tangible goods in exchange for the gold.

A similar analysis holds for China, with its “dollarstandard.” To build up its reserves of foreign curren-cies—a perfectly sensible defensive move after theaforementioned Asian problems—the Chinese wantedto buy more foreign assets collectively than the rest ofthe world wanted to invest in Chinese financial assets.This is referred to as a “capital account deficit.”

As a matter of simple accounting, if a country (suchas China) runs a capital account deficit, then it mustsimultaneously run a current account surplus (which isa broader category than the more familiar “trade sur-

plus”). Intuitively, if the Chinese want to acquire finan-cial assets (on net) from the rest of the world, then theChinese must export goods (on net) to pay for them.After all, it is a valuable asset to have an IOU from theU.S. Treasury promising to send future streams of dol-lars, and a purchaser has to give up something valuablein exchange for it.

Referring back to the graph, it’s important to notethat since 1995 the Chinese currency has either stayedthe same or strengthened against the dollar. (When theline goes down it means the dollar buys fewer yuan;that is, the yuan appreciates against the dollar.)

When Krugman and others complain about theChinese keeping their currency “artificially weak,”what they really mean is that the Federal Reserve—under both Alan Greenspan and Ben Bernanke—has

been out-inflating the rest of theworld. Under those circumstances thedollar ought to be sinking againstother currencies. (Indeed, from Feb-ruary 2001 to February 2011, thedollar fell 31 percent against a trade-weighted basket of currencies.) In thiscontext, if the Chinese stubbornlyrefuse to let the dollar weaken againsttheir own currency, they are accused

of “manipulation” to benefit themselves at the expenseof the world.

To add yet more irony to the situation, notice thatsince June 2010 the Chinese have in fact been allowingtheir currency to steadily strengthen against the dollar.(This is the falling squiggly line at the end of the chart.)This has gone hand in hand with their slowdown inpurchases of new debt issued by the U.S. Treasury.Yetrather than praising the Chinese for creating Americanjobs, most analysts are fretting over the fate of the dol-lar and U.S. interest rates if the Chinese don’t resumefinancing more of Uncle Sam’s deficits!

If U.S. officials really want to eliminate an “overval-ued dollar,” they should tell Bernanke to stop printingso many dollars.

13 J U N E 2 0 1 1

D o n ’ t W o r r y A b o u t t h e Yu a n

Since 1995 theChinese currency haseither stayed the sameor strengthened againstthe dollar.

B Y D O N A L D J . B O U D R E A U X

Stop the Bad Guys

Thoughts on Freedom

It’s not too much of a simplification to say thatmodern American conservatives believe thenational government to be ignorant, bumbling, and

corrupt when it meddles in the U.S. economy, but saga-cious, sure-footed, and righteous when it meddles inforeign-government affairs.

Nor are the boundaries of acceptable simplificationbreached by saying that modern American “liberals”believe the national government to be sagacious, sure-footed, and righteous when it meddles in the U.S.economy, but ignorant, bumbling, andcorrupt when it meddles in foreign-government affairs.

This striking contradiction inpolitical viewpoints has not, of course,gone unnoticed.

I was prompted to ponder this con-tradiction not long ago after I read anop-ed in the Washington Post by theneoconservative William Kristol callingon Uncle Sam to attempt to influencethe outcomes of the recent popularuprisings in North Africa and the Mid-dle East. My ponderings produced ahypothesis: Modern conservatives and“liberals” are obsessively fixated on badguys (just different ones).

For both conservatives and “liberals” the world is fullof problems caused by bad actors—greedy, heartless,power-hungry autocrats who deploy illegitimatelyacquired power to trample the rights and livelihoods of the masses. Ordinary men and women seek liberationfrom these tyrants, but—being ordinary and oppressed—the typical person cannot escape the overlords’ predationwithout help.Their liberation requires forceful interven-tion by well-meaning and courageous outsiders.

For “liberals” the oppressed masses consist of work-ers and the poor, and the oligarchs who do the oppress-

ing are business people and private corporations.Whatencourages this oppression are free markets and theiraccompanying doctrine of nonintervention by govern-ment into the economy.

However, contrary to the “liberals,” noninterventionrests on at least three truths: First, the complexities ofmodern economies are so great, and hard to discern,that it is absurdly fanciful to suppose that governmentofficials can intervene without causing more harm thangood. Even the most well-meaning government is akin

to a bull in a china shop: Out of itsnatural element, even government’smost careful actions will be so sweep-ing and awkward that the net resultwill be unintentionally destructive.

Second, even if economic interven-tion begins with the best of motives, itdegenerates into a process of transfer-ring wealth from the politically pow-erless to the politically powerful. Theinterventions continue to sport noblenames (such as the “Great Society pro-grams” and the “Fair Labor StandardsAct”) and to be marketed as heroicefforts to defend the weak against thestrong. But these, however, are nothingmore than cynical and disingenuous

political marketing efforts aimed at hiding from thegeneral public the actual, unsavory consequences ofthese interventions.

Third, many situations that appear to well-meaningoutsiders to be so undesirable that someone simplymust intervene to correct them are understood bymany of the people most closely affected by these situ-ations to be superior to likely alternatives.

14T H E F R E E M A N : w w w. t h e f r e e m a n o n l i n e . o r g

Donald Boudreaux (dboudrea@gmu.edu) is a professor of economics atGeorge Mason University, a former FEE president, and the author ofGlobalization.

J.J. [Wikipedia]

“Unequal income distribution” is perhaps the fore-most such situation. While most “liberals” are obsessedwith the “distribution” of income and believe that peo-ple of modest means must be especially disturbed bythe fact that some other people earn more than theyearn, in fact the typical American of modest means isfar less bothered by “unequal” income “distribution”than are members of the “liberal” academy and pun-ditry.This latter fact only further confirms to the “lib-eral” mind that ordinary Americans need third-partyintervention to save them from their own naiveté; ordi-nary Americans just don’t know what glories they aredenying themselves by acquiescing in the prevailingeconomic power structure.

Modern “liberals” dismiss these three objections toeconomic intervention as being fanciful excuses usedby the economically powerful—and, even worse, alsoby the economically naive free-marketfaithful—to provide (flimsy) intellec-tual cover for predations by capitalistbad guys. The realistic assessments bymodern “liberals” indicate to themthat economic intervention is neces-sary and righteous.

A nearly identical debate plays outon the foreign-policy front, but withthe sides switched.

For modern American conservativesthe oppressed masses consist of foreign peoples yearningfor American-style freedom and political franchise. Butthese unfortunate foreigners are oppressed by oligarchswho happen to control their governments. “Liberals”(and liberals) who adhere to a doctrine of U.S. govern-ment nonintervention in foreign affairs raise the samethree objections that conservatives (and liberals) raiseagainst government intervention in the economy.

First, the complexities of foreign governments’ rela-tionships with their citizens are so great and hard todiscern that it is absurdly fanciful to suppose that UncleSam can intervene without causing more harm thangood. Even the most well-meaning intervention is akinto a bull in a china shop: Out of its natural element,even Uncle Sam’s most careful actions will be sosweeping and awkward that the net result will be unin-tentionally destructive.

Second, even if foreign intervention begins with the best of motives, it degenerates into a process oftransferring wealth from the politically powerless to thepolitically powerful. The interventions continue toenjoy noble names (such as “Operation Iraqi Free-dom”) and to be marketed as heroic efforts to defendthe weak against the strong. But these, however, arenothing more than cynical and disingenuous politicalmarketing efforts aimed at hiding from the generalpublic the actual, unsavory consequences of these inter-ventions in which corporations such as Halliburton andBlackwater rake in huge, undeserved profits at theexpense of the American taxpayer and the foreign pop-ulations ostensibly being helped.

Third, many situations that appear to well-mean-ing outsiders to be so undesirable that someone sim-ply must intervene are understood by many of the

people most closely affected bythese situations to be superior tolikely alternatives. As oppressive asSaddam Hussein’s Iraqi regime gen-uinely was, it’s not at all clear thatmerely disposing of this particularbad guy has liberated Iraqis fromoppression. Saddam’s rule was verymuch a result—and certainly notthe principal cause—of Iraq’s anti-liberal culture and dysfunctional

social institutions, not to mention earlier U.S. inter-vention.

Foreign countries’ political, economic, and socialinstitutions are too complex and too deeply rooted inunique histories to be adequately grasped by Americanpoliticians and military leaders. Therefore Americanintervention—which is inevitably ham-fisted—adds tothis mix only confusion and turmoil.

The two kinds of intervention situations aren’t anal-ogous in all details; differences exist. But these differ-ences are small when compared to the similarities.“Liberals’” confidence that domestic markets can beimproved by battalions of bureaucrats charged withkeeping bad guys in line is surprisingly similar to con-servatives’ confidence that the welfare of foreigners canbe improved by battalions of U.S. military troopscharged with keeping bad guys in line.

15 J U N E 2 0 1 1

S t o p t h e B a d G u y s

Foreign interventionis also subject toknowledge problemsand perverseincentives.

Advocates of free-market capitalism commonlybelieve in the legitimacy of intellectual prop-erty (IP) because IP rights are thought to be

important to a system of private property.But are they? There are good reasons to think that

IP is not actually property—that it is actually antitheti-cal to a private-property, free-market order. By intellec-tual property, I mean primarily patent and copyright.

It’s important to understand the origins of theseconcepts. As law professor Eric E. Johnson notes,“The monopolies now understood as copyrights andpatents were originally created byroyal decree, bestowed as a form offavoritism and control. As the powerof the monarchy dwindled, thesechartered monopolies were reformed,and essentially by default, they woundup in the hands of authors and inven-tors.”

Patents were exclusive monopolies to sell variousgoods and services for a limited time.The word patent,historian Patricia Seed explains, comes from the Latinpatente, signifying open letters. Patents were “open let-ters” granted by the monarch authorizing someone todo something—to be, say, the only person to sell a cer-tain good in a certain area, to homestead land in theNew World on behalf of the crown, and so on.

It’s interesting that many defenders of IP—such aspatent lawyers and even some libertarians—get indig-nant if you call patents or copyright a monopoly.“It’s not a monopoly; it’s a property right,” they say.“If it’s a monopoly then your use of your car is amonopoly.” But patents are State grants of monopolyprivilege. One of the first patent statutes was England’s

Statute of Monopolies of 1624, a good example oftruth in labeling.

Granting patents was a way for the State to raisemoney without having to impose a tax. Dispensingthem also helped secure the loyalty of favorites. Thepatentee in return received protection from competi-tion. This was great for the State and the patentee butnot for competition or the consumer.

In today’s system we’ve democratized and institu-tionalized intellectual property. Now anyone can apply.You don’t have to go to the king or be his buddy.You

can just go to the patent office. Butthe same thing happens. Some com-panies apply for patents just to keepthe wolves at bay. After all, if youdon’t have patents someone might sueyou or reinvent and patent the sameideas you are using. If you have a

patent arsenal, others are afraid to sue you. So compa-nies spend millions of dollars to obtain patents fordefensive purposes.

Large companies rattle their sabers or sue eachother, then make a deal, say, to cross-license theirpatents to each other.That’s fine for them because theyhave protection from each other’s competition. Butwhat does it do to smaller companies? They don’t havebig patent arsenals or a credible countersuit threat. Sopatents amount to a barrier to entry, the modern ver-sion of mercantilist protectionism.

B Y S T E P H A N K I N S E L L A

How Intellectual Property Hampers the Free Market

16T H E F R E E M A N : w w w. t h e f r e e m a n o n l i n e . o r g

Stephan Kinsella (nskinsella@gmail.com) is an attorney in Houston,director of the Center for the Study of Innovative Freedom (c4sif.org), andeditor of Libertarian Papers (libertarianpapers.org). This article isderived from remarks at last year’s Mises Institute Supporters’ Summit.

Patents are State grants of monopolyprivilege.

What about copyright? The roots literally lie in cen-sorship. It was easy for State and church to controlthought by controlling the scribes, but then the print-ing press came along, and the authorities worried thatthey couldn’t control official thought as easily. SoQueen Mary created the Stationer’s Company in 1557,with the exclusive franchise over book publishing, tocontrol the press and what information the peoplecould access.When the charter of the Stationer’s Com-pany expired, the publishers lobbied for an extension,but in the Statute of Anne (1710) Parliament gavecopyright to authors instead.Authors liked this becauseit freed their works from State control. Nowadays theyuse copyright much as the State originally did: to cen-sor and ban books. (More below.)

IP, American Style

The American system of IP began with the U.S.Constitution.Article 1, Section 8, Clause 8 author-

izes (but doesn’t require) Congress“To promote the Progress of Scienceand useful Arts, by securing for lim-ited Times to Authors and Inventorsthe exclusive Right to their respectiveWritings and Discoveries.”

Despite modern IP proponents’claims to the contrary, the Americanfounders did not view intellectual prop-erty as a natural right but only as a policy tool toencourage innovation. Yet they were nervous aboutmonopoly privilege, which is why patents and copy-rights were authorized only for a limited time. EvenJohn Locke, whose thought influenced the FoundingFathers, did not view copyright and patent as naturalrights. Nor did he maintain that property home-steading applied to ideas. It applied only to scarcephysical resources.

Granted, some state constitutions had little ver-sions of copyright before the American Constitution.(See Tom W. Bell, Intellectual Privilege: Copyright,Common Law, and the Common Good, part 1, chapter3, section B.1.) On occasion, the language of naturalrights was used to defend it, but this was just coverfor the monopolies they granted to special interests.Natural rights do not expire after 15 years. Natural

rights are not extended to Americans only. Naturalrights wouldn’t exclude many types of innovationand intellectual creativity and cover only a few arbi-trary types.

And what is the result of this system? In the case ofpatents we have a modern statute administered by ahuge federal bureaucracy that grants monopolies on theproduction and trade of various things, which meansholders may ask the federal courts to order the use offorce to stop competitors. But the competitors have notdone anything that justifies force. They merely haveused information to guide their actions with respect totheir own property. Is that compatible with privateproperty and the free market?

Examples of Censorship

In the case of copyright the result has been actualcensorship, as recent examples will show. According

to Engadget, Russian authorities, with Microsoft’sapproval, used IP law as a “pretext forseizing computers and other materialsfrom political opponents of the gov-ernment and news organizations”(tinyurl.com/48dhv5e). In anothercase Susan Boyle, the English singerfrom Britain’s Got Talent, was pre-vented from singing a Lou Reed songon America’s Got Talent because of

copyright (tinyurl.com/4qyfof7). Then there was thecase in which a 1922 German silent film, Nosferatu, wasdeemed a derivative work of Bram Stoker’s Dracula andordered destroyed.

One of the most outrageous cases concerns thenovel Sixty Years Later, Coming Through the Rye, FrederikColting’s sequel to J.D. Salinger’s The Catcher in the Rye.Salinger got the courts to ban publication of the bookon copyright grounds (tinyurl.com/4nxbwtp). “I ampretty blown away by the judge’s decision,” Coltingsaid. “Call me an ignorant Swede, but the last thing Ithought possible in the U.S. was that you bannedbooks.”

These examples will be dismissed as abuses of an oth-erwise good law, but it’s the law itself that is the abuse.

Although natural rights are often invoked, the mostcommon argument for IP, even among libertarians, is

17 J U N E 2 0 1 1

H o w I n t e l l e c t u a l P r o p e r t y H a m p e r s t h e F r e e M a r k e t

The Americanfounders did not viewintellectual propertyas a natural right.

utilitarian, or “wealth-maximization,” which was theapproach of the Founding Fathers: IP monopolyencourages innovation and therefore creates net wealth.In other words, the benefits outweigh the costs.

No doubt the patent system imposes costs on Amer-ican society. I’ve estimated the net cost at $38–48 billiona year, and this is probably conservative (tinyurl.com/4o6cl4l).The costs include patent attorney salaries, fees,litigation, increased insurance premiums, and higher-priced products—plus innovation and research lostwhen companies concentrate on patentable innovationsand allocate fewer resources to more basic scientificresearch, or when an entire field is avoided for fear ofpatent-infringement lawsuits.

Anyone who argues that patents yield a net gain isobliged to estimate the total cost(including suppressed innovation) aswell as the value of any innovationthereby stimulated. But IP propo-nents never provide these estimates.I’m no empiricist—my opposition toIP is based on principles of justiceand property rights—but IP advo-cates make the empirical claim thatwe are richer because of the patentsystem.They say we have more inno-vation at a low price. Yet virtuallyevery empirical study I’ve seen onthis matter is either inconclusive orfinds a net cost and/or a suppression of innovation. (Iignore here the valid Austrian objection that costs andbenefits are subjective and not measurable.)

Thus a good utilitarian would have to conclude thatpatent and copyright laws are harmful.

Creation

Some IP advocates do make a serious natural–rightscase on the grounds that the innovator has created

some new, valuable thing—a song, a painting, a novel,or an invention. Because he created it, the argumentgoes, he is its natural owner. But this conflates thesource of property rights with the source of wealth. AsAyn Rand—a strong proponent of IP—recognized (in“The Metaphysical Versus the Man-Made,” Philosophy:Who Needs It):

The power to rearrange the combinations of naturalelements is the only creative power man possesses. Itis an enormous and glorious power—and it is theonly meaning of the concept “creative.” “Creation”does not (and metaphysically cannot) mean thepower to bring something into existence out ofnothing. “Creation” means the power to bring intoexistence an arrangement (or combination or inte-gration) of natural elements that had not existedbefore.

In other words, individuals create wealth by usingtheir intellect, creativity, and labor to transform alreadyowned scarce resources into more valuable configurations.In a free society a producer owns the resulting products

because he owned the factors trans-formed in the production process.Theidea behind production adds nothingto the ownership claim that wasn’talready present.

Control of Physical Property

In fact, assigning property rights inideas and other immaterial things,

such as patterns or recipes, ends uprestricting other people’s rights tocontrol their physical property. Copy-right and patent holders thus become,in effect, co-owners of others’ prop-

erty, courtesy of the State. This is illustrated in thecopyright censorship examples provided. And it is seenin cases where a patentee uses the courts to shut downcompetitors.

Another way to understand the error in treatinginformation, ideas, and patterns as property is to con-sider IP in the context of human action. Ludwig vonMises explained in The Ultimate Foundation of EconomicScience that “[t]o act means: to strive after ends, that is,to choose a goal and to resort to means in order toattain the goal sought.” Knowledge and information ofcourse play key roles in action.As Mises puts it,“Action. . . is not simply behavior, but behavior begot by judg-ments of value, aiming at a definite end and guided byideas concerning the suitability or unsuitability of definitemeans” (emphasis added).

18T H E F R E E M A N : w w w. t h e f r e e m a n o n l i n e . o r g

S t e p h a n K i n s e l l a

IP proponents makethe empirical claimthat we are richerbecause of the patentsystem. But theynever provide estimatesof the total cost.

Moreover, “[m]eans are necessarily always limited,i.e., scarce, with regard to the services for which manwants to use them.” This is why property rightsemerged. Use of a resource by one person excludes useby another. In contrast, ownership of the informationthat guides action is not necessary for performing theaction.Two people who each own the ingredients cansimultaneously make a cake with the same recipe.

Material progress is made precisely because infor-mation is not scarce. It can be infinitely multiplied,learned, taught, and built on. The more patterns,recipes, and causal laws that are known, the greater thewealth multiplier as individuals engage in ever-more

efficient and productive actions. It is good that ideas areinfinitely reproducible. There is no need to imposeartificial scarcity on ideas to make them more likephysical resources, which—unfortunately—are scarce.As Frédéric Bastiat observed, “All innovation goesthrough three stages. One possesses unique knowledgeand profits from it. Others imitate and share profits.Finally, the knowledge is widely shared and no longerprofitable on its own which thereby inspires newknowledge.”

Patents artificially prolong the first stage at theexpense of the others.Thus, IP is inimical to progress,prosperity, and freedom.

19 J U N E 2 0 1 1

H o w I n t e l l e c t u a l P r o p e r t y H a m p e r s t h e F r e e M a r k e t

Sarah and Angelina Grimké were born into goodfortune. Their father, John Grimké, had been alieutenant colonel in the Revolutionary War and

speaker in the South Carolina House of Representa-tives before becoming a plantation owner and judge onthe state Supreme Court.The girls could look forwardto a life of ease. In front of them lay a future of balls,concerts, picnics, rides, dinners, parties, and entertain-ments.They would spend their days in spacious roomswith high ceilings in beautifully decorated homes and stroll in well-manicured gardens.Their wardrobeswould be of thefinest kind, full ofthe latest fashions,and their tableswould be ladenwith both local andimported food andwine. What’s more,they’d hardly needto lift a finger,thanks to the houseslaves on hand 24hours a day, seven days a week, to attend to their everywhim. Outside, field slaves would work just as hard ifnot harder on the plantations that made all this possible.

But Sarah and Angelina were to reject the highlyprivileged existence spread out before them by the sim-ple accidents of their births. Instead they both movednorth, embraced principle, and devoted their lives tocampaigning for the abolition of slavery and forwomen’s rights.

They rejected the thinking of the day that blackswere inferior to whites; they rejected the idea that itwas proper for one individual to own another; they dis-missed the notion that slavery was acceptable as long asyou treated your slaves well and did not beat or torturethem; and they had no time for the belief that the solu-tion to slavery was to send freed slaves back to colonizeAfrican states such as Liberia whether those were theircountries of origin or not.The sisters became outrightabolitionists.

Sarah MooreGrimké was bornin 1792 and grewup in a magnificenthouse in the centerof Charleston andon the family plan-tation inland atBeaufort. She hadthree elder brothersand one elder sis-ter, and threeyounger brothersand two youngersisters. Her educa-

tion was to consist of reading, writing, and enoughmathematics to run a household. Needlework, art,music, and a little French were featured on the curricu-lum, but the most important subject was the learning ofmanners. She craved more from her education, how-

B Y J O H N B L U N D E L L

Abolitionist Sisters

20T H E F R E E M A N : w w w. t h e f r e e m a n o n l i n e . o r g

John Blundell ( JBlundell@iea.org.uk) is a visiting fellow at the HeritageFoundation.This article is adapted from a chapter of his forthcoming book,Ladies for Liberty:Women Who Made a Difference in AmericanHistory (Algora).

The Grimké sisters.commons.wikimedia.org

ever, and started to learn secretly from her brotherThomas, six years her senior, studying his books atnight. She delved into history, geography, science,Greek, and advanced mathematics. She was allowed toparticipate in the semiformal debates her fatherarranged for his sons as law school preparation. JudgeGrimké reportedly commented that if Sarah had been aboy she would have been America’s greatest jurist. Butwhile Thomas went to Yale, Sarah was kept at home.

From an early age Sarah became aware of the unjusttreatment meted out to slaves.When at the age of fiveshe saw a slave being beaten, she tried to run away fromhome to a place where there was no slavery. Later, inher speeches, she recalled the many harrowing experi-ences of slavery she had witnessed, ranging from whip-pings to torture at the local workhouse where slaveswere sent to be disciplined. She even witnessed thegruesome spectacle of the severed head of an escapedslave on a pole by a country roadside,placed there as a warning to otherwould-be runaways. What she sawwas to turn her into a rebel.

Sarah’s family was devoutly Epis-copalian, and she taught Sundayschool to younger slave children.When she asked why she couldn’tteach them to read so they could dis-cover the Bible for themselves, herfather replied that the 1740 Better Ordering and Gov-erning of Negroes and Slaves Act levied a fine of £100(about $10,000 today) for educating such people oremploying slaves with these skills. Sarah’s reaction wasto teach her young black maid, Hetty, to read secretly atnight until her mother discovered them; Sarah wasseverely admonished by her father, and Hetty was verylucky to escape a severe whipping. Sarah later wrote:“Itook an almost malicious satisfaction in teaching my lit-tle waiting-maid at night, when she was supposed to beoccupied in combing and brushing my locks.The lightwas put out, the key hole screened, and flat on ourstomachs before the fire, with the spelling-book underour eyes, we defied the law of South Carolina.”

In February 1805 Mary Grimké produced her 14thand last child,Angelina Emily. Sarah begged her parentsto make her the new child’s godmother and to give her

a major central role in raising the girl; they assented inpart to relieve some of the child-rearing burden fromMary and in part to cheer up the morose Sarah.

Angelina became the focus of Sarah’s existence andby the time the former started to talk she addressed herelder sister as “mother.”

Time Among the Quakers

In 1818 Judge Grimké fell seriously ill, and in thespring of 1819 his Charleston doctor referred him to

a Philadelphia specialist. Sarah accompanied her fatheron the sea journey. After two months the doctor coulddo no more than recommend the sea air and thebathing at Long Branch, New Jersey. Father and daugh-ter traveled there, but to no avail. Judge Grimké diedwith Sarah as his sole mourner.

Looking after her dying father all alone and stayingwith Quakers in Philadelphia for months on either side

of his death seem to have hardenedand focused her, resolving manyissues. On the ship back to Charlestonshe was befriended by a prosperousQuaker family called Morris, whogave her books and tracts. She starteda correspondence with Israel Morris,the head of the family.

Back home, she threw herself intodiscovering all she could about the

Quaker movement, also known as the Religious Soci-ety of Friends, and its outright opposition to slavery.She also took to wearing the plain habit of Quakerwomen, and in 1821 she relocated to Philadelphia tolive alternately with Israel’s family in the country andhis sister Catherine Morris in the city, supported by theinterest on her inheritance. In May 1823 Sarah Grimkébecame a full member of the Friends.

Angelina, meanwhile, was on her own spiritual andintellectual journey from the Episcopal Church, withits emphasis on the rule of the clergy, to the moredemocratic Presbyterian Church, and from a merelyargumentative to a highly opinionated anti-slaveryactivist. But she could not abide the idea of Christiansowning other Christians, and she too became attractedto the Quaker religion and its dedication to peace andequality.

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A b o l i t i o n i s t S i s t e r s

From an early ageSarah became awareof the unjusttreatment meted outto slaves.

It was not only the impact of slavery on the slavesthat troubled Angelina but also its effect on their own-ers. Having everything done for you by house slavesand living off the work of field slaves, she observed, wasdeeply amoral and undermined families. She wonderedwhat hope there was for affection to arise from familialduty if you could not even move a chair for yourmother or open a window so she that she might enjoythe air.

In November 1829 Angelina stopped her one-woman crusade in Charleston and headed north to bewith Sarah in Philadelphia. Soon she too had joined theQuakers.

Seeking a Niche

Both sisters still struggled to find their niche. Ini-tially their mission to abolish slavery had little real

direction, partly because the Quakers considered theirviews too radical.While Quakers might be against slav-ery, their social activism was unlikelyto extend beyond praying for a solu-tion. Angelina yearned for an activistrole, while her elder sister was morecautious.

In the mid-1830s there was anexplosion of anti-slavery societies inthe North, as well as female versionsof such groups in which womenwere able to play a leadership role previously deniedthem. Both sisters began to engage more and more inthe antislavery movement, Sarah through reading andstudy, and Angelina by attendance at meetings of thePhiladelphia Female Anti-Slavery Society.

The era also saw a great deal of violence directed atsuch activities, even in the North, where slavery formany people was little more than an abstract idea. Mosthad never witnessed it personally.

Against this background Angelina wrote to WilliamLloyd Garrison, editor of The Liberator, the leading anti-slavery periodical. Garrison had been editorializingstrongly against mob violence and demanding thatBritish reformer George Thompson be given a peacefulplatform.

“The ground upon which you stand is holy ground;never—never surrender it,” she urged Garrison.“If you

surrender it the hope of the slave is extinguished.” Sheconcluded:“This is a cause worth dying for.”

Without consulting her Garrison published the let-ter and identified its author as being from the promi-nent Grimké family of Charleston. It was widely read,reprinted, and admired, suddenly giving Angelina apublic profile and deeply impressing the leading reformspokesman,Theodore Weld. Her future as a radical abo-litionist was assured. At the same time, the letter wasintensely embarrassing to Angelina. It outraged thePhiladelphia Quakers, whose way of life Sarah andAngelina were finding more and more stultifying and atodds with their reforming zeal.

Meanwhile Angelina tried to purchase her formermaid, Hetty, who now had children, in order to free herand her family, but to no avail—the requests wereignored. Angelina later rejected this purchase-to-freestrategy as being insufficiently pure since it impliedacceptance of the system.

In February 1836 both sistersattended the Quaker Convention inProvidence, Rhode Island, where theymet abolitionists from all over thenortheast with whom they felt muchmore comfortable than their Philadel-phia group.This resulted in an invita-tion to Angelina, a talented andpassionate public speaker, to become a

spokeswoman for the New York City-based AmericanAnti-Slavery Society. While she considered this offershe penned a highly influential monograph, Appeal tothe Christian Women of the Southern States.

In this publication she wrote as a southern lady,addressing her friends and their friends in their language.She took on every argument advanced in favor of slaveryand refuted them all. Set your slaves free, she urged herfellow southern women. “If they wish to remain withyou, pay them wages,” she continued. “If not, let themleave you. Should they remain teach them.”

Sales of Angelina’s monograph took off. This led toacclaim but also to trouble. Police in Charleston paid a visitto the sisters’ mother.The postmaster had burned copies ofAppeal in public, and the police warned that Angelina wasnot to visit; if she did she would be arrested, imprisoned,and deported on the first available boat back north.

22T H E F R E E M A N : w w w. t h e f r e e m a n o n l i n e . o r g

J o h n B l u n d e l l

Angelina yearned for an activist role,while her sister wasmore cautious.

The Quakers of Philadelphia disapproved too andinsisted the sisters could not leave the city without theirpermission. Angelina resolved to move to New YorkCity, and as Sarah wondered what to do, she received aletter from their mother begging her to accompany hersister so as to look after her. Sarah and Angelina wereon their way to becoming America’s first female agentsfor abolition.

New York City

Arriving in New York City in October 1836, thesisters were immediately thrown into an intense

three-week-long training course for new agents run bythe Society and led by Theodore Weld. Out of 40 par-ticipants, Sarah and Angelina were the only twowomen. Here the local Quakers were supportive, andfor the first time they both felt part ofa harmonious team in which every-body was pulling in the same direc-tion.

The plan was for the Grimké sis-ters to address fellow women at thehomes of members of the FemaleAnti-Slavery Society. However, theresponse to their lectures was so hugethat no parlor was big enough tohold all those who wanted to attend.A room at a localchurch that could seat 300 was found instead, but thattoo proved inadequate, and the lectures were movedinto the main body of the church itself.

Theirs was an impressive double act. Sarah dealtwith the religious aspects of their case and Angelina thepolitical.While Angelina’s monograph had been aimedat the women of the South, Sarah now wrote and pub-lished An Epistle to the Clergy of the Southern States, urg-ing southern religious leaders to take a stance. Andwhile Angelina penned her Appeal to the Women of theNominally Free States, Sarah wrote An Address to FreeColored Americans. Invitations to speak flowed in andthey decided to target New England from a base inBoston. They were an instant hit: Between June 7 andJune 23, 1837, they addressed 11 meetings of 3,500people in total, including many men. But this appeal tomen and the fact that they were speaking before a“promiscuous”—mixed-sex—group caused contro-

versy. It was one thing for women to talk with otherwomen in small groups in private homes but quiteanother for them to address large groups in public withmen in attendance.

First the Quakers and then other Christian denom-inations such as the Congregationalists closed theirpremises to abolitionists and women speakers; it wasquite clear whom they were trying to gag. Sarah,unhappy that women could be denied a public plat-form, began to move beyond abolitionism and into thearea of women’s rights. Weld, however, advised theGrimkés to stick to the issue of slavery. As the fall of1837 came both sisters fell ill from fatigue, but by thenthey had already spoken to 40,000 men and women at80 meetings in 67 New England towns.

In 1838 Weld proposed marriage to Angelina. Shewas also invited to address the Massa-chusetts legislature in Boston’s StateHouse. She accepted both, and onFebruary 21 she became the firstwoman in U.S. history to address alegislative committee.

She started her speech: “I standbefore you as a Southerner exiledfrom the land of my birth by thesound of the lash, and the piteous cry

of the slave. I stand before you as a repentant slave-holder. I stand before you as a moral being.”

One thousand people attended on both days. Suchwas the reception given to her speeches that Angelinawrote to her friend, the African-American abolition-ist Sarah Douglass, “We Abolition Women are turningthe world upside down.” Next a series of six formallectures was booked at Boston’s huge Odeon theatre;Sarah gave the first, and Angelina, who was more of anatural orator than her elder sister, delivered theremaining five. Every square inch of space was packedout by an audience of up to 3,000 people.

The Female Anti-Slavery Society’s annual conven-tion was scheduled for mid-May 1838 in Philadelphia.Angelina and Weld decided to marry just before it sothat their activist friends would not need to make aspecial journey. Weld viewed the law that assigned allthe property of a wife over to her husband as pure van-dalism and looked forward to a ceremony in which he

23 J U N E 2 0 1 1

A b o l i t i o n i s t S i s t e r s

In 1838 Angelinabecame the firstwoman in U.S.history to address alegislative committee.

would make himself the exception. They had decidedto live in Fort Lee, New Jersey, and invited Sarah tojoin them.

So on May 14, 1838, the “most mobbed man” in theUnited States, according to the Grimké sisters’ 1967biographer, Gerda Lerner, married its “most notoriouswoman.”They invited scandal by having the ceremonyperformed before a mixed-race group, which includedGrimké family slaves who had been freed and werenow living locally. A black baker made the cake usingslave-free sugar.

Two nights later, also in Philadelphia, 3,000 aboli-tionists—mostly women—braved a braying mob toenter the new Pennsylvania Hall, which had beenfunded by abolitionists. Inside blacksand whites mingled, and The Libera-tor’s Garrison gave the first lecture.Angelina then spoke for an hour,during which the mob outsidehurled stones through newly brokenwindows. The mayor, perhaps notwanting to buck majority opinion,refused to intervene, and the conven-tion had to resume the next after-noon. But the mob grew and became even morevicious and intemperate. In response the mayor orderedthe evening session to be cancelled. Fearing in particu-lar for the safety of the black women, Angelina askedthe white women to link arms with their black sisters,and the mob reluctantly backed off as a line of reform-ers, alternately black and white, left the building. Themob soon looted the hall before burning it to theground. In polite circles and newspaper editorials, theconsensus was that the mob had been provoked bytroublemakers who did not know their place in society.

By 1839 Angelina’s health had become a major con-cern and was to remain so the rest of her life. But shehad three children, Charles Stuart Faucherauld Weld,born in 1839,Thomas Grimké Weld in 1841, and SarahGrimké Weld in 1844.

By the time the Civil War broke out in 1861 theWelds had come to the conclusion that conflict wasinevitable. “War is better than slavery,” Angelina wrote.The war energized the couple and brought them backinto the public eye.

The Grimké sisters were to hit the headlines one lasttime when in March 1870, aged 77 and 65, they led agroup of women in voting in a Lexington town elec-tion. They marched through the snow from a local

hotel, each carrying a bouquet offlowers, and placed ballots into a boxundeterred by the noisy barracking ofmale citizens. Of course the ballotswould not be counted, but the sistersclaimed to be the first women tovote—almost exactly 50 years ahead ofthe February 1920 passage of theNineteenth Amendment, which gavewomen the right to vote.

Sarah died in 1873, aged 81; Angelina followed herin 1879, aged 74.

The Grimké sisters were principled and steadfast,and made huge personal sacrifices. They were coura-geous, generous, and caring.They were also gifted writ-ers and public speakers, and clever strategists. But aboveall they were driven by an abhorrence of the idea thatone individual could own another. To that end theywere pivotal in the effort to see that notion pass froman unassailable part of American culture into the dust-bin of history.

24T H E F R E E M A N : w w w. t h e f r e e m a n o n l i n e . o r g

J o h n B l u n d e l l

The Grimké sisterswere principled andsteadfast, and madehuge personalsacrifices.

B Y R O B E R T H I G G S

Economic Analysis and the Great Society

Our Economic Past

Although the Great Society should be under-stood as primarily a political phenomenon—avast conglomeration of government policies

and actions based on political stances and objectives—economists and economic analysis played importantsupporting roles in the overall drama. Even when polit-ical actors could not have cared less about economicanalysis, they were usually at pains to cloak their pro-posals in an economic rationale. If much of this rheto-ric now seems to be little more than shabby windowdressing, we might well remind ourselves that the situ-ation in this regard is no better nowthan it was then.

Regardless of how political actorsin the 1960s might have sought toexploit economic analysis to gain aplausible public-interest rationale fortheir proposed programs, the mostprominent body of economic analysisin those days—the sort taught by theleading lights at Harvard,Yale, Berke-ley, and the other great universities—virtually cried out to be exploited inthis way. During the mid-1960s the so-called Neoclas-sical Synthesis achieved its greatest hold on the eco-nomics profession.

This term “synthesis” refers to the combination of amicroeconomic part, which contains the theory ofindividual markets that had been developed over thepreceding two centuries, and a macroeconomic part,which contains the ideas about national economicaggregates advanced by John Maynard Keynes in hislandmark 1936 book The General Theory of Employment,Interest, and Money and further developed by Keynes’sfollowers during the three decades after the book’spublication.

On the microeconomic side, the Neoclassical Syn-thesis incorporated the so-called New Welfare Eco-

nomics that had been developed during the 1930s,1940s, and 1950s. In this form microeconomic theoryadvanced a general-equilibrium theory of the econ-omy’s various markets, identified the conditions for theattainment of equilibrium in this idealized system, anddemonstrated that various “problems”—springing fromexternal effects, collective goods, less-than-perfectinformation, and less-than-perfect competition, amongother conditions—would cause the system to settle in astate of overall inefficiency: The value of total outputwould fall short of the maximum that would have

resulted from systemic efficiency,given the economy’s availableresources of labor and capital and itsexisting technology.

Attainment of such an inefficientstate was characterized as a “marketfailure,” and economists expendedenormous effort alleging the exis-tence of such market failures in real-world markets and in proposingmeans (mainly taxes, subsidies, andregulations) by which the government

might, in theory at least, remedy these failures and thusmaximize “social welfare.”

Had economic theorists rested content with usingthe microeconomics of the Neoclassical Synthesisstrictly as a conceptual device employed in abstract rea-soning, it might have done little damage. However, as Ihave already suggested, this type of theory cried out forapplication—which, in practice, was nearly always mis-application.The idealized conditions required for theo-retical general-equilibrium efficiency could notpossibly obtain in the real world; yet the economists

25 J U N E 2 0 1 1

Robert Higgs (rhiggs@independent.org) is a senior fellow at theIndependent Institute (independent.org), editor of The IndependentReview, and author of Neither Liberty nor Safety: Fear, Ideology, andthe Growth of Government (Independent Institute).

The most prominentbody of economicanalysis in the 1960svirtually cried out tobe exploited bypolitical actors.

readily endorsed government measures aimed at coer-cively pounding the real world into conformity withthese impossible theoretical conditions.

Closely examined, such efforts represented a form ofmadness. As the great economist James Buchanan hasobserved, the economists’ obsession with general equi-librium gives rise to “the most sophisticated fallacy in[neoclassical] economic theory, the notion that becausecertain relationships hold in equilibrium the forcedinterferences designed to implement these relationshipswill, in fact, be desirable.”

Great Society measures such as the Elementary andSecondary Education Act (1965), the Higher EducationAct (1965), the Motor Vehicle Safety Act (1966), andthe Truth in Lending Act (1968), aswell as many of the consumer-protec-tion and environmental-protectionlaws and regulations, found readyendorsement among contemporaryneoclassical economists, who viewedthem as proper means for the correc-tion of purported market failures.

The assumptions that underlaythese economic interpretations andapplications, however, could be sus-tained only by wishful thinking.Economists presumed to know where general equilib-rium lay, or at least to know the direction in which thequantities of various inputs and outputs should bechanged in order to approach general-equilibrium effi-ciency more closely. But neoclassical economists cannotmove the earth with a mathematical lever because theyhave no place to stand—no “given” information about(presumably fixed) property rights, consumer prefer-ences, resource availabilities, and technical possibilities.What neoclassical economics takes as given is, in reality,revealed only by competitive processes.

If the microeconomic side of the Neoclassical Syn-thesis fostered government measures to remedy a vari-ety of putative market failures, its macroeconomic sideendorsed government measures to remedy the greatestalleged market failure of all—the economy’s overallinstability and its recurrent failure to bring about acondition known as “full employment.”

The supposition that mass unemployment consti-tutes or reflects a market failure came easily to econo-mists who had reached maturity during the GreatDepression. By the early 1950s Keynesian ideas hadentrenched themselves among the leading lights of themainstream economics profession. Since then, somespecies of Keynesianism has been either in the profes-sional saddle or clamoring to get there.

In the 1960s few economists disputed this generalframework of analysis. Even critics such as MiltonFriedman accepted it, arguing only that certain second-order aspects of the model differed from what the Key-nesians assumed.

Few macroeconomists looked to monetary-policychanges as important means of push-ing an economy out of what theyviewed as a mass-unemploymentequilibrium. For the typical macro-economist of those days, fiscal pol-icy—changes in government spend-ing, taxing, and borrowing—held thekey to keeping the economy on asteady growth path. By employingthese instruments policymakers couldeffectively select from a menu ofinversely related rates of inflation and

unemployment, a tradeoff schedule known as the stablePhillips Curve. As if to certify the completeness of Keynesianism’s conquest, in December 1965 Timemagazine put an image of Keynes on its cover and fea-tured a long, laudatory article titled, “We Are All Key-nesians Now.”

The Great Society programs, whether for microeco-nomic remedy of alleged market failures or for macro-economic fine-tuning, had an important element incommon: the presumption that technocrats possessedthe knowledge and the capacity to identify whatneeded to be done, to design appropriate remedialmeasures, and to implement those measures successfully.In short, the Great Society amounted to social engi-neering—or worse, to sheer, groping social experimen-tation—on a grand scale. People ought not to havebeen surprised when its attainments failed to match itspretensions.

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R o b e r t H i g g s

What neoclassicaleconomists take for agiven is, in reality,revealed only bycompetitive processes.

In the wake of both the collapse of the Sovietempire and the more recent U.S. interventions inIraq and Afghanistan, we have seen a lively debate

on nation-building. Many people who are ordinarilyskeptical about the power of the U.S. government as aforce for good, either at home or around the world,have come to believe that it can take on the suppos-edly noble task ofrebuilding nationsthat have beenplunged into chaosby political upheavaland/or war.

Although thephrase “nation-build-ing” sounds muchmore constructiveand well-intentionedthan the destructionand death that havenormally accompa-nied the use ofAmerican power, thereality is that attemptsto build nations arelikely to fail. What the nation-builders overlook is adistinction made by Ludwig von Mises almost 100years ago: A nation is not necessarily the same as a“state.” In his underappreciated little book Nation,State, and Economy, Mises argued that “nations” aredefined not by geography or by political institutions,but most fundamentally by language and other similarcultural institutions that provide a basis for “mutualunderstanding.”

Therefore the nation, Mises argued, cannot beunderstood as a static object that we can manipulate aswe wish: “Nations and languages are not unchangeablecategories but, rather, provisional results of a process inconstant flux; they change from day to day, and so wesee before us a wealth of intermediate forms whoseclassification requires some pondering.”

This evolution-ary perspective onwhat constitutes anation suggests thatit may be very diffi-cult for an externalobserver to evenknow whether agiven mass of peopleconstitutes a “nation,”much less be able toknow what it wouldtake to build anation out of theircurrent “intermedi-ate form.” As weknow from F. A.Hayek, people learn

how to coordinate their behavior with one another viasuch evolutionary processes. In other words nations arespontaneous orders that emerge from the daily choices ofpeople about the language they use and the other waysin which they participate in, or withdraw from, a variety

B Y S T E V E N H O R W I T Z

Is a Nation Something That Can Be Built?

27 J U N E 2 0 1 1

Contributing editor Steven Horwitz (sghorwitz@stlawu.edu) is theCharles A. Dana Professor of Economics at St. Lawrence University and acolumnist at TheFreemanOnline.org.

U.S. Army photo/Spc. Eddie Siguenza

of cultural forms. The people themselves constitute a“nation” by their individual choices.

States imposed on nations by princes, Mises con-tended, are doomed to fail because they normallyattempt to eliminate all forms of community that liebetween the prince and the people. Anything that doesn’t come from the State is to be dissolved. In otherwords imposed States dislike and destroy the delicate,complex, and evolved connections that comprise a truenation. This is why totalitarian regimes try to controllanguage, religion, family, and all of the other interme-diary institutions between individual and State: becausethose institutions help to define what it means to be anation as distinct from a State. They provide a bufferbetween the evolving choices of individuals and theattempt to control those choicesfrom the top down.

Like other attempts to controlspontaneous orders, nation-buildingfaces significant knowledge prob-lems. It is no different in principlefrom attempting to plan an economydomestically. As Mises and Hayekpointed out decades ago, when plan-ners attempt to allocate resourcesfrom the top down, they have nomarket signals to guide their behav-ior or to indicate what value people place on variousoutputs and inputs—that is, no prices with which toengage in economic calculation.

Nation-building is even harder than central plan-ning at home. Once we understand that true nationsare the unintended consequence of decentralized cul-tural processes involving millions of choices by millionsof people, the absurdity of trying to build a nation as ifit were a child’s toy or even a skyscraper becomes clear.Mucking around in processes that are too complex tounderstand in all of their relevant causal connections isalmost certain to produce unintended and undesirableconsequences. All the intermediary institutions thatdefine a nation (such as language, customs, religion, andfamily) themselves have strong elements of spontaneousorder to them because they grow out of the day-to-daypractice of individuals with no overarching plan.Theseare ways in which individuals try to coordinate their

behavior, slowly evolving institutions to assist them.Such processes of coordination work best when indi-viduals and small groups are free to use their own par-ticular knowledge to determine what will improvetheir lives. To build a nation, in Mises’s terms, wouldrequire one to be able to do a better job than thedecentralized social processes described above.

Economist Chris Coyne, in his wonderful bookAfter War, confirms that postwar reconstruction (theform recent nation-building has taken) suffers from thesame sort of knowledge problem that faces those whowould “build” an economy domestically. If Mises andHayek were right about the impossibility of socialistplanning because economies are simply too complex tobe surveyed by one mind without the help of signals

such as prices, then nation-building is equally impossible. Just as the intervention of economic plannersinevitably produces results that runcounter to their stated goals, leadingthem to intervene again to solve thoseproblems, so will nation-building cre-ate pushback and new forms of cultureand community that frustrate thedesigns of the builders.The quagmiresof Iraq and Afghanistan are clear evi-dence for this argument.

Coyne articulates a number of propositions thatexplain the failure of attempts at “exporting democ-racy.” Three of those are of particular relevance to theargument here.

Why Democracy Can’t Be Exported

First, he argues that while economists and othersocial scientists have a pretty good idea of what

constitutes a functional nation, they have much lessknowledge about how to bring a “failed nation” to thatpoint. How nations emerge is a process that is bothcomplex and unique to each particular country.All thatwe can do is get out of the way and let people figure itout for themselves.

Coyne also distinguishes between the factors thatnation-builders can control and those they cannot.He argues that the uncontrollable factors are what we generally call “culture” or the “informal rules and

28T H E F R E E M A N : w w w. t h e f r e e m a n o n l i n e . o r g

S t e v e n H o r w i t z

Imposed statesdestroy the delicate,complex, and evolved connectionsthat comprise a true nation.

institutions” that constitute societies. These factorsconstrain those that we can control. In other wordsthere are things nation-builders can attempt to do,such as initiate democratic elections as the U.S. gov-ernment did in Iraq, but the success of those formalchanges depends greatly on whether they are consis-tent with the underlying culture. Just putting formalchanges in place because you can control them doesnot mean they will produce the desired result.

Nirvana-Building

Finally, Coyne points out that many attempts atnation-building suffer from what economists have

long called the “Nirvana fallacy.”Thatfallacy lies in comparing the imper-fection of existing reality to the per-fect world they can imagine in theirtheories or on their chalkboards, thencondemning reality for failing tomeasure up. In the chalkboarddescriptions of how nation-buildingshould take place, planners are pre-sumed to be guided by the publicinterest with all the information theyneed to generate the desired out-comes. I have already discussed theproblem with the latter.The former, though, also omitsthe imperfections of politics.The knowledge problem iscompounded by perverse incentives.

There is a pitfall in assuming that those charged withusing the political process to build, or rebuild, a nationwill ignore their self-interest and be motivated solely bythe public interest. Nation-builders need to correctlyidentify the public interest. Although they may knowwhat the endpoint is, knowing what path will generatethat socially desirable outcome is the fundamental chal-lenge. It is not possible for them to know if any givennation-building action is actually in the public interest.With that constraint we should not be surprised to see

the self-interest of the nation-builders predominating.Coyne documents how political self-interest has ruledU.S. nation-building efforts in Iraq and Afghanistan,manifested in the cozy relationships American politiciansand policymakers have with private-sector firms withwhom they had preexisting associations. Nation-buildingis a fertile ground for the sorts of corporate-State part-nerships that undermine genuinely free markets.

Liberalism and Anti-Imperialism

Coyne’s book and the broader arguments I haveoffered above are part of the long-standing clas-

sical-liberal tradition of anti-imperialism. Perhapsbecause of the accidental alliancescreated by the Cold War, many haveforgotten that tradition. In fact, clas-sical liberals have always believed thatthe best way to encourage nationaldevelopment is through trade ingoods and services and ideas—notthrough political or military inter-vention, even in the name of helpingothers.

The arguments against nation-building are much the same as thoseagainst domestic intervention (which

can be recast as “economy-building” or “morality-building”). Both spring from the mistaken belief thatoutsiders can do better than the arrangements thatemerge spontaneously and evolve continuously as indi-viduals engage with each other. Both suffer from insur-mountable knowledge problems and the perverseincentives of the political process. A better choice is toencourage unhampered exchange—within andbetween nations. Failure to grasp the impossibility—and often brutal consequences—of nation-building canremove yet another bulwark against further domesticintervention. If we can build a nation to our likingoverseas, after all, why can’t we do it at home?

29 J U N E 2 0 1 1

I s a N a t i o n S o m e t h i n g T h a t C a n B e B u i l t ?

The rise of the SovietUnion and the ColdWar significantlyweakened theassociation betweenclassical liberalism andanti-imperialism.

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Ranchers are a fairly independent bunch. Wedon’t like overweening authority and preferto fend for ourselves.We also find few things

more objectionable than sitting endlessly indoors. Nev-ertheless, 2,000 of us did just that several months ago inthe ballroom of Colorado State University. Our ball-room session wasn’t very romantic, I’m afraid. Whilemost of us had hats, an awful lot of them were in handsinstead of on heads, and the only black hats to be foundwere of the very literal vari-ety. If the setting wasn’texactly invigorating, thetopic was even less so:understanding why thefamily-scale cattle industryis going broke and whyeither Big Meat or BigGovernment is helping itdown the drain.

We had dragged our-selves from all over thecountry to provide testi-mony to Attorney General Eric Holder and AgricultureSecretary Tom Vilsack about “Competition Issues Fac-ing Farmers in Today’s Agricultural Marketplaces.”Despite the extravagant title the themes of the day were simple: Is the oncoming demise of a traditionalway of life the result of malfeasance by multinationalbeef companies? Is the 30-year trend of lower prices for the calves we produce the result of consolidationand conspiracy in the meatpacking industry? Is the U.S. government complicit in this evolution or is it thekindly big brother, helping us take on the schoolyardbullies?

I’m afraid that after six hours of public testimony Igained no sense of any nefarious manipulations by thecorporate big boys. Instead I got an inkling that someof us in the industry would rather see higher prices forour cattle (no kidding?), that ranchers ought to get a“fair shake” (whatever that means), and that big beefcompanies should open the books to their privatetransactions (since Big is evil, privacy rights needn’tapply).

The sad facts are indis-putable, but how weexplain them is not. It istrue that well over 80 per-cent of the meatpackingindustry is now in thehands of four conglomer-ates. Family cattle opera-tions are disappearing at therate of one thousand permonth and over 40 percentof them have evaporatedsince 1980. The percentage

of the food dollar received by ranchers has droppedover 25 percent since 1970. In my hometown in 1969 a rancher could buy a new pickup with the profit froma trailer-load of 15 steers; it now takes a semi-load of44, according to my calculations (with the help of theUniversity of Arizona’s agricultural economics depart-ment). Economics suggests that these little factoids tellus practically everything we need to know about themodern beef industry.

B Y PA U L S C H W E N N E S E N

“Big Meat” and Big Government

Paul Schwennesen (AgrarianLiberty.com) is a southern Arizona rancherand regular contributor to PERC, the Property and Environment ResearchCenter.This article first appeared at TheFreemanOnline.org.

Subsidies have made vast feedlots possible.NDSU Ag Comm [flickr]

31 J U N E 2 0 1 1

But what of it? Do these daunting numbers indicateillegal activity in the meat sector? If a federal probewere to unearth hard evidence that Cargill, Tyson,National, or JBS was engaged in fraud or theft, I wouldbe the first to clamor for a swift legal response.After all,one of the few legitimate roles of government, as Jeffer-son put it, is to “prevent men from injuring oneanother.” Barring such evidence, however, it is my viewthat the consolidation of the meat industry is really dueto a couple of problems unrelated to corporate meatprocessors. In fact Big Meat is simply the byproduct oftwo seemingly “good” government programs: agricul-tural subsidies and stringent processing regulations.

The Effect of Subsidies

According to the Cato Institute, the governmentfunnels upwards of $30 billion per year into cash

subsidies to farmers and owners of farmland. Seventy-two percent of it goes to the largestten percent of recipients, effectively(but not surprisingly) countering theoriginal New Deal intention of sup-porting small family farmers. ChrisEdwards writes:

The extensive federal welfaresystem for farm businesses is costlyto taxpayers and it creates distor-tions in the economy. Subsidies induce farmers tooverproduce, which pushes down prices and createspolitical demands for further subsidies. Subsidiesinflate land prices in rural America.And the flow ofsubsidies from Washington hinders farmers frominnovating, cutting costs, diversifying their land use,and taking the actions needed to prosper in a com-petitive global economy.

In the meat industry, in case you think we’reexempt, artificially subsidized feeder grain has signifi-cantly altered the cow-calf industry. Cheap feed grainencourages concentrated feedlot systems, and these sys-tems naturally tend to conglomerate as the efficienciesscale up beyond imagination (500,000 head of cattle inone feed yard is not unheard of today). It’s difficult toquantify the price effects of subsidized corn on calf

prices (economists at the University of Arizona place itat 1 percentile or a bit more), but it’s safe to assume thatthe tremendous efficiency and scale of feedlots (theonly ones doing any significant buying) lead to lowercalf prices at the sale yard. By way of comparison, alocally processed, directly marketed steer can netaround $1,500 to the producer who raised it. In thecommodity sector, where the rest of the cattle are mar-keted, the USDA estimates the average per-head returnat $15 below production cost! Subsidies contribute inlarge part to the market manipulations that allow suchan incredible discrepancy to exist.

But are there any alternatives to agricultural subsi-dies? Won’t their removal be a catastrophic blow to analready ailing industry? How can we toy around withfood production, arguably the most precious sector ofour economy? Luckily an experiment has already beenrun for us, and the results are encouraging. Farm subsi-

dies ended in New Zealand in 1984.The effects on New Zealand agri-culture have been overwhelminglypositive. According to the RodaleInstitute, “New Zealand agriculture isprofitable without subsidies, and thatmeans more people staying in thebusiness. Alone among developedcountries of the world, New Zealandhas virtually the same percentage of its

population employed in agriculture today as it did 30years ago, and the same number of people living inrural areas as it did in 1920.”

New Zealand’s farmers and ranchers are significantlybetter off today than in the heyday of government“assistance.”We should take note.

Overregulation of Processing

Overregulation of food processing has done more tohurt ranching families than they even know.

Heavy regulation makes it extremely difficult to enterthe slaughter-and-processing sector since the risks arehigh and the regulatory hurdles immense. It’s easier tobuild a centralized feedlot/packing house if you are aCargill with huge capital reserves and an army of tech-nicians than it is to build a USDA certified mom-and-pop packing facility. The reason is simple: Reams of

“ B i g M e a t ” a n d B i g G o v e r n m e n t

New Zealand endedfood subsidies in1984, withoverwhelminglypositive results.

paperwork, tests, constantly updated procedures, and riskcreate an almost insurmountable barrier to entry. Thedecline in the number of packinghouses is even moreprecipitous than the decline in family farms. Accordingto the USDA, the number of cattle slaughter plantsdeclined by over a third from 1996 to 2006.

Restricted Alternatives

The inability to process animals locally has guaran-teed that cow-calf producers are locked in to the

local auction yards and the attendant cattle-buyers.Alternative marketing opportunitiessuch as direct-marketing are hugelymore difficult without the processingfacilities.

As both a cow-calf producer andowner of a tiny packinghouse myself,I can attest to the forbidding array ofregulatory restrictions that hampercreativity and production. Forinstance, we thought that grassfedhotdogs would be a popular item tosell. It turns out that USDA facilitiescapable of making them will not accept our state-inspected meat (even though they would be happy toaccept non-USDA inspected meat from abroad). Ortake jerky:While all-natural grassfed jerky would prob-ably be an excellent and desirable product, inspectorshave dismissed the notion out of hand (“Have you seenthe regs on Listeria alone? It’s three inches thick!” saidone). Managing a packinghouse according to stringentregulation is a crushing burden for anyone, particularlyif you are not terribly well connected or financially

backed. Government’s genuine concern over safe foodhas created a megalithic bureaucracy that aims to elim-inate all foodborne risk, even if it comes at the cost oflocal, small-scale food production.

We all want to see the next generation be able tostay on the land and make a respectable living. Somesuggest that we ask for government programs, grants,and artificial market manipulation.The rest of us needto ask the government to step away from the officiousbehavior that has caused the very problems we are try-ing to address.

Accusations of feedlot and packer“collusion” and “price-fixing” areunwarranted if these businesses aresimply doing what everyone else isdoing: buying as low as they can andselling as high as possible.That they’veoffered lower and lower calf pricesover the years does not indicate illegalbehavior; they’re not charities after all.While it’s doubtful that they maintainspotless records, we should be awfullysuspicious of demands for govern-

ment guarantees of “fair” prices to their suppliers. Wemust keep in mind where the true culprit lies: squarelywithin the unintended consequences of governmentmeddling in the marketplace.

Inviting authoritarian oversight into your competi-tor’s business always seems like a good idea at the time,but when the same authorities start pounding on yourdoor the notion loses some of its charm. Asking gov-ernment to break the back of Big Meat is like askingyour hangman to pull the next guy’s lever first.

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32T H E F R E E M A N : w w w. t h e f r e e m a n o n l i n e . o r g

We need to ask the government tostep away from theofficious behaviorthat has caused these problems.

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One wrong conclusion being drawn from lastwinter’s popular uprising against the dictator-ship in Egypt is that the American govern-

ment could ignore such things if we were “energyindependent.” (It’s unclear if this means independent ofMiddle Eastern oil or completely independent.) Amoment’s reflection should be enough to jettison thatthought, but even if oil were all that were at stake,energy independence would be a terrible idea. It’s per-plexing that self-described free-market advocates wouldfavor such a policy.

As a student of Austrian economics I know I cannotforesee what the domestic energymarket would look like or what therelative prices would be if all U.S. reg-ulations, taxes, and privileges wereabolished. But I submit that thosewho think the United States would beenergy self-sufficient have the sameknowledge limitations. It seems highlyunlikely that Americans would importno oil from the Middle East or else-where. (More on this below.)

Unwise and Unnecessary

But even if things should work out that way, it is notsomething to be sought. Making self-sufficiency a

goal would only promote protectionism—to the bene-fit of privileged interests—and encourage intervention-ists. Let’s not give them a helping hand.

What if freeing the domestic market did not pro-duce energy independence? Should the governmentgive it a nudge? Do banning imports, subsidizing alter-native forms of energy, and mandating conservationsound like good ideas? Have we forgotten all that weknow about bureaucratic ignorance, perverse incen-tives, and naked corruption? When one considers howpervasive energy is economically, one realizes that a

serious comprehensive energy policy would requiresquaring or cubing the current corporate state. Nothank you.

Concerns about Middle East oil—which persistalthough only 24 percent of U.S. crude-oil importscome from that region—center largely on fears that anunfriendly ruler might cut off shipments. But theseconcerns are baseless. Any oil-producing country willwant to sell to someone.What else is there to do withcrude oil? The opportunity cost of leaving it all in theground would be enormous (unless prices wereexpected to rise dramatically). And even if a ruler tried

to embargo the United States, theadditional oil he sold to other coun-tries (at necessarily lower prices)would find its way here. Economicinterest and the market process—despite all the impediments—guaran-tee it.

I’ve previously discussed the mis-conceptions about the 1970s OPECoil embargo. I pointed out that thehardship of that period was strictlythe result of the U.S. government’s

price controls and other interventions in the oil andgasoline industries, which discouraged producers frombringing supply to market. Even so, “[d]espite theembargo,” economist Donald Losman wrote, “U.S. oilstockpiles fell only slightly, and, by March 1974, theywere growing again.” (“Trading for Security,” Decem-ber 2010, tinyurl.com/28wzzh4)

In other words, the embargo failed. As the Saudi oilminister put it later, “[T]he embargo was more sym-bolic than anything else. . . . [T]he world is really justone market.” Bingo.

Even if thegovernment couldmake the U.S.self-sufficient, it’s not something to be sought.

B Y S H E L D O N R I C H M A N

The Wrong Lesson from Egypt

Peripatetics

Sheldon Richman (srichman@fee.org) is the editor of The Freeman andTheFreemanOnline.org.

Another fear is that Middle Eastern turmoil coulddisrupt oil shipments, and this is surely possible. Theanswer to that is diversification, which a freed entrepre-neurial market would encourage and permit. We neednot refuse oil from the region because someday itmight not be available.That’s Karl Pilkington logic.

That should dispel the fears of energy dependence.Indeed, as Freeman columnist David Henderson pointsout (“Let’s Not Be Energy Independent,” October2008, tinyurl.com/na4wex), the casefor the market is all about dependence.We gain from exchange throughlower costs thanks to the division oflabor and comparative advantage,which deliver the benefits of special-ization. Self-sufficiency would beexpensive and thus reduce our stan-dard of living, harming the least well-off among us. How in the world canwe account for apparently pro-marketpeople looking to the government to “reduce ourdependence on foreign oil”?

Let It Take Its Course

Idon’t wish to underestimate the distortions govern-ment intervention has wrought in the energy market

or how it encourages consumption of Middle Easternoil. Imagine that the oil companies could not count onthe U.S. departments of defense and state or the CIA toprotect their access to and transport of that oil—at hid-den taxpayer expense. Imagine that they had to foot

that cost themselves and charge prices for their prod-ucts that reflected those costs in competition withalternatives that did not have to recoup those expenses.Consumers would then make choices with their eyeswide open. Maybe oil from halfway around the worldwouldn’t look so attractive. As I said at the outset, Idon’t know what a freed energy market would looklike. But nothing in this uncertainty supports a policyof energy self-sufficiency. Free the market of all imped-

iments and privileges—and let it takeits course.

Whether there are many yearsremaining of low-cost oil under-ground or not, the case for freeing themarket is the same. As that Saudi oilminister also said, the Stone Ageended, but not because mankind ranout of stones. Likewise, the Oil Agewill end, but not because mankindhas run out of oil. I would only add: if

the market is really freed.Events in Egypt and neighboring countries are only

the beginning of a spreading resistance to dictatorshipthroughout the region.As inhabitants of a land born inrebellion against tyranny, we should view this withhope. Freedom will enable us to weather any turmoil asbest as can be expected.There is no reason to wish forthe unnatural state of self-sufficiency.

A final point: One way to help eliminate the needfor uprisings such as we saw in Egypt would be for theU.S. government to stop supporting dictators.

S h e l d o n R i c h m a n

34T H E F R E E M A N : w w w. t h e f r e e m a n o n l i n e . o r g

We need not refuseoil from the regionbecause someday it might not be available.

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35 J U N E 2 0 1 1

Last December a “mutiny” occurred in a Montanacourtroom.At least that’s what a stunned countydeputy attorney called it. One of 27 members of

a jury pool spoke up to ask why taxpayer money wasbeing wasted to prosecute a man accused of possessing1/16th of an ounce of marijuana.When polled, a largemajority of the potential jurors indicated their reluc-tance to convict on such a minor possession.

The judge called a recess and the prosecutor workedout a plea deal, which read,“Public opinion, as revealedby the reaction of a substantial por-tion of the members of the jury . . . isnot supportive of the state’s marijuanalaw and appeared to prevent any con-viction from being obtained. . . .”

Technically jury nullification didnot occur because no jury had beenseated. Nullification occurs when ajury in a criminal case either acquitsor refuses to convict a defendantdespite the letter of the law or theweight of evidence. In effect the jurypasses judgment on the justice of thelaw and refuses to facilitate what it deems to beunjust.

Nullification is often held up as a populist defenseagainst oppressive or corrupt law, but many questionssurround the legal procedure.

Natural Right, Necessary Legal Procedure?

The most basic question: Is jury nullification—or,more broadly, trial by jury—a natural right or

merely a legal procedure to be judged on its utility inpreserving justice? If trial by jury is a natural right, akin

to freedom of speech, then no other considerationshould interfere with it. If it is a strategy, then otherconsiderations become powerful.

Trial by jury has acquired the air of a natural rightfor several reasons.

The proceeding has been enshrined in some ofWestern civilization’s most venerated statements ofindividual rights. In Trial by Jury, the nineteenth-cen-tury American legal scholar Lysander Spooner trans-lated Article 39 of Magna Carta (1215) as protecting all

free men from the abridgment of lib-erty except “by the lawful judgmentof his peers, and or by the law of theland.”

Among the “repeated injuries andusurpations” of King George listed inthe American Declaration of Inde-pendence was “depriving us [colo-nials] . . . of the benefits of Trial byJury.” The Sixth Amendment to theU.S. Constitution opens,“In all crim-inal prosecutions, the accused shallenjoy the right to a speedy and public

trial, by an impartial jury. . . . ”In practice, trial by jury has sometimes served as a

clear front-line defense against oppressive laws. Jurynullification was explicitly embedded into British com-mon law in 1670, when an English jury refused to con-vict William Penn for preaching Quakerism; the jurorswere imprisoned. In ruling on their imprisonment theEnglish high court stated that juries must be able to

Nullification is heldup as a populistdefense againstoppressive or corruptlaw, but manyquestions surround it.

B Y W E N D Y M C E L R O Y

Jury Nullification: Right, Remedy, or Danger?

Contributing editor and FreemanOnline.org columnist Wendy McElroy(wendy@wendymcelroy.com) is an author and the editor of ifeminists.com.

reach their own decisions without fear of punishment.In 1735 jury nullification was affirmed in colonialAmerica when jurors refused to convict publisher JohnPeter Zenger for printing criticisms of the governor ofNew York.

Moreover, prominent nineteenth-century libertari-ans viewed trial by jury as an indispensable weaponagainst injustice. The publisher Benjamin Tuckerdeclared, “The truth is that jury service is of muchhigher importance than the right of suffrage.”

But others argued that trial by jury was neither aright nor a trustworthy service to liberty.

Certainly it is difficult to view the act of passinglegally binding judgment on others or demanding oth-ers to pass such judgment on you as a direct right basedon self-ownership. For one thing, if the procedure is aright, then others have a duty to pro-vide it for you; in other words itwould be an entitlement or positiveright, not a natural or negative one.Instead advocates like Spooner andTucker considered trial by jury to bea delegated right. Since an individualcan properly weigh evidence andfacts for himself—that is, can try hisown case—he could properly dele-gate that right to others who werewilling to assume it.

But the delegation of rights could not be presumed.Spooner wrote of the omnipresent need for explicitdelegation of any right: “No one’s consent could bepresumed against him, without his actual consent beinggiven. . . .And to make it binding upon any one, his sig-nature, or other positive evidence of consent, was . . .necessary.”

How, then, could a jury claim jurisdiction over aman who refused to delegate his right? Certain laws orsocietal conditions were so obviously beneficial thatSpooner assumed everyone would agree to them. Nev-ertheless if some individuals objected to trial by jury,perhaps preferring a panel of experts, then “they must . . . form a separate association for that purpose.”

In short, even its staunchest advocates viewed trialby jury as neither a natural right nor an automaticallydelegated one. It was an active preference.

Is Trial by Jury Good for Liberty?

Akey question for any strategy is whether it achievesits intended goal.With trial by jury or nullification

the goal is to protect individuals against unjust law.Many critiques of its effectiveness are utilitarian andaddress how best to structure a jury. For exampleemphasis is placed on the need for a randomly chosenjury rather than a selected or screened one that can besculpted by the State.

Other critiques are more fundamental. For examplejuries can easily achieve the opposite of their intendedgoal; they can further injustice by refusing to convictthose who are guilty of violating just law.

Consider one historical type of jury nullification. Inthe early and mid-twentieth century, all-white juries inthe South notoriously refused to convict whites who

attacked or murdered blacks.The twoearly trials of Ku Klux Klan memberByron De La Beckwith for the 1963murder of black civil rights activistMedgar Evers are shameful examples.Only in 1994, when the political cli-mate had dramatically changed, wasBeckwith convicted in a third trial.

Jury nullification is also cited as afactor in the acquittal of police offi-cers who use excessive force. Evenwhen the violence is videotaped,

juries are flagrantly reluctant to apply the law to on-duty officers as they would apply it to the average citi-zen. In short whether a jury likes a defendant can easilydetermine a verdict.

Nevertheless it is often claimed that nullificationresults in justice more often than not. In his essay “The Jury: Defender or Oppressor,” contemporary libertarian Michael E. Coughlin described how effec-tive jury nullification could be: “During the 19th cen-tury in England there were some 230 capital crimes,that is crimes which would result in capital punish-ment for the convicted. Because juries continuallyrefused to convict many of the people charged withcapital crimes, believing the punishment was far out ofproportion to the crime itself, Parliament eventuallywas forced to reduce the number of capital crimes inEngland.”

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36T H E F R E E M A N : w w w. t h e f r e e m a n o n l i n e . o r g

Even its staunchestadvocates viewed trialby jury as neither anatural right nor anautomaticallydelegated one.

37 J U N E 2 0 1 1

Unfortunately, no similar data on the rate of injus-tice from nullification seems to exist. The nineteenth-century libertarian Stephen Byington argued, however,that prejudice need not be widespread for it to disas-trously impact the jury system.“If only ten per cent ofthe people were of this sort [unfair], more than sixty-four per cent of the juries would include one or moreof these men to prevent a convic-tion.”

In short, jury nullification canoccur for reasons good or ill, fromingrained justice or from inbred prej-udice. Just laws may be as vulnerableto nullification as oppressive ones.

A Cost-Benefit Analysis

As a strategy trial by jury or nulli-fication has advantages; for

example, it creates no law. Moreover,it can counter the corruption of indi-viduals. Spooner argued that jury power was requiredprecisely because “justices are untrustworthy . . .exposed to bribes, are fond of authority, and are also thedependent and subservient creatures of the legislature.”

The strategy also has disadvantages. Consider one:The doctrine of the rule of law claims no one is abovethe law, which should be well-defined and stable rather

than arbitrary. Thus the average person is protectedfrom the shifting will of an elite and able to act withsome degree of certainty about the future. But if onepurpose of law is to provide a predictable society, jurynullification introduces a large element of uncertainty.To the extent laws are just and evenly applied, therewould seem to be tension between nullification and a

proper rule of law.Trial by jury and jury nullification

are championed as a grassroots strat-egy for freedom by some and decriedas a form of “thug tyranny,” or major-ity rule, by others. Clearly, it can func-tion as either. History demonstratesthat juries can facilitate injustice.

Individuals are responsible onlyfor their own actions, not for themisdeeds of others. But wheneverpossible, moral preference should begiven to strategies like nonviolentresistance or education that do not

carry the likelihood of harming innocent others. Notall strategies are equal; trial by jury may well be lessequal than others.

Nevertheless, it is difficult to hold back applause atthe mutiny in Montana, which demonstrated how thegood will and common sense of a handful of fair peo-ple can defeat an unjust law.

J u r y N u l l i f i c a t i o n : R i g h t , R e m e d y, o r D a n g e r ?

If one purpose of lawis to provide apredictable society,jury nullificationintroduces a largeelement ofuncertainty.

If you own a gun in Illinois, take precautions. Thestate attorney general, Lisa Madigan, wants to releasethe names of gun owners in response to an Associ-

ated Press request. Publication of that list would tell thecriminal class where the guns are, which could be usefulto two different sorts of lawbreakers: gun thieves whowant to know where the guns are and burglars whowant to know where they are not.

New York City released its list recently at the NewYork Times’ request. It included “dozens of boldfacenames and public figures: prominent business leaders,elected officials, celebrities, journalists, judges andlawyers,” the Times reported. It then named names.

People who want the lists made public say the dis-closure is necessary to assure that government doesn’tissue permits to felons. They point to an AP report that gun permits were given to hundreds of felons inFlorida, Tennessee, and Indiana. So because govern-ment is not competent enough to obey its own rules,the rest of us must have our privacy compromised? I don’t buy it.

As Richard Pearson of the Illinois State Rifle Associ-ation says: “There is no legitimate reason for anyone tohave access to the information.The safety of real peopleis at stake here. Once this information is released, it willbe distributed to street gangs and gun-control groups,who will use the data to target gun owners for crimeand harassment.”

Good point. One nice thing about concealedweapons is that even people who don’t carry guns aresafer because the muggers can’t tell who is armed andwho isn’t. Releasing the list of permit-holders under-mines that benefit. It’s not unusual for a woman who hasbeen threatened by an ex-husband or boyfriend toobtain a gun and a carry permit for self-protection.Whyshould the threatening male get to find out if thewoman is armed?

The anti-gun lobby downplays this danger as though

it were inconceivable that someone would get names offa list in order to commit violence. However, we knowof cases where people named on sex-offender registrieswere murdered.

We also know that lawful gun owners in NewOrleans had their guns confiscated by governmentauthorities after Hurricane Katrina.

No one should be soothed by assurances that publi-cation of those lists poses no threat to law-abiding gunowners.

The only reason that governments have lists of gunowners is that they require licenses or concealed-carrypermits. The right to self-defense, and therefore theright to buy and carry a handgun (the most effectivemeans of self-defense), should require no one’s permis-sion. It is a natural right.The Second Amendment didn’tinvent the right to own guns. It merely recognized it:“[T]he right of the people to keep and bear arms shallnot be infringed.” It doesn’t say, “The people shall havethe right to keep and bear arms.”

Unfortunately, the Supreme Court, while strikingdown outright bans on handguns, left room for permits.But it’s hard to see how that is consistent with the natu-ral right of self-defense.

I leave aside whether a felon who has served hissentence should be deprived of the means of self-defense because there’s a more practical point: Gunlaws have no effect on people who plan to break other,more serious laws. Guns are the tools of the criminaltrade. If people in that business can’t get them legally,they’ll get them in the black market. And where thereis prohibition, there has always been a black market.

The law of supply and demand is as reliable as thelaw of gravity.

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B Y J O H N S T O S S E L

Gun Owners Have a Right to Privacy

Give Me a Break!

John Stossel hosts Stossel on Fox Business and is the author of Myths,Lies, and Downright Stupidity: Get Out the Shovel—WhyEverything You Know is Wrong. Copyright 2011 by JFS Productions,Inc. Distributed by Creators Syndicate, Inc.

Must a Formal Legal SystemCome before Prosperity?

It was disheartening to read John Stossel’s uncriticalendorsement of Hernando de Soto’s diagnosis of thecauses of poverty in Third World nations as their lack ofstreet addresses and legal titles to property (“Why Dothe Poor Stay Poor?,” March 2011, tinyurl.com/4w4gq6c). The error of these claims in De Soto’s TheMystery of Capital (2000) has been pointed out by sev-eral authors. . . .

First, people who have property that would qualifyfor a street address, if such address system existed, … arenot among the poor. Second, in the same Third Worldcountry, there are rich as well as poor people.The lackof a street address thus cannot explain why the poor arepoor.Third, in the formal and informal sectors of ThirdWorld countries, people acquire loans all the timewithout the presentation of government certified titlesto property. Indeed, de Soto himself describes thevibrancy of economic activity in Brazilian favelaswhere, for example, “street cottage industries havesprung up . . . manufacturing anything from clothingand footwear to imitation Cartier watches and VuittonBags.” Fourth, Stossel buys into de Soto’s mistaken viewof lawlessness in most of the Third World: “They needthe rule of law. But many places in the developingworld barely have law.” But de Soto contradicts himselfon that claim, too:“[A]sset owners in the extralegal sec-tor are . . . relatively well organized [and] ‘law–abiding,’although the laws they abide by are not the govern-ment’s.” Furthermore, people “in the undercapitalizedsector do have . . . strong, clear, and detailed under-standings among themselves of who owns what.” (Formore on de Soto’s self-contradictory claims, see “Mys-tifying the Concept of Capital: Hernando de Soto’sMisdiagnosis of the Hindrance to Economic Develop-ment in the Third World,” Independent Review, Summer2008, tinyurl.com/3zwnda7.) In fact, only in the mostchaotic countries or failed states are crimes against pri-vate property not punished by law.

De Soto’s claims have fascinated some in the libertar-ian community who find someone, originally from aThird World country, Peru (but who did not grow upthere), arguing that adopting capitalism and the rule oflaw would eliminate poverty around the world to be auseful ally. But de Soto has an incorrect understandingof the economic history of the more developed coun-tries, including such recent ones as South Korea andHong Kong, as well as of the hindrance to economicdevelopment in the less-developed countries. He doesnot recognize that economic development or thegrowth of wealth preceded the development of legaltitles to property in the now-developed countries.Thushe seeks to reverse the order of causality: Institute legaltitles to property and economic development will fol-low! He also does not recognize that savings constitutethe “capital” that may be borrowed with or without thepresentation of legal titles to property.Titles to propertymay qualify someone for a loan, but without savings inthe community, there would be nothing to lend. Indeed,de Soto believes that knowledge of the source of “capi-tal” for economic development is a “mystery” for peoplein both the more-developed and less-developed coun-tries. But Adam Smith explains that in the Wealth ofNations (1776), which de Soto fails to recognize.

Stossel would do better to point his readers to AdamSmith’s explanation of the institutions and policies thatpromote the creation of wealth among nations than toendorse de Soto’s mistaken and frequently self-contra-dictory views about the hindrance to economic devel-opment in the Third World.

—JAMES C.W.AHIAKPORDepartment of EconomicsCalifornia State University, East Bayjames.ahiakpor@csueastbay.edu

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Capital Letters

We will print the most interesting and provocative letters wereceive regarding articles in The Freeman and the issues theyraise. Brevity is encouraged; longer letters may be editedbecause of space limitations. Address your letters to: The Free-man, FEE, 30 S. Broadway, Irvington-on-Hudson, NY 10533;e-mail: freeman@fee.org; fax: 914-591-8910.

Book Reviews

Were You Born on the Wrong Continent? How theEuropean Model Can Help You Get a New Life by Thomas GeogheganNew Press • 2010 • 336 pages • $29.95; $18.95 paperback

Reviewed by Kevin A. Carson

Ilike to compare the rival coali-tions of organized capital repre-

sented by the major parties to twofarmers. One farmer thinks it’smore profitable in the long run towork his livestock in moderationand feed them well.The other fig-ures he’ll come out ahead by justworking them to death and replac-

ing them.I know which farm I’d rather live on. But I’d rather

not be livestock at all.I confess that my first reaction upon seeing author

Thomas Geoghegan, a labor lawyer, on the talking-head circuit, was that I’d rather live under the Europeansocial democratic model he describes—with its six-week vacations and job security and all—than underwhat Tom DeLay and Dick Armey call “free enterprise”(that is, selling the country to Halliburton and remak-ing it in the image of the Marianas Islands). If I have tochoose between two forms of corporate statism, I’lltake the one that weighs less heavily on my neck.

But what an impoverished set of alternatives!What kept screaming out at me as I read this book

was that social democracy treats privilege as normal andleaves it intact—then regulates it to make it bearable tothe subordinate classes without altering its fundamentalnature as privilege. But most of the positive aspects ofthe European model simply duplicate what could beachieved by dismantling privilege altogether.

Rather than using progressive taxation and socialbenefits to redistribute part of the artificial scarcityrents accruing to the privileged classes, we couldachieve Geoghegan’s reduced inequality by ceasing toenforce artificial scarcity—that is, titles to vacant and

unimproved land, barriers to competition in the supplyof credit, “intellectual property,” and assorted licensingregimes.

The second thing that struck me is that Europeansocial democracy, like American establishment liberal-ism, is very Schumpeterian.That is, it has a strong affin-ity for large bureaucratic organizations as the buildingblocks of a “progressive” society. According to JosephSchumpeter and his “de facto disciple” J. K. Galbraith,the market power of the large organization enables it tofinance innovation by pricing above marginal cost. Toestablishment liberals, the ideal economy is that of thepostwar “Golden Age” idealized by Michael Moore: aneconomy of giant, capital-intensive manufacturingfirms that can engage in administered pricing and pre-vent “destructive competition” so they not only can beguaranteed reasonable profits but also can afford to pro-vide good wages with job security.

In every case the European model deals with thedestabilizing effects of abundance from the demandside.The idea is to use artificial scarcity to prop up theprice of everything in order to guarantee that capitalcan find a profitable outlet, then prop up demand withplanned obsolescence so labor can be fully employed.

Geoghegan particularly celebrates the enormousembedded unit costs of the German economy: the cap-ital-intensiveness, the bigness, the licensing and educa-tional barriers to entering just about any field ofself-employment. You can’t just drop out and start amicroenterprise on a shoestring:“[T]he Germans don’tlet just anyone make jewelry. . . . Sorry, girl, you have togo get a degree.”

The basic principle of the European model is tosocialize living costs and provide security through guar-anteed hours and wage levels.A great many basic goodsare cheap or free for most people—obtained from theState independently of wage labor. But the same resultscould be accomplished by eliminating artificial scarci-ties, allowing competition to deflate the costs of basicgoods, and providing security through reduced depend-ence on a job.

The German model’s greater leisure time could beobtained in a free market by eliminating the hours wework to pay rents on privilege and artificial scarcity, andto pay the markups on subsidized waste and overhead.

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Increased labor empowerment could be achieved bytaking advantage of the imploding cost of the means ofproduction and eliminating the “intellectual property”that enables corporations to retain control of out-sourced production. When productive property waswidely distributed a couple centuries ago, the resultingbargaining power of labor led to a practice (“St. Mon-day”) that anticipated modern German four-day week-ends. Today the desktop revolution in the immaterialrealm, and the availability of cheap CNC machine toolsin the physical realm, are reversing the previous techno-logical shift that led to factory production and the wagesystem: from expensive machinery back to affordable,general-purpose artisan tools.

The alternative Geoghegan celebrates is to socializeunit costs and guarantee workers sufficient hours dig-ging holes and filling them back in at a good enoughwage to pay the 300 percent markup on everything, soit doesn’t matter.Welcome to Brazil.

Kevin Carson (free.market.anticapitalist@gmail.com) is a research associateat the Center for a Stateless Society and author of Homebrew IndustrialRevolution:A Low-Overhead Manifesto.

The Politics of Cocaine: How U.S. Foreign PolicyHas Created a Thriving Drug Industry in Centraland South Americaby William L. MarcyLawrence Hill Books • 2010 • 336 pages • $26.95

Reviewed by Ivan Eland

William L. Marcy has writtenan extensive and cogent

historical critique of the U.S. waragainst the cocaine trade originat-ing in Latin America. As the titleindicates, he shows how this coun-terproductive war has led to athriving drug industry in theAmericas.

Marcy criticizes U.S. policy for conflating the drugwar and the Cold War, assuming that only leftist forceswere benefiting from the drug trade, pressuring SouthAmerican governments to suppress cocaine supplies

using armed force, assisting those countries in eradica-tion efforts by training and equipping their militaries,destroying coca crops by spraying dangerous herbicideswithout providing options for alternative crops, andignoring the U.S. demand for cocaine as an importantpart of the problem.

Although Richard Nixon started the “war ondrugs,” Ronald Reagan militarized it and believed thedrug trade to be a unique transgression among leftistgroups during the Cold War, despite the heavy involve-ment of his beloved Nicaraguan Contras and manynonleftist government leaders. Contrary to counterin-surgency warfare doctrine, the forced eradication pro-grams turned the coca farmers away from theirgovernments and toward leftist guerillas. Sending thelocal military to eradicate farmers’ crops only strength-ened the bond between the farmers and leftists, and ledto corruption in the region’s militaries.

Bill Clinton weakly attempted to reduce U.S. drugdemand, but he and George W. Bush both continuedthe failed, militarized supply-suppression policy aimedat Latin America. Marcy concludes that except for aslight decline in the late 1990s, drug production in theAndes has remained constant or risen since the incep-tion of the drug war in 1970. Between 2003 and 2006,for example, Colombia’s coca production increased byalmost 38 percent. In 2007 coca growers expanded landunder cultivation and farmers were learning to adapt toeradication efforts.

Marcy’s critique of U.S. policy seems spot on, but hissolution leaves something to be desired. He acknowl-edges that some experts have urged drug legalizationbut concludes that this option is not yet politically pos-sible in the United States and may actually cause moreproblems than it solves in northern Andean regions. Heargues that rich landowners would benefit from legal-ization by seeing coca-growing land become morevaluable, or multinationals would swoop in and snap upthe drug profits—leaving most coca farmers poor in asemifeudal system. But Marcy seems a bit oblivious tothe economics of drug production, which would pre-dict that legalization would decrease the price of drugsand therefore lower the value of drug-producing land.Furthermore, most of the profits earned on drugsderive from the risks taken in an illegal business, so

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most of the losses would fall on cocaine laboratoriesand traffickers.

Marcy laments that eradication has always trumpedproviding markets for alternative crops.Yet even if U.S.policy could provide markets for alternative crops, theillegality of drugs likely would make profits from grow-ing cocaine much more lucrative than any other possi-ble crop. And legalization—by reducing drug profitsand taking the fire out of the wars funded by them—isalso the best way to provide incentives for guerillas toput down their weapons.

To his credit Marcy recommends decriminalizationof drugs in the United States to put downward pressureon the price, and thus the production, of cocaine.Economists believe such demand-reduction strategiesare superior to supply-suppression strategies. He notesthat the northern Andean region is so large and remotethat controlling drug production there is impossible.Cocaine growing, production, and trafficking just movearound in response to futile efforts by authorities—whether local or a distant superpower—to stamp themout. While Latin American countries correctly com-plain about U.S. demand being the primary factor, theUnited States has maintained its costly and ineffectivesupply-suppression policy for decades.Thus Marcy use-fully suggests limiting the U.S. military presence in theregion and getting local militaries out of the counter-drug mission.

The flaw in Marcy’s strategy is that it does not gofar enough.True, drug legalization efforts are stymiedby popular perceptions in the United States and, heobserves, by entrenched antidrug bureaucracies in theUnited States and the northern Andes that garnerjobs and large budgets from the war on drugs. Butlegalization is the only strategy that can work toeliminate the need for the costly—in lives, money,and corruption—war on drugs. Marcy, then, is wrongwhen he says that the war on drugs might ultimatelybe won by incremental changes in policy. The warmust be abandoned.

Ivan Eland (ind.inst.ieland@gmail.com) is a senior fellow and director ofThe Independent Institute’s Center on Peace & Liberty.

Six Political Illusions: A Primer on Government forIdealists Fed Up with History Repeating Itselfby James L. PayneLytton Publishing • 2010 • 126 pages • $10.95

Reviewed by George Leef

You don’t believe in magic, doyou? Magicians employ a

variety of tricks to deceive audi-ences into thinking that some-thing has happened that can’t.They are masters of illusion.Adultsknow that they’re being fooledwhen the rabbit seems to materi-alize out of an empty hat.

Magic is harmless fun, but the government is not. Itsquanders vast amounts of money while simultaneouslywhittling away at people’s freedom. Instead of solvingproblems, it makes them worse, often creating brandnew problems. Why don’t more of us rebel or at leastdenounce the State? In his latest book, political scientistand Freeman contributing editor James Payne explainswhy not: Most Americans have fallen for six politicalillusions. Although opinion polls show that a largemajority of the population is fed up with the govern-ment, most think we must continue to rely on it for awide array of “services.” They just want better politi-cians in charge. Those people aren’t stupid; they’reunder the spell of the following illusions:

• The Philanthropic Illusion: the idea that governmenthas money of its own.

• The Voluntary Illusion: the impulse to want tobelieve that government action is not based on force.

• The Illusion of the Frictionless State: the idea that theState can transfer resources with negligible overheadcost.

• The Materialistic Illusion: that money alone buyspublic-policy results.

• The Watchful Eye Illusion: the idea that the govern-ment has greater knowledge and wisdom than the public.

• The Illusion of Government Preeminence: the beliefthat the government is the only problem-solving insti-tution in society.

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Book Reviews

In short, Payne admonishes people to start examin-ing government as it really is, not the way children seemagic. The book’s cover, a reproduction of an 1842painting by Thomas Cole, gives a visual analogy to itsthesis. In the painting a lad in a boat on a river isentranced by an apparition in the sky—a gleamingtemple. Unfortunately, he is oblivious to the reality thathis boat will soon go over a waterfall unless he gives upon the apparition and grasps the truth confronting him.That’s an excellent depiction of modern America.

Payne does a superb job of explaining and illustrat-ing each of his illusions. I will focus my comments onthe last two of them, as they are particularly critical atthis juncture.

In the wake of the financial meltdown following thecollapse of the housing bubble, politicians have beentrying to capitalize on Payne’s “watchful eye” illusionby telling voters that the debacle was all due to inade-quate powers of supervision by the government. Whatwe needed, they cry, was more federal oversight to pre-vent short-sighted and greedy decisions. Give us moreregulatory authority and nothing like that will everhappen again!

Payne shows that there were in fact regulatorswhose job was to blow the whistle on excessive risk-taking by the federal housing giants, Fannie Mae andFreddie Mac, but politicians paid no heed to theirwarnings. Payne then takes the analysis a step deeper,arguing that people should never put faith in govern-ment officials to foresee danger and protect them.Thatis because government officials don’t suffer the losseswhen they’re wrong. Instead of expecting a watchfuleye from the government, it’s far more intelligent torely on individuals and private institutions to detect andavoid undue risks because they will suffer adverse con-sequences if they are wrong.

Payne’s sixth illusion encompasses the others. It isthe erroneous view that we must look first (and perhapsexclusively) to government for the solutions to prob-lems. Politicians encourage that illusion since they wantcitizens to regard themselves as impotent while theState possesses almost limitless capabilities. When asocial problem arises, politicians almost never say, “Thegovernment should do nothing about that; it’s a prob-lem that should be dealt with by the voluntary sector.”

Saying that would be almost suicidal in a nation caughtin the grip of the illusion of government preeminence.Instead, politicians seldom miss an opportunity to showtheir great “concern” by introducing new legislationthey claim will take care of everything, from the harmsupposedly done by incandescent light bulbs to thedrug trade.

Wise individuals, Payne contends, will look at themerits of the voluntary sector rather than leaping onthe bandwagon for government activism. Currently, forexample, many people are concerned about the possi-bility of catastrophic climate change and automaticallyassume that the only way of responding is to give gov-ernment officials tremendous new regulatory powers.Anyone who reads Payne will contemplate both thepossibility that voluntary responses might work betterand that government will botch the job.

George Leef (georgeleef@aol.com) is book review editor of The Freeman.

The Politics of Happiness: What Government CanLearn from New Research on Well-Beingby Derek BokPrinceton University Press • 2010 • 272 pages • $24.95

Reviewed by Bruce Yandle

“We hold these truths to beself-evident, that all men

are created equal, that they areendowed by their Creator with cer-tain unalienable Rights, that amongthese are Life, Liberty and the pur-suit of Happiness.—That to securethese rights, Governments are insti-tuted among Men, deriving their

just powers from the consent of the governed. . . .”Jefferson’s beautiful and powerful words from the

Declaration of Independence set out a fundamentalpremise for the founding of the new nation. Govern-ments are organized to secure the rights of men to pur-sue happiness, not to provide them with happiness.

Derek Bok speaks to this point in the opening chap-ter of The Politics of Happiness, but strays beyond Jeffer-son’s fence lines when he asks what government can

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learn from new happiness research that might beadapted to national policy actions.To suggest that gov-ernment learns, as indicated by the book’s subtitle, is toassign a misplaced concreteness to the institution itself.People learn. And people participate in government.But governments seemingly never learn.

For those who have not become engaged in happi-ness research, Bok provides a well-organized survey.But disappointment awaits those who expect to findevidence of the emergence of a coherent field, charac-terized by clearly stated theories that evince refutablehypotheses and generalized findings. Instead one findsan array of ad hoc studies that, typical of fledglingfields of study, may offer insights. For example Bokpuzzles over the finding that white women were hap-pier than white men for many years, based on happi-ness surveys, but that their level of happiness has fallenrelatively in recent years, even while career opportuni-ties have improved. In contrast, black women have keptpace with black men in their level of happiness andunlike white women have not become unhappier. Butthe author offers no discussion of multivariable model-ing with control variables that might help clear the aira bit.

Another difficulty relates to whether happinessscales are cardinal as opposed to ordinal rankings andcan thus be compared across experiments. For examplethe effects of divorce or separation are found to gener-ate on average an eight-point drop in happiness, on ascale of 100. Loss of a job generates a drop of six points,and belief in God, for Americans at least, lifts the levelof happiness by 3.5 points. While all this is somewhatinteresting, it isn’t likely, in a methodological sense, thatone would expect a person who has lost his job and hiswife but has found God to have a net loss of 10.5 unitsof happiness.

Bok is aware of some of these difficulties and dis-cusses them in terms of Jeremy Bentham’s felicific hap-piness. He is cautious in recommending thatgovernment attempt to assess the happiness weight ofpending legislation such as the complex health care

package. However, he is not bashful in urging govern-ment to build new “happiness protection,” for example,by covering the cost of long-term home nursing carefor everyone.While noting that such policies are costly,Bok indicates that cost shouldn’t stand in the way ofdoing them. He never discusses government deficits nor debt, and how dealing with those burdens mayreduce the happiness of future generations.

The book offers numerous suggestions to govern-ment leaders for policy actions that might make us allhappier—instead of letting us find happiness on ourown terms. The areas explored include reducinginequality, blunting the threat of financial hardship and other suffering, engaging in efforts to strengthenmarriages and the family, and supporting education.Bok’s abiding faith in government’s ability to make life better is contradicted by the surveys he discusses.With that apparent paradox in mind, he recommendsimprovement in government’s public relations efforts.He is convinced that over the decades, the federal government has improved overall well-being, yet some-how the same people who respond to happiness sur-veys in useful and apparently accurate ways miss theboat when responding to surveys about the efficacy of government.

The author ends with the claim that “researchershave succeeded in doing what Bentham could notaccomplish: to devise a way of measuring how happypeople are and how much pleasure or pain they derivefrom the ordinary events and conditions of their lives.”I am left with just the opposite conclusion, that happi-ness scientists have many miles to travel before reachingBentham’s hoped-for destination.

In spite of Bok’s overly optimistic conclusion, I findhis book to be useful and one I would recommend toothers who wish to tangle intellectually with the hap-piness literature. At least Bok’s belief in government’sability to do good things is balanced with competingpoints of view that take the opposing position.

Bruce Yandle (yandle@bellsouth.net) is professor of economics emeritus,Clemson University.

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Book Reviews

B Y C H A R L E S W. B A I R D

Crony Unionism: Private Sector

The Pursuit of Happiness

In America competition from union-free enterprisesis making private-sector unionism increasinglyirrelevant. Only 9 percent of union-free workers

desire to become union members (tinyurl.com/4lud2cm). The last redoubt for unions is governmentemployment, and they are increasingly in peril eventhere. However, the unions are fighting back by run-ning to politicians and bureaucrats for help. Unionsneeded their political cronies to enact the NationalLabor Relations Act (NLRA) in 1935 in order to gainany significant power in the labor market. Notwith-standing the efforts of their cronies, union power grad-ually waned. Now unions and their cronies are tryingto discover effective strategies toreverse union decline. Here I notesome of what they have done, and aredoing, in the private sector.

In January the Bureau of LaborStatistics released union data that arealmost all bad news for union bosses.In 2010 only 6.9 percent of peopleemployed in the private sector wereunion members. In 2009 the figurewas 7.2 percent. Unions now have a smaller marketshare of private-sector workers than they did prior tothe enactment of the NLRA. Cronies to the rescue.

One union crony, Secretary of Labor Hilda Solis, istrying her best to revive private-sector unions. HerStrategic Plan FY 2011–16 promises “good jobs foreveryone.” She defines “good jobs” in nine bullet pointsthat echo union organizing propaganda. Later in thedocument she openly declares that “union jobs are, byand large, good jobs.” While there may be a few goodunion-free jobs, most union jobs are by definitiongood. So at least through 2016 the Department ofLabor (DOL) will act as the Department for the Prop-agation of Unions. The principal means for achievingthis fevered vision are spelled out in an accompanying

document that describes a “new approach” to deploy-ing DOL’s six “labor protection agencies” (most impor-tantly OSHA, the Office of Labor-ManagementStandards, the Wage and Hour Division, and the Officeof Federal Contract Compliance Programs) to harassunion-free employers.With scarce resources, Solis says,DOL can only closely monitor enterprises that are“most likely” to fall short of DOL standards. Sinceunion jobs are defined as “good jobs,” one naturallyinfers that many union-free enterprises will be hit hardby “labor protection” enforcers determined to increasethe cost of remaining union-free.

In my March column (tinyurl.com/4ldb3mq), I dis-cussed another union crony, CraigBecker, who holds a recess appoint-ment to the National Labor RelationsBoard (NLRB). Becker holds openlypro-union, anti-worker, and anti-management sentiments. He has evenwritten that no worker should be ableto refuse to be represented by aunion.Two days after the State of theUnion address, wherein President

Obama urged us all to seize our “Sputnik moment,” heresubmitted Becker’s name to the Senate for confirma-tion to a full five-year term on the NLRB. He mayhave a point. Like Sputnik, Becker is a relic of thesocialist past. I doubt the Senate will confirm the nom-ination, but Obama can simply keep Becker on theBoard by another recess appointment at the end of thisyear. As I wrote, Becker and his two sympathizers(Wilma Liebman and Mark Pearce) on the five-mem-ber NLRB are determined to impose card-check certi-fication of unions through creative interpretation of thelabor law.

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Charles Baird (charlesbaird.info) is a professor of economics emeritus atCalifornia State University at East Bay.

The last redoubt forunions is governmentemployment, andthey are increasinglyin peril even there.

They are creative on other questions as well. Forexample, in the Roundy’s Supermarket case the Boardis struggling to find something in the NLRA that willjustify allowing union organizers to trespass on privateproperty with the specific intent of herding unwillingworkers into the ranks of union dues payers. Theunions are arguing that because Roundy’s allows theGirl Scouts to sell cookies and the Salvation Army tocollect contributions on its property, it must also allowunion organizers to sell their snake oil on its property.That argument makes Becker tingle all over.

Prosecutions and Waivers

Yet another union crony is Lafe Solomon, theNLRB’s acting general counsel.

(He is “acting” because Obamacouldn’t get his appointment con-firmed by the Senate.) The generalcounsel is independent of the NLRB.His job is to investigate and prosecutealleged unfair labor practices and tosupervise the NLRB’s field offices intheir processing of cases. Last Novem-ber voters in four states—Arizona,South Carolina, South Dakota, andUtah—adopted amendments to their respective stateconstitutions to make card-check union certificationillegal. Solomon immediately sued all four states, assert-ing that the NLRA preempts state voters. Anotherexample of Solomon’s hyperactivity on behalf of unionbosses is his General Counsel Memorandum 11-04,issued in January. He directed all field offices to putdefault language in all settlement agreements betweenunions and employers which stipulates that if theemployer is alleged to have violated any part of theagreement, he is to be considered guilty of all the alle-gations brought against him in the initial complaint thatled to the settlement agreement (tinyurl.com/4lkbxhv).

Health and Human Services Secretary KathleenSebelius is yet another union crony. Obamacare givesher power to determine the rules and regulations thatare and will be imposed in the health care and health

insurance markets. Her decision-making processincludes the interests of unions. For example, Sebeliushas the power to grant waivers to the burdens of Oba-macare to favored supplicants. Forty percent of theapproximately 1,000 waivers she has granted have beengiven directly to unions, and many more have beengiven to enterprises on which unions depend for duesrevenue.

Of course, Obama is the unions’ most importantcrony. The “structured bankruptcies” imposed byObama on General Motors and Chrysler in the springof 2009 were little more than egregious bailouts of theUnited Auto Workers Union (UAW), which put tax-payers on the hook for $60 billion. The stockholders

and bondholders of those two compa-nies were sacrificed to keep the UAWviable. GM and Chrysler had to bekept going because the majority ofUAW dues payers worked there. Thegovernment seized 60 percent owner-ship of GM and bestowed another17.5 percent ownership on the union.With its principal crony in charge, theUAW knows GM will be run to max-imize the flow of union dues.Thanks

to Obama the UAW now owns 55 percent of Chrysler.Chrysler no longer employs workers to make cars; itmakes cars to employ dues-paying workers. Anotherexample of Obama as a union crony is the $53 billionhe wants to spend on high-speed rail. Because of project labor agreements and the Davis-Bacon Act,most of the people employed in this silly, wasteful,and destructive endeavor will be union dues payers(tinyurl.com/4jy2cpp).

In 2010, 36.7 percent of government workers wereunion members.A year earlier the figure was 37.4 per-cent.While government employees are only 17 percentof all employed people, government employee unionmembers now are 52 percent of all union members.Crony unionism works in the government sector aswell as the private sector.That will be the subject of mynext column.

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C h a r l e s W. B a i r d

Chrysler no longeremploys workers tomake cars; it makescars to employ dues-paying workers.