August 1989

Victor Niederhoffer
John Hood
Lee Ownby
Frank Vorhies
Nancy Seijas
Robert A. Peterson
C Crocker
John Chamberlain
Israel M. Kirzner
Richard Ebeling
and
E.C. Pasour

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Contents

Perspective: The Johnstown Flood

AUGUST 01, 1989 by Victor Niederhoffer

Gray Markets and Greased Pigs

AUGUST 01, 1989 by John Hood

Private Property: In Need of Historic Preservation

AUGUST 01, 1989 by Lee Ownby

Private Preservation of Wildlife: A Visit to the South African Lowveld

AUGUST 01, 1989 by Frank Vorhies, Nancy Seijas

A Tale of Two Revolutions

AUGUST 01, 1989 by Robert A. Peterson

Should We Stop Selling Real Estate to Foreigners?

AUGUST 01, 1989 by C Crocker

Readers Forum

SEPTEMBER 01, 1989

A Reviewers Notebook: Religious Thought and Economic Society

AUGUST 01, 1989 by John Chamberlain

Book Review: Time And Public Policy by T. Alexander Smith

AUGUST 01, 1989 by Israel M. Kirzner

Book Review: Memoirs of an Unregulated Economist by George J. Stigler

AUGUST 01, 1989 by Richard Ebeling

Book Review: The High Cost of Farm Welfare by Clifton B. Luttrell

SEPTEMBER 01, 1989 by E.C. Pasour

Perspective: The Johnstown Flood

AUGUST 01, 1989 by Victor Niederhoffer

This year marks the 100th anniversary of the great flood that inundated Johnstown, Pennsylvania, on May 31, 1889, killing 2,209 people. Donald Dale Jackson, writing in the May 1989 issue of Smithsonian, describes the relief efforts:

“At a time when federal disaster relief didn’t exist, Johnstown’s recovery was achieved through one of the greatest private charity campaigns ever mounted. The American Red Cross, only recently founded, won renown as a national disaster relief agency for its work in Johns-town . . . .

“By . . . June 2, railroad crews had repaired the tracks connecting Johnstown to Pittsburgh, 55 miles west. By then the press and the initial detachment of relief workers were in town, Americans were starting the read the first shrill dispatches from Johnstown and a cavalcade of help was on the way . . . .

“The exhaustive press coverage stimulated a rush of private benevolence that eventually threatened to overwhelm Flood City. Food, clothing, medicine and other provisions began arriving immediately. Morticians came—Johnstown’s first call for help requested coffins and undertakers. Demolition expert ‘Dynamite Bill’ Flinn and his 900-man crew cleared the wreckage at the stone bridge. At its peak the army of relief workers totaled about 7,000. They carted off debris, distributed food, erected temporary housing and occasionally made a heartening discovery—a parrot named Bob was found alive in the wreck of one house, complaining that it had had ‘a devil of a time.’”

On Speculators

Manias such as the Tulipmania, the South Sea Bubble, the Mississippi Bubble, the Gold Panic of 1866, the stock market crashes, and violent swings in the value of the dollar are frequently cited as examples of occasions when speculators contributed to instability and imbalance. But who could do the job better?

Selected government officials might want to see a different outcome. But their track record of setting prices is invariably one of famines, endless shortages of what people want, and gluts of dull, low-quality products. The bureaucrats have little incentive to improve or innovate.

When speculators are wrong, however, they are punished severely for their mistakes by losses. Over time, the large speculators would tend to be those who were most prescient in their calculations. Through competition, the energies and talents of numerous speculators—all inspired by their selfish desire to profit—are channeled into the public good.

—Victor Niederhoffer

Control or Economic Law?

Shortly before he died, the noted Austrian economist, Eugen von Boehm-Bawerk (18511914), wrote a brilliant article, “Control or Economic Law?” He carefully dissected market operations, analyzing the effect of coercive Outside interferences. Government intervention doesn’t suspend the Law of Price, he concluded; it merely alters the conditions under which it operates.

By changing the available alternatives, government coercion affects individual choices. Production plans must be revised, and purchasing decisions have to be altered. Nevertheless, the Law of Price continues to prevail: The price of every good traded still falls somewhere between the top price a potential buyer is willing to pay and the bottom price at which a potential seller is willing to sell.

Today’s market prices are affected by countless government regulations, taxes, and subsidies. Yet when trades take place in spite of these interventions, the prices agreed upon by seller and buyer still comply with the Law of Price; they still reflect the respective values of buyer and seller.

In Brazil, where inflation is rampant and controls have been placed on the prices of many items, eggs, among other products, have disappeared from the shops. But enterprising street peddlers now offer eggs at about twice the controlled price, $2 per dozen. Although illegal and exorbitant in the eyes of the Brazilian price controllers, this price serves consumers and conforms with the Law of Price. It is above the peddlers’ minimum acceptable price and below the maximum price the buyers are willing to pay.

When our government started requiring seat belts and pollution control devices on automobiles, the manufacturers’ asking prices rose. Of course, potential buyers weren’t pleased by the increase. Some dropped out of the market, settled for used cars, or turned to other means of transportation. But the Law of Price still pre vailed. Although fewer cars were sold at the higher prices, and fewer consumers were served, those higher prices were still below the top prices the actual buyers were willing to pay.

In India, government approval and licenses are needed to operate most sizeable businesses. Large manufacturers must spend a great deal of time lobbying in New Delhi, which increases their costs and compels them to raise their asking prices. These higher asking prices, in turn, cause some potential buyers to drop out of the market.

However, one Indian soap manufacturer has avoided the need for licensing and has benefited from tax breaks available to small firms. He manufactures on a small scale with hand labor at several locations and economizes on packaging. His price falls below the maximum price that many potential buyers on the Indian market are willing to pay, and he has become India’s largest detergent maker.

There is no denying that government interventions affect market prices. If coercion raises costs, producers must ask higher prices. Fewer items will be sold, and fewer consumers will be served. Yet although today’s mongrel prices are blends of market forces and government coercion, they do nothing to refute the Law of Price. The prices at which goods and services are exchanged are always above the bottom prices of the sellers and below the top prices of the buyers. Economic law prevails.

—Bettina Bien Greaves

Gray Markets and Greased Pigs

AUGUST 01, 1989 by John Hood

John Hood is a reporter/researcher at The New Republic.

Hailing a taxi in Boston can be tricky It helps to be pushy, even rude. Tight city regulation of taxicabs has kept their number at 1,525 since 1934. Because government has prevented supply from rising to meet growing demand, there’s an artificial taxi shortage.

But the story doesn’t end there. Business travelers and tourists can still find transportation in Boston. Hotels, such as the Bostonian Hotel downtown, have begun operating their own limousines to take guests to airports, eateries, or other destinations around town. “I could not in good conscience sit there in the hotel watching guests stand on the street for 30 minutes to get to an airport that is five minutes away,” Tim Kitwan, manager of the Bostonian, told The Washington Post.

Markets are resilient. Try as they might, government and the special interests they protect (in this case, the cab companies) can’t completely suppress the forces of competition. By limiting one particular choice, they only direct enterprising people toward others. The result is either a black market, in which completely illegal transactions occur, or what might be called a “gray” market, in which firms substitute legal options for banned ones—either with the tacit acceptance of authorities or without their knowledge—thus defeating the intent of regulation.

Gray markets exist in many areas, such as zoning regulation (where business- or residential-only labels are routinely circumvented), but are perhaps most visible in the transportation field. In New York, for example, about 15,000 “gypsy cabs” operate in poor, minority communities, mainly in Queens, Brooklyn, and the Bronx. Strict regulation for half a century has limited the number of cabs in New York to 11,787. Consequently, over 600 “black car” livery companies have sprung up to bridge the gap between demand and legal supply.

Such companies are supposed to cater only to phoned-in customers, but many drivers take off their livery license plates (designed to help taxi commission inspectors spot them) and cruise the streets as “gypsies.” These cabs do business not only because of the general taxi scarcity throughout the city, but also because some yellow cabs won’t venture into unsafe areas to pick up minority customers.

Phone-in livery services are becoming a competitive force in many cities that regulate the number of taxicabs, such as Chicago and Atlanta. While not really illegal, they do circumvent the intent of regulations by giving taxis a run for their money.

Another form of competition—jitneys—has sprung up in Pittsburgh and Los Angeles. A jitney is a station wagon or small van that makes better use of miles traveled by carrying more than one passenger at a time. They were prevalent across the country in the early 1900s, but threatened transit and cab companies succeeded in outlawing them in most cities.

Their illegal status doesn’t hinder them much. In Pittsburgh, for instance, jitneys dominate the transport market: if the jitneys cut prices, the legal taxis do, too. And like New York’s gypsy cabs, jitneys provide service to neighborhoods shunned by the regular taxi fleets.

Of course, though governments may not be able to eliminate certain products or services from a market, they can make them more expensive. A “gypsy” ride in New York can sometimes cost two or three times what the same trip would cost in a yellow cab. Cab owners in Atlanta were even able to get a price floor codified in law: $50 a trip for limousines and $40 a trip for corporate cars, about three times what each would cost in a free market. (Jitneys, though, can sometimes offer lower prices than taxis, because they can carry more than one passenger at a time.)

Like alcohol and drug prices during times of prohibition, prices for illegal services rise because of increased risks to providers and lack of consumer information. Established interests count on the higher prices to reduce their competition, if they can’t get outright bans enacted and enforced. Even so, services that circumvent regulations—like New York’s gypsy cabs—flourish. Consumers are willing to pay more to get the services regulated monopolies won’t provide.

The artificially higher prices, though, do mean a loss of efficiency in the market. Consumers still buy more in goods and services from regulated industries, like the taxi companies, than they would if competition were freer.

Black and gray markets may seem a bit unseemly and corrupting, but they actually make up a large and crucial segment of our mixed economy. In some Third World countries they produce most of the goods and ser vices, including food and other essentials. In such countries, government power is employed not only excessively but arbitrarily to favor political cronies. Enemies are taxed into bankruptcy, while valuable assets and capital are seized for “the good of the state.” This creates so much uncertainty that businesses either leave (if possible) or go underground.

It may appear that the state, able to drive a business underground with its power to tax and regulate, exerts great control over the country’s economic life. But that misses the point—that there is always an underground, even in totalitarian societies like the Soviet Union, to which embattled businesses may flee.

A Losing Battle

Government is fighting a losing battle when it grapples with the discipline of the market. There’s no real mystery about why this is so. Free enterprise is not some fragile, delicate experiment in constant need of protection. It does not have to be imposed or fostered. It is, in short, the natural order of things.

Coercive government, on the other hand, needs constant attention and tinkering. Consider how difficult it is for government to maximize its revenues. As supply-siders have shown, hiking tax rates won’t always increase revenues because, among other factors, higher-income taxpayers lose their incentive to work and invest. Any increase in tax rates, in fact, sets off a market reaction that can actually reduce tax revenues. Witness, for example, the current controversy over capital gains taxes. The same principle applies to regulation. There is no shortage of ways to compete with a regulated monopoly, but there’s only a limited number of ways government can restrict competition. Insulate an industry from competition, and the resulting price increases and drops in service encourage consumers to substitute other products or services. And rest as-sured-firms will pop up to provide them. Frustrated regulators must feel like they’re chasing a greased pig.

Government action can’t eliminate market forces; it can only distort them. Sure, government’s attempt to tax or regulate producers out of existence has disastrous side effects. But they are, indeed, only side effects. The goal—o drive “illegal” competition out of the marketplace—is rarely achieved. Government just can’t catch the pig.

Private Property: In Need of Historic Preservation

AUGUST 01, 1989 by Lee Ownby

Mr. Ownby is an attorney in Knoxville. Tennessee.

Almost everyone is saddened by the demolition of an old, historic building. But sometimes an old structure be comes the focus of a heated conflict between preservationists and those who wish to exercise their property rights. What is frightening in such a case is that many people fail to appreciate the importance of private property. This was clearly evident in my community when various groups were galvanized toward saving the Baker-Peters House, an antebellum home that had served as a popular restaurant.

The restaurant owners possessed a leasehold interest in the real estate coupled with an option to buy. They were under financial pressure to sell their interest rather than continue operating a restaurant in that location. Their real-tots negotiated a deal with a national oil company to buy them out and construct a gas station—requiring the demolition of the old house and removal of two trees believed to be 200 years old. The major historical event that warranted the preservation of the old house—outside of its pre-Civil War architecture-was that it was where its owner, a doctor, had been killed by Union soldiers.

When the prospective sale was discovered, the public outcry was immediate; both the restaurant owners and the oil company were castigated for proposing a use contrary to the public will. Outraged citizens asked: Why wasn’t there a municipal department charged with alerting the public any time a dwelling such as this was endangered? How could our public officials have failed to protect this important landmark from corporate greed? Letters to the editor, television interviews, and editorials were overwhelmingly uniform in their virulent condemnation of the consummation of a private contract. Very few spoke in defense of the property owners’ right to dispose of their interest under terms acceptable to them.

Several proposals were put forward to preserve the landmark. The oil company could donate the house and land in its natural state and register it as an historic site. The company could rearrange its construction plans so as to avoid destroying the house and the trees. A third idea was to relocate the house on the same land or an adjoining tract, with the oil company providing most of the money for the move. Other suggestions included legislation restricting the property as an historical zone, and/or having the owners renounce their property interest and capital investment for the public benefit. Finally, the city passed an ordinance requiring a permit prior to the destruction of any old trees within 150 feet of an antebellum home.

Many sincere people believed that the various proposals offered rational courses of action. They denounced the desire to make a profit or suggested that any action other than preservation was a submission to the vice of greed. Most, however, saw no inconsistency in their hope to earn a profit when they sold their own homes.

The efforts to stop the demolition of the old house are a symptom of a growing problem—cultural or historical illiteracy. The goal of preserving historic landmarks is admirable, but the preservation shouldn’t be at the expense of values which permitted the creation of an historic site in the first place.

The actions taken and suggested in this instance resembled those of a lynch mob from our not-too-distant past—ordinarily associated with the rather immediate denial of someone’s civil rights without due process of law. The Fifth Amendment prohibits the taking of private property for public use without compensation. A disturbing aspect of this affair was the complete absence of this concept from any public discussion of the event. Many suggestions focused on what the oil company and/or the property owners could contribute for the public benefit. People just couldn’t seem to grasp the idea of paying a market price to enjoy an aesthetic benefit.

It is ironic that this landmark built in an era when most economic liberties were defended by law—today was defended by those who don’t seem to recognize the importance of Such liberties. In today’s cultural environment, the elevation to virtue or the devolution to vice became synonymous with being for or against preservation of the house. That the issue was considered on these terms suggests that some of the values embodied in our Constitution have suffered serious erosion and are in desperate need of historical restoration.

Private Preservation of Wildlife: A Visit to the South African Lowveld

AUGUST 01, 1989 by Frank Vorhies, Nancy Seijas

Nancy Seijas is a member of the staff of the Free Market Foundation of Southern Africa, Johannesburg, South Africa.

      Frank Vorhies teaches in the Department of Business Economics at the University of the Witwatersrand in South Africa.

It is their three-inch eyelashes that give giraffes their sleepy, serene look. Giraffes blink slowly, their lashes sweeping gracefully down, and then gently back up. Out in the bush of South Africa, this is a common sight. In an area called the lowveld, giraffes stroll right across the road, with a languid, swaying stride that seems utterly relaxed.

Watching the giraffes go by in South Africa, it is dangerously easy to forget about apartheid and the ongoing struggle South Africa faces. Only for a moment, that is. The reality of apartheid cannot be ignored, but there are other aspects of this turbulent country. And there are valuable lessons to be learned.

South Africa’s conservation of wildlife teaches one of these lessons. In South Africa, conservation is treated more or less as a business, in which government and the private sector compete. Kruger National Park, a game reserve the size of New Jersey, is owned and run by the South African government. Right on its border is a consortium of 20 smaller game parks, all privately owned. They receive no government funding, and are subject to no specific wildlife regulations.

South Africa is a country, one must remember, where the sphere of central government is even more vast than it is in the United States. Such broad political control has been the source of violent conflict for decades. In the case of wildlife conservation, depoliticization is clearly the solution for South Africa. Privately owned game reserves in South Africa are a model for private sector management of public goods.

These 20 private reserves in the lowveld are part of South Africa’s eastern Transvaal region. Together, they comprise what is known as the SabiSand Wildtuin (“tuin” means “park” in Afrikaans). Among the individual owners, there is competition and sometimes animosity. But there is also order and respect. The parks are separate, but together; they are unified by the rules of their voluntary consortium, and by their reverence for the bush, the patchy foliated land of the lowveld. The bush may be the owners’ livelihood, but it is also their love.

Back in the 1920s, big game like lion, rhino, and elephant roamed freely across the cattle ranches of the Transvaal Consolidated Lands, another ranch next door called Toulon, and an open stretch of land which was the original Sabi Game Reserve. At that point, the reserve was unoccupied. The Sabi and Sand Rivers ran through it, as did a train line called the Selati Railway. In 1927, a big-game hunter named W. A. Campbell bought several farms near the Sand River. For hunters like Campbell, buying up game-filled land was the only way to secure their sport. If they did not take the land, they knew that sooner or later the government would, for agriculture or for preservation.

More and more hunters began to follow suit, and hunting and cattle ranching became the principal occupations in this part of the eastern Transvaal. But by 1934, cattle ranching had fallen into decline; the manager of Transvaal Consolidated Lands died in 1932, and Toulon had closed down. The trend in the area was moving closer and closer toward wildlife preservation, but the big-game hunters still owned a great deal of the land.

The Transvaal Land Owners’ Association

By the late 1930s, the hunters were looking for some way to cooperate formally, and to keep an eye on the unoccupied land in the area. To this end, they formed the Transvaal Land Owners’ Association. When the TLOA started, there were eight member-owners, including the old Transvaal Consolidated Lands. They elected a ranger to preside over the association, and paid membership dues. Those dues financed projects like fences and efforts to combat disease among the animals.

When South African Railways fenced in the Selati line in the 1930s, animals began to get caught in the wire and break through. Consequently, the TLOA removed the fence. When hoof-and-mouth disease broke out in the area a little later on, the association cooperated again to eradicate it. At one point, the TLOA had to shoot 1,100 cattle in a single day.

In 1950, the landowners made their last step toward a completely private ownership scheme. They liquidated the TLOA, and created the SabiSand Wildtuin, or SSWT. Campbell became its first president, and served for 12 years until he died in 1962.

Campbell’s death marked the end of an era. The image of the “great white hunter” is a caricature in South Africa now, a stereotype that many owners at SabiSand dislike and mock. Some hunting still goes on, but it is very limited. Its primary purpose is to finance the maintenance of the parks, through the sale of selected big game and the meat from more common species. The rules of the day have changed, from hunting wild animals to protecting them.

Here is the paradox of the SabiSand Wildtu-in: it was born of the self-interest of hunters—white men who killed wild animals for sport and who had the money to buy a place to do so. Serf-interest is still the motivating force behind the game parks today, but thenature of that interest has changed. Today, the SabiSand park owners want to provide a safe environment for the animals that roam there, and to make money by doing it. Now, it is protection of the animals that serves the owners’ interests.

In the past, protecting those interests meant openly opposing apartheid. In 1940, the South African government placed two of the farms in the area under the Bantu Trust Act, the legislation that created homelands for South African blacks. By the 1960s, about one-third of the SSWT was considered “released area” under Bantu Act legislation. This meant that the central government could seize the land at its discretion to create “reserves” for black people. In 1963, the SSWT Executive Committee secured a verbal agreement from the Minister of Bantu Administration that their land would not be confiscated.

Now, the SSWT is relatively free from central government controls. There is a 75-mile fence separating the consortium from Kruger Park, so the SSWT cannot “benefit” from animals that would migrate across the borders of Kruger. There are no internal fences between the individual reserves: The wildebeest, warthog, impala, waterbuck, and kudu roam freely over 265 square miles of open land.

Notten’s Bush Camp

Within this vast tract of land, individuals have separate homesteads. One of those homesteads is Notten’s Bush Camp. It is owned by Dedrick and Gillian Notten—“Bam-bi” and Gilly to those who visit the camp. Visi tors come to Notten’s to experience life in the bush, for a price, of course. The Nottens’ 2,000-acre “backyard” is their business.

The Nottens’ land has been in Bambi’s family for 20 years. A little over two years ago, Bambi left his job as a builder in Johannesburg, and the Nottens moved to the lowveld permanently. Their two sons are now in boarding schools, and visit the bush every other weekend.

Missing her boys is Gilly’s only complaint about the move. She would love to have them live at home, but there is no school to which they could commute. And with a full-time family, Bambi and Gilly couldn’t run Notten’s Bush Camp in the way they do.

The Nottens’ guests do not just visit a game reserve. They enter Bambi and Gilly’s home; they get to know the Nottens and their life. They watch their hosts experience the same wonder and joy at the wild animals of the bush, as if the Nottens themselves were first-time visitors. When Gilly tells stories of Johannesburg on the veranda, glancing over her shoulder at the land stretching out behind her, she just smiles. “The bush,” she says, and pauses. That’s her full answer to why she moved to the lowveld. “The simple life of the bush.”

A typical day in that life starts at about 5 A.M., with tea and coffee in the “boma.” The boma is a tall, maybe eight-foot circular wall, made of tied bamboo and reeds. It encloses a small area where the Nottens cook for their visitors, with a shallow pit in the center for hot embers, and a stone-and-mortar barbecue off to one side. There is no electricity at the camp, and only a small kitchen, so the boma sees a lot of use. Gilly and Bambi have a small boma of their own, attached to their private cottage.

After tea, Bambi takes the guests out for a “game run.” Not only do the Nottens run their business out of their home, but Bambi drives their guests around the reserve in his car. It is a big green open-air Land-Rover, which Bambi occasionally takes on the highway to Johannesburg. It seats eight- -that is all the Nottens will accommodate at their camp at one time. They are unique in this respect. The neighboring parks, like MalaMala and Londolozi, are much more “booming” businesses, with lavish hotel accommodations, fleets of Land-Rovers, and higher per-day prices.

A game run with Bambi is simply a drive through the bush, occasionally on the dirt roads and paths through the Nottens’ land. Much of the time, Bambi just drives through the wilderness. With no fences, there is nothing “protecting” the visitors but their particularly human sound, look, and smell. However, that is no protection from a lion, an elephant, or—especially—a hippopotamus. If the lion is king of the jungle, the hippo is the grouch; it has a nasty disposition, and tourists have much more to fear from a disgruntled hippo than any other animal in the bush, lion included.

On all game runs, Bambi carries two things: a gun and a golf putter. The former, for protection; the latter, he says, just for walking. One suspects, however, that it is the other way around. To hear Bambi talk of the animals of the bush, and to see him identify the tiniest bird in the farthest tree, it is difficult to imagine that reaching for his gun would be his reflex reaction to danger. Of course, Bambi would shoot an oncoming hippo, or lion, or rhinoceros if he were sure it was endangering the lives of his visitors. But after spending just a day or so with Bambi, one can’t help thinking he just might reach for the putter first, and the gun second.

The Nottens are a unique couple. Bambi is not at all what his nickname would imply to Americans. He is a tall, burly man, with shaggy dark hair and a booming voice. Golf putter in hand, he strides through the bush, describing in detail the plants, the sounds, and the smells. One night, he spent 20 minutes studying a spider ensnaring a moth in her web, and giving blow-by-blow commentary to the visitors.

Gilly is equally fascinated with the bush. She will drive into the bush by herself, for peace and serenity among wild animals. Gillian Not-ten is the only woman in all the 20 private reserves who will venture into the bush alone, and take guests out herself.

Occasionally on the game runs, the Nottens will run into other Land-Rovers from neighboring reserves. The larger reserves in the consortium send out rovers to spot a pride of lions or family of cheetahs, and then radio back their location to the camp. If there are chee-tahs in the area, MalaMala and Londolozi are sure to know.

According to Bambi, it is not often that three or four Land-Rovers pull up to the same spot, as quietly as four Land-Rovers can, to stare at a family of leopards or a herd of zebra. But when they do, it is a little disconcerting to a foreigner. All the drivers and passengers in the rovers are white, and there is always one black man riding on the hood or sitting in a high back seat. That man is the “tracker.” In most cases, he comes from the eastern Transvaal, from the homeland Gazankulu or the area of Bushbok Ridge. He knows the bush, and can navigate through it easily and swiftly. He knows the marks different animals leave in the foliage, and he can spot tiny pinpoints of red or green light—the eyes of a civet, an impala, or a mongoose—in the pitch dark of night.

The relationship between Bambi and Joseph Matebula, the Nottens’ tracker, is one of em-ployer-and- employee, and of white-and-black-friends in an apartheid state. Joseph speaks little English, and Bambi does not speak Shangaan, Joseph’s native language. They communicate in a language called Fana Ka Lo.

Fana Ka Lo

Fana Ka Lo is a source of controversy for many black South Africans. It is the mining languager—the language invented so that white mine owners could communicate with black workers. Joseph worked in the mines for one month. Bambi translates when Joseph talks of the mines, or what he calls, in English, “the hole.” The stories Joseph has from just one month are frightening, and he tells them with loathing in his eyes, and in the tone of his Fana Ka Lo.

For him and for Bambi, though, Fana Ka Lo does not seem to be the “language of oppression,” as it is deemed in much of South Africa. They are friends. One morning, Bambi was looking for lion, discussing the tracks in the sand with Joseph, and asking what he thought were the chances of a sighting. Suddenly Joseph hopped off the rover and Bambi drove away. The visitors were stunned; surely, he couldn’t have left Joseph to be preyed upon by lion . . . or could he? One of the guests raised a timid question, and Bambi glanced over his huge, broad shoulder and bellowed, “Ah, I’ve had enough of him. Leave him!” He stepped on the gas. Silence from the guests. Suddenly, Bambi burst out laughing. Joseph knows exactly what he is doing in the bush, Bambi explained. They were closer to the camp than anyone in the back of the rover could tell, and Joseph strolled in a minute or so after Bambi parked.

That was the end of a morning game run. Typically, then, activity grinds to a halt. As the heat begins to blaze in the eastern Transvaal, the animals in the bush head for shade, and most tourists begin to wilt. Another game run begins at about 4:30, and Bambi and Gilly load up a cooler to take along. Bambi’s favorite rule is “first mammal, first beer.” He’ll bend it for those who prefer wine.

There are rules, however, that Bambi and Gilly cannot and will not bend. Those are the intricate system of property rights that have evolved throughout the 20 private reserves. If Londolozi radios that there are cheetahs on the Nottens’ land, only those who have negotiated driving rights with Bambi and Gilly may drive over to see. Owners of adjacent lands have made individual agreements as to who may drive where and when. Some borders are open, and some are not; MalaMala, for example, tends to keep to itself. It all depends on the preference of the owner, and those preferences are respected.

Who Owns the Animals?

Animal rights are a different story. Who owns the animals? Bambi replies with a question: “Well, who owns ns?” The answer is that no one actually owns the inhabitants of the bush. There is a type of property right to big game: at any given time, owners have a property right to whatever animals happen to be on their land at that moment. They can sell or trade animals they “own” in this fashion, to zoos, perhaps, or other parks. Bambi traded one rhino, for example, for 20 tsessabe (a tsessabe, pronounced “chessabee,” is a species of large buck, with curving, ridged horns).

It is not in an owner’s interest to sell off animals extensively. The animals are the owner’s livelihood, but only if they are healthy and thriving in a natural environment. That is what tourists want to see for themselves, and that is what people like Bambi and Gilly want to see for the animals. Ideally for each owner, the best natural environment falls within his or her own borders.

Once an animal crosses a border, someone else has a property right to it. More important, people will go to that reserve to see it. When a family of cheetah moved onto the Nottens’ land, Bambi’s guests wanted to go see them on foot. Surprisingly, animals are more frightened of human footsteps than the sound of a land rover. An engine makes a regular, low din, which animals get used to and “block out.” Footsteps are irregular, easily recognizable, and much more menacing to hear. Bambi knew that footsteps might scare away the chee-tah, and move them off his land. He anguished for a moment, then said, “All right. Let’s go.”

The result of this private property system is competition in creating the best habitat for the game. Periodically, Bambi and Gilly clear out patches of bush, or create a new water hole. They regulate the environment to suit the animals they want to attract. Yet, it is absolutely forbidden for owners to feed the animals, or even to set up salt licks. “Unfair” competition between owners is not the problem. Setting up salt licks and putting out extra food is “artificial,” unnatural. It is unfair to the animals.

The feeding rule can be broken only if the owners agree that it is in the best interest of the animals involved. A few years ago, for example, a female cheetah severely wounded her foot in a poacher’s trap. She was a mother of five cubs, who could not fend for themselves were she to die. The world would lose six members of an endangered species, and the SSWT would lose six of its main attractions. The owners decided to shoot reedbuck for the mother to eat. Bambi shot one, and the owners at Londolozi shot a few more. As soon as the mother was able to hunt again for herself, they stopped.

Are there any disadvantages to this system of private ownership? Of course, there are. The first is the ever- present possibility of “cheating” on the consortium arrangement. Individual owners can transgress driving rights. However, they are out driving in the bush every day, sometimes all day. They can “catch” each other easily. Owners also can shoot any animal they choose, even an endangered species, way out in the deep bush where no one can hear. According to Bambi, American tourists pay up to $10,000 to shoot rhinos. “It makes me sick, honestly, it makes me really sick,” Gilly says.

There is simply no way to guarantee this will not happen in the SSWT. But, it doesn’t happen very often. The kinds of people who go into this “business,” on the whole, are people like Bambi and Gilly who love the bush, and respect the animals as their “neighbors.”

The owners do engage, however, in a practice called “culling,” which means cutting down the size of a herd that is overcrowding the bush. An overpopulated species endangers the ecological system the owners strive to balance. Only three species are culled: impala, rhinoceros, and cape buffalo. All of them are “grazers,” Bambi explains. They feed on the foliage of the land. The SSWT Executive Committee gives each owner a number to cull over the period of a year. They either keep the meat for themselves, or sell it at a reasonable rate to Gazankulu, or butchers in Bushbok Ridge.

The whole idea of culling gives Bambi no trouble, for he feels it is in the best interest of all. According to Gilly, the only problems start when the number of animals they are told to cull seems exceptionally high. The SSWT can accommodate 150 rhino, but there are roughly 120 in the area now. Last year they culled 10, but this year the number was 15. The number to cull is decided by the SSWT group, so if Bambi and Gilly disapprove, they must gamer support from other members to influence the Committee’s decision.

The other disadvantage of this private game reserve system is that it is more expensive to visit than Kruger Park, which is run by the state. There are all levels of hotel and camping accommodations at Kruger which add to its basic price, but the simple entry fee for a car is about $7.50. In Kruger, tourists drive their own cars along paved roads through the bush. Passengers may not get out of their vehicles, and they must exit the game area by sundown. At parks like MalaMala and Londolozi, the fee per day is $300 and above. At Nottens it is only $50 per person per night, including accommodations and Gilly’s excellent cooking. There are four one-room cottages at Notten’s Bush Camp, and they are immaculate. The lack of electricity is hardly noticeable, at least while one is sitting by the light of the fire in the boma sipping wine, and then gazing at the Southern Cross for a few minutes before going to bed.

All the cooking and cleaning is done for the guests by Bambi, Gilly, and their small staff. Guests must bring their own alcohol if they so choose, but the Nottens serve champagne and orange juice at breakfast. A three-day weekend of this—and of riding and walking in the bush among zebra, lion, cheetah, andkudu—will cost roughly $150.

Those who want a trip to the bush at the lowest cost possible go to Kruger Park for a day. Accommodations and meals are options and cost extra. The entry fee alone is what costs so little. At the private parks, visitors must take the “package deal” of all the services and accommodations that go with the initial price. The Nottens do charge a lower price if their guests choose to bring and cook their own food, but they may discontinue that option. Gilly finds it is more work for her when guests try to use her kitchen and cookware, than to do it all herself.

At Notten’s Bush Camp, though, one can get close enough to a cheetah to hear her purr, and to see a bramble caught in the silky fur of her cub’s underbelly. Guests may walk through the bush, or ride in an open Land- Rover at all hours of the day or night. One cannot do that at Kruger; the night curfew is a strict rule, and at no time may anyone get out of his or her car.

At Notten’s Bush Camp, there are no pavement and no fence. The environment for the animals is more natural. Bambi’s family has preserved it for 20 years, when they could have sold it for a massive profit.

Very few people expect that private individuals would be socially responsible enough to • conserve wildlife voluntarily, especially with the loving care of people like Gilly and Bambi Notten. In the bush, the line between the Not-tens’ social responsibility and personal, self-in-terested desire is blurred. After getting to know the Nottens a little, which guests invariably do in the intimate, friendly setting they provide, it seems as if no such line exists.

Deep in the bush in the eastern Transvaal, far away from the turmoil emanating from Pre-toria, politics seems immaterial. To be sure, there is conflict. There is also cooperation. The private game reserves have problems, but they also have solutions. So unlike the rest of the country, it almost feels as if there is no central government. The people and the wild animals in the bush don’t seem to need one.

A Tale of Two Revolutions

AUGUST 01, 1989 by Robert A. Peterson

Mr. Peterson is headmaster of The Pilgrim Academy in Egg Harbor City, New Jersey.

The year 1989 marks the 200th anniversary of the French Revolution. To celebrate, the French government is throwing its biggest party in at least 100 years, to last all year. In the United States, an American Committee on the French Revolution has been set up to coordinate programs on this side of the Atlantic, emphasizing the theme, “France and America: Partners in Liberty.”

But were the French and American Revolutions really similar? On the surface, there were parallels. Yet over the past two centuries, many observers have likened the American Revolution to the bloodless Glorious Revolution of 1688, while the French Revolution has been considered the forerunner of the many modern violent revolutions that have ended in totalitarianism. As the Russian naturalist, author, and soldier Prince Petr Kropotkin put it, “What we learn from the study of the Great [French] Revolution is that it was the source of all the present communist, anarchist, and socialist conceptions.”[1]

It is because the French Revolution ended so violently that many Frenchmen are troubled about celebrating its 200th anniversary. French author Leon Daudet has written: “Commemorate the French Revolution? That’s like celebrating the day you got scarlet fever.” An Anti-89 Movement has even begun to sell mementos reminding today’s Frenchmen of the excesses of the Revolution, including Royalist black armbands and calendars that mock the sacred dates of the French Revolution.

The French should indeed be uneasy about their Revolution, for whereas the American Revolution brought forth a relatively free economy and limited government, the French Revolution brought forth first anarchy, then dictatorship.

Eighteenth-century France was the largest and most populous country in western Europe. Blessed with rich soil, natural resources, and a long and varied coastline, France was Europe’s greatest power and the dominant culture on the continent. Unfortunately, like all the other countries of 18th-century Europe, France was saddled with the economic philosophy of mer-cantilism. By discouraging free trade with other countries, mercantilism kept the economies of the European nation-states in the doldrums, and their people in poverty.

Nevertheless, in 1774, King Louis XVI made a decision that could have prevented the French Revolution by breathing new life into the French economy: he appointed Physiocrat Robert Turgot as Controller General of Fi nance. The Physiocrats were a small band of followers of the French physician Francois Quesnay, whose economic prescriptions included reduced taxes, less regulation, the elimination of government-granted monopolies and internal tolls and tariffs—ideas that found their rallying cry in the famous slogan, “laissez-faire, laissez-passer.”

The Physiocrats exerted a profound influence on Adam Smith, who had spent time in France in the 1760s and whose classic The Wealth of Nations embodied the Physiocratic attack on mercantilism and argued that nations get rich by practicing free trade.[2] Of Smith, Turgot, and the Physiocrats, the great French statesman and author Frederic Bastiat (18011850) wrote: “The basis of their whole economic system may be truly said to lie in the principle of self-interest . . . . The only function of government according to this doctrine is to protect life, liberty, and property.”[3]

Embracing the principle of free trade not just as a temporary expedient, but as a philosophy, Turgot got the king to sign an edict in January 1776 that abolished the monopolies and special privileges of the guilds, corporations, and trading companies. He also abolished the forced labor of the peasants on the roads, the hated corvée. He then dedicated himself to breaking down the internal tariffs within France. By limiting government expense, he was able to cut the budget by 60 million livres and reduce the interest on the national debt from 8.7 million livres to 3 million livres.

Had TUrgot been allowed to pursue his policies of free trade and less government intervention, France might very well have become Europe’s first “common market” and avoided violent revolution. A rising tide would have lifted all ships. Unfortunately for France and the cause of freedom, resistance from the Court and special interests proved too powerful, and Turgot was removed from office in 1776. “The dismissal of this great man,” wrote Voltaire, “crushes me . . . . Since that fatal day, I have not followed anything . . . and am waiting patiently for someone to cut our throats."[4] Turgot’s successors, following a mercantilist policy of government intervention, only made the French economy worse. In a desperate move to find money in the face of an uproar across the country and to re-establish harmony, Louis XVI agreed to convene the Estates-General for May 1789. Meanwhile, the king’s new finance minister, Jacques Necker, a Swiss financial expert, delayed the effects of mercan-tilism by importing large amounts of grain.

On May 5, the Estates-General convened at Versailles. By June 17, the Third Estate had proclaimed itself the National Assembly. Three days later, the delegates took the famous Tennis Court Oath, vowing not to disband until France had a new constitution.

But the real French Revolution began not at Versailles but on the streets of Paris. On July 14, a Parisian mob attacked the old fortress known as the Bastille, liberating, as one pundit put it, “two fools, four forgers and a debaucher” The Bastille was no longer being used as a political prison, and Louis XVI had even made plans to destroy it. That made little difference to the mob, who were actually looking for weapons.

Promising the guards safe conduct if they surrendered, the leaders of the mob broke their word and hacked them to death. It would be the first of many broken promises. Soon the heads, torsos, and hands of the Bastille’s former guardians were bobbing along the street on pikes. “In all,” as historian Otto Scott put it, “a glorious victory of unarmed citizens over the forces of tyranny, or so the newspapers and history later said."[5] The French Revolution had begun.

Despite the bloodshed at the Bastille and the riots in Paris, there was some clear-headed thinking. Mirabeau wanted to keep the Crown but restrain it. “We need a government like England’s,” he said.[6] But the French not only hated things English, they even began to despise their own cultural heritage—the good as well as the bad. On October 5, the Assembly adopted the Declaration of the Rights of Man and the Citizen—a good document all right, but only if it were followed.

Twenty-eight days later, the Assembly showed they had no intention of doing so: all church property in France was confiscated by the government. It was the wrong way to go about creating a free society. Certainly the Church was responsible for some abuses, but seeking to build a free society by undermining property rights is like cutting down trees to grow a forest. Such confiscation only sets a precedent for further violation of property rights, which in turn violates individual rights—the very rights of man and the citizen the new government was so loudly proclaiming. By confiscating church property—no matter how justified—France’s Revolutionary leaders showed that they weren’t interested in a true free society, only in one created in the image of their own philosophers. As Bastiat later pointed out, they were among the modern world’s first social engineers.

Soon France began to descend into an abyss in which it would remain for the next 25 years. In towns where royalist mayors were still popular, bands of men invaded town halls and killed city magistrates. Thousands of people sold their homes and fled the country, taking with them precious skills and human capital. Francois Babeuf, the first modern communist, created a Society of Equals dedicated to the abolition of private property and the destruction of all those who held property. The king’s guards were eventually captured and killed. The Marquis de Sade, from whom we get the term sadism, was released from prison. The Paris Commune took over control of Paris.

Fiat Money Inflation

The actions of the government were even more radical than those of the people at large. In order to meet the continuing economic crisis, the Assembly resorted to paper money—the infamous assignats, backed ostensibly by the confiscated church property. Although most of the delegates were aware of the dangers of paper money, it was thought that if the government issued only a small amount—and that backed up by the confiscated property—the assignats would not create the kind of economic disaster that had accompanied the use of paper money in the past.

But as had happened again and again through history, the government proved unable to discipline itself. As Andrew Dickson White put it in his Fiat Money Inflation in France: “New issues of paper were then clam-ored for as more drams are demanded by a drunkard. New issues only increased the evil; capitalists were all the more reluctant to embark their money on such a sea of doubt. Workmen of all sorts were more and more thrown out of employment. Issue after issue of currency came; but no relief resulted save a momentary stimulus which aggravated the disease.”[7]

Writing from England in 1790, long before the French inflation had done its worst, Edmund Burke saw the danger of fiat currency. According to Burke, issuing assignats was the government’s pat answer to any problem: “Is there a debt which presses them? Issue assig-nats. Are compensations to be made or a maintenance decreed to those whom they have robbed of their free-hold in their office, or expelled from their profession? Assignats. Is a fleet to be fitted out? Assignats . . . . Are the old assignats depreciated at market? What is the remedy? Issue new assignats.” The leaders of France, said Burke, were like quack doctors who urged the same remedy for every illness.

Burke saw in the French Revolution not a decrease in the power of the state, but an increase in it: “The establishment of a system of liberty would of course be supposed to give it [France's currency] new strength; and so it would actually have done if a system of liberty had been established.” As for the confiscation of property—first that of the Catholic Church then that of anyone accused of being an enemy of the Revolution—Burke said: “Never did a state, in any case, enrich itself by the confiscation of the citizens.”[8]

But the issuing of assignats was only the beginning. In the spring of 1792, the first Committee of Public Safety was established, charged with judging and punishing traitors. Soon the streets of Paris began to run with blood, as thousands of people were killed by the guillotine. The following fall, the French government announced that it was prepared to help subject peoples everywhere win their freedom. Thus, instead of peacefully exporting French products and French ideas on liberty, the French began exporting war and revolution . . . hence the saying, “When France sneezes, the whole world catches cold.”

As more soldiers were needed to “liberate” the rest of Europe, France instituted history’s first universal levy—the ultimate in state control over the lives of its citizens. Meanwhile, for opposing the Revolution, most of the city of Lyons was destroyed. And Lafayette, who at first had embraced the Revolution, was arrested as a traitor.

Stifling Controls

Soon a progressive income tax was passed, prices on grain were fixed, and the death penalty was meted out to those who refused to sell at the government’s prices. Every citizen was required to carry an identity card issued by his local commune, called, in an Orwellian twist of language, Certificates of Good Citizenship. Every house had to post an outside listing of its legal occupants; the Revolutionary Communes had committees that watched everyone in the neighborhood; and special passes were needed to travel from one city to another. The jails were soon filled with more people than they had been under Louis XVI. Eventually, there flooded forth such a torrent of laws that virtually every citizen was technically guilty of crimes against the state. The desire for absolute equality resulted in everyone’s being addressed as “citizen,” much as the modern-day Communist is referred to as “comrade.”

Education was centralized and bureaucratized. The old traditions, dialects, and local allegiances that helped prevent centralization—and thus tyranny—were swept away as the Assembly placed a mathematical grid of departments, cantons, and municipalities on an unsuspecting France. Each department was to be run exactly as its neighbor. Since “differences” were aristocratic, plans were made to erase individual cultures, dialects, and customs. In order to accomplish this, teachers—paid by the state—began to teach a uniform language. Curriculum was controlled totally by the central government. Summing up this program, Saint-Just said, “Children belong to the State,” and advocated taking boys from their families at the age of five.[9]

So much of modern statism with all of its horror and disregard for individualism began with the French Revolution. The “purge,” the “commune,” the color red as a symbol of statism, even the political terms Left, Right, and Center came to us from this period. The only thing that ended the carnage—inside France, at least—was “a man on horseback,” Napoleon Bonaparte. The French Revolution had brought forth first anarchy, then statism, and finally, dictatorship. Had it not been for the indomitable spirit of the average Frenchman and France’s position as the largest country in Western Europe, France might never have recovered.

Now contrast all of this with the American Revolution—more correctly called the War for Independence. The American Revolution was different because, as Irving Kristol has pointed out, it was “a mild and relatively bloodless revolution. A war was fought to be sure, and soldiers died in that war. But . . . there was none of the butchery which we have come to accept as a natural concomitant of revolutionary warfare . . . . There was no ‘revolutionary justice’; there was no reign of terror; there were no bloodthirsty proclamations by the Continental Congress.”[10]

A “Conservative Revolution”

The American Revolution was essentially a “conservative” movement, fought to conserve the freedoms America had painstakingly developed since the 1620s during the period of British “salutary neglect”—in reality, a period of laissez-faire government as far as the colonies were concerned. Samuel Eliot Mori-son has pointed out: “[T]he American Revolution was not fought to obtain freedom, but to preserve the liberties that Americans already had as colonials. Independence was no conscious goal, secretly nurtured in cellar or jungle by bearded conspirators, but a reluctant last resort, to preserve ‘life, liberty, and the pursuit of happiness.’”[11]

A sense of restraint pervaded this whole period. In the Boston Tea Party, no one was hurt and no property was damaged save for the tea. One patriot even returned the next day to replace a lock on a sea chest that had been accidentally broken.[12] This was not the work of anarchists who wanted to destroy everything in their way, but of Englishmen who simply wanted a redress of grievances.

After the Boston Massacre, when the British soldiers who had fired upon the crowd were brought to trial, they were defended by American lawyers James Otis and John Adams. In any other “revolution,” these men would have been calling for the deaths of the offending soldiers. Instead, they were defending them in court.

When the war finally began, it took over a year for the colonists to declare their independence. During that year, officers in the Continental Army still drank to “God save the King.” When independence was finally declared, it was more out of desperation than careful planning, as the colonists sought help from foreign nations, particularly the French. In the end, it was the French monarchy—not the Revolutionists, as they had not yet come to power—that helped America win its independence.

Through the seven years of the American war, there were no mass executions, no “reigns of terror,” no rivers of blood flowing in the streets of America’s cities. When a Congressman suggested to George Washington that he raid the countryside around Valley Forge to feed his starving troops, he flatly refused, saying that such an action would put him on the same level as the invaders.

Most revolutions consume those who start them; in France, Marat, Robespierre, and Danton all met violent deaths. But when Washington was offered a virtual dictatorship by some of his officers at Newburgh, New York, he resisted his natural impulse to take command and urged them to support the republican legislative process. Professor Andrew C. McLaughlin has pointed out: “To teach our youth and persuade ourselves that the heroes of the controversy were only those taking part in tea-parties and various acts of violence is to inculcate the belief that liberty and justice rest in the main upon lawless force. And yet as a matter of plain fact, the self- restraint of the colonists is the striking theme; and their success in actually establishing institutions under which we still live was a remarkable achievement. No one telling the truth about the Revolution will attempt to conceal the fact that there was disorder . . . . [yet] we find it marked on the whole by constructive political capacity.”[13]

No Assault on Freedom of Religion

In America, unlike France, where religious dissenters were put to death, there was no wholesale assault on freedom of religion. At the Constitutional Convention in 1787, there were devout Congregationalists, Episco palians, Dutch Reformed, Lutherans, Quakers, Presbyterians, Methodists, and Roman Catholics. Deist Ben Franklin asked for prayer during the Convention, while several months later George Washington spoke at a synagogue. During the Revolution, many members of the Continental Congress attended sermons preached by Presbyterian John Witherspoon, and while Thomas Jefferson worked to separate church and state in Virginia, he personally raised money to help pay the salaries of Anglican ministers who would lose their tax-sup-ported paychecks. In matters of religion, the leaders of America’s Revolution agreed to disagree.

Finally, unlike the French Revolution, the American Revolution brought forth what would become one of the world’s freest societies. There were, of course, difficulties. During the “critical period” of American history, from 1783 to 1787, the 13 states acted as 13 separate nations, each levying import duties as it pleased. As far as New York was concerned, tariffs could be placed on New Jersey cider, produced across the river, as easily as on West Indian rum. The war had been won, but daily battles in the marketplace were being lost.

The U.S. Constitution changed all that by forbidding states to levy tariffs against one another. The result was, as John Chamberlain put it in his history of American business, “the greatest ‘common market’ in history.”[14] The Constitution also sought to protect property rights, including rights to ideas (patents and copyrights) and beliefs (the First Amendment). For Madison, this was indeed the sole purpose of civil government. In 1792 he wrote: “Government is instituted to protect property of every sort . . . . This being the end of government, that alone is a just government which impartially secures to every man whatever is his own.”[15] Alexander Hamilton, the first Secretary of the Treasury, helped restore faith in the public credit with his economic program. It was at his urging that the U.S. dollar was defined in terms of hard money—silver and gold. (At the Constitutional Convention, the delegates were so opposed to flat paper money that Luther Martin of Maryland complained that they were “filled with paper money dread.”)

Hamilton’s centralizing tendencies would have been inappropriate at any other time in American history; but in the 1790s, his program helped 13 nations combine to form one United States. Had succeeding Treasury Secretaries continued Hamilton’s course of strengthening the federal government, at the expense of the states, America’s economic expansion would have been stillborn.

Fortunately, when Jefferson came to power, he brought with him the Swiss financier and economist Albert Gallatin, who served Jefferson for two terms and Madison for one, Unlike his fellow countryman Necker, whose mercan-tilist policies only hastened the coming of the French Revolution, Gallatin was committed to limited government and free market economic policies. Setting the tone for his Administration, Jefferson said in his first inaugural address: “Still one thing more, fellow citizens—a wise and frugal government, which shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned.”

For the next eight years, Jefferson and Gallatin worked to reduce the nation’s debt as well as its taxes. The national debt was cut from $83 million to $57 million, and the number of Federal employees was reduced. Despite the restrictions on trade caused by Napoleon’s Berlinand Milan decrees, and the British blockade of Europe, American businessmen continued to develop connections around the world. By the end of Jefferson’s first term, he was able to ask, “What farmer, what mechanic, what laborer ever sees a tax gatherer in the United States?”[16] By 1810, America was well on its way to becoming the world’s greatest economic power. France, meanwhile, still languished under the heavy hand of Napoleon.

In his Report to the House of Representatives that same year, Gallatin summed up the reasons for America’s prosperity: “No cause . . . has perhaps more promoted in every respect the general prosperity of the United States than the absence of those systems of internal restrictions and monopoly which continue to disfigure the state of society in other countries. No law exists here directly or indirectly confining man to a particular occupation or place, or excluding any citizen from any branch he may at any time think proper to pursue. Industry is in every respect perfectly free and unfettered; every species of trade, commerce, art, profession, and manufacture being equally opened to all without requiring any previous regular apprenticeship, admission, or license.”[17] The American Revolution was followed by 200 years of economic growth under the same government. By contrast, the French Revolution was followed by political instability, including three revolutions, a directorate, a Reign of Terror, a dictatorship, a restoration of the Bourbon Monarchy, another monarchy, and five republics. Today, socialism has a greater hold in France than it does in America—although America is not far behind. Even though they were close in time, it was the French Revolution that set the pattern for the Russian Revolution and other modern revolutions, not the American.

Bastiat’s Opinion

Frederic Bastiat clearly saw the difference between the two. The French Revolution, he argued, was based on the idea of Rousseau that society is contrary to nature, and therefore must be radically changed. Because, according to Rousseau, the “social contract” had been violated early in man’s history, it allowed all parties to that contract to return to a state of “natural liberty.” In essence, what Rousseau was saying was, “Sweep aside all the restraints of property and society, destroy the existing system. Then you will be free, free to lose yourself in the collective good of mankind, under my care.”[18]

The social architects who emerged out of the Chaos of the French Revolution included Robespierre and Napoleon. In his analysis of Robespierre, Bastiat said: “Note that when Robespierre demands a dictatorship, it is . . . to make his own moral principles prevail by means of terror . . . . Oh, you wretches! . . . You want to reform everything! Reform yourselves first! This will be enough of a task for you."[19]

In Bastiat’s opinion, the French Revolution failed because it repudiated the very principles upon which a free society is based: self-government, property rights, free markets, and limited civil government. The American Revolution, however, brought forth the world’s freest society: “Look at the United States,” wrote Bastiat. “There is no country in the world where the law confines itself more rigorously to its proper role, which is to guarantee everyone’s liberty and property. Accordingly, there is no country in which the social order seems to rest on a more stable foundation . . . . This is how they understand freedom and democracy in the United States. There each citizen is vigilant with a jealous care to remain his own master. It is by virtue of such freedom that the poor hope to emerge from poverty, and that the rich hope to preserve their wealth. And, in fact, as we see, in a very short time this system has brought the Americans to a degree of enterprise, security, wealth, and equality of which the annals of the human race offer no other example . . . . [In America] each person can in full confidence dedicate his capital and his labor to production. He does not have to fear that his plans and calculations will be upset from one instant to another by the legislature."[20]

Bastiat did see two inconsistencies in the American Republic: slavery (“a violation of the rights of a person”) and tariffs (“a violation of the right to property”). According to Bastiat, these were the two issues that would divide America if they were not dealt with speedily.

What was the answer for America as well as France? “Be responsible for ourselves,” said Bastiat. “Look to the State for nothing beyond law and order. Count on it for no wealth, no enlightenment. No more holding it responsible for our faults, our negligence, our improvidence. Count only on ourselves for our subsistence, our physical, intellectual, and moral progress!”[21]

On the 200th anniversary of the French Revolution, Frenchmen and Americans can truly become partners in liberty by working toward the principles advocated by Bastiat, America’s Founding Fathers, and others: limited government, private property, free markets, and free men.

1.   Petr Kropotkin, The Great French Revolution (New York: Putnam’s Sons, 1909), Introduction.

2.   So strong were the connections between the Physiocrats and Adam Smith that, according to the French economists Charles Gide and Charles Rist, “But for the death of Quesnay in 1774—two years before the publication of The Wealth of Na-tions—Smith would have dedicated his masterpiece to him.” Later, Frederic Bastiat lumped Smith, Quesnay, and Turgot together as “my guides and masters.” Dean Russell, Frederic Bastiat: Ideas and Influence (Irvington-on-Hudson, N.Y.: The Foundation for Economic Education, 1969), pp. 58, 19.

3.   Russell, p. 20.

4.   Peter Gay and R. K. Webb, Modern Europe to 1815 (New York: Harper and Row, 1973), p. 462.

5.   Otto J. Scott, Robespierre: The Voice of Virtue (New York: Mason and Lipscomb Publishers, 1974), pp. 59-61.

6.   Ibid., p. 54.

7.   Andrew Dickson White, Fiat Money Inflation in France (Irvington-on-Hudson, New York: The Foundation for Economic Education, 1959), p. 107.

8.   Edmund Burke, Reflections on the Revolution in France (Indianapolis: The Bobbs-Merrill Co., 1955, originally published in 1790), pp. 275-276, 280.

9.   Scott, pp. 223-224.

10.   Benjamin Hart, Faith and Freedom (Dallas: Lewis and Stanley, 1988), p. 301.

11.   Samuel Eliot Morison, The Oxford History of the American People (New York: Oxford University Press, 1965), p. 182.

12.   Gene Fisher and Glen Chambers, The Revolution Myth (Greenville, S.C.: Bob Jones University Press, 1981). p. 18.

13.   Andrew C. McLaughlin, The Foundations of American Constitutionalism (New York: Fawcett, 1932,1961), pp. 88-89.

14.   John Chamberlain, The Enterprising Americans: A Business History of the United States (New York: Harper and Row Publishers, 1974,1981), p. 37.

15.   Letters and Other Writings of lames Madison, Vol. IV (New York: R. Worthington, 1884), p. 478.

16.   James Richardson, ed., A Compilation of the Messages and Papers of the Presidents, Vol. 1 (New York: Bureau of National Literature, 1897), p. 367.

17.   John M. Blum, et al., The National Experience, Part I (New York: Harcourt Brace Jovanovich, 1963,1981), p. 213.

18.   George Charles Roche, Frederic Bastiat.’ A Man Alone (New Rochelle, N.Y.: Arlington House, 1971), pp. 146-147.

19.   Ibid., p. 148.

20.   1bid., pp. 205-206, 244.

21.   Ibid., p. 164.

Should We Stop Selling Real Estate to Foreigners?

AUGUST 01, 1989 by C Crocker

Mr. Crocker is assistant vice-president for a real estate development and management corporation in San Diego.

American real estate is being bought by foreigners, and this worries a lot of people. Michael Dukakis made a campaign issue out of the large commercial real estate holdings of the Japanese in Los Angeles and other major U.S. cities. The fears generated by this foreign buying appear to be twofold: first is the concern that our national security and sovereignty are somehow compromised when foreigners own our real estate; second is the belief that foreign ownership of U.S. real estate is harmful to our economy. These qualms, however, are based on misconceptions of what is happening in the real estate market.

The concern over national security and sovereignty is understandable given the nature of real estate. When foreigners own land, people naturally fear that they might gain dangerous control over the production and distribution of resources such as grain, oil, and industrial metals. The cost of amassing enough land to have even a small impact on the supply of such resources, however, is too prohibitive to be practicable for any individual or group acting as an agent of a hostile foreign power. And such ownership wouldn’t have an impact on supplies coming in from international markets. Furthermore, all U.S. territory, regardless of the owner’s nationality, comes under the full jurisdiction of U.S. law.

If foreign real estate investment isn’t compromising our national security, is it hurting us economically? The market for real estate in the United States is relatively free. Therefore, as is true of all free markets, no one is forced to sell something to another party. Transactions are consummated only when all parties feel that it is in their best interest to do so.

This means that when a foreigner buys American commercial real estate, he does so because he believes that the risk-adjusted return (and perhaps some prestige value) is worth the investment. At the same time, the American seller believes that the transaction will make him better off. If, as is usually the case, the seller is an on-going business, this means that the owner believes he can get a better return by putting the sale proceeds into another investment than he can get by holding the particular piece of real estate.

The proceeds from real estate sales do not disappear in some mysterious way. The foreign buyer gains a tangible asset, but the compensation received by the seller goes into creating other assets which the seller believes will have a higher risk-adjusted rate of return. Manufacturing corporations selling off real estate can put the proceeds into research and development or new machinery. Real estate development companies can put the money into new projects. Forbidding such transactions on the grounds that the buyer is foreign, therefore, would not merely just keep existing real estate in American hands, but would also prevent the creation of other assets in this country.

When foreigners buy American properties, Americans are fully compensated. In fact, contrary to the belief that foreigners are “buying America on the cheap,” the prices paid by foreigners (especially the Japanese) for American real estate over the past few years in many cases have been well above the traditional market values, as foreigners have been willing to accept a lower return on their investments than have many Americans.

There is no basis for the fear that foreign real estate holdings threaten our sovereignty. And given that we have a free market in real estate, the charge that foreign purchases harm us economically also has no basis. We cannot be harmed if we freely exchange one asset for another which we view as having a better risk-adjusted rate of return. This simple fact of economics-that deals take place in a free market only when all parties involved believe them to be beneficial—applies to real estate just as it applies to all other assets.

Readers Forum

SEPTEMBER 01, 1989

To the Editors:

Thomas DiLorenzo’s excellent article on “Monopoly Government” in the June 1989 issue of The Freeman has one important misstatement. The reason why government is in business does not have anything to do” . . . with the desire to supplement agency budgets with commercial profits” either on the Federal, and certainly not on the local level. It has to do with the prime motivating factor of virtually every politician: getting re-elected! The common name for this is patronage.

Here is how it works: The voter turn-out for the primary election, i.e., the one in which candidates get on the ballot, is always very small. However, those persons who are the beneficiaries of patronage can always be counted upon to vote. Their jobs depend on it. Thus, it is to every politician’s benefit to dispense as much patronage as possible in order to assure himself a place on the ballot for the next election.

In addition, in many localities, such as New York, there are stringent “election laws” for getting on the ballot even for the primary. Among the requirements are a certain number of names on petitions. For a newcomer, getting the required number of names is an arduous task at best. For the incumbent, it’s a lot easier, especially if he has dispensed a lot of patronage.

So there you have it. A great deal of government activity in the commercial sector has to do with the structure of the re-election process.

Lawrence       m. Parks

New York

Dr. DiLorenzo replies:

I agree completely with Dr. Parks’ view that political patronage is a prime motivating force with any politician. I have coauthored two books (Underground Government, Cato Institute, 1983; and Destroying Democracy: How Government Funds Partisan Politics, Cato, 1985) that explore some of the more deceitful tricks that politicians play in their quest for re-election through the patronage system.

I disagree, however, that the importance of patronage conflicts with my contention that governments operate monopolistic, commercial enterprises in order to supplement agency budgets. After all, it takes money to finance patronage jobs. Driving private enterprises from the market is a way in which government enterprises at all levels—especially the local level—finance additional patronage opportunities. In addition to the patronage jobs provided by the monopolistic governmental enterprises themselves, “profits” can be used to create even more patronage jobs elsewhere in the bureaucracy. Thus, we are subjected to a vast system of what I call monopoly government. To add insult to injury, the people who benefit at the expense of the taxpayers call them selves “public servants.”

Thomas J. DiLorenzo

University of Tennessee

Chattanooga

A Reviewers Notebook: Religious Thought and Economic Society

AUGUST 01, 1989 by John Chamberlain

When Jacob Viner of the University of Chicago and Princeton University died, he left four chapters of an unfinished work called Religious Thought and Economic Society. Two scholars, Jacques Melitz and Donald Winch, have pieced together the Viner work for publication by the Duke University Press of Durham, North Carolina (211 pages, $21.95).

What strikes one at once in reading the Vin-er text is the essential worldliness of the early church fathers. Though they often counseled perfection, they had no illusions about the average man’s capacity for martyrdom. Saint Augustine had been a sinner himself. Besides, there was a paradox involved. It was all very well for an occasional individual to sell all he had to feed the poor, but what if everybody were to do the same? Production would cease, and there would soon be nothing to give away. The poor would really be reduced to scratching to keep alive.

So the early Christian fathers, being practical men, counseled sharing. They did not seek to make the sharing compulsory—that would dry up incentives, and there would be less to share. What they wanted was a system that would yield a maximum of voluntary alms.

This naturally opened the doors to capitalist thinkers, though the word “capitalism” was not used. The rich merchant was to be encouraged as the best possible source of alms. In the Renaissance the rich merchant came into his own. The patricians of the Renaissance paid tribute to the excellence of man instead of stressing the degradation resulting from original sin.

Says Viner, the merchant class “maintained that the life of virtue was within the reach of the ordinary run of mankind and was a pleasurable one . . . virtue was to be pursued for its own sake or for its benefit to others, independently of its contribution to religious salvation or for its obligatoriness as a religious duty.” Material things, sacred and profane art, fine craftsmanship, the embellishment of palaces, churches, and cities were more to be admired than the ascetic life of “passive contemplation or pious resignation.”

Thomas Aquinas was against usury, but it is one thing to frown upon charging interest on cash loans and another to condemn selling for credit at a higher price. Since most buyers are unable to pay cash, if wholesalers were to refuse to sell at credit their sales would shrink. Soon there would be no business at all.

Viner devotes many pages to the quarrels in France between “rigorists” and “laxists.” But just who were the rigorists and who were the laxists is not always clear. The Jansenists professed to believe in a strict condemnation of usury; the Jesuits did not. But the two opposing schools of thought were equally casuistic about loans to merchants to help them do business.

Since Viner was obviously convinced that capitalist practices were fairly well defined even in the Middle Ages, he tangles with the theory promulgated by Max Weber and R. H. Tawney that it was Calvinism that set the spirit of capitalism going. When Venetians and Genoans began adventuring on the Mediterranean after the Saracen enemies of Christianity had been pushed back, the spirit of trade quickly moved over the passes from Italy to South Germany. Banking was elaborated in South Germany. All of this happened before the time of the Protestant Reformation.

To believe that the “geist” of capitalism originated in Calvin’s Geneva or John Knox’s Scotland ignores some palpable geographic facts. As Viner says:

the prosperity of Holland in the seventeenth century aroused the interest of writers in other countries, and various explanations were offered. Sir William Temple singled out for emphasis the industry and thrift of the Dutch, but attributed most “national customs” to “unseen, or unobserved natural causes or necessities.” The only characteristics of this kind which he identified in the Dutch case were poverty in natural resources and density of population. He makes no mention of a religious factor. Some time before 1618, Sir Walter Raleigh singled out Holland, together with the Hanse towns and Denmark, as countries which surpassed England in commerce. He does not mention that all these countries were Protestant . . . .

Sir Josiah Child attributed the superiority of the Dutch in trade to a wide range of customs, institutions, and patterns of economic behavior and laws. His only reference to a religious factor is his inclusion of “toleration of different opinions in matters of religion” as contributing to Dutch prosperity by attracting to Holland industrious and rich dissenters from other countries.

There is only an incidental reason to connect religion with the rise of capitalism in anything Sir William Temple and Sir Walter Raleigh or Josiah Child noticed in Holland. What stands out is the fact that the Dutch government was willing to leave people alone. In short, laissez faire.

A better title to the incomplete Viner book would have been Human Nature and Economic Society. The church fathers and scholastics quoted by Viner were reasonable men who knew that alms would be forthcoming out of a plenty that would still allow scope for individual pleasure. We are less generous in our understanding of human nature today than was the case before we began to legislate welfare by compulsion. No compulsion was necessary to provide education in Britain or America in the eighteenth and nineteenth centuries. Schools were built and maintained by churches and private associations. More hospitals were built in England before the days of compulsory health services.

After the common sense of Viner’s early chapters about the church fathers, I had looked forward to reading the fourth chapter on Max Weber and the thesis that capitalism had been particularly fostered by the “Puritan ethic.” But the chapter is so clogged with unfamiliar names (Bishop Herbert Thorndike, Sir Peter Pett, Robert Robinson, Charles Davenant, C. Weiss, Israel Worsley, to cite a few) that it is almost impossible to follow the tangential arguments. One has to hold fast to the proposition that Weber’s thesis applies only to “the ascetic types of Protestantism.” Weber’s “silent” omission of Geneva (Calvin’s city) and Scotland (John Knox’s territory) from the list of the “ascetics” was, says Viner, “not inadvertent.” The spirit of capitalism was not equally present in all Calvinist countries. Contrariwise, it was often present in Catholic countries. Things depended on human nature acting on local traditions. Neither Weber in Germany nor R. H. Tawney in England had a “lock” on any all-inclusive law.

Book Review: Time And Public Policy by T. Alexander Smith

AUGUST 01, 1989 by Israel M. Kirzner

University of Tennessee Press, P.O. Box 250, Ithaca, NY 14850 1988 • 299 pages • $29.95 cloth

T. Alexander Smith, a professor of political science at the University of Tennessee, has written an impressive book. It is a book that ranges across several social science disciplines, particularly economics, sociology, and politics—but also involves psychology, philosophy, and history. This review is written from the narrow perspective of an “Austrian” economist (whose objectivity is, it must be confessed, perhaps compromised in the book’s favor by its author’s embrace of the Austrian tradition in economics, and by his general endorsement of free market policies.)

The major thesis of the book can be stated simply. Modern societies, partly as a result of various sociological forces, partly as a result of welfare-state policies and majoritarian “promissory politics,” are systematically biased toward the short run: “Our time horizons have changed radically in the modern era.” This bias, the author claims, poses a serious danger for society’s long run health and viability. Where we ought to be pursuing courses of action that recognize the long run benefits of bourgeois values, frugality, thrift, and self-restraint, there in fact are powerful political and social forces that lead us, as voters and as politicians, to place greater emphasis on short run, fleeting, and ephemeral benefits. What is required, Smith maintains, is a pattern of institutional reform that will encourage long range planning, and the willingness to forgo instant gratification for the sake of future goals.

This thesis is developed in eight chapters of well-written prose enriched by a scholarly apparatus modestly concealed in the endnotes, reflecting an extraordinarily wide range of reading and study. Although this reviewer has several quibbles to express as an economist, as a citizen he finds the overall thrust of the book—especially in its development of themes in sociology and politics—highly persuasive and important. Although at least some economic aspects of Smith’s argument have been developed before (for example, Henry Hazlitt’s classic Economics in One Lesson critique of interventionism is based on the idea that the “art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy . . . .”), the book’s reinforcement of its economic insights by reference to sociology, and to political institutions, adds up to an innovative and powerful case for the free market and the rule of law.

My quibbles will at first seem minor ones, yet on reflection they turn out to be quite disturbing to the economist. The economist who appreciates the social usefulness of free markets, and also understands the importance of the time profiles of production and consumption, will argue that a key virtue of the market economy is that it stimulates economic growth to reflect, with reasonable faithfulness, the wishes of the individual market participants. In other words, the market generates volumes and rates of capital accumulation and depreciation which reflect the time preferences of the citizens in their capacities of consumers and potential investors. Smith’s position seems, if I read him correctly, to argue for the free market economy because it is likely to generate a time profile of savings, capital-using production, and consumption which is faithful to what (in Smith’s judgment) is the “correct” allocation between present and future. Smith sees the economy as sliding into a miasma of instant gratification—at a time when it ought to be planning prudently for capital replacement and long term growth.

One would like to think that Smith’s view of the “correct” allocation over time expresses what he believes to be the true wishes of the public. Yet certain parts of the book—notably chapter two, where the author notes and deplores the modern abandonment of bourgeois values—suggest that he really does hope for a set of institutions which will not permit citizens to exercise their unhealthily high time preferences. This way of thinking may be eminently defensible from a variety of perspectives, but the economist (who sees the virtue of markets to lie in their respect for citizens’ preferences, no matter how degenerate and “wrong” they may be) feels uncomfortable with it.

This discomfort is only deepened by our noticing that Smith, throughout the book, deplores the sacrifice of the future for the pre-sent-never recognizing, it would appear, that beyond some point, surely, additional provision for the future may be entirely too costly for a present generation. Surely Smith does not wish us to postpone all present consumption to the future? Which future? Next year, next century, next millennium? Granted that our present institutions have biased us so strongly in the direction of instant gratification that our immediate social and political agenda may be usefully focused upon urging greater attention to the future. Nonetheless, one would have expected some mention of the free market’s capacity to avoid, not only a time profile tilted too much toward the present, but also one tilted too much toward the future. What the Austrian emphasis on time allocation depends on is not so much any admiration for the bourgeois virtues of frugality and thrift per se, as an understanding of the need for thrift in order to achieve preferred future consumption goals. This aspect of Austrian understanding does not emerge unobscured in Smith’s book.

Related to this complaint must be a certain unease which an Austrian economist feels at Smith’s lengthy (and generally sound) discussion of Say’s Law in chapter seven. One comes away from this chapter with the impression that Smith wishes us to see Say’s Law as teaching the primacy of production over consumption, of supply over demand. But our appreciation for the profoundly valid insights embodied in Say’s Law should surely not (at any rate not for Austrian economists!) take us in that direction. To recognize that general overproduction is, in the proper sense, impossible, does not require us to say that “supply is the driving force behind ‘demand’”—for Austrians the reverse, properly interpreted, is closer to the truth. Keynes’ error was, for Austrians, not his emphasis on demand, but his belief that “aggregate demand” can be deficient in equilibrium. For Austrians an appreciation for the need to save is not based on any virtue of abstinence, but on the desire to consume, more extensively, in the future.

Several further related quibbles: Smith has learnt his Austrian economics well, and with a great deal of depth. Yet he appears not to see that much of his thesis does not really depend on Austrian insights. To be sure, his superb third chapter represents classic Austrian and Rothbardian deployment of a Crusoe example to illustrate the meaning and importance of the time profile of production and consumption activities. But one does not have to be an Austrian to appreciate the importance of planning and saving for the future. Certainly one does not have to have a sophisticated Misesian appreciation for the a priori quality of positive time preference to accept Smith’s thesis. By over-emphasizing the Austrian route by which he apparently arrived at his understanding of the importance of the time dimension, Smith may have unnecessarily limited its potential significance for economists following different approaches. (This Austrian economist mentions this point somewhat diffidently: it must seem loutish to sniff at Smith’s appreciation for Austrian economics—so frequently ignored!)

Nor, one may respectfully submit, is the Austrian economist’s appreciation for the subtleties and complexities of time quite captured by Smith’s treatment of it. Although Smith makes occasional mention of the problems of uncertainty and knowledge introduced by the circumstance that human action occurs in irreversible time, the overall thrust of his book emphasizes only the one dimension: the need to allocate scarce resources between the present and the future. Primordially important though this dimension certainly is, it is a little unfortunate that the book somehow conveys the impression that, by developing its central thesis, the place of time in economic policy has been fully and completely dealt with. For Austrians, surely, far more needs to be discussed and explained, including especially the role of competitive processes, the role of entrepreneurial discovery, and the complications these introduce into propositions concerning the effectiveness of markets.

But these are mere economist’s quibbles. The larger picture presented by the book relies heavily on insights concerning sociology and politics which impressed this lay reader greatly. Smith has undoubtedly put his finger on a central weakness of modern political systems. There can be no question that the future economic and political well-being of society depends significantly on our being able to disentangle ourselves from the web of forces which, as Smith brilliantly shows, distort our focus, mistakenly and tragically, toward the present and immediate future. Smith’s book deserves a wide readership and careful thought and discussion.

Dr. Kirzner is a professor of economics at New York University.

Book Review: Memoirs of an Unregulated Economist by George J. Stigler

AUGUST 01, 1989 by Richard Ebeling

Basic Books, 10 E. 53rd Street, New York, NY 10022 • 1988 • 228 pages • $17.95 cloth.

Best-selling novels and popular movies never seem to have an economist as the hero. An archaeologist or an architect, an over-the-hill newspaper man, an inebriated detective—all seem to fit the bill. Even the book version of Death Wish has an accountant as the protagonist. But an economist? What can be exciting about supply and demand, the quantity theory Of money, or the intricacies of public utility regulation? A work of fiction, at least, can exaggerate the truth. But what can one look forward to from an economist’s autobiography? Economists are boring, fight? Wrong!

George Stigler is a leading member of the Chicago school of economics and the 1982 recipient of the Nobel Memorial Prize in Economic Science. His intellectual autobiography, Memoirs of an Unregulated Economist, proves that there is life after Econ 101 and that economics is far from being a dismal science.

In telling his own story, Professor Stigler does a masterful job of weaving in the history of 20th-century American economics. In the late 1940s, many economists and most intellectuals were convinced that large doses of social planning and government intervention were both desirable and the inevitable waves of the future—the only things that would save America from falling back into the abyss of the Great Depression of the 1930s. Forty years later it is socialism and interventionism that are on the defensive, with the market economy and individual liberty once again the rising ideals. To a great extent the radical shift in ideological direction has been due to the Chicago School, and this is the real story in Stigler’s book.

Stigler did his graduate work in economics at the University of Chicago in the 1930s. He studied with such leading figures as Frank Knight, Jacob Viner, and Henry Simons. Though they were far from being radical advocates of laissez-faire, in the collectivist environment of the New Deal in America and Fascism and Communism in Europe, these economists instilled in their students an appreciation of the price system and a competitive market order. And they warned of what collectivism could mean for the loss of political and civil liberties. Their teaching left its mark on Stigler and others like Milton Friedman. In the 1950s, these influences gelled into the “Chicago School.”

Stigler’s contributions have been in the area of micro-economics, i.e., the theory of markets and prices. He devoted his energy to the economics of information, the theory of monopoly, and the theory of government regulation. Economists have long worked with an economic model of “perfect competition” in which agents are assumed to possess full and perfect knowledge, and markets are assumed to adjust immediately to any and all changes. This model has been an easy target for critics of capitalism. Stigler demonstrated how markets enable individuals with less than perfect knowledge to search for information about the qualities of goods and the prices at which they may be obtained; he further showed how competitive forces tend to bring supplies and demands into balance through this information-search process.

He also challenged the long-held assumption among many economists that when markets are less than “perfect,” monopolistic forces tend to exist all over the economy, with consumer interests sacrificed for the benefit of a few, big, highly concentrated firms and industries• In a series of theoretical and empirical studies, Stigler was able to prove that as long as government doesn’t bestow privileges guaranteeing producers protection from competition, the market economy is an inherently rivalrous arena, and one that is very responsive to changing consumer demands.

Finally, Stigler pioneered research in the field of government regulatory policy. The standard view, again, was that certain industries are inherently uncompetitive; therefore, it was believed necessary for government to regulate their pricing and production policies for the public good. Stigler argued that rather than serving the public good, regulatory agencies invariably came under the control of the industries they were to regulate. All the economic incentives were for the regulated companies to devote time and resources to “capture” the agencies, and then use them to limit entry into their market and to set prices favorable to themselves. Stigler demonstrated that when left free from government oversight, these sectors of the economy were usually as open and competitive as any other.

The drama of the tale is in Stigler’s telling. He explains the different views and schools of thought; he introduces the reader to the competing personalities and their conflicts over a 50-year period; and most important, he escapes from the abstract language and arguments of the rarefied economics journals. Thus, the general reader can follow the intellectual odyssey in terms that flesh out the theoretical and policy debates of the past several decades. Stigler doesn’t limit himself to developments in his own fields of interest. He also describes the evolution of the Chicago School monetary tradition, beginning in the 1930s, through the writings of Milton Friedman, right up to the current theory of Rational Expectations. And he explains the Chicago School’s extension of the logic of economics to new areas such as the economics of crime, the family, and race relations.

As a member of a rival school in economics—the Austrian School—the present reviewer is tempted to raise a number of questions and objections to the approach of the Chicago School. While the Chicago economists have emphasized the vigor of competitive forces, they have failed to analyze to any real extent the focal point of that competitive process—the entrepreneur. While they have tried to develop a theory of informational search in the market, they have failed to grapple with the real problem of imperfect knowledge, i.e., how do market agents form expectational judgments when the uncertainty they face cannot be reduced to simple statistical probabilities? And finally, Stigler says that economics can be applied to a wide array of areas and problems because “Economics is the study of purposive behavior involving choice.” Yet, the frequent tendency by Chicago economists to reduce all economic phenomena to a purely quantitative dimension often has resulted in many essential human elements of “purposive behavior” being excluded from their analysis.

But these may be considered family squabbles among free market economists. George Stigler, and the Chicago School he has helped to create and nurture, have changed the shape of economics in the United States and increasingly around the world. The economic planners and interventionists are losing the intellectual battle everywhere, and a major portion of the credit belongs to the set of ideas so eloquently described in this book. Ted Turner may not buy the rights to turn it into a cable movie special, but it certainly is a story in which the economist is the hero.

Professor Ebeling holds the Ludwig von Mises Chair in Economics at Hillsdale College.

Book Review: The High Cost of Farm Welfare by Clifton B. Luttrell

SEPTEMBER 01, 1989 by E.C. Pasour

Cato Institute, 224 Second Street SE, Washington, DC 20003 • 1989 149 pages * $19.95 doth, $9.95 paper

Government programs haven’t solved the economic woes plaguing U.S. agriculture. Despite record expenditures on farm programs during the 1980s, financial stress in U.S. agriculture during the Reagan era was at its highest level since the Great Depression of the 1930s. Luttrell’s short book describes government farm programs and demonstrates why they have been an expensive failure.

The book is divided into 11 chapters. Chapters 1 and 2 describe government intervention in agriculture following World War I that culminated in the Agricultural Adjustment Act of the Roosevelt New Deal. Chapters 3 through 6 analyze price support programs for crops from their beginning in the 1930s until the present time. Chapters 7 through 10 discuss other programs, including food stamps, subsidized credit, and price supports for milk and sugar. Chapter 11 describes the winners and losers, emphasizing that farm programs are a “high-cost way to aid low-income farmers.”

Historical data are presented for a range of activities including production and exports of farm products, levels of price supports and market prices, sugar imports, government expenditures on food stamps, Farmers Home Administration loans, farm income by farm size, and expenditures by the U.S. Department of Agriculture (USDA).

Farm programs today are remarkably similar to those instituted during the 1930s. And government expenditures on farm programs, adjusted for inflation, have increased dramatically during the past 50 years, despite remarkable changes in the farm economy. Indeed, USDA outlays since 1980 have been higher each year than net farm income.

Luttrell pinpoints numerous inconsistencies and inefficiencies of price supports, subsidized credit, and other farm programs. For example, milk, sugar, and peanut programs raise food prices to consumers. At the same time, more than $10 billion is spent on food stamp programs to make food more available to lower-income consumers. Again, while espousing self-help and providing foreign aid to assist leas developed sugar-producing nations, the United States has impeded economic development in these countries, notably in the Caribbean area, through sharp decreases in sugar quotas which limit their economic independence.

Of course, farm programs are inconsistent with competitive markets. Price supports that raise domestic prices above world price levels not only spawn protectionism to prevent the substitution of lower-priced imports by U.S. consumers, they also create the “need” for export subsidies to make U.S. products competitive in international trade. The massive export subsidies under Public Law 480 (“Food for Peace”) and similar pro grams not only continue today but have been substantially increased in recent years.

Luttrell shows that most of the benefits of farm programs go to farmers whose incomes, on average, exceed those of the nonfarm population. For example, in 1985 the top 4 percent of farms (measured by value of products sold), with average net income of well over $100,000 per year, received about one- third of all government price support payments. In this reverse Robin Hood approach, the programs provide the lion’s share of government payments to a relatively few higher-income farmers. Moreover, the benefits of higher product prices are quickly incorporated into higher prices and costs of land and other farm assets. Consequently, farm programs have little effect on the long-run profitability of U.S. agriculture.

What is the reason for this apparent anomaly in which the “government taxes so many for the benefit of so few”? Although Luttrell briefly addresses this topic, it would have been helpful to devote more space to the reasons why government tends to spend great sums on agricultural programs.

There are two explanations for the persistence of government farm programs—“market failure” and income redistribution. In the former view, government farm programs persist because the decentralized market process isn’t capable of coordinating economic activity in agriculture. Luttrell demonstrates that the evidence doesn’t support this conclusion and that government intervention in agriculture frequently destabilizes markets for farm products.

The income distribution explanation appears to be more consistent with the evidence. The political process is short-run oriented, and farmers (and other groups) often exert disproportionate amounts of influence in the political process because program benefits (as Luttrell stresses) are highly concentrated and the costs are widely diffused. For example, the sugar program that costs the average U.S. family no more than $50 per year benefits the 12,000 to 13,000 domestic producers of sugar and sugar substitutes, on average, by thousands of dollars per year. It isn’t surprising that sugar producer interests exert more effort to influence the political process than do consumers!

How should the nation move to restore market forces in agriculture? Luttrell suggests a five-year adjustment period in returning to a competitive system. He also puts forth a controversial “de-coupling” proposal in which farm programs would he dismantled, and current farmers would receive government payments unrelated to agri cultural production until death or the age of 70. Luttrell recognizes that economic theory cannot be used to justify income redistribution to farmers. Moreover, he staunchly advocates the dismantling of farm programs, leaving no doubt about the inevitable result if agriculture isn’t decontrolled: “. . . ever-increasing costs to taxpay ers and consumers, resulting in further regulation and more highly inefficient, centralized decision making.”

Dr. Pasour is professor of economics at North Carolina State University at Raleigh.

About Victor Niederhoffer

About John Hood

About Lee Ownby

About Frank Vorhies

About Nancy Seijas

About Robert A. Peterson

About C Crocker

About John Chamberlain

About Israel M. Kirzner

About Richard Ebeling

Richard M. Ebeling is BB&amp;T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel in Charleston, South Carolina. He was president of the Foundation for Economic Education (FEE) from 2003 to 2008.

About E.C. Pasour