Economics in one lesson, Summaries of English Literature

Download Economics in one lesson and more Summaries English Literature in PDF only on Docsity! 1 ECONOMICS IN ONE LESSON by Henry Hazlitt Nobel Laureate in Economics, F.A. Hayek said in 1974 about Hazlitt‟s book: “It is a brilliant performance. It says precisely the things which need most saying and says them with rare courage and integrity. I know of no other modern book from which the intelligent layman can learn so much about the basic truths of economics in so short a time.” (Back cover) “This book is an analysis of economic fallacies that are at last so prevalent that they have almost become a new orthodoxy....its effort is to show that many of the ideas which now pass for brilliant innovations and advances are in fact mere revivals of ancient errors, and a further proof of the dictum that those who are ignorant of the past are condemned to repeat it.” (pp. 9-10) “As Morris R. Cohen has remarked: „The notion that we can dismiss the views of all previous thinkers surely leaves no basis for the hope that our own work will prove of any value to others.‟” (interior quote: Reason and Nature (1931), p.x.; Hazlitt, p.10) “It is the beliefs which politically influential groups hold and which governments act upon that we are interested in here, not the historical origins of those beliefs....Fallacies, when they have reached the popular stage, become anonymous anyway.” (p.11) The Lesson: “Economics is haunted by more fallacies than any other study known to man. This is no accident.” (p. 15) “While every group has certain economic interests identical with those of all groups, every group has also, as we shall see, interests antagonistic to those of all other groups. While certain public policies would in the long run benefit everybody, other policies would benefit one group only at the expense of all other groups. The group that would benefit by such policies, having such a direct interest in them, will argue for them plausibly and persistently. It will hire the best buyable minds to devote their whole time to presenting its case.” (p. 15) “[There] is the persistent tendency of men to see only the immediate effects of a given policy, or its effects only on a special group, and to neglect to inquire what the long-run effects of that policy will be not only on that special group but on all groups. It is the fallacy of overlooking secondary consequences. In this lies the whole difference between good economics and bad.” (pp. 15-16) “Doesn‟t everybody know, in his personal life, that there are all sorts of indulgences delightful at the moment but disastrous in the end?....Yet when we enter the field of public economics, these elementary truths are ignored. There are men regarded today as brilliant economists, who deprecate saving and recommend squandering on a national scale as the way to economic salvation; and when anyone points to what the consequences of these policies will be in the long run, they reply flippantly, as might the prodigal son of a warning father: „In the long run we are 2 all dead.‟ And such shallow wisecracks pass as devastating epigrams and the ripest wisdom.... Today is already the tomorrow which the bad economist yesterday urged us to ignore.” (pp. 16-17) “[T]he whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence. The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.” (p.17) “[Bad economists] overlook the woods in their precise and minute examination of particular trees. Their methods and conclusions are often profoundly reactionary.” (p. 18) “[B]ad economists present their errors to the public better than the good economists present their truths....The reason is that the demagogues and bad economists are presenting half-truths. They are speaking only of the immediate effect of a proposed policy or its effect upon a single group. As far as they go they may often be right. In these cases the answer consists in showing that the proposed policy would also have longer and less desirable effects, or that it could benefit one group only at the expense of all other groups. The answer consists in supplementing and correcting the half-truth with the other half. But to consider all the chief effects of a proposed course on everybody often requires a long, complicated, and dull chain of reasoning. Most of the audience finds this chain of reasoning difficult to follow and soon becomes bored and inattentive. The bad economists rationalize this intellectual debility and laziness by assuring the audience that it need not even attempt to follow the reasoning or judge it on its merits because it is only „classicism‟ of „laissez faire‟ or „capitalist apologetics‟ or whatever other term of abuse may happen to strike them as effective.” (pp. 18-19) The Broken Window: “A young hoodlum...heaves a brick through the window of a baker‟s shop....A crowd gathers....After a while the crowd feels the need for philosophic reflection. And several of its members are almost certain to remind...the baker that, after all, the misfortune has its bright side. It will make business for some glazier....After all, if windows were never broken, what would happen to the glass business? Then of course, the thing is endless. The glazier will have $250 more to spend with other merchants, and these in turn will have $250 more to spend with still other merchants, and so ad infinitum. The smashed window will go on providing money and employment in ever-widening circles. The logical conclusion from all this would be, if the crowd drew it, that the little hoodlum who threw the brick, far from being a public menace, was a public benefactor....But the shopkeeper will be out $250 that he was planning to spend for a new suit. Because he has had to replace a window, he will have to go without the suit (or some equivalent need or luxury)....The glazier‟s gain of business, in short, is merely the tailor‟s loss of business. No new „employment‟ has been added. The people in the crowd were thinking only of two parties to the transaction, the baker and the glazier. They had forgotten the potential third party involved, the tailor. They forgot him precisely because he will not now enter the scene. They will see the new window in the next day or two. They will never see the extra suit, precisely because it will never be made. They see only what is immediately visible to the 5 taxpayers‟) that private lenders will not take with their own money.” (p. 42) “[W]hat is really being lent is not money, which is merely the medium of exchange, but capital....What is really being lent, say, is the farm or the tractor itself....The farm or tractor that is lent to A cannot be lent to B. The real question is, therefore, whether A or B shall get the farm. This brings us to the respective merits of A and B....There is a strange idea abroad, held by all monetary cranks, that credit is something a banker gives to a man. Credit, on the contrary, is something a man already has. He has it, perhaps, because he already has marketable assets of greater cash value than the loan for which he is asking. Or he has it because his character and past record have earned it. He brings it into the bank with him. That is why the banker makes him the loan. The banker is not giving something for nothing. He feels assured of repayment. He is merely exchanging a more liquid form of asset or credit for a less liquid form....But the government goes into the lending business in a charitable frame of mind because, as we say, it is worried about B. B cannot get a mortgage or other loans from private lenders because he does not have credit with them....Perhaps in an individual case it may work out all right. But it is obvious that in general the people selected by these government standards will be poorer risks than the people selected by private standards....There will be a much higher percentage of failures among them. They will be less efficient. More resources will be wasted by them. Yet the recipients of government credit will get their farms and tractors at the expense of those who otherwise would have been the recipients of private credit. Because B has a farm, A will be deprived of a farm. A may be squeezed out either because interest rates have gone up as a result of the government operations, or because farm prices have been forced up as a result of them, or because there is no other farm to be had in his neighborhood. In any case, the net result of government credit has not been to increase the amount of wealth produced by the community but to reduce it, because the available real capital (consisting of actual farms, tractors, etc.) has been placed in the hands of the less efficient borrowers rather than in the hands of the more efficient and trustworthy.” (pp. 43-44) “The proposal is frequently made that the government ought to assume the risks that are „too great for private industry.‟ This means that bureaucrats should be permitted to take risks with the taxpayers‟ money that no one is willing to take with his own. Such a policy....would increase the demand for socialism; for, it would properly be asked, if the government is going to bear the risks, why should it not also get the profits?” (p. 45) “[T]he amount of real capital at any moment (as distinguished from monetary tokens run off on a printing press) is limited.” (p. 45) “The private lenders, moreover, are selected by a cruel market test....a process of survival of the fittest. The government lender, on the other hand, are either those who have passed civil service examinations, and know how to answer hypothetical questions hypothetically, or they are those who can give the most plausible reasons for making loans and the most plausible explanations of why it wasn‟t their fault that the loans failed. But the net result remains; private loans will utilize existing resources and capital far better than government loans....Government loans, in short, as compared with private loans, will reduce production, not increase it.” (p. 46) “The government never lends or gives anything to business that it does not take away from business. One often hears New Dealers and other statists boast about the way government 6 „bailed business out‟ with the Reconstruction Finance Corporation, the Home Owners Loan Corporation and other government agencies in 1932 and later. But the government can give no financial help to business that it does not first or finally take from business. The government‟s funds all come from taxes....When the government makes loans or subsidies to business, what it does is to tax successful private business in order to support unsuccessful private business.” (pp. 47-8) [President Hoover raised the top marginal tax bracket from 25% to 63% and Franklin D. Roosevelt raised it to 79%, then 81%, then 88% and finally, all the way up to 94%. One can only wonder how much business activity was discouraged, and even destroyed, with such exorbitant rates of taxation.] The Curse of Machinery: “Among the most viable of all economic delusions is the belief that machines on net balance create unemployment. Destroyed a thousand times, it has risen a thousand times out of its own ashes as hardy and vigorous as ever. Whenever there is long continued mass unemployment, machines get the blame anew. This fallacy is still the basis of many labor union practices. The public tolerates these practices because it either believes at bottom that the unions are right, or is too confused to see just why they are wrong.” (p. 49) [He gives examples of the stocking industry rioting over the invention and introduction of stocking frames to make the work go faster. And the invention of the cotton-spinning machine causing concern among spinners who used spinning wheels. In both cases, over time, industry employment went up not down.] [Many people during the depression blamed things on machines. Fearing machinery, he gives many examples of ridiculous union featherbedding and make-work rules.] “By 1961 there was no sign that the fallacy had died. Not only union leaders but government officials talked solemnly of „automation‟ as a major cause of unemployment. Automation was discussed as if it were something entirely new in the world.” (p. 53) “If it were indeed true that the introduction of labor-saving machinery is a cause of constantly mounting unemployment and misery, the logical conclusion to be drawn would be revolutionary....Not only should we have to regard all further technical progress as a calamity; we should have to regard all past technical progress with equal horror. Every day each of us in his own activity is engaged in trying to reduce the effort it requires to accomplish a given result. Each of us is trying to save his own labor, to economize the means required to achieve his ends. Every employer, small as well as large, seeks constantly to gain his results more economically and efficiently -- that is, by saving labor....Why should freight be carried from Chicago to New York by railroad when we could employ enormously more men, for example, to carry it all on their backs?....Yet it is a misconception to think of the function or result of machines as primarily one of creating jobs. The real result of the machine is to increase production, to raise the standard of living, to increase economic welfare. It is no trick to employ everybody....Full employment -- very full employment; long, weary, back-breaking employment -- is characteristic of precisely the nations that are most retarded industrially. Where full employment already exists, new machines, inventions and discoveries cannot -- until there has been time for an increase in population -- bring more employment. They are likely to bring more unemployment (but this time I am speaking of voluntary and not involuntary unemployment) because people can 7 now afford to work fewer hours, while children and the overaged no longer need to work.” (pp. 54, 58). [In short, the fallacious fear about technology would logically lead us back to the grass hut era -- who really wants to do that? So his argument meshes with common sense.] [He gives a detailed example of how the installation of a time-saving machine on net, is better for everyone in the long run -- of course there will be some uncomfortable dislocations in the process.] “In brief, on net balance machines, technological improvements, automation, economies and efficiency do not throw men out of work.” (pp. 55-57) [How do machines on net benefit all of us in the long run? --] “by making goods cheaper for consumers [and] by increasing wages because they increase the productivity of the workers....in any case, machines, inventions and discoveries increase real wages.” (pp. 58-9) [He constantly cautions us to be mindful of the stress caused by the displaced workers and criticizes classical economists for appearing callused regarding them. He describes the plight of the displaced worker as follows: “he has devoted many years of his life to acquiring and improving a special skill for which the market no longer has any use. He has lost this investment in himself, in his old skill, just as his former employer, perhaps, has lost his investment in old machines or processes suddenly rendered obsolete. He was a skilled workman, and paid as a skilled workman. Now he has become overnight an unskilled workman again, and can hope, for the present, only for the wages of an unskilled workman, because the one skill he had is no longer needed.” (p. 60) This underscores the need today for people to constantly upgrade their education and skills and to constantly forecast the future and prepare for it rather than just sitting back and mistakenly thinking that good times will always roll and that things can never change for the worse.] “Allied to this fallacy [that a more efficient way of doing a thing destroys jobs, and its necessary corollary that a less efficient way of doing it creates them] is the belief that there is just a fixed amount of work to be done in the world....This error lies behind the minute subdivisions of labor upon which unions insist.” (p. 61) [Then he gives a lot of egregious examples of such subdivisions.] “There is no limit to the amount of work to be done as long as any human need or wish that work could fill remains unsatisfied. In a modern exchange economy, the most work will be done when prices, costs and wages are in the best relations with each other.” (p. 66) [An analogy that occurs to me is the military. Would anyone seriously argue that it would be unwise to constantly be expanding the envelope of technology and weaponry in order to give our soldiers the best chances of winning a war? Each side would naturally want the superior machinery and weaponry in order to make their soldiers the most productive and most secure. The same principles apply to free market competition. The worker with the best set of machinery and technology behind him is the most productive, the highest paid and the most secure. Besides, who would want to take a full-employment approach to war?] 10 “In the long run it [a tariff] always reduces real wages, because it reduces efficiency, production and wealth.” (p. 82) “But we should not deny, as enthusiastic free traders have so often done, the possibility of these tariff benefits to special groups. We should not pretend, for example, that a reduction of the tariff would help everybody and hurt nobody. It is true that its reduction would help the country on net balance. But somebody [the ones previously protected] would be hurt. That in fact is one reason why it is not good to bring such protected interests into existence in the first place.” (p. 83) “As a postscript to this chapter, I should add that its argument is not directed against all tariffs, including duties collected mainly for revenue, or to keep alive industries needed for war; nor is it directed against all arguments for tariffs. It is merely directed against the fallacy that a tariff on net balance „provides employment,‟ „raises wages,‟ or „protects the American standard of living.‟ It does none of these things; and so far as wages and the standard of living are concerned, it does the precise opposite.” (p. 84) “It is exports that pay for imports, and vice versa. The greater exports we have, the greater imports we must have, if we ever expect to get paid....When we decide to cut down our imports, we are in effect deciding also to cut down our exports. When we decide to increase our exports, we are in effect deciding also to increase our imports.” (p. 85) “Foreign exchange, in short, is a clearing transaction in which, in America, the dollar debts of foreigners are canceled against their dollar credits.” (p. 86) [A common fallacy when it comes to foreign lending] “runs like this. Even if half (or all) the loans we make to foreign countries turn sour and are not repaid, this nation will still be better off for having made them, because they will give an enormous impetus to our exports. It should be immediately obvious that if the loans we make to foreign countries to enable them to buy our goods are not repaid, then we are giving the goods away. A nation cannot grow rich by giving goods away. It can only make itself poorer....In the long run business and employment in American would be hurt, not helped, by foreign loans that were not repaid. For every extra dollar that foreign buyers had with which to buy American goods, domestic buyers would ultimately have one dollar less. Businesses that depend on domestic trade would therefore be hurt in the long run as much as export business would be helped.” (pp.87-8) “[I]t is stupid to give a false stimulation to export trade through export subsidies. An export subsidy is a clear case of giving the foreigner something for nothing, by selling him goods for less than it costs us to make them. It is another case of trying to get rich by giving things away.” (pp. 88-9) “[T]he real gain of foreign trade to any country lies not in its exports but in its imports. Its consumers are either able to get from abroad commodities at a lower price than they could obtain them for at home, or commodities that they could not get from domestic producers at all.” (p. 89) Parity Prices: 11 “Special interests, as the history of tariffs reminds us, can think of the most ingenious reasons why they should be the objects of special solicitude. Their spokesmen present a plan in their favor; and it seems at first so absurd that disinterested writers do not trouble to expose it. But the special interests keep on insisting on the scheme. Its enactment would make so much difference to their own immediate welfare that they can afford to hire trained economists and public relations experts to propagate it in their behalf. The public hears the argument so often repeated, and accompanied by such a wealth of imposing statistics, charts, curves and pie-slices, that it is soon taken in. When at last disinterested writers recognize that the danger of the scheme‟s enactment is real, they are usually too late.” (p. 90) [He talks about the plight of farmers and the supposed need to support their agricultural prices to keep them profitable by imposing artificial price supports to match some prior year of prosperity. The common thinking was that if we could cut back on supply, then prices would rise so we started paying farmers to take acreage out of production. It ended up creating more production since the farmers took their least productive acreage out of production and left the most productive acreage in production. The costs saved in the process were spent on more fertilizer for the remaining fields thus upping their yield. But even if we succeeded, what good would it do? None. On net, it would only hurt us. First, if we did succeed in helping the farmer artificially, the consumers would have to pay higher prices so that it would come out of their collective hides. [Second, it makes no sense to produce less consumable food because that is the same thing as producing less wealth. You don‟t increase our overall standard of living by artificially constricting the production of new wealth. [Third, if we did manage to increase the price of a bushel of wheat, for example, while it is true the farmer will get more per bushel, but he will have fewer bushels to sell so have we really helped him much at all? After all, both price and volume factor into the equation of the farmer‟s income. [Fourth, if we succeeded in helping the farmers by hurting the consumers, the consumers will start asking for the government to bail them out of their economic plight but then the farmers would have to chip in for that bail out thus hurting them.] “But suppose we could solve this fantastic problem? What would be the point? Who gains when everyone equally subsidizes everyone else? What is the profit when everyone loses in added taxes precisely what he gains by his subsidy or his protection? We should merely have added an army of needless bureaucrats to carry out the program, with all of them lost to production.” (p. 96) Saving the X Industry: [On the theory that the sick industry is sick because it is overcrowded, one approach to a bailout would be to artificially prevent other firms or workers from getting in.] “Now if the X industry is really overcrowded as compared with other industries it will not need any coercive legislation to keep out new capital or new workers. New capital does not rush into industries that are 12 obviously dying. Investors do not eagerly seek the industries that present the highest risks of loss combined with the lowest returns. Nor do workers, when they have any better alternative, go into industries where the wages are lowest and the prospects for steady employment least promising. If new capital and new labor are forcibly kept out of the X industry, however, either by monopolies, cartels, union policy or legislation, it deprives this capital and labor of liberty of choice. It forces investors to place their money where the returns seem less promising to them than in the X industry. It forces workers into industries with even lower wages and prospects than they could find in the allegedly sick X industry. It means, in short, that both capital and labor are less efficiently employed than they would be if they were permitted to make their own free choices. It means, therefore, a lowering of production which must reflect itself in a lower average living standard....Similar results would follow any attempt to save the X industry by a direct subsidy out of the public till. This would be nothing more than a transfer of wealth or income to the X industry. The taxpayers would lose precisely as much as the people in X industry gained.” (pp. 100-101) “The idea that an expanding economy implies that all industries must be simultaneously expanding is a profound error. In order that new industries may grow fast enough it is usually necessary that some old industries should be allowed to shrink and die. In doing this they help to release the necessary capital and labor for the new industries. If we had tried to keep the horse-and-buggy trade artificially alive we should have slowed down the growth of the automobile industry and all the trades dependent on it. We should have lowered the production of wealth and retarded economic and scientific progress. We do the same thing, however, when we try to prevent any industry from dying in order to protect the labor already trained or the capital already invested in it. Paradoxical as it may seem to some, it is just as necessary to the health of a dynamic economy that dying industries be allowed to die as that growing industries be allowed to grow. The first process is essential to the second.” (pp. 102) How the Price System Works: “The scientists, the efficiency experts, the engineers, the technicians....[claim] they could turn out almost anything you cared to mention in huge and practically unlimited amounts. But, alas, the world is not ruled by the engineers, thinking only of production, but by the businessmen, thinking only of profit. The businessmen give their orders to the engineers, instead of vice versa. These businessmen will turn out any object as long as there is a profit in doing so, but the moment there is no longer a profit in making that article, the wicked businessmen will stop making it, though many people‟s wants are unsatisfied, and the world is crying for more goods. There are so many fallacies in this view that they cannot all be disentangled at once. But the central error, as we have hinted, comes from looking at only one industry, or even at several industries in turn, as if each of them existed in isolation. Each of them in fact exists in relation to all the others, and every important decision made in it is affected by and affects the decisions made in all the others.” (p.104) [To illustrate he uses an example of Robinson Crusoe. There are many things he wants and needs as soon as he arrives on the island but he cannot have them all at once. He has to prioritize his needs and take things one at a time.] “[E]verything he does delays or prevents him from doing something else only a little less urgent. He is faced constantly by the problem of alternative applications of his time and labor.” (p.104) [The Swiss 15 “To give farmers money for restricting production, or to give them the same amount of money for artificially restricted production, is no different from forcing consumers or taxpayers to pay people for doing nothing at all. In each case the beneficiaries of such policies get „purchasing power.‟ But in each case someone else loses and exactly equivalent amount. The net loss to the community is the loss of production, because people are supported for not producing. Because there is less for everybody, because there is less to go around, real wages and real incomes must decline either through a fall in their monetary amount or through higher living costs.” (p. 115) “The plan that started out so bravely to „stabilize‟ prices and conditions brings incomparably greater instability than the free forces of the market could possibly have brought.” (pp. 115-16) “Just what the government planners mean by free trade in this connection I am not sure, but we can be sure of some of the things they do not mean. They do not mean the freedom of ordinary people to buy and sell, lend and borrow, at whatever prices or rates they like and wherever they find it most profitable to do so. They do not mean the freedom of the plain citizen to raise as much of a given crop as he wishes, to come and go at will, to settle where he pleases, to take his capital and other belongings with him. They mean, I suspect, the freedom of bureaucrats to settle these matters for him. And they tell him that if he docilely obeys the bureaucrats he will be rewarded by a rise in his living standards. But if the planners succeed in tying up the idea of international cooperation with the idea of increased State domination and control over economic life, the international controls of the future seem only too likely to follow the pattern of the past, in which case the plain man‟s living standards will decline with his liberties.” (p. 116) [With Russia‟s recent experience so vividly before us, how can anyone doubt what Hazlitt is saying here?] Government Price Fixing Below Their Natural Market Levels: “Though they [government price-fixing programs] are always economically harmful, if not destructive, they have at least a political advantage from the standpoint of the officeholders. By implication they put the blame for higher prices on the greed and rapacity of businessmen, instead of on the inflationary monetary policies of the officeholders themselves.” “[W]e cannot hold the price of any commodity below its market level without in time bringing about two consequences....The first is an increase in demand ....The second consequence is to reduce the supply of the commodity. Because people buy more, the accumulated supply is more quickly taken from the shelves of merchants. But in addition to this, production of that commodity is discouraged. Profit margins are reduced or wiped out. The marginal producers are driven out of business. Even the most efficient producers may be called upon to turn out their product at a loss. This happened in World War II when slaughter houses were required by the Office of Price Administration to slaughter and process meat for less than the cost to them of cattle on the hoof and the labor of slaughter and processing. “ If we did nothing else, therefore, the consequences of fixing a maximum price for a particular commodity would be to bring about a shortage of that commodity. But this is precisely the opposite of what the government regulators originally wanted to do. For it is the 16 very commodities selected for maximum price-fixing that the regulators most want to keep in abundant supply.” (p. 119) “Some of these consequences in time become apparent to the regulators, who then adopt various other devices and controls in an attempt to avert them. Among these devices are rationing, cost-control, subsidies, and universal price-fixing....When it becomes obvious that a shortage of some commodity is developing as a result of a price fixed below the market, rich consumers are accused of taking „more than their fair share‟....If a rationing system is adopted, in brief, it means that the government adopts a double price system, or a dual currency system, in which each consumer must have a certain number of coupons or „points‟ in addition to a given amount of ordinary money. In other words, the government tries to do through rationing part of the job that a free market would have done through prices. I say only part of the job, because rationing merely limits the demand without also stimulating the supply, as a higher price would have done. “ The government may try to assure supply through extending its control over the costs of production of a commodity....But as the government extends this price-fixing backwards, it extends at the same time the consequences that originally drove it to this course....Thus the government is driven to controls in ever-widening circles, and the final consequence will be the same as that of universal price-fixing [i.e. after all of the efforts, nobody is better off as a result]. “ The government may try to meet this difficulty through subsidies....[but] unless the subsidized commodity is also rationed, it is those with the most purchasing power that can buy most of it....It becomes a little difficult to trace in this maze precisely who is subsidizing whom. What is forgotten is that subsidies are paid for by someone, and that no method has been discovered by which the community gets something for nothing.” (pp. 120-22) “When prices are arbitrarily held down by government compulsion, demand is chronically in excess of supply....If we ration one commodity, and the public cannot get enough of it, though it still has excess purchasing power, it will turn to some substitute. The rationing of each commodity as it grows scarce, in other words, must put more and more pressure on the unrationed commodities that remain. If we assume that the government is successful in its efforts to prevent black markets...continued price control must drive it to the rationing of more and more commodities....The natural consequence of a thoroughgoing over-all price control which seeks to perpetuate a given historic price level, in brief, must ultimately be a completely regimented economy. Wages would have to be held down as rigidly as prices. Labor would have to be rationed as ruthlessly as raw materials....The result would be petrified totalitarian economy, with every business firm and every worker at the mercy of the government, and with a final abandonment of all the traditional liberties we have known.” (pp. 122-23) [Hazlitt believes the inevitable response to government attempts to artificially keep prices down is black markets. Such black markets would exact a moral toll by putting a premium on dishonesty and an economic toll by reducing production and overall living standards.] “What lies at the base of the whole effort to fix maximum prices? There is first of all a misunderstanding of what it is that has been causing prices to rise. The real cause is either a scarcity of goods or a surplus of money. Legal price ceilings cannot cure either....they merely intensify the shortage.” (pp.124-25) 17 What Rent Control Does: “Rent control is initially imposed on the argument that the supply of housing is not „elastic‟ -- i.e., that a housing shortage cannot be immediately made up, no matter how high rents are allowed to rise. Therefore, it is contended, the government, by forbidding increases in rents, protects tenants from extortion and exploitation without doing any real harm to landlords and without discouraging new construction. “ This argument is defective even on the assumption that the rent control will not long remain in effect. It overlooks immediate consequences. If landlords are allowed to raise rents to reflect a monetary inflation and the true conditions of supply and demand, individual tenants will economize by taking less space. This will allow others to share the accommodations that are in short supply. The same amount of housing will shelter more people, until the shortage is relieved. “ Rent control, however, encourages wasteful use of space. It discriminates in favor of those who already occupy houses or apartments in a particular city or region at the expense of those who find themselves on the outside. Permitting rents to rise to the free market level allows all tenants or would-be tenants equal opportunity to bid for space....The effects of rent control become worse the longer the rent control continues. New housing is not built because there is no incentive to build it....landlords will not trouble to remodel apartments or make other improvements in them....[It will] create ill feeling between landlords who are forced to take minimum returns or even losses, and tenants who resent the landlord‟s failure to make adequate repairs....The accommodation for low-income groups, therefore, will deteriorate in quality, and there will be no increase in quantity. Where the population is increasing, the deterioration and shortage in low-income housing will grow worse and worse. It may reach a point where many landlords not only cease to make any profit but are faced with mounting and compulsory losses. They may find that they cannot even give their property away. They may actually abandon their property and disappear, so they cannot be held liable for taxes. When owners cease supplying heat and other basic services, the tenants are compelled to abandon their apartments. Wider and wider neighborhoods are reduced to slums. In recent years, in New York City, it has become a common sight to see whole blocks of abandoned apartments, with windows broken, or boarded up to prevent further havoc by vandals. Arson becomes more frequent, and the owners are suspected. A further effect is the erosion of city revenues [as the tax base continues to shrink].... When these consequences are so clear that they become glaring, there is of course no acknowledgment on the part of the imposers of rent control that they have blundered. Instead, they denounce the capitalist system. They contend that private enterprise has „failed‟ again; that „private enterprise cannot do the job.‟ Therefore, they argue, the State must step in and itself build low-rent housing....So the government launches on a gigantic housing program -- at the taxpayers‟ expense. The houses are rented at a rate that does not pay back costs of construction and operation....The political possibilities of this favoritism are too clear to need stressing. A pressure group is built up that believes that the taxpayers owe it these subsidies as a matter of right. Another all but irreversible step is taken toward the total Welfare State. “ A final irony of rent control is that the more unrealistic, Draconian, and unjust it is, the more fervid the political arguments for its continuance....Even the opponents of rent control are...disposed to concede that the removal of controls must be a very cautious, gradual, and prolonged process. Few of the opponents of rent control, indeed, have the political courage and 20 these new workers from choosing the best alternative open to them, and force them to take something worse. The strikers are therefore insisting on a position of privilege, and are using force to maintain this privileged position against other workers....if they [the workers who would like to cross the picket lines and work] are in fact merely men and women who are looking for permanent jobs and willing to accept them at the old rate, then they are workers who would be shoved into worse jobs than these in order to enable the striking workers to enjoy better ones. And this superior position for the old employees could continue to be maintained, in fact, only by the ever-present threat of force.” (pp. 142-43) “Emotional economics has given birth to theories that calm examination cannot justify. One of these is the idea that labor is being „underpaid‟ generally. This would be analogous to the notion that in a free market prices in general are chronically too low. Another curious but persistent notion is that the interests of a nation‟s workers are identical with each other, and that an increase in wages for one union in some obscure way helps all other workers.” (p. 143) “When strong labor unions in the past made it their function to provide for their own unemployed members, they thought twice before demanding a wage that would cause heavy unemployment. But where there is a relief system under which the general taxpayer is forced to provide for the unemployment caused by excessive wage rates, this restraint on excessive union demands is removed.” (p. 145) [One can only imagine what Hazlitt would have said about the current state of affairs under New York law where strikers are entitled to unemployment compensation which is funded by employer premiums. Isn‟t that an odd state of affairs and a tremendous advantage given to the striking workers by the government? -- not only must the employer withstand the normal economic dislocations of a strike, but in New York, it must also indirectly continue paying the strikers during the strike. In other words, the law makes the employer fund the very strike being waged against it! I remember a few years back Congress was even considering legislation prohibiting employers from replacing striking employees -- what lunacy! Look what we are trying to turn our “free market” system into while still calling us a free people with a straight face.] [What if we were able to achieve universal unionism? -- would that guarantee good wages for all? No. First unions would differ in relative strength because of the differing things they would make. Those in the more strategic areas would always fare better -- e.g. those making Cadillacs would probably get higher wages than those making beanies. Second,] “suppose, in spite of the self-contradictoriness of the assumption, that all workers by coercive methods could raise their money wages by an equal percentage? Nobody would be any better off, in the long run, than if wages had not been raised at all.” (p. 146) [This would be because the resulting inflation would cause the real purchasing power to remain the same collectively.] [Even assuming labor could effectively demand higher wages well in excess of their true market worth, it would not last long term. For example lets assume the railroad unions were able to do this and the market was such that the railroad could not raise ticket prices because they would lose more in lost volume of passengers than would be gained by raising the ticket prices on the remaining passengers. Would this be union nirvana? Hardly.] “If the money that they [the owners] have invested in railroads now yields less than money they can invest in other lines, the 21 investors will not put a cent more into railroads. They may replace a few things that wear out first, to protect the small yield on their remaining capital; but in the long run they will not even bother to replace items that fall into obsolescence or decay. [Just like slumlords in a prior discussion] If capital invested at home pays them less than that invested abroad, they will invest abroad. If they cannot find sufficient return anywhere to compensate them for their risk, they will cease to invest at all. Thus the exploitation of capital by labor can at best be merely temporary.” (p. 148) “They [unions] have certainly been a force working to hold down or to reduce wages if their effect, on net balance, has been to reduce labor productivity.” (p.149) [Then he goes through a litany of examples where unions reduce productivity like rigid subdivisions of labor, seniority being rewarded rather than speed and efficiency, road blocking the introduction of improved machinery, make-work rules, etc.] “Most of these policies have been followed under the assumption that there is just a fixed amount of work to be done, a definite „job fund‟ which has to be spread over as many people and hours as possible so as not to use it up too soon. This assumption is utterly false. There is actually no limit to the amount of work to be done. Work creates work. What A produces constitutes the demand for what B produces....their [unions] net effect has been to reduce productivity below what it would otherwise have been. Their net effect, therefore, in the long run and for all groups of workers, has been to reduce real wages -- that is, wages in terms of the goods they will buy -- below the level to which they would otherwise have risen. The real cause for the tremendous increase in real wages in the last century has been, to repeat, the accumulation of capital and the enormous technological advance made possible by it [not the existence of unions].” (pp. 150-51) [On another History Channel presentation about the massive dam-building project known as the TVA project in Tennessee, men were paid a full day‟s normal wage for only 5 hours of actual work in order to make sure everybody had work. How could private employers compete with such largess funded by the taxpayers? Could it be that such massive government “help” actually prolonged the Great Depression?] “Enough to Buy Back the Product” [Over the years many have argued that wages are not fair or just unless they are high enough for the laborer to buy the products that he himself makes. Should the guy who puts on the hub caps really be able to earn enough to buy the Cadillac he has a hand in making?] “[T]he passion for economic equality...is...a passion for getting as much as those above us in the economic scale already get rather than a passion for giving those below us as much as we ourselves already get.” (p. 154) “In an exchange economy everybody’s money income is somebody else’s cost. Every increase in hourly wages, unless or until compensated by an equal increase in hourly productivity, is an increase in costs of production....If a 30 percent increase in hourly wages all around the circle forces a 30 percent increase in prices, labor can buy no more of the product than it could at the beginning; and the merry-go-round must start all over again. 22 “Equilibrium wages and prices are the wages and prices that equalize supply and demand. If, either through government or private coercion, an attempt is made to lift prices above their equilibrium level, demand is reduced and therefore production is reduced. If an attempt is made to push prices below their equilibrium level, the consequent reduction or wiping out of profits will mean a falling off of supply or new production. Therefore any attempt to force prices either above or below their equilibrium levels (which are the levels toward which a free market constantly tends to bring them) will act to reduce the volume of employment and production below what it would otherwise have been.” (p. 158) “[T]he best prices are not the highest prices, but the prices that encourage the largest volume of production and the largest volume of sales. The best wage rates for labor are not the highest wage rates, but the wage rates that permit full production, full employment and the largest sustained payrolls. The best profits, from the standpoint not only of industry but of labor, are not the lowest profits, but the profits that encourage most people to become employers or to provide more employment than before. “ If we try to run the economy for the benefit of a single group or class, we shall injure or destroy all groups, including the members of the very class for whose benefit we have been trying to run it. We must run the economy for everybody.” (p. 158) The Function of Profits: “The indignation shown by many people today at the mention of the very word profits indicates how little understanding there is of the vital function that profits play in our economy.” (p. 159) “Profits actually do not bulk large in our total economy. The net income of incorporated business in the fifteen years from 1929-43...averaged less than 5 percent...from 1956 to 1960 averaged less than 6 percent...1971 through 1975 also averaged less than 6 percent....Yet profits are the form of income toward which there is most hostility. It is significant that while there is a word profiteer to stigmatize those who make allegedly excessive profits, there is no such word as “wageer” -- or “losseer.” Yet the profits of the owner of a barbershop may average much less not merely than the salary of a motion picture star or the hired head of a steel corporation, but less even than the average wage for skilled labor. “ The subject is clouded by all sorts of factual misconceptions. The total profits of General Motors...are taken as if they were typical rather than exceptional. Few people are acquainted with the mortality rates for business concerns....No trustworthy estimate has been made that takes into account all kinds of activity, unincorporated as well as incorporated business, and a sufficient number of good and bad years. But some eminent economists believe that over a long period of years, after allowance is made for all losses, for a minimum „riskless‟ interest on invested capital, and for an imputed „reasonable‟ wage value of the services of people who run their own business, no net profit at all may be left over, and that there may even be a net loss....It is clear, in any case, that any individual placing venture capital runs a risk not only of earning no return but losing his whole principle.” (pp. 160-61) “[G]overnment policy almost everywhere today tends to assume that production will go on automatically, no matter what is done to discourage it. One of the greatest dangers to world 25 value of money, as we have seen, depends upon the subjective valuations of the people who hold it....[That is why] in wartime the value of a nation‟s monetary unit, not on the gold standard, will rise on the foreign exchanges with victory and fall with defeat, regardless of changes in its quantity....[and] why, when hyperinflation has once set in, the value of the monetary unit drops at a far faster rate than the quantity of money either is or can be increased. When this stage is reached, the disaster is nearly complete; and the scheme is bankrupt.” (pp. 170-71) [When he says it is impossible to turn things around without a depression once we have embarked upon the path of inflation, is he in effect saying that the piper will always have to be paid no matter what we do and the only benefit to doing it now is that it won‟t hurt as much as it will later if we just put off the inevitable?] “Yet the ardor for inflation never dies. It would almost seem as if no country is capable of profiting from the experience of another and no generation of learning from the sufferings of its forebears. Each generation and country follows the same mirage. Each grasps for the same Dead Sea fruit that turns to dust and ashes in its mouth. For it is the nature of inflation to give birth to a thousand illusions. “ In our own day the most persistent argument put forward for inflation is that it will „get the wheels of industry turning,‟ that it will save us from the irretrievable losses of stagnation and idleness and bring „full employment.‟ This argument in its cruder form rests on the immemorial confusion between money and real wealth....The real purchasing power of goods, however, as we have seen, consists of other goods.” (p. 171) “What inflation really does is to change the relationships of prices and costs. The most important change it is designed to bring about is to raise commodity prices in relation to wage rates, and so to restore business profits, and encourage a resumption of output at the points where idle resources exist, by restoring a workable relationship between prices and costs of production. “ It should be immediately clear that this could be brought about more directly and honestly by a reduction in unworkable wage rates. But the more sophisticated proponents of inflation believe that this is now politically impossible. Sometimes they go further...[and call any such proposal] „antilabor.‟ But what they are themselves proposing, stated in bald terms, is to deceive labor by reducing real wage rates...through an increase in prices.” (p. 172) “The more sophisticated advocates of inflation, in brief, are disingenuous. They do not state their case with complete candor; and they end up by deceiving even themselves.” (p. 173) [He says they start out mixing up money for wealth and then get worse by talking about „multiplier‟ effects where one dollar spent by government magically multiplies into several dollars added to the wealth of the country.] “ [T]he real causes [of depression], most of the time, are maladjustments within the wage-cost-price structure: maladjustments between wages and prices, between prices of raw materials and prices of finished goods, or between one price and another or one wage and another. At some point these maladjustments have removed the incentive to produce, or have made it actually impossible for production to continue; and through the organic interdependence of our exchange economy, depression spreads. Not until these maladjustments are corrected can full production and employment be resumed....Inflation, indeed, throws a veil of illusion over every economic process. It confuses and deceives almost everyone, including even those who 26 suffer by it....Inflation is the opium of the people. “ And this is precisely its political function. It is because inflation confuses everything that it is so consistently resorted to by our modern „planned economy‟ governments....the belief that public works necessarily create new jobs is false. If the money was raised by taxation...then for every dollar that the government spent on public works one less dollar was spent by the taxpayers to meet their own wants, and for every public job created one private job was destroyed. “ But suppose the public works are not paid for from the proceeds of taxation? Suppose they are paid for by deficit financing -- that is, from the proceeds of government borrowing or from resort to the printing press? Then the result just described does not seem to take place. The public works seem to be created out of „new‟ purchasing power. You cannot say that purchasing power has been taken away from the taxpayers. For the moment the nation seems to have got something for nothing. “ But now, in accordance with our lesson, let us look at the longer consequences. The borrowing must some day be repaid. The government cannot keep piling up debt indefinitely; for if it tries, it will some day become bankrupt. As Adam Smith observed in 1776: „When national debts have once been accumulated to a certain degree, there is scarce, I believe, a single instance of their having been fairly and completely paid. The liberation of the public revenue, if it has even been brought about at all, has always been brought about by a bankruptcy; sometimes by an avowed one, but always by a real one, though frequently by a pretended payment.‟ “ Yet when the government comes to repay the debt it has accumulated for public works, it must necessarily tax more heavily than it spends. In this later period, therefore, it must necessarily destroy more jobs than it creates. The extra-heavy taxation then required does not merely take away purchasing power; it also lowers or destroys incentives to production, and so reduces the total wealth and income of the country. “ The only escape from this conclusion is to assume (as of course the apostles of spending always do) that the politicians in power will spend money only in what would otherwise have been depressed or „deflationary‟ periods, and will promptly pay the debt off in what would otherwise have been boom or „inflationary‟ periods. This is a beguiling fiction, but unfortunately the politicians in power have never acted that way....Deficit spending, once embarked upon, creates powerful vested interests which demand its continuance under all conditions. “ If no honest attempt is made to pay off the accumulated debt, and resort is had to outright inflation instead, then the results follow that we have already described. For the country as a whole cannot get anything without paying for it. Inflation itself is a form of taxation. It is perhaps the worst possible form, which usually bears hardest on those least able to pay....It is a tax not only on every individual‟s expenditures, but on his savings account and life insurance. It is, in fact, a flat capital levy, without exemptions, in which the poor man pays as high a percentage as the rich man.... “ Like every other tax, inflation acts to determine the individual and business policies we are all forced to follow. It discourages all prudence and thrift. It encourages squandering, gambling, reckless waste of all kinds. It often makes it more profitable to speculate than to produce. It tears apart the whole fabric of stable economic relationships. Its inexcusable injustices drive men towards desperate remedies. It plants the seeds of fascism and 27 communism. It leads men to demand totalitarian controls. It ends invariably in bitter disillusion and collapse. (pp. 173-176) The Assault on Saving: “From time immemorial proverbial wisdom has taught the virtues of saving, and warned against the consequences of prodigality and waste. This proverbial wisdom has reflected the common ethical as well as the merely prudential judgments of mankind. But there have always been squanderers, and there have apparently always been theorists to rationalize their squandering. “ The classical economists...showed that the saving policy that was in the best interests of the individual was also in the best interests of the nation....But today the ancient virtue of thrift, as well as its defense by the classical economists, is once more under attack, for allegedly new reasons, while the opposite doctrine of spending is in fashion.” (p. 177) [He then compares two brothers -- one a spendthrift and the other a saver. While the spendthrift provides employment during his spending spree, so too does the brother who saved because it was lent out by the bank to those who would put it to productive use and in the process produce jobs. That‟s why he says: “Saving, in short, in the modern world, is only another form of spending.” (p. 179) And when the spending spree is all over for the spendthrift brother and he is no longer able to create any employment for others and in fact needs a job himself, the other brother has his capital intact and continues to promote the creation of new employment although it is indirect in nature. He distinguishes saving from hoarding like putting the money in a mattress rather than in a bank.] “Mere hoarding of hand-to-hand money, if it takes place irrationally, causelessly, and on a large scale, is in most economic situations harmful. But this sort of hoarding is extremely rare. Something that looks like this, but should be carefully distinguished from it, often occurs after a downturn in business has got under way. Consumptive spending and investment are then both contracted. Consumers reduce their buying. They do this partly, indeed, because they fear they may lose their jobs, and they wish to conserve their resources: they have contracted their buying not because they wish to consume less but because they wish to make sure that their power to consume will be extended over a longer period if they do lose their jobs. “ But consumers reduce their buying for another reason. Prices of goods have probably fallen, and they fear a further fall. If they defer spending, they believe they will get more for their money. They do not wish to have their resources in goods that are falling in value, but in money which they expect (relatively) to rise in value. “ The same expectation prevents them from investing. They have lost their confidence in the profitability of business; or at least they believe that if they wait a few months they can buy stocks or bonds cheaper.... “ It is a misnomer to call this temporary refusal to buy „saving.‟ It does not spring from the same motives as normal saving. And it is a still more serious error to say that this sort of „saving‟ is the cause of depressions. It is, on the contrary, the consequence of depressions. “ It is true that this refusal to buy may intensify and prolong a depression....The real cause, however, is the uncertainty brought about by the government policies....To blame „excessive saving‟ for the business decline would be like blaming a fall in the price of apples not on [the fact that there was] a bumper crop but on the people who refuse to pay more for apples. 30 constantly making....we ought to make sure in each case that both sides of the coin have been considered, that all implications of a proposal have been studied. And this is seldom done.” (p. 193) “The analysis of our illustrations has taught us another incidental lesson....the conclusions we arrive at usually correspond with those of unsophisticated common sense. “ „What is prudence in the conduct of every private family,‟ said Adam Smith‟s strong common sense in reply to the sophists of his time, „can scarce be folly in that of a great kingdom.‟ But lesser men get lost in complications. They do not reexamine their reasoning even when they emerge with conclusions that are palpably absurd. The reader, depending upon his own beliefs, may or may not accept the aphorism of Bacon that „A little philosophy inclineth men‟s minds to atheism, but depth in philosophy bringeth men‟s minds about to religion.‟ It is certainly true, however, that a little economics can easily lead to the paradoxical and preposterous conclusions we have just rehearsed, but that depth in economics brings men back to common sense. For depth in economics consists in looking for all the consequences of a policy instead of merely resting one‟s gaze on those immediately visible.” (pp. 193-94) “In the course of our study...we have rediscovered an old friend. He is the Forgotten Man of William Graham Summer [in his 1883 essay]: „As soon as A observes something which seems to him to be wrong, from which X is suffering, A talks it over with B, and A and B then propose to get a law passed to remedy the evil and help X. Their law always proposes to determine what C shall do for X or, in the better case, what A, B and C shall do for X....What I want to do is to look up C....I call him the Forgotten Man....He is the man who never is thought of. He is the victim of the reformer, social speculator and philanthropist, and I hope to show you before I get through that he deserves your notice both for his character and for the many burdens which are laid upon him.‟ “ ...It is C, the Forgotten Man, who is always called upon to stanch the politician‟s bleeding heart by paying for his vicarious generosity.” (pp. 194-95) [He then gives a summarizing example where less efficient producers are forced out of the market but wealth cumulatively grows.] “The fact that there is more and cheaper coffee for everyone is lost sight of; what is seen is merely that some coffee growers cannot make a living at the lower price.... “ But the solution is never to reduce supplies arbitrarily, to prevent further inventions or discoveries, or to support people for continuing to perform a service that has lost its value. Yet this is what the world has repeatedly sought to do by protective tariffs, by the destruction of machinery, by the burning of coffee, by a thousand restriction schemes. This is the insane doctrine of wealth through scarcity.” The Lesson After Thirty Years: [The first edition of this book appeared in 1946. It is now...thirty two years later. How much of the lesson expounded in the previous pages has been learned in this period?] “ If we are referring to the politicians -- to all those responsible for formulating and 31 imposing government policies -- practically none of it has been learned. On the contrary, the policies analyzed in the preceding chapters are far more deeply established and widespread.... “ We may take, as the outstanding example, inflation. This is not only a policy imposed for its own sake, but an inevitable result of most of the other interventionist policies. It stands today as the universal symbol of government intervention everywhere.” (p. 203) “More than forty years after the publication of John Maynard Keynes‟ General Theory, and more than twenty years after that book has been thoroughly discredited by analysis and experience, a great number of our politicians are still unceasingly recommending more deficit spending in order to cure or reduce existing unemployment.” (p. 204) “An even greater irony is that, not satisfied with following such disastrous policies at home, our officials have been scolding other countries, notably Germany and Japan, for not following these „expansionary‟ policies themselves. This reminds one of nothing so much as Aesop‟s fox, when he had lost his tail, urged all his fellow foxes to cut off theirs.” (p. 204) “One of the worst results of the retention of the Keynesian myths is that it not only promotes greater and greater inflation, but that it systematically diverts attention from the real causes of our unemployment, such as excessive union wage-rates, minimum wage laws, excessive and prolonged unemployment insurance, and overgenerous relief payments. “ But the inflation, though in part often deliberate, is today mainly the consequence of other government economic interventions. It is the consequence, in brief, of the Redistributive State -- of all the policies of expropriating money from Peter in order to lavish it on Paul. “ This process would be easier to trace, and its ruinous effects easier to expose, if it were all done in some single measure -- like the guaranteed annual income actually proposed and seriously considered by committees of Congress in the early 1970s. This was a proposal to tax still more ruthlessly all incomes above average and turn the proceeds over to all those living below a so-called minimum poverty line, in order to guarantee them an income -- whether they were willing to work or not -- „to enable them to live with dignity.‟ It would be hard to imagine a plan more clearly calculated to discourage work and production and eventually to impoverish everybody. “ But instead of passing any such single measure, and bringing on ruin in a single swoop, our government has preferred to enact a hundred laws that effect such a redistribution on a partial and selective basis....These include, to give a random list: Social Security, Medicare, Medicaid, unemployment insurance, food stamps, veteran‟s benefits, farm subsidies, subsidized housing, rent subsidies, school lunches, public employment on make-work jobs, Aid to Families with Dependent Children, and direct relief of all kinds, including aid to the aged, the blind, and the disabled.” (pp. 204-205) “There is no more certain way to deter employment than to harass and penalize employers. There is no more certain way to keep wages low than to destroy every incentive to investment in new and more efficient machines and equipment.” (p. 206) “Yet this Draconian taxation has not brought revenues to keep pace with ever more reckless government spending and schemes for redistributing wealth.” (p. 206) 32 “As I have pointed out, these inflations, themselves the cause of so much human misery, were in turn in large part the consequence of other policies of government economic intervention. Practically all there interventions unintentionally illustrate and underline the basic lesson of this book. All were enacted on the assumption that they would confer some immediate benefit on some special group. Those who enacted them failed to take heed of their secondary consequences -- failed to consider what their effect would be in the long run on all groups. “ In sum, so far as the politicians are concerned, the lesson that this book tried to instill more than thirty [now fifty] years ago does not seem to have been learned anywhere....[in fact if anything they are] still being pursued, usually with increased obstinacy.” (pp. 207-8) “The anti-capitalistic mentality seems more deeply embedded than ever. Whenever there is any slowdown in business, the politicians now see the main cause as „insufficient consumer spending.‟ At the same time that they encourage more consumer spending they pile up further disincentives and penalties in the way of saving and investment. Their chief method of doing this today, as we have already seen, is to embark on or accelerate inflation. The result is that today, for the first time in history, no nation is on a metallic standard, and practically every nation is swindling its own people by printing a chronically depreciating paper currency....[on top of that there is a] tendency, not only in the United States but abroad, for almost every „social‟ program, once launched upon, to get completely out of hand.” (pp. 208-9) “Social Security was to be entirely a self-financed insurance plan based on strict actuarial principles. A reserve fund was to be set up sufficient to meet future claims and payments as they fell due. It never worked out that way.... “ It also turned out that in practically every session Congress found ways to increase the benefits paid, broaden the coverage, and add new forms of „social insurance.‟ As one commentator pointed out in 1965, a few weeks after Medicare insurance was added: „Social Security sweeteners have been enacted in each of the past seven general election years.‟ “ As inflation developed and progressed, Social Security benefits were increased not only in proportion, but much more. The typical political ploy was to load up benefits in the present and push costs into the future. Yet that future always arrived; and each few years later Congress would again have to increase payroll taxes levied on both workers and employers. “ Not only were the rates continuously increased, but there was a constant rise in the amount of salary taxed.... “ No one can say today whether Social Security is really an insurance program or just a complicated and lopsided relief system. The bulk of the present benefit recipients are being assured that they „earned‟ and „paid for‟ their benefits. Yet no private insurance company could have afforded to pay existing benefit scales out of the „premiums‟ actually received.... “ Yet Social Security today is still sacrosanct. It is considered political suicide....The American Social Security system must stand today as a frightening symbol of the almost inevitable tendency of any national relief, redistribution, or „insurance‟ scheme, once established, to run completely out of control.” (pp. 209-10) “In brief, the main problem we face today is not economic, but political. Sound economists are in substantial agreement concerning what ought to be done. Practically all government attempts to redistribute wealth and income tend to smother productive incentives and lead toward general impoverishment. It is the proper sphere of