Defending The Undefendable - Walter Block

Defending
the
Undefendable
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Defending
the
Undefendable
The Pimp, Prostitute, Scab, Slumlord, Libeler,
Moneylender, and Other Scapegoats in the
Rogues Gallery of American Society
Walter Block
Ludwig von Mises Institute
Auburn, Alabama
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Copyright 2008 Ludwig von Mises Institute
Copyright 1991 Fox and Wilkes
Copyright 1976 by Fleet Press Corporation
All rights reserved. Written permission must be secured from the publisher
to use or reproduce any part of this book, except for brief quotations in crit-
ical reviews or articles.
Published by the Ludwig von Mises Institute, 518 West Magnolia Avenue,
Auburn, Alabama 36832. Mises.org.
ISBN: 978-1-933550-17-6
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This book is dedicated to those who have taught me political
economy and inspired me with a passion for justice:
Nathaniel Branden
Walter E. Grinder
Henry Hazlitt
Benjamin Klein
Ayn Rand
Jerry Woloz
and especially Murray N. Rothbard
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vii
CONTENTS
Foreword by Murray N. Rothbard . . . . . . . . . . . . . . . . .ix
Commentary by F.A. Hayek . . . . . . . . . . . . . . . . . . . . . .xii
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xiii
I. Sexual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1. The Prostitute . . . . . . . . . . . . . . . . . . . . . . .3
2. The Pimp . . . . . . . . . . . . . . . . . . . . . . . . . . .9
3. The Male Chauvinist Pig . . . . . . . . . . . .13
II. Medical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
4. The Drug Pusher . . . . . . . . . . . . . . . . . . .27
5. The Drug Addict . . . . . . . . . . . . . . . . . . .33
III. Free Speech . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
6. The Blackmailer . . . . . . . . . . . . . . . . . . . .41
7. The Slanderer and Libeler . . . . . . . . . . . .47
8. The Denier of Academic Freedom . . . . .51
9. The Advertiser . . . . . . . . . . . . . . . . . . . . . .57
10. The Person Who Yells Fire! in a
Crowded Theater . . . . . . . . . . . . . . . . . . .69
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viii Defending the Undefendable
IV. Outlaw . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73
11. The Gypsy Cab Driver . . . . . . . . . . . . . . .75
12. The Ticket Scalper . . . . . . . . . . . . . . . . . .83
13. The Dishonest Cop . . . . . . . . . . . . . . . . .91
V. Financial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .97
14. The (Nongovernment) Counterfeiter . .99
15. The Miser . . . . . . . . . . . . . . . . . . . . . . . .111
16. The Inheritor . . . . . . . . . . . . . . . . . . . . .117
17. The Moneylender . . . . . . . . . . . . . . . . . .121
18. The Noncontributor to Charity . . . . . .129
VI. Business and Trade . . . . . . . . . . . . . . . . . . . . . . .137
19. The Curmudgeon . . . . . . . . . . . . . . . . . .139
20. The Slumlord . . . . . . . . . . . . . . . . . . . . .147
21. The Ghetto Merchant . . . . . . . . . . . . . .155
22. The Speculator . . . . . . . . . . . . . . . . . . . .165
23. The Importer . . . . . . . . . . . . . . . . . . . . . .169
24. The Middleman . . . . . . . . . . . . . . . . . . .179
25. The Profiteer . . . . . . . . . . . . . . . . . . . . . .185
VII. Ecology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .197
26. The Stripminer . . . . . . . . . . . . . . . . . . . .199
27. The Litterer . . . . . . . . . . . . . . . . . . . . . . .205
28. The Wastemakers . . . . . . . . . . . . . . . . . .213
VIII. Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .221
29. The Fat Capitalist-Pig Employer . . . . .223
30. The Scab . . . . . . . . . . . . . . . . . . . . . . . . .233
31. The Rate Buster . . . . . . . . . . . . . . . . . . .237
32. The Employer of Child Labor . . . . . . .243
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .253
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ix
FOREWORD
F
or many years, free-market economists have shown how
market activities benefit the often heedless public. Ever
since the days of Adam Smith, they have shown how pro-
ducers and businessmen, generally motivated solely by personal
gain, unwittingly confer enormous benefits on the general pub-
lic. By seeking to maximize their profits and minimize losses, for
example, businessmen are driven to satisfy the most urgent
demands of the consumers in the most efficient way. Economists
have long shown these truths in the abstract; and in recent years
they have added to our knowledge by illustrating in case after
case, in the concrete, the superiority and efficiency of private
operation. But the inquiries of economists have been confined,
with sober pedantry, to the respectable industries: to such
activities as agriculture, natural gas, housing, airways, and so
forth. Until this book, no economist has had the courage of Pro-
fessor Walter Block in tackling head-on the moral and economic
status of the dozens of reviled, scorned, and grievously misun-
derstood professions and occupations in our society: those
whom he rightly calls the economic scapegoats. Fearlessly, and
with logic and trenchant wit, Professor Block rehabilitates and
demonstrates the considerable economic merits of such scape-
goat occupations as the pimp, the blackmailer, and the slumlord.
In this way, in addition to redeeming the stature of these much
reviled occupations, Defending the Undefendable performs the
service of highlighting, in the fullest and starkest terms, the
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essential nature of the productive services performed by all peo-
ple in the free market. By taking the most extreme examples and
showing how the Smithian principles work even in these cases,
the book does far more to demonstrate the workability and
morality of the free market than a dozen sober tomes on more
respectable industries and activities. By testing and proving the
extreme cases, he all the more illustrates and vindicates the the-
ory.
These case studies also have considerable shock value. By
relentlessly taking up one extreme case after another that is
generally guaranteed to shock the sensibilities of the reader, Pro-
fessor Block forces the reader to think, to rethink his initial
knee-jerk emotional responses, and to gain a new and far
sounder appreciation of economic theory and of the virtues and
operations of the free-market economy. Even many readers who
now think they believe in a free market must now be prepared to
grasp fully the logical implications of a belief in a free economy.
This book will be an exciting and shocking adventure for most
readers, even for those who believe that they are already con-
verted to the merits of the free-market economy.
All right, some readers might concede, we grant that these
people are performing valuable economic services. But why, for
heavens sake, call them heroes? Why is the pimp or the med-
ical quack any more heroic, and therefore in a sense more
moral, than other, more respectable producers: the grocers,
clothiers, steel manufacturers, etc.? The explanation is precisely
wrapped up in the extreme lack of respectability of Professor
Blocks scapegoats. For the grocer, the steel producer, and the
others are generally allowed to go about their business unmo-
lested, and indeed earn respect and prestige from the fellow
members of the community. Not so these scapegoats; for not
only are their economic services unrecognized, but they face the
universal bile, scorn, and wrath of virtually every member of
society, plus the additional restrictions and prohibitions that
governments have almost universally placed upon their activi-
ties. Scorned and condemned unmercifully by society and state
alike, social outcasts and state-proclaimed outlaws, Professor
x Defending the Undefendable
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Foreword xi
Blocks collection of scapegoats go about their business never-
theless; heroically proceeding to confer their economic services
in the teeth of universal scorn and outlawry. They are heroes
indeed, made so by their unjust treatment at the hands of soci-
ety and of the state apparatus.
Heroes yes, but not necessarily saints. When the author con-
fers the moral stature of hero on the scab, the usurer, the pimp,
and so on, he does not mean to imply that these activities are
intrinsically more moral than any other. In a free market, and in
a society that treats the usurer, slumlord, and sweat shop
employer in precisely the same just way as it treats other occu-
pations, they would no longer be heroes, and they would cer-
tainly be no more moral than anyone else. Their heroic status,
for Professor Block, is solely a function of the unjust restrictions
that other men have been placing upon them. It is the happy
paradox of this book that if its implicit advice is followed, and
the men and women described in these pages are no longer
treated to scorn and legal coercion, then and only then will they
no longer be heroes. If you dont like the idea of a usurer or a
slumlord being a hero, then the only way to deprive him of this
stature is to remove the shackles that misguided people have
placed upon him.
Murray N. Rothbard
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COMMENTARY
L
ooking through Defending the Undefendable made me
feel that I was once more exposed to the shock therapy by
which, more than fifty years ago, the late Ludwig von
Mises converted me to a consistent free market position. Even
now I am occasionally at first incredulous and feel that this is
going too far, but usually find in the end that you are right.
Some may find it too strong a medicine, but it will still do them
good even if they hate it. A real understanding of economics
demands that one disabuses oneself of many dear prejudices and
illusions. Popular fallacies in economics frequently express
themselves in unfounded prejudices against other occupations,
and in showing the falsity of these stereotypes you are doing a
real service, although you will not make yourself more popular
with the majority.
F.A. von Hayek, Nobel Laureate
Institut for Nationalkonomie
Universitt Salzburg
xii
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INTRODUCTION
T
he people presented in this book are generally consid-
ered villainous, and the functions they perform, harm-
ful. Sometimes society itself is damned because it
spawns such reprehensible characters. However, the thrust of
this book will concentrate on the following propositions:
1. they are guilty of no wrongdoing of a violent nature;
2. in virtually every case, they actually benefit society;
3. if we prohibit their activities, we do so at our own loss.
The impetus for this book is Libertarianism. The basic
premise of this philosophy is that it is illegitimate to engage in
aggression against nonaggressors. What is meant by aggression is
not assertiveness, argumentativeness, competitiveness, adven-
turousness, quarrelsomeness, or antagonism. What is meant by
aggression is the use of violence, such as that which takes place
in murder, rape, robbery, or kidnapping. Libertarianism does
not imply pacifism; it does not forbid the use of violence in
defense or even in retaliation against violence. Libertarian phi-
losophy condemns only the initiation of violencethe use of vio-
lence against a nonviolent person or his property.
There is nothing untoward or controversial about such a
view. Most people would give it their wholehearted support.
Indeed, this sentiment is part and parcel of our Western civiliza-
tion, enshrined in the law, in our Constitution, and in the natu-
ral law.
xiii
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xiv Defending the Undefendable
The uniqueness of Libertarianism is found not in the state-
ment of its basic principle but in the rigorously consistent, even
maniacal manner with which the principle is applied. For
example, most people do not see any contradiction between this
principle and our system of taxation. Libertarians do.
Taxation is contrary to the basic principle because it involves
aggression against nonaggressive citizens who refuse to pay. It
makes not the slightest difference that the government offers
goods and services in return for the tax money. What is impor-
tant is that the so-called trade (tax money for government
services) is coerced. The individual is not free to reject the offer.
Nor does the fact that a majority of the citizens support this
coercive taxation make any difference. The initiation of aggres-
sion, even when endorsed by the majority, is not legitimate. Lib-
ertarianism condemns it in this area as it condemns it wherever
it occurs.
Another difference between the beliefs of Libertarians and
the beliefs of other members of society is the obverse of the view
that initiatory violence is evil. Libertarians maintain that as far
as political theory is concerned, anything which does not involve
the initiation of violence is not evil and that as far as political
theory is concerned, anything which does not involve the initia-
tion of violence is not a punishable evil and should not be out-
lawed. And this is the basis for the first part of my argument.
The so-called villains are not villains at all, in this sense,
because they do not initiate violence against nonaggressors.
Once it is realized that no one in this seeming rogues
gallery is guilty of any coercive wrongdoing, it is not difficult to
appreciate the second point: virtually all of the people with whom
we are concerned are responsible for benefiting the rest of society.
The people we are considering are not aggressors. They do not
force themselves on anyone. If the other members of the com-
munity have any dealings with them, these dealings are volun-
tary. People engage in voluntary transactions because they feel
that some benefit can be derived. Since people voluntarily trade
with our villains, they must get from them something they
desire. The villains must be providing a benefit.
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Introduction xv
The third premise follows ineluctably from the second.
Given that voluntary trade (the only avenue of interaction open
to those who, like the scapegoats, have eschewed violence) must
always benefit all parties, it follows that the prohibition of vol-
untary trade must harm all parties. In fact, my point is even
stronger. I will argue that prohibiting the activities of the people
we are considering harms not only the potential parties to the
trade, but it can seriously harm third parties. One blatant exam-
ple is the prohibition of the activities of the heroin seller. In
addition to harming the seller and the customer, the prohibition
of the sale of heroin is responsible for a high proportion of the
crime committed in our society, for police graft, and in many
areas, for the general breakdown of law and order.
The chief point I wish to make in this introductionthe
core of my positionis that there is a crucial difference between
the initiation of aggression and all other acts which, while they
may displease us, do not involve such aggression. It is only the
act of aggressive violence that violates mans rights. Refraining
from aggressive violence must be considered a fundamental law
of society. The people dealt with in this book, though reviled by
the media and condemned out of hand by almost everyone, do
not violate anyones rights, so they should not be subjected to
judicial sanctions. It is my belief that they are scapegoatsthey
are visible, they are available to attack, but they must be
defended, if justice is to prevail.
This book is a defense of the marketplace. It singles out for
special praise those participants in the free enterprise system
who are the most reviled by its critics. It does so because if the
price system can be shown to be mutually beneficial and pro-
ductive in these extreme examples, then the case for markets in
general is strengthened even the more.
However, it is important to counteract one possible misinter-
pretation. This book does not claim that the marketplace is a
moral economic institution. True, the profit and loss business
system has brought mankind a plethora of consumer goods and
services unknown in the entire history of the world. These ben-
efits are the envy of all peoples not fortunate enough to live
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under its banner. Given the tastes, desires, preferences of the
ultimate consumer, the market is the best means known to man
for providing for his satisfaction.
But the marketplace also produces goods and services
such as gambling, prostitution, pornography, drugs (heroin,
cocaine, etc.), alcohol, cigarettes, swingers clubs, suicide abett-
mentwhose moral status is, to say the least, highly question-
able and in many cases highly immoral. The free enterprise sys-
tem, thus, cannot be considered a moral one. Rather, as a means
of consumer satisfaction, it can only be as moral as are the goals
of the market participants themselves. Since these vary widely,
all the way from the completely depraved and immoral to the
entirely legitimate, the market must be seen as amoralneither
moral nor immoral.
The market in other words is like fire, or a gun, or a knife,
or a typewriter: a splendidly efficient means toward both good
and bad ends. Through free enterprise we are capable of achiev-
ing virtuous actions, but also their very opposite as well.
How, then, can we defend the immoral activities of some
market actors? This stems from the philosophy of libertarian-
ism, which is limited to analyzing one single problem. It asks,
under what conditions is violence justified? And it answers,
violence is justified only for purposes of defense, or in response
to prior aggression, or in retaliation against it. This means,
among other things, that government is not justified in fining,
punishing, incarcerating, imposing death penalties on people
who act in an immoral manneras long as they refrain from
threatening or initiating physical violence on the persons or
property of others. Libertarianism, then, is not a philosophy of
life. It does not presume to indicate how mankind may best live.
It does not set out the boundaries between the good and the
bad, between the moral and the immoral, between propriety
and impropriety.
The defense of such as the prostitute, pornographer, etc., is
thus a very limited one. It consists solely of the claim that they
do not initiate physical violence against nonaggressors. Hence,
according to libertarian principles, none should be visited
xvi Defending the Undefendable
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upon them. This means only that these activities should not be
punished by jail sentences or other forms of violence. It decid-
edly does not mean that these activities are moral, proper, or
good.
Walter Block
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I. SEXUAL
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1
THE PROSTITUTE
S
ubject to ceaseless harassment by blue laws, church
groups, chambers of commerce, etc., prostitutes neverthe-
less continue to trade with the public. The value of their
service is proven by the fact that people continue to seek them
out, despite legal and civic opposition.
A prostitute may be defined as one who engages in the vol-
untary trade of sexual services for a fee. The essential part of the
definition, however, is voluntary trade. A magazine cover by
Norman Rockwell some time ago illustrated the essence of pros-
titution, if not the specifics. It portrayed a milkman and a pie-
man standing near their trucks, each busily eating a pie and
drinking milk. Both obviously pleased with their voluntary
trade.
Those lacking sufficient imagination will see no connection
between the prostitute entertaining her customer and the afore-
mentioned milk and pie episode. But in both cases, two people
have come together on a voluntary basis, in an attempt to mutu-
ally gain satisfaction. In neither case is force or fraud applied. Of
course, the customer of the prostitute may later decide that the
services he received were not worth the money he paid. The
prostitute may feel that the money she was paid did not fully
3
compensate her for the services she provided. Similar dissatis-
factions could also occur in the milk-pie trade. The milk could
have been sour or the pie underbaked. But both regrets would be
after the fact and would not alter the description of these trades
as voluntary. If all the participants were not willing, the trades
would not have taken place.
There are those, womens liberationists among them, who
lament the plight of the poor downtrodden prostitute, and who
think of her life as demeaning and exploitative. But the prosti-
tute does not look upon the sale of sex as demeaning. After con-
sidering the good features (short hours, high remuneration),
with the drawbacks (harassment by the police, enforced com-
missions to her pimp, uninspiring working conditions), the
prostitute obviously prefers her work, otherwise she would not
continue it.
There are of course many negative aspects experienced by
prostitutes which belie the happy hooker image. There are
prostitutes who are drug addicts, prostitutes who are beaten by
pimps, and prostitutes who are held in brothels against their
will. But these sordid aspects have little to do with the intrinsic
career of prostitution. There are nurses and doctors who are kid-
napped and forced to perform for fugitives from justice; there
are carpenters who are drug addicts; there are bookkeepers who
are beaten by muggers. We would hardly conclude that any of
these professions or vocations are suspect, demeaning, or
exploitative. The life of the prostitute is as good or as bad as she
wishes it to be. She enters it voluntarily, qua prostitute, and is
free to leave at any time.
Why then the harassment and prohibitions against prostitu-
tion? The momentum does not come from the customer; he is a
willing participant. If the customer decides that patronization of
a prostitute is not to his advantage, he can stop. Nor does the
move toward prohibition of prostitution come from the prosti-
tutes themselves. They have volunteered for their tasks, and can
almost always quit if they change their minds about the relative
benefits.
4 Defending the Undefendable
The impetus for the prohibition of prostitution is initiated
by third parties not directly involved in the trades. Their rea-
sons vary from group to group, from area to area, and from
year to year. What they have in common is the fact that they
are outside parties. They have neither stake nor standing in the
matter, and should be ignored. To allow them to decide this
matter is as absurd as allowing an outsider to decide about the
trade between the milkman and the pieman.
Why then are the two cases treated differently? Imagine a
league called the decent eaters, organized to espouse the doc-
trine that eating pie together with milk is evil. Even if it could be
demonstrated that the league against pie-and-milk and the
league against prostitution had identical intellectual merit
namely, nonethe reaction to the two would still be different.
The attempt to prohibit pie and milk would evoke only laughter
but there would be a more tolerant attitude toward the attempt
to prohibit prostitution. There is something in operation which
staunchly resists an intellectual penetration of the prostitution
question. Why has prostitution not been legalized? Though the
arguments against this legalization are without merit, they have
never been clearly assailed by the intellectual community as spe-
cious.
The difference between sexual trades such as the ones that
take place in prostitution, and other trades, such as the pie-milk
trade, seems to be based on, or at least connected to, the shame
we feel, or are made to feel, at the prospect of having to buy
sex. One is hardly really a man, nor in any way to be confused
with an attractive woman, if one pays for sex.
The following well-known joke illustrates this point. A good
looking man asks an attractive and virtuous woman if she will
go to bed with him for $100,000.00. She is appalled by the offer.
However, after some reflection she concludes that as evil as pros-
titution is, she could use the proceeds of the offer for charity and
good works. The man seems charming, not at all dangerous or
repugnant. She shyly says, Yes. The man then asks: How
about for $20.00? The woman indignantly replies, How dare
you, what kind of woman do you think I am! as she slaps his
The Prostitute 5
face. Well weve already established what kind of woman you
are. Now, were trying to establish the price, he replies. The
degree to which the mans reply strikes a telling blow against the
woman is a small measure of the scorn heaped upon individuals
involved in this kind of endeavor.
There are two approaches which might combat the attitude
that paying for sex is degrading. There is the frontal attack
which simply denies that it is a wrong to pay for sex. This, how-
ever, would hardly convince those who think of prostitution as
an evil. The other possibility would be to show that we are
always paying for sexall of us, all the timeand, therefore, we
should not cavil at the arrangements between a professional
prostitute and a customer.
In what sense can it be said that we all engage in trade and
payments when we engage in sexual activity? At the very least,
we have to offer something to our prospective partners before
they will consent to have sex with us. With explicit prostitution,
the offer is in terms of cash. In other cases, the trade is not so
obvious. Many dating patterns clearly conform to the prostitu-
tional model. The male is expected to pay for the movies, din-
ners, flowers, etc., and the female is expected to reciprocate with
sexual services. The marriages in which the husband provides
the financial elements, and the wife the sexual and housekeep-
ing functions, also conforms clearly enough to the model.
In fact, all voluntary human relationships, from love rela-
tionships to intellectual relationships, are trades. In the case of
romantic love and marriage, the trade is in terms of affection,
consideration, kindness, etc. The trade may be a happy one, and
the partners may find joy in the giving. But it is still a trade. It is
clear that unless affection, kindness, etc., or something is given, it
will not be reciprocated. In the same way, if two nonmerce-
nary poets did not get anything from each other, their rela-
tionship too would terminate.
If there are trades, there are also payments. Where there are
payments for relationships which include sexual congress such
as marriage and in some dating patternsthere is prostitu-
tionaccording to the definition of that term. Several social
commentators have correctly likened marriage to prostitution.
But all relationships where trade takes place, those which include
sex as well as those which do not, are a form of prostitution.
Instead of condemning all such relationships because of their
similarity to prostitution, prostitution should be viewed as just
one kind of interaction in which all human beings participate.
Objections should not be raised to any of themnot to mar-
riage, not to friendship, not to prostitution.
The Prostitute 7
2
THE PIMP
F
rom time immemorial, pimps have been treated as para-
sites who prey on prostitutes. But in a fair assessment, an
examination of the true function of the pimp must be
made.
An initial point requiring clarification is the claim that
pimps use coercion and threats of violence to gather and keep
prostitutes on their payrolls. Some pimps do, but does this fact
justify condemning the profession itself? Is there any profession
that does not have a single practitioner who is not guilty of foul
play? There are bricklayers, plumbers, musicians, priests, doc-
tors, and lawyers who have violated the rights of their fellow
creatures. But these professions are not qua professions to be
condemned in their entirety.
And so it should be with the profession of pimping. The
actions of any one, or even of all pimps together, cannot legiti-
mately be used to condemn the profession qua profession, unless
the action is a necessary part of the profession. Now the profession
of kidnapping small children for ransom is an evil profession,
qua profession. Even though some kidnappers may perform good
deeds, such as contributing a part of the ransom to charity, or
even if all of them do so, the profession does not thereby become
less of an abomination, because the action which defines it is
9
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evil. If the action which defines the profession of pimping were
evil, then it should be condemned also. In order to evaluate
pimping, any extraneous evil acts which may be committed by
some pimps must be ignored as having little to do with the pro-
fession as such.
The function of the pimp qua pimp is that of a broker. In the
same way as do brokers of real estate, insurance, stock market
Look, Im her father, Im only interested in her wel-
farebut she wont listen to me! Please talk to her
tell her to come home with me to Akron. Shell listen to
you, youre her pimp.
shares, investments, commodity futures, etc., the pimp serves
the function of bringing together two parties to a transaction at
less cost than it would take to bring them together without his
good offices. Each party to a transaction served by a broker gains
from the brokerage, otherwise they would not patronize him.
And so it is in the case of the pimp. The customer is spared use-
less or wasteful waiting and searching time. It is easier to phone
a pimp for an assignation with a prostitute than to spend time
and effort searching one out. The customer also has the security
of knowing that the prostitute comes recommended.
The prostitute benefits too. She gains the time that would
otherwise be spent in searching for the customer. She is also pro-
tected by the pimpfrom undesirable customers, and from
policemen, part of whose profession, qua profession, is to pre-
vent prostitutes from engaging in voluntary trade with consent-
ing adults. Assignations arranged by the pimp afford the prosti-
tute additional physical security over street walking or bar
hopping.
The prostitute is no more exploited by the pimp than is the
manufacturer exploited by the salesman who drums up business
for him, or the actress who pays an agent a percentage of her
earnings to find new roles for her. In these examples the
employer, by means of the employees services, earns more than
the cost of hiring the employee. If this were not so, the employer-
employee relationship would not take place. The relationship of
the prostitute to the pimp (employer to employee), contains the
same mutual advantages.
The professional pimp performs the necessary function of
brokering. In this performance he is if anything more honorable
than many other brokers, such as banking, insurance, and the
stock market. They rely on restrictive state and federal laws to
discourage their competition, whereas the pimp can never use
the law to safeguard his position.
The Pimp 11
3
THE MALE CHAUVINIST PIG
T
he womens liberation movement is an amalgam of dif-
ferent programs and composed of diverse groups with
differing aims. The discriminating intellect may accept
some of the aims, purposes, motivations, and programs of
womens liberation, and reject others. It would be folly to treat
as equivalent a host of different values and attitudes merely
because they have been packaged together. The views of the
womens liberation movement can be divided into four major
categorieseach of which requires a different approach.
COERCIVE ACTIONS TAKEN AGAINST WOMEN
Apart from murder, the most brutal coercive action taken
against women is rape. Yet in this male dominated society rape
is not always illegal. It is not illegal when perpetrated upon a
woman by her husband. And, although rape is illegal when it
occurs outside the sanctity of marriage, the way in which it is
treated by the law leaves much to be desired. For one thing, if
there was any previous acquaintanceship between the rapist and
his victim, the court presumes that there was no rape. For
another, in order to prove rape, it was necessary in many states
until recently, that there be a witness to the crime. Furthermore,
13
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if friends of the rapist swore they had sexual intercourse with the
victim, she could be characterized as immoral, and it becomes
virtually impossible to obtain a conviction. If the victim is a pros-
titute, it is equally impossible to obtain a conviction. The rea-
soning behind the legal inability for a prostitute to be raped is
the ludicrous view that it is impossible to compel a person to do
that which she does willingly at other times.
One of the most attractive aspects of the womens liberation
movement is its support for greater penalties for rape, plus resti-
tution to the victim. Previously people who occupied a compa-
rable position on the political spectrum as do most of todays
feminists (e.g., liberals and leftists) urged lighter sentences for
rapists and general mollycoddling of criminals. In their view, all
crime, rape included, was caused mainly by poverty, family
breakdown, lack of recreational facilities, etc. And their solu-
tion followed directly from this insight: more welfare, more
parks and playgrounds for the underprivileged, counseling, ther-
apy, etc. In contrast, the feminists insistence on stiffer jail sen-
tences for rapistsand worsecomes like a breath of fresh air.
Although rape is the most striking instance in which the
government acquiesces in coercive actions against women, there
are others. Consider what is implied by the laws against prosti-
tution. These laws prohibit trade between mutually consenting
adults. They are harmful to women in that they prevent them
from earning an honest living. If their anti-woman bias is not
clear enough, consider the fact that although the transaction is
just as illegal for the customer as for the seller, the male (cus-
tomer) is almost never arrested when the female (seller) is.
Abortion is another case in point. Although inroads have
finally been made, abortion is limited by obstructive rules. Both
outright prohibition of abortion and abortion under present
controls deny the great moral principle of self-ownership. Thus,
they are throwbacks to slavery, a situation essentially defined by
the barriers put up between people and their right of self-own-
ership. If a woman owns her body then she owns her womb, and
she alone has the complete and sole right to determine whether
to have a child or not.
The ways in which the government supports or is itself
actively involved in coercing women are manifold. Until very
recently, for example, women did not have the same rights as
men to own property or to engage in contracts. There are still
laws on the books that prevent married women, but not married
men, from selling property or engaging in business without the
permission of their spouses. There are stiffer entrance require-
ments for women than men at some state universities. The infa-
mous tracking system in our public schools shunts young boys
into male activities (sports and carpentry), and young girls
into female activities (cooking and sewing).
It is important to realize that these problems all have two
things in common: they are instances of aggressive force used
against women and they are all inextricably bound up with the
apparatus of the state. Although not widely appreciated, this is
no more true of rape and prostitution than of the other actions
and activities described. For what does it mean to say that
women do not have the right to abort, to own property, or to set
up businesses, except that women who engage in these activities
will be stopped by state compulsion, fines, or jail sentences.
Clearly, both the government as well as individuals can dis-
criminate. But only state and not private discrimination violate
the rights of women. When a private individual discriminates,
he (or she) does so with his (or her) own resources, in his (or
her) own name. But when the state discriminates, it does so with
resources taken from its citizenry and in the name of all of its
subjects. This is a crucial difference.
If a private enterprise such as a movie discriminates, it runs
the risk of losing money and possible bankruptcy. People oppos-
ing the discrimination may withhold funds or not patronize the
institution. However, when the state discriminates, these people
do not have this option, and there is no risk of bankruptcy. Even
when people oppose discrimination in a state institution from
which they can withhold funds, (students can, for example, at a
state university) the state has other alternatives. It can make up
for the dwindling funds from tax revenues, and these must be
paid under threat of compulsion.
The Male Chauvinist Pig 15
Even the pinches that women are subject to are inextricably
bound up with the state apparatus. Contrast what happens
when sexual harassment takes place within the confines of a pri-
vate place (a department store) and when it takes place outside
(on a street one block away from the store). When a woman is
molested within the confines of a private place the whole force
of the profit-and-loss free-enterprise system comes to bear on
the problem. It is in the entrepreneurs self-interest to appre-
hend and discourage offensive actions. If he does not, he will
lose customers. There is, in effect, competition between store
owners to provide safe and comfortable environments for cus-
tomers. The ones who succeed to the greatest degree in their
antipinching drive will tend to reap the greatest profits. The
ones who fail, whether because they ignore the issue or are
unsuccessful in implementing their programs, will tend to incur
the greatest losses. This, of course, is not a guarantee that pinch-
ing and other offensive behavior will cease. It will always occur
as long as people remain imperfectly moral. But this system does
encourage, by profits and losses, those who are most able to con-
trol the situation.
Contrasted with what occurs in the public domain, however,
the private system begins to look like perfection itself. In the
public domain there is almost no incentive to deal with the
problem. There is no one who automatically loses anything
when a woman is pinched or otherwise harassed. The city police
are supposedly charged with the responsibility, but they function
without benefit of the automatic profit-and-loss incentive sys-
tem. Their salaries which are paid for by taxation, are not related
to performance and they suffer no financial loss when women
are molested. It is clear then why most of this type of harassment
occurs on the streets and not within shops and stores.
NONCOERCIVE ACTIONS TAKEN AGAINST WOMEN
Many actions taken against women are not, strictly speaking,
coercive. For example, whistling, leering, derision, innuendo,
unwelcome flirtation, etc. (Of course, it is often difficult to tell
beforehand whether a flirtatious remark will be welcome or
not.) Consider the sexual come-ons which continually occur
between men and women. Although to many people, and espe-
cially those in the womens movement, there is no real differ-
ence between this type of behavior and coercive acts, the distinc-
tion is crucial. Both may be objectionable to many women, but
one is a physically invasive act, the other is not.
There are many other kinds of actions which fall into the
same category. Examples include the use of sexual vulgarisms
(broad or piece of ass), the advocacy of double-standard
mores, certain rules of etiquette, the encouragement of the men-
tal capacity of boys and not of girls, the societal opprobrium of
women who participate in male athletic activities, sexist
advertising, and the pedestals that women are placed upon.
There are two important points to be made with regard to
these and other attitudes and behavior which may be offensive
but not coercive. The first is that such noncoercive actions can-
not legitimately be outlawed. Any attempt to do so would
involve the mass violation of the rights of other individuals.
Freedom of speech means that people have the right to say what-
ever they like, even to make possibly reprehensible and boorish
statements.
The second point is more complicated and by no means
obvious. To a considerable extent, these reprehensible but non-
coercive actions are themselves fostered and encouraged by coer-
cive statist activities which operate behind-the-scenes. For exam-
ple, the widespread incidence of government ownership and
management of land, parks, sidewalks, roads, businesses, etc.
These coercive activities, based on illegitimate compulsory tax-
ation, can be legitimately criticized. If they were eliminated, the
unsavory but legal behavior they support would diminish, with
the aid of the free market.
Consider as an example the case in which a (male) boss
harasses a (female) secretary in an objectionable but noncoer-
cive manner. We shall compare the situation when such activity
takes place on public and private property. To analyze this, we
must understand what the labor economist calls compensating
differentials. A compensating differential is the amount of
money just necessary to compensate an employee for the psychic
losses that go with the job. For instance, suppose there are two
job opportunities. One is in an air-conditioned office, with a
good view, pleasant surroundings and pleasant coworkers. The
other is in a damp basement, surrounded by hostile fellow work-
ers. However, there is usually some wage differential large
enough to attract an individual to the less pleasant job. The
exact amount of the differential varies for different people. But
it exists.
Just as a compensating differential must be paid to hire
employees to work in damp basements, so it must be paid to
female workers in offices where they are subject to sexual harass-
ment. This increase in wages comes out of the bosss pocket if he
is a private businessman. Thus he has a strong monetary incen-
tive to control his behavior and the behavior of those who work
for him.
But the increase in wages is not paid by the boss of a gov-
ernment or government-supported enterprise! It is paid by the
taxpayers money, which is not paid upon the deliverance of sat-
isfactory services, but is collected by coercion. Thus the boss
has less reason to exercise control. It is clear that this type of
sexual harassment, in itself offensive but not coercive, is made
possible by the coercive actions of the government in its role as
tax collector. If taxes were paid voluntarily, the boss, even in a
government office, would be subject to meaningful control. He
would stand to lose money if his behavior offended his employ-
ees. But because he is supported by money from coercive taxa-
tion, his employees are at his mercy.
In like manner, contrast the situation where a group of men
whistle, jeer, and make disparaging and insulting remarks to
and about women passersby. One group does this on a publicly
owned sidewalk or street, the other in a privately owned place
such as a restaurant or shopping mall.
Now, under which condition is this legal but reprehensible
behavior more likely to be ended? In the public sector, it is in no
businesspersons financial interest to end the harassment. Since
by assumption this behavior is legal, the public police forces can-
not do anything to stop it either.
But in the realm of private enterprise, every entrepreneur
who hopes to employ or sell to women (or to men who object to
this maltreatment of women) has a strong pecuniary incentive
to end it. This is why it is no accident that such harassment
This is mission controlHouston advises that Astronaut
Mary Ellen Wilson is 26 hours into her menstrual cycle with
only occasional bursts of anger directed toward Lt. Com-
mander Joe Farley and Captain Ed Veidt interspersed with
moderate sobbing.
almost always takes place on public sidewalks or streets, and vir-
tually never in department stores, restaurants, shopping malls,
or other establishments which seek profits and care about their
bottom line.
THE MALE CHAUVINIST PIG AS HERO
Consideration in some detail should be given to two grievous
errors committed by the adherents of womens liberation. It is
for his good sense in opposing these programs that the male
chauvinist pig can be considered a hero.
Laws compelling equal wages for equal work. The question
is, of course, how to define equal work. If equal work is
taken literally, it embraces all aspects of the employees produc-
tivity in the short run as well as in the long run, including psy-
chic differentials, the discrimination of customers and other
workers, and the ability of the employee to mesh with the likes,
dislikes, and idiosyncrasies of the entrepreneur. In short, all
these components must be weighted, if equal work is exactly the
same as equal profitability for the entrepreneur. Only then, in
the free market, workers with such equal abilities will tend to
earn equal wages. If, for instance, women were paid less than
men even though they were equally good workers in this sense,
forces would be set up which, when carried to their conclusion,
would insure equal pay. How? The employer would be able to
make more money by replacing male workers with female work-
ers. The demand for male workers would decrease, thus lower-
ing male wages, and the demand for female workers would
increase, raising female wages. Every employer who substituted
a woman for a man would have a competitive advantage over
the one who refused to do so. The profit maximizing employers
would continually earn greater profits than would the discrimi-
natory employers. The profit maximizers would be able to
undersell the discriminators, and, other things being equal,
eventually drive them into bankruptcy.
In actual point of fact, however, the proponents of equal
wages for equal work do not have this strict type of equality in
mind. Their definition of equality is equal years of schooling,
equivalent skills, equivalent college degrees, and perhaps simi-
lar scores in qualification tests. However, individuals who are
virtually identical with respect to such criteria can have vastly
different abilities to earn profits for employers. For example,
consider two workers, one male, one female, identical as far as
test scores and college degrees are concerned. It is an indis-
putable fact that in the event of a pregnancy, it is far more likely
for the woman to stay home and raise the child. Consideration
of whether this custom is fair or not is not relevant. What is per-
tinent is whether it is factual or not. If the woman stays at home,
interrupting a career or employment, she will be worth less to
the employer. In this case, although the male and female candi-
dates for the job might be identically qualified, in the long run,
the man will be more productive than the woman and, there-
fore, more valuable to the employer.
Paradoxically, many pieces of evidence which indicate that
men and women are not equally productive come from the
womens liberation movement itself. There are several studies in
which women and men were first tested as groups, in isolation
from one another, and then together, in competition with one
another. In some cases, when the groups were tested in isolation,
the women showed clearly that they had higher innate abilities
than the men. Yet, when the two groups were tested in competi-
tion, the men invariably scored better than the women. Again, it
should be emphasized that the concern here is not with the fair-
ness of such occurrences, but with the effects. The point is that in
the world of work, women will often find themselves in compe-
tition with men. If they constantly defer to men, and cannot do
their best in competition with men, they are, in fact, of less help
in procuring profits for the entrepreneur. If women are equal to
men in test scores and are inferior to them when it comes to
profit maximizing, then the equal pay for equal work law will
prove disastrous for women.
It will be calamitous because the profit maximizing incen-
tives will be turned around. Instead of the market exerting a
strong steady push toward firing men and hiring women,
employers will be motivated to fire women and hire men in their
place. If he is forced to pay men and women the same wages,
even though they are not equally productive, profits will be
increased to the degree that male workers replace females.
Employers who are inclined to take the feminist view, and insist
on keeping woman workers, will have decreased profits, and lose
their share of the market. The employers who prosper will be
those who do not hire women.
It should be stressed that the tendency for women who are
truly equal to men in productivity to receive equal wages exists
only in the proft-and-loss free market. Only in free enterprise
are there financial incentives to hire highly productive under-
priced women, to take advantage of their plight, and thus to
raise their wages.
In the government and nonprofit sectors, these profit incen-
tives are, by definition, absent. It is hardly an accident, then, that
virtually all real abuses of women in this respect take place in
government and nonprofit areas such as schools, universities,
libraries, foundations, social work, and public services. There
are few allegations of underpayment to women in private enter-
prise fields such as computers, advertising, or the media.
LAWS COMPELLING NONDISCRIMINATION
McSorleys is a bar in New York City that catered exclusively to
men, until it was liberated. Under the banner of the new
antidiscrimination law in New York State, women were served
for the first time in the history of the establishment. This was
hailed as a great progressive step forward by liberal, progressive,
and womens liberation factions. The basic philosophy behind
the law and the attendant liberation of McSorleys seems to be
that it is illegitimate to discriminate between potential cus-
tomers on the basis of sex.
If the problems with this philosophy are not readily appar-
ent, they can be made so by considering several reductiones ad
absurdum. If the philosophy were strictly adhered to, for exam-
ple, would not separate bathrooms for men at public places be
considered discriminatory? And separate residence halls for
men? What about male homosexuals? They could be accused of
discrimination against women. And arent the women who
marry men discriminating against other women?
These examples, of course, are ridiculous. But they are con-
sistent with the philosophy of antidiscrimination. If they are
ridiculous, it is because that philosophy is ridiculous.
It is important to realize that all human actions imply dis-
crimination in the only sensible definition of that much abused
term: picking and choosing from available alternatives, the one
which best serves his or her interests. There is no action taken
by human beings which fails to accord with this dictum. We dis-
criminate when we choose a toothpaste, decide upon a means of
transportation, whom to marry. The discrimination practiced by
the gourmet or wine taster is and can only be the discrimination
practiced by all human beings. Any attack upon discrimination,
therefore, is an attempt to restrict the options open to all individ-
uals.
But what of the womens option to drink at McSorleys? Was
their right to choose being violated? No. What they experienced
was what a man experiences when a woman rejects his sexual
advances. The woman who refuses to date a man is not guilty of
violating his rightsfor his rights do not include a relationship
with her. That exists as a possibility, but not a right, unless she is
his slave. In the same way, a man who wishes to drink in the
company of other men is not guilty of violating womens rights.
For womens rights do not include drinking with people who do
not wish to drink with them. It is only in a slave society that this
is not so. It is only in a slave society that the master can compel
the slave to do his bidding. If the antidiscriminatory forces suc-
ceed in forcing their philosophy on the general public they will
also succeed in forcing on the public the cloven hoof of slavery.
To the extent that the male chauvinist pig succeeds in resisting
these trends, he must be looked upon as a hero.
II. MEDICAL
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4
THE DRUG PUSHER
T
he drug business, an evil business, is responsible for ago-
nizing deaths, crime, robbery, enforced prostitution, and
often murder. The addict is usually marked for life, even
after kicking the habit. During the addictive period, the addict
is a helpless slave to the drug, willing to enter into any degrada-
tion to secure one more fix.
How then can the evil nature of the drug pusher be ques-
tioned? How can we even presume to look upon him with
favor?
The evils commonly blamed on heroin addiction are in real-
ity the fault of the prohibition of drugs and not of the addiction
itself. Given the prohibition of drugs, it is the person who sells
drugs illegally who does more than anyone to mitigate the evil
effects of the original prohibition.
The prohibition of heroin has the devastating effect of forc-
ing the price up to a level which can only be characterized as
astronomical. When a commodity is outlawed, in addition to all
the usual costs of growing, harvesting, curing, transporting,
merchandising, etc., the costs of evading the law and paying for
the punishments meted out when the evasion fails, must be
added. In the case of bootleg whiskey (during the prohibition
era of the 20s), these extra costs were not excessive because law
27
enforcement was lax and the legislation did not have widespread
popular support. In the case of heroin, these costs are enormous.
Anti-heroin legislation enjoys wide popular support, with
demands for even stricter laws and penalties. Vigilante groups
and youth gangs in the inner city ghetto areas have inflicted
their own punishment on drug pushers and addicts. These
groups have had the quasi-support of the law and order fac-
tion, making it difficult and expensive to bribe the police who
fear the great penalties society would impose on them if they
were caught.
In addition to having to pay costly bribes to the police, the
drug merchants must also pay high salaries to their employees
for the dangers they encounter in smuggling and operating the
factories which prepare the drugs for street sales. They must also
exercise a degree of paternalism in taking care of those employ-
ees who are caught bribing politicians, lawyers, and judges to
minimize the penalties.
These are the factors which account for the high price of
heroin. But for these many extra costs imposed by the prohibi-
tion of heroin, the price would not differ in any significant way
from the price of other crops (wheat, tobacco, soya beans, etc.).
If heroin were legalized, an addict could obtain his daily need
for about the cost of a loaf of bread, according to the best esti-
mates.
Under prohibition, heroin addiction may cost as much as
$100 per day for a mature habit. Depending upon market infor-
mation and alternative sources of supply, the addict spends
about $35,000 per year to support his habit. It is obvious that this
cost is responsible for the untold human suffering usually
blamed on heroin addiction. The typical addict is usually young,
uneducated, and unable to earn a sufficient amount of money by
honest means to support his habit. If he does not seek medical
and psychiatric help, the only choice the addict can make to
secure his fix is to enter into a life of crime where he may even-
tually be hunted down by the police or street gangs. Further-
more, the addict criminal is in a far worse position than the non-
addict. The nonaddict criminal can select the most opportune
time and place for a robbery. But the addict must commit a
crime whenever he needs a fix, and these times usually occur
when his reactions are dulled by his drug deprivation.
In reflecting upon the economics of fencing stolen mer-
chandise, it becomes obvious that the addict must commit an
enormous amount of crime to support his habit. To have the
annual amount of $35,000 necessary to buy drugs, the addict
must steal roughly five times that amount (almost $200,000 per
year), since the buyers of stolen merchandise (fences), usually
pay only 20 percent or less of the retail value of what they buy. If
the figure of $200,000 is multiplied by the estimated 10,000
addicts in New York City, the total of $20 billion is the amount
of the total value lost in crimes committed by addicts in the Big
Apple.
It cannot be stressed strongly enough that these crimes are
due to the prohibition of heroin and not the result of heroin
addiction. It is the prohibition that drastically forces its price up
and drives the addict into a life of crime and brutishness which
may end in his own death or that of the victim.
To prove this point, consider the small but significant num-
ber of medical doctors who, having access to heroin, have
addicted themselves. Its price is not prohibitive since their sup-
ply of the drug is not illegal. Their lives are normal, useful,
and fulfillingwith just this one difference. Economically
speaking, their lives would not be too different if, instead of
being addicted to heroin, they were diabetics and addicted to
insulin. With either addiction, these doctors would still be able
to function professionally. If, however, their legal supply of
heroin were cut off (or insulin were suddenly declared illegal),
these doctors would be at the mercy of the street pusher, unable
to ascertain the quality of the drugs they purchased, and forced
to pay exorbitant prices for their supply. Under these changed
circumstances the position of the addicted doctor would be more
difficult, but it would not be catastrophic, since most of these
professionals could easily afford the $35,000 annual cost of their
habit. But what of the uneducated addict living in poverty, who
does not have these prospects?
The Drug Pusher 29
The function of the heroin seller, as opposed to his motiva-
tion in entering the field, is to keep the price of the drug down.
Each time a few more heroin sellers enter the industry, the price
goes down even more. Conversely, each time the number of
heroin sellers decreases (through discouragement or prosecu-
tion), the price rises. Since it is not the sale or use of heroin itself
that is responsible for the plight of the addict or for the crimes
he commits, but rather the high price of heroin caused by its pro-
hibition, it must follow that any action which results in a drop
in the price of the drug alleviates the problem. If the problem is
caused by the high cost of the drug, then lowering the cost must
be considered as a solution.
But it is the heroin pusher who is instrumental in lowering
the price of the drug, and the forces of law and order who are
responsible for raising these prices by interfering with the activ-
ities of the pusher. Therefore, it is the much reviled drug dealer,
not the widely beloved narcotics agent (narc), who must be
considered the heroic figure.
Legalization of heroin has been rejected on the grounds that
progress and civilization would come to a halt. The British and
Chinese experience with addictive drugs are cited, and we are
supposed to picture scores of people lying around in the street,
zonked out of their minds. The argument is that anything
which interferes with progress, such as the widespread use of
heroin, should be prohibited. But there are other things that can
interfere with continued progress which most people would not
be willing to prohibitleisure, for one. If employees took vaca-
tions which amounted to 90 percent of the working year,
progress would certainly falter. Should long vacations be pro-
hibited? Hardly. In addition, the present prohibition of heroin
does not eliminate access to the drug. Formerly, it was available
only in the inner city ghettos; today it can be purchased on afflu-
ent suburban street corners and schoolyards.
In the example of the Chinese experience with drugs, Chi-
nese merchants were forced by gun boat diplomacy to accept
opium. The legalization of addictive drugs would in no way
force individuals into the habit. Indeed, force, or the elimination
of force, is the chief reason for scrapping the prohibition of
heroin.
In the British case (drugs administered legally, at a low cost,
by a doctor or licensed clinic), the argument has been made that
the number of addicts has risen sharply since their low cost pro-
gram started. But this rise is a statistical artifact. Formerly, many
people were reluctant to report themselves as addicts when it
was illegal to be one. When addiction was legalized and low cost
drugs were available, the statistics naturally rose. The British
Government Health Service administers drugs to certified
addicts only. It would, indeed, be surprising if there were any
marked increase in the rate of addiction under these circum-
stances.
Another source of the increase in the number of statistically
counted addicts is the migration to the United Kingdom from
Commonwealth countries. This sudden immigration might
well cause temporary problems of adjustment, but it is hardly an
indictment of the British plan. On the contrary, it provides
ample testimony to the farsightedness and progressiveness of the
program. To blame this program for the rise in addiction would
be similar to blaming Dr. Christiaan Barnard (the first doctor to
perform transplant heart surgery) for the rise in the number of
people in South Africa who wanted heart surgery.
In conclusion, it should be stated that heroin addiction may
be an unmitigated evil, without any socially redeeming features.
If so, efforts to publicize the evils of addiction can only be
applauded. However, the present prohibition of heroin and
other hard drugs serves no useful purpose. It has caused a
countless amount of suffering, and great social upheaval. In
seeking to uphold this vicious law, the narcotics agent keeps
prices up and adds to the tragedy. It is only the heroin seller, by
acting so as to lower prices, even at considerable personal risk,
who saves lives and alleviates the tragedy somewhat.
The Drug Pusher 31
5
THE DRUG ADDICT
A
t the present time, with the intense discussion on the
evils of heroin addiction, it is well to heed the old
adagelisten to both sides of the story. Among the
many reasons for this, and perhaps most important, is the fact
that if everyone is against something (particularly heroin addic-
tion), one can assume that there is something which can be said
in its favor. Throughout mankinds long and disputatious his-
tory, the majority opinion has, the majority of times, been wrong.
On the other hand, even those who agree with the majority
opinion should also welcome an attack upon it. The best way to
teach the verities of life, according to the Utilitarian John Stuart
Mill, is by hearing the opposition. Let the position be chal-
lenged, and let the challenge fail. This method was considered
by Mill to be so important that he recommended inventing a
challenging position, if a real one was not forthcoming, and pre-
senting it as convincingly as possible. Thus, those who believe in
the unmitigated evils of heroin addiction should be eager to hear
an argument in favor of it.
The phenomenon of addiction should be considered from
an intrinsic point of view. That is, the assumption will be that
the social or interpersonal problemthe necessity for an addict
to become involved in criminal activities in order to support his
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habithas been solved. For this is caused by the legislation
which prohibits the sale of narcotic drugs, and thus is a problem
extrinsic to the drug itself. The intrinsic problems of addiction
are all the other problems addicts are alleged to face.
Primary on any list of the nonsocial problems of drug addic-
tion is the allegation that addiction shortens life. Depending on
the age and health of the addict, and the pessimism or optimism
of the alleger, the figure by which life is said to be shortened
varies between 10 and 40 years. This is indeed unfortunate, but
it hardly constitutes a valid criticism of addiction, and it most
certainly does not justify the prohibition of heroin use.
To be honest with you Im very much satisfied with the
quality of drugs from the pharmaceutical house I deal with
now.
It does not constitute a valid criticism or justify prohibition
because it is up to the individual to determine the kind of life he
will leada short one, including what he considers to be pleas-
urable activities, or a longer one, without such enjoyment. Since
there is no objective criterion for such choices, there is nothing
irrational or even suspect about any choice on the spectrum. One
may choose to maximize the possibility of longevity, even if this
means the renunciation of liquor, tobacco, gambling, sex, travel,
crossing the street, heated debate, and strenuous exercise. Or, one
may choose to engage in any or all of these activities, even if that
means a shortened lifespan.
Another argument leveled against addiction is that it pre-
vents people from fulfilling their responsibilities. The example
usually given is that of a father who, under the continuous influ-
ence of heroin, becomes incapable of fulfilling his financial and
other obligations to his family. Let us assume that heroin addic-
tion incapacitates the father. It still does not follow that the use
and sale of heroin should be prohibited. It would be unreason-
able to prohibit any activity on the grounds that it prevents some
people from functioning in certain ways. Why should the peo-
ple who are not impaired or who do not have like responsibili-
ties be restricted? Were it proper to prohibit heroin for this rea-
son, surely it would also be proper to prohibit gambling,
drinking, smoking, automobile driving, air travel, and other
dangerous or potentially dangerous activities. But this would be
patently absurd.
Should heroin be legal for some people but not for the oth-
ers who do not accept or fulfill their responsibilities because of
their addiction? No. When a man, to continue the example,
marries, he does not agree to renounce all activities which might
be dangerous. The marriage contract is not, after all, a slave con-
tract. Marriage does not prevent either party from engaging in
activities which might discomfort the other. People with respon-
sibilities do get heart attacks from playing tennis. But no one
would suggest that people with responsibilities be barred from
sports activities.
The Drug Addict 35
Another argument against drug addiction is the claim that
users become totally nonproductive and thus, as a group, lower
the GNP (Gross National Product)an index of the economic
well-being of the country as a whole. Thus, the argument runs,
drug addiction hurts the country.
The argument is specious, because it considers the countrys
well-being a meaningful concept, rather than the addicts. But
even in its own terms, it is not convincing. It is based upon an
equation of the GNP with economic well-being. And this equa-
tion is fallacious. The GNP, for example, counts all government
spending as contributing to the well-being of the country,
whether it actually does so or not. It fails to take into account the
work of housewives done in the home. Furthermore, it com-
pletely miscontrues the economic status of leisure. Any assess-
ment of economic well-being must assign some value to leisure,
but the GNP does not. For example, the GNP should double
with the introduction and full-time implementation of an
invention which allowed people to double their output of real
goods and services. But if the people choose to use the invention
to just maintain their standard of living and instead halve their
workday, the GNP would not change by one iota.
It is true that if addiction to heroin leads to increased leisure,
it will cause a fall in the GNP. But an increase in leisure for any
reason will have the same effect. Therefore, if we oppose addic-
tion on this ground, we must also oppose enjoyable vacations,
poetic contemplation, and walks in the woods. The list of pro-
scribed activities could be endless. There is nothing wrong with
choosing to utilize an increase in wealth by increasing ones
leisure. And if the GNP decreases thereby, so much the worse for
the GNP.
Finally, it is by no means clear that addiction necessarily
leads to lessened economic activity. Most of our knowledge
about the behavior of addicts comes from the study of those
who, because of legislation which prohibits heroin and, there-
fore, skyrockets its price, must spend most of their time in an
agonizing search for vast sums of money. They cannot hold
traditional jobs because most of their time is spent stealing,
murdering, and prostituting. Since we are concentrating on the
personal problem of addiction and not on the social problem,
the evidence afforded by these people is irrelevant to the discus-
sion. To study the behavior of addicts who are not prohibited by
law from being productive, we must turn to those few addicts
who are lucky enough to be insured a steady supply of low-cost
heroin.
This group is composed mainly of doctors who can use their
prescription-writing powers to insure themselves a steady sup-
ply. The limited evidence furnished by this small sample seems
to indicate that addicts, freed from the compulsions induced by
heroin prohibition, are able to lead rather normal and produc-
tive lives. The doctors in question provide service as adequately
as other doctors. From all indications, they are able to keep up
with the latest developments in their field, maintain a proper
relationship with their patients, and function no differently, in
all relevant aspects, from other physicians.
To be sure, were heroin legal, addicts would continue to
have drug-related personal problems. There would be the fear of
possible renewal of prohibition, and the relative incapacitation
following the periods of drug use. There would be the danger of
overdosing, although it would lessen under legalization, since
the drug could be administered under the supervision of a doc-
tor. Vestiges of the old prohibitory attitude might remain and
manifest themselves in the form of prejudice against addicts.
The point to be stressed, however, is not that addicts will
have drug-related problems even under legalization. Special
problems almost always accompany special interests; violin
players are always in fear of injuring their fingers and ballerinas
cannot afford stubbed toes. Addiction to heroin is not in and of
itself an evil. If it is legalized, it cannot possibly hurt anyone but
the user of the drug. There are those who may want to speak
out, educate, and advertise against it, but to prohibit it is clearly
a violation of the rights of those who wish to use it.
The Drug Addict 37
III. FREE SPEECH
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6
THE BLACKMAILER
A
t first glance it is not hard to answer the question, Is
blackmail really illegitimate? The only problem it
would seem to pose is, Why is it being asked at all? Do
not blackmailers, well . . . blackmail people? And what could be
worse? Blackmailers prey on peoples dark hidden secrets. They
threaten to expose and publicize them. They bleed their victims,
and often drive them to suicide.
We will find, however, that the case against the blackmailer
cannot stand serious analysis; that it is based upon a tissue of
unexamined shibboleths and deep philosophical misunder-
standings.
What, exactly, is blackmail? Blackmail is the offer of trade. It
is the offer to trade something, usually silence, for some other
good, usually money. If the offer of the trade is accepted, the
blackmailer then maintains his silence and the blackmailee pays
the agreed-upon price. If the blackmail offer is rejected, the
blackmailer may exercise his rights of free speech and publicize
the secret. There is nothing amiss here. All that is happening is
that an offer to maintain silence is being made. If the offer is
rejected, the blackmailer does no more than exercise his right of
free speech.
41
The sole difference between a gossip and a blackmailer is
that the blackmailer will refrain from speakingfor a price. In
a sense, the gossip is much worse than the blackmailer, for the
blackmailer has given the blackmailee a chance to silence him.
The gossip exposes the secret without warning. Is not the person
This is my kid, Mr. T. Hell be blackmailing you from
now on Im retiring to Florida.
with a secret better off at the hands of a blackmailer than a gos-
sip? With the gossip, all is lost; with the blackmailer, one can
only gain, or at least be no worse off. If the price requested by the
blackmailer is lower than the secret is worth, the secretholder
will pay the blackmailerthis being the lesser of the two evils.
He thus gains the difference to him between the value of the
secret and the price of the blackmail. When the blackmailer
demands more than the secret is worth, his demand will not be
met and the information will become public. However, in this
case the person is no worse off with the blackmailer than he
would have been with the inveterate gossip. It is indeed difficult,
then, to account for the vilification suffered by the blackmailer,
at least compared to the gossip, who is usually dismissed with
slight contempt and smugness.
Blackmail need not entail the offer of silence in return for
money. This is only the best known form. But blackmail may be
defined without reference to either. Defined in general terms,
blackmail is the threat to do somethinganything which is not
in itself illegalunless certain demands are met.
Many actions in the public arena qualify as acts of black-
mail, but, instead of being vilified, they have often attained a sta-
tus of respectability! For example, the recent lettuce boycott is a
form of blackmail. Through the lettuce boycott (or any boycott)
threats are made to retailers and wholesalers of fruits and vegeta-
bles. If they handle nonunion lettuce, the boycotters assert, peo-
ple will be asked not to patronize their establishments. This
conforms perfectly to the definition: a threat that something, not
in itself illegal, will take place unless certain demands are met.
But what about the threats involved in blackmail? This per-
haps more than anything else, is the aspect of blackmail that is
most misunderstood and feared. At first glance, one is inclined
to agree that threats are immoral. The usual dictum against
aggression, for example, warns not only against aggression per se
but also against the threat of aggression. If a highwayman accosts
a traveler, it is usually the threat of aggression alone that will
compel obedience.
The Blackmailer 43
Consider the nature of threats. When what is threatened is
aggressive violence, the threat is condemnable. No individual
has the right to initiate aggressive violence against another. In
blackmail, however, what is being threatened is something
that the blackmailer does have a right to do!whether it be exer-
cising the right of free speech, or refusing to patronize certain
stores, or persuading others to do likewise. What is being threat-
ened is not in itself illegitimate; it is, therefore, not possible to
call the threat an illegitimate threat.
Blackmail can only be illegitimate when there is a special
foresworn relationship between the blackmailer and the black-
mailee. A secret-keeper may take a lawyer or a private investiga-
tor into his confidence on the condition that the confidence be
maintained in secrecy. If the lawyer or private investigator
attempts to blackmail the secret-keeper, that would be in viola-
tion of the contract and, therefore, illegitimate. However, if a
stranger holds the secret without contractual obligations, then it
is legitimate to offer to sell his silence.
In addition to being a legitimate activity, blackmail has some
good effects, litanies to the contrary notwithstanding. Apart
from some innocent victims who are caught in the net, whom
does the blackmailer usually prey upon? In the main, there are
two groups. One group is composed of criminals: murderers,
thieves, swindlers, embezzlers, cheaters, rapists, etc. The other
group consists of people who engage in activities, not illegiti-
mate in themselves, but which are contrary to the mores and
habits of the majority: homosexuals, sado-masochists, sexual
perverts, communists, adulterers, etc. The institution of black-
mail has beneficial, but different, effects upon each of these
groups.
In the case of criminals, blackmail and the threat of black-
mail serves as a deterrent. They add to the risks involved in
criminal activity. How many of the anonymous tips received
by the policethe value of which cannot be overestimated
can be traced, directly or indirectly, to blackmail? How many
criminals are led to pursue crime on their own, eschewing the
aid of fellow criminals in jobs that call for cooperation, out of
the fear of possible blackmail? Finally, there are those individu-
als who are on the verge of committing crimes, or at the mar-
gin of criminality (as the economist would say), where the least
factor will propel them one way or another. The additional fear
of blackmail may be enough, in some cases, to dissuade them
from crime.
If blackmail itself were legalized, it would undoubtedly be
an even more effective deterrent. Legalization would undoubt-
edly result in an increase in blackmail, with attendant depreda-
tions upon the criminal class.
It is sometimes said that what diminishes crime is not the
penalty attached to the crime but the certainty of being caught.
Although this controversy rages with great relevance in current
debates on capital punishment, it will suffice to point out that the
institution of blackmail does both. It increases the penalty asso-
ciated with crime, as it forces criminals to share part of their loot
with the blackmailer. It also raises the probability of being appre-
hended, as blackmailers are added to police forces, private citizen
and vigilante groups, and other anticrime units. Blackmailers,
who are often members in good standing in the criminal world,
are in an advantageous position to foil crimes. Their inside sta-
tus surpasses even that of the spy or infiltrator, who is forced to
play a role. Legalizing blackmail would thus allow anticrime
units to take advantage of two basic crime fighting adages at the
same time: divide and conquer, and lack of honor among
thieves. It is quite clear that one important effect of legalizing
blackmail would be to diminish crime, real crime, that is.
The legalization of blackmail would also have a beneficial
effect upon actions which do not involve aggression, but are at
variance with the mores of society as a whole. On these actions,
the legalization of blackmail would have a liberating effect.
Even with blackmail still illegal, we are witnessing some of its
beneficial effects. Homosexuality, for instance, is technically ille-
gal in some instances, but not really criminal, since it involves
no aggression. For individual homosexuals, blackmail very often
causes considerable harm and can hardly be considered benefi-
cial. But for the group as a whole, that is, for each individual as a
The Blackmailer 45
member of the group, blackmail has helped by making the public
more aware and accustomed to homosexuality. Forcing individ-
ual members of a socially oppressed group into the open, or out
of the closet, cannot, of course, be considered a service. The use
of force is a violation of an individuals rights. But still, it does
engender an awareness on the part of members of a group of one
anothers existence. In forcing this perception, blackmail can
legitimately take some small share of the credit in liberating peo-
ple whose only crime is a deviation from the norm in a noncrim-
inal way.
In reflecting on the old aphorism, the truth shall make you
free, the only weapon at the disposal of the blackmailer is the
truth. In using the truth to back up his threats (as on occasion
he must), he sets the truth free, very often without intent, to do
whatever good or bad it is capable of doing.
7
THE SLANDERER AND LIBELER
I
t is easy to be an advocate of free speech when it applies to
the rights of those with whom one is in agreement. But the
crucial test concerns controversial speechstatements
which we may consider vicious and nasty and which may, in
fact, even be vicious and nasty.
Now, there is perhaps nothing more repugnant or vicious
than libel. We must, therefore, take particular care to defend the
free speech rights of libelers, for if they can be protected, the
rights of all otherswho do not give as much offensewill cer-
tainly be more secure. But if the rights of free speech of libelers
and slanderers are not protected, the rights of others will be less
secure.
The reason civil libertarians have not been involved in the
protection of the rights of libelers and slanderers is clearlibel
is ruinous to reputations. Harsh tales about lost jobs, friends,
etc., abound. Far from being concerned with the free speech
rights of the libeler and slanderer, civil libertarians have been
concerned with protecting those who have had their reputations
destroyed, as though that in itself was unpardonable. But obvi-
ously, protecting a persons reputation is not an absolute value.
If it were, if, that is, reputations were really sacrosanct, then we
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would have to prohibit most categories of denigration, even
truthful ones. Unfavorable literary criticism, satire in movies,
plays, music or book reviews could not be allowed. Anything
which diminished any individuals or any institutions reputa-
tion would have to be forbidden.
This is calumny, slander! Youll hear from my attorneyI
spent years building up the reputation of my restaurant!
Of course, civil libertarians would deny that their objection
to slander and libel commits them to the view described. They
would admit that a persons reputation cannot always be pro-
tected, that sometimes it must be sacrificed. But this, they might
say, does not exonerate the libeler. For a persons reputation is
not something to be taken lightly. It may not be damaged with-
out good reason.
But what is a persons reputation? What is this thing
which may not be taken lightly? Clearly, it is not a possession
which may be said to belong to him in the way, for example, his
clothes do. In fact, a persons reputation does not belong to
him at all. A persons reputation is what other people think of
him; it consists of the thoughts which other people have.
A man does not own his reputation any more than he owns
the thoughts of othersbecause that is all his reputation con-
sists of. A mans reputation cannot be stolen from him any more
than can the thoughts of other people be stolen from him.
Whether his reputation was taken from him by fair means or
foul, by truth or falsehood, he did not own it in the first place
and, hence, should have no recourse to the law for damages.
What then are we doing when we object to, or prohibit,
libel? We are prohibiting someone from affecting or trying to
affect the thoughts of other people. But what does the right of free
speech mean if not that we are all free to try to affect the
thoughts of those around us? So we must conclude that libel
and slander are consistent with the rights of free speech.
Finally, paradoxical though it may be, reputations would
probably be more secure without the laws which prohibit
libelous speech! With the present laws prohibiting libelous false-
hoods, there is a natural tendency to believe any publicized slur
on someones character. It would not be printed if it were not
true, reasons the gullible public. If libel and slander were
allowed, however, the public would not be so easily deceived.
Attacks would come so thick and fast that they would have to be
substantiated before they could have any impact. Agencies simi-
lar to Consumers Union or the Better Business Bureau might be
The Slanderer and Libeler 49
organized to meet the publics demand for accurate scurrilous
information.
The public would soon learn to digest and evaluate the state-
ments of libelers and slanderersif the latter were allowed free
rein. No longer would a libeler or slanderer have the automatic
power to ruin a persons reputation.
8
THE DENIER OF ACADEMIC FREEDOM
M
ore crocodile tears have been shed over the issue of
academic freedom than perhaps any other. Academics
are possibly more eloquent on this freedom than any
other topic receiving their attention. In the eyes of some, it seems
to be equated with the very basis of Western civilization! Hardly
a day passes without indignant statements from the American
Civil Liberties Union over some real or imagined violation of
academic freedom. And all this seems pale in comparison with
the anger of the labor unions of professional academics and
teachers.
From the name itself, academic freedom would seem to be
innocuous enough. Certainly academics, like everyone else,
should have freedomfreedom of speech, freedom to travel,
freedom to take or leave a jobthe usual freedoms that every-
one enjoys. But that is not what is meant by the phrase aca-
demic freedom. Instead, it has a very special meaningthe
freedom to teach the subject matter in whatever form the aca-
demic wishes to teach it, despite any wishes to the contrary his
employer may harbor. Therefore, academic freedom prohibits
the employer from firing the teacher as long as he teaches the
subject matter, no matter how objectionable the teaching is.
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Please understand, Professor Rand, we are not questioning
your academic freedom. Were just curious. As a favor could
you fill us in a trifle about your course, John Wayne, Father
of Nato.
Now this is a very special and spectacular doctrine. Con-
sider what would happen if it were applied to almost any other
occupationsanitation work or plumbing. Plumbers free-
dom would consist of the right to install pipes and plumbing
equipment in a way the plumber thought best. What if a cus-
tomer wanted his plumbing done in a way which differed with
the plumbers professional judgment. Without the doctrine of
plumbers freedom the plumber would, of course, be free to
refuse the job. But under the doctrine of plumbers freedom,
he would not have to turn it down. He would have the right to
take the job and do it his way. He would have the right to say that
his views should prevail, and the customer would not have the
right to dismiss him.
Taxi drivers freedom, would guarantee to drivers the right
to go where they wanted to go, regardless of where the paying
customer wanted to be taken. Waiters freedom, would give
the waiter the right to decide what you will eat. Why should not
plumbers, waiters, and taxi drivers have a vocational freedom?
Why should it be reserved for academics?
Basically, the difference which is said to exist between these
vocations and the academics is that the academics require free
inquiry, untrammeled rights of expression, and the right to pur-
sue thoughts wherever they may lead. This claim and this dis-
tinction is, of course, made by the academics. In addition to
being objectionably elitist, this argument also misses an impor-
tant point, one which is not concerned with the question, of
what is involved in intellectual activity. It is the impropriety of
vocational freedom in upholding the employees right to a
job on the basis of purely formalistic requirements, regardless of
the wishes and desires of customers and employers.
If there is an acceptance of the elitist argument which claims
that the intellectual professions must be granted a freedom
inappropriate to other professions, what of others which qualify
as intellectual? What about medical freedom for doctors,
legal freedom for lawyers, artistic freedom for artists, etc.
Medical freedom might give doctors the right to perform oper-
ations, regardless of whether the patient approved. Would it pre-
vent patients from firing doctors whose procedures they disap-
proved of? Would artist freedom give artists the right to charge
for art which is neither wanted nor appreciated? Considering
the way academic freedom operates, these questions must all
The Denier of Academic Freedom 53
be answered affirmatively. One shudders at the possibility that
these freedoms be granted to chemists, lawyers, or politicians.
What is really at issue in the question of academic free-
dom is the right of individuals to freely contract with one
another. The doctrine of academic freedom is a denial of the
sanctity of contract. The odds are against the employer, and
freezes the situation in favor of the academic. It resembles noth-
ing so much as a medieval guild system, with its restrictions,
protectionism, and the fostering of a caste system.
Thus far, it has been implicitly assumed that the schools and
universities are privately owned. The contention has been that
academic freedom amounts to a violation of the rights of these
property owners.
But virtually all of the institutions of learning in the United
States are controlled by the government, i.e., they are stolen
property. Academic freedom, therefore may be defended on the
ground that it is perhaps the only device by which control over
the educational system may be wrested away, at least in part,
from the ruling class or power elite, which controls it.
1
Assum-
ing that this claim is true, for the sake of argument, there is a
powerful defense of academic freedom.
In this view, it would not be the innocent student-consumer
who is being defrauded by claims to academic freedom; for it is
not the innocent student-consumer who is presently being
forced to maintain in employment an academic whose services
he does not wish. It would be the non-innocent ruling class
which is being so forced. If the ruling class theory is correct, aca-
demicians with views favorable to the ruling class have nothing
to gain from academic freedom. They will be retained in their
jobs in any case. It is the academic with views that are not
amenable to the ruling class, and he alone, who benefits. He
gains from academic freedom because it prevents ruling class
1
See G. William Domhoff, The Higher Circles (New York: Random
House, 1970).
employers from dismissing him on ideological or other nonfor-
malistic grounds.
Academic freedom, as such, can be looked upon as a fraud
and theft, because it denies individuals the right of free and
voluntary contracts. But that a bad means can also be used for
good ends should occasion no surprise.
The Denier of Academic Freedom 55
9
THE ADVERTISER
A
dvertising has long had a bad press. The case against it
is detailed and seemingly compelling. It is claimed that
advertising entices people, forcing them to buy products
they would otherwise not buy. It preys on the fears and psycho-
logical weaknesses of people. It is misleading, with its justaposi-
tion of a beautiful woman and a commercial product, implying
that she is somehow part of the deal. It is foolish, what with its
contests, marching bands, and jingles. It is an insult to our intel-
ligence.
The argument is usually capped with an appeal to our self-
ish naturesadvertising is very costly. A minute of prime televi-
sion time or a full-page adverstisement in a popular magazine or
newspaper can run into thousands of dollars. The advertising
industry as a whole is a multibillion dollar industry. If we banned
advertising, it is alleged, all of this money could be saved. The
money could then be used to improve the product, or lower its
price, or both. The advertising industry could be replaced with a
governmental board which would present objective descriptions
and ratings. Instead of sexy misleading jingles, we would have
product descriptions, perhaps summarized by a grade level of
Grade A, Grade B, etc. In any case, the advertisers, who are
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nonproductive and essentially parasitical, would be put out of
business.
There is much that is wrong with this view of advertising, but
it is not without its historical precedents. In fact, it is only the
most recent in a long line of arguments purporting to show that
one or another industry is parasitical and unproductive. The
physiocrats, a school of economic thought in mid-eighteenth
century France, thought all industries except farming, fishing,
and hunting were wasteful. They reasoned that anything not
connected with the soil was sterile, and dependent and parasiti-
cal upon the soil-based industries. Other economists have dis-
tinguished between goods, which were considered productive,
and services, which were not. Still others have held that all
goods but only some services were productive. For example, it
has been denied that monetary services such as financial inter-
mediation, brokerage, banking, and speculation have any value.
It is easy, nowadays, to see the limitations of these theories. A
good need not come directly from the soil to be productive, nor
need a service be tangible, such as medical care, to be produc-
tive. We know that brokers bring people together at lower costs
than they could manage on their own. We know that the non-
tangible product of the insurance industry provides for the pool-
ing and consequent lessening of risks. But even in these
sophisticated times the advertising industry enjoys a widespread
reputation as a parasite.
How strong is the case? First, it seems clear that advertising
does not lure or force people to buy what they would not other-
wise buy. Advertising attempts to persuade peopleperhaps in
ways some members of the community find objectionable. But
it does not and cannot coerce. (Fraudulent advertising is logically
equivalent to theft, and is not to be confused with advertising per
se. If the seller advertises wheat but delivers rocks, he has actu-
ally stolen the money price of wheat.)
Subliminal advertising, if it exists, would be considered coer-
cive. But it cannot be claimed that ordinary advertising is coer-
cive without completely obliterating the distinction between
coercion and persuasion.
Second, advertising does have an informational content.
This is conceded even by its most fervent detractors, although
they think that the government could do a better job. But gov-
ernmental action in the field of advertising is no less advertising
just because it is government advertising. If anything, there are
more problems which are harder to deal with in government
The Advertiser 59
issued advertisements. Unencumbered by the usual necessity to
make profits by pleasing consumers, when the government gets
out of hand, there is very little that can be done. Governmental
advertising for United States War Bonds or the military draft are
but two examples that come to mind.
Third, the importance of advertising in helping new com-
panies, and thus encouraging competition, should not be
underestimated. If advertising were prohibited, the large es-
tablished companies would have a powerful advantage in the
market. Even with things as they are, older firms are more likely
to monopolize a given industry than newer ones. Advertising,
by giving a comparative advantage to newcomers, lessens the
degree of concentration in the economy.
Finally, much if not all of the advertising that violates com-
munity standards of intelligence and decency can be traced to
and blamed on governmental edicts in other areas. For example,
the government
1
does not allow airlines to compete with one
another in trivial areas. Their advertising campaigns bombard
us with news about early bird specials, new decor, the number
of seats in an aisle, airplanes named after stewardesses, etc. (Im
Marybeth. Fly me to Miami). If airlines were free to compete
with respect to price, the passengers might be spared this con-
stant reiteration about nonessential affectations.
The same is true for banks. Banks are limited in the amount
of interest they can pay to depositors (zero percent to demand
depositors, 5 percent7 percent to time depositors, as of this
date). They compete, therefore, with each other as to which can
give the best kitchen utensils, radios, etc., as lures for new depos-
itors. (Note that since they can charge as much as the market
will bear for loans, they spend far less advertising money to try
to convince anyone to borrow money from them.) The true
1
For the view that it was not the government that initiated controls of this
type in an effort to regulate business in the public interest, but rather
business in an effort to control the competition of newcomers, see
Gabriel Kolko, Triumph of Conservatism (New York: Quadrangle, 1967).
blame for advertisements of this kind belongs not to the adver-
tising industry, but to the government.
These four arguments, when taken together, constitute a
valid defense against the critics of advertising. Yet they do not
strike at the heart of the matter. For they ignore the main fallacy
of the criticsthe assumption that deep down, there is a distinc-
tion to be made between motivational advertising and informa-
tional advertising, that motivational advertising is bad in vari-
ous ways while informational advertising is good. The truth
is, however, that exposing people to information and motivating
them are so inextricably bound up together that it makes little
sense to even distinguish between them.
For a better perspective, consider several examples where it is
not they who are trying to impart information and motivation to
us, but we who are trying to impart information and motivation
to them. Most of us, for instance, have had the experience of being
interviewed for a new position. How do we prepare? We com-
mence by writing an advertising brochure about ourselves. (This
document is sometimes called a resume by those anxious to
obfuscate and to hide the fact that each of us is, at almost all
times, an advertiser.) In this advertising brochure we put the
facts of our employment life as they pertain to the prospective
job. And in splendid advertising tradition, we try to make these
facts appear as flattering as possible. We hire a professional typ-
ist to help entice an employer into hiring us, and we have the
brochure printed on fine paper in order to create an impres-
sion, as a good advertiser should.
Strictly speaking, we are only providing information on the
brochure. It is merely informational advertising on the face of
it, but the attempt to present the information in a favorable light
involves us, willy nilly, in motivational advertising.
During the interview, we continue to advertise. We pack-
age ourselves as best we can. Even though we might not do so
every day, at the job interview we will give special attention to
grooming effects.
Even when not engaged in job-hunting, we advertise, by
constantly trying to portray ourselves in a good light. Even
unconsciously we try to package ourselves well. From the very
cradle parents are busy advertising us or laying the groundwork
The Advertiser 61
for future advertising. How else can we explain those ballet,
violin and piano lessons and visits to the orthodontist or skin
doctor?
The Jewish mother, with her constant exhortations about
good posture and good eating habits (Eat, eat, children are
starving in Europe and youre not eating), is the great unsung
heroine of the advertising business. And the Jewish mothers
bragging about her children? Just more advertising.
As we grow up we carry on the fine traditions of advertising.
We wear clothing that flatters our figures. We diet, or try to. At
least part of our expenditures on education, psychiatry, hair
grooming, and clothing can only be understood as advertising
expenditures. Later on we purchase cars, houses, recreation, in
large part as advertisements for ourselves. Incidentally, the
greater expenditures (as a percentage of income) on luxury
items such as clothing and cars, made by groups who are dis-
criminated against, such as women and blacks, can be explained
by advertising.
2
They feel they must engage in greater advertis-
ing expenses in order to counteract the discrimination. The rest
need not invest so heavily in advertising because we are in.
Even members of the radical left, who are among the bitter-
est critics of advertising, engage in advertising themselves. (This
should not be surprising, since we are defining advertising in its
proper but broad sense of creative and interesting packaging.)
Usually whenever the radical left has access to a bulletin board,
the messages placed on it are at first uniformly small, neat, and
similarly printed. After a while, in order to attract attention,
some of the messages are printed in different colors, and on dif-
ferent-size placards. Eventually, in the competition to attract
attention, larger and larger placards are used, with bolder print-
ing, coloring, and illustrations. In their attempt to spread infor-
mation, they are led as if by an invisible hand to engage in
motivational advertising. The reason radicals write messages
2
This point has been made by Professor Benjamin Klein of the de-
partment of economics, University of California, Los Angeles.
such as, OFF THE PIG or FUCK THE STATE on walls
or buildings in big red letters, is not entirely out of a desire to
shock. It is also out of a desire to impart the revolutionary mes-
sage, by first attracting attention to it. If it is not read, however
informational it may be, it will impart no information. But as
much can be said for the typical soap opera advertisement.
Anyone who has ever been called upon to give a speech
where there was a distinct possibility of putting the audience to
sleep will understand the difficulty of distinguishing between
imparting information and packaging a speech. Surely, no more
boring a speech can be imagined than a lecture on economics.
The public speaker or teacher will engage in certain practices,
such as maintaining eye contact, telling jokes, or posing rhetor-
ical questions. These are sometimes known as public speaking
techniques. A more appropriate term would be advertising
techniquespackaging the product well, making it appear
interesting, highlighting the talk, bringing points into focus, and
capturing the attention of the audience. These advertising tech-
niques have about as much to do with the subject of the talk as
bicycling has to do with Coca-Cola, as deep throaty, sexy female
voices have to do with shaving cream, or as the sporting events
of the more than one beer men have to do with beer. That is
not the point. The point is that if one hopes to get information
acrosseven to people who are well-motivated, such as the stu-
dent in the economics class who has to stay awake to receive a
good gradeone must engage in advertising techniques. If this
is important when dealing with people who are well-motivated,
imagine how much more important it is to advertise informa-
tion when your audience is not well-motivated. Television
advertising should be interpreted at least as favorably, if not
more so, than the advertising engaged in by public speakers.
They are both attempts to impart information by making that
information interesting and attractive. But the television ad faces
the additional burden of keeping the viewer away from his
refrigerator. If all content which was not strictly informational
was banned, we would have to prevent speakers and teachers
from even attempting to be interesting. They would not be
The Advertiser 63
allowed to tell jokes, maintain eye contact, or discuss questions
with the audience. These techniques are above and beyond the
strict imparting of information. Like television advertising gim-
micks, they are attempts to waylay the audience.
Is it possible to ban motivational advertising while allowing
informational advertising? No. Information can be presented
well or badly (i.e., in such a way as to bore and alienate the audi-
ence, or charm and amuse it), but it must be packaged or pre-
sented in some way. For example, imagine that a magic carpet
was invented, and it was decided that information about it was
to be given out (the flying speed, cruising range, upkeep costs,
how to roll it up and store it while not in use, etc.), but the pres-
entation was to be purely informational. Anything which even
hinted at promotion of the carpet would be banned. Given
this condition, a regular television announcer, with his good
looks, forcefulness and self-confidence, could not present the
information. His personality might promote the carpet. Nor
could there be music in the background. It might seem inspira-
tional. The carpet certainly could not be shown in action,
that is, with an attractive woman on it. We could not risk fooling
people into believing that if they bought the carpet they would
get a copy of the inspirational music or of the inspirational
woman.
If we could not use a professional announcer, could we use
a nonprofessional one, or just an ordinary man off the street? We
could not. Some advertising companies with their low cunning
are already using testimonials from the man-in-the-street with
great success, proving that this procedure has a motivational
content.
If the information cannot be read, can it be printed? But
what kind of typeface should be used? Certainly not a style that
would induce someone tohorrors!buy the flying carpet. It
would have to be an almost indecipherable typeface so that peo-
ple could hardly read it. Otherwise, at a low enough price, many
people would be led down the garden path into making a pur-
chase. The whole message would have to be presented in a pur-
posely inferior manner so as not to attract any attention to itself.
Clearly, there is no way to separate the package from what
it contains. There is no way to present pure information. To
believe that the presentation of information without motivation
is foolishness of the highest degree.
The objection that advertising adds to the cost of the prod-
uct is an objection that has not been clearly thought out. Would
the critics object because wrapping a product adds to the cost?
Or transporting it? They would not. It is understood that these
additional costs are necessarily incurred if the product is to be
made available to the consumer. But the same is true of adver-
tising! Suppose the magic carpet previously mentioned costs
$950 to manufacture, $10 to wrap it, and $40 for transportation.
If customers want to take advantage of the wrapping and deliv-
ery services, they must pay the full $1,000. But they have the
choice of picking up a wrapped carpet at $960, an unwrapped
one for $950, or an unwrapped one delivered to their homes for
$990.
So is it with advertising costs. If it costs $100 to advertise the
carpet, the customers have a choice between the advertised
brand for $1,100 and an unadvertised brand (which presumably,
they could find if they searched long enough) for $1,000. If a
substantial number of consumers were willing to find unadver-
tised brands or outlets, manufacturers would be foolish to adver-
tise. However, some consumers may not be so enterprising or
energetic in shopping for unadvertised brands at cheaper prices.
This would give the manufacturer the incentive to advertise, and
the costs of the advertisements would be added to the purchase
price. It is true, therefore, that advertising would add to the cost
of the product. But then it is true that advertising is necessary in
order to bring the product to the people. If some refused to buy
unwrapped, undelivered magic carpets, but would buy wrapped,
delivered ones, could it be said that wrapping costs and delivery
costs were added to the total costs unnecessarily? Decidedly not.
In the same manner, advertising does not add unnecessarily to
the costs of the product.
What of a governmental ratings board for advertising?
Before giving the government still another task, because of
The Advertiser 65
alleged imperfections in the market, consider the dismal
record of the government to date. The graft and corruption
unearthed by Ralph Nader and his associates should give pause
for thought. Regulation agency after regulation agency, from
ICC and CAB to FTC, FPC, and others, have been shown to be
regulating industry not for the benefit of the consumer, but for
the benefit of the industry as against the consumer. And this is
not just an accident. There is a reason for it.
Each of us is a purchaser of literally thousands of items, but
producers of only one. Our ability to influence regulatory legis-
lation passed by the state is, therefore, much more concentrated
as producers than as consumers. Government agencies, accord-
ingly, tend to regulate in favor of the producing industry rather
than the mass of consumers. In fact, government regulatory
agencies tend to be set up by the very industries they are to reg-
ulate. Milton Friedman, in the chapter entitled Occupational
Licensure in Capitalism and Freedom,
3
brilliantly demonstrates
the dismal record of governmental rating agencies in the med-
ical field. There is no reason to assume that a rating agency in
advertising would be any different. Rather, it would not be sur-
prising if the calls for governmentally regulated objective,
informational advertising were begun by the larger, estab-
lished, advertising firms as a way of slowing down the rising
competition from smaller firms and newcomers.
But the strongest argument against governmental regulation
of advertising is not the empirical one showing its dismal record
to date, strong though that may be. The strongest argument is
the logical one. The reasoning employed by those who want
governmental regulation contains a self-contradiction. On the
one hand they assert that the American people are unalterably
gullible. They must be protected because, left to their own
devices, they become victims. They can be made to think, for
3
Milton Friedman, Capitalism and Freedom (Chicago: University of
Chicago Press, 1962).
example, that if they use a certain brand of aftershave lotion,
they will end up with the girl in the ad. On the other hand, the
argument assumes that the boobs are smart enough to pick
political leaders capable of regulating these sirens. This is
impossible.
In any case, if the public is sufficiently enamored of objec-
tive information on consumer products, it can avail itself of the
services of firms and organizations such as Consumer Reports,
Good Housekeeping, the Better Business Bureau, commercial
testing laboratories, and other private-enterprise certification
agencies. The free market is flexible. It can provide this kind of
service too. (But the inability to separate motivational and infor-
mational advertising still holds. When Consumer Reports states
that Zilch Flakes are the best flakes to buy, it is necessarily moti-
vating people to buy Zilch over and above other flakes. It can-
not provide information without providing any motivation to do
anything.)
Advertising can be defended only when it occurs on the free
market. In the case of government or government-aided big
business advertising, none of the free-market defenses hold.
Here, people are forced to pay for the advertising whether they
choose to buy the product or not. When the government adver-
tises, it is with tax money collected on an involuntary basis. The
advertising in which the government engages is highly motiva-
tional (Uncle Sam Wants You) and not infrequently fraudu-
lent. It is strange that government advertising has been so com-
pletely ignored, even by the most vociferous critics of
advertising. Imagine what would ensue if a private businessman
were to engage in fraudulent advertising on even 1 percent of the
scale committed by Franklin Roosevelt, Lyndon Johnson, or
Richard Nixon, who campaigned on advertised peace planks,
and yet involved the country in foreign wars. How can we
entrust punishment of fraudulent advertising to the worst fraud-
ulent advertisers of all timethe government?
Finally, advertising must be defended by those who believe
in freedom of speechfor that is all advertising is. It is all too
easy to defend the right to speak of those whose speech we favor
The Advertiser 67
in any case. But if the rights of free speech are to mean any-
thing at all, those who are not in public favor must be
defended. Libertarians anxiously await a defense by the Ameri-
can Civil Liberties Union of the free speech rights of advertisers.
This organization was ominously quiet during the banning of
cigarette commercials from television.
10
THE PERSON WHO YELLS FIRE!
IN A CROWDED THEATER
I
n a case against free speech, the fire! screamer is Exhibit A.
Even those who argue in defense of civil liberties and the
right of free speech stipulate that these rights do not include
the right to yell fire! in a crowded theater. This is the one case
where all parties seem to agree that the right to free speech is not
as important as other rights.
But to override the right of free speech, for any reason, is a
dangerous precedent, and never necessary. Certainly it is not
necessary in the case of the person who yells fire! The rights
of theater patrons can be protected without legally prohibiting
free speech. For example, theater owners could contract with
their customers not to yell fire! (unless, of course, there is a fire
in the theater). The contract might take the form of an agree-
ment, in small print, on the back of a theater ticket or a large
message on wall posters placed throughout the theater, prohibit-
ing any disturbance of the entertainment or singling out the
shouting of the word, fire! But however the prohibition
appeared, the contract would effectively put an end to the sup-
posed conflict between the right of free speech and other rights.
For the person who yelled fire! would then simply be violating
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Oh, miss, would you happen to know the Spanish word
for Fire?
a contract and could be dealt with accordingly. The situation
would be entirely analogous to that of someone under contract
to sing at a concert, but who refuses to sing, and instead lectures
on economics. What is involved in both cases is not the right of
free speech, but the obligation to honor a contract. Why look at
the prohibition in this way? There are several important rea-
sons.
First, the market would be much more effective in removing
threats to the public health and safetysuch as the one posed by
the fire! screamerthan an all-encompassing governmental
prohibition. A market contract system would work more effi-
ciently because theater entrepreneurs would be in competition
with each other with regard to the efficiency with which they
prevented outbursts disruptive to the audience. Thus, they
would have a great incentive to diminish the number and sever-
ity of such outburts. The government, on the other hand, offers
no incentive. No one automatically loses money when the gov-
ernment fails to maintain order in a theater.
A second reason we can expect greater success from the mar-
ket than from the government is that the market is, by its very
nature, more flexible. The government can only make one all-
embracing rule, with at best, one or two exceptions. The market
does not have such restrictions. The flexibility and complexity of
the market are limited only by the inventiveness of the actors in
it.
Third, the government system of protection against yelling
fire!outright prohibitionviolates the rights of perhaps one
of the most oppressed minorities: the sadists and the masochists.
What of the rights of the sadists who enjoy yelling fire! in a
crowded theater, and then watching the crowd tear itself to
pieces in the resultant mad rush for the exits? What of the
masochists who relish the thought of having fire! yelled at
them while in the confines of a crowded theater with the same
mad but exhilarating crush at the door? Under the govern-
ment system of outright prohibition, these people are denied
what may be their most fervent wishtheir chance to go out in
a blaze of glory. In the flexible market system, however, where
there is a demand for a service, a supply will soon arise. Where
there is an unfulfilled demand for sado-masochists screaming
fire! and then watching the frantic crushes, entrepreneurs will
rise to the occasion and provide the requisite service.
The Person Who Yells Fire! in a Crowded Theater 71
Such musings will undoubtedly strike the straights on the
sado-masochistic question as just so much idle talk. But that is
only to be expected. No ruling class ever viewed the plight of
their downtrodden with anything but contempt and scorn.
Nonaggressing adult sado-masochists have just as much right to
their mutually agreeable practices as anyone else. To dismiss the
rights of sado-masochists as not being worthy of consideration
provides evidence of the fascistic habits of thought to which
most straights have succumbed. Sado-masochists should be
free to indulge in their nonaggressive practices. The public, after
all, need not attend any theater which clearly advertises that
unplanned disruptions will be permitted. Sado-masochists,
for their part, would still have to curb their enthusiasm when
patronizing straight theaters.
Finally, unless the prohibition against yelling fire! in a
crowded theater stems from a private contract, the right of free
speech will be in conflict with what is held in very high
esteemnamely the rights of people not to have their show
interrupted and themselves crushed at the exits.
Freedom of speech is at best a weak reed. It is always in dan-
ger of being suppressed. Our hold on it is sometimes very tenu-
ous indeed. Therefore, anything which tends to weaken it even
further must be opposed. There is hardly a scare tactic better
designed to destroy freedom of speech than the creation of a
false conflict between the right to speak freely and other rights
held in vastly higher esteem. Yet this is precisely what the usual
interpretation of yelling fire! accomplishes. If exceptions to
the right of free speech are granted, our tenuous hold on the
right of free speech is weakened. There are no legitimate excep-
tions to the right of free speech. There are no cases in which the
right of free speech is in conflict with any other right we hold
dear.
Therefore, the person who yells fire! in a crowded theater
can be considered a hero. He forces a consideration of what is
involved and what needs to be done to protect a precious right
that is endangered.
IV. OUTLAW
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11
THE GYPSY CAB DRIVER
T
he taxi business in the United States usually works to the
detriment of the poor and minority groups in two
waysas consumers and as producers. As consumers,
their plight is well demonstrated by ethnic taxicab jokes, and
by the subterfuge and embarrassment blacks undergo in order to
get a cab, which they are frequently unable to do. The reasons
are not difficult to fathom. Taxi rates are set by law and are
invariant, regardless of the destination of the trip. However,
some destinations are more dangerous than others, and drivers
are reluctant to service these areas which are usually the home
neighborhoods of the poor and the minorities. So when given a
choice, cab drivers are likely to select customers on the basis of
their economic status or skin color.
It is important to realize that given the differential crime
rates, it is solely government control of taxi rates that engenders
this situation. In the absence of such controls, rates to unsafe
areas could be set so as to compensate cab drivers for the greater
risks involved. If this were done, blacks would have to pay more
than whites for a cab, if not in the form of higher payments on
the meter, perhaps in the form of older or lower quality cabs. But
at least they would be able to secure the services of a taxi if they
75
so desired. Under the present system, they do not even have the
choice.
The inability to obtain a cab is not a small inconvenience to
the poor black consumer, although many of the white middle
class might think otherwise. Public transportation (bus, trolley,
and train) plans and routes were designed and constructed 50
Xerox 57 3/8up 1/8, Texas Instrument 92up 2, Sun
Oil preferred 31down a quarter, New York City Taxi
Medallions $96,090up $245.00.
to 75 years ago. In those years transportation lines were usually
owned by private concerns who were dependent on their cus-
tomers for their profits and success. They were designed specif-
ically to meet customer needs. In many cases, these transport
lines are unsuitable for the needs of the present-day community.
(Transit lines today are publicly owned and, therefore, lack the
incentive to tailor them to the needs of the customer. If cus-
tomers refuse to patronize a transit corridor, and that corridor
becomes unprofitable, the public authority simply makes up the
difference out of general tax revenues.) Consequently, city
dwellers must choose between a fast ride home by taxi, and a
long, indirect, and halting ride via public transit. This is espe-
cially true for the poor and minority groups who lack the politi-
cal power to influence public transit authorities or decisions
concerning the construction of new lines.
Restricted access to cabs in areas where public transportation
is inadequate is often more than inconvenient. When health is
involved, for example, the cab is an excellent and cheap substi-
tute for an ambulance. But in poor neighborhoods which are
inadequately served by public transportation, and whose resi-
dents cannot afford private cars, it is usually difficult to find a
taxi.
Under the present system, the poor also suffer as producers.
In New York City, for example, the government requires all cabs
to be licensed. The licensesmedallionsare strictly limited in
numberso much so, that they have been sold for as much as
$30,000. The price varies, depending on whether the medallion
is for an individual cab or part of a fleet. This effectively bars the
poor from entering the field as owners. What would have hap-
pened to the Horatio Alger hero if he had needed $30,000 before
he could enter the shoe-shine or newspaper delivery business?
Some years ago, in response to the limitations placed upon
them both as consumers and as producers, the poor and minor-
ity group members began to enter the taxi industry in a time
honored American tradition dating back to the Revolutionary
War of 1776disobedience of the law. They simply had their
used cars outfitted with meters, special lights and signs, and
The Gypsy Cab Driver 77
declared them to be cabs. In these gypsy cabs, they cruised the
streets of the ghetto areas which were shunned by medallioned
taxi drivers, and began to earn an honest, albeit illegal living.
Their initial success in avoiding punishment under the existing
laws was probably due to two factors: police fear of unrest in
the ghetto if these cabs were harassed, and the fact that the gyp-
sies worked only within the ghetto, and, therefore, did not take
business from the medallioned cabs.
These idyllic times, however, were not to last. Gypsy cab
drivers, perhaps emboldened by their success in the ghetto,
began to venture outside. If the medallioned taxi drivers had
looked upon the gypsies with suspicion before, they now exhib-
ited outright hostility toward them. And with good reason. At
this time, the taxi lobby in New York succeeded in pressuring the
City Council to enact a bill allowing an increase in taxi fares.
Patronage dropped precipitously and the immediate effect was a
sharp decrease in the income of medallioned taxi drivers. It
became obvious that many of their former riders were using
gypsy cabs. At this juncture irate medallioned taxi drivers began
to attack and burn gypsy cabs, and they retaliated in kind. After
a few violent weeks, a compromise was reached. Yellow, the tra-
ditional color of taxicabs, was to be reserved for medallioned
cabs. The gypsies would have to use another color. A tentative
plan for licensing gypsy cabs was also discussed.
What of the future of the taxi industry in New York City? If
the dominant liberal consensus politics holds sway, as it usu-
ally does in questions of this kind, some compromise with the
gypsies will be reached and they will be brought under the rule
of the taxi commission. Perhaps they will be granted a restricted
license, out of deference to the yellow cabs. If so, the system will
remain the same as it is at present a situation which resembles
a gang of robbers allowing a few new members to join. But the
robbery will not be halted, nor the victims substantially helped.
Suppose, according to one plan, 5,000 new licenses are created.
This may help in a minor way in that there will be extra cabs
potentially available for blacks. Thus, although blacks will still
be second-class citizens, they may have a slightly easier time
finding a cab. But, paradoxically, this concession to the greater
need for cabs will stifle future demands for improvements. It
will enable the taxi commission to pose as the liberal and boun-
tiful grantor of taxi medallions based on its act of generosity in
licensing gypsy cabs (even though it has not granted a single
extra medallion since 1939).
As producers and entrepreneurs, the position of the poor
may improve somewhat, for an additional 5,000 licenses may
result in a decreased purchase price of a medallion. However,
there is a possibility that the purchase price will rise after the
extra 5,000 licenses are granted. For the great uncertainty
presently keeping down the value of a medallion may well end.
If it does, the value of medallions will remain high, and the posi-
tion of the poor will not have improved at all.
No! A proper solution to the taxicab crisis is not to co-opt the
movement of gypsy cab drivers by the offer to take them into the
system, but rather to destroy the system of restrictive cab
licenses.
In terms of the everyday workings of the market, it would
mean that any qualified driver with a valid chauffeurs license
could use any vehicle which has passed the certification exam-
ination to pick up and deliver fares to any street of their mutual
choosing, for any mutually agreeable price. The market for
taxicabs in New York City would thus work in much the same
way that rickshaws work in Hong Kong. Or, to take a less
exotic example, the taxicab market would work in much the
way that the babysitter market operatescompletely depend-
ent upon mutual agreement and consent between the contract-
ing parties.
The taxi problems encountered by the poor and minority
group members would be quickly resolved. Residents in high
crime areas could then offer the cab drivers a premium. Though
it is deplorable that they will be forced to pay this premium, they
would no longer be second-class citizens insofar as obtaining a
cab was concerned. The only real and lasting solution to this
problem, however, is a reduction in the high crime rate in ghetto
areas, which would be responsible for the extra charges. For the
present, however, the people living in these areas must not be
prohibited from taking the necessary steps to obtain adequate
cab service.
Poor people would benefit as producers, as they set up their
own businesses. They would, of course, have to assume owner-
ship of a car, but the artificial and insurmountable $30,000 bar-
rier would be removed.
There are, however, objections that will be raised to a free
market in taxicabs:
(1) A free market would lead to chaos and anarchy if medal-
lions were eliminated. Taxis would flood the city and weaken
the capacity of any cab driver to earn a living. So drivers would
leave the industry in droves, and there would be far fewer taxis
available than needed. Without medallions to regulate the num-
ber of taxis, the public would be caught between two unsatisfac-
tory alternatives.
The answer is that even if there were an initial rush into the
industry, and the market was glutted, only some drivers would
leave the field. The number of cabs, therefore, would not swing
erratically from an horrendous oversupply, to none at all, and
back again. Moreover, the drivers who would tend to leave the
industry would be the inefficient ones whose earnings were low
or those with better alternatives in other industries. By leaving
they would allow the earnings of those who remained to rise,
and thus stabilize the field. One does not, after all, gain any
insurance against the possibility of too many or too few lawyers,
doctors, or shoe-shine boys by fixing an arbitrary upper limit to
the number of people who can enter these occupations. We
depend upon the forces of supply and demand. When there are
too many workers in a field, the relative salaries decrease, and
some will be encouraged to enter other occupations; if too few,
wages and new occupants increase.
(2) The argument that licensing protects the riding public is
one of the most disingenuous arguments for taxi medallions. It
is the same one used by psychiatrists, who strive to protect us
from encounter groups and others who make inroads in their
incomes, by lily white unionists who protect the public by
keeping qualified blacks out, and by doctors who protect us
by refusing to grant medical licenses to qualified foreign doc-
tors. Few people are fooled by these arguments today. Surely the
special chauffeurs license test and car inspections can insure the
quality of drivers and cars.
(3) The medallion would have no value if there were an
unlimited amount of taxis. This would be unfair to all those
who have invested thousands of dollars in the purchase of their
medallions.
Some light can be shed on this argument by considering a
short fable:
A warlord granted permission to a group of highwaymen to
rob all passersby. For this right, the warlord charged the highway-
men a fee of $2,500. And then the people overthrew the system.
Who should bear the cost of what turned out to be an
unprofitable investment on the part of the highwaymen? If the
choice was limited to the warlord and the robbers, we might say,
A plague on both your houses. If we had to choose between
them, we might root for the highwaymen, on the grounds that
they were less of a threat than the warlord, and perhaps had
made the original payment out of monies honestly earned. But
in no case would we countenance a plan whereby the long suf-
fering highway travelers were forced to pay off the highwaymen
for having lost the privilege of robbing them!
In the same way, the argument should not be accepted that
the long suffering taxi riding public should compensate owners
for valueless medallions already purchased. If it ever came to a
showdown between medallion owners and medallion grantors
(politicians), the public should perhaps favor the owners, on the
grounds that they pose less of a danger to them and perhaps had
originally paid for their medallions with money honestly earned.
It is the politicians personal funds, or the funds of their estates
which should be used to pay off the medallion owners. A war-
lord is a warlord. Payment out of public funds would only
amount to further penalizing the public. If the money is not
forthcoming from the politicians personal funds, the medallion
owners must suffer the loss. When a permit which permits the
robbery of the public is purchased, the purchaser must accept
the risks attendant to his investment.
12
THE TICKET SCALPER
W
ebsters dictionary defines scalper as one who buys
and sells in order to make quick profits, and scalp-
ing as cheating, defeating, and robbing. The latter
definition is the one used by the public in its hostility toward
ticket scalpers.
The reason for this condemnation is easy to discern. Imag-
ine a theatergoer or sports fan on the eve of the big event, arriv-
ing and finding, much to his consternation, that he must pay
$50 for a $10 seat. He thinks that these outrageous prices are
charged by scalpers, who purchase tickets at normal prices and
then deliberately withhold them until people are so desperate
that they were willing to pay any asking price. An economic
analysis, however, will show that the condemnation of the ticket
scalper is unjust.
Why does scalping exist? A sine qua non of scalping, a neces-
sary condition for its existence, is a fixed, invariable supply of
tickets. If the supply could increase with increased demand, the
scalper would be totally displaced. Why would anyone patron-
ize a scalper when he could purchase additional tickets from the
theater at the printed list price?
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A second necessary condition is the appearance on the ticket
of a list price. If a stipulated price did not appear on the ticket,
scalping, by definition, could not occur. Consider shares of stock
bought and sold on the New York Stock Exchange on which
there is no printed price. No matter how many are bought, how
long they are held, or how high the price at which they are
resoldthey cannot be scalped.
Why do theaters and ballparks print ticket prices? Why not
allow them to be sold at whatever price the market will bring,
the way wheat is sold in the Chicago futures market or shares of
stock in the stock market? If they were, scalping would be elim-
inated. Perhaps the public looks upon printed prices on tickets
as a great convenience; perhaps it helps people to budget, plan
vacations, etc. Whatever the reason, the public must prefer
prices to be stipulated. If it did not, managers and producers
would find it in their interest not to do so. Thus the second nec-
essary condition for scalping exists by popular demand.
The third condition which must be present is that the ticket
price chosen by management be lower than the market clearing
price (the price at which the number of tickets people are will-
ing to buy is just equal to the number of seats available).
Stipulated prices lower than the market clearing price are
open invitations to ticket scalping. For at the lower price there
are more customers willing to buy tickets than there are tickets
available. This imbalance sets in motion forces which tend to
correct it. Would-be purchasers begin to try harder to obtain
tickets. Some of them become willing to pay more than the price
printed on the ticket. Prices rise, and the original imbalance is
corrected as these higher prices cause a drop in demand.
Why do theater or ballpark managers set their ticket prices
below the market clearing price? For one thing, lower prices
invite a large audience. Long lines of people waiting to enter a
theater or ballpark constitutes free publicity. In other words,
management forgoes higher prices in order to save money it
might have had to spend on advertising. In addition, managers
are loath to raise ticket priceseven though they would have lit-
tle difficulty selling them for a big event or special moviefor
fear of a backlash. Many people feel that there is a fair price for
a movie ticket, and managers are responsive to this feeling.
Thus, even though they might be able to charge higher than
usual prices for a movie like The Godfather, they choose not
to. They know many people will refuse to patronize the theater
at a later time, feeling that the management took advantage of
the public during the showing of this very popular movie. There
The Ticket Scalper 85
Well, even if he is a scalper I admire his spunk.
are several other motivations, less compelling, for keeping prices
fixed at below equilibrium levels. Taken together they ensure
that this pricing policythe third condition necessary for scalp-
ingwill continue.
In taking a closer look at the positive function fulfilled by the
ticket scalper, it has been shown that when tickets are priced
below the equilibrium level, there are more customers than tick-
ets. The problem becomes one of rationing the few tickets
among the many claimants. It is in the solution to this problem
that the ticket scalper plays his role.
Suppose that during the baseball season the price of an aver-
age ticket is $5.00 and the ballpark is filled to its capacity of
20,000 for every game. However, for the big game at the end
of the season, 30,000 people want tickets. How will the 20,000
tickets be distributed or rationed among the 30,000 people will-
ing to buy them? Which 10,000 of the 30,000 hopefuls will have
to forgo the game?
The two basic ways of rationing goods that are in short sup-
ply have been defined by economists as price rationing and
nonprice rationing. In price rationing, prices are allowed to
rise. This, in our opinion is the only fair way to ration a com-
modity when demand exceeds supply. In the example above, the
average price of a ticket may rise to $9.00 if that is the price at
which there will be only 20,000 people ready and willing to buy
the 20,000 tickets. The specific procedure through which this
increase of $4.00 in the average price of a ticket takes place
varies. Ticket speculators or scalpers might be permitted to
buy all the tickets and resell them at $9.00 per ticket. Or, they
might be permitted to buy 2,000 tickets, the other 18,000 being
sold for the printed ticket price of $5.00. They might sell the
2,000 tickets for $45.00 each, and this would also result in an
average price of $9.00 per ticket. Though the ticket scalpers
would be blamed for the outrageously high prices, the price
would really be the result of simple arithmetic. For if an average
price of $9.00 is necessary to reduce the demand for tickets to the
available 20,000, and if 18,000 of them are sold at $5.00 each,
then the remaining 2,000 must be sold at $45.00.
In nonprice rationing, prices are not allowed to rise in order
to decrease the demand to the level of the available supply.
Instead, other techniques are employed to attain the same end.
The management may distribute the tickets on a first-come,
first-served basis. It may employ other types of favoritism in
order to narrow down the marketnepotism (selling the tickets
only to relatives or friends), racism (selling them to only certain
racial groups), sexism (selling them only to males). Certain age
groups may be singled out and all others barred, or perhaps war
veterans or members of certain political parties may be given
special privileges. All these nonprice rationing techniques are
discriminatory and arbitrarily favor some groups over others.
Consider a typical first-come, first-served (FCFS) method,
since this is the type of system most widely used and the one
usually thought to be fair. Though tickets are not scheduled to
be sold until 10:00 a.m. of the day of the event, hopeful cus-
tomers line up outside the box office long before. Some join the
line at the crack of dawn; some even begin the night before.
FCFS is thus discriminatory against those who find waiting in
line particularly onerous, those who cannot take a day off from
work to wait in line, or those who cannot afford to hire servants
or chauffeurs to wait in line for them.
Does price rationing, and therefore, ticket scalping, favor the
rich? An equivocal answer must be given. From one perspective,
ticket scalping helps the lower and middle class, and hurts the
rich. Assuming that the lowest income class includes more peo-
ple who are unemployed or marginally employed, they have
time and opportunity to wait in line. Even if employed, they do
not lose as much as others when they take time off from work.
For these people who have few options, ticket scalping provides
employment and business opportunities. There is no other pur-
suit in which a poor person can begin his own business with so
little capital. In the case stated above, all that is needed is $50.00
to buy ten $5.00 tickets. When and if these are resold at $45.00
each, a profit of $400.00 is gained.
Members of the middle class are helped as well, for these
people are less likely to have time available for waiting in ticket
lines. It is more costly for them (in terms of income lost) to take
time off from work than for a member of the lower class. It is
prudent for the member of the middle class to buy his ticket
from the scalper for $45.00 rather than wait in line and lose far
more, which he might have earned had he gone to work. In
short, ticket scalping allows people in the lowest income brack-
ets to serve as the paid agents of people in the middle class, who
are too busy to wait in line for cheap tickets.
Rich people have servants who can wait in long lines for
them and, therefore, do not need scalpers. In one case, however,
the ticket scalper can help even the richwhen the scalper, who
is a specialist, can do the job for less than it would cost the rich
man to use a servant for the task. (It should occasion no surprise
that ticket speculation can benefit all people. The market is not
a jungle where people can only benefit at the expense of others.
Voluntary trade is the paradigm case of mutually beneficial
action.) If the scalpers profit margin is less than what it would
cost the rich man to use a servant, he can buy the ticket directly
from the scalper, cut out the middleman servant, and save the
extra money.
From another perspective, however, price rationing and
ticket scalping favor the rich, by ensuring that they will find it
easier to purchase tickets at the high market price, while the rest
of the public may find it difficult or impossible. However, this is
the essence of a monetary economy and must be accepted as
long as we wish to reap the benefits only such a system can pro-
vide.
In the chapter on the importer, a defense will be made of a
monetary economy because it enables us to specialize and to
benefit from the division of labor. Imagine the quality of life and
the chances for survival if each of us was limited to what we
could produce ourselves. The spectre is frightening. Our lives
depend on trade with our fellows, and most if not all of the peo-
ple presently living would perish if the monetary system fell.
The degree to which we do not permit money to ration goods,
the degree to which we do not allow the rich to obtain a greater
share of the goods of society in proportion to their monetary
spending, is the degree to which we allow the monetary system
to deteriorate. It is, of course, unfair to allow the rich to obtain a
greater share of goods and services, to the degree that many of
them amassed their fortunes not through the market but
because of government aid. However, eliminating the monetary
system in order to rid it of illicitly gathered fortunes would be
like throwing out the baby with the bath water. The answer lies
in directly confiscating the ill-gotten wealth.
When wealth is earned honestly, there is nothing inappro-
priate about being able to receive a greater share of goods and
services, and it is essential to the preservation of the monetary
system. The scalper, by facilitating the price rationing of tickets,
is instrumental in assisting the rich in obtaining the rewards of
their efforts.
13
THE DISHONEST COP
T
he hero of Serpico, a best selling book and movie, is a
renegade, bearded, hippie cop who refuses to obey the
unspoken code of policemen, Dont turn against your
fellow officers. As Serpico states, The only oath I ever took was
to enforce the lawand it didnt say against everybody except
other cops.
The story traces Serpicos development, beginning with his
boyhood ambition to be a good police officer. It reveals his ini-
tial navet about the corruption on the force, his solitary and
unsuccessful attempts to interest the police brass in the situa-
tion, the contempt and hatred he experienced at the hands of his
fellow officers, and his final disillusionment. Throughout, the
assumption made about the good guys and the bad guys is
evident. The good guys are Frank Serpico and one or two police-
men who gave him limited aid in his quest for justice and
punishment of the grafters. The bad guys were those cops on the
take, and those who protect them from prosecution. It is pre-
cisely this view which should be questioned.
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SERPICO AND GAMBLING
An envelope containing $300 plays an important part in the
story of Serpico. It was delivered to him by a messenger from
someone known only as Jewish Max, a powerful gambler.
After many attempts, Serpico was unable to interest any of his
superior officers in the attempted bribe.
Why was Jewish Max attempting to bestow money and
gifts on an unwilling Serpico? Jewish Max, the purveyor of
voluntary (gambling) services to consenting adults, was one of
the intended victims of Serpico and other honest cops on the
gambling squad! Their intention was to harass, chase, capture,
and kidnap (jail) all those involved. The public is told that
aggressive violent behavior on the part of the officers is necessary
because gambling is against the law and it is their duty to
uphold the law. But the most vicious Nazi thug in a concentra-
tion camp could claim this argument as a defense.
In another incident, a ghetto mother complained to Serpico
that her son was being inducted into an illegal gambling opera-
tion. Serpico is asked to smash the operation. Now there can be
little opposition to the attempt to protect a child from an activ-
ity that could be harmful to him. However, the disruption of an
activity which is legitimate for adults, on the grounds that a
child has become involved, is clearly objectionable. The solution
in a case such as this lies in preventing the child from participa-
tion, not in the elimination of the activity. Sex, drinking, or driv-
ing should hardly be prohibited on the grounds that these activ-
ities are harmful or dangerous for children.
SERPICO THE NARC
Serpico is finally wounded while attempting to break into an
apartment of a dope dealer, although his sworn duty is to protect
the rights of citizens. The explanation, of course, is that selling
narcotics is prohibited by law, and although he has sworn to
protect the rights of individuals, Serpico has also sworn to
uphold the law. In this instance, as elsewhere, when the two are
contradictory, he chooses the latter. His participation on the nar-
cotics squad itself demonstrates Serpicos overriding loyalty to
the law.
But prohibiting the sale of narcotics invariably increases the
purchase price, thereby making it difficult for addicts to obtain
the drugs. Consequently, they must commit greater and greater
crimes in order to obtain the necessary money. By prohibiting
the sale of narcotics, the citizenry thus becomes endangered. To
enforce that prohibition, as Serpico does, is to regard the protec-
tion of the law over that of the citizens.
SERPICO AND COOPING
Given that much of what the policeman is required to do is inju-
rious to the general public, it follows that the less active the
policeman is, the less injurious he will be to the public at large.
The majority of policemen, perhaps sensing this, act so as to
save the public from harm, i.e., they shun their duties.
Instead of being up and about, interfering with the rights of
the people, many policemen choose the honorable way out
they coop. Cooping (sleeping in some out-of-the-way place
while on duty) was a situation which enraged Serpico. In the
finest tradition of the busybody who insists upon running other
peoples lives, Serpico insisted upon being out on the streets at
all hours, stopping a prostitute here, ambushing a gambler
there, harassing drug merchants everywhere.
It is, of course, impossible to deny that Serpico was also a
force for good. He did, after all, hunt down rapists, muggers,
robbers, thieves, murderers, and destroyers of the peace. More-
over, he carried out his duties in an enormously imaginative way.
Disguised as a Hasidic Jew, a hippie, a slaughterhouse worker, a
businessman, a drug addict, he prowled the city streets and
unearthed its secrets as none of his fellow police officers
dressed in suits, ties, trenchcoats, black shoes, and white socks
could. But, the extent to which Serpico was able to achieve these
accomplishments was the extent to which he was willing to step
outside the realm of law and order.
The Dishonest Cop 93
Take the case of a young rapist. Serpico stopped a rape in
progress, in spite of the opposition of his police partner, who
objected to investigating the suspicious noiseson the grounds
that they were taking place out of the area which he and Serpico
were assigned to patrol. Oblivious to such specious reasoning,
Serpico insisted upon an investigation. He was able to capture
only one of the three rapists. When he brought him to the sta-
tion house, Serpico was dismayed at the brutal (and ineffective)
treatment to which the rapist was subjected. When the prisoner
was about to be transferred to another location, Serpico brought
him a cup of coffee, and talked kindly to him for several min-
utes. By using gentle persuasion he was able to unearth the
names of the rapists two accomplices.
Serpico then encountered the full pattern of bureaucratic red
tape of the police department. He located the accomplices but,
upon phoning his precinct commander to report on their where-
abouts, was told that the detective assigned to the case was on
vacation. The commanding officer insisted that Serpico not
arrest the accomplices, even though he had them under surveil-
lance from the phone booth. Serpico again disobeyed the lawful
order from his commanding officer, and arrested the two men.
(When he brought them to the station house he was told, by the
angry commander, that he would not be given credit for the
arrestsan appropriate ending to the story.)
It is instances such as this one which have made Serpico an
all-time hero, and which account for the massive popularity of
the book and movie. But this illustration also exposes the basic
contradiction in Serpicos character. His attacks on prostitutes,
gamblers, and drug sellers, all of whom were engaged in volun-
tary acts between mutually consenting adults, reveal his
absolute devotion to the law. His boyhood dream of being a
policeman, it will be remembered, was in terms of upholding the
law. However, in the case of the rapist, Serpico does the good
deed only because he is willing to violate the law. And in every
case where his behavior can be considered heroic, the same prin-
ciple of action is present.
In considering Serpicos battle against the other, normal
policemen (the ones he considers corrupt), there are two types of
cops. There are those who refuse to harass consenting adults
engaging in voluntary though illegal activities, and who accept
money from the individuals engaged in such activities; and there
are those who demand money from these individuals for allow-
ing them to engage in these activities.
In the first example, assuming the activities in question are
legitimate, even though prohibited by law, it would seem per-
fectly proper to accept money for allowing them. The acceptance
of money cannot be logically distinguished from the acceptance
of a gift, and the mere acceptance of a gift is not illegitimate.
There are, however, some who take a contrary position by
stating that exceptions cannot be made even in the case of ill-
conceived laws; that mere individuals should not be free to
pick and choose, but must simply obey the law. Allowing the law
to be broken is necessarily evil, both in itself and because if taken
as a precedent, it leads to chaos.
But it is difficult to countenance the notion that breaking the
law is necessarily evil. Indeed, if the Nuremberg Trials have
taught us anything, it is the diametric opposite of this view. The
lesson of the Trials is that some laws are in and of themselves
evil, and to obey them is wrong. It is equally difficult to under-
stand the notion that selective law breaking establishes a prece-
dent which ultimately leads to chaos. The only precedent such
an action establishes is that illegitimate laws may be disobeyed.
This does not imply chaos and arbitrary murder. It implies
morality. Had such a precedent been firmly established at the
time the Nazis came to power, concentration camp guards
might have refused to obey lawful orders to murder hapless vic-
tims.
Finally, the notion that no mere individual should be free
to pick and choose which law he will obey is nonsense. Mere
individuals are all we have.
In conclusion, since lawbreaking can, on occasion, be legit-
imate, policemen who allow it are on occasion acting quite
The Dishonest Cop 95
properly. Serpicos attacks upon such officers were, therefore,
quite unwarranted.
Now consider the second kind of police officer condemned
by Serpicothose who did not simply allow illegal activities, or
accept money when offered, but demanded payment from citi-
zens. The dictionary calls this extortion, to draw from by force
or compulsion; to wrest or wring from by physical force, vio-
lence, threats, misuse of authority, or by any illegal means; to
exact money from, as conquerers extort contributions from the
vanquished. Extortion is usually considered contemptible, and
this evaluation is acceptable. However, does this imply approval
of Serpicos attacks on the policemen involved in extortion? No,
for Serpicos role was even worse than extortion! Consider four
different ways a policeman may react to behavior which is ille-
gal but perfectly moral. He may (1) ignore it, (2) accept money
for ignoring it, (3) demand money for ignoring it (extortion), or
(4) stop it.
Of the four possible reactions, the fourth is the least desir-
able, for it alone absolutely prohibits a moral activityjust
because it happens to be illegal.
Had Serpico been a guard in a Nazi concentration camp, he
would have felt it his duty to follow his orders to torture prison-
ersas would all others who consider law and order the pri-
mary value. If he had consistently maintained his position, he
would also have felt constrained to root out corruption in the
camp by turning in those among his fellow officers who (1)
refused to follow orders, (2) refused to follow orders and
accepted payment from the prisoners, or (3) refused to follow
orders and demanded payment (extortion). True, it is immoral
to extort money from prisoners for not torturing them; but
surely it is worse to not take their moneyand instead, to obey
orders and torture them.
V. FINANCIAL
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14
THE (NONGOVERNMENT)
COUNTERFEITER
T
he dictionary defines counterfeit as forged; false; fab-
ricated without right; made in imitation of something
else with a view to defraud by passing the false copy for
genuine or original. Thus, counterfeiting is a special case of
fraud. In a general case of fraud, the falseness consists of pass-
ing some good or article off in return either for another good or
for money. In the case of counterfeiting, what is passed off as
genuine is not a commodity or an article, but money itself. This
special case of fraud constitutes theft, just as fraud in general
does. But with counterfeiting, there are certain complications.
The effects of counterfeiting depend entirely upon whether
or not the counterfeit money is ever exposed as such. If it is, then
the theft takes place in a rather straightforward way. If the false-
ness is discovered before the counterfeiter himself can pass it off
to the first recipient, he will have been caught red-handed, and
no counterfeiting will have taken place (point 1 in the diagram
below). If the falseness is discovered after it has been given to the
first recipient, but before he has had a chance to pass it on (point
2 in the diagram), the counterfeiting amounts to a theft from
this first recipient. Mr. B has given up a genuine good or service
99
for a piece of paper which is then discovered to be fraudulent
and worthless. The piece of paper is destroyed, and the first
recipient is left with nothing.
If the discovery is made after the first recipient has passed it
off (unknowingly) to a second recipient, but before the second
has had a chance to pass it along to a third, then this second
recipient takes the loss (point 3).
Discovery of counterfeiting at point:
Mr. A Mr. B Mr. C Mr. D Mr. E, etc.
Point 1 Point 2 Point 3
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The second recipient loses because he has given the first
recipient something of value, and has gotten nothing in return.
If he can unearth the first recipient, the incidence of the loss
would be complicated by the fact that the first recipient is inno-
cent of any wrongdoing. The loss would probably have to be
shared between the two recipients. Of course, if the original
passer of the false money can be found and made to pay, no loss
will have taken place, since in effect no counterfeiting will have
taken place. But, if none of the previous passers can be found
after the fact, the recipient who is discovered with the counter-
feit money in his possession will bear the full loss, no matter
how many times it has already been passed.
If the counterfeit money is never discovered, the situation is
radically different. The losses due to counterfeiting are incurred,
not by any one individual, but by the entire society, in a rather
complicated way. The losses are not immediately apparent, for
there is no one recipient who loses the total value of the com-
modity given up in return for the counterfeit money. But, it is
The (Nongovernment) Counterfeiter 101
I must say, young lady, its refreshing to find someone
acquainted with the evils of the Federal Reserve System, but
where could I get gold or silver bullion at this time of
night?
easy to see that there are lossesfor the counterfeiter has gained
a value, without adding to the store of value of the rest of soci-
ety. Since there are only so many goods in the society at any one
time and the counterfeiter has gained some through fraud, there
must be others who have lost out.
The way the loss is spread out though the society depends
upon the rise in prices caused by the extra money (the counter-
feited money) now in circulation. That prices will rise in
response to the activities of the counterfeiters is a foregone con-
clusion, for counterfeiting increases the amount of money in cir-
culation while the amount of goods and services remains the
same. Prices will not rise all at once, nor will they rise smoothly
and regularly. Rather, prices will rise in waves as does the water
in a pool in response to a stone disturbing the equilibrium. They
will first be driven up in the industry or area of which the first
recipient of the counterfeit money is a member. Prices will be
driven up because the counterfeit money spent in the industry is
extra; that is, in the absence of the counterfeiting, it would not
have been spent; therefore the first recipient benefits. He has
received money which would not have been forthcoming but for
the counterfeiting, and he is able to spend this extra money in an
area where prices have not yet risen. The first recipient gains this
incremental difference (though it may be substantial, it is in no
way comparable to the counterfeiters gain).
The second recipient also gains, as do all other recipients at
the beginning of the ever-spreading ripple effect. For these peo-
ple all receive the new money before prices have had a chance to
be pushed up by the extra money put into circulation by coun-
terfeiting. However, in time there will be a recipient of the imi-
tation money who will just come out even. He will receive
money at a time when it is still possible to spend part of it in an
area which has not yet had a counterfeit-induced price rise. If he
spends his money in an area which has not yet received a boost
in prices, he will gain slightly from the inflation; if not, he will
lose. On the average, people in this phase of the monetary
expansion will be neither greatly benefited nor greatly harmed
from the counterfeiting.
People receiving the counterfeit money after this stage bear
the losses of the monetary expansion. Before they receive any
extra money, prices will have risen. When the counterfeit money
finally filters down to them they will be net losers. There are
some groups, such as widows and retired people, who will
always lose from counterfeiting, because during the spread of
the counterfeit-induced inflation, their incomes are fixed.
If all this is true, how can the counterfeiter be considered a
hero? Given that the main result of counterfeiting which is
eventually discovered is to bilk the person caught holding the
bag, and that the main result of undiscovered counterfeiting is
inflation which eventually harms many of us, it does indeed
seem strange to call the counterfeiter a hero.
The justification for calling the common private counter-
feiter heroic is that there is a prior counterfeiter in action and
that the money falsified by the private counterfeiter is not really
legitimate money; instead, it is itself counterfeit. It is one thing
to say that counterfeiting genuine money amounts to theft; it is
quite another thing to say that counterfeiting counterfeit money
amounts to theft!
Perhaps an analogy will clarify this point. Taking someones
rightfully owned property is theft, and therefore unjustified. But
no such proscription holds for taking the wrongfully owned
(stolen) property of the thief. Indeed, such an activity need not
even be called theft. In other words, an act which seems to be
seemingly identical with theft is not illegitimate at all if the vic-
tim has no legitimate claim over the articles taken. If B steals
something from A, and then C takes it away from B, we cannot
hold C guilty of theft. (For the sake of simplicity, we can assume
that the original owner, A, cannot be found by C.) A forced
transfer of goods is illegitimate only if the original owner was the
rightful owner; if he was not, there was nothing untoward about
the transfer.
In like manner, we can see that it does not follow from the
fact that counterfeiting genuine money is illegitimate that coun-
terfeiting counterfeit money is illegitimate. If the claims can be
substantiated that the counterfeiting of counterfeit money is not
itself illegitimate; and that if the original money is indeed
counterfeit, then it will have been demonstrated that the private
enterprise counterfeiter is not guilty of wrongdoing, and can
perhaps be considered heroic.
The claim that the counterfeiting of counterfeit money is not
itself illegitimate is based on our understanding that such an
activity is identical in form with stealing from a thief. The orig-
inal dictionary definition of counterfeiting spoke of fabricating
without right, and of passing the false copy for genuine or
original. But if what is being copied is itself counterfeit, then
the counterfeiter is not passing the false copy for genuine. He is
only passing off (another) false copy. And if fabricating without
right means passing something off as genuine, then our counter-
feiter is not fabricating without right, for he is not in fact trying
to pass something as genuinehe is only trying to pass his
handiwork as a copy of a counterfeit.
The money which our counterfeiter is copying is itself coun-
terfeit. It is made by a nonprivate counterfeiterthe govern-
ment.
This is a serious charge, and is not made lightly. Unappetiz-
ing though it may be, the fact is that governments everywhere
make counterfeits of real moneygold and silver. Virtually all
governments then forbid the use of real money and allow only
the use of the counterfeits they fabricate. This is equivalent to a
private enterprise counterfeiter not only copying the money in
circulation, but also preventing and prohibiting the circulation
of the legal money.
Consider the monetary system before governments became
deeply involved with it. Gold and silver (and paper certificates
representing them) were the circulating medium. The govern-
ment could not simply intrude on this system and impose its fiat
currency (currency based upon the compulsion of emperors,
kings, and presidents, not upon the voluntary decisions of the
people). The people would not accept it as money, and would
not voluntarily give up their hard earned possessions for such
tokens. Instead, the government utilized gradualist methods in
its quest to seize control of the monetary mechanism.
Under the gold standard, private minters converted gold
bullion into coins. The weight of these coins was certified by the
private minters, whose reputations for accuracy and probity
were their main stock in trade. The first step of government was
to seize monopoly control of the mints, proclaiming that
coinage was the proper domain of the sovereign, and that private
coiners could not be entrusted with such an important task. The
government thus nationalized the mint.
The second stage was debasement. After affixing the picture
of the monarch on the coin, to insure the weight and quality, the
coins were sweated (stamped at a greater face weight than
actual weight). It was in this way that government counterfeit-
ing began.
The third step was the enactment of legal tender laws. These
laws required that money be traded and counted at its official
stamped value, and not at any other value, such as that based on
weight. A coin stamped at 10 gold ounces could legally be used
in payment of a debt of 10 gold ounces, even though the actual
coin weighed only 8 gold ounces. The protests of the creditor
were ignored by the sovereigns court system under the legal ten-
der laws. The purpose of such laws was, of course, to establish
the acceptability of money counterfeited by the government.
The government soon found that this was a small-time oper-
ation. There were limitations to the sweating of coins. However,
even slowly replacing full-bodied coins (coins whose gold con-
tent equaled the stamped value) with token coins (coins which
are intrinsically valueless as metals) would still not yield
enough. Even if the government seized as much as 100 percent
of the value of the coin, the value of all coins in total was lim-
ited. A course of action with much greater potential for counter-
feiting was begun.
Step four was then introduced.
1
The government stopped
simply replacing gold coins with token coins, and began creat-
ing tokens representing more gold than it possessed. Not the
gold value of coins, nor of bullion, nor even the value of the gold
in the ground, any longer limited the scope of government coun-
terfeiting.
1
We do not claim a strict, nonoverlapping temporal order for these stages.
They are rather devices to clarify exposition.
With this innovation, government counterfeiting entered the
fifth stagethe first civilized stage. Greenbacks, dollar bills,
etc., could now be created seemingly without restraint. The
printing presses were turned up to high speed, and government-
counterfeit induced inflations began to take their place in the
modern world.
With the sixth step, government spending received another
shot in the arm. Counterfeiting paper money, begun in the
fifth stage, had been an improvement over counterfeiting
coins, but the prospect of taking over banks and checkbook
money offered an even greater improvement. Depending on the
reserve requirements of the banks, the banking system could
create a multiple monetary expansion, through the well-known
multiplier effect. In all expanding economies, paper money
outstrips coins, and bank checking deposit money outstrips
paper money. Taking over the banks, then (as well as the
monopoly of coin and paper note issue), provided further scope
for the counterfeiting plans of government.
Again under the guise that the free market could not be
trusted, the government enacted legislation setting up the Cen-
tral Bank, and later, the Federal Reserve System. The Central
Bank was given a monopoly over paper money note issue, and
the monetary tools (open market operations, setting the redis-
count rate, and loans to banks) with which to keep the entire
banking system in a harmonious state of counterfeiting.
The main argument used by the government was that the
so-called free or wildcat banks, located mainly in inaccessi-
ble areas of the Midwest, were negligent in backing up their
bank notes. This charge was true, in the main. But the reasons
for it, which stem from the War of 1812, are illustrative. At the
time of that war, New England banks were the soundest in the
country. But New England was also the section of the country
most opposed to the war. The central government thus had to
borrow mainly from the Midwestern banks whose note issue far
outstripped their gold stocks. (The government arrogated to
itself the duty of maintaining the financial probity of the banks,
but reneged.) The government spent much of this money (in the
form of notes) in New England. When these banks presented
the Midwestern notes for redemption, the government, further
shirking from its self-procaimed duties, declared banking holi-
days, and allowed the wildcat banks to renege on their obliga-
tions for several years. The consequent exuberant policies which
these banks followed gave private banking a bad name, and pro-
vided the government with a justification for taking over. These
private banks were encouraged in their counterfeiting opera-
tions by the government itself.
At this stage of development, there was only one fly in the
ointment, and it led the government to take the seventh step.
Some countries engaged in counterfeiting, and hence inflation,
to a greater degree than others. But when one country engages
in a greater degree of counterfeiting-inflation than other coun-
tries, it becomes enmeshed in balance of payment problems. If
country As government counterfeits at a greater rate than coun-
try Bs government, prices will rise faster in A than in B. A will
find it easy to buy from B and hard to sell to B. Thus As imports
(what it buys) will outstrip its exports (what it sells). The imme-
diate result of the imbalance between imports and exports will
be a flow of gold from A to B to pay for the excess in purchases.
But, because gold is limited, this cannot go on forever.
There are several possible responses. Government A could
set a tax on imports (a tariff), or B could set a tax on exports.
Quotas could be set by both countries prohibiting trade beyond
a certain point. A could devalue its currency, making it easier for
it to export, and harder for it to import. Or, B could revalue its
currency, with the opposite effects. There are problems, how-
ever, with all of these responses. Tariffs and quotas interfere with
trade, specialization, and the international division of labor.
Devaluations and revaluations are very disruptive and interfere
with the system of international trade which the world has spent
so many years building. In addition, they do not really solve the
problem of imbalance, and currency crises are bound to recur
every time changes in the relative value of the various currencies
of the world occur.
The world is now undergoing this seventh step, hence, it is
difficult to trace it to its conclusion. Two patterns, however, seem
to be emerging. One is the advent of a world monetary confer-
ence of which Bretton Woods is an example. At conferences of
this type, the leading counterfeiter-inflationists gather to discuss
possible remedies for their actions (although of course they do
not see their role in this way). They usually discuss adopting
some version of the central banking system of the United States
for worldwide use. Suggestions have been made for an interna-
tional equivalent of our Federal Reserve System. A strong world
bank of this type would have much the same power over the
entire world that a national bank has over its own country. It
would have the power to force all banks to inflate in unison, and
to direct the inflation to ensure that no power but itself shall be
able to counterfeit money. Because each nationalistic counter-
feiting center has so far jealously guarded its own powers, such
a world central bank has not yet come into existence.
An alternative system, popularized by Milton Friedman of
the University of Chicago, is the system of flexible exchange
rates. This system operates in such a way that whenever the
prices or value of two countries currencies fall out of line with
one another, they automatically readjust. That is, the currency
prices of the various countries are allowed to change in terms of
one another. This is in significant contrast to the agreements
made at previous world monetary conferences, in which these
prices are fixed in terms of each other. With a flexible system, if
country A inflates at a higher rate than country B, there will be
a relative excess supply of the currency of A, which will drive its
price down, choke off its imports, and make its exports more
attractive. The great advantage of the flexible exchange system
over the fixed exchange systems of the world monetary agree-
ments is that it is an entirely automatic system. Thus the crises
which would occur under a fixed system every time currencies
change value with respect to one another are avoided.
However, since both these systems are only superficial
attempts to suppress the ill effects which result from govern-
ment counterfeit-inflationary schemes, neither can be favored.
Paradoxically, these ill effects are good things. Just as a pain in
the body can be a warning of a far more serious condition, and
is, therefore, beneficial, a balance of payments problem can be a
signal of the menace of international inflation. Attempting to
paper over these difficulties with flexible exchange rate schemes
leaves the worlds economy open to the ravages of inflation. It
would be far better for the economy of the world, and for every
individual country, if instead of devising ways to prop up coun-
terfeiting and the resultant inflation, the governments of the
world gave up these policies altogether.
In this connection, one cannot help daydreaming about
Treasury agents, the T men of modern television serials. Ded-
icated to the elimination of counterfeiting, dressed in the best
FBI modern style, they represent the essence of uncorrupt-
ible (ho, ho), tough law enforcers. On television their adven-
tures usually begin with an overview of them walking down the
steps of the Treasury Building. Were they to turn around, and
walk back up the steps, and back into the offices of their superi-
ors, and arrest them, they would be corralling perhaps the
biggest gang of counterfeiters the world has ever known.
As to the claim that the private counterfeiter is a hero, three
criteria for heroic actions must be applied. The act must not vio-
late the rights of innocent people; the act must be of great bene-
fit to large numbers of people; and it must be performed at great
personal risk.
There can be no doubt regarding the third point. Non-
governmental counterfeiters operate at great risk to themselves.
The government has declared such activity illegal. The Treasury
Department spends large sums of money to apprehend private
counterfeiters. The government stands ready to prosecute all
those accused of counterfeiting, and to jail all who are found
guilty. It cannot be doubted that the risk criterion is more than
amply met.
Furthermore, it is clear that the activities of private counter-
feiters are beneficial to the public. Nongovernmental counter-
feiting, if allowed to be pursued, would spell the ruin of the gov-
ernments own system of counterfeit money. The extent to
which nongovernment counterfeiters are active is the extent to
which the effectiveness of the governments own counterfeit sys-
tem is decreased. The fact that the governments counterfeit sys-
tem is very harmful constitutes in itself a strong prima facie case
for nongovernment counterfeiting. (Of course, private counter-
feiting is illegal, and cannot, therefore, be advocated. Still it is of
interest to spin out the implications of economic theory.)
It may be objected that if private counterfeiters gained
power, and replaced the government, the people would be no
better off. This, of course, is true. But the fact is that private
counterfeiters are small time, and will undoubtedly remain so.
They could pose no more than a minor problem. It is in fact this
reality which clinches the argument for private counterfeiters.
They do not pose a threat to the people; they are not, nor are
they likely to become strong enough to do that. The effect they
have is to reduce and counteract the great evil of government
counterfeiting. This is beneficial for great numbers of people.
Although a few individuals may suffer a loss from this activity,
on balance, the activity of the private counterfeiter is more ben-
eficial than harmful. And, it must be remembered, their activity
is not fraudulent and hence immoral, since they do not seek to
pass off counterfeit money for genuine.
15
THE MISER
T
he miser has never recovered from Charles Dickens
attack on him in A Christmas Carol. Although the miser
had been sternly criticized before Dickens, the depiction
of Ebenezer Scrooge has become definitive and has passed into
the folklore of our time. Indeed, the attitude pervades even in
freshman economics textbooks. There the miser is roundly con-
demned and blamed for unemployment, changes in the busi-
ness cycle, and economic depressions and recessions. In the
famousor rather infamousparadox of savings, young stu-
dents of economics are taught that, although saving may be sen-
sible for an individual or a family, it may be folly for the econ-
omy as a whole. The prevalent Keynesian doctrine holds that
the more saving in an economy, the less spending for consump-
tion, and the less spending, the fewer jobs.
It is time that an end be put to all these misconceptions.
Many and various benefits are derived from saving. Ever since
the first caveman saved seed corn for future planting, the human
race has owed a debt of gratitude to the hoarders, misers, and
savers. It is to those people who refused to use up at once their
entire store of wealth and chose rather to save it for a needy
time, that we owe the capital equipment which enables us to
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aspire to a civilized standard of living. It is true, of course, that
such people became richer than their fellows, and perhaps
thereby earned their enmity. Perhaps the whole process of saving
and accumulating was cast into disrepute along with the saver.
But the enmity is not deserved. For the wages earned by the
masses are intimately dependent upon the rate at which the
saver can accumulate money. There are, for example, many rea-
sons contributing to the fact that the American worker earns
more than, say, his Bolivian counterpart. The American
workers education, health, and motivation play important roles.
But a major contribution to the wage differential is the greater
amount of capital stored up by American employers than by
Bolivians. And this is not an exceptional case. The saver has
been instrumental throughout history in lifting the pack above
the level of the savage.
Perhaps it will be objected that there is a difference between
saving (acknowledged to be productive in the process of capital
accumulation), and hoarding (withholding money from con-
sumption spending), and that the saver channels his money into
capital goods industries where they can do some good; hoarded
money is completely barren. The hoarder, it will be claimed,
reduces the money received by retailers, forcing them to fire
employees and reduce orders from jobbers. Jobbers in turn are
forced to reduce their staff and to cut back on orders from
wholesalers. The whole process, under the influence of hoard-
ers, will be repeated throughout the entire structure of produc-
tion. As employees are fired, they will have less to spend on con-
sumption goods, thus compounding the process. Hoarding is
thus seen as completely sterile and destructive.
The argument is plausible except for a crucial point which
this Keynesian-inspired argument fails to take into account
the possibility of changes in prices. Before a retailer begins to lay
off employees and cut back on orders because of unsold goods,
he will usually try lowering his prices. He will hold a sale or use
some other technique which will be equivalent to a decrease in
price. Unless his troubles are due to the unsalability of his wares,
this will suffice to end the vicious circle of unemployment and
depression. How so?
In withholding money from the consumers market, and not
making it available for the purchase of capital equipment, the
hoarder causes a decrease in the amount of money in circulation.
The amount of available goods and services remains the same.
The Miser 113
Lip up, will ya, Edith! You knew I wasnt a Keynesian
when you married me!
Since one of the most important determinants of price in any
economy is the relationship between the amount of money and
the amount of goods and services, the hoarder succeeds in low-
ering the level of prices. Consider a simplistic but not wholly
inaccurate model in which all the dollars in the economy are bid
against all its goods and services. Thus the fewer the dollars, the
greater the purchasing power of each. Since hoarding can be
defined as reducing the amount of money in circulation, and,
other things equal, less money means lower prices, it can read-
ily be seen that hoarding leads to lower prices.
There is no harm in lowering the level of prices. Quite the
contrary, one of the great benefits is that all other people, the
nonmisers, benefit from cheaper goods and services.
Nor will lower prices cause depressions. Indeed, the course
of the prices of some of our most successful machinery has fol-
lowed a strong downward curve. When cars, televisions, and
computers were first produced, they were priced far beyond the
reach of the average consumer. But technical efficiency suc-
ceeded in lowering prices until they were within the reach of the
mass of consumers. Needless to say, neither a depression nor
recession was caused by these falling prices. In fact, the only
businessmen who suffer in the face of such a trend are those who
follow the Keynesian analysis and do not lower their prices in
the face of falling demand. But far from causing an ever widen-
ing depression, as the Keynsenians contend, such businessmen
only succeed in driving themselves into bankruptcy. For the rest,
business continues as satisfactorily as before, but with a lower
price level. The cause of depressions, therefore, exists else-
where.
1
There is likewise no substance in the objection to hoarding
on the ground that it is disruptive, and continually forces the
economy to adjust. Even if true, it would not constitute an
indictment of hoarding, for the free market is preeminently an
1
See Murray N. Rothbard, Americas Great Depression (New Rochelle,
N.Y.: Van Nostrand, 1963).
institution of adjustment and reconciliation of divergent and
ever-changing tastes. To criticize hoarding on this ground, one
would also have to criticize changing clothing styles as well, for
they continually call on the market for fine tuning adjustment.
Hoarding is not even a very disruptive process because for every
miser stuffing money into his mattress, there are numerous
misers heirs ferreting it out. This has always been the case, and
it is not likely to change drastically.
Claims that the misers hoard of cash is sterile because it
does not draw interest as it would if it were banked is also with-
out merit. Could the money held by individuals in their wallets
be characterized as sterile since it does not draw interest either?
If people voluntarily forbear to earn interest on their money and
instead hold it in cash balances, the money may appear useless
from our point of view, but it undoubtedly is not useless from
theirs. The miser may want his money not for later spending,
not to bridge the gap between expenditures and payments, but
rather for the pure joy of holding cash balances. How can the
economist, educated in the utility maximization tradition, char-
acterize joy as sterile? Art lovers who hoard rare paintings and
sculpture are not characterized as engaging in a sterile enter-
prise. People who own dogs and cats, solely for the purpose of
enjoyment and not investment, are not described as engaging in
sterile activity. Tastes differ among people, and what is sterile for
one person may be far from sterile for another.
The misers hoarding of large cash balances can only be con-
sidered heroic. We benefit from lowered price levels, which
result from it. The money which we have and are willing to
spend becomes more valuable, enabling the purchaser to buy
more with the same amount of money. Far from being harmful
to society, the miser is a benefactor, increasing our buying power
each time he engages in hoarding.
The Miser 115
16
THE INHERITOR
H
eirs and heiresses are usually depicted as irresponsible,
idle, lazy individuals who enjoy lives of unearned lux-
ury. This is perhaps a true characterization of many in
the class. But it does not detract from the heroic role played by
the inheritor.
An inheritance is simply a form of gifta gift that is given
upon death. Like gifts that are given upon births, birthdays,
weddings, anniversaries, and holidays, it can be defined as the
voluntary transfer of considerations from one party to another.
One cannot, therefore, oppose inheritances, and at the same
time favor other types of gifts. Yet, many people do just that.
Their anti-inheritance bias is spurred on by images of thieves
who pass on their ill-gotten gains to their children. They see
members of the ruling class accumulating fortunes, not through
honest trade, but through government subsidies, tariffs, and
licensing protections, and passing on what they have accumu-
lated. Surely this should be prohibited. The elimination of an
inheritance seems to be a solution.
It would, however, be impossible to eliminate inheritance
unless all other types of gifts were also eliminated. The 100 per-
cent tax on inheritance, often suggested as the means by which
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Get lost, Creep!
to eliminate inheritance, would not accomplish this. For if other
types of gifts were permitted, the tax could easily be circum-
vented. Money and property could simply be transferred by
means of birthday gifts, Christmas gifts, etc. Parents might even
have gifts held in trust for their children, to be turned over on
the childs first birthday after the death of the parent.
The solution to the problem of illicitly earned wealth, white-
collar and otherwise, does not lie in preventing the next genera-
tion from obtaining the ill-gotten funds, but in making certain
that these funds are not retained in the first place. Attention
should rather be focused on retrieving the illicit property and
returning it to the victim.
Will it be argued that the 100 percent inheritance tax is a
second best policy? That since we do not have power to strip
the criminals of their ill-gotten gains, efforts should be made to
deny them the opportunity of passing the fortunes on to their
children? This is contradictory. If the power is lacking to bring
criminals to justice because white-collar criminals control the
system of justice, then clearly there is a lack of power to impose
a 100 percent inheritance tax on them.
In fact, even if such a tax could be enacted and enforced, the
yearning for egalitarianism which really animates all such pro-
posals would be frustrated. For true egalitarianism means not
only an equal distribution of money, but also an equal distribu-
tion of nonmonetary considerations. How would the egalitari-
ans remedy the inequities between those who are sighted and
those who are blind, those who are musically talented and those
who are not, those who are beautiful and those who are ugly,
those who are gifted and those who are not? What of the
inequities between those who have happy dispositions and those
who are prone to melancholy? How would the egalitarians
mediate them? Could money be taken from those who have too
much happiness and given to those who have too little as
compensation? How much is a happy disposition worth? Would
$10.00 per year trade at par for five units of happiness?
The ludicrousness of such a position might lead the egalitar-
ians to adopt a second best policy, such as the one used by the
dictator in Harrison Bergeron, a short story in Welcome to the
Monkey House by Kurt Vonnegut.
1
In the story, strong people
were forced to carry weights in order to bring them down to the
The Inheritor 119
1
Kurt Vonnegut, Welcome to the Monkey House (New York: Dell, 1970).
level of the rest of the people; musically inclined individuals
were forced to wear earphones that gave forth shockingly loud
sounds in proportion to their musical talent. This is where the
desire for egalitarianism logically leads. The elimination of
monetary inheritance is but the first step.
It is the inheritor and the institution of inheritance that
stands between civilization as we know it and a world in which
no talent or happiness is allowed to mar equality. If individual-
ity and civilization are valued, the inheritor will be placed on the
pedestal he richly deserves.
17
THE MONEYLENDER
E
ver since Biblical times, when the moneylenders were
driven from the temple, they have been scorned, criti-
cized, vilified, persecuted, prosecuted, and caricatured.
Shakespeare, in The Merchant of Venice, characterized the mon-
eylender as a Jew scurrying around trying to exact his pound of
flesh. In the movie, The Pawnbroker, the moneylender was an
object of loathing.
The moneylender, however, together with his first cousins,
the usurer, the pawnbroker, and the loan shark, have been badly
misjudged. Although they perform a necessary and important
service, they are, nevertheless, extremely unpopular.
Lending and borrowing take place because people differ as
to their rate of time preference (the rate at which they are willing
to trade money they presently possess, for money they will
receive in the future). Mr. A may be anxious to have money right
now, and not care too much about what money he may have in
the future. He is willing to give up $200 next year in order to
have $100 now. Mr. A has a very high rate of time preference. At
the other end of the spectrum are the people with very low rates
of time preference. To them, future money is almost as impor-
tant as present money. Mr. B, with a low rate of time prefer-
ence, is willing to give up only $102 next year in order to receive
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$100 now. Unlike Mr. A, who cares much more about present
money than future money, Mr. B would not give up a large
amount of future money for cash in hand. (It should be noted
that a negative time preference does not exist, that is, a prefer-
ence for money in the future over money in the present. This
would be equivalent to saying that there would be a preference
toward giving up $100 in the present, in order to get $95 in the
future. This is irrational unless there are conditions other than
time preference which operate. For example, one might want to
purchase protection for money that is unsafe now, but will be
safe a year hence, etc. Or, one may want to savor his dessert and
postpone consumption until after dinner. Dessert-before-din-
ner would then be considered a different good than dessert-
after-dinner, no matter how similar the two goods were in
physical terms. There is thus no preference shown for a good in
the future over the same good in the present.)
Although it is not necessary, it is usual for a person with a
high time preference (Mr. A), to become a net borrower of
money, and for a person with a low time preference (Mr. B), to
become a lender. It would be natural, for example, for Mr. A to
borrow from Mr. B. Mr. A is willing to give up $200 a year from
now in order to get $100 now, and Mr. B would be willing to
loan $100 now if he can get at least $102 after one year has
elapsed. If they agree that $150 is to be repaid a year hence for a
present loan of $100, they both gain. Mr. A will gain the differ-
ence between the $200 he would have been willing to pay for
$100 now and the $150 that he will actually be called upon to
pay. That is, he will gain $50. Mr. B will gain the difference
between the $150 that he will actually get a year hence and the
$102 that he would have been willing to accept in a year for giv-
ing up the $100 now, a gain of $48. In fact, because moneylend-
ing is a trade, like any other trade, both parties must gain or they
would refuse to participate.
A moneylender may be defined as someone who loans out
his own money or the money of others. In the latter case his
function is that of intermediary between the lender and bor-
rower. In either case, the moneylender is as honest as any other
businessman. He does not force anyone to do business with him
nor is he himself compelled. There are, of course, dishonest
moneylenders just as there are dishonest people in all walks of
life. But there is nothing dishonest or reprehensible about
moneylending per se. Some criticism of this view deserves fur-
ther examination.
1. Moneylending is infamous because it is frequently
accompanied by violence. Borrowers (or victims) unable to pay
their debts are often found murderedusually by the loan
shark. Individuals who borrow money from moneylenders usu-
ally have contracts with them to which they have fully agreed.
One is hardly a victim of a moneylender if one has agreed to
repay a loan, and then reneges on the contractual promise. On
the contrary, the moneylender is the victim of the borrower. If
the loan, but not the repayment is consummated, the situation
is equivalent to theft. There is little difference between the thief
who breaks into the moneylenders office and steals money, and
the person who borrows it contractually, and then refuses to
pay it back. In both cases, the result is the samesomeone has
taken possession of money which is not theirs.
Killing a debtor is an unjust overreaction, just as the murder
of a thief would be. The primary reason moneylenders take the
law into their own hands, however, and do not hesitate to use
forceful means, even murder, is that moneylending is controlled
by the underworld. But this control came about virtually at the
publics request! When courts refuse to compel debtors to pay
their rightful debts, and they prohibit the lending of money at
high rates of interest, the underworld steps in. Whenever the
government outlaws a commodity for which there are con-
sumers, be it whiskey, drugs, gambling, prostitution, or high
interest loans, the underworld enters the industry that law-abid-
ing entrepreneurs fear to service. There is nothing in whiskey,
drugs, gambling, prostitution, or moneylending that is intrinsi-
cally criminal. It is solely because of a legal prohibition that
gangland methods become associated with these fields.
2. Money is sterile and produces nothing by itself. There-
fore, any interest charge for its use is exploitative. Moneylenders,
The Moneylender 123
who charge abnormal interest rates, are among the most
exploitative people in the economy. They richly deserve the
opprobrium they receive.
Apart from the ability of money to buy goods and services,
having money earlier, rather than later, provides an escape from
the pain of waiting for fulfillment. It fosters a productive invest-
ment which, at the end of the loan period, even after paying the
interest charge, yields more goods and services than at the
beginning.
As for the exorbitantly high rates of interest, it should be
understood that in a free market, the rate of interest tends to be
determined by the time preferences of all the economic actors. If
the rate of interest is inordinately high, forces will tend to
develop which will push it down. If, for example, the rate of
interest is higher than the time preference rate of the people
involved, the demand for loans will be less than the supply, and
the interest rate will be forced down. If the interest rate shows no
tendency to decrease, this indicates not that it is too high, but
that only a high rate of interest can equilibrate the demand for
loans, and satisfy the time preference rate of the economic
actors.
The critic of high interest rates has in mind a fair rate of
interest. But a fair rate of interest or a just price does not
exist. This is an atavistic concept, a throwback to medieval times
when monks debated the question, along with the question of
how many angels can fit on the head of a pin. If there is any
meaning to the fair rate of interest doctrine, it can only be the
rate which is mutually agreeable to two consenting adults, and
that is exactly what the market rate of interest is.
3. Moneylenders prey upon the poor by charging higher
rates of interest than they charge other borrowers.
It is a common myth that the rich compose virtually the
whole moneylending class and that the poor virtually all the
borrowing class. This, however, is not true. What determines
whether a person becomes a net borrower or lender is his rate of
time preference, not his income. Rich corporations that sell
bonds are borrowers, for the sale of bonds represents money
The Moneylender 125
Im not surprised. Only yesterday the Journal reported that
the default rate on loans was up 8.9% over the first quarter.
borrowed. Most wealthy people who own real estate or other
properties which are heavily mortgaged, are almost certainly net
borrowers, not net lenders. On the other hand, every poor
widow or pensioner with a small bank account is a mon-
eylender.
It is true that moneylenders charge the poor higher rates of
interest than they charge other people, but when stated in this
way it can be misleading. For moneylenders charge higher rates
of interest to individuals who are greater risksthose who are
less likely to repay the loanregardless of wealth.
One way to decrease the risk of default and, therefore, the
rate of interest charged, is to put up collateral or real property
that would be forfeited if the loan is not repaid. Since rich peo-
ple are more capable of putting up collateral for loans than poor
people, their loans are granted at lower rates of interest. The rea-
son, however, is not because they are rich, but because the lender
is less likely to undergo losses in case of default.
There is nothing untoward or unique about this situation.
Poor people pay a higher rate for fire insurance since their
houses have less freproofng than rich peoples houses. They
are charged more for medical care since they are less healthy.
Food costs are higher for poor people because there is more
crime in their neighborhoods, and crime raises the cost of con-
ducting a business. This is, to be sure, regrettable, but it is not
the result of malice against the poor. The moneylender, like the
health insurance company and the grocer, seeks to protect his
investment.
Imagine the results of a law which prohibits usury, which
can be defined as charging a rate of interest higher than the law-
maker approves of. Since the poor and not the rich pay the
higher interest rate, the law would have its first effects on them.
The effect would be to hurt the poor, and, if anything, enhance the
rich. The law seems to be designed to protect the poor from hav-
ing to pay high interest rates, but in reality it would really make
it impossible for them to borrow money at all! If the money-
lender must choose between loaning money to the poor at rates
he regards as too low, and not loaning them any money at all, it
is not difficult to see what choice he will make.
What will the moneylender do with the money he would
have loaned to the poor but for the prohibitory law? He will
make loans exclusively to the rich, incurring little risk of nonre-
payment. This will have the effect of lowering the interest rates
for the rich, because the greater the supply of a good in any given
market, the lower the price. The question of whether or not it is
fair to prohibit exorbitant rates of interest is not now under dis-
cussion, only the effects of such a law. And these effects are,
quite clearly, calamitous for the poor.
The Moneylender 127
18
THE NONCONTRIBUTOR TO CHARITY
W
e are beset by the view that it is blessed to give to
charity. That it is also virtuous, seemly, good, fair, re-
spectable, altruistic, and endearing. In like manner,
the refusal to give to charity is met with contempt, derision,
incredulity, and horror. The person who refuses to contribute to
charity is considered a pariah.
This sociological imperative is supported by legions of beg-
gars, fundraisers, clerics, and other needy groups. We are
exhorted from the pulpit and the media, by the Hare Krishnas
and the panhandlers, the flower people and the March of Dimes
children, the cripples, the helpless, the impoverished, and the
beaten down.
Contributing to charity is not in itself evil. When it is a vol-
untary decision on the part of responsible adults, it does not vio-
late an individuals rights. Yet there are dangers in charity, and
compelling reasons for refusing to contribute to it. In addition,
there are serious flaws in the moral philosophy upon which
charity is based.
THE EVILS OF CHARITY
One of the great evils of charity, and one of the most cogent rea-
sons for refusing to contribute to it, is that it interferes with the
129
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survival of the human species. According to the Darwinian
principle of the survival of the fittest, those organisms most
able to exist in a given environment will be naturally selected
(by showing a greater propensity to live until the age of procre-
ation, and thus be more likely to leave offspring). One result, in
the long run, is a species whose members have a greater ability
to survive. This does not imply that the strong kill off the
weak, as has been alleged. It merely suggests that the strong will
be more successful than the weak in the procreation of the
species. Thus the ablest perpetuate themselves and the species
thrives.
Some contend that the law of natural selection does not
apply to modern civilization. Critics point to artificial kidney
machines, open heart surgery, and other scientific and medical
breakthroughs, and argue that Darwins survival law has been
preempted by modern science. For people with diseases and
genetic drawbacks, which in the past led to an early death, today
live on to reproduce.
This does not, however, demonstrate that the Darwinian
law is inapplicable. Modern scientific breakthroughs have not
repealed Darwins law, they have only changed the specific
cases to which it applies.
In the past, the characteristic antithetical to human survival
might have been a defective heart or poor kidneys. But with the
advent of modern medical advances, medical failures are likely
to become less and less important as grounds for natural selec-
tion. What will become more and more important is the ability
to live on a crowded planet. Characteristics opposed to survival
may include an allergy to smoke, excessive argumentativeness,
or bellicosity. Such characteristics will tend to lessen a persons
ability to survive to adulthood. These characteristics lessen the
persons chances of maintaining a situation (marriage, employ-
ment) in which reproduction is possible. Thus, if the Darwinian
laws are allowed to work themselves out, such negative traits
will tend to disappear. But if charity is extended, these harmful
traits will be carried over to the next generation.
While charity of this type is undeniably harmful, when it is
private, it is limited in scope by a type of Darwinian law that
applies to the givers: they come to bear some of the harm they
cause. Thus they are led, as if by Adam Smiths invisible hand
to cut back on their giving. For example, if parental charity
takes the form of sparing the rod and spoiling the child, some
of the harmful effects of this charity rebound upon the parents.
Being on the receiving end of spoiled children tends to temper
the giver. (Many of the parents who supported their adult hip-
pie children throughout the sixties discontinued such support
when they themselves suffered from its harmful effects.) Private
charity also has a built-in limitation because any given private
The Noncontributor to Charity 131
Go inherit your own money!
fortune is circumscribed. The case of public charity is ominously
different.
In public charity, all natural barriers are virtually absent. It is
a rare case indeed when public charity is reduced because of its
harmful effects. The fortune at the goverments disposal is only
limited by its desire for taxes and its ability to levy them on an
unwilling public.
A case in point is the American foreign aid program of the
1950s and 1960s. The government of the United States paid
American farmers more than the market price for their produce,
thus creating gigantic surpluses, for which still more money had
to be allotted. Large quantities of this produce were then sent to
countries such as India, where the domestic farm industry was
virtually ruined by this subsidized importation.
Other detrimental effects of governmental charity have
been documented by a number of social scientists. G. William
Domhoff in his book The Higher Circles,
1
shows that charita-
ble institutions such as workmens compensation, collective
bargaining in labor, unemployment insurance, and welfare pro-
grams were begun not by advocates of the poor, as is universally
accepted, but by the rich. These programs promote their own
class interests. The aim of this state-corporate charity system is
not to redistribute wealth from rich to poor, but to buy up the
potential leaders of the poor and tie them to the hegemony of the
ruling class, while maintaining an intellectual class determined
to convince an unwary public that government charity actually
benefits them.
In like manner, Piven and Cloward point out in Regulating
the Poor
2
that the charitable institution of welfare serves not
mainly to aid the poor, but rather to suppress them. The modus
operandi here is to allow the welfare rolls to increase not in times
1
G. William Domhoff, The Higher Circles (New York: Random House,
1970.)
2
Frances F. Piven and Richard A. Cloward, Regulating the Poor (New
York: Random House, 1971).
of great need, but in times of social upheaval, and to decrease the
welfare rolls not in times of plenty, but in times of social tran-
quility. Thus the welfare system is a kind of bread and circus
method of controlling the masses.
THE PHILOSOPHY BEHIND CHARITY
Despite these problems, there are those who view charity as a
blessed state, and consider contributions a moral obligation.
Such people would make charity compulsory, if they could. If,
however, an act is made compulsory, it is not charity, for charity
is defined as voluntary giving. If an individual is forced to give,
he is not a contributor to charity, he is the victim of a robbery.
The crux of charity, for those who would wish it to be made
compulsory, the laws of logic and linguistics notwithstanding, is
that there is a duty, an obligation, a moral imperative, for all to
give to the less fortunate. This rests on the premise that we are
each our brothers keepers.
This philosophy, however, contradicts a basic premise of
moralitynamely, that it should always be at least possible for a
person to do what is moral. If there are two people in different
geographical areas who are in dire need of Johns aid at the same
time, it would be impossible for John to help both of them. If
John cannot help both needy people, and since helping both is a
requirement of the brothers keeper morality, then clearly, with
the best intentions, John cannot be moral. And if, according to
any given theory of ethics, a well-intentioned person cannot be
moral, the theory is incorrect.
The second basic flaw in the brothers keeper moral view is
that it logically calls for absolute income equality, whether or not
its proponents realize this. Remember, this morality preaches
that it is the moral duty of those who have more, to share with
those who have less. Adam, who has $100, shares with Richard,
who has only $5, by giving Richard $10. Adam now has $90 and
Richard $15. One might think that Adam has followed the dic-
tates of the sharing philosophy. However, this philosophy states
that it is the duty of all people to share with the less fortunate,
and Adam still has more than Richard. If Adam wishes to act
morally, according to the brothers keeper moral view, he will
have to share again with Richard. The sharing can end only
when Richard no longer has less than Adam.
The doctrine of absolute income equality, a necessary conse-
quence of the brothers keeper philosophy, will admit of no pros-
perity for anyone over and above the meager pittance the most
helpless individual is able to amass. Thus the brothers keeper
philosophy is in direct and irreconcilable opposition to the nat-
ural ambition to improve ones lot. Believers in it are torn by
ultimately conflicting views and the result, naturally enough, is
hypocrisy. How else can one describe people who claim to be
practitioners of the brothers keeper philosophy, and yet have
well-stocked pantries, a television, a stereo set, a car, jewelry, and
real estate, while in many parts of the world people face starva-
tion? They dogmatically affirm their commitment to equality,
yet deny that their lush wealth is in any way contradictory to this
commitment.
One explanation offered is that a certain amount of wealth
and well-being is necessary for them to maintain their jobs,
which allows them to earn the money to contribute to the less
fortunate. Clearly, it is true that the brothers keeper must main-
tain his own ability to keep his brothers. His demise due to
starvation is not called for by the brothers keeper philosophy.
The wealthy brothers keeper thus explains himself as being
in a position similar to the slave owned by the rational slave
owner. For the slave must be at least minimally healthy and
comfortable, even contented, if he or she is to produce for the
owner. The wealthy brothers keeper has, in effect, enslaved him-
self for the benefit of the downtrodden whom he aids. He has
amassed the amount which he needs in order to best serve his fel-
low man. His wealth and standard of living are just what a
rational profit-maximizing slave owner would allow his slave to
enjoy. Everything in his possession is enjoyed only to the extent,
and for the sole purpose of, increasing and/or maintaining his
economic ability to help those who are less fortunate than he is,
according to this argument.
It might be barely possible that a brothers keeper living in a
garret could be telling the truth when he explains his possessions
in these terms. But what of the average person who claims to
practice the brothers keeper moralitythe civil servant earning
$17,000 a year, and living in a cooperative apartment in New
York City? It can hardly be seriously contended that the posses-
sions he has collected are necessary for his productivityespe-
cially when these holdings could be sold for money which could
significantly aid the downtrodden.
Far from being a blessed activity, contributing to charity can
have harmful effects. In addition, the moral theory upon which
charity rests is riddled with contradictions and makes hypocrites
of those who are pressured by it.
VI. BUSINESS AND TRADE
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19
THE CURMUDGEON
I
magine, if you will, the problems of the real estate developer
who is trying to supplant a city block of crumbling tene-
ments with a modern residential complex, replete with gar-
dens, swimming pools, balconies, and other accoutrements of
comfortable living. Many problems arise, some by governmental
obstacles (zoning laws, licensing requirements, bribes for
acceptance of architectural plans). Nowadays, these are wide-
spread, and stultifying. However, in some cases, an even greater
problem is posed by the curmudgeon who owns and lives in the
most decrepit tenement on the block. He is overly fond of his
building and refuses to sell at any price. The builder offers pre-
posterous sums of money, but the curmudgeon steadfastly
refuses.
The curmudgeon, who may be a little old lady or a bitter old
man, has long been active defending his homestead against the
inroads of highway builders, railroad magnates, mining compa-
nies, or dam and irrigation control projects. Indeed, the plots of
many western movies are based on this resistance. The cur-
mudgeon and his spiritual soulmates served as the inspiration
for the enactment of eminent domain legislation. He has been
portrayed as a staunch human barrier to progress, with feet
139
planted firmly at the crossroads, and his motto a strident, defi-
ant no.
Cases like this abound, and are said to demonstrate the cur-
mudgeons interference with the progress and well-being of the
multitude. This popular view, however, is mistaken. The cur-
mudgeon, who is depicted as standing in the way of progress,
actually represents one of the greatest hopes that progress ever
hadthe institution of property rights. For the abuse heaped
upon him is a disguised attack on the concept of private property
itself.
Now if private property means anything, it means that own-
ers have the right to make decisions with regard to the use of
their property, as long as this use does not interfere with other
property owners and their rights to the use of their own property.
In the case of eminent domain, when the state forces the prop-
erty owner to give up the rights to his property on terms that he
would not voluntarily choose, the rights to private property are
abridged.
The two primary arguments for private property are the
moral and the practical. According to the moral argument, each
man is, first of all, the complete owner of himself, and of the
fruits of his labor. The principle behind his ownership of him-
self and his artifacts is the principle of homesteading or natural
governance. Each person is the natural owner of himself
because, in the nature of things, his will controls his actions.
According to the principle of homesteading, each man owns his
own person, and he therefore owns the things which he pro-
ducesthose parts of nature hitherto unowned and which,
when mixed with his labor, are transformed into productive
entities. The only moral ways for these entities to change own-
ership are voluntary trade and voluntary gift-giving. These ways
are consistent with the original owners natural homesteading
rights, for they are methods by which ownership is given up vol-
untarily, in accordance with the owners will.
Let us assume that the property owned by the curmudgeon
was gained by this process of natural homesteading. If so, there
was an original homesteader, there were voluntary sales of the
land or the land may have been given in the form of a gift at one
time or another. The land then passed into the control of the
curmudgeon through an unbroken chain of voluntary events, all
consistent with the principle of homesteading; in other words,
his land title would be legitimate.
Any attempt to wrest it from him without his consent thus
violates the principle of homesteading, and hence is immoral. It
is an act of aggression against an innocent party. (The question
will be raised regarding land which has been stolen. In fact, most
of the earths surface meets this criteria. In such cases, if there is
evidence that (1) the land has been stolen, and (2) another indi-
vidual can be found who is the rightful owner or heir, this per-
sons right of ownership must be respected. In all other cases, the
actual owner must be considered the rightful owner. De facto
ownership is sufficient when the owner is the original home-
steader or when no other legitimate claimant can be found.)
Many recognize this when the curmudgeon resists the
demands on his property by private business. It is clear that one
private interest does not have the right to intrude upon another
private interest. However, when it is the state, as represented by
eminent domain laws, the case seems different. For the state, it
is assumed, represents all the people, and the curmudgeon pur-
portedly is blocking progress. Yet in many casesif not all
governmental laws of eminent domain are used to further pri-
vate interests. Many urban relocation programs, for example, are
at the behest of private universities and hospitals. Much of the
condemnation of private property by eminent domain laws is
accomplished for the special interests of lobbies and other pres-
sure groups. The condemnation of the land on which Lincoln
Center for the Performing Arts in New York City was built is a
case in point. This tract of land was condemned to make way for
high culture. People were forced to sell their land at prices the
government was willing to pay. Whose culture this center serves
is clear to anyone who reads the list of subscribers to Lincoln
Center. It is a Whos Who of the ruling class.
In considering the second set of arguments for private prop-
erty rights, the practical arguments, there is one based on the
The Curmudgeon 141
Enough, enough of this pleading and cajoling! As president
of the university I tell you thiswell get your property for
our humanities building one way or another, so watch out,
nigger!
concept of stewardship. Under private stewardship, it is claimed,
property receives the best possible care. Who controls the piece
of property is not important. What is important is that all prop-
erty be privately owned, that precise delineations between the
properties be clearly marked off, and that no forced or involun-
tary transfers of property be allowed. If these conditions are met,
and a laissez faire market is maintained, those who mishandle
their property lose profits they could otherwise earn, and those
who nurture their property can accumulate funds. Thus, those
better able to maintain a good stewardship eventually become
responsible for more and more, since they can afford to buy up
extra property with their earnings, while the poor stewards will
have less and less. The general level of stewardship, therefore,
will rise, and better care will be taken of property in general. The
stewardship system, by rewarding good stewards and penalizing
poor ones, increases the average level of stewardship. It does so
automatically, without political votes, without political purges,
and without fuss or fanfare.
What happens when the government steps in and props up,
by means of loans and subsidies, failing enterprises managed by
incompetents? The effectiveness of the stewardship system is
vitiated, if not destroyed altogether. The failing enterprises are
protected by government subsidies from the consequences of
their mismanagement. Such government infringements take
many formsthe granting of franchises, licenses, and other
types of monopoly advantages to one select individual or group;
the granting of tariffs and quotas to protect inefficient domestic
caretakers against competition from more efficient foreign
stewards; and the awarding of government contracts which per-
vert the original consumption wishes of the public. All perform
the same function. They enable the government to interpose
itself between a bad caretaker and a public which has chosen not
to patronize him.
What if the government interposes itself in the opposite way?
What if it tries to hasten the process by which good stewards
acquire more and more property? Since the sign of good stew-
ardship in a free market is success, why cant the government
simply analyze the present distribution of property and wealth,
ascertain who the successes and the failures are, and then com-
plete the transfer of property from poor to wealthy? The answer is
that the market system works automatically, making day-to-day
The Curmudgeon 143
adjustments in immediate response to the competence of the
various stewards. Governmental attempts to hasten the process
by transferring money and property from the poor to the rich can
only be done on the basis of the past behavior of the stewards in
question. But there is no guarantee that the future will resemble
the past, that those who were successful entrepreneurs in the
past will be successful entrepreneurs in the future! Similarly,
there is no way of knowing who among the present poor have
the innate competence to eventually succeed in a free market.
Governmental programs, based as they would have to be on past
accomplishments, would be arbitrary and inherently contrived.
Now the curmudgeon is a prototype of a backward, poor
individual, who is, by all standards, a bad manager. Thus he is a
prime candidate for a governmental scheme whose goal is to
speed up the market process by which good stewards acquire
more property and bad stewards lose theirs. But this, as we have
seen, is a scheme bound to fail.
The second practical defense of private property may be
called the praxeological argument. This view focuses on the
question of who is to evaluate transactions. According to it, the
only scientific evaluation that can be made of a voluntary trade
is that all parties to it gain in the ex ante sense. That is, at the
time of the trade, both parties value what they will gain more
than they value what they will give up in exchange. The parties
would not voluntarily make the trade unless, at that time, each
valued what is to be received more than what is to be given up.
Thus a mistake in a trade will not be made in the ex ante sense.
However, a mistake can be made in the ex post senseafter the
trade has been completed, one can change ones evaluation.
However, in most instances, the trade usually reflects the desires
of both parties.
How is this relevant to the situation of the curmudgeon,
who is charged with blocking progress and thwarting the natu-
ral transfer of property from the less able to the more able?
According to the praxeologist, the answer to the question,
Shouldnt he be forced to sell his property to those who can
manage it more productively? is a resounding no. The only
evaluation that can be made, from a scientific perspective, is of a
voluntary trade. A voluntary trade is, in the ex ante sense, good.
If the curmudgeon refuses to trade, no negative evaluation is
possible. All that can be said is that the curmudgeon values his
property at more than the developer was willing or able to pay.
Since no interpersonal comparisons of utility or welfare have
scientific foundation (there is no unit by which such things can
be measured, let alone compared between different people),
there is no legitimate basis on which to say that the curmud-
geons refusal to sell his property is harmful or causes problems.
True, the curmudgeons choice serves to obstruct the real estate
developers goal. But then, the goals of the real estate developer
are just as obstructive of the goals of the old curmudgeon.
Clearly, the curmudgeon is under no obligation to frustrate his
own desires in order to satisfy anothers. Yet the curmudgeon is
usually the object of unjustified censure and criticism as he con-
tinues to act with integrity and courage in the face of enormous
social pressures. This must stop.
The Curmudgeon 145
20
THE SLUMLORD
T
o many people, the slumlordalias ghetto landlord and
rent gougeris proof that man can, while still alive,
attain a satanic image. Recipient of vile curses, pin-
cushion for needle bearing tenants with a penchant for voodoo,
perceived as exploiter of the downtrodden, the slumlord is surely
one of the most hated figures of the day. The indictment is man-
ifold: he charges unconscionably high rents; he allows his build-
ings to fall into disrepair; his apartments are painted with cheap
lead paint which poisons babies, and he allows junkies, rapists,
and drunks to harass the tenants. The falling plaster, the over-
flowing garbage, the omnipresent roaches, the leaky plumbing,
the roof cave-ins and the fires, are all integral parts of the slum-
lords domain. And the only creatures who thrive in his premises
are the rats.
The indictment, highly charged though it is, is spurious.
The owner of ghetto housing differs little from any other pur-
veyor of low cost merchandise. In fact, he is no different from
any purveyor of any kind of merchandise. They all charge as
much as they can.
First consider the purveyors of cheap, inferior, and second-
hand merchandise as a class. One thing above all else stands out
about merchandise they buy and sell: it is cheaply built, inferior
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in quality, or secondhand. A rational person would not expect
high quality, exquisite workmanship, or superior new merchan-
dise at bargain rate prices; he would not feel outraged and
cheated if bargain rate merchandise proved to have only bargain
rate qualities. Our expectations from margarine are not those of
butter. We are satisfied with lesser qualities from a used car than
from a new car. However, when it comes to housing, especially
in the urban setting, people expect, even insist upon, quality
housing at bargain prices.
But what of the claim that the slumlord overcharges for his
decrepit housing? This is erroneous. Everyone tries to obtain the
highest price possible for what he produces, and to pay the low-
est price possible for what he buys. Landlords operate this way,
as do workers, minority group members, socialists, babysitters,
and communal farmers. Even widows and pensioners who save
their money for an emergency try to get the highest interest rates
possible for their savings. According to the reasoning which
finds slumlords contemptible, all these people must also be con-
demned. For they exploit the people to whom they sell or rent
their services and capital in the same way when they try to
obtain the highest return possible. But, of course, they are not
contemptibleat least not because of their desire to obtain as
high a return as possible from their products and services. And
neither are slumlords. Landlords of dilapidated houses are sin-
gled out for something which is almost a basic part of human
naturethe desire to barter and trade and to get the best possi-
ble bargain.
The critics of the slumlord fail to distinguish between the
desire to charge high prices, which everyone has, and the ability
to do so, which not everyone has. Slumlords are distinct, not
because they want to charge high prices, but because they can.
The question which is, therefore, central to the issueand
which the critics totally disregardis why this is so.
What usually stops people from charging inordinately high
prices is the competition which arises as soon as the price and
profit margin of any given product or service begins to rise. If
the price of frisbees, for example, starts to rise, established
manufacturers will expand production, new entrepreneurs will
enter the industry, used frisbees will perhaps be sold in second-
hand markets, etc. All these activities tend to counter the origi-
nal rise in price. If the price of rental apartments suddenly began
to rise because of a sudden housing shortage, similar forces
would come into play. New housing would be built by estab-
lished real estate owners and by new ones who would be drawn
into the industry by the price rise. Old housing would tend to be
renovated; basements and attics would be pressed into use. All
these activities would tend to drive the price of housing down,
and cure the housing shortage.
If landlords tried to raise the rents in the absence of a hous-
ing shortage, they would find it difficult to keep their apart-
ments rented. For both old and new tenants would be tempted
away by the relatively lower rents charged elsewhere. Even if
landlords banded together to raise rents, they would not be able
to maintain the rise in the absence of a housing shortage. Such
an attempt would be countered by new entrepreneurs, not party
to the cartel agreement, who would rush in to meet the demand
for lower priced housing. They would buy existing housing, and
build new housing. Tenants would, of course, flock to the non-
cartel housing. Those who remained in the high price buildings
would tend to use less space, either by doubling up or by seek-
ing less space than before. As this occurs it would become more
difficult for the cartel landlords to keep their buildings fully
rented. Inevitably, the cartel would break up, as the landlords
sought to find and keep tenants in the only way possible: by low-
ering rents. It is, therefore, specious to claim that landlords
charge whatever they please. They charge whatever the market
will bear, as does everyone else.
An additional reason for calling the claim unwarranted is
that there is, at bottom, no really legitimate sense to the concept
of overcharging. Overcharging can only mean charging more
than the buyer would like to pay. But since we would all really
like to pay nothing for our dwelling space (or perhaps minus infin-
ity, which would be equivalent to the landlord paying the tenant
an infinite amount of money for living in his building), landlords
The Slumlord 149
who charge anything at all can be said to be overcharging.
Everyone who sells at any price greater than zero can be said to
be overcharging, because we would all like to pay nothing (or
minus infinity) for what we buy.
Lets see, I have a nice 3 room apartment on the upper West
SideNo, no Madam, not a speck of lead paint on the
woodworkits been all chewed off.
Disregarding as spurious the claim that the slumlord over-
charges, what of the vision of rats, garbage, falling plaster, etc.?
Is the slumlord responsible for these conditions? Although it is
fashionable in the extreme to say yes, this will not do. For the
problem of slum housing is not really a problem of slums or of
housing at all. It is a problem of povertya problem for which
the landlord cannot be held responsible. And when it is not the
result of poverty, it is not a social problem at all.
Slum housing with all its horrors is not a problem when the
inhabitants are people who can afford higher quality housing,
but prefer to live in slum housing because of the money they can
save thereby. Such a choice might not be a popular one, but
other peoples freely made choices which affect only them can-
not be classified as a social problem. (If that could be done, we
would all be in danger of having our most deliberate choices, our
most cherished tastes and desires characterized as social prob-
lems by people whose taste differs from ours.)
Slum housing is a problem when the inhabitants live there
of necessitynot wishing to remain there, but unable to afford
anything better. Their situation is certainly distressing, but the
fault does not lie with the landlord. On the contrary, he is pro-
viding a necessary service, given the poverty of the tenants. For
proof, consider a law prohibiting the existence of slums, and,
therefore, of slumlords, without making provisions for the
slumdwellers in any other way, such as providing decent hous-
ing for the poor, or an adequate income to buy or rent good
housing. The argument is that if the slumlord truly harms the
slumdweller, then his elimination, with everything else
unchanged, ought to increase the net well-being of the slum ten-
ant. But the law would not accomplish this. It would greatly
harm not only the slumlords but the slumdwellers as well. If
anything, it would harm the slumdwellers even more, for the
slumlords would lose only one of perhaps many sources of
income; the slumdwellers would lose their very homes. They
would be forced to rent more expensive dwelling space, with
consequent decreases in the amount of money available for
food, medicines, and other necessities. No. The problem is not
The Slumlord 151
the slumlord; it is poverty. Only if the slumlord were the cause of
poverty could he be legitimately blamed for the evils of slum
housing.
Why is it then, if he is no more guilty of underhandedness
than other merchants, that the slumlord has been singled out for
vilification? After all, those who sell used clothes to Bowery
bums are not reviled, even though their wares are inferior, the
prices high, and the purchasers poor and helpless. Instead of
blaming the merchants, however, we seem to know where the
blame liesin the poverty and hopeless conditon of the Bowery
bum. In like manner, people do not blame the owners of junk-
yards for the poor condition of their wares or the dire straits of
their customers. People do not blame the owners of day-old
bakeries for the staleness of the bread. They realize, instead,
that were it not for junkyards and these bakeries, poor people
would be in an even worse condition than they are now in.
Although the answer can only be speculative, it would seem
that there is a positive relationship between the amount of gov-
ernmental interference in an economic arena, and the abuse and
invective heaped upon the businessmen serving that arena.
There have been few laws interfering with the day-old bak-
eries or junkyards, but many in the housing area. The link
between government involvement in the housing market and
the plight of the slumlords public image should, therefore, be
pinpointed.
That there is strong and varied government involvement in
the housing market cannot be denied. Scatter-site housing proj-
ects, public housing and urban renewal projects, zoning ordi-
nances and building codes, are just a few examples. Each of
these has created more problems than it has solved. More hous-
ing has been destroyed than created, racial tensions have been
exacerbated, and neighborhoods and community life have been
shattered. In each case, it seems that the spillover effects of
bureaucratic red tape and bungling are visited upon the slum-
lord. He bears the blame for much of the overcrowding engen-
dered by the urban renewal program. He is blamed for not keep-
ing his buildings up to the standards set forth in unrealistic
The Slumlord 153
building codes which, if met, would radically worsen the situation
of the slumdweller. (Compelling Cadillac housing can only
harm the inhabitants of Volkswagen housing. It puts all hous-
ing out of the financial reach of the poor.)
Perhaps the most critical link between the government and
the disrepute in which the slumlord is held is the rent control
law. For rent control legislation changes the usual profit incen-
tives, which put the entrepreneur in the service of his customers,
to incentives which make him the direct enemy of his tenant-
customers.
Ordinarily the landlord (or any other businessman) earns
money by serving the needs of his tenants. If he fails to meet
these needs, the tenants will tend to move out. Vacant apart-
ments mean, of course, a loss of income. Advertising, rental
agents, repairs, painting, and other conditions involved in
rerenting an apartment mean extra expenditures. In addition,
the landlord who fails to meet the needs of the tenants may have
to charge lower rents than he otherwise could. As in other busi-
nesses, the customer is always right, and the merchant ignores
this dictum only at his own peril.
But with rent control the incentive system is turned around.
Here the landlord can earn the greatest return not by serving his
tenants well, but by mistreating them, by malingering, by refus-
ing to make repairs, by insulting them. When the rents are
legally controlled at rates below their market value, the landlord
earns the greatest return not by serving his tenants, but by get-
ting rid of them. For then he can replace them with higher pay-
ing non-rent-controlled tenants.
If the incentive system is turned around under rent control,
it is the self-selection process through which entry to the land-
lord industry is determined. The types of people attracted to
an occupation are influenced by the type of work that must be
done in the industry. If the occupation calls (financially) for
service to consumers, one type of landlord will be attracted. If
the occupation calls (financially) for harassment of consumers,
then quite a different type of landlord will be attracted. In other
words, in many cases the reputation of the slumlord as cunning,
avaricious, etc., might be well-deserved, but it is the rent control
program in the first place which encourages people of this type to
become landlords.
If the slumlord were prohibited from lording over slums,
and if this prohibition were actively enforced, the welfare of the
poor slumdweller would be immeasurably worsened, as we have
seen. It is the prohibition of high rents, by rent control and sim-
ilar legislation, that causes the deterioration of housing. It is the
prohibition of low-quality housing, by housing codes and the
like, that causes landlords to leave the field of housing. The
result is that tenants have fewer choices, and the choices they
have are of low quality. If landlords cannot make as much profit
in supplying housing to the poor as they can in other endeavors,
they will leave the field. Attempts to lower rents and maintain
high quality through prohibitions only lower profits and drive
slumlords out of the field, leaving poor tenants immeasurably
worse off.
It should be remembered that the basic cause of slums is not
the slumlord, and that the worst excesses of the slumlord are
due to governmental programs, especially rent control. The
slumlord does make a positive contribution to society; without
him, the economy would be worse off. That he continues in his
thankless task, amidst all the abuse and vilification, can only be
evidence of his basically heroic nature.
21
THE GHETTO MERCHANT
How dare he charge such outrageously high prices for
such shoddy merchandise? The store is filthy, the service
horrible, and the guarantees worthless. The installment
buying will keep you in debt to them for the rest of your
life. The customers of these leeches are among the poor-
est, the most financially nave to be found anywhere. The
only remedy is to prohibit the high prices, low quality
products, the devious installment plans, and the general
exploitation of poor people.
S
uch is the view of a majority of those who have spoken out
on the ghetto merchant problem. And indeed, it has a
certain plausibility. After all, ghetto merchants are mainly
rich and white and their customers are mainly poor minority
group members. The merchandise sold in ghetto shops is often
more expensive than that sold in other areas, and of inferior
quality. However, the proposed solution, to compel ghetto mer-
chants to follow the practices of nonghetto neighborhoods, will
not work. Rather, such compulsion will hurt the people it is
designed to helpthe poor.
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It is easy to argue that if you prohibit something that is bad,
something good will follow. It is simple, but not always true.
And it is clearly untrue in the case of the ghetto merchant and
his business practices. This facile argument blithely ignores the
causes of the problemwhy prices are really higher in the
ghetto.
Although at first glance it might appear that prices are higher
in luxury neighborhoods than in the ghetto, this is due to the
fact that stores in the ghettos and the luxury neighborhoods do
not really sell the same goods. The quality of the merchandise
sold is lower in the ghetto. This holds even in the case of seem-
ingly identical merchandise. A bottle of Heinz ketchup, for
example, might be priced higher in the luxury neighborhood,
but the product being sold there is the ketchup, plus the decor of
the store, delivery and other services, and the convenience of
shopping close to home or at all hours of the day and night.
These amenities are either lacking altogether in the ghetto shop,
or are present in a lesser form. When they are taken into
account, it is clear that the ghetto consumer gets less for his
money than the consumer in a luxury neighborhood.
This must be true because the price charged by the ghetto
merchant reflects hidden operating expenses which the
nonghetto merchant does not have to contend with. In the
ghetto, there are higher rates of theft and crime of all types.
There is more damage by fire, and greater chance of damage
from riots. All this increases the insurance premiums that the
merchant must pay. And it increases the necessary expenditures
on burglar alarms, locks and gates, guard dogs, private police-
men, etc.
Given that the costs of doing business are higher in the
ghetto, the prices charged there must be greater. If they were not,
ghetto merchants would earn a smaller profit than those outside
the ghetto and they would abandon the area for greener pas-
tures. What keeps prices in the ghetto high is not the greed of
the ghetto merchant; all merchants, inside the ghetto and out,
are greedy. What keeps the prices in the ghetto high are the high
costs of doing business in these areas.
In fact, there is a constant tendency for profits in different
fields of endeavor to become equalized or to come to equilib-
rium (given the expected variation in profit risk, and other non-
pecuniary advantages or disadvantages). And the situation of
ghetto merchants exemplifies this tendency. When profits in
area A are higher than those in area B, merchants are drawn
from B to A. When, as a result, only a few merchants are left in
area B, competition there decreases and profits rise. And, as
more and more merchants arrive in area A, competition
increases and profits fall. Thus, even if at some point, ghetto
merchants realized greater profits than others, they could not
continue to earn greater profits for long. If there were more prof-
its to be made in the ghetto, merchants would be drawn there,
and the resulting competition would tend to drive profits down
to equilibrium. And, in response to the lessened competition
outside the ghetto, profits there would rise to equilibrium.
THE GHETTO MERCHANT AS BENEFACTOR
The question of nonpecuniary advantages and disadvantages
have not yet been dealt with. But they exist. And all the nonpe-
cuniary advantages are on the side of the merchant located out-
side the ghetto. The ghetto merchant, apart from the risk he
faces to life and property, must bear in addition, the scorn of an
outraged public who are angry and resentful at him for, among
other things, selling shoddy merchandise at high prices.
Because of the indignities suffered by the ghetto merchant,
the equilibrium profit rate will be higher in the ghetto than out-
side. In other words, profits will remain stable at a point at
which ghetto merchants earn a greater profit than other mer-
chants, but not so much greater that it tempts other merchants
to enter the ghetto. The merchants outside the ghetto will not be
attracted to the ghetto by this extra profit because it will be less
than sufficient to compensate them for the extra indignities and
risks they would suffer as ghetto merchants. The merchants who
remain in the ghetto are those who are least put off by the indig-
nities and risks involved. For them, the extra profit is enough
The Ghetto Merchant 157
compensation. In other words, there will be (and always is) a
self-selection procedure whereby those with the greatest toler-
ance for the risks and indignities of the ghetto will be swayed by
the extra profit to remain there. Those with the least tolerance
will not be compensated by the extra profits and will head for
greener (whiter) fields.
If the tolerance of the ghetto merchants decreases, the equi-
librium profit rate will have to rise. If it does not rise, those
among the ghetto merchants who have the least capacity to bear
the indignities will leave. Competition will decrease, and the
remaining merchants will be able to raise their prices and,
hence, their profits. This rise in profits will be just enough to
compensate the remaining merchants in the face of their height-
ened sensitivities. The reason, then, that prices are not higher
than they are in the ghetto is that these merchants have a great
ability to bear the risks, scorn, and abuse.
In the light of this, the ghetto merchant who charges outra-
geously high prices can be considered a benefactor. For it is his
ability to withstand the pressures placed upon him that keeps
prices in the ghetto no higher than they are. But for this ability,
prices would be even higher.
Another startling aspect should be considered. The villain, if
anyone, is not the ghetto merchant whose tolerance for outrages
keeps prices down; the villain is, rather, those who heap scorn
and abuse upon him and revile him for charging high prices for
shoddy merchandise. It is these nattering nabobs of nega-
tivism who are instrumental in keeping ghetto prices up. It is
these grumblers, usually local politicians and community lead-
ers, seeking power and a political base, who raise the equilib-
rium profit differential necessary to keep merchants in the
ghetto. If they were to cease their ill-advised condemnations, the
nonpecuniary disadvantages of merchandising in the ghetto
would diminish along with the equilibrium price differential,
and hence, ghetto prices. Paradoxical though it may be, those
who are most vociferous in their complaints about the high
prices charged by ghetto merchants are actually responsible for
keeping those prices higher than they would otherwise be!
This analysis is not restricted to cases in which the ghetto
community is Hispanic or black and the merchants are white.
For the risks of theft, fire, and damage by vandalism and riots
would cause a black or Puerto Rican merchant to charge higher
prices too. And the resulting abuse to which he would be subject
would drive the prices even higher. If anything, the minority
member merchant would have a more painful criticism to
bearthe charge that he is a traitor to his ethnic group. The
analysis, then, will become even more applicable when and if
blacks and Puerto Ricans begin to replace whites as ghetto mer-
chants.
RESTRICTIONS CAN ONLY BE HARMFUL
The effect of a law prohibiting the ghetto merchant from charg-
ing higher prices than those charged elsewhere can now be
appreciated. It would simply drive merchants out of the ghetto!
Higher costs of doing business with no opportunity to recoup
them through higher prices, means lower profits. No merchant
would voluntarily remain in such a business situation. In fact,
merchants will not remain in ghettos unless they can earn a
higher profit than can be earned elsewhere, to compensate them
for the nonpecuniary disadvantages.
If the prohibition was strictly enforced, virtually all the mer-
chants would leave the ghetto and seek their fortunes elsewhere,
with a minute fraction remaining. Customers would then be
forced to queue up at whatever shops were available, thereby
reducing costs and increasing revenues to the point at which the
merchants might be compensated for the higher costs of operat-
ing in the ghetto. But this would mean that residents of the
ghetto would have to wait in line for long periods of time in
order to make a purchase. And it is more than likely that cus-
tomers would heap even greater abuse upon ghetto merchants
for the even poorer service they would be receiving. Such crowds
might even prove uncontrollable. In such a situation, the few
remaining merchants would be forced to shut down. The citi-
zens of the ghetto, the community leaders, pundits, and com-
mentators, would then blame the ghetto merchants for leaving
the community.
The departure of the ghetto merchants would cause pain
and suffering on a truly monumental scale. Ghetto residents
would be compelled to travel great distances to make purchases
which were formerly made in their neighborhoods. They would
pay slightly lower prices for goods of slightly higher quality, but
these gains would be more than counteracted by the increased
carfare, and time lost in transit. We know this because these
options are always open to ghetto inhabitants. Since local people
patronize neighborhood stores presently, they must feel they do
better closer to home.
The ghetto dwellers could not even make deals with one
another by which some would do the shopping for the rest. This
would implicitly convert some of them to ghetto merchants, and
the same choice would be open to these new ghetto merchants
as were available to the old ones. There is no reason to suppose
that they would be oblivious to the financial incentives which
would sweep the old ones out of the ghetto. The only reasonable
way for ghetto dwellers to handle this unruly situation would be
to form a shopping collective, with members helping one
another in the arduous task of shopping. But to do this would be
to revert to a way of life in which food gathering becomes a very
time-consuming activity. Instead of developing skills as produc-
ers and pulling themselves out of poverty, ghetto dwellers would
be reduced to working on collectivist schemes made necessary
by the disappearance of the ghetto merchants. The proof that
this is an inefficient alternative is that it is not presently used, in
the face of competition from the ghetto merchant.
If this came to pass, the progressive forces of city planning
would undoubtedly come forth with an alternative solution of
letting the government take over by nationalizing the (ghetto)
merchant business. The logic here defies analysis. For since it is
clear that government intervention would create the chaos (by
prohibiting price differentials in the ghetto) in the first place,
how can the solution lie in still more government intervention?
The first problem with the suggested solution is that it is
immoral. It involves forcing everyone to pay for a nationalized
food industry whether or not they wish to. It also curtails the
freedom of citizens by prohibiting them from entering this
industry.
The second problem is pragmatic. Based on the evidence
available, such a solution would be unworkable. Up to the
present time, all government involvement in the economy has
been marked by inefficiency, venality, and corruption, and the
evidence suggests that this is not merely accidental.
The inefficiency is easy to explain, and rather widely under-
stood. A government enterprise can be expected to be ineffi-
cient because it is immune to the selective process of the market-
place. In the market, the entrepreneurs who are most able to
satisfy consumer desires reap the greatest profits. Obversely, the
entrepreneurs who are least efficient, who provide the fewest
satisfactions to consumers, suffer losses. They tend, therefore, to
drop out of the market, and make it possible for those most
adept at consumer satisfaction to grow and expand. This contin-
ual process of the selection of the fittest ensures the efficiency of
entrepreneurs. Since the government is immune to it, it fails to
regulate governmental economic activity.
The venality and corruption of the government is, if any-
thing, even easier to see. What is difficult, however, is to realize
that corruption is a necessary part of governmental operation of
business. This is more difficult to comprehend because of our
basic assumption about the motivations of those who enter gov-
ernment. We readily concede that people enter business in order
to gain money, prestige, or power. These are basic human drives.
But when it comes to government, we lose contact with this
basic insight. We feel that those who enter government service
are above the fray. They are neutral and objective. We may
acknowledge that some government officials are venal, corrupt,
and profit seeking, but these are considered exceptions to the
rule. The basic motive of those in government is, we insist, self-
less service to others.
It is time to challenge this erroneous concept. Individuals
who enter government are no different from any other group.
They are heir to all the temptations that flesh is heir to. We know
we can assume self-seeking on the part of businessmen, union-
ists, and others. It can be assumed just as clearly to be operative
in government officials. Not in some of them, but in all of them.
It is hardly necessary to point out the significance of all the
government failures in the food area: agricultural subsidies,
tariffs, minimum prices, maximum prices, and the dont grow
on this land policies. Clearly, these programs are not merely
inefficient attempts to provide for the public weal, although they
are that. But the giveaways to big-business farmers and the pay-
ments for not growing food are also thinly disguised attempts on
the part of government-bureaucrats to bilk the public.
If the government became the merchant of the ghetto, the
situation would be far worse than that under private ghetto mer-
chants. Both groups are seeking profits. The only difference is
that one has the power to compel us to obey; the other does not.
The government can compel our patronage; private merchants
can only compete for it.
22
THE SPECULATOR
K
ill the speculators! is a cry made during every famine
that has ever existed. Uttered by demagogues, who
think that the speculator causes death through starva-
tion by raising food prices, this cry is fervently supported by the
masses of economic illiterates. This kind of thinking, or rather
nonthinking, has allowed dictators to impose even the death
penalty for traders in food who charge high prices during
famines. And without the feeblest of protests from those usually
concerned with civil rights and liberties.
Yet the truth of the matter is that far from causing starvation
and famines, it is the speculator who prevents them. And far
from safeguarding the lives of the people, it is the dictator who
must bear the prime responsibility for causing the famine in the
first place. Thus, the popular hatred for the speculator is as
great a perversion of justice as can be imagined. We can best see
this by realizing that the speculator is a person who buys and
sells commodities in the hope of making a profit. He is the one
who, in the time-honored phrase, tries to buy low and sell
high.
But, what does buying low, selling high, and making large
profits have to do with saving people from starvation? Adam
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Smith explained it best with the doctrine of the invisible hand.
According to this doctrine, every individual endeavors to employ
his capital so that its produce may be of the greatest value. He
generally neither intends to promote the public interest, nor
knows how much he is promoting it. And he intends only his
own security, his own gain. He is led in this as if by an invisible
hand to promote an end which was no part of his intention. By
pursuing his own interest he frequently promotes that of society
more effectually than when he really intends to promote it.
1
The
successful speculator, therefore, acting in his own selfish interest,
neither knowing nor caring about the public good, promotes it.
First, the speculator lessens the effects of famine by storing
food in times of plenty, through a motive of personal profit. He
buys and stores food against the day when it might be scarce,
enabling him to sell at a higher price. The consequences of his
activity are far-reaching. They act as a signal to other people in
the society, who are encouraged by the speculators activity to do
likewise. Consumers are encouraged to eat less and save more,
importers to import more, farmers to improve their crop yields,
builders to erect more storage facilities, and merchants to store
more food. Thus, fulfilling the doctrine of the invisible hand,
the speculator, by his profit-seeking activity, causes more food to
be stored during years of plenty than otherwise would have been
the case, thereby lessening the effects of the lean years to come.
However, objections will be raised that these good conse-
quences will follow only if the speculator is correct in his assess-
ment of future conditions. What if he is wrong? What if he pre-
dicts years of plentyand by selling, encourages others to do
likewiseand lean years follow? In this case, wouldnt he be
responsible for increasing the severity of the famine?
Yes. If the speculator is wrong, he would be responsible for a
great deal of harm. But there are powerful forces at work which
tend to eliminate incompetent speculators. Thus, the danger they
1
Adam Smith, An Inquiry into the Nature and Causes of the Wealth of
Nations (New York: Random House, 1973), p. 243, paraphrased.
represent and the harm they do are more theoretical than real.
The speculator who guesses wrong will suffer severe financial
losses. Buying high and selling low may misdirect the economy,
but it surely creates havoc with the speculators pocketbook. A
speculator cannot be expected to have a perfect record of predic-
tion, but if the speculator guesses wrong more often than right,
he will tend to lose his stock of capital. Thus he will not remain
in a position where he can increase the severity of famines by his
errors. The same activity which harms the public automatically
harms the speculator, and so prevents him from continuing such
The Speculator 167
Excellent idea, Winslow. The rich too must eat in a famine.
Along with staples well store up ten thousand tons of gour-
met foods.
activities. Thus at any given time, existing speculators are likely to
be very efficient indeed, and, therefore, beneficial to the economy.
Contrast this with the activity of governmental agencies
when they assume the speculators task of stabilizing the food
market. They too try to steer a fine line between storing up too
little food and storing up too much. But if they are in error, there
is no weeding-out process. The salary of a government
employee does not rise and fall with the success of his specula-
tive ventures. Since it is not his own money which will be gained
or lost, the care with which bureaucrats can be expected to
attend to their speculations leaves much to be desired. There is
no automatic, ongoing daily improvement in the accuracy of
bureaucrats, as there is for private speculators.
The oft-quoted objection remains that the speculator causes
food prices to rise. If his activity is carefully studied, however, it
will be seen that the total effect is rather the stabilization of prices.
In times of plenty, when food prices are unusually low, the
speculator buys. He takes some of the food off the market, thus
causing prices to rise. In the lean years which follow, this stored
food goes on the market, thus causing prices to fall. Of course,
food will be costly during a famine, and the speculator will sell
it for more than his original purchase price. But food will not be
as costly as it would have been without his activity! (It should be
remembered that the speculator does not cause food shortages
which are usually the result of crop failures and other natural or
man-made disasters.)
The effect of the speculator on food prices is to level them
off. In times of plenty, when food prices are low, the speculator
by buying up and storing food causes them to rise. In times of
famine, when food prices are high, the speculator sells off and
causes prices to fall. The effect on him is to earn profits. This is
not villainous; on the contrary, the speculator performs a valu-
able service.
Yet instead of honoring the speculator, demagogues and
their followers revile him. But prohibiting food speculation has
the same effect on society as preventing squirrels from storing
up nuts for winterit leads to starvation.
23
THE IMPORTER
T
he International Ladies Garment Workers Union
(ILGWU) has recently launched an unusual, extensive,
and costly advertising campaign. For racist, jingoistic
appeal, it is unparalleled. The theme of the campaign is that
foreigners (dishonest and undeserving) are taking jobs away
from Americans (honest, upstanding, and forthright). Perhaps
the most famous ad in the series is the one which depicts an
American flag above the caption Made in Japan. Another
presents a picture of a baseball glove, with the caption The
Great Un-American Game. The accompanying copy explains
that baseball gloves and American flags are imported.
The raison detre, we are told, for these scathing attacks on
imports is that they create unemployment in America. And on a
superficial level, the argument seems plausible. After all, every
American flag or baseball glove that could have been produced
domestically, but was instead imported, represents work that
could have been produced by Americans. Certainly, this means
less employment for American workers than would otherwise be
the case. If the argument was limited to this aspect, the
ILGWUs case for the restriction, if not prohibition of imports,
would be well-made.
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1. The argument, however, is fallacious, and the con-
sequences to which it logically leads are clearly unsound. The
premise which justifies protectionism on the national level also
justifies it on the state level. We shall ignore the political
impossibility (unconstitutionality) of one state setting up tariffs
between it and other states. This is, after all, irrelevant to the eco-
nomic argument of the antifree trade ILGWU. Theoretically,
any one state could justify its policy in exactly the same way that
a nation can. For example, the state of Montana could bar
imports from other states on the grounds that they represent
labor which a Montanan could have been given but was not. A
Buy Montana program would then be in order. It would be
just as illogical and unsound as the ILGWUs Buy American
campaign.
The argument, however, does not end at the state level. It
can, with equal justification, be applied to cities. Consider the
importation of a baseball glove into the city of Billings, Mon-
tana. The production of this item could have created employ-
ment for an inhabitant of Billings, but it did not. Rather, it cre-
ated jobs, say, for the citizens of Roundup, Montana, where it
was manufactured. The city fathers of Billings could take the
ILGWU position and patriotically declare a moratorium on
trade between the citizens of their city and the foreign economic
aggressors in Roundup. This tariff, like those of the larger polit-
ical subdivisions, would be designed to save the jobs of the citi-
zens.
But there is no logical reason to halt the process at the city
level. The ILGWU thesis can be logically extended to neighbor-
hoods in Billings, or to streets within neighborhoods. Buy Elm
Street or Stop exporting jobs to Maple Street could become
rallying cries for the protectionists. Likewise, the inhabitants of
any one block on Elm Street could turn on their neighbors on
another block along the street. And even there the argument
would not stop. We would have to conclude that it applies even
to individuals. For clearly, every time an individual makes a pur-
chase, he is forgoing the manufacture of it himself. Every time
he buys shoes, a pair of pants, a baseball glove, or a flag, he is
creating employment opportunities for someone else and,
thereby, foreclosing those of his own. Thus the internal logic of
the ILGWUs protectionist argument leads to an insistence
upon absolute self-sufficiency, to a total economic interest in for-
going trade with all other people, and self-manufacture of all
items necessary for well-being.
Clearly, such a view is absurd. The entire fabric of civiliza-
tion rests upon mutual support, cooperation, and trade between
people. To advocate the cessation of all trade is nonsense, and
yet it follows ineluctably from the protectionist position. If the
argument for the prohibition of trade at the national level is
accepted, there is no logical stopping place at the level of the
state, the city, the neighborhood, the street, or the block. The
only stopping place is the individual, because the individual is
the smallest possible unit. Premises which lead ineluctably to an
absurd conclusion are themselves absurd. Thus, however con-
vincing the protectionist argument might seem on the surface,
there is something terribly wrong with it.
Specifically, the essence of the fallacy is a misunderstanding
of the nature and function of free trade. Trade, we believe, out-
strips fire, the wheel, and the opposable thumb in explaining
mans superiority over the animals. For it and it alone makes
specialization and the division of labor possible.
In their daily lives people consume virtually hundreds of
thousands of different items every year. If not for specialization,
each person would be forced to manufacture these items by him-
self. This would be an impossible task. As a matter of fact, peo-
ple would not even be able to produce enough food for them-
selves, let alone produce all other goods which they might
desire. Efficient production of food involves the production of
many other things, including capital equipment. The produc-
tion of these things would involve every person in the manufac-
ture of all the items that are now distributed over an entire pop-
ulation. It is quite true that without fire, the wheel, and
opposable thumbs, mankind would find itself in a sorry state
indeed. But without specialization, since it would be impossible
The Importer 171
for virtually anyone to even feed himself, everyone would be
faced with the prospect of starvation and death.
With specialization, each person can limit his productive
efforts to those areas he performs best in. But trade is the linch-
pin that holds this system together. Without the possibility of
trade, people would amass enormous quantities of unusable
safety pins, paper clips, or whatever. Without the possibility of
trade, the incentive for specialization and the division of labor
would be gone. Everyone would be forced back into the suicidal
attempt to become self-sufficient.
2. Another significant reason for rejecting the protectionist
argument is that it fails to take exports into account. It is true
that for every American flag or baseball glove imported into this
country, some domestic jobs are lost. But what the protectionists
conveniently forget is that for every job lost in a domestic indus-
try because of competition with imports, a job can be gained in
an export industry.
Let us assume that the states of Vermont and Florida are self-
sufficient. Both produce, among other things, maple syrup and
oranges. Because of the differing climatic conditions, maple
syrup is scarce and expensive in Florida, and oranges are scarce
and expensive in Vermont. Vermont oranges have to be grown in
greenhouses, and Florida maple syrup comes from maple trees
grown in large refrigerators.
What would happen if trade were suddenly begun between
the two states? Vermont would of course begin to import
oranges and Florida would import maple syrup. Were the
ILGWU, or any other protectionist pressure group on the scene,
it would quickly point out that importing maple syrup into
Florida would ruin that states small maple syrup industry, and
the importation of oranges into Vermont would ruin the orange
industry there. The protectionists would ignore the fact that jobs
would be gained in Florida in the orange industry, and in Ver-
mont, in the maple syrup industry. They would focus our atten-
tion on the jobs lost due to imports and would completely ignore
the jobs gained because of exports. It is, of course, true that jobs
will be lost in Vermont in the orange industry and in the maple
syrup industry in Florida. But it is no less true that jobs will
increase in the maple syrup industry of Vermont and in the
orange industry in Florida.
There may well be fewer jobs available in both industries in
both states since orange growing can be done with less manpower
in Florida than in Vermont, and maple syrup can be manufac-
tured more efficiently in Vermont than in Florida. But far from
being a bad effect, this is one of the gains of trade! The workers
freed from these industries become available for projects that
could not be undertaken before. For example, if a modern sys-
tem of transportation did not exist, and industry had to rely on
individuals carrying 100 pound loads on their backs, hundreds
and thousands of people would have to be withdrawn from
other fields to fill the needs of the transport industry. Thus,
many projects and industries would have to be abandoned. With
modern methods, fewer workers are needed. The extra workers
are thus free to move into other areas, with all the consequent
benefits to society.
Whether or not there will be fewer jobs in the orange and
maple syrup industries in Vermont and Florida in the final
analysis depends upon the way the people wish to spend their
newfound income. It is only if these people decide to spend all
the newfound income on extra oranges and maple syrup that the
total employment in these two industries will not change after
trade begins. Then the same number of workers will produce
more maple syrup and oranges. More likely, though, the people
will decide to spend some of their newfound income in these
two goods, and the rest on other goods. In that case, employ-
ment in these two areas will decrease somewhat (although this
decreased workforce may still be able to produce more than
before), but employment will increase in the industries whose
products are most wanted by the consumers.
Viewed in its totality then, the opening of trade between the
two regions benefits both of them. Although employment will
fall in the industries supplanted by imports, it will rise in export
industries and in the new industries developing because of the
availability of workers. But the protectionists are not entirely
The Importer 173
wrong. Trade does create problems in the industries supplanted
and some workers will suffer in the short run. There will, for
example, no longer be a brisk demand for Vermonters who spe-
cialize in the production of oranges, or for Floridians who pro-
duce maple syrup. There will be jobs for these people in other
industries, but since they will have to enter these fields as begin-
ners, they will probably have to accept a salary cut. They may
also need considerable retraining.
So the question arises: Who is to pay for the retraining, and
who is to bear the loss associated with the lower salaries in the
new industry? The protectionists, of course, would advocate
that the government or the capitalists should pick up the tab.
But this is not justified.
First, it should be noted that only skilled workers face a cut
in wages because of a move to a new industry. The others will
enter the new industry on much the same level as that in which
they functioned in the old. Instead of sweeping the floors of a
maple syrup plant, they will sweep the floors of perhaps a textile
factory. The skilled worker, by contrast, has specific skills which
are of greater use in one industry than in another. He is not
equally useful in the new industry, and cannot command the
same salary.
Second, it should be understood that the skilled worker is an
investor, just as the capitalist. The capitalist invests in material
things, and the worker invests in his skills. All investors have one
thing in common, and that is that the returns on their invest-
ment are uncertain. In fact, the greater the risk involved, the
more the investor may gain. In the example given, part of the
reason skilled orange growers in Vermont and skilled maple
syrup producers in Florida were earning high salaries, before the
advent of trade between the states, was the risk that some day
such trade might begin.
Should the skilled orange growers, now that they must leave
the industry in which they were highly paid specialists, be sub-
sidized for retraining and for the salary cuts they must accept in
the interim? Or should they bear the expenses and losses them-
selves? It seems clear that any subsidy would be an attempt to
maintain the skilled worker in the style to which he had become
accustomed, without asking him to bear any of the risk that
made such a high standard of living possible in the first place. In
addition, such a subsidy, coming out of tax revenues which are
paid mainly by the poor, would constitute a forced subsidy to
rich skilled workers from poor, unskilled workers.
3. Now consider a situation which, on the surface, seems to
be the protectionists nightmare come true. Imagine that there is
one country which can outproduce the others in all industries.
Suppose Japan (the ILGWUs bugaboo), can produce everything
more efficiently than Americanot only flags, baseball gloves,
radios, televisions, cars, and tape recorders, but everything.
Would the ILGWUs contention that we should forcibly restrict
trade be valid then?
The answer is that it is never justifiable to restrict trade
between two consenting adults, or even nations of consenting
adults, certainly not on the ground that the trade will harm one
of them. For if one party to the trade thought it was harmful, he
would simply refuse it. Prohibition would not be needed. And if
both parties consent to the trade, what right would any third
party have to prohibit it? Prohibition would be tantamount to a
denial of the adulthood of one or both of the trading parties, by
treating them as juveniles who did not have the sense or the
right to enter into contractual obligations.
In spite of all such moral arguments, the protectionists
would still want to prohibit trade on the grounds that a disaster
would follow if it were not done. Let us trace the situation which
would exist between the United States and Japan under the
nightmare conditions that have been stipulated. Supposedly,
Japan would export goods and services without importing any-
thing from the United States. This would bring prosperity to
Japanese industry, and depression to our own. Eventually, Japan
would supply all our needs and, as there would be no exports to
counterbalance this, American industry would come to a grind-
ing halt. Unemployment would rise to epidemic proportions
and there would be a complete dependency on Japan.
The Importer 175
This description may sound a bit absurd, yet the history of
protectionism in the United States, and the success of the
ILGWU campaign, indicate that such nightmares have more
currency than might be imagined. Perhaps this horrid dream
prevails because it is easier to shrink back in horror from it than
to confront it head-on.
In contemplating this nightmare, the question arises as to
what the Americans will use to buy the Japanese goods with.
They cannot use gold (or any of the other precious monetary
metals), because gold is itself a commodity. If Americans used
gold to pay for the imports they would in effect be exporting gold.
This would counter the loss of jobs due to imports, and we
would be back to the prototypical situation. Americans might
lose jobs in radio and television, but gain them in gold mining.
The American economy would resemble that of South Africa,
which pays for its imports largely with exports of gold.
The only other means of payment would be in the form of
United States dollars. But what would the Japanese do with dol-
lars? There are only three possibilities: they could return these
dollars to us as payment for our exports to them, they could keep
these dollars, or they could spend them on the produce of coun-
tries other than the United States. If they opted for the last alter-
native, the countries with whom they traded would have the
same three options: spending in the United States, hoarding, or
spending in other countries, and so on for the countries these
nations trade with in turn. If we divide the world into two
partsthe United States and all the other countries, we can see
that the three possibilities reduce to two: either the paper money
we send out comes back to buy our goods or it does not.
Assume that the worst possibility happensthat none of
the money comes back to stimulate our exports. Far from being
a disaster, as the protectionists allege, this would actually be an
unmitigated blessing! The paper dollars we would be sending
abroad would be just that, paper, worthless paper. And we would
not even have to waste much paperwe could simply print
dollars with extra zeroes added on. So, in this ILGWU night-
mare, Japan would be sending us the products of their industry,
and we would be sending Japan nothing but pieces of green
paper with many zeroes printed on them. It would be a prime
example of a giveaway. The refusal of foreigners to cash in their
dollars would amount to a large gift to the United States. We
would receive the products, and they would receive worthless
paper!
Contrary to the fantasies of the ILGWU and other protec-
tionist groups, the recipients of large gifts do not usually suffer
untold agonies. Israel has received reparations from Germany
for many years, and gifts from the United States, without any
obvious deleterious effects. The recipient country does not have
to discontinue its own production. For the desires of any popu-
lace are infinite. If the Japanese gave a Toyota car to every indi-
vidual in the United States, they would soon want two, three, or
many Toyotas. Clearly, it is inconceivable for the Japanese (or
anyone else) to be so self-sacrificing as to even try to satiate all
the desires of the American people without recompense. Yet only
if they succeeded in this impossible task would domestic indus-
tries collapse, because then everyone would have all he wanted of
everything.
But in this imaginary case, the collapse of domestic industry
would be something to be praised, not condemned. People in the
United States would discontinue all production only if they felt
they had enough material possessions and would continue to
have enough in the future. Such a situation is not only not hor-
rible, it would be welcomed by Americans as the closest thing to
a Utopia.
In reality, of course, the Japanese and others would not be
content to pile up the dollars we gave them as payment for their
products. As soon as their dollar balances went above the level
they chose, they would turn the dollars in, thereby stimulating
export manufacturing in the United States. They might buy
American goods, and thus directly stimulate American exports.
Or they might demand gold for their dollars (attack the dol-
lar), necessitating a devaluation which would make American
exports more competitive in the world markets. Either way, the
dollars would come back to the United States, and our domestic
The Importer 177
export industries would be stimulated. The employment lost
due to imports would be countered by increases elsewhere, just
as in the Vermont-Florida case.
Why would the Japanese trade with a country whose manu-
facturing was less efficient than their own? Because of the dif-
ference between what is called absolute advantage and compar-
ative advantage. Trade takes place between two parties
(countries, states, cities, towns, neighborhoods, streets, persons)
not in accordance with their absolute ability to produce, but in
accordance with their relative ability. The classical example is
that of the best lawyer in town who is also the best typist. This
person has an absolute advantage over his secretary in the pro-
vision of both legal and typing services. Nevertheless, the lawyer
decides to specialize in the profession in which he has a compar-
ative advantagethe law. For suppose he is 100 times as good a
lawyer as his secretary, but only twice as efficient a typist. It is
more advantageous for him to pursue the legal profession, and
to hire (trade with) a typist. The secretary has a comparative
advantage in typing: she has only 1 percent of the effectiveness
in law, compared to her employer, but she is fully one half as
good as he is typing. She is able to earn a living through trade
even though she is poorer at both skills.
The Japan we have been imagining has an absolute advan-
tage in the production of all goods. But when the Japanese
return our dollars to us in return for our goods, America will
export the goods in which it has a comparative advantage. If we
are half as good as the Japanese in the production of wheat, but
only one quarter as good in the production of radios, we will
export wheat in payment for our importation of radios. And we
will all gain.
Thus, no matter what situation is envisionedeven the
most extremethe protectionist argument proves inadequate.
But because of the emotional potency of its appeal, importers
have long been vilified. For their persistence in a task which is
inherently helpful, importers should be looked upon as the great
benefactors they are.
24
THE MIDDLEMAN
W
e are told that middlemen are exploitative. Even
worse than other profiteerswho at least provide
some type of servicethe middleman is considered
entirely unproductive. He buys a product which someone else
has made, and resells it at a higher price, having added nothing
whatsoever to it, except the cost to the consumer. If there were
no middlemen, goods and services would be cheaper, with no
reduction in quantity or quality.
Although this concept is popular and prevalent, it is an
incorrect one. It reveals a shocking ignorance of the economic
function of middlemen, who do indeed perform a service. If they
were eliminated, the whole order of production would be
thrown into chaos. Goods and services would be in short supply,
if they were available at all, and the money that would have to
be spent to obtain them would rise wildly.
The production process of a typical commodity consists of
raw materials which must be gathered and worked on. Machin-
ery and other factors used in production must be obtained, set
up, repaired, etc. When the final product emerges, it must be
insured, transported, and kept track of. It must be advertised and
retailed. Records must be kept, legal work must be done, and the
finances must be in good order.
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Production and consumption of our typical commodity
could be portrayed in the following manner:
No. 10
9
8
7
6
5
4
3
2
1
Number 10 represents the first stage in the production of our
commodity and no. 1 the last stage when the commodity is in
the hands of the consumer. Stages no. 2 through no. 9 indicate
the intermediate stages of production. All of these are handled
by middlemen. For example, no. 4 may be an advertiser, a
retailer, wholesaler, jobber, agent, intermediary, financier,
assembler, or shipper. No matter what his specific title or func-
tion, this middleman buys from no. 5 and resells the product to
no. 3. Without specifying, or even knowing exactly what he
does, it is obvious that the middleman performs a necessary
service in an efficient manner.
If it were not a necessary service, no. 3 would not buy the
product from no. 4 at a higher price than that at which he could
buy the product from no. 5. If no. 4 were not performing a valu-
able service, no. 3 would cut out the middleman and buy the
product directly from no. 5.
So it is apparent that no. 4 is doing an efficient jobat least
a more efficient job than no. 3 could do himself. If he were not,
no. 3 would again cut out middleman no. 4, and do the job him-
self.
It is also true that no. 4, although performing a necessary
function in an efficient manner, does not overcharge for his
efforts. If he did, it would pay for no. 3 to circumvent him, and
either take on the task himself, or subcontract it to another mid-
dleman. In addition, if no. 4 were earning a higher profit than
that earned in the other stages of production, entrepreneurs in
the other stages would tend to move into this stage, and drive
down the rate of profit until it was equivalent to the profit
earned at the other stages (with given risk and uncertainty).
If the no. 4 middleman were eliminated by a legal decree, his
job would have to be taken over by the no. 3s, no. 5s, or others,
or they would not get done at all. If the no. 3s, or the no. 5s took
over the job, the cost of production would rise. The fact that they
dealt with no. 4 as long as it was legally possible to do so indi-
cates that they cannot do the job as wellthat is, for the same
The Middleman 181
price or less. If the no. 4 stage were completely eliminated, and
nobody took over this function, then the process of production
would be seriously disrupted at this point.
The present analysis notwithstanding, many people will
continue to think that there is something more pure and
direct in exchanges which do not involve a middleman. Per-
haps the problems involved with what economists call the dou-
ble coincidence of wants will disabuse them of this view.
Consider the plight of the person who has in his possession
a barrel of pickles which he would like to trade for a chicken.
He must find someone who has a chicken and would like to
trade it for a barrel of pickles. Imagine how rare a coincidence
would have to occur for the desires of each of these people to be
met. Such a double coincidence of wants is so rare, in fact, that
both people would naturally gravitate toward an intermediary, if
one were available. For example, the chicken-wanting pickle
owner could trade his wares to the middleman for a more mar-
ketable commodity (gold) and then use the gold to buy a
chicken. If he did, it would no longer be necessary for him to
find a chicken-owning pickle wanter. Any chicken owner will
do, whether he wants pickles or not. Obviously, the trade is
vastly simplified by the advent of the middleman. He makes a
double coincidence of wants unnecessary. Far from preying on the
consumer, it is the middleman who in many instances makes the
trade the consumer wishes possible.
Some attacks on the middleman are based on arguments
which are represented in the following diagrams. In an earlier
time, represented by diagram 1, the price of the good was low,
and the share that went to the middleman was low. Then (dia-
gram 2), the share of the value of the final good that went to the
middleman rose, and so did the cost of the good. Examples such
as these were used to prove that the high prices of meat in the
spring of 1973 were due to middlemen. But they prove, if any-
thing, quite the opposite. The share going to the middlemen
may have risen, but only because the contributions made by
middlemen have also increased! An increased share without an
increased contribution would simply raise profits and attract
The Middleman 183
F
a
r
m
e
r
W
o
r
k
e
r
T
r
a
n
s
p
o
r
t
e
r
M
i
d
d
l
e
m
e
n
Farmer Middlemen
T
r
a
n
s
p
o
r
t
e
r
W
o
r
k
e
r
many more entrepreneurs to the area. And their entry would
dissipate the profits. So if the share which goes to middlemen
rises, it must be because of their productivity.
Examples of this phenomenon abound in the annals of busi-
ness economics. Who can deny that department stores and
supermarkets play a greater role (and take a greater share of the
market) than middlemen in times past? Yet department stores
and supermarkets lead to more efficiency, and lower prices.
These new modes of retailing necessitate more expenditures on
the middleman phases of production, but greater efficiency leads
to lower prices.
Diagram 1
Diagram 2
25
THE PROFITEER
I
t is clear that profits and everything associated with them
have been under attack for a long time. What is not so clear
is the reason for these attacks.
Several different patterns can be discerned. The objection
most often made is that profits, unlike other sources of income
such as wages, rents, or even interest (payment for waiting risk),
are unearned. There is no honest labor or effort associated with
profit making to justify the benefits. Most people do not under-
stand the process by which profits are attained, and assume
there is something untoward going on. . . . It isnt fair to make
profits without having to work for them.
Another objection often voiced against profits, and especially
against profiteering (unreasonable profits), is that such profits
impoverish the rest of mankind. The notion is that there is only
a finite amount of wealth available and if the profiteers get more
of it, there is less for everyone else. Thus, not only are profits
undeserved because they are unearned, but they actually
harm people by diverting funds from the rest of society.
It also appears to many that profits are earned by taking
advantage of the helplessness of others. This view constitutes a
third type of objection, and is reflected in the scornful popular
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expression that profiteers earn their income from the misery of
others. When the helplessness consists of a lack of knowl-
edge, the critics of profits are especially vociferous in their con-
demnation. For example, the case where a profit is earned solely
because the customer is unaware that the same commodity is
being sold close by at a lower price, is particularly vexing. When
the customer is poor, the profiteer is even more condemned.
The usual defenses of the idea and practice of earning a
profit leave a great deal to be desired. They have in the past been
limited to pointing out: (1) profits are patriotic, and that to
attack them is un-American or perhaps communistic; (2) they
are not very big, anyway; and (3) they are used, in many cases,
for charitable contributions. Needless to say, these are not very
formidable defenses. Consideration must be given to the func-
tion of profits in a modern economy, and an effort made to pro-
vide a somewhat more spirited defense for the ancient and hon-
orable vocation of profiteering.
First, profits are earned by entrepreneurs who see and seize
upon opportunities which are not readily apparent to other peo-
ple. The opportunity grasped by the entrepreneur may vary
from case to case, but in all cases people are offered trades which
they hold to be in their advantage, and which would not be
offered in the absence of the entrepreneur. In the most usual
case, the entrepreneur sees a discrepancy between different
pricesstrawberries selling at 25 per jar in New Jersey, and 45
in New York. As long as the costs associated with the transport
of strawberries (transportation, insurance, storage, breakage,
spoilage, etc.) are less than the price differential of 20 per jar,
the enterprising entrepreneur is in a position to offer two sets of
trades. He can offer to buy strawberries in New Jersey at a price
slightly higher than the prevailing 25 per jar, and then offer to
sell strawberries to New Yorkers at a price below the 45 per jar
that prevails in that market. In both cases, if he finds any takers,
he will benefit those he deals with, either by offering a higher
price for their goods than they have been accustomed to receiv-
ing, or by offering to sell them goods at a lower price than they
are accustomed to paying.
In addition to the intratemporal price discrepancy case, there
is the intertemporal case, where a price discrepancy between
present goods and future goods is perceived. Take frisbees as an
example. Consider all the factors of productionland, labor,
and capitalwhich are embodied in the final good of the fris-
bees offered for sale. The factors of production are goods of a
sort themselves, and, therefore, have prices attached to them.
After taking due account of the time it will take to convert these
factors into the final good, three possibilities emerge: (1) there is
no price discrepancy between the prices of the factors and the
price of the future good; (2) there is a discrepancy, and the fac-
tor prices are high, relative to the price of the good; and (3) there
is a discrepancy, and the price of the final good is high relative to
the prices of the factors.
If there is no price discrepancy, the successful entrepreneur
will not act. But if the factor prices are relatively high, the entre-
preneur will withdraw from production. It would be wasteful to
devote relatively valuable resources on a final good that will be
relatively valueless. He might sell his shares in the companies
which engage in such production. Or, if he does not hold shares,
he can contract to sell them in the future at their present high
price (which does not yet reflect the production error of manu-
facturing frisbees with resources that are more valuable than the
frisbees themselves will be). He can cover these sales by pur-
chases of the same amount of shares in the future, when he
expects their value to be lower, because of the production error.
There are many people who are mystified by this process, often
called selling short. They wonder how it is possible to sell
something that you do not own, in the future, but at todays
prices. Strictly speaking, one cannot sell anything that one does
not own. But it is certainly possible to promise to sell something
in the future that one does not yet own, on the understanding
that one can always buy it in the future, and then deliver it, in
fulfillment of the sales contract. In order to test the understand-
ing of this concept, we can ask who would agree to buy shares in
the future at the present price? People who expect the price to
rise even further, but do not want to invest their money now.
The Profiteer 187
If, on the other hand, the entrepreneur thinks that the price
of the final good is likely to be greater than the combined costs
of all the factors, he will engage in the opposite behavior. He will
produce the frisbees and/or invest in companies which under-
take such production.
The third type of hidden opportunity which the en-
trepreneur can seize upon does not involve any price discrep-
ancies, either inter- or intratemporal. This type of opportunity
involves goods that have not yet been produced, and therefore
have no prices at all. Consider in this regard the frisbee before it
was produced or invented. There was no guarantee, at that time,
that the public would accept it. In cases of this kind, the entre-
preneur feels, thinks, or divines that there is something, the lack
of which may not even be apparent to anyone else, that con-
sumers would greatly value if they could but be told of its exis-
tence and convinced of its beneficial attributes. In this case the
entrepreneur plays nursemaid to the idea, through the processes
of invention, financing, advertising, and all other steps necessary
to bring an idea to public acceptance.
After having considered some of the types of activities profit
making entrepreneurs are likely to engage in, the results of profit
seeking can be assessed.
One result is immediately apparentthe collection and dis-
semination of knowledge. The knowledge of hitherto unpro-
duced products is an obvious and dramatic example, but as we
have seen, the knowledge engendered by profit seeking behavior
is by no means limited to such exotic occurrences. On a daily
basis, the profit seeker is constantly bringing to the market
knowledge about price differentials, both inter- and intratempo-
ral.
This knowledge is of great benefit to all concerned. Without
it, people in New Jersey would be eating strawberries which they
would much rather sell, if they could find someone willing to
pay more than 25 per jar. That is, the New Jerseyans only eat
the berries because of their lack of knowledge of people who
value them more than they themselves. In addition, without
this knowledge, there would be people in New York not eating
strawberries because they assume that the only way to get them
is to pay 45 a jar, when in truth, they could be had for less.
Of course, the profit seeker does not bring this knowledge to
bear as a teacher might. He is not one who goes about the coun-
tryside explicitly imparting information. As a matter of fact, after
his work is done, none of the people in New Jersey and New
York may even be aware of the relative prices of strawberries in
those markets. What the profit seeker does is make sure that the
effects of knowledge of prices in the different areas are felt. The
profit seeker does not directly spread the knowledge himself; he
merely spreads the strawberries which, in the absence of knowl-
edge of their prices, would not have been so allocated.
It is perfectly true then, that the profit maker takes advan-
tage of the ignorance of other people. If the relevant knowledge
were present, the entrepreneur could hardly earn profits by ship-
ping strawberries from New Jersey to New York. Although true,
however, it is hardly reprehensible. Anyone whose function it is
to sell a commodity must sell it to those who lack it. The fact that
the lack is determined by ignorance does not make the lackor
the needany less real. The profit seeker takes advantage of
the lack of knowledge of his customers in the same way that the
farmer takes advantage of the hunger of his customerby
providing that which his customer lacks.
The profits of the entrepreneur, therefore, are not made at
the expense of anyone else. It is not true that there must be losses
elsewhere in the economy equal to the gains of the entrepreneur,
because it is not true that the entrepreneur fails to create any-
thing. The entrepreneur does create. He creates the possibility of
cooperation between disparate, and in many cases widely sepa-
rated, groups. He is a broker or intermediary in opportunities, as
it were. It is his function to see to it that mutually beneficial
opportunities are not bypassed. Why this type of effort should be
singled out and denigrated as not honest work is beyond the
scope of reason.
In addition to serving as a focal point for the utilization of
knowledge, the profit seeking entrepreneur benefits people by
offering them choices otherwise not open to them. The case in
The Profiteer 189
which the entrepreneur presents the public with an entirely new
product is again an obvious example. But the principle has
applications even in the more mundane case of intertemporal
price discrepancies. For society benefits when valuable resources
are not committed to final products which are less valuable than
Ah! I suspected as much. Hes a masochist!
the resources themselves. Such resources can be used in the pro-
duction of more valuable final products, that is to say, in the pro-
duction of final products which consumers value more.
It should be borne in mind that all entrepreneurial transac-
tions are strictly voluntary. The people with whom the entrepre-
neur deals are just as free to reject as to accept his offers. If they
accept, therefore, it can only be because they feel that they ben-
efit from trading with him. They may rue their decision, and
wish they had made their purchase at a lower price, or sold their
goods at a higher price. But this does not alter the claim that the
profit seeking entrepreneur offers a trade which, at the time it is
offered, is considered beneficial by all the parties to it. This is an
important claim, and it speaks well for the entrepreneur. It is a
claim which cannot, for example, be made on behalf of govern-
ment transactions because they cannot be said to be fully volun-
tary.
Another result of the profit making process is that after it is
undergone in any given market, there is less scope for its contin-
uation. Its success sows the seeds for its demise. Once the oppor-
tunity has been pointed out and fulfilled by the entrepreneur, his
function is completed. Like the Lone Ranger of a bygone era,
the lone entrepreneur must move on to make other pastures
greener. However, if imbalances in prices should arise shortly
thereafter, the profit seeker will return.
The incentive behind the entrepreneurs attempt to hold
together the disparate parts of the economy is, of course, the
profits he hopes to gain thereby. This is an excellent example of
the beneficial effects of a profit and loss system. For the success-
ful entrepreneurthe one who earns profitsholds the econ-
omy together by decreasing price discrepancies. But the entre-
preneur who buys when he should sell, or sells when he should
buy (who instead of decreasing price discrepancies and holding
the economy together, increases them and disrupts the econ-
omy), loses money. The more mistakes he makes, the less able
he is to continue in his error. We cannot hope to completely rid
the economy of errors. But a mechanism that automatically
The Profiteer 191
tends to improve the performance of the entrepreneurial class at
every given instant is not to be dismissed lightly.
Although a case has been made for the beneficial effects of
profits, profiteering has not been mentioned. It is important to
do so, for there are many who would contend, in the spirit of the
Aristotelian golden mean, that profits in moderation are
acceptable, perhaps even beneficial, but that the extremism of
profiteering can only be deleterious.
The word profiteering has always been used in a smear
context. Profits plus I hate the son of a bitch equals profi-
teering in the same way that firmness plus I think he is
wrong equals stubbornness. (Bertrand Russell has said, to
illustrate this point, Im firm, youre stubborn, and hes a pig-
headed son of a bitch.) We do not have an equivalent term of
opprobrium for the wage earner (wageer?) who seeks exorbi-
tant or unconscionable wage rates. Perhaps because public
opinion (the mass media establishment) favors high wages but
not high profits.
Semantics aside, it would appear that if profits are a benefit
to our society, then profiteering is of even greater benefit. The
possibility of profits, as has been demonstrated, is a sign that
something is amiss in the economy, indicating that people are
not taking advantage of mutually beneficial trades. The actual-
ization of profits indicates that something is being done about
these missed opportunities (entrepreneurs are seeing to it that
the strawberries get properly spread around. But if the possi-
bility of profits indicates something amiss, then the possibility of
profiteering signifies even greater gaps in the economic fabric.
And if mere profits indicate an economic cure in progress, then
profiteering is a sign that something of a substantial magnitude
is operating to rectify the situation. Instead of moderate profits
being acceptable, and profiteering being exploitative, we can
see that the greater the profits, and the greater the profiteering,
the better off the economy is. A medical analogy comes to mind:
If Band-Aids are good because the body can be cared for by
them, then surgery (profiteering) is better, because it shows
that a much more needy patient is being cared for.
The most important defense of profit making is based on
political freedom:
There are basically only two ways to run an economy. The
first, voluntaristically, with decentralism and reliance on the
price and profit-and-loss system to provide information and
incentive. The second, compulsorily, with central planning,
economic orders and directives, reliance on the initiative of the
economic dictators, and the obedience of everyone else. These
two systems are the two polar extremes. All other economic sys-
tems are permutations and combinations of these two pure
types.
The compulsory or command economy is simplicity itself in
outlook. The economic leaders simply decide what is to be pro-
duced, who is to produce it and how, and who is to reap the ben-
efits of such production.
By contrast, the voluntary or free market economy is quite
complex. The individual must decide what to produce and how
to produce it. The incentive is his own enjoyment of the product
and what he may get for it by trading it with other people.
Instead of being coordinated by economic directives, the free-
market economy, as we have seen, is coordinated by the profit-
and-loss mechanism.
Now consider this paradox: Those who are frequently the
most virulent critics of profiteers and, by extension, of the
whole free market system, are frequently also vociferous cham-
pions of decentralism and the rights of the individual in per-
sonal matters. Yet, insofar as they attack profits and profiteer-
ing, they are attacking not only the right of individuals to
function freely in the economic domain, but the very foundation
for freedom in every other area of human life.
In their attacks on profits and profiteeringindeed on all
things profitablethey show themselves to be in league with
despots and dictators.
If they were to have their way, and profits were severely
restricted or outlawed entirely, coercive collectivism would be to
that degree strengthened. Personal liberties would be washed
away in a tide of orders from the top. The individual cannot be
The Profiteer 193
free if his economic existence is based on the decree of an eco-
nomic dictator from whose dictates there is no appeal. In a free
market, if you quit your job, an employee leaves your service, a
customer refuses to buy from you, or a supplier refuses to sell to
you, there are other actual or potential bosses, employees, cus-
tomers or suppliers. But in a controlled economy, there are no
other alternatives. Deviations, eccentricities or nonorthodox
inclinations are not tolerated.
The champions of civil liberties have a uniquely brilliant
insight, and a truly humane dictum which they apply assidu-
ously in the area of sexual moralityAnything goes between
consenting adults, and (implicitly), nothing goes but that which
is between consenting adults. But they steadfastly refuse to
apply this rule to any area other than that of sexual morality!
Specifically, they refuse to apply it to the economic arena. But
this humane dictum should be applied to all parts of human life,
including the profiteer as well as the sexual pervert or deviant; to
the entrepreneur as well as the fetishist; to the speculator as well
as the sado-masochist.
To argue that perverts, deviants, and others of this ilk have
been unjustly denigrated is one of the main burdens of this
book. We cannot, therefore, be accused of having played fast and
loose with the deviant community. But it is just as unfair to treat
members of the profiteering community as pariahs.
One last criticism of profiteering and the free market is the
view that in the distant past, when there was an agrarian econ-
omy and life was simpler, perhaps a free enterprise system was
viable. Today, what might have been appropriate for farmers and
small tradesmen simply will not do. In our complex industrial
society, we cannot afford to leave things to the anachronistic
whims of individuals. We need the strong central control of an
economic planning board, and the elimination of profits and
profiteering from our transactions.
This view is widespread. In some circles it is thought to be
self-evident. But the analysis of profits as intimately tied up
with a lack of knowledge must lead to the opposite view. The
institution of profits is an invaluable aid in the gathering and
dissemination of knowledge and the effects of knowledge. If
anything can be taken as a mark of a highly complex modern,
nonagrarian economy, it is this selfsame lack of economic
knowledge and the utilization of it. It would, therefore, seem to
follow that the profit system becomes more valuable as the econ-
omy becomes more complex! For in such an economy, the infor-
mation provided by the automatic price and profit and loss sys-
tem is essential. Economic dictatorship, if it is ever viable, which
it is not, is so only in a simple economy, one which can be easily
managed by one group of bureaucrats.
In conclusion, a sharp, rigid, and basic distinction must be
drawn between the profits that can be earned in the market-
place, and the profits that can be earned through government
subsidies and influence, in short, through the system of corpo-
rate-state capitalism. In the marketplace, all transfers of funds
must be voluntary. Therefore, all profits must be based on the
voluntary choices of the economic actors, and must hence be
indicative of, and bring about solutions for, the wants of the
economy. Thus, the assertion that the possibility of profits shows
the scope of unrequited trades and that the actual earning of
profits indicates that these gaps are being filled, applies only to
the free-market economy.
These assertions cannot be made in the absence of the free
market. Profits in the mixed economy (an economy that has
elements of the free market as well as elements of coercion)
might well be due to no more than the prohibition of competi-
tion. For example, a tariff on imports will increase the demand
for the domestic product, and profits in the domestic industry
will rise. But it can hardly be concluded from this that any new
information was uncovered, or that consumer satisfaction was in
any way increased. If anything, the opposite would be the case.
The tie between profits and well-being is thus sundered and we
can no longer infer the latter from the former.
The Profiteer 195
VII. ECOLOGY
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26
THE STRIPMINER
T
here are basically two methods of mining coal: strip
mining and deep mining. In deep mining, an intricate
set of tunnels, shafts, and braces are set deep in the earth.
People who work in such mines for long periods of time com-
monly contract black lung disease, the dreaded miners mal-
ady caused by breathing in coal particles. Deep mining is haz-
ardous to workers in other ways. Mine entrapments, for example,
in which hundreds of miners are trapped far below the surface of
the earth, occur with deadly regularity. The immediate cause
may be a cave-in, escaping gas, an explosion, or water seepage,
but the ultimate cause is the deep-mining method itself.
In strip mining, as the name implies, the earth is stripped,
layer by layer, until the coal stream is unearthed. Although espe-
cially well suited for coal beds that lie close to the surface, strip
mining has also proven feasible at moderate depths. Strip min-
ing is free of the danger of cave-ins, and other forms of entrap-
ment, and of black lung disease. It is also a much cheaper
method than deep mining. In spite of these advantages, strip
mining has been roundly condemned by practically all sources
of informed, liberal, and progressive opinion.
The supposed explanation for this otherwise inexplicable
state of affairs centers around two criticisms of strip mining: it is
199
said to cause pollution, and to despoil the natural beauty of the
landscape. But as can be seen from even a cursory examination,
these criticisms hardly suffice. Even if they were correct, it
would be difficult to reconcile humanistic impulses with a pref-
erence for deep mining. For there is no black lung disease
among miners who work on the surface of the earth; there is no
danger of cave-ins or entrapment. Clearly, life is on the side of
strip mining.
But, upon examination, it is clear that the criticism is by no
means correct. First consider pollution. Although it is true that
pollution does in fact result from strip mining, it is not a neces-
sary concomitant. It can be eliminated, and it would be elimi-
nated, if laws prohibiting trespass were enforced.
What is presently done during the strip mining of coal is to
pile up in high mounds the earth that must be peeled away to
expose the coal. These mounds are usually piled near streams of
water. Substantial amounts are borne away by the streams, con-
taminating them and the lakes and waterways into which they
feed. Also, the denuded land becomes a source of mudslides;
thus, as a result of what the strip miner does, the whole environ-
ment is damaged.
But these are not necessary elements of the strip mining
process. Although a person may do whatever he wishes with
land that he owns, if what he does damages land belonging to
others, he should be made to bear the costs of the damage. If, for
example, the strip miners activities result in mudslides and
destruction of other peoples land and goods, he is liable. Part of
his responsibility may be to reseed or otherwise rehabilitate the
land to eliminate the possibility of future mudslides. If strip
miners were made to bear the full costs of their activity, and if the
property owners downstream were granted preventative injunc-
tions if they were unwilling to be compensated for damages,
then the pollution would cease.
It is most important to see that the present link between pol-
lution and strip mining has no inherent status, but is rather
entirely due to the failure to apply the common laws of trespass
against the strip miners. Imagine any other industry, such as the
The Stripminer 201
hula hoop industry, that was allowed to violate the law in this
manner. Now there is no necessary connection between the hula
hoop industry and pollution. But if excess plastic clutter were
allowed, there soon would be a connection between this industry
and pollution, at least in the mind of the public. And so it is with
the coal mining industry, and with strip mining in particular.
There is nothing about the strip mining method of coal mining
that is inherently pollution-causing. It is only because the laws of
trespass have not been rigidly applied to the strip miners that the
link between stripping and pollution exists. Let these laws be
fully adhered to and this argument against strip mining will dis-
appear.
What of the other argument against the strip miner: that
stripping spoils the natural beauty of the landscape? This is a
shaky objection at best because, when it comes to beauty or aes-
thetics, there are no objective standards. What is beautiful to one
person may be ugly to another and vice versa. It is true that strip
mining removes the vegetation, grass, and trees from the land-
scape. It can turn a lush, fertile landscape into a veritable desert.
But some people prefer the desolation and emptiness of the
desert! The Painted Desert in Arizona, the salt flats of Utah, and
the Grand Canyon of Colorado are considered by many people
to be places of great beauty.
If contrast is one of the concomitants of natural beauty, then
the small bits of barren land created by strip miners amidst the
lush greenery of the Appalachians actually add to the beauty of
the scene. Certainly we cannot unambiguously and objectively
fault the strip miner on the grounds that he destroys the beauty
of the landscape.
But discussions about aesthetic criteria will not resolve the
issue raised by the critics, since the issue is not really about
beauty, though it is phrased as if it were. The real objection
seems to be that strip mining is an intrusion upon nature by an
offensive industrial society. The notion that land areas should be
left in their natural state seems to be the operative one. But if
the lovers and protectors of nature as-is have the right to pre-
vent strip miners from operating, then they also have the right to
prevent farmers from clearing virgin soil and planting upon it,
and to prevent builders from erecting buildings, bridges, facto-
ries, airports, and hospitals. The argument from nature is
really an argument against civilization and against the use of
human intelligence.
Actually, many among those who condemn strip mining
as unnatural would themselves object vigorously if other
conditionshomosexuality or miscegenation, for example
were objected to on those grounds. They would point out very
little is natural to man, and that sometimes what is natural
murderous rage, for exampleis not what is best. Civilization
depends to a great extent upon our being able to transcend
nature.
To say of a thing that it is natural or unnatural is not to
say anything about that things intrinsic value. A things value
depends upon whether or not it satisfies our needs, and con-
tributes to our well-being. Strip mining, when evaluated ration-
ally, fulfills these more rational criteria.
The Stripminer 203
27
THE LITTERER
T
he litterer today will find few defenders. He is beset on
all sides, bearing the brunt of the barbs of do-gooder
groups. Radio and television stations beam anti-litter
messages as a public service, neighborhood and parent-
teacher associations, church groups, and civic organizations are
in agreement on the issue of littering. The film industry, which
must pass over many topics as too controversial, is united in its
hatred for litter. Litter is a great unifier.
There is, however, one small, seemingly insignificant detail
which destroys the case against litter and the litterer. Litter can
only take place in the public domain, never in the private
domain. The ads showing the supposed evils of litter take place
on highways, beaches, streets, parks, subways, or public bath-
roomsall public areas. This is not because most littering occurs
in public places. It is definitional. If something resembling litter-
ing in all other aspects were to occur in a private place, it would
not be considered littering. When large crowds leave a ballpark,
movie, theater, concert, or circus, what remains among the seats
and aisles is not and cannot be litter. It is garbage, dirt, or waste,
but not litter. After normal working hours in the downtown area
of our cities, a horde of cleaners descend upon the privately
owned banks, stores, restaurants, office buildings, factories, etc.
205
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What they do is clean, and under no circumstances do they pick
up litter. Concurrent with this, the department of sanitation
cleans the public streets and sidewalks, picking up litter.
Now there is no real distinction to be drawn between leav-
ing garbage in public places and leaving garbage in private
places. There is no reason to call the former and not the latter
littering, since what is being done in both cases is the same. In
both cases, the creation of garbage is a concomitant of the
process of producing or of consuming.
In some instances, leaving garbage to be picked up later is
the optimal solution. For example, it is too time-consuming for
a carpenter to clean up the wood shavings as he works. It is eas-
ier and cheaper to allow the litter (wood shavings) to accumu-
late and be swept away at the end of the day or at periodic inter-
vals. The factory manager could institute an anti-litter
campaign and force the carpenters to keep their work area free
of any accumulation of wood shavings. He might even enforce
this edict with the threat of a $50 fine. However, with these rules
his workforce might quit, or, if they did not quit, the costs of
production would rise inordinately, and he would lose business
to competitive factories.
In the medical practice, on the other hand, littering cannot
be tolerated. Operating, consulting, or treatment rooms must be
sanitary, well-scrubbed and free of debris. Failure to adopt a
strong anti-litter campaign here would involve the administra-
tor of the hospital in financial failure, as it became known that
his institution was unsanitary.
In the case of consumption, most restaurants, for example,
do not pursue anti-litter campaigns. There are no signs on
restaurant walls forbidding the dropping of forks, napkins, or
bread crumbs. A restaurant could prohibit litter, but it would
lose its customers to other establishments.
What these seemingly disparate examples have in common
is to illustrate that in the market, the decision of whether and
how much litter to allow is based ultimately on the wishes and
desires of the consumers! The question is not treated simplisti-
cally and there is no general outcry to get rid of litterbugs.
The Litterer 207
Hey, Bozo, you want a citation for litterin? Pick up that
matchbook cover!
There is rather, a careful weighing of the costs and benefits of
allowing waste materials to accumulate. To the extent that the
costs of garbage collection are low and the harm caused by
garbage accumulating is high, there tend to be frequent col-
lections and severe penalties for leaving garbage around, as in
the example given of littering in a medical facility. If the costs
of garbage collection are high and the harm caused by the
accumulation is low, there tend to be less frequent collections
and no penalties for littering. These differences in policy are not
the result of any governmental law, but are a result of the mar-
ket process. Entrepreneurs who do not act in accordance with an
accurate cost-benefit analysis lose customers, either directly, as
customers stalk out in anger, or indirectly, as the higher costs of
operation allow the competition price advantages.
A system which is based on the needs and desires of the peo-
ple involved is very flexible. In each example, a policy on litter-
ing was tailored to the requirements of the specific situation.
Moreover, such a system is capable of responding quickly to
changes, whether they be in the costs of litter collection or in the
harm caused by uncollected litter. If, for instance, a system were
installed in hospitals enabling litter to be taken out at very little
cost, or if consumer desires regarding litter underwent a marked
change, hospital administrators would have to relax their strin-
gent anti-litter stance. The hospitals which failed to adjust to the
new technology and tastes would tend to lose patients to com-
peting institutions. (These are private, profit making hospitals.
Public hospitals, which obtain their funds through compulsory
taxation, have no such incentives to please customers.)
On the other hand, if it were discovered that soda cans and
popcorn boxes, left under the seats at baseball stadiums, were
disease carriers, or interfered with the viewing of the game, the
stadium rules concerning litter would be changed automatically
by stadium owners, without any government edict.
In considering litter in the public domain, there is no finely
attuned system responding to the needs and desires of the people.
Rather, the public domain is the ward of the government, and the
government treats consumer demands in a rather cavalier man-
ner, virtually ignoring them. Government enterprise is the only
enterprise that will deal with an increased desire to litter with a
steadfast determination to eliminate it, thereby refusing to adapt
to either consumer desires or changing technology.
1
The law is
1
Only a nonprofit government agency could react to increased con-
sumer desires for road use (traffic tie-ups) with a threat to ban cars. Only
the law. The government can function this way because it is out-
side the market. It does not obtain its revenues from the market
process of voluntary trade. It obtains its revenues through taxa-
tion, a process completely unrelated to its ability to satisfy cus-
tomers.
The governmental argument against litter is that it is done
out of disrespect for others rights. But this argument is without
merit. The whole concept of private litter is a case in point. If lit-
ter were a violation of rights and a refusal to consider the com-
fort of others, what of the litter in restaurants, ballparks, facto-
ries, etc.? Litter comes about in the private market precisely as a
means of satisfying the desires of consumers for comfort. One no
more violates the restaurant owners rights by littering than by
eating, since both are paid for.
How is the governments failure to maintain a flexible litter-
bug policy in the public sector to be interpreted? It is not entirely
due to indifference, although it is far simpler to totally prohibit
something than to deal with it in a reasonable manner. The
explanation is that no government, no matter how interested or
beneficent, could maintain a flexible litterbug policy. Such a pol-
icy must be supported by a price systema profit and loss sys-
temto measure the cost and benefits of littering, and to auto-
matically penalize managers who failed to adjust accordingly. If
the government enacted a system of this type, it would no longer
be a governmental system, for it could not rely on the bte noir
of governmenta tax system completely unrelated to success in
satisfying the wants of consumers.
The inability of the government to be flexible can occasion-
ally take strange turns. For many years there was no effective
restriction in New York City of dog owners who allowed their
dogs to defecate on the streets and sidewalks. Presently there is
a movement afoot to prohibit dog defecation on any street or
The Litterer 209
a government agency free from the necessity of earning profits could
react to increased consumer desires for park use by forbidding people to
enter parks after dark.
sidewalk, launched by citizens groups organized under the ban-
ner of children before dogs. The flexibility of the market is
completely ignored by both of these factions. Nowhere is it real-
ized that dog litter can be restricted to certain places. The issue
is seen as a choice between prohibiting it altogether or allowing
it everywhere. Imagine the beneficent results that would ensue
if the streets and sidewalks were privately owned. A greater flex-
ibility would result because of the rewards entrepreneurs would
gain for devising methods of satisfying both groups.
Some might object to the private ownership of the sidewalks
on the grounds that dog owners would have to pay for the use of
a dog lot which they now use free (assuming, there is no pro-
hibition of dog defecation). But this is incorrect, because no
individual, including the dog owner, has the free use of the side-
walks. The sidewalks, as all other goods and services provided
by the government, are paid for by the citizens through taxes!
Citizens pay not only for the original cost of the sidewalks, but
also for upkeep, maintenance, policing, and cleaning services.
It is difficult to anticipate the exact way a free market would
function in this area, but some guesses may be hazarded. Per-
haps several enterprising entrepreneurs could set up fenced-in
sandy areas which dogs could use. These entrepreneurs could
have two separate contracts, one, with the dog owners, which
would specify the fee for use of the area, the other with garbage
truck owners, specifying the cost of maintaining the areas. The
exact location and number of these areas would, as with any
service, be determined by the needs of the people involved.
In the light of the inflexibility of the government, and its
apparent lack of interest in accommodating public tastes, how is
the litterbug to be viewed? The litterbug treats public property
in much the same way he would treat private property if he were
but free to. Namely, he leaves garbage around on it. It has been
demonstrated that there is nothing intrinsically evil about this
activity, and that but for governmental calcification, it would be
as widely accepted in the public arena as it is in the private. It is
an activity which should be regulated by peoples needs, not by
government fiat.
We must conclude, therefore, that far from being a public
enemy, the litterer is actually a hero. The courage exhibited by
the litterer, given the intense campaign of vilification directed
against him, is considerable. Even more important, the behavior
of the litterer who purposefully takes the law into his own
hands can serve as a protest against an unjust system.
The Litterer 211
28
THE WASTEMAKERS
P
eople have long suspected that a basic business practice is
to purposely manufacture products which are inferior.
Businessmen, it is assumed, do not want to turn out high-
quality, long lasting products. Instead, they manufacture shoddy
products with built-in or planned obsolescence. When these
products wear out, they must be replaced, thus manufacturers
stay in business and prosper. This idea, always with us even if
somewhat below the surface, received an unneeded, but widely
publicized shot in the arm several years ago with the publication
of Vance Packards book, Waste Makers.
1
The theory of built-in obsolescence is fallacious. And,
with the advent of the ecology movement and the neo-Malthu-
sian Zero Population Growth adherents, it is more important
than ever to lay the fallacy to rest. According to the overpopula-
tionists, we have or are soon going to have too many people in
relation to the earths resources. In the view of the environmental-
ists, we are (that is, the free-market system is) presently wasting
the resources we have. In the view of still others, built-in obso-
lescence is a tragic, totally unnecessary component of this waste.
213
1
Vance Packard, Waste Makers (New York: David McKay, 1960).
chap28waste.qxd 2/21/2008 12:30 PM Page 213
Taken together, these groups pose an intellectual, moral, and
even physical threat to a healthy and sane economy.
It is important to begin this critique by noting a truism.
Either it costs more to build a product in the proper way, so
that it does not wear out before its time, or it does not. A prod-
uct is shoddy because the manufacturer instructs the workers to
turn out inferior merchandise, or because it is cheaper to make
it that way.
A true example of built-in obsolescence is the case where no
cost saving is gained by making an inferior product. It is as if a
time bomb were placed in an otherwise sound piece of mer-
chandise. The consumer does not know it, but the object is
scheduled to self-destruct. This practice clearly is wasteful. In
economic parlance, society is forgoing higher quality goods
which have no alternative uses.
Such behavior, however, will not take place in a private
enterprise market economy because it is not survival oriented.
Businessmen who engage in planned obsolescence of this sort
will decrease their profits, increase their losses, and eventually
go bankrupt. Some customers will surely stop buying from a
firm which sells inferior quality merchandise at standard prices,
and patronize other firms which sell standard quality merchan-
dise at the same standard prices. The firm in question will lose
customers, without any compensation in the form of lower costs,
and the other firms will gain the customers lost by the
wastemaking company.
But the fear which many consumers have is not that one
businessman will manufacture products with built-in ob-
solescence, but that all manufacturers will. In that case, it is sup-
posed, the consumer would be trapped.
What would the consequences be if all the manufacturers in
an industry agreed, via a cartel arrangement, to turn out low-
quality products in order to increase replacement sales? It seems
clear that every manufacturer who was a party to the agreement
would be powerfully tempted to raise the quality of the goods he
was makingin other words, to cheat on the agreement.
Because if all the others were turning out products of the same
poor quality (as they agreed to do) and he made products which
were only slightly better, he would gain customers and increase
his profits. Given the profit motive (which was the incentive for
the cartel) the members are not likely to honor the agreement.
Second, there will be great temptations for businessmen out-
side the cartel agreement to enter the industry. By turning out
products even slightly better than those turned out by the cartel
manufacturers, they will attract customers and profits.
Paradoxically, the forces tending to break up the cartel would
become stronger as the cartel became more successful. For the
stronger the cartel, the greater the decrease in the quality of the
product. The lower the quality, the easier it would become to
attract competitors customers. Even a slight increase in quality
would accomplish this.
Advertising also hastens the process of breaking up cartels
which try to restrict quality. In fact, advertising tends to prevent
their formation in the first place. Advertising builds up brand
names with attached good will. The brand name stands for a cer-
tain level of quality. If a firm allows the quality of its product to
deteriorate, it loses the good will it has spent millions attaining.
Independent rating agencies like Consumers Union also
tend to prevent cartels from forming, and to break them up if
they do occur. By keeping strict tabs on the quality of merchan-
dise, such rating agencies keep the public apprised of even slight
deteriorations of quality.
Finally, even if all members maintain the agreement, and no
outsiders step in, the restriction on quality is still more likely to
fail than to succeed. For it is impossible for all manufacturers to
restrict quality to exactly the same degree. The ones who restrict
quality least will inevitably gain better reputations, more cus-
tomers, and increased profits. The market will continue to be a
testing ground, weeding out companies which produce inferior
goods. Failing the test means bankruptcy; passing the test means
survival.
It seems clear then, that in a free market, cartels cannot be
maintained. But they can be maintained, and built-in obsoles-
cence with them, if the government steps in. For example, when
The Wastemakers 215
the government sets up guild-like restrictions on entry into an
industry, cartels are encouraged because competition is discour-
aged. Thus the interests of those already in the field are pro-
tected. Whatever agreements they may have made with one
another can be maintained. If they have agreed, as a matter of
policy, to restrict the quality of production, that policy has a
chance to succeed. The effects of government participation can
be seen in many fields. Consider medicine. The government, at
the behest of the American Medical Association, has succeeded
in banning the use of acupuncture. Acupuncture practitioners
threatened the positions of licensed doctors, and the AMA,
which functions as a cartel, exerted great pressure against them.
This was, of course, in line with its general policy of keeping
doctors salaries high regardless of the quality of service. In the
same way, psychologists and psychiatrists, with the help of the
government, harass practitioners who are in competition with
them. They are seeking to ban all those (encounter group lead-
ers, etc.), whom they themselves have not licensed to practice.
The government has also at times prevented the operation of
the internal forces which tend to break up cartels. The railroad
cartel is a case in point. Member companies of the railroad car-
tel agreed to cut back on the quantity of service in order to force
prices up. But, as could have been predicted, with higher prices
there were fewer passengers. Each railroad began to try to attract
the customers of the other railroads by cutting back on the stated
price. This would of course have destroyed the cartel. As it hap-
pened, the price-cutting took the form of price rebates. But
instead of allowing this practice to continue, and thus ruin the
waste-making cartel, the government prohibited railroad
rebates. And the railroad industry has not recovered yet.
A third way in which the government contributes to the
problem of built-in obsolescence is by propping up companies
which, because of the low quality of the goods they produce,
cannot survive the competition of the market. Many of the sub-
sidies that the government makes available to businessmen serve
only to support businesses which are failing because they have
been unable to serve their customers.
Let us now consider the second alternative, the case where it
costs more money to increase the quality of the product. Here
the analysis is just the opposite. This kind of planned obsoles-
cence occurs on the unhampered market every day, but it is by
no means wasteful or senseless! It is part and parcel of the choice
of quality offered to consumers.
Consider the following hypothetical table of the cost of auto-
mobile tires and the life expectancy of each tire.
Brand Cost Average Longevity
Tire A $10 1 year
Tire B $50 2 years
Tire C $150 5 years
When purchasing tires, the consumer is given a choice
between higher quality, and higher-priced tires, or lower quality,
and lower priced tires. Of course the $10 tire is not expected to
last as long as the $150 tire! It was made in such a way that it will
wear out sooner. This might be termed built-in obsolescence.
But where is the waste? There is none. The manufacturers of
cheap tires are not taking advantage of a helpless consumer mar-
ket. They are not trapping people into buying low quality goods.
They are manufacturing what people want. If some manufac-
turers of low quality tires were convinced by the ecologists that
their products were wasteful, and stopped producing them,
the price of the low quality tires still available would simply rise,
because the demand would continue to exist while the supply
decreased. This would in turn set up irresistible pressures for
manufacturers to get back into (or enter for the first time) the
low quality tire field, as profits there began to rise. In this way
the market would tend to bring about consumer satisfaction.
The lowly paper plate can serve to further illustrate the point
that built-in obsolescence is not wasteful when low quality prod-
ucts are cheaper to make than high quality products. Who would
The Wastemakers 217
ever think of blaming paper plate manufacturers for built-in
obsolescence? Yet there is the same quality-price combination of
choices in plates as in the tires. One can buy, at increasing prices,
paper plates, plastic plates of varying quality, ceramic and clay
baked plates, on and up through plates of the finest quality
china.
It is indeed strange that people blame built-in obsolescence
for breakdowns in their cars, and not for the rapid deterioration
of their paper napkins. But in both cases there is higher quality
merchandise available, at higher prices. The choice is the con-
sumers. There is no more sense in complaining that low qual-
ity cars break down than there is in complaining that paper cups
do not last very long. Less expensive products are not made to
last as long as more expensive products! That is why they cost
less. Clearly, built-in obsolescence which reflects consumer
choice is not wasteful.
But isnt low quality in and of itself wasteful because it uses
up our resources? Even if built-in obsolescence is not a problem
in paper plates, arent paper plates themselves wasteful because
they use up wood?
One problem with this way of looking at the matter is that it
assumes that lower quality products use up more resources than
higher quality products. To be sure, the lower the quality of the
product, the more likely it is that replacement and repair will be
necessary. But, on the other hand, higher quality products use
up more resources at the outset! The issue is really one between
a high initial outlay and small subsequent outlays for a high
quality product, versus a low initial outlay and greater subse-
quent outlays (repairs, replacements) for low quality products.
In a free market, the consumers decide between these alterna-
tives. Products are made which are least wasteful in the view of
the consumers. If consumers decide that, given rapid changes in
fashion, it is wasteful to buy clothing that lasts for five years or
more, manufacturers will find it more profitable to produce less
durable, less expensive clothing. If the market called for it, man-
ufacturers would offer clothing made out of paper. Similarly, if
consumers wanted cars that would last longer, producers would
offer such cars. They would offer them at a higher price, if con-
sumers wanted these with all the present frills and comforts. If
the consumers preferred, the manufacturers would offer them at
the same price as lower quality cars, but without the extras.
Furthermore, in a free market, using up resources does
not pose a serious threat. As scarcities develop, powerful forces
automatically come into play to correct them. For example, if
wood were to fall into short supply, its price would be forced up.
As a consequence, consumers would buy fewer products made
of wood. Producers would tend to substitute other materials for
wood wherever possible. Cabinets, furniture, boats, etc., would
be made of other, less expensive materials. New, possibly syn-
thetic, materials would be developed. Greater care would be
taken to recycle the suddenly more valuable used wood. Old
newsprint, for example, would be chemically treated and reused
with greater efforts. The increased price of wood would provide
incentives for entrepreneurs to plant more seedlings and take
care of forests more intensively. In short, given a dearth of one
or even several resources, a free economy automatically adjusts.
As long as its adjustment mechanism, the price system, is not
interfered with, other cheaper and more plentiful resources will
be substituted, and those in short supply will be better pre-
served.
But what would happen, it may be asked, if not just one or
several, but all resources were in short supply? What would hap-
pen if we depleted all our resources at the same time? This is the
stuff from which science fiction is made, so we will have to
indulge in a bit of science fiction ourselves to deal with it. But
we will stop short of assuming that everything magically van-
ishes from the face of the earth. In that eventuality, we would
have nothing helpful to suggest.
In order to make sense of the view, we will not assume that
all resources suddenly disappear, or that the earth suddenly
shrinks and shrivels away, but that economic resources get used
up and turn into ashes, waste, and dust. For example, we will
assume not that coal disappears entirely, but that it gets used up
and replaced by ashes, dust, pollutants, and chemical derivatives
The Wastemakers 219
of the burning process. We will also assume that all other
resources get used up in the same sense; that is, that they
become useless to us.
To deal with this horror, two things must be borne in mind.
First, there is good reason to believe that new sources of energy
will be discovered or invented as present sources are depleted.
There are no reasons to assume that this will not be the case.
The human race has passed from the stone age, to the bronze
age, to the iron age. When coal sources were depleted, oil was
used. After oil, there will be other sources of energy, possibly
nuclear. To ignore this technological phenomenon would be to
hopelessly distort the issue.
In the second place, we must realize that the direct and indi-
rect source of all energy is the sun. It is the source of every type
of energy presently used, and it will be the source of whatever
types of energy our technology may produce in the future. But
the sun itself will not last forever. When it goes, humanity goes,
unless we are technologically advanced enough to either re-
energize the sun or relocate on another planet with a younger
sun. Whether we will have a technology competent to accom-
plish this when the time comes depends on choices we are mak-
ing now. If we exploit the resources of the earth, use them, find
replacements for them, and learn from such exploitation, our
technology will continue to develop. If we do not, and are moti-
vated by fear, and have no faith in our ability to meet challenges,
we will hoard the resources we have at present, and we will not
grow any further. We will be waiting, ostrich-like, for the sun to
go out and the world to end, having forgone the advanced tech-
nology that only increased population and exploitation of the
resources the earth makes possible.
VIII. LABOR
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29
THE FAT CAPITALIST-PIG EMPLOYER
If not for the minimum wage law and other progressive
legislation, the employers, the fat-capitalist-pig exploiting
employers, to be precise, would lower wages to whatever
level they wanted. At best, we would be pushed back to
the days of the sweatshop; at worst, to the days of the
industrial revolution and before, when mankind waged
an often losing battle with starvation.
S
o goes the conventional wisdom on the merits of mini-
mum wage legislation. It will be shown, however, that this
conventional wisdom is wrong, tragically wrong. It
assumes a villain where none exists. What does the law actually
accomplish and what are its consequences?
The minimum wage law is, on the face of it, not an employ-
ment law but an unemployment law. It does not force an
employer to hire an employee at the minimum wage level, or at
any other level. It compels the employer not to hire the employee
at certain wage levels, namely, those below the minimum set by
law. It coerces the worker, no matter how anxious he may be to
accept a job at a wage level below the minimum, not to accept
the job. It obligates the worker who is faced with a choice
223
between a low-wage job and unemployment to choose unem-
ployment. Nor does the law even push any wage up; it only lops
off jobs which do not meet the standard.
How would wages be determined in the absence of mini-
mum wage legislation? If the labor market consists of many sup-
pliers of labor (employees) and many demanders of labor
(employers), then the wage rate will tend to be set in accordance
with what the economist calls the marginal productivity of
labor. The marginal productivity of labor is the extra amount of
receipts an employer would have if he employs a given worker.
In other words, if by adding a given worker to the payroll, the
employers total receipts rise by $60 per week, then the marginal
productivity of that worker is $60 per week. The wage rate paid
to the worker tends to equal the workers marginal productivity.
Why is this so, in view of the fact that the employer would pre-
fer to pay the worker virtually nothing, no matter what his pro-
ductivity? The answer is, competition between employers.
For example, assume the workers marginal productivity is
equal to $1.00 per hour. If he were hired at 5 per hour, the
employer would make 95 per hour profit. Other employers
would bid for that worker. Even if they paid him 6, 7, or 10
an hour, their profit would still make the bidding worthwhile.
The bidding would end at the wage level of $1.00 per hour. For
only when the wages paid equal the workers marginal produc-
tivity will the incentive to bid for the worker stop.
But suppose the employers mutually agree not to hire work-
ers at more than 5 per hour? This occurred in the Middle Ages
when cartels of employers got together, with the aid of the state,
to pass laws which prohibited wage levels above a certain maxi-
mum. Such agreements can only succeed with state aid and
there are good reasons why this is so.
In the noncartel situation, the employer hires a certain num-
ber of workersthe number which he believes will yield the
maximum profit. If an employer hires only ten workers, it is
because he thinks the productivity of the tenth will be greater
than the wage he must pay and that the productivity of an
eleventh would be less than this amount.
If, then, a cartel succeeds in lowering the wage of workers
with a marginal productivity of $1.00 to 5 per hour, each
employer will want to hire many more workers. This is known
as the law of downward sloping demand (the lower the price,
the more buyers will want to purchase). The worker whose pro-
ductivity was, in the eyes of the employer, just below $1.00, and
therefore not worth hiring at $1.00 per hour, will be eagerly
sought at 5 per hour.
This leads to the first flaw in the cartel: each employer who
is a party to the cartel has a great financial incentive to cheat.
Each employer will try to bid workers away from the others. The
only way he can do this is by offering higher wages. How much
higher? All the way up to $1.00, as we have seen before, and for
the same reason.
The second flaw is that nonmembers of the cartel arrange-
ment would want to hire these workers at 5 per hour, even
assuming no cheating by members. This also tends to drive up
the wage from 5 to $1.00 per hour. Others, such as would-be
employers in noncartel geographical areas, self-employed arti-
sans who could not before afford employees, and employers who
had previously hired only part-time workers, would all con-
tribute to an upward trend in the wage level.
Even if the workers themselves are ignorant of wage levels
paid elsewhere, or are located in isolated areas where there is no
alternative employment, these forces will apply. It is not neces-
sary that both parties to a trade have knowledge of all relevant
conditions. It has been said that unless both parties are equally
well-informed, imperfect competition results, and economic
laws somehow do not apply. But this is mistaken. Workers usu-
ally have little overall knowledge of the labor market, but
employers are supposedly much better informed. And this is all
that is necessary. While the worker may not be well-informed
about alternative job opportunities, he knows well enough to
take the highest paying job. All that is necessary is that the
employer present himself to the employee who is earning less
than his marginal productivity, and offer him a higher wage.
The Fat Capitalist-Pig Employer 225
And this is exactly what naturally happens. The self-inter-
est of employers leads them as if by an invisible hand to fer-
ret out low-wage workers, offer them higher wages, and spirit
them away. The whole process tends to raise wages to the level
of marginal productivity. This applies not only to urban workers,
but to workers in isolated areas who are ignorant of alternative
job opportunities and would not have the money to get there
even if aware of them. It is true that the differential between the
wage level and the productivity of the unsophisticated worker
You must stop this insane diet, J.T.so what if the union
does call you a FAT CAPITLISTIC PIG!
will have to be great enough to compensate the employer for the
costs of coming to the worker, informing him of job alternatives,
and paying the costs of sending him there. But this is almost
always the case, and employers have long been cognizant of it.
The Mexican wetbacks are a case in point. Few groups
have less knowledge of the labor market in the United States,
and less money for traveling to more lucrative jobs. Not only do
employers from southern California travel hundreds of miles to
find them, but they also furnish trucks or travel money to trans-
port them northward. In fact, employers from as far away as
Wisconsin travel to Mexico for cheap labor (workers receiving
less than their marginal product). This is eloquent testimony to
the workings of an obscure economic law they have never heard
of. (There are complaints about the poor working conditions of
these migrant workers. But these complaints are mainly from
either well-intentioned people who are unaware of the eco-
nomic realities, or from those not in sympathy with these hap-
less workers receiving full value for their labors. The Mexican
workers themselves view the package of wages and working con-
ditions as favorable compared to alternatives at home. This is
seen in their willingness, year after year, to come to the United
States during the harvesting season.)
It is not the minimum wage law, therefore, that stands
between Western civilization and a return to the stone age.
There are market forces and profit maximizing behavior on the
part of entrepreneurs, which ensure that wages do not fall below
the level of productivity. And the level of productivity is itself
determined by technology, education, and the amount of capital
equipment in a society, not by the amount of socially progres-
sive legislation enacted. Minimum wage legislation does not do
what its press claims. What does it do? What are its actual
effects?
What will be the reaction of the typical worker to a legislated
increase in wages from $1.00 to $2.00? If he is already fully
employed, he may want to work more hours. If he is partially
employed or unemployed, it is virtually certain that he will want
to work more.
The typical employer, on the other hand, will react in the
opposite way. He will want to fire virtually all of the workers he
is forced to give raises to. (Otherwise he would have granted
raises before he was compelled to.) Now, he has to keep produc-
tion up, so he might not be able to adjust this situation immedi-
ately. But as time passes he will replace his unexpectedly expen-
sive unskilled workers with fewer but more skilled workers and
with more sophisticated machinery, so that his total productivity
remains constant.
Students of an introductory economics course learn that
when a price level above equilibrium is set, the result is a sur-
plus. In the example, when a minimum wage level above $1.00
per hour is set, the result is a surplus of laborotherwise called
unemployment. Iconoclastic as it may sound, it is, therefore, true
that the minimum wage law causes unemployment. At the
higher wage level it creates more people willing to work and
fewer jobs available.
The only debatable question is: how much unemployment
does the minimum wage law create? This depends on how
quickly the unskilled workers are replaced by equivalently pro-
ductive skilled workers in conjunction with machines. In our
own recent history, for example, when the minimum wage law
increased from 40 to 75 per hour, elevator operators began to
be replaced. It has taken some time, but most elevators are now
automatic. The same thing happened to unskilled dishwashers.
They have been and are still being replaced by automatic dish-
washing machinery, operated and repaired by semi-skilled and
skilled workers. The process continues. As the minimum wage
law is applied to greater and greater segments of the unskilled
population, and as its level rises, more and more unskilled peo-
ple will become unemployed.
Finally, it is important to note that a minimum wage law
only directly affects those earning less than the minimum wage
level. A law requiring that everyone be paid at least $2.00 per
hour has no effect on an individual earning $10.00 per hour. But
before assuming that the minimum wage law simply results in
pay raises for low-wage earners, consider what would happen if
a $100.00 per hour minimum wage law went into effect. How
many of us have such great productivity that an employer would
be willing to pay $100.00 for an hour of our services? Only those
thought to be worth that much money would retain their jobs.
The rest would be unemployed. The example is extreme, of
course, but the principle which would operate if such a law were
passed does operate now. When wages are raised by law, the
workers with low productivity are discharged.
Who is hurt by the minimum wage law? The unskilled,
whose productivity level is below the wage level legislated. The
unemployment rate of black male teenagers is usually (under-)
estimated at 50 percent, three times the unemployment level of
the 1933 depression. And this percentage does not even begin to
take into account the great numbers who have given up search-
ing for a job in the face of this unemployment rate.
The lost income that this represents is only the tip of the ice-
berg. More important is the on-the-job-training these young
men could be receiving. Were they working at $1.00 per hour (or
even less) instead of being unemployed at $2.00 per hour, they
would be learning skills that would enable them to raise their
productivity and wage rates above $2.00 in the future. Instead
they are condemned to street corners, idleness, learning only
those skills which will earn them jail sentences at some early
future time.
One of the greatest hurdles facing a black teenager is look-
ing for his first job. Every employer demands work experience,
but how can the young black get it if no one will hire him? This
is not because of some employer conspiracy to denigrate
minority teenagers. It is because of the minimum wage law. If an
employer is forced to pay for an experienced-level worker, is it
any wonder that he demands this kind of labor?
A paradox is that many black teenagers are worth more than
the minimum wage but are unemployed because of it. In order to
be employed with a $2.00 an hour minimum wage law, it is not
enough just to be worth $2.00. You have to be thought to be worth
$2.00 per hour by an employer who stands to lose money if he
guesses wrong and may go broke if he guesses wrong too often.
With a minimum wage law, an employer cannot afford to take a
chance. And, unfortunately, black teenagers are frequently
viewed as risky, as a class. When confronted with a reluctant
employer, a Horatio Alger hero could stride over manfully and
offer to work for a token salary, or even for nothing, for a term of
two weeks. During this time our hero would prove to the
employer that his productivity deserved a higher wage rate.
More important, he would bear with the employer part of the
risk of hiring an untried worker. The employer would go along
with this arrangement because he would be risking little.
But the Horatio Alger hero did not have to do battle with a
minimum wage law which made such an arrangement illegal.
The law thus insures that there is less chance for the black
teenager to prove his worth in an honest way.
The minimum wage law hurts not only the black teenager,
but the black ghetto merchant and industrialist as well. Without
this law, he would have access, in a way which his white coun-
terpart would not, to a cheap labor pool of black teenager labor.
The young black worker would be more accessible to him since
he tends to live in the ghetto and would have easier access to the
job site. He would undoubtedly have less resentment toward,
and a smoother work relationship with, a black entrepreneur.
Since this is one of the most important determinants of produc-
tivity for jobs of this type, the black employer could pay his
workers more than the white one couldand still make a profit.
Unfortunate as the effects on young black workers are, a
greater tragedy of the minimum wage law concerns the handi-
capped worker (the lame, the blind, the deaf, the amputee, the
paralyzed, and the mentally handicapped). The minimum wage
law effectively makes it illegal for a profit-seeking employer to
hire a handicapped person. All hopes of even a modicum of self-
reliance are dashed. The choice the handicapped person faces is
between idleness and governmentally supported make-work
schemes which consist of trivial activities and are as demoraliz-
ing as idleness. That such schemes are supported by a govern-
ment which makes honest employment impossible in the first
place, is an irony few handicapped people would find amusing.
Recently, certain classes of handicapped people (the slightly
handicapped) have become exempt from the minimum wage
law. It is, therefore, in the interest of employers to hire the
slightly handicapped, and they now have jobs. But if it has
been realized that the minimum wage law hurts the em-
ployment chances of slightly handicaped people, surely it
should be realized that it hurts the chances of others. Why are
seriously handicapped people not exempt?
If the minimum wage law does not protect the individual it
seems designed to protect, whose interests does it serve? Why
was such legislation passed?
Among the most vociferous proponents of minimum wage
legislation is organized laborand this must give us pause for
thought. For the average union member earns much more than
the minimum wage level of $2.00 per hour. If he is already earn-
ing $10.00 per hour, as we have seen, his wage level is in accor-
dance with the law, and is not, therefore, affected by it. What
then accounts for his passionate commitment to it?
His concern is hardly with the downtrodden workerhis
black, Puerto Rican, Mexican-American and American-Indian
brethren. For his union is typically 99.44 percent white, and he
strenuously resists the attempts by members of minority groups
to enter his union. What then stands behind organized labors
interest in minimum wage legislation?
When the minimum wage law forced up the wages of
unskilled labor, the law of downward sloping demand caused
employers to substitute skilled labor for unskilled labor. In the
same way, when a labor union, composed mainly of skilled
laborers, obtains a wage increase, the law of downward sloping
demand causes employers to substitute unskilled laborers for
skilled laborers! In other words, because skilled and unskilled
laborers are, within certain bounds, substitutable for each other,
they are actually in competition with one another. It might well
be that it is 10 or 20 unskilled workers who are in competition
with, and hence substitutable for two or three skilled workers,
plus a more sophisticated machine. But of the substitutability
itself, especially in the long run, there can be no doubt.
What better way to get rid of your competition than to force
it to price itself out of the market? What better way for a union
to insure that the next wage hike will not tempt employers to
hire unskilled, nonunion scabs (especially minority group mem-
bers)? The tactic is to get a law passed that makes the wage of
the unskilled so high that they cannot be hired, no matter how
outrageous the wage demands of the union are. (If minority
groups could get a law passed requiring all union wages to rise
ten times their present amount, they could virtually destroy the
unions. Union membership would decline precipitously.
Employers would fire all unionists, and in cases where they
could not, or did not, they would go bankrupt.)
Do the unions purposefully and knowingly advocate such a
harmful law? It is not motives that concern us here. It is only
acts and their effects. The effects of the minimum wage law are
disastrous. It adversely affects the poor, the unskilled, and
minority group members, the very people it was supposedly
designed to help.
30
THE SCAB
O
ne of the most universally shared attitudes is that the
scab is a wretched character. He is unscrupulous and
sneakily in league with the boss. Together, scab and
boss plot to deprive union workers of their rights, and of the jobs
that are legitimately theirs. Scabs are hired to force union work-
ers to accept lower wages. When it becomes known that scabs
are also used to beat up union workers and pickets, the case is
virtually completethe scab is the greatest enemy of the worker.
These are the facts that are taught in many of our centers of
learning, to be challenged only at the risk of ones reputation as
a scholar. Nevertheless, this flummery must be refuted.
The first point to establish is that a job is not a thing which
can be owned by a workeror by anyone else. A job is the man-
ifestation of a trade between a worker and an employer. The
worker trades his labor for the money of the employer, at some
mutually agreeable rate of exchange. So when we speak of my
job, we are only talking figuratively.
Although we are in the habit of using such phrases as my
job, my customer, and my tailor, we do not presume own-
ership in any of these instances. Take first the case of my cus-
tomer. If this phrase were taken literally, it would denote that
the merchant has an ownership right over the custom of the
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people who habitually buy from him. He would own the cus-
tomers patronage and he would, therefore, have a right to object
if his customer patronized another merchant.
The sword cuts both ways. Let us take the case of my tai-
lor. If we were to take this phrase literally, we would have to say
that the tailor may not shut down his shop, relocate, or declare
himself bankrupt, without the permission of the customers. He
is their tailor.
In both these cases, of course, it is clear that the possessive
pronoun is not meant to imply literal possession. Clearly, neither
buyer or seller has the right to insist upon the permanence of a
business relationship, unless of course, a long-term contract has
been agreed upon by both parties. Then, and only then, would
the merchant and the customer have the right to object if either
party ended the relationship without the consent of the other.
Now let us consider my job. What is the worker implying
when he objects to the scab taking his job away? The worker
is arguing as though he owned the job. He is, in other words,
assuming that service, after a certain period of time, obligates
the employer to the employee as strictly as if they had agreed to
a contract. But in fact, the employer has never obligated himself
contractually.
One wonders how the workers would react if the principle
upon which their anti-scab feeling is based were adopted by the
employer. How would they feel if employers assumed the right
to forbid long-term workers from leaving their employment?
What if he accused another employer who dared to hire his
worker of being a scab! Yet the situation is entirely symmetrical.
Clearly, there is something wrong with an argument which
asserts that once people voluntarily agree to trade, they are there-
after compelled to continue to trade. By what shift in logic is a
voluntary relationship converted into a strictly involuntary rela-
tionship? Hiring an individual does not imply slave-holding
rights over that person, nor does having worked for an employer
give one the right to a job. It should be evident that the worker
never owns the job, that it is not his job. The scab, therefore,
is guilty of no irregularity when he takes the job which the
worker formerly held.
The issue of violence between workers and scabs is a sepa-
rate issue. The initiation of violence is condemnable, and when
scabs initiate violence, they deserve our censure. But the initia-
tion of violence is not their defining characteristic. When they
engage in it, they do so as individuals, not as scabs qua scabs.
Milkmen, after all, sometimes go berserk and commit aggression
The Scab 235
against nonaggressors. No one would take this as proof that the
delivery of milk is an intrinsically evil enterprise. In like manner,
the use of illegitimate violence on the part of scabs does not ren-
der the enterprise of scabbing illegitimate.
In recent times, the muddled and inconsistent thinking
about scabs has become increasingly evident. Liberals, tradition-
ally most vociferous in denouncing scabs, have of late shown
signs of confusion on this issue. They have come to realize that
in virtually all cases the scabs are poorer than the workers they
seek to replace. And liberals have almost always championed the
poor worker. Also, the specter of racism has been raised. In many
cases, black scabs have been pitted against white (unionized)
workers, Mexican workers against Mexican-American workers,
Japanese workers against higher paid American workers.
The Ocean Hill-Brownsville decentralization school board
clash in Brooklyn, New York, is a dramatic case in point. Under
the local school board system, Rhody McCoy, the black school
board administrator, fired several white teachers for alleged
racist behavior toward their young black pupils. In response, the
white dominated United Federation of Teachers Union struck
the entire New York City educational system, including Ocean
Hill-Brownsville. If the black Ocean Hill-Brownsville school
district was to continue to function, unit administrator McCoy
would have to find replacements for the striking white teachers.
He did, and they were, naturally, scabs. Hence, the quandary
faced by the liberals: on the one hand, they were unalterably
opposed to scabs, but on the other hand, they were unalterably
opposed to the racism of the United Federation of Teachers.
Clearly, there was more heat than light in their attitudes.
Scabs obviously have been unjustly maligned. Employment
does not give the employee any proprietary privileges closed to
workers who wish to compete for the same job. Scabbing and
free competition are opposite sides of the same coin.
31
THE RATE BUSTER
T
he scene is familiar from hundreds of movies featuring
labor themes: the young eager worker comes to the fac-
tory for the first time, determined to be a productive
worker. In his enthusiasm, he happily produces more than the
other workers who have been at the factory many years, and who
are tired, stooped, and arthritic. He is a rate buster.
Not unnaturally, antipathy springs up between our eager
young worker and his senior colleagues. After all, they are cast
in a slothful role. In contrast to his youthful exuberance, their
production levels look meager indeed.
As the young worker continues his accelerated work output,
he becomes more and more alienated from the other workers.
He becomes haughty. The older workers, for their part, try to
treat him with compassion. But when he remains resistant, they
subject him to a silent treatment and commit him to a workers
purgatory.
As the film continues, there occurs a climactic moment
when the youthful rate buster comes to his senses. This comes
about in any number of ways, all dramatic. Perhaps he sees a
sick old woman, an ex-factory worker, or a worker who has been
injured in the factory. If the movie in question is avant garde, the
conversion can be sparked through the good offices of a cat
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grousing around in an overturned garbage can. Whatever the
method, the young man does come to see the error of his ways.
Then, in the last dramatic scene, which usually ends with all
the workersreformed rate buster includedwalking off arm-
in-arm, a kindly old worker-philosopher takes over center stage.
He gives the young worker a five-minute course in labor history,
from ancient Roman times down to the present, showing the
constant perfidy of the bosses, and proving beyond question
that the only hope of the workers lies in solidarity.
There has always been, he explains, a class struggle between
the workers and the capitalists, with the workers continually
struggling for decent wages and working conditions. The bosses
are portrayed as always trying to pay the workers less than they
deserve, pushing them as far as they can until they drop from
exhaustion. Any worker who cooperates with the bosses in their
unceasing, merciless, and ruthless efforts to speed up the
workers, and to force them to increase their productivity levels,
is an enemy of the working class. With this summation by the
worker-philosopher, the movie ends.
This view of labor economics contains a tangle of fallacies
which is interwoven with each part resting in complex ways on
other parts. However, there is one core fallacy.
The core fallacy is the assumption that there is only so much
work to be done in the world. Sometimes called the lump of
labor fallacy, this economic view holds that the peoples of the
world only require a limited amount of labor in their behalf.
When this amount is surpassed, there will be no more work to
be done, and hence, there will be no more jobs for the workers.
For those who hold this view, limiting the productivity of the
eager young workers is of overriding importance. For if these
workers work too hard, they will ruin things for everyone. By
hogging up the limited amount of work which exists, they
leave too little for everyone else. It is as if the amount of work
that can be done resembles a pie of a fixed size. If some people
take more than their share, everyone else will suffer with less.
If this economic view of the world were correct, there would
indeed be some justification for the theory espoused by the
labor-philosopher of the movie. There would be some justifica-
tion for insisting that the younger and more active worker not
take away more than his share of the pie. However, adherence
to this theory has proved to be inefficient and uneconomic, with
tragic results.
This false view is based upon the assumption that peoples
desiresfor creature comforts, leisure, intellectual, and aes-
thetic achievementshave a sharp upward boundary which can
be reached in a finite amount of time; and that when it is
reached, production must cease. Nothing could be further from
the truth.
To assume that human desires can be fully and finally satis-
fied is to assume that we can reach a point at which human per-
fectionmaterial, intellectual, and aesthetichas been fully
realized. Paradise? Perhaps. If it were somehow achieved, then
certainly there would be no unemployment problemfor
who would need a job?
There is as much work to be done as there are unfulfilled
desires. Since human desires are, for all practical purposes, lim-
itless, the amount of work to be done is also limitless. Therefore,
no matter how much work the eager young man completes, he
cannot possibly exhaust or even make an appreciable dent in the
amount of work to be done.
If the eager worker does not take work away from others
(because there is a limitless amount of work to be done), what
effect does he have? The effect of working harder and more effi-
ciently is to increase production. By his energy and efficiency, he
increases the size of the piethe pie that will then be shared
among all those who took part in its production.
The rate buster should also be considered from another van-
tage point. Consider the plight of a family shipwrecked on a
tropical island.
When the Swiss Family Robinson sought refuge on an
island, their store of belongings consisted only of what was sal-
vaged from the ship. The meager supply of capital goods, plus
their own laboring ability, will determine whether or not they
survive.
The Rate Buster 239
If we strip away all the novelistic superficialities, the eco-
nomic situation that the Swiss Family Robinson found itself in
was facing an unending list of desires, while the means at their
disposal for the satisfaction of these desires was extremely lim-
ited.
If we suppose that all the members of the family set to work
with the material resources at their disposal, we would find that
they can satisfy only some of their desires.
What would be the effect of rate busting in their situation?
Suppose one of the children suddenly becomes a rate buster and
is able to produce twice as much per day as the other members
of the family. Will this young punk be the ruination of the fam-
ily, take work away from the other family members, and wreak
havoc upon the mini-society they have created?
It is obvious that the Swiss Family Robinson rate buster will
not bring ruination upon his family. On the contrary, the rate
buster will be seen as the hero he is, since there is no danger that
his increased productivity would cause the family to run out of
work. We have seen that for practical and even philosophical
reasons, the wants and desires of the family were limitless. The
family would hardly be in trouble even if several members were
rate busters.
If the rate busting family member can produce ten extra
units of clothing, it may become possible for other members of
the family to be relieved of their clothing manufacturing chores.
New jobs will be assigned to them. There will be a sorting out
period during which it is decided which jobs should be under-
taken. But clearly, the end result will be greater satisfaction for
the family. In a modern, complex economy, the results would be
identical, though the process more complicated. The sorting out
period, for example, may take some time. The point remains,
however, that because of rate busting, society as a whole will
move toward greater and greater satisfaction and prosperity.
Another aspect of rate busting is the creation of new items.
Thomas Edison, Isaac Newton, Wolfgang Mozart, J.S. Bach,
Henry Ford, Jonas Salk, Albert Einstein, plus innumerable oth-
ers, were the rate busters of their day, not of quantity, but of
quality. Each busted through what was considered by their
society to be a normal rate and type of productivity. Yet each of
these rate busters contributed incalculably to our civilization.
In addition to understanding rate busting from the point of
view of quantity and innovation, rate busting should also be
considered in terms of the new lives on this earth that it makes
possible. The amount of human life which the earth can support
is related to the level of productivity human beings achieve. If
there are fewer rate busters, the number of lives this earth can
support will be severely limited. If however, the number of rate
busters increases significantly in each respective field, the earth
will then be able to support an ever-expanding population.
The conclusion then is that not only are rate busters respon-
sible for satisfying more of our desires than a slower, less effi-
cient rate of production, they are also responsible for preserving
the very lives of all those who would have to die were it not for
the rate busters enlarging the scope of human satisfactions.
They provide the means with which the increasing global birth
rate can be supported.
The Rate Buster 241
32
THE EMPLOYER OF CHILD LABOR
H
igh on the list of the enemies of society, one can always
find the employer of child laborcruel, cold hearted,
exploitative, cunning, and evil. In the public mind,
child labor is almost equivalent to slave labor, and the childrens
employer is no better than the slave owner.
It is important to correct this view. Simple justice demands
it, for the majority opinion on this question is completely falla-
cious. The archetypical child labor employer is as kindly, benev-
olent, and filled with the milk of human kindness as anyone
else. Moreover, the institution of child labor is an honorable one,
with a long and glorious history of good works. And the villains
of the piece are not the employers, but rather those who prohibit
the free market in child labor. These do-gooders are responsible
for the untold immiseration of those who are thus forced out of
employment. Although the harm done was greater in the past,
when great poverty made widespread child labor necessary,
there are still people in dire straits today. Present prohibitions of
child labor are thus an unconscionable interference with their
lives.
The first plank in the defense is that the employer of child
labor has not forced anyone to join his employ. Any and all labor
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agreements are completely voluntary. As such, unless they were
thought to be mutually beneficial, they would not be agreed to.
But in what sense can a labor contract with a child be com-
pletely voluntary? Does not complete voluntarism imply an
awareness that a child is not capable of? To answer this ques-
tion, consideration should be given to a proper definition of
what a child is.
This is an ancient question which has never been fully
resolved. Nevertheless, we shall consider several ages which
have been suggested as dividing the child from the adult, ana-
lyze them, and then offer an alternative.
Among the earliest ages for the cut-off point between child-
hood and adulthood are those proposed by the various religions.
The age of confirmation into the religion, which usually occurs
in the very early teens, or even before, is the age at which many
religions define adulthood. But the person (child) at, for exam-
ple, age 13 also is, except in rare instances, still immature, rela-
tively helpless, and ignorant of the skills necessary to care for
himself. So it must be rejected.
The next candidate for adulthood is age 18. Usually picked
because this is the age at which a young man becomes eligible
for the draft, this age also has several problems as a definition of
adulthood. We may start off by questioning whether or not fight-
ing in wars is an adult action. All too often, going to war is vir-
tually the opposite of behavior usually indicative of adulthood.
Also, merely following orders (the be-all and end-all of the
enlisted soldier) cannot be considered an adult paradigm. In
addition, there is the problem that the draft, an involuntary
institution if ever there was one, serves as the very basis for the
order-taking that follows. At least if the original decision to obey
orders was made on a voluntary basis, such as the decision to
join an orchestra, and then to follow all (musical) orders of the
conductor, there might be some adult-like behavior involved in
the draft. However, based as it is on original involuntarism, even
so much cannot be said for the 18 year old draftable age.
Another problem with the 18 year cut-off point is that the origi-
nal reason for our search was the fear that a mere child would be
unable to make voluntary contracts on his own. How then can
we base such an age on a patently involuntary institution such as
the draft?
Perhaps the latest candidate for adulthood is the voting
age21 years old. But even this is open to harsh criticism.
There is first the problem that several, if not many 10 year olds,
have a greater grasp of political, social, historical, psychological,
and economic factors, presumably the factors that enable one to
vote wisely, than do many people over the age of 21. One
would then think that if this were true, there would be some
recognition of the fact in the form of a movement to enfranchise
all bright 10 year olds, or rather, all bright children of any age.
But this would defeat the original goal of allowing only adults to
vote. Through this circularity of reasoning, we can see that the
age of 21 is only an arbitrary cutoff point.
We can likewise see all other arbitrary definitions of adult-
hood to be without merit. What is needed is not an arbitrary age
limit which will apply to all people regardless of ability, temper-
ment, and behavior, but rather a criteria which can take all these
qualities into account. Moreover, the criteria should be consis-
tent with the libertarian principle of self-ownership of property:
namely homesteading. What is wanted is an application of the
principle of homesteading, which establishes self-ownership
and ownership of property, but applied now to the perplexing
problem of when a child becomes an adult.
Such a theory has been put forth by Professor Murray N.
Rothbard. According to Rothbard, a child becomes an adult not
when he reaches some arbitrary age limit, but rather when he
does something to establish his ownership and control over his
own person: namely, when he leaves home, and becomes able to
support himself. This criteria, and only this criteria, is free of all
the objections to arbitrary age limits. Moreover, not only is it
consistent with the libertarian homesteading theory, it is but an
application of it. For by leaving home and becoming his own
means of support, the ex-child becomes an initiator, as the
homesteader, and owes his improved state to his own actions.
The Employer of Child Labor 245
The theory has several implications. If the only way a child
may become an adult is by picking himself up and establishing
such adulthood of and by his own volition, then the parent has
no right to interfere with this choice. The parent cannot, then,
forbid the child from leaving the parental household. The par-
ent has other rights and obligations over the child as long as the
child remains in the house of the parents. (This accounts for the
validity of the oft-heard parental order: As long as youre in this
house, youll do things my way.) But the one thing the parent
cannot do is forbid the childs departure. To do this would be to
When I was their age my old man got me a job in a boat-
yard. Man did I have calluses. The kids today got it made.
violate the volitional aspects of growing up from a child to an
adult.
It should be noted that this theory of the passage from child-
hood to adulthood is the only one consistent with the problem
of mental deficiency. According to the specific arbitrary theories
of adulthood, a mental incompetent, aged 50, ought to be con-
sidered an adult, even though he manifestly is not. These theo-
ries then come up with further arbitrary ad hoc exceptions to
fit the case. But the mental incompetent is no embarrassment to
the homesteading theory. Since he has not (been able to) seized
ownership and adulthood of and for himself, the mental incom-
petent of whatever age is simply not an adult.
The most important implication of the homesteading theory
of adulthood is, of course, the one regarding the prohibition of
so-called child labor, where a child is defined as someone with
less than a certain arbitrary number of years. For this prohibi-
tion of so-called child labor, as in the case of parental interfer-
ence with the childs decision to leave home, will effectively
remove the possibility of voluntarily becoming an adult. If a
person of tender years is effectively prohibited from working, the
option to leave home and to support himself is removed from
him. He is then excluded from homesteading his own adult-
hood and must perforce wait until the arbitrary number of
years defining adulthood has been reached.
However, the adult homesteading theory does not require
employers to hire young persons who are trying to establish
their adulthood. It is, of course, true that unless some employer
hires such a person, he will find it as difficult to become an adult
as in the case where his parents forbade his departure, or the
government prohibited it. But the key difference is that the vol-
untaristic nature of the passage from childhood to adulthood will
not be infringed upon by employers refusing to hire young peo-
ple. This is so because true voluntarism requires voluntary
action on the part of both parties to an agreement. The
employer, as well as the employee, must agree. In any case, since
there can be no positive obligations, unless the individual him-
self contracts for them, and the employer has made no advance
commitment to employ the youngster, there is no moral obliga-
tion on the part of the employer. (Employers will of course,
employ young people when they feel it is to their advantage to
do so, as they have always done when not prohibited by law.)
Not only is it important to end prohibitions of employment
of children for the sake of their peaceful and voluntaristic tran-
sition into adulthood; it is also of overriding importance to the
small but growing kid liberation movement. The prohibition
against job opportunities will have to be ended if children are to
be truly liberated from their parents while in residence in the
parental abode. Of what value is the right to leave the family
household and seek a living outside, if a youngster is prohibited
from supporting himself? The right of every kid to fire his par-
ents if they become too onerous, is completely compromised by
the laws against child labor.
Can a labor contract with a mere child be truly voluntary,
given his tender years, lack of experience, etc.? The answer is
yes. A person, any person, who has had the ability to leave home
and to attempt to earn his own living is mature enough to enter
into a contract on a voluntary basis, since such a person is a child
no longer. The opposite answer, as we have seen, would effec-
tively bar young people from striking out on their own and
becoming adults through homesteading. Their only alternative
would be to wait until they have reached whatever arbitrary
number of years society, in its infinite wisdom, has determined
to be necessary for adulthood.
There are other objections, however, to the legalization of
child labor. It will be said that a destitute youngster, even
though an adult through homesteading, will be taken advantage
of by employers; that the employer will make profit from the
plight the youngster happens to find himself in.
But it would be far more harmful if his one source of sup-
port, however bleak, were legislated out of existence. Despite the
fact that the employer might be cruel, the job menial, and the
salary low, it would be far more injurious to forbid him the
opportunity. If there are other, more favorable, alternatives, the
young person will avail himself of them even if the law allows
the choice of accepting or rejecting the unfavorable job. If there
are no other opportunities, the law prohibiting child labor will
take from him this one opportunity, however unfavorable.
In a free market society, the employer will not be able to take
advantage of the misery of the young worker, if by this it is
meant that he will not be able to pay him less than his marginal
product. As we have seen in the chapter on the capitalist-pig-
employer, there exist powerful forces on an open market which
will tend to force all wages up toward the level of productivity of
the worker in question.
However destitute and helpless the youngster who is looking
for work may be, it is not the fault of the potential employer.
Even if the destitution and lack of bargaining power of the
worker were very extreme, and even if the employer were able to
take advantage of this (as we have seen is not the case), it
would still not be the fault of the employer. If anything, the
unfortunate situation would have to be blamed on the back-
ground of the (ex-) child.
The question arises as to what degree the parent is obligated
to support the child. As a general principle, the parent has no
positive obligations whatsoever in regard to the child. The argu-
ment to the contrary, that a parent does have some positive obli-
gations toward the child, based upon the supposed contractual
nature, or voluntary decision on the part of the parents to bear
the child, may be easily shaken. Consider the following:
1. All children are equal in rights due them from their par-
ents, regardless of the way in which they were conceived.
2. Specifically, the child who is a product of rape has as
many obligations due him from his female parent as any
other child. (We assume that the male parent, the rapist,
has gone.) No matter what views we have on rape, the
child who is a product of such rape is entirely guiltless of
this crime, or any other crime.
3. The voluntary nature of child rearing and conception
does not apply in the case of rape.
4. Therefore, the argument that the parent owes some obli-
gations to the child which arise out of the voluntary
nature of the conception, or out of an implicit contract,
cannot apply in the case of rape, i.e., in the case of rape,
at least, the female parent owes no positive obligation to
the child, because she did not consent to its inception.
5. All children, being equally guiltless of any crime, in spite
of any theory to the contrary, such as original sin, have
equal rights due them from their parents. Since all such
rights (supposedly) flow from the voluntary nature of
conception, and the children born of rape manifestly
lack this voluntary aspect, they, at least have no rights
due them from their (female) parent. But their rights are
equal to those of all other children. Therefore, no child,
whosoever, has any positive obligations due him from his
parents.
Nor is it immediately or intuitively obvious that there are
any other grounds for establishing any parental duties to chil-
dren. Given, then, that nothing but a voluntary agreement on
the part of the parent could establish obligations to children, and
that this argument fails, it is obvious that there are no positive
obligations incumbent upon parents toward their children.
No positive obligations implies that the parent has no
more of an obligation to feed, clothe, and shelter his own child
than he has to serve the children of other people, or, for that
matter, than to serve other adults who are completely unrelated
to him, by birth, agreement, etc. This is not to suggest, however,
that the parent may kill the child. Just as the parent has no right
to kill the children of other parents, he has no right to kill his
own children, or rather, children he has given birth to.
The parent, when he assumes the role of parenthood, is a
sort of caretaker for the child. If ever the parent wishes to relin-
quish this role that he or she has voluntarily adopted, or not
assume this obligation in the first place, she is completely free to
do so. She can offer the baby for adoption, or, in the old tradition
of the natural law, leave the baby on the steps of a church or
charitable institution specializing in the care of children.
But the parent may not secret the baby in a hidden corner of
the house without food, or refuse to offer it for adoption, and
wait for it to die. To do this would be equivalent to murdera
crime which must always be severely condemned. The parent
who keeps the child hidden while starving it (so as not to actu-
ally commit violent murder upon it) has renounced his caretak-
ership or the parental relationship others might be willing to
assume.
Perhaps the parental-caretaker role may be made clearer by
entering it into a hierarchy of homesteading: the child falls into
a realm between that of another adult and that of an animal. If
one adult helps another, he cannot by that help alone, come to
be the owner of the other person. If an adult domesticates an
animal, and through his own efforts brings the animal into pro-
ductive use (productive for mankind), he can thereby come to
own it. The child, an intermediate case, can be owned
through homesteading, but only on a caretaker basis, until he is
ready to assert ownership over his own person; namely, to
assume adulthood by becoming independent of his parents. The
parent can exercise control over the child and rear it only as long
as he continues his homesteading efforts. (With an animal, or
with land, once it is homesteaded, the owner need no longer
continue to homestead it in order to own it. He can, for exam-
ple, be an absentee landlord or animal owner.) If he discontin-
ues his homesteading operations with the child, he must then
either offer it for adoption, if it is too young and helpless to fend
for itself, or he must allow it to run away to set up its own life, if
it is able and willing.
If the parent brought up the child with just enough help and
aid to qualify as a continuance of homesteading, but no more,
and if the child is in a relatively deprived background, this can-
not be laid at the door of the prospective employer. Prohibiting
an employer from hiring such a youngster will in no way
improve his lotit can only worsen it.
True, there are parents who make unwise decisions concern-
ing children, unwise from the vantage point of outside observers.
It does not follow, however, that the welfare of children will be
raised by placing them in the hands of the state apparatus. The
state, too, makes unwise, and even unhealthy decisions concern-
ing children, and a child can much more easily leave his parent
than leave his government, which rules us all.
We must conclude, then, that all labor contracts concerning
young people are valid as long as they are voluntaryand they
can be voluntary. Either the young person is an adult (whatever
his age), who has earned his adulthood and hence is able to con-
sent to contracts, or else he is still a child, and is able to work on
a voluntary basis through the intermediation of parental con-
sent.
abortion, 14
absolute advantage, 178
academic freedom, 5155
addiction, drug, 28, 3337
adulthood, 24447
advertisers, 5768, 215
advertising
ban on, 6364
government-aided, 67
government ratings board for,
65
motivational and informational,
6165
aggression, xiii, xv, xvi
airlines, 60
banking, 60
central, 10608
holidays, 107
wildcat, 10607
benefits, social, xiv
blackmailers, 4146
blacks, 22930
Block, Walter, ixxi
boycotts, 43
bribery, 95
Britain, 31
brokerage, 1011
brothers keeper philosophy, 13335
business and trade issues, 13995
capital accumulation, 11112
cartels, 149, 21416, 224
charity, 12935
private vs. state, 13132
child labor, 24352
China, 30
civil liberties, 19394
Cloward, Richard A., 132
collateral, 126
collectives, shopping, 161
comparative advantage, 178
compensating differentials, 1718
competition, 21, 60, 162, 208, 214
INDEX
253
Index.qxd 2/21/2008 12:33 PM Page 253
condemnation, land, 141
conscription, 244
consumer sovereignty, 21819
contracts, 44, 54, 6971, 123
cooping, 93
cops, 9196
corruption, 162
costs, 65
counterfeiters, 99110
criminals, 14, 4445
curmudgeons, 13945
Darwins law, 130
debasement, 105
deflation, 114
demand, law of, 225
devaluations, 107
discrimination, 62
private vs. state, 1516
sexual, 2021, 2223
doctors, medical, 29, 37
Domhoff, G. William, 130
double coincidence of wants, 182
draft, the, 244
drugs
addicts of, 3337
pushers of, 2731, 9293
ecological issues, 199220
economics, xii, 63
economists, ix
egalitarianism, 11920
eminent domain, 14041
employers, 22332, 24352
energy sources, 220
entrepreneurs, 18595
equality, 2021, 119
income, 13334
evil, xiv
exchange rates, flexible and fixed,
108
exports, 17273
extortion, 96
famine, 16568
farm price supports, 132
fences, 29
fiat currency, 104
financial issues, 99135
fire, screaming in a crowded the-
ater, 6972
foreign aid, 132
fraud, 59, 99
free speech, 4172
free-enterprise, system of, xvxvi,
16, 22, 193
Friedman, Milton, 66, 108
gambling, 92
ghetto merchants, 15563, 230
gifts, 11718, 177
gold, 10405, 176
gossips, 4243
government, 15, 1718
intervention in the economy,
143,
152, 16163
market vs., 1516, 67, 71, 77,
13132, 193, 195, 208
Gross National Product (GNP), 36
gypsy cab drivers, 7582
handicapped, the, 23031
harassment, sexual, 16, 1820
Index.qxd 2/21/2008 12:33 PM Page 254
heirs, 11720
heroes, xxi, 109
heroin, 2730
hoarding, 11215
homesteading, 14041, 24547, 251
housing, 14754
importers, 16978
inflation, monetary, 99110
inheritors, 11720
innovation, 24041
interest, 12426
invisible hand, 166
jobs, 169, 17273, 23334
hunting for, 61
kid liberation movement, 248
knowledge, 188, 195, 225
labor issues, 22352
labor
lump of, fallacy, 23839
labor
skilled, 174
organized, 231
landlords, 14754
law, 9495
legal tender laws, 105
leisure, 30
lenders, 12127
libeler, 4750
libertarianism, xiiixiv, xvi
licensure, 7779
lifespan, 3435
litterers, 20511
majority opinion, 33
male chauvinist pigs, 1323
marketplace, xv
marriage, 6
means, ends and, xvi
medical issues, 2737
medical profession, 29, 37, 216
mental incompetents, 247
merchants, 15563
middlemen, 17983
migrant workers, 227
Mill, John Stuart, 33
minimum wage laws, 22324,
22732
mining, 199203
minorities, 7577, 7980
minting, 10405
misers, 11115
mixed economy, 195
money, 99110; as sterile, 12324
moneylenders, 12127
morality, xvi, 133, 140
murder, 251
natural selection, 130
nature, argument from, 20203
obligations, positive, 24950
obsolescence, planned, 21320
opportunities, 18689
outlaws, 7596
Packard, Vance, 213
paper
money, 106
products, 21719
Index 255
Index.qxd 2/21/2008 12:33 PM Page 255
parenting, 59, 24951
physiocrats, 59
pimps, 911
Piven, Frances F., 132
policemen, 9196
pollution, 200202
poor, the, 7577; 7980, 12427
poverty, 151
praxeology, 144
prices, 6, 28, 30, 75, 84, 86, 102,
11214, 149, 156, 18689, 209, 219
productivity, 22730, 24041, 249
professions, 4, 9
profiteer, 18595
profits, 15659, 18595
prohibitions, 123, 154
drug, 2730
property, 15
private, 140
private vs. public, 1720, 22, 54,
20510
prostitutes, 37, 14
protectionism, 17078
public speaking, 63
public transit, 7677
racism, 236
radical leftists, 6263
railroads, 216
rape, 1314, 94
rate buster, 23741
ratings agencies, 215
rationing, 86
regulatory agencies, capture of, 66
rent control laws, 149
rents, 149
reputation, 4750
responsibility, 35
rights, 23, 71
Rockwell, Norman, 3
Rothbard, Murray N., 114n, 245
ruling class, 54
sado-masochists, 7172
savings, 11112
scabs, 23336
scapegoats, ixx
self-ownership, 140
sex, 56
sexual issues, 323
short selling, 187
sidewalks, 210
silver, 104
slanderer, 4750
slumlords, 14754
Smith, Adam, 166
specialization, 17172
speculators, 16568
stewardship, 14243
strikes, 236
stripminers, 199203
taxation, xiv
taxi drivers, 7582
theft, 103, 123
third parties, xv, 5
threats, 4344
ticket scalpers, 8389
time preference, 12122
tires, 217
token coins, 105
torture, 96
trade, xv, 3, 6, 107, 14445, 16978
trespass, 20002
Index.qxd 2/21/2008 12:33 PM Page 256
unemployment, 22324, 22830
unions, 23132
usury, 126
utopia, 177
violence, xiii, xv, xvi
voluntarism, 247, 252
Vonnegut, Kurt, 119
voting, 245
wages, 22432
wastemakers, 21320
womens liberation movement, 13
Index 257
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