The Regulatory-Industrial Complex

The free market is great for consumers and producers, but some businessmen find government regulation an easier road to profits. That’s why they try to use government to protect them from the rivalry of the market.

There is nothing wrong with wanting to be on top, of course, so long as it is done peacefully. But when businessmen use the government to gain a monopoly, they cease being market competitors and become a political pressure group.

Some businesses advocate “fair trade” laws against “unfair competition,” government price floors, licenses, taxes on competitors, and other political measures.

Taxi monopolies are powerful on the city level. They lobby government to make new drivers go through lengthy procedures or acquire expensive licenses to own a taxi. These laws don’t exist to protect the public; they protect a privileged industry from competition and work against the public interest.

Dairy monopolies and utility companies are powerful on the state level. In New York, the dairy industry lobbies for protection from its New Jersey competitors who sell milk at a cheaper price. Utility companies get special privileges to be the sole provider of water, electricity, and natural gas. In all these cases, the consumer loses his freedom to choose.

At the national level, to take just two examples, the Post Office has a monopoly on mail and the Federal Reserve has a monopoly on money and banking.

Socialism is the final monopoly. Here the government allows no competition and only limited trade. Nationalizing an industry puts monopolists in power by merging their competitors under their control. Nationalizing an entire economy gives those on top the biggest boon of all. It’s no coincidence that statist U.S. industrialists like Dwayne Andreas of Archer-Daniels-Midland and Armand Hammer of Occidental Petroleum get along so well with the elites that run the Soviet economy.

In each case—local, state, and federal monopolies and under socialism—monopolists find that they gain more through special privileges from the government than they do from the free market. And they do so at our expense.

This isn’t something new. At the turn of the century, as historian Gabriel Kolko explains in the Triumph of Conservatism (1963):
Competition was unacceptable to many key business and financial interests. . . . As new competitors sprang up, and as economic power was diffused throughout an expanding nation, it became apparent to many important businessmen that only the national government could “rationalize” the economy. Although specific conditions varied from industry to industry, internal problems that could be solved only by political means were the common denominator in those industries whose leaders advocated greater federal regulation. Ironically, contrary to the consensus of historians, it was not the existence of monopoly that caused the federal government to intervene in the economy, but the lack of it.
One classic example is the Interstate Commerce Commission, a federal agency set up at the behest of the railroad industry in 1887, which has been a menace to consumers ever since. The ICC was this nation’s first “independent” regulatory agency, charged with preventing “cut-throat” competition in the transportation industry. The railroad industry sold it as a boon to consumers.

During the hearings on the Interstate Commerce Act of 1887, the leaders of the railroad industry lobbied hard for the ICC. Why? They wanted the government to outlaw price competition, which threatened established, old-line railroads. The ICC’s first action was to do exactly that. Over the years, the ICC brought less competition, higher prices, and lousy train service. Like a pact with Satan, the ICC eventually helped ossify and then destroy the railroad industry, but by that time, the original owners and managers had long since gone to their reward far richer than they would have been in a world of free competition.

The ICC—and other similar Progressive Era agencies like the FTC—set the stage for more cartelization under FDR’s National Industrial Recovery Act, which was drafted by Gerard Swope of General Electric, the Chamber of Commerce, the American Bar Association, and dozens of other business groups and leaders. As E. W. Hawley shows in his classic study, The New Deal and the Problem of Monopoly (1966), big business lobbied for the NIRA because they had a “vision of a business commonwealth, of a rational, cartelized business order in which the industrialists would plan and direct the economy, profits would be insured, and the government would take care of recalcitrant ‘chiselers.’”
In America, special interests are the minority. They are greatly outnumbered by taxpayers, voters, and competitors. But the interests get what they want in politics because they are well-organized, have well-defined goals, and can reward those in government who do their bidding. Consumers and taxpayers are spread out, disorganized, and pay a small marginal cost per intervention. Unfortunately, an interventionist economy tends to grant favors to well-organized minorities at the expense of the majority, even in a democracy where the will of the majority supposedly triumphs.

The special interests created the Interstate Commerce Commission, the Federal Reserve System, the Food and Drug Administration, the Federal Trade Commission, the Export-Import Bank, the Commodity Credit Corporation, the Securities and Exchange Commission, the Environmental Protection Agency, the Consumer Product Safety Commission, and a host of other agencies. In case after case, the agency served the special interests by promoting oligopoly and monopoly and retarding competition to the detriment of consumers.

The way to avoid such abuses is not by giving even more power to the political regulators who, after all, are already comfortably in bed with the vested interests.

The way to quash the regulatory-industrial complex is through a separation of Market and state, a strict adherence to the policy of laissez-faire. Only a purely free market will stop privilege-seeking businessmen from clustering around Washington like flies around a garbage can. Under a free market, the only road to profits will be to please the consumer.
Sam Wells

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How our Economic Constitution Has Deteriorated

Many people think of the Constitution as essentially unchanged, yet today’s document bears little resemblance to the original of 1787 in its relation to the economy. The original words remain, but they have been formally amended in critical ways; and reinterpreted by the Supreme Court so that their practical effect has become almost the opposite of the intent.

The original Constitution promoted economic development in many ways. For example, it resolved the disputes over the West by providing for the admission of new states on equal terms with the old, thereby fostering settlement of the vast interior. Provision for duty-free interstate trade increased productivity. The Constitution made state governments less intrusive by prohibiting their issuance of paper money and their passage of laws impairing the obligation of contracts.

By the mid-19th century, rapid economic growth had become the normal condition of the economy. But under the surface, an irresolvable contradiction was growing. The lump that would not digest was slavery.

In view of its importance in the southern economy and the deep disagreements between northerners and southerners about it, slavery received scant mention in the original Constitution. (The words “slave” and “slavery” do not appear at all.) Congress could not interfere with the international slave trade for 20 years; slaves escaping into free states had to be returned; and three-fifths of the slaves were counted in determining representation in Congress. Otherwise the Constitution left slavery to the states.
For seven decades, a succession of political compromises kept the conflict between North and South from boiling over, but finally either the will or the ability to fashion acceptable compromises ran out, and the Civil War ensued.

In the war’s aftermath the old Constitution was fundamentally altered. The Thirteenth Amendment abolished slavery. The Fourteenth guaranteed to all citizens, including the freed slaves, protection from state actions that would abridge the privileges and immunities of citizenship, deprive them of life, liberty, or property without due process, or deny them equal protection of the laws. The Fifteenth Amendment guaranteed the right of the freedmen to vote. The amendments of the 1860s transferred power from the states to the national government. Though disputes over states’ rights persisted, claims of dual sovereignty lost most of their force.

During the post-civil War era, Americans enjoyed unprecedented economic growth, an achievement favored by the Supreme Court’s insistence that due process of law included protection of economic liberties—rights of private property and freedom of contract. Then, government actions caused the economy to plunge into deep depression in the early 1930s. Governments at all levels responded by expanding their powers over economic affairs. At first the Supreme Court resisted many of these measures. Starting in 1937, though, the Court reversed so many important decisions on economic matters that its turnabout must be considered a constitutional revolution. The heart of the Court’s new position was a broad reading of the Commerce Clause. Practically everything, no matter how manifestly local, was seen as part of interstate commerce and therefore subject to regulation by Congress and its agencies.

During the past 50 years, the United States has developed a welfare state not much different from those of Western Europe. Economic affairs, once overwhelmingly private, have become pervasively politicized. Taxes now equal 40% of the national income—up from 13% as recently as 1929. The free-market economy has come to be regulated in minute and expensive detail, with the costs born largely by consumers. Citizens have lost much of the economic liberty their ancestors esteemed.
American traditions and political pressures have kept the government from totally destroying all private property rights. But the Constitution, which formerly served to guarantee economic liberties, no longer provides much if any substantial protection. One may well doubt whether the economic dynamism that made the average American rich by world standards will prove permanently compatible with a constitutional regime so permissive of governmental intrusion into economic affairs.

But the Constitution can be changed, as it has been changed before. In 1865 the Constitution gave the slaves freedom from their masters. We can hope that someday the Constitution will be changed again to give all Americans economic freedom from our masters in Washington.

Robert Higgs

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How Government Intervention Plagued Our 19th-Century Economy

The recessions and depressions of the 19th century are often cited as proof of the “inherent instability” of the free market. (Indeed, the promoters of the Federal Reserve System in 1913 argued for a central bank as a way of preventing future downturns!) This is, of course, a bum rap.

The 1800s were freer than today, but there was more than enough government intervention to cause serious setbacks in the economy. And Austrian trade cycle theory explains exactly how.

The source of the business cycle, Mises discovered, is government-engineered expansion of money and credit. Such a policy artificially depresses interest rates at first, deranges the structure of production by generating unsustainable malinvestments, and inevitably leads to contraction and painful readjustments.
The first economic calamity of the century occurred in 1808 when a federal embargo on overseas shipping produced widespread bankruptcies and unemployment. After that, five major cyclical depressions struck the American economy: in 1819, 1837, 1857, and 1893. The typical economic history text lists among the “causes” things like railroad speculation, stock crashes, trade imbalances, commodity price booms and busts, etc.

These are not, of course, causes at all, but merely symptoms. Only Austrian trade cycle theory as propounded by Ludwig von Mises, Murray N. Rothbard, and others, makes sense of the mess and provides a coherent explanation of these five depressions.

The 1819 collapse followed a flagrant credit expansion by the Second Bank of the United States, created by the feds in 1816. The definitive work on the experience is still Rothbard’s PhD thesis, The Panic of 1819.

Rothbard documented the extensive culpability of the Second Bank. In its very first year, it issued $23 million on a specie reserve of about $2.5 million. The expansion of credit, which eventually involved state banks as well, was actively encouraged by the U.S. Treasury. The government even made it legal for inflating banks to fraudulently suspend payment of specie, ripping off hapless depositors in the process.

Then, in a series of deliberate deflationary moves, the Second Bank pulled the rug out from under the very house of cards it had built. It forced a drastic reduction in the money supply starting as early as the middle of 1818. The depression, which came a few months later, was the unavoidable outcome of gross manipulation of money and credit.

Those who blame the gold standard for this debacle are wrong. In fact, the country was not even on a gold standard at the time. In 1792, the official policy was “bimetallism,” according to which silver and gold were to circulate side by side at a governmentally fixed ratio. (The ratio between the prices of any two commodities, including gold and silver, is always changing on the market, and an attempt to fix the ratio by government fiat always leads to trouble. In this instance, it forced the country onto a de facto silver standard from the start. The same sort of intervention proved to be a major factor in the later crisis of 1893.)

The Second Bank’s shenanigans created the depression of 1837. Anticipating a political battle to renew the Bank when its charter ran out in 1836, Bank authorities early in the decade embarked upon a rapid expansion of the money supply. Reserve ratios were pushed to their lowest levels of the entire antebellum period. Orchestrating “good times” through easy money was the Bank’s way of fighting hard-money, anti-central bank President Andrew Jackson.

Jackson, however, flattened the inflation by requiring specie in payment for federal lands and by vetoing the Bank’s charter. In the quick contraction that followed, the inflationary malinvestments promoted by the bank were liquidated. But Washington persisted with its policy of bimetallism. In addition, state and local governments responded to the 1837 collapse with a wave of anti-banking laws, outlawing banks altogether in some places and exacerbating the depression. This is hardly laissez-faire or gold standard behavior.

By the early 1850s, state governments got into the inflation act. Exerting control over their extensive network of state-chartered banks, they pressured the banks to monetize state debt. The result was another round of credit expansion, dangerous reduction of specie reserves, and a temporary, artificial boom in the economy, followed by panic and depression in 1857. Because the pressure on banks to monetize debt occurred principally in the Northern states, the subsequent collapse was considerably less pronounced in the South.

The general depression of 1873 also provides a clear example of government as the guilty party. In the prior decade, both Northern and Southern regimes abandoned a specie standard altogether and printed massive quantities of irredeemable, legal tender paper.

In the Confederacy, high taxes, a paper hyperinflation, and Northern scorched-earth military policies plunged the region into depression in 1865.

In the North, despite crippling tax hikes, revenues fell far short of the funds necessary to prosecute the war. No less than $5.2 billion in “greenbacks” were printed. At the war’s conclusion, a greenback dollar was worth only 35 cents in gold. The Northern economy struggled for a few more years, but with the complete cessation of paper inflation in the 1870s, collapse and readjustment began by 1873.
Recovery had barely commenced when the central government began a new form of monetary intervention, this one tied to silver. In 1878, Congress passed (over President Hayes’s veto) the Bland-Allison Act, which mandated the Treasury’s purchase of $2-$4 million in silver bullion per month. The metal was to be minted into silver dollars, each containing 371.25 grains of silver. Since the gold dollar was defined as 23.22 grains of gold, this established a ratio between the two metals of 16 to 1.

But the free-market value of silver in terms of gold was at least 18 to 1 in 1878. By overvaluing silver and undervaluing gold, Bland-Allison set Gresham’s Law into motion. “Bad” money (officially overvalued silver) began to drive “good” money (officially undervalued gold) out of circulation, deranging the nation’s finances and engendering a steady loss of confidence in the currency. On top of it all, Bland-Allison authorized the Treasury to issue paper silver certificates along with the depreciating silver dollars.

The inflationists of the period—who pushed for this intervention in the belief that “more money” would aid the economy in general and debtors in particular—were not satisfied. Throughout the 1880s, they pushed for even more inflation under the guise of “doing something for silver.”

Their crowning folly was enacted into law in 1890—the Sherman Silver Purchase Act. It required the Treasury to buy virtually the entire output of American silver mines—4.5 million ounces per month; mint it at 16 to 1 at a time when the gold/silver ratio in the free market was actually greater than 30 to 1; and issue new paper “Treasury Notes” simultaneously.

Drugged by easy money, the economy took on the classic symptoms of a boom. Unemployment and interest rates in 1891 and 1892 fell dramatically. Capital goods industries worked feverishly. Foreigners, however, were the first to sense danger and began withdrawing their capital from America as early as 1891.

The economic reversal started in 1893, and led to the worst depression in 50 years. It also produced one of the more scholarly addresses ever delivered before the House of Representatives. Congressman Bourke Cochran of New York, a first-rate historian, traced the history of coinage in England and explained how debasing the currency led to recurrent depressions. Applying that principle to his day, he declared:
I think it safe to assert that every commercial crisis can be traced to an unnecessary inflation of the currency, or to an improvident expansion of credit. The operation of the Sherman Law has been to flood this country with paper money without providing any method whatever for its redemption. The circulating medium has become so redundant that the channels of commerce have overflowed and gold has been expelled.

Viewing the crisis of 1893, contemporary historian Ernest Ludlow Bogart said:
It must be said that the net results of this experiment of “managed currency,” that is, one in which the government undertakes to provide the necessary money for the people, were disastrous. For the maintenance of a suitable supply, the operation of normal economic forces is more reliable than the judgment of a legislative body.

The economy of 19th-century America was punctuated by serious economic setbacks. They were caused not by the free market, but by the destructive manipulations and interventions of government authorities. This was not a century of government as innocent bystander, but of government as the incessant bungler, running roughshod over the principle of sound and honest money. (Although, without a Fed and other government interventions, the recoveries from these panics were quick.)
We can learn much from the experiences sketched here. Monetary reform, if it is to be genuine and successful, must sever money and banking from politics. That’s why a modern gold standard must have: no central bank; no fixed rations between gold and silver; no bail-outs; no suspension of gold payments or other bank frauds; no monetization of debt; and no inflation of the money supply, all of which have proved so disastrous in the past.

Anything short of the discipline and honesty of a true gold coin standard will inevitably self-destruct, consuming our wealth and liberties, and nurturing the omnipotent state.
Lawrence W. Reed

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The Balanced-Budget Amendment Hoax

It is a hallmark of the triumph of image over substance in modern society that an administration which has submitted to Congress budgets with the biggest deficits in American history should propose as a cure-all a constitutional amendment mandating a balanced budget. Apart from the high irony of such a proposal from such a source, the amendment-mongers don’t seem to realize that the same pressures of the democratic process that have led to permanent and growing deficits will also be at work on the courts that have acquired the exclusive power to interpret the Constitution. The federal courts are appointed by the executive and confirmed by the legislature, and are therefore part and parcel of the government structure.

Apart from these general strictures on rewriting the Constitution as a panacea for our ills, the various proposed balanced-budget amendments suffer from many deep flaws in themselves. The major defect is that they only require a balance of the future estimated budget, and not of the actual budget at the end of a given fiscal year. As we all should know by this time, economists and politicians are expert at submitting glittering projected future budgets that have only the foggiest relation to the actual reality of the future year. It will be duck soup for Congress to estimate a future balance; not so easy, however, to actually balance it. At the very least, any amendment should require the actual balancing of the budget at the end of each particular year.

Secondly, balancing the budget by increasing taxes is like curing influenza by shooting the patient; the cure is worse than the disease. Dimly recognizing this fact, most of the amendment proposals include a clause to limit federal taxation. But unfortunately, they do so by imposing a limit on revenues as a percentage of the national income or gross national product. It is absurd to include such a concept as “national income” in the fundamental law of the land; there is no such real entity, but only a statistical artifact, and an artifact that can and does wobble according to the political breeze. It is all too easy to include or exclude an enormous amount from this concept.

A third flaw highlights again the problem of treating “the budget” as a constitutional entity. As a means of making the deficit look less bleak, there has been an increasing tendency for the government to spend money on “off-budget” items that simply don’t get included in official expenses, and therefore don’t get added to the deficit. Any balanced-budget amendment would provide a field day for this kind of mass trickery on the American public.

We must here note a disturbing current tendency for “born again” pro-deficit economists in conservative ranks to propose that “capital” items be excluded from the federal budget altogether. This theory is based on an analogy with private firms and their “capital” versus “operating” budgets. One would think that allegedly free-market economists would not have the affrontery to apply this to government. Get this adopted, and the government could happily throw away money on any boondoggle, no matter how absurd, so long as they could call it an “investment in the future.” Here is a loophole in the balanced-budget amendment that would make any politician’s day!


A fourth problem is that the various proposals make it all too easy for Congress to override the amendment. Suppose Congress and/or the president violate the amendment. What then? Would the Supreme Court have the power to call the federal marshals and lock up the whole crew? To ask that question is to answer it. (Of course, by making the budget balance prospective instead of real, this problem would not even arise, since it would be almost impossible to violate the amendment at all.)
But isn’t half a loaf better than none? Isn’t it better to have an imperfect amendment than none at all? Half a loaf is indeed better than none, but even worse than no loaf is an elaborate camouflage system that fools the public into thinking that a loaf exists where there is really none at all. Or, to mix our metaphors, that the naked Emperor is really wearing clothes.

We now see the role of the balanced budget amendment in the minds of many if not most of its supporters. The purpose is not actually to balance the budget, for that would involve massive spending cuts that the Establishment, “conservative” or liberal, is not willing to contemplate.

The purpose is to continue deficits while deluding the public into thinking that the budget is, or will soon be, balanced. In that way, the public’s slipping confidence in the dollar will be shored up. Thus, the balanced-budget amendment turns out to be the fiscal counterpart of the supply-siders’ notorious proposal for a phony gold standard. In that scheme, the public would not be able to redeem its dollars in gold coin, the Fed would continue to manipulate and inflate, but all the while this inflationist policy would now be cloaked in the confidence-building mantle of gold.

In both plans, we would be dazzled by the shadow, the rhetoric of sound policy, while the same old program of cheap money and huge deficits would proceed unchecked. In both cases, the dominant ideology seems to be that of P. T. Barnum: “There’s a sucker born every minute.”
Murray N. Rothbard

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Rotation in Office

The Articles of Confederation of 1777, our first “Constitution,” was superior in a number of ways to the document adopted 200 years ago. (It’s easy to forget, amidst all the celebrations, that the Constitution as originally drafted had few limits on government power; it was saved only by the Bill of Rights that the Jeffersonians demanded.)

One of the great clauses of the Articles mandated annual election of Congressmen (by the various state legislatures), and said that no Congressman “may serve for more than three years in any term of six years.”

But politicians hate to be out of office, and this great idea—originated by Thomas Jefferson—was stricken from the Constitution. It was resurrected, however, by that great modern Jeffersonian (and Mises Institute Distinguished Counsellor) Ron Paul who introduced legislation while serving in Congress to limit Congressmen to four two-year terms; Senators to two four-year terms; and Supreme Court and other federal judges to one eight-year term.

It was Dr. Paul’s view, and Jefferson’s, that continuation in office helped create big government. Both these men also applied what Jefferson called “rotation in office” to all government employees.
For more than the first half of our country’s history, when a new administration came into office, it installed its own people in all civilian government jobs. This healthy and purgative process prevented the build-up of bureaucracy. Not surprisingly, it was despised and denigrated by statists as the “spoils system.”

About a century ago, big government advocates, in the first flush of the statist “progressive” era, instituted the idea of civil service—the monstrous idea that civilian bureaucrats should have lifetime tenure in office.

When we have our first 20th century Jeffersonian administration, its agenda will include not only the gold standard, the free market, and a constitutional foreign policy, but the restitution of rotation in office for all government employees, elected and appointed.
Llewellyn H. Rockwell, Jr.

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Love in the Bureaucracy

Bradley Miller

As long as bureaucrat-bashing remains sport royal, there is hope. But how much? Even now, confronting bureaucracy’s relentless encroachments and entanglements, who ya gonna call?

The Reagan administration phoned Ollie North, a “man of action,” a “take-charge guy” who can “cut through red tape” and “get things done.” But most of us must call a faceless functionary at the Reports and Publications Division of the Environmental Protection Agency’s Water and Waste Management Administration’s Emergency Service’s Department’s Request and Complaint Office’s Bureau of Trash, Metal Bulk, and Dead Animal Removal, and get put on hold. In other words, we must call Bureaucratic Man.

As of this writing it seems unlikely that North will go to jail, but powerful evidence indicates that what he tried to do was neither popular nor legal, and could even doom the very group his efforts were designed to help: the Nicaraguan contras. Yet to many, including the president who fired him from the National Security Council, North is a national hero. Even his detractors grant he’s a forceful and attractive personality.

Surveys have found that most Americans don’t know which side is which in Nicaragua, but tell pollsters they’re against sending their tax money down there. So it’s clear that North’s popularity either has nothing to do with the goals he was pursuing, or emerged despite them.

In fact, the root of Americans’ love of him is their hatred of the bureaucracy he defied, just as the 1980 and 1984 elections reflected more hatred of Carter and Mondale than love of Reagan.

North comes across as a forthright, patriotic, God-fearing, family-loving, ruggedly handsome, bemedaled man of action. But America is not lacking in such chaps, and North is far from unflawed. What stirred America was the sight of him thrown before those perceived as niggling, blood-sucking representatives of the world’s biggest and most overpaid bureaucracy. The bureaucracy manufactures the red tape North tried to cut through (never mind toward what ends or in violation of what laws). It stands between the rest of us and the freedom to do what we want, and its spider web of regulations is woven and enforced by gray little men who can’t be fired short of behavior so outrageous it would make most of us candidates for the funny farm.

In Harper’s, Leonard Reed has reported that only one-tenth of one percent of federal bureaucrats are fired for incompetence. At the higher bureaucratic levels such unbearable bungling lands you not in the funny farm but—no joke—in a “turkey farm,” where unbearable bunglers are put through training sessions to turn them into bearable bunglers, i.e., bureaucrats competent enough not to inspire excessive public outrage, and sensible enough to realize that if they do their jobs too well they’ll lose them.
In his great book Bureaucracy, written in 1944, Professor Ludwig von Mises says the distinguishing mark of the bureaucrat is that he is driven not by the profit motive but by the necessity to follow and enforce rules. Mises points out that a bureaucracy, so understood, isn’t intended to be profitable, so its worth can’t be assessed by profit-and-loss statements. Businesses also have bureaucratic aspects, but the free market imposes limits on them. An overload of bureaucrats diminishes profits by diminishing efficiency, innovation, and morale. That’s why schemes to bring business methods to government come to grief. As Mises says, business and government are fundamentally different, and the methods appropriate to one are alien to the other.

The picture is even far bleaker than this. Not only is Bureaucratic Man uninterested in doing good work by business standards; doing such work would cost him his job. An anti-poverty warrior so good he eradicated poverty would have nothing to do, so such wars aren’t intended to be won, but endlessly expanded. This thins the ranks of those who work for a living, and swells the ranks of those who vote for a living. In sum, it makes a joke of representative government.

How bad is it? Guess who said the following:
If we do not halt this steady process of building commissions and regulatory bodies and special legislation like huge inverted pyramids over every one of the simple constitutional provisions, we shall soon be spending many billions of dollars more.
So said Franklin Roosevelt, father of today’s welfare state. By today’s standards FDR was doubtless an efficiency expert.

But by now the deathly effects of bureaucracy on the commonwealth are too well known to need elaboration. Bureaucracy is at once a monstrous evil and banality, and, as its consummation in totalitarianism has shown, it makes the most monstrous evils banal. Banality, indeed, is its highest virtue. Bureaucratic Man wants merely to rust out in ease, security, and respectability, not to wear himself out pursuing greatness. He doesn’t love, in any deep sense, his work or spouse, for love entails risk and demands energy. BM asks only for comfort.

It’s as hard to picture Nietzsche’s superman or Aristotle’s large-souled man in this kingdom of clerks as it is to imagine Pascal at a PTL picnic. The ultimate triumph of the bureaucratic state, which has long been realized in such Periclean lands as Bulgaria, Albania, and North Korea, is to obliterate all traces of even Mick Jagger’s street-fighting man.

Bureaucratic Man is far lower than Winston Smith in Orwell’s 1984, who in the end loved Big Brother. Deep love and deep hate are both inconceivable to BM, so no goon squads are needed to keep him in line. Intellectually and emotionally, after all, his whole life amounts to an endless standing in line to get the necessities for more standing in line.

As technology progresses, it becomes clear that BM is far lower than a machine. Anything BM can do, machines can do better at a fraction of the cost and irritation.

Unfortunately, BM, freed from drudgery by automation, doesn’t devote himself to the art of love or even the love of art, two reasons to live. Instead, automation has exposed—not created—a world in which, as Mises says, “the man who is aware of his inability to stand competition scorns ‘this mad competitive system.’ He who is unfit to serve his fellow citizens wants to rule them.”

BM created this world. If he knows nothing else, BM is at least aware of his limitless inability, which fills him with envy of his superiors, whom he tries, with depressing success, to suffocate through government. Government work is tedious, so it’s hard to get superior men to do it, but in today’s hi-tech age, government by actual robots would be much more efficient and humane than government by BM.

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The Case Against Government Child Care

American families need more affordable child care. But the answer is not more government involvement. When child care is run, funded, and regulated by the government, it can only make the existing problem worse. And it’s bad for our liberty as well.

Promoters of more government intervention claim it will make “quality child care” more available to poor and middle income families. But such programs decrease the legal options that working families have, and the high costs of compliance with regulations drive informal child care underground. Most important, government interference in child care threatens the independence of the family and the long-term interests of children.

Young couples with children may think they want government child care. But they don’t realize that Americans like themselves will be the biggest losers in this Faustian bargain with the State. They risk losing their right to raise their children as they—and not bureaucrats—see fit.

It is not difficult to see why calls for action on child care have grown to a deafening level. Half the married mothers with children under five are working, twice the number who did in 1970. By 1995 two-thirds of all preschool children are expected to have working mothers.

Licensed, regulated child care costs an average of $3,000 per child per year. Most families can’t afford that, especially single-parent families whose annual incomes are less than $10,000. Many of these families now make unofficial arrangements in the black (i.e. free) market, which includes relatives, neighbors, and other unlicensed child-care providers.

It’s already illegal in most states to provide more than 20 hours a week of child care in your home without government permission. Yet legislators are proposing to federalize these laws and make them harsher. Their prime vehicle is the “ABC bill,” the Act for Better Child Care Services, sponsored by Senator Christopher Dodd (D-CT) and Representative Dale Kildee (D-MI).

The ABC bill would create a brand-new, full-blown federal “entitlement” program, complete with subsidies, grants, licenses, loans, regulations, certificates, and inspections. The program would be administered by the states but overseen by a federal child-care administrator backed by an army of bureaucrats.

ABC would authorize $2.5 billion in the first year and “such sums as may be necessary” thereafter. If licensed child care costs $3,000 per child per year and 16 million children are eligible, simple multiplication tells us that the program will cost at least $48 billion annually. And knowing how government programs work, after that, the sky is the limit.

The ABC bill would only be the first step. We can expect pressure groups to launch a full-time effort to make sure there’s no turning back. That’s why Senator Orrin Hatch’s (R-UT) bill isn’t much better. He proposes a “conservative” alternative (i.e. more regulation, some tax credits, and vouchers), but with its direct tax subsidies in the form of vouchers—not to speak of its regulations—it too would encourage powerful lobbying groups to make sure it leads to total federal control.

Advocates of more regulation cite the case of Jessica McClure, the 18-month-old Texas girl who fell down a well last year. According to the misnamed Children’s Defense Fund, Jessica fell because she attended an “unregulated Texas family day-care program.” Stamp out unregulated family day care, CDF says, and such accidents would end. This is nonsense, of course. Regulated industries are much less responsive to consumer demands than unregulated ones. And actual government agencies are even worse. Private child-care centers, on the other hand, are accountable to parents and subject to market competition. They are therefore far more likely to look after the safety of their client’s children.

Advocates of government child care claim they want child care to be more available, yet at the same time they want rigid and federalized regulations. Regulations can only lessen the number of child-care centers because fewer providers will have the time, resources, labor, and facilities to qualify under Washington’s official rules.

Regulations will not improve the quality of child care. They will restrict competition and establish a cartel of the largest firms, which are the only ones that can afford the costs of dealing with the government. It’s no coincidence that the big businesses in the industry are actively lobbying for regulations which will crush small firms.

Another bad idea would force businesses to provide child care for employees’ children. Such programs would be very costly for private firms, which would cover their losses by laying off workers. Moreover, they would avoid hiring young women with children. The very people that such programs are allegedly designed to help—young working mothers—would be the ones most hurt.

Some activists would even nationalize child-care centers. But government-run child-care centers will be no different from other government agencies. Would we want our children to be cared for by post office workers or bureaucrats at the department of motor vehicles? The workers could get special training in child care, but that’s not what really matters. More important are the rewards and penalties a job offers.

Once a profit-making enterprise is turned over to the government, its entire character changes. It is no longer concerned about profit and loss. Like all bureaucracies, it’s run for the benefit of the bureaucrats. Employees can’t be fired, they waste money, and customers become an interference rather than a blessing. Such a system would have to work against the best interests of children.

In a private child-care center, the customer is king, employees have reason to work hard, and resources are used efficiently. Profits can only come through providing quality child care at an affordable price.

As a social worker, I work daily with poor mothers who use the underground market to secure child care. And I heartily approve. These mothers know far better than the D.C. government what’s best for their children. In one case, a poor working mother had a loving neighbor take care of her child for three years. It was illegal (no license, no minimum wage, no inspections, etc.), but everyone benefited from the arrangement. Then in July, an informer turned her in, and the government shut down the neighbor’s business. The result: this mother now has to spend half her paycheck on inferior government-approved child care. Everyone is worse off but the government itself, which has increased its power over family life.

Since government can only make things worse, I have a three-point plan guaranteed to increase the availability of quality, affordable child care. First, repeal all regulations and licenses, which would make much more care available. Second, grant unlimited tax credits to families who use child-care services, making them more affordable. And third, repeal the minimum wage law, which would dramatically increase the number of officially employable child-care workers.
I grant that my proposal would have little chance of passing, given the pressure groups stampeding to Washington. But the alternative will be an ominous and bipartisan increase in bureaucratic power over families and children.

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The Conservative Sanctification of Big Government

The most disheartening aspect of the Reagan years has been the Inside-the-Beltway conservative love affair with big government.
Education Secretary William Bennett has been nagging Stanford University for changing its core curriculum. As a cultural conservative, I agree with much of what he says. But am I the only person on the Right who thinks federal bureaucrats have no business telling universities what to teach?
Where are all my conservative friends, who used to denounce federal interference in education, now that Washington is dictating a national curriculum? Or did their denunciations apply only when they weren’t doing the interfering?
In December 1980, Ed Meese called the Department of Education “a ridiculous bureaucratic joke.” And he was right. From the day Jimmy Carter established it—as a payoff to the leftist NEA teachers union—it has been an expensive, intrusive, unconstitutional, and centralizing instrument of state power.
The 1980 Republican platform promised to abolish the Education Department, and Ronald Reagan campaigned on the pledge. But—like so much else—both were forgotten when the cash and jobs could be directed to “our” side.
Instead of abolition, we’ve seen distension, with the administration and Congress increasing the Department’s budget from $10 billion in Carter’s last year to $22 billion in 1988. The head cheerleader for more spending on “education” (actually, anti-education, of course) has been Bennett. At the direction of his ideological control, Irving Kristol, Bennett has lobbied furiously for more spending, and criticized those with a “budget-driven agenda” (i.e. benighted folks who think government already spends too much).
The giant Department of Education runs a complicated array of programs, each with its own budget, its own interest groups, its own bureaucrats, and its own regulatory mandates and prohibitions, which have to be interpreted, explained, and enforced. It is an immense burden on schools and teachers, not to speak of taxpayers.
Bennett—with conservatives rooting him on—has centralized control over teaching methods, teacher selection, pay, promotion, textbooks, and a host of other areas that are none of the federal government’s business. And he has increased the federal bias against private education. It is all reminiscent of the neoconservative Napoleonic “reforms” of French education, designed to support an authoritarian state and force all children into a politically approved mold.
Since liberals have always favored federal control of education, we now have no organized opposition in Washington to school centralization. Federal control of education has been sanctified, so long as it is used to promote “conservative values” (which presumably don’t include parental control of childrens’ education).
And this is no isolated incident. The same thing has happened with the National Endowments for the Humanities and Arts, the Department of Energy, the Federal Trade Commission, OSHA, EPA, and a host of other agencies. Conservatives denounced them when Carter was in office, but now that they offer jobs and grants for the boys, there isn’t a peep.
Washington conservatives defended Ed Meese until he fired his movement-conservative press secretary. Then they attacked the Attorney General too. How dare he, top conservatives sputtered: that press aide was “one of us.”
Lord Bolingbroke, writing more than 200 years ago, said that politics consists of rewarding one’s friends, punishing one’s enemies, and lining one’s pockets. Nothing much has changed, of course. But there were those who thought the conservatives might be different.

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Lies, Damned Lies, and Social Security

The feds may call “Social Security” a retirement program, but it’s actually an unsound, unfair, unworkable, and immoral system of wealth redistribution. It’s bankrupting America and destroying rather than creating financial security.
Franklin D. Roosevelt introduced Social Security in 1936. Congress, which as usual was only too happy to go along with executive violations of the Constitution, promised that Social Security would “provide safeguards against all of the hazards leading to destitution and dependency.” Instead of safeguarding against dependency, Social Security has increased it.
Like earthquakes which announce themselves with small tremors, the burden of Social Security was at first almost un-noticeable. In 1937, the tax rate was 1% on the first $3,000 in earnings; the maximum was thus $30 a year, to be matched by the employer.
In the post-war years Social Security grew as Congress and presidents added more benefits until the program became an Omnibus Vote-Buying Act. Congress passed across-the-board benefit increases of 7% (1965), 13% (1967), 15% (1969), and then in 1972 tied benefits to the Consumer Price Index, yielding an annual “cost-of-living adjustment.”
The SS taxes also grew larger, of course. In 1937 the maximum was $30 annually. By 1970 it was $374.40, an increase of over 1,000%. In 1971 Abraham Ellis—author of the prescient Social Security Fraud was called a right-wing alarmist for predicting that by 1987 the tax would rise to 5.9% of the first $15,000, or $885. He was wrong; actual 1987 rates were 7.15% of the first $43,800, or $3,131. Even this pessimist was 300% too optimistic.
When the program began, there were 100 workers paying into the system for every three people drawing benefits. By 1985 those 100 workers supported 32 retirees. Barring drastic changes in the birthrate, by 2030 there will be 52 retirees drawing benefits for every 100 workers paying in. Over time, then, the ratio of workers to retirees has shifted from 33-1 to 3-1, with worse to come.
In July 1987 the median age was 32.1 years in the United States, the highest ever. The fastest-growing group was that between 35-44 years: the baby boomers. By 2010 the first of these will be retiring. Will there be any benefits to collect? Maybe, but only at tremendous cost to the rest of us.
Then there is the Social Security “trust fund.” It works like this: your employer, acting as an unpaid tax collector, deducts 7.5% of your wages up to $45,000 a year, matches this amount, and sends it all to Washington. The Social Security Administration deposits it into the Treasury, and in return receives IOUs (Treasury Bonds) payable sometime in the future. Congress and the president then spend the cash on endive research and other incumbency enhancement schemes.
What happens in 20 or 30 years when the IOUs are due? The U.S. government has no money of its own, of course. It can pay back the Social Security trust fund only through more taxes, more borrowing, or more inflating. All three come out of the people’s pocketbook.
The first person to retire under Social Security was Miss Ida Fuller. When she retired in 1939, she had paid in only $22. On January 31, 1940, she got her first check: $22.54. Ida Fuller lived to be 100 years old, and the checks kept coming, just as FDR promised. In 34 years of retirement they totaled over $20,000.
Once long-lived people like Ida Fuller were the exception. Now they are the rule. Yet while more and more people live into their 80s and even 90s, the official retirement age remains 65. Why? Because in the 1880s the authoritarian German Chancellor Otto von Bismarck set 65 as the retirement age for his Social Security program. But the average life expectancy in Germany was then 45.
A child born in America in 1776 would, on average, die at 35. Even in 1950, people 65 and over made up only 7.7% of the population. Now that figure stands at 12%, and by 2020 should be 17.3%.
Neil Howe writing in the American Spectator says there are no believable projections for public health-care spending in the next century. Even conservative estimates are off the charts. However, he thinks we could easily see 20 or 30% payroll taxes 40 years from now, just to pay for Medicare and Medicaid! Add in the cash benefits and you could lose half your paycheck even before income tax is deducted. No one seriously believes we will see such taxes. More likely we will either change the system drastically or go through an economic collapse.
Social Security is built on lies, thievery, and coercion. Notice that Social Security check stubs refer to FICA (Federal Insurance Contributions Act). In truth Social Security is a tax. You are required by law to pay; if you refuse the government puts you in jail. But they call it a “contribution” as if we were giving to the United Way. Nor is there any “insurance.” If a private insurance policy were as unsound as Social Security, its sellers would go to jail.
Private con games like the classic “Ponzi scheme” are illegal. But when the government runs them, they become social and secure. Charles Ponzi was a 1920s swindler whose trick was to sell people an investment that promised a big return, then take their money, pay off earlier customers, and move on. The supply of such investors is finite, so while those who got in early did well, sooner or later it had to come to a screeching halt.
Social Security works the same way, except that the “investors” have no choice. Even Ponzi didn’t force people to invest at the point of a gun. The government does. The law makes a distinction between fraud and robbery based on coercion. Since the state has a monopoly on legal coercion, and can ultimately bring deadly force to bear on those who resist it, can we call the required “investment” in Social Security anything less than robbery?
The semantical games don’t end there. The government says that employees pay the FICA tax and employers match it. But this is an accounting trick. The economic reality is that the worker pays it all because the matching payment is just another cost of labor.
Social Security injures the nation’s economy and therefore hurts everyone. If the billions drained away by Social Security every year were put to productive use, our economy would be much less troubled than it is today. Instead, capital is wasted on nonproductive government projects.
Keynesians tell us that government spending creates jobs and stimulates the economy. But they forget to look at how the money would have been used otherwise. Taxation destroys jobs, and by taxing employment, Social Security creates unemployment and hurts small business.
What should we do about this dinosaur in our midst? Several plans have been offered. Unfortunately they range from the patch-up Lee Smith outlined in Fortune last year to the gradualist scheme offered by Peter Ferrara which calls for government to force people to invest in a “Financial Security Account” or stay in the Social Security system. Free marketeers must oppose both in principle. Only a principled stand has any chance of surviving the lobbying of the American Association of Retired Persons.
In the meantime, we should take care of ourselves and not rely on Social Security, support those who want to change it for the better, warn of the present system’s dangers and immorality, and oppose inflationary fix-it schemes and every other intervention in the economy. Advancing lasting solutions based on liberty is the only chance we have of abolishing rip-offs like Social Security.

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Cancel the Postal Monopoly

In the 18th century, as he had for millennia, the urban peddler went from door to door with a sack on his back. When we see this antique method of economic organization, not in a museum setting at Colonial Williamsburg but daily on the streets of every city and town in America, we know the government is in charge.
The Post Office has been a federal agency since 1775. And since 1872 it has been illegal for anyone but government employees to deliver a letter. In that year, at Post Office behest, Congress outlawed the low-priced, fast delivery of the Pony Express. It was to be the last express service available to regular mail customers.
A few years ago, a Rochester, New York, teenager offered his neighbors same-day bicycle delivery at 10¢ each for Christmas cards in his subdivision. Soon Postal Inspectors—who seem to be the only fastmoving part of the “service”—arrived at his house and threatened to arrest and jail him unless he stopped.
Somehow, even from just a common-sense viewpoint, this doesn’t look like something that should be illegal. But indeed he was violating two parts of the postal laws. He was delivering first class mail—which is a federal monopoly—and he was leaving his mail in mailboxes.
By law, all “mail receiving devices” belong to the Postal Service and can be used only by it. That is, the mailbox which you buy and install on your property belongs to the U.S. government. (Note: it belongs to the government in the sense that your silverware belongs to the burglar who just took it at the point of a gun. Property can be owned only by those who acquire it honestly and voluntarily though production or trade.)
The penalty this teenager faced was a $500 fine and six months in jail for each count of the potential indictment, i.e. for each letter delivered. This is from the same government that thinks nothing of freeing murderers and rapists after “rehabilitating” them for a year or two. But then the government has always taken “crimes” against itself far more seriously than actual crimes against the people.
With the government in charge, the bureaucratized service keeps getting worse. It takes longer and longer for mail to arrive. And the Post Office long ago abolished twice-a-day delivery and is working on ending door-to-door delivery as well. Most big offices have the mail dumped in a pile at their front door; postal workers used to sort and distribute it. Then there’s the “cluster box” system for residential areas, where rows of boxes are placed far away from homes in a place convenient for the postal workers.
Typical of government, as the service declines, the price of stamps keeps going up, from 22¢ to 25¢ most recently. That makes a total increase of 675% since 1958, more than twice as fast as the general price level, which has gone up 300% (thanks to another government monopoly, the Federal Reserve). In addition, the Post Office gets billions a year in direct subsidies.
Where does all this money go? Mostly to the bureaucrats themselves. The postal system spends 84% of its budget on its 746,000 employees, 100,000 of them added during the austere years of the Reagan administration.
The average postal employee—who is an unskilled worker by private sector standards—earns $30,000 a year in wages and perks. And a GAO study found that this same average worker takes 50 days of paid leave a year (vacation, “sick” time, holidays, etc.). That’s 10 weeks of repose, although considering the pace of work in the Post Office, it may be hard to tell the difference.
There’s an old story about a UPS delivery man meeting a friend who worked for the Post Office during Christmas time. “How are you doing?” asked the government employee. “Just great!” said his UPS friend. “Business has never been better. Volume is way up. How about you?”
“Terrible,” said the postal employee. “There’s too much mail!”
In a government enterprise, customers are at best a nuisance. If the Post Office could get away with it, it would prefer no mail and no customers. That’s why, during lunch hour, only one window is open, and why the P.O. takes every opportunity to cut service. The recent abolition of Saturday window hours is only the latest example.
There is only one answer to the Post Office problem, and UPS and Federal Express show us the way: privatization, i.e. repealing the laws which give the Post Office a monopoly. However, real privatization means letting the free market decide, not contracting out to politically connected businesses as advocated by the President’s Commission on Privatization. Such a process leaves the bureaucrats in charge and is an invitation to political corruption.
We cannot know what kinds of communications services free-market entrepreneurs would provide for us. We can only know that they would be far more efficient than the present apparatus, that they would make use of new electronic and computer technology, and that they would be pro-consumer.
The Post Office charges that this would not work. It claims, for example, that rates would go up. Coming from the biggest champion of higher rates, I find this unconvincing. But certainly the rate structure would change. There would be a whole array of alternatives available, varying in price according to distance, speed, handling, etc.
The Post Office says that we would no longer be able to mail a letter from Washington, D.C., to Hawaii for 25¢. But why should it cost the same amount to send a letter across town as across the continent? This is typical government pricing: one high price for everything, which a bureaucracy can administer much more easily than a rational rate schedule. It rightly costs more to ship freight or make a phone call over long distances, and postal service should be no different.
The Post Office also says that rural delivery would stop. That’s nonsense, of course, but people in sparsely populated areas might have to pay more for some services, just as city dwellers have to pay more for fresh vegetables and firewood. The free market would reduce the difference to transportation costs, however, thanks to arbitrage and entrepreneurship, and there would be constant competition to make transportation cheaper. And UPS delivers 25% of its packages to rural routes and makes a profit at it.
The Post Office also claims that only the U.S. government can secure our privacy and guarantee access to the mails. But this is Newspeak. Government is the great invader of our privacy, mail and otherwise. In the 1970s, the CIA routinely opened mail. And the same thing is happening now to opponents of the administration’s foreign policy. And the Post Office claims the right to search the mails for “contraband,” a practice that would never occur to UPS or Federal Express.
As to freedom of access to the mail service, the Post Office frequently claims the right to decide what can be mailed. It’s banned novels, refused to deliver National Health Federation booklets because they conflicted with the “weight of scientific opinion,” and censored advertising.
Mail, says the Post Office, is a “natural monopoly.” But there is no such thing, only the natural tendency of people who want to live off the taxpayers through monopoly to claim there is. If any monopoly were actually natural, it wouldn’t need a government gun to enforce it.
The Post Office is a socialist organization. It is inconsistent with the American vision of liberty. It’s time to end socialized mail delivery and allow free-market competition.

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Abolish the SEC

Official academics call the Securities and Exchange Commission (SEC) a savior of capitalism. In fact, it is an enemy of the free market.

The SEC was set up in 1934 by Franklin D. Roosevelt to regulate securities markets. There was almost no public opposition. Official opinion of all sorts agreed with the first New Dealer, Herbert Hoover, that falling stock prices were caused by “sinister, systematic bear raids . . . , vicious pools . . . pounding down” stock prices so traders could “profit from the losses of other people.”
Similar sentiments prevail today among the politicians who advocate more power for the SEC. But rather than giving the SEC more money and power, Congress should abolish it. Here are just some of the reasons why.

One: The SEC Erects Barriers to Competition.

Thanks to the SEC, raising capital through the issuance of new stock is an extremely time-consuming, highly technical, and costly process. It requires a mountain of paperwork, the filing and refiling of documents, and very expensive CPAs and lawyers. Many small companies—which don’t have the resources and knowledge to negotiate this bureaucratic maze—can’t raise new money and grow. Large, established firms do just fine, however, and they like the lessened competition.

Two: The SEC is Anti-Shareholder.

The SEC defends the interests of entrenched, old-line corporate management over the true owners of companies, the shareholders, by hampering corporate “raiders.” Raiders seek to make a profit by buying out a firm’s owners, firing top-heavy and inefficient management, and installing people who will make the company more profitable.

The SEC requires “raiders” to file public reports after they acquire five percent or more of a company’s stock, in accordance with the Williams Act, which was devised by the SEC and corporate lobbyists. These filings are designed to tip off management about possible tender offers, thus giving them plenty of time to scheme a takeover defense to secure their jobs at shareholder expense.
Three: The SEC Turns Innocent People into Criminals.

Last year’s biggest scapegoat was the insider trader, who committed the “crime” of buying or selling stock on the basis of non-public information. But it is the SEC’s own complicated and time-consuming takeover rules that make inside information valuable in the first place. Without the filing requirements, “raiders” would quietly acquire shares voluntarily in the market from people who want to sell. Without SEC-mandated delays, there would be no “inside information” to capitalize on.

There is nothing wrong with using inside information. In fact, insider trading is economically beneficial in the sense that it causes security prices to adjust faster to critical new information. Insider trading is a victimless crime. There is no moral requirement to tell the owner of the property you’re buying that you know how to make a profit out of it. No stockholder was ever forced to sell shares against his will.
Four: The SEC Protects the Brokerage Industry Cartel.

Since the SEC restricts entry into the brokerage industry, it is the enforcer of a highly profitable cartel. With brokerage houses as its constituents, it’s not surprising to see the SEC campaigning against the recent efforts to repeal the Glass-Steagall Act, which restricts competition.
Five: The SEC Profits From Its Blunders.

As Ludwig von Mises observed; government regulation generates unforeseen problems, which excuses more regulation, which causes still more unforeseen problems. The SEC has a history of growing and profiting from crises. It has, for example, capitalized on the 1986 insider-trading scandal by getting a bigger budget and more staff, the dream of every D.C. bureaucrat. In fact, its budget is 62% higher today than in 1982. And today, it’s busy using the Crash of 1987 to justify more regulation, especially of the competitors of Wall Street in the futures and options markets.
Six: The SEC Favors Price Controls.

The SEC is pushing for the power to shut down the financial markets in times of “emergency.” SEC chairman David Ruder also endorses the idea of daily trading limits on stocks, which would halt trading once a stock price hits its SEC-set maximum daily limit. It is very damaging—even in government-caused emergencies—to prevent willing sellers and buyers from making a trade.
Seven: The SEC Invades Privacy.

Acting on behalf of the SEC, the U.S. government pressured Switzerland, England, Japan, and others, to swap information on the stock market dealings of private citizens.

For all these reasons the SEC should be abolished and the laws backing it repealed. This would dramatically simplify selling new stock and thus be a boost for new businesses, competition, and the free market. And industry self-regulation and normal police agencies will protect against fraud.
The securities industry is not problem-free, of course, and never will be. But it will function better without the Big Problem, Washington, D.C., in charge of it.

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Privatize the Roads

If the government demanded the sacrifice of 50,000 citizens each year, an outraged public would revolt. If a religious sect planned to immolate 523,335 in the next decade, it would be toppled. If a Manson-type cult murdered 790 people to celebrate Memorial Day, the press would demand the greatest manhunt in this country’s history.

If we learned of a disease that killed 2,077 children under the age of five each year, or a nursing home that allowed 7,346 elderly people to die each year, no stone would be left unturned to combat the enemy.

If private enterprise were responsible for this butchery, a cataclysmic reaction would ensue: Congressmen would appoint investigative panels, the Justice Department would seek out antitrust violations, corporate executives would be jailed, and there would be growing cries for nationalization.
In fact, the government is indeed responsible for a real-life slaughter of these exact proportions: the toll taken on our nation’s roadways. Whether at the local, state, regional, or national level, it is government that builds, runs, manages, administers, repairs, and plans the road network.

While many blame alcohol and excessive speed as causes of highway accidents, they ignore the more fundamental reason of government ownership and control. Ignoring this is like blaming a snafu in a restaurant on the fact that a poorly maintained oven went out, or that the waiter fell on a greasy floor with a loaded tray. Of course the proximate causes of customer dissatisfaction are uncooked meat or food in their laps. Yet how can these factors be blamed by themselves, while the role of the restaurant’s management is ignored?

It is the restaurant manager’s job to insure that the ovens are performing satisfactorily, and that the floors are properly maintained. If he fails, the blame rests on his shoulders, not on the ovens or floors. We hold responsible for the murder, the finger on the trigger, not the bullet. If unsafe conditions prevail in a private, multi-story parking lot, or in a shopping mall, the entrepreneur in question is held accountable.

Why then is there apathy to the continuing atrocity of government roads? Why is there no public outcry? Probably because most people do not see any alternative to government ownership. Just as no one “opposes” or “protests” a volcano, which is believed to be beyond the control of man, there are few who oppose governmental roadway control. But it is my contention that to virtually eliminate highway deaths we need to put ownership and control of roads into private hands, and let the entire service be guided by the free market.

The notion of a fully private market in roads, streets, and highways is likely to be rejected out of hand because people feel that government road management is inevitable. Governments have always owned roads, so any other system is unthinkable.

But there is nothing unique about transportation: the economic principles we accept as a matter of course in practically every other arena of human experience apply here too. As always, the advantage enjoyed by the market is the automatic reward and penalty system imposed by profits and losses. When customers are pleased, they continue patronizing those merchants who have served them well. Businesses that succeed in satisfying consumers earn a profit, while entrepreneurs who fail to satisfy them are soon driven to bankruptcy.

The market process governs the production of the bulk of our consumer goods and capital equipment. This same process that brings us fountain pens, frisbees, and fishsticks can also bring us roads.
Why would a company or individual want to build a road or buy an already existing one? For the same reason as in any other business: to earn a profit. The necessary funds would be raised in a similar manner: by floating and issuance of stock, by borrowing, or from past savings of the owner. The risks would be the same: attracting customers and prospering, or failing to do so and going bankrupt. Just as private enterprise rarely gives burgers away for free, use of road space would require payment. A road enterprise would face virtually all of the same problems shared by other businesses: attracting a labor force, subcontracting, keeping customers satisfied, meeting the price of competitors, innovating, borrowing money, expanding, etc.

The road entrepreneur would have to try to contain congestion, reduce traffic accidents, and plan and design new facilities in coordination with already existing highways, as well as in conjunction with the plans of others for new expansion. He would also take over the jobs the government does now like (sometimes) filling potholes, installing road signs and guard rails, maintaining lane markings, repairing traffic signals, and so on for the myriad of “road furniture” that keeps traffic moving.
Under the present system, a road manager has nothing to lose if an accident happens and several people are killed on a government turnpike. A civil servant draws his annual salary regardless of the accident toll piled up on his domain. But if he were a private owner and he had to compete with other road owners, sovereign consumers who care about safety would not patronize his road, and thus the owner would lose money and go bankrupt.

A common objection to private roads is the specter of having to halt every few feet and toss a coin into a tollbox. This simply would not occur on the market. Imagine acommercial golf course operating on a similar procedure: forcing the golfers to wait in line at every hole, or demanding payment every time they took a swipe at the ball. Such an enterprise would very rapidly lose customers and go broke. Private roads would create economies of scale, where it would pay entrepreneurs to buy the toll collections rights from the millions of holders, in order to rationalize the system into one in which fewer toll gates blocked the roads.

One scenario would follow the shopping center model: a single owner or builder would buy a section of territory and build roads and houses. Just as many shopping center builders maintain control over parking lots, malls, and other common areas, the entrepreneur would continue the operation of common areas such as the roads, sidewalks, etc. Tolls for residents, guests, and deliveries might be pegged at low levels, or be entirely lacking, as in modern shopping centers.

Consider a road on which traffic must continuously be moving. If it’s owned by one person or company, who either built it or bought the rights of passage from the previous owners, it would be foolish for him to install dozens of toll-gates per mile. There now exists inexpensive electrical devices which can register the car or truck passing by any fixed point on the road. As the vehicle passes the check point, an electrical impulse can be transmitted to a computer that can produce one monthly bill for all roads use, and even mail it out automatically. Road payments could be facilitated in as unobtrusive a manner as utility bills are now.

It is impossible to predict the exact shape of an industry that does not exist. I am in no position to set up the blueprint for a future private market in transport. I cannot tell how many road owners there will be, what kind of rules of the road they will set up, how much it will cost per mile, etc. I can say that a competitive market process would lead highway entrepreneurs to seek newer and better ways of providing services to their customers.

Now we come back to the question of safety. Government road managers are doing a terrible job. Consider what transpires when safety is questioned in other forms of transportation to see a corollary. When an airline experiences an accident, passengers think twice before flying that airline and typically it loses customers. Airlines with excellent safety records have discovered that the public is aware of safety and make choices based upon it. An “exploding Pinto” wouldn’t stay on a private road long, nor would reckless drivers and potholes.

I don’t know all the details of how a future free-market road system might work. But I do know that “there has to be a better way.” And it is the free market.

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