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The Tepid Movement Before Mises

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04/12/2007B.K. Marcus

In September 1946, The Foundation for Economic Education (FEE) published 500,000 copies of a pamphlet arguing against continuation of wartime rent-control laws. This pamphlet — called "Roofs or Ceilings," and written by two young Chicago economists named Milton Friedman and George Stigler — was 20-year-old Murray Rothbard's introduction to FEE. It drew him into the movement, such as it was. He continued to read FEE's publications and began attending their conferences, but a year and a half later Rothbard had still never heard of Austrian economics.

Ludwig von Mises came to the United States in 1940, fleeing the Nazis. He had not planned to stay, but by the mid-40s, he was already well integrated into the budding libertarian movement. Familiar with sympathetic journalists and potential sponsors, Mises was one of the intellectual leaders of American market liberalism, but there was not yet a "Misesian wing" within libertarianism other than Henry Hazlitt and Mises himself — not until the publication of Human Action in 1949.

What was the pre-Misesian movement like? Friedman and Stigler's pamphlet is a good indication. It opens with a description of a housing disaster 40 years earlier:

The San Francisco earthquake of April 18, 1906 was followed by great fires which in 3 days utterly destroyed 3,400 acres of buildings in the heart of the city. … Yet when one turns to the San Francisco Chronicle of May 24, 1906 — the first available issue after the earthquake — there is not a single mention of a housing shortage!

So far so good. The Chicagoites were doing then what Austrians consistently do now: introducing forgotten events to a readership generally as ignorant of history as they are of economic laws.

A good pamphlet needs to anticipate and answer readers' objections, and "Roofs or Ceilings" does just that. But today's free-marketeer might be shocked at some of what passed for market liberalism in 1946:

The fact that, under free market conditions, better quarters go to those who have larger incomes or more wealth is, if anything, simply a reason for taking long-term measures to reduce the inequality of income and wealth. For those, like us, who would like even more equality than there is at present, not alone for housing but for all products, it is surely better to attack directly existing inequalities in income and wealth at their source than to ration each of the hundreds of commodities and services that compose our standard of living. It is the height of folly to permit individuals to receive unequal money incomes and then to take elaborate and costly measures to prevent them from using their incomes. [emphases added]

To his credit, Leonard Read inserted an editor's note:    

The authors fail to state whether the "long-term measures" which they would adopt go beyond elimination of special privilege, such as monopoly now protected by government. In any case, however, the significance of their argument at this point deserves special notice. It means that, even from the standpoint of those who put equality above justice and liberty, rent controls are "the height of folly."

But entirely unnoted are Friedman and Stigler's dubious diagnosis for price inflation and their even more questionable prescription:

The third current objection to a free market in housing is that a rise in rents means an inflation, or leads to one.

But price inflation is a rise of many individual prices, and it is much simpler to attack the threat at its source, which is the increased family income and liquid resources that finance the increased spending on almost everything. Heavy taxation, governmental economies, and control of the stock of money are the fundamental weapons to fight inflation.

Yes, that really is what it says. Heavy taxation is one of the suggested remedies for price inflation — which is apparently caused by increased family income!

(In the "About the Authors" section at the end of the pamphlet, Friedman's first publication is listed as Taxing to Prevent Inflation, co-authored with C. Shoup and R. Mack.)

Confronted in later life with his own policy prescriptions from the 1940s, an older and wiser Milton Friedman said he had forgotten what a Keynesian he had once been.

This admission casts an interesting light on a story Friedman liked to tell about Mises storming out of a Mont Pelerin meeting, saying, "You are all socialists!"

"Can you imagine?" Friedman would say to his listener. "Me! A socialist!"

Whether or not Mises ever did and said any such thing is contested. But if he did, the accusation was hardly as absurd as Friedman wanted it to sound.

The point is not to harp on the young Chicagoites' early indiscretions, but rather to pause and note just what counted as radical market liberalism in the days before the Misesian revolution. We can be grateful that the pamphlet was written and published, that half a million copies were distributed, that a generation grown used to government rationing and central planning was introduced to the evils of price fixing and to some rudimentary economic logic. We can especially be grateful that it was read by a young Murray Rothbard and that it brought him one step closer to meeting his economic mentor. But "Roofs or Ceilings" was a pale shadow of classical liberalism and a less than prestigious foreshadowing of the libertarian movement to come.