Free Market Economics: A Basic Reader

Savings, Tools and Production

Fred I. Kent

Mr. Kent’s grandson, then a schoolboy was disturbed by the current fashion of disparaging the profit system. He had asked his grandfather to explain just how there can be a profit which is not taken from the work of someone else.

April 1942

My dear grandson:

I will answer your question as simply as I can. Profit is the result of enterprise which builds for others as well as for the enterpriser. Let us consider the operation of this fact in a primitive community, say of one hundred persons who are non-intelligent beyond the point of obtaining the mere necessities of living by working hard all day long.

Our primitive community, dwelling at the foot of a mountain, must have water. There is no water except at a spring near the top of the mountain: therefore, every day all the hundred persons climb to the top of the mountain. It takes them one hour to go up and back. They do this day in and day out, until at last one of them notices that the water from the spring runs down inside the mountain in the same direction that he goes when he comes down. He conceives the idea of digging a trough in the mountainside all the way down to the place where he has his habitation. He goes to work to build a trough. The other ninety-nine people are not even curious as to what he is doing.

Then one day this hundreth man turns a small part of the water from the spring into his trough and it runs down the mountain into a basin he has fashioned at the bottom. Whereupon he says to the ninety-nine others, who each spend an hour a day fetching their water, that if they will each give him the daily production of ten minutes of their time, he will give them water from his basin. He will then receive nine hundred and ninety minutes of the time of the other men each day, which will make it unnecessary for him to work sixteen hours a day in order to provide for his necessities. He is making a tremendous profit—but his enterprise has given each of the ninety-nine other people fifty additional minutes each day for himself.

The enterpriser, now having sixteen hours a day at his disposal and being naturally curious, spends part of his time watching the water run down the mountain. He sees that it pushes along stones and pieces of wood. So he develops a water wheel; then he notices that it has power and, finally, after many hours of contemplation and work, makes the water wheel run a mill to grind his com.

This hundredth man then realizes that he has sufficient power to grind com for the other ninety-nine. He says to them, “I will allow you to grind your com in my mill if you will give me one tenth the time you save.” They agree, and so the enterpriser now makes an additional profit. He uses the time paid him by the ninety-nine others to build a better house for himself, to increase his conveniences of living through new benches, openings in his house for light, and better protection from the cold. So it goes on, as this hundredth man constantly finds ways to save the ninety-nine the total expenditure of their time—one tenth of which he asks of them in payment for his enterprising.

This hundredth man’s time finally becomes all his own to use as he sees fit. He does not have to work unless he chooses to. His food and shelter and clothing are provided by others. His mind, however, is ever working and the other ninety-nine are constantly having more time to themselves because of his thinking and planning.

For instance, he notices that one of the ninety-nine makes better shoes than the the others. He arranges for this man to spend all his time making shoes, because he can feed him and clothe him and arrange for his shelter from profits. The other ninety-eight do not now have to make their own shoes. They are charged one tenth the time they save. The ninety-ninth man is also able to work shorter hours because some of the time that is paid by each of the ninety-eight is allowed to him by the hundredth man.

As the days pass, another individual is seen by the hundredth man to be making better clothes than any of the others, and it is arranged that his time shall be given entirely to his specialty. And so on.

Due to the foresight of the hundredth man, a division of labor is created that results in more and more of those in the community doing the things for which they are best fitted. Everyone has a greater amount of time at his disposal. Each becomes interested, except the dullest, in what others are doing and wonders how he can better his own position. The final result is that each person begins to find his proper place in an intelligent community.

But suppose that, when the hundredth man had completed his trough down the mountain and said to the other ninety-nine, “If you will give me what it takes you ten minutes to produce, I will let you get water from my basin,” they had turned on him and said, “We are ninety-nine and you are only one. We will take what water we want. You cannot prevent us and we will give you nothing.” What would have happened then? The incentive of the most curious mind to build upon his enterprising thoughts would have been taken away. He would have seen that he could gain nothing by solving problems if he still had to use every waking hour to provide his living. There could have been no advancement in the community. The same stupidity that first existed would have remained. Life would have continued to be a drudge to everyone, with opportunity to do no more than work all day long just for a bare living.

But we will say the ninety-nine did not prevent the hundredth man from going on with his thinking, and the community prospered. And we will suppose that there were soon one hundred families. As the children grew up, it was realized that they should be taught the ways of life. There was now sufficient production so that it was possible to take others away from the work of providing for themselves, pay them, and set them to teaching the young.

Similarly, as intelligence grew the beauties of nature became apparent. Men tried to fix scenery and animals in drawings—and art was born. From the sounds heard in nature’s studio and in the voices of the people, music was developed. And it became possible for those who were proficient in drawing and music to spend all their time at their art, giving of their creations to others in return for a portion of the community’s production.

As these developments continued, each member of the community, while giving something from his own accomplishments, became more and more dependent upon the efforts of others. And, unless envy and jealousy and unfair laws intervened to restrict honest enterprisers who benefited all, progress promised to be constant.

Need we say more to prove that there can be profit from enterprise without taking anything from others, that such enterprise adds to the ease of living for everyone?

These principles are as active in a great nation such as the United States as in our imaginary community. Laws that kill incentive and cripple the honest enterpriser hold back progress. True profit is not something to be feared, because it works to the benefit of all.

We must endeavor to build, instead of tearing down what others have built. We must be fair to other men, or the world cannot be fair to us.

Sincerely,

Grandfather

John W. Campbell

It has been said that “technology we can’t understand appears to be magic.” Actually, this applies only to technology more advanced than our own— for frequently we see some great technological device and, by familiarity, fail to recognize it for what it is.

Perhaps the Grade A No. 1 prime example is one which is now generally considered the perfect symbol of non-technology—the epitomization of the failure to develop technology.

The peasant-farmer, plodding along behind his horse-drawn plow as he sweats to till his fields, does seem, to us, about as untechnical as you can get. Yet in that pastoral scene is a technical breakthrough that properly ranks slightly behind harnessing fire, and perhaps a bit ahead of the wheel. (After all, all the native American civilizations got along without the wheel!)

It might be described in modem terms as “a solid-state power-handling device for coupling a heavy duty power source to heavy tractive loads.” Or, more simply, as the device that freed human slaves from service as draft animals.

One of the reasons the Romans and Greeks needed so many slaves was that there was no known way of harnessing animals to heavy draft loads. Man, because of his bipedal posture and his hands, could have a harness slipped over his chest and shoulders, and by leaning into it, exert all his strength in pulling the load. It was literally true that a man could exert more pull than a 1,500-pound horse.

A horse’s sloping chest, and lack of shoulders or grasping hands, made it impossible to tie him to a load except by putting a rope around his neck. Do that, and as soon as he pulls, he’s choked by the rope at his throat; he can pull only lightly before his wind is cut off and he has to stop. True, some powerful horses can exert enough pull to move a relatively light chariot at a good speed that way— but as a coupling device it’s exceedingly inefficient. The horse couldn’t pull a plow, or a heavy dray.

Oxen, equipped by nature with some well-anchored horns, could do considerably better—but it was extremely tiring on even an ox’s heavy neck muscles to hold his head down against the backward pull of the load.

Rapid, Heavy Transport

The horse collar, invented somewhere, sometime during the Middle Ages in Europe, was Man’s first really successful device for harnessing powerful animal muscles to do the heavy hauling work that was needed. It made possible heavy transport—even on the horrible mud ruts they called roads. It vastly increased the amount of agricultural land that could be prepared and used during a single growing season; there was far more food available for men and motive power. Where before, horses and other animals had transported goods primarily as pack animals, transportation was expanded, quite suddenly, as greatly as it was a few centuries later with the invention of the steampow-ered railroad.

Naturally, with the potential of heavy, relatively rapid transportation available, the sedan chair went out of use as the coach came in, and pack-trains were replaced by loaded wagons. Inevitably the demand for more roads wide enough—and good enough!—for horse-drawn vehicles came, and the entire economy began speeding up.

The contact with the highly sophisticated and educated society of Islam was undoubtedly a tremendous factor in the development of the renaissance in the seacoast regions of the Mediterranean, where water transport made transportation reasonably effective. But it was the horse collar that brought an economic renaissance to most of Europe.

It’s not at all easy to recognize technological importance—particularly when we’re used to it. Certainly a horse collar seems a simple enough idea. . . .

Most modems haven’t actually seen and handled one, or studied one closely. Take a good look at the structure of a horse’s chest and shoulders, and without studying a horse collar, try devising a form that will fit snugly onto those sloping curves and planes, allow the horse free movement of neck and forelegs, avoid concentrating the load on prominent bony areas, and so distribute it that the horse can exert his full strength without painful chafing. Then make it stay in place without aid of adhesive tapes, glue, or surgical implants!

The agricultural technicians of the Middle Ages who developed that gadget were not fools, even if they hadn’t ever had a course in mechanical engineering, or force-analysis. And they did achieve something that the learned Greeks and the great Roman engineers did not; they harnessed the most effective power source in the world at the time.

And be it noted that that animal power source is still used as the basis for measuring our mechanical tractive engines—as Watt originally defined it in his sales-promotion literature for his new steam engines.

However, two horses can do a lot more plowing than a two-horsepower gasoline-engined tractor can; the gas job can’t slow down in a tough spot, dig in. its hooves, bellydown to the earth, and lunge with half a ton of hard-tensed muscle to drag the plow through.

Of course, the tractor is also not capable of selfrepair, automatic routine maintenance, living off the fields it works, self-replication, or sense enough not to destroy itself by ramming itself over a cliff. In addition to operating on locally-available fuels, a horse is approximately twice as efficient as a tractor in conversion of chemical to mechanical energy.

Current Applications

The moral of this little story is not to be applied just to humans visiting alien planets; it applies very cruelly to situations right here on our own crazy, confused world. Backward nations—I will not be euphemistic and call them “underdeveloped” because they’ve had the same thousands of years to develop that Europe and America had, and simply didn’t do so—do not recognize the importance of what could be called “the Horse Collar Revolution.”

Those economically depressed nations want, most ardently, to join “the modem world”—i.e., to achieve the industrially-developed status of the high-level technological nations.

Now there are two kinds of “status”; one is what your neighbors think you are, and the other is what you actually have and can do. The first type of status is, of course, far and away the most popular, and the most eagerly sought.

One type of individual, if he happens to inherit a few thousand dollars, or hit it lucky in gambling, promptly puts it into fancy new clothes, a down payment on a fancy new car, and a fancy new woman or two, and has himself a whee of a time being admired and respected because man, he’s got all the symbols of Status!

So in three months the fancy car is repossessed, the fancy woman moves off, and the fancy clothes prove to have poor durability.

Another approach is to spend the little inheritance on getting a small business started—maybe a neighborhood grocery, or a newsstand. Doesn’t get you much Status, of course, and not much spectacular fun . . . but put to work that way a few thousand can support you for life.

It’s just that it is not as much fun, and a few thousand won’t do it unless you get in and work just as hard yourself, and that makes the whole idea much less popular.

Status Symbols

The national equivalent now showing up among the backward nations is that foreign aid—winning the numbers game, in the international lottery!— is spent on fancy Status projects. Hydroelectric plants are Status Symbols, man! That means you’ve got it!

Even if you don’t have many electric lights or power machines in grass huts and fields plowed by men and women pulling wooden stick plows through the earth.

Steel mills are great international Status Symbols, too. Of course, what would really make one of those nations have Status with all its neighbors would be to have something really technical and ultra-fancy, like a few nuclear bombs.

Trouble is, nobody, except a few experts, in a few major Western nations, have the wisdom to see that the horse collar is one of the greatest technical developments of human history.

The basic plot in Christopher Anvil’s “Royal Road” stemmed from an actual disaster of WW II; it didn’t have the comfortable ending Anvil’s story did. The lesson, bitterly learned then, is being relearned most reluctantly by the backward countries today.

The Allies had a tremendous military need for roads and barracks and airfields in an area where there simply were none. It was a remote area; shipping simply wasn’t to be had for sending in earth-moving machinery, bulldozers, power shovels, and so on. So local natives were hired, at high pay, to do the work.

The men who set up that operation didn’t know what a subsistence-level economy was; they found out that fall and winter. The men they’d hired to work at such fine wages were, of course, the native farmers—who therefore didn’t farm that year.

In Anvil’s story, the thing was planned, and the aftermath was part of the plan; in the real event it wasn’t planned that way—it just happened. There was no shipping to bring in food that winter, just as there had been no shipping to bring in earth-moving machinery. It was a horribly grim demonstration of the oft-repeated remark of philosophers that “you can’t eat gold.” There was a lot of money around—but no crops.

Repeating the Error

What’s happening again and again in backward countries today is of the same order. The magnificent new dams and hydroelectric plants employ thousands of workers at good wages—and hire them away from food-production in a near-subsistence economy. The result is inadequate food production, incipient famine, and a desperate plea for help to feed the starving millions. But they sure have a great Status dam!

Oh, they get irrigation water, too—only sometimes the results haven’t been any better thought out than the economic disaster of famine was. Many areas of the world have fairly fertile land lying on top of extremely saline under-soil—practically salt beds. When rain falls, the fresh water seeps downward, and keeps washing the salt back down to the under-soil where it is harmless. But run in irrigation water—the salt from below dissolves, and evaporation from the surface soil pulls the now-saline water up, where it in turn evaporates, and thus rapidly builds up a salt crust on the surface.

It takes several years of non-irrigation, and no crops, for natural rainfall to wash the salt back down so the land can be used again.

But don’t you forget—that big irrigation dam and project is an international Status Symbol of high value!

If a nation has a primitive subsistence-level economy, this simply means that its food-and-goods production has economic value just barely sufficient to keep the population from starvation. And that in crop-failure years, there will be famine, and people will die of starvation.

In many, many such subsistence-level areas, if such famines occurred, there was literally nothing whatever anyone could do to help them. The thing happened repeatedly in India and in China; India, under the British, had railways and His Majesty’s government did everything humanly possible to relieve the starvation. But the food needed to feed 300,000,000 starving people can’t be gathered from the surrounding areas; they’re subsistence-level economies, too. And the railroads weren’t vast, heavy-traffic networks such as Europe and America had developed; they didn’t have enough cars or engines. And shipping from half around the world took so long that even if the transport and grain were freely donated, it wouldn’t get there in time to be very helpful.

In China, because of bad roads and no railroads at the time, there were huge areas where the only possible transport was by porters. (Mules can’t climb ladders, and some of the routes required ladders to get up mountain “passes.”) Since porters had to start in carrying their own food for the round trip, it was fairly easy to figure what distance of penetration was possible before the porter had consumed his total load in his own round-trip supply. No food whatever could be shipped into any more distant point. People in those inner areas simply starved to death because help was physically impossible.

Breaking the Habit

In subsistence-level economy areas today, what sort of help can the industrial nations give?

Well, first is the fact that Step no. 1 is to break down the cultural pattern of the people that holds them at the subsistence level. And at this step, naturally, the people will do all they can to destroy the vile invaders who are seeking to destroy their Way of Life, which is the Good, the True, and the Beautiful and Holy Way.

You can’t do it by telling them that they should stop growing those inefficient crops, those crops that produce protein malnutrition, and learn how to raise these new and far more efficient nutritive crops.

There are problems involved that aren’t economic or technical. The Israeli, for instance, have worked out techniques for growing watermelons, wheat, various fruits, and grains on sandy gravel irrigated with salt water. They can make the barren Negev Desert produce fine crops of excellent food—techniques that can be applied anywhere there are sand dunes, gravel, and sea water, or saltwater springs. It would work fine in huge areas of the Sahara. No vast irrigation dams needed for this project!

Unfortunately, the Arabs don’t seem enthusiastic about accepting and applying this Jewish technique.

Even if it were an Arab development, the peoples of the area are tradition-oriented; it would take at least a generation to put over the idea of doing precisely those things which they know are wrong. For every farmer knows that salt water kills plants, and you can’t grow plants in sand and stony gravel.

The odd thing is that the salt-water irrigation can not be used in “good soil”; it works only in the worst kind of gravel-sand soil.

Resistance to Change

The proper development of the backward areas requires recognition that the people don’t want to change. They want their results to change—they want to have the fine things other nations have, but not to build them.

To pull up from a subsistence-level economy, the first step is building better roads, and a more efficient agriculture. Not irrigation projects, not tractor manufacturing plants and hydroelectric projects and establishing an internationally known air line, complete with twenty or so Boeing 707 jets. Man, those are real Status Symbols!

What’s needed is the Horse Collar Revolution and its results. Draft animals can live off the local fields; they don’t require exchanging scarce goods for foreign fuel supplies and replacement parts.

The road network has to be built up slowly; too many farmers diverted to vast construction projects and you have famine.

You need schools—schools that teach agriculture and medicine and veterinary medicine and simple local-irrigation techniques and public hygiene and basic nutrition. Not electronics, industrial chemistry, and jet-engine maintenance—not for a generation will that be valid. The few natives who are really cut out for that sort of work can be taught in other nations, where schools of that order are needed, and already exist. But don’t expect them to come home—there will be nothing for them to come home to for a generation.

But no High Status schools?

Sorry—getting out of a subsistence system can’t be achieved on Status—it has to be achieved by Status, the hard-work-and-practical-leaming kind of real accomplishment.

The ancient truth prevails: God helps those who help themselves. Because even God can’t help someone who won’t help himself—that’s what the ancient concept of Free Will implies!

The more developed nations can help effectively only where the national leaders have the wisdom to work for real accomplishment, not for high Status projects.

And be it noted—that “more developed nations” does not mean the U.S., the U.S.S.R., and other Western nations alone, by any means. One example has been cited; Israel has a technique that could immensely aid many backward nations right now.

The Philippines have developed a spectacularly productive new breed of rice by careful botanical research; they’ve done a bang-up job of it, and have a strain that yields three to four times as much food from a given area. It’s a breed that could release two out of three rice-farmers in a subsistence-level nation to work on those needed roads and dams and other projects, without bringing starvation to the country.

The water buffalo is an extremely economic animal; it’s one beastie that the Western world needs to accept and use as a domestic animal— and is needed far more widely in the world. The water buffalo yields high-quality milk, high-quality meat, and is an enormously powerful draft animal capable of working under muddy conditions which ruin the feet of most creatures. Moreover, the critter can yield meat, milk, and power when fed on an incredible diet consisting solely of rice stubble! The Thais have carried on a careful program of breeding for some decades, and now have breeds of water buffalo that run over a ton in weight.

Rather surprisingly, about the only area outside of the Southeast Asia region where water buffaloes are used in any numbers is in Italy, where some 40,000 of them are kept. The familiar Mozzarella Italian cheese—in its original, genuine form—is made from water-buffalo milk.

Only when many thousands, or millions, of agricultural workers can leave the farms for work without producing the inevitable famine—only when the agricultural economy gets above the subsistence level—can any nation become “advanced.” Argentina isn’t an industrial power—but has a highly developed agricultural economy. All of the highly industrialized nations first became highly successful agricultural nations.

Yet we—and unfortunately the backward nations!—see the horsedrawn plow and the farmer as symbols of low-status, nonindustrial economies.

The great trouble is that people don’t want to change. It’s not just the peoples in backward countries; the great economic advantages of the water buffalo have been around for centuries, yet only Italy among all the Western nations has accepted them. Why aren’t they being raised in southern Louisiana, for instance, where there’s plenty of land and climate of the type they particularly love?

In Africa, millions of children die of protein malnutrition because the natives raise traditional crops that do not provide the essential amino acids—and can’t be induced to change their customs.

Indians in Central America suffered the same type of protein malnutrition; their one and only staple was corn—maize. And com, like most grains, is deficient in lysine to an extent human beings can’t live on it.

Anthropologists and nutritionists could get nowhere changing their dietary habits; finally, botanists succeeded in breeding a strain of com that did contain adequate lysine, so the natives could go on doing as they’d always done—eating com—and still get the food they needed to live.

That is not a solution to the problem.

Sure, it keeps the children alive—but it does not achieve the crucially important necessity. Those people will remain forever backward people unless they change.

A change in government does no good, for a government cannot remain in power if the people actively hate it. And so long as people insist on not changing their Good, Beautiful, Familiar, and Holy Traditional Way of Life—even if it’s killing them!—the social system will not change. And they’ll kill anyone, any government, that seeks to change them, if they possibly can. Only a powerfully entrenched and ruthlessly determined dictatorship can impose on them the basic changes they, the people, must make.

If, that is, you insist the change must be made in this generation.

Otherwise, you’ll have to have patience, and wait while slow, steady, continuing pressures alter the Established Way of Things decade by decade.

Agriculture First

And the greatest, fastest progress will be made in the backward nations which gain least Technological Industrial Status Projects—and develop their agriculture most.

In a rice-eating nation, if one third of the rice-growers, raising high-production strains, using new and more efficient techniques, can sell twice as much rice for only seventy-five per cent of the cost—the rice farmer who would not change his traditional ways will be forced out of agriculture. His poor harvest won’t be wanted. He’ll lose his land, his home, all the things he has lived by and with.

Here, the ruthless dictator who forces him to change his way of life is not human—it’s economic. It’s even more ruthless and relentless. But it, too, has the same compelling message: “You must learn a new way of life—or die!”

At the same time, of course, the fine surplus of cheap rice means that industrial workers, road and dam builders, all sorts of people in all sorts of newly developing occupations, are living much better. The old near-starvation level of rice is gone—there’s plenty to eat, at last.

Look, friends—industry didn’t produce a high standard of living. A high standard of agriculture forced people to learn a new high standard of living and industry.

And that’s the only way it will be—unless a completely ruthless, dedicated tyrant oppresses his helpless people into learning the new way of life fast.

Now that the whole nation is talking about the communist threat to the country—at home and abroad— it seems a good time to ask what is really wrong with Marxism.

Samuel B. Pettengill

In 1848, Karl Marx and Friedrich Engels wrote The Communist Manifesto, which begins with these words: “A specter is haunting Europe—the specter of Communism.” This reads like today’s newspaper. Yet the words were written one year before gold was discovered in California, before the covered wagons began to roll across the plains. Please keep this date in mind. It is significant to what I shall say.

In London a few years later, Marx wrote Das Kapital—the “bible” of the Communists and Socialists. As a reporter, Marx was accurate. The conditions of the workers in England a century ago, as he pointed out, were very grim. Women with ropes over their shoulders pulled canal boats along the towpaths. Women were harnessed like beasts of burden to cars pulling coal out of British mines. Children went to work in the textile mills when they were nine or ten years old, and they worked 12 to 15 hours a day. It was said that the beds in which they slept never got cold as one shift took the place of the other. It was said that they were “machines by day and beasts by night.” Tuberculosis and other diseases killed them off like flies.

Yes, conditions were terrible. Not only Marx, but other warm-hearted men—Charles Dickens, John Ruskin, Thomas Carlyle—poured out a literature of protest, which was read around the world.

On his facts, Marx can scarcely be challenged. But his diagnosis was wrong; and, therefore, the remedy he prescribed was wrong also.

Marx said that these terrible conditions were due to greed, exploitation, and the theft by the owners of the mines and mills of the “surplus value” produced by the workers. That was his diagnosis. And to some extent, it was partly correct. Man’s inhumanity to man has always been a factor in human affairs. Greed can never be defended—whether in business or in government. Sympathy for the underdog will always have its work to do—always, certainly, in the communist nations with their forced labor camps and human slavery.

The remedy advanced by Marx was to preach the gospel of hate, of the class struggle, of the redistribution of wealth, of the confiscation of property and its ownership and management by the state—which always means the politicians. But greed and exploitation are not cured by socialism. Stalin and Molotov live like oriental potentates, giving state dinners that would make Nero and Caligula green with envy—all this in the name of the down-trodden proletariat!

Greed, however, was not the main reason for the conditions which Marx described. If all the wealth of the owners of the mines and mills had been redistributed to the workers, it would have relieved their condition but slightly, and for but a short time.

So, the class struggle, as the remedy for these conditions, was wrong. What then was the real trouble, and what is the true remedy?

Low Productivity at Fault

The real trouble was the low productivity of the workers. And, as workers can be paid only out of production—whether in England a century ago or in Russia today—wages must be low and hours of work long when production is low.

Production was low because tools and equipment were poor; because human backs had to do what slaves of iron and steel do today here in America; because capital had not been accumulated to buy better tools; because freedom had so recently emerged from centuries of feudalism that the inventors and scientists and businessmen had not had a chance to dream and to plan. They have had that chance today here in America.

Listen. In 1940, before war increased our production, it was estimated that electric power alone in this country was performing work equal to the labor of 500,000,000 men, each working eight hours a day. This is equal to nearly ten times the total human labor force employed in America and 50 times the number employed in manufacturing— and that leaves out steam power and gasoline power and windmill power, with their tremendous contributions for increasing the productivity of workers and thereby lifting burdens from human backs.

No wonder America outproduced the world in this last war! No wonder wages are higher here than anywhere in the world! While Marx preached the gospel of hate and the class struggle, America gave the green light to the Edisons, the Whitneys, the Burbanks, and the Fords.

James Watt, the inventor of the steam engine which revolutionized the modem world, and those who followed him in the competitive struggle to make a better engine and sell it for less, did more to take women out of the coal mines and off the towpaths of the canal boats, more to take children out of the factories, than did all the Socialists and Communists and politicians of the world combined.

Yet Watt’s name would be unknown today if one of these despised capitalists, a man named Matthew Boulton, had not risked $150,000 on Watt’s invention. Would he, by the way, dare take that risk under today’s taxation?

A Measure of Progress

One measure of the progress of civilization is the extent to which mechanical horsepower and tools supplement human labor. The steam engine did more to outlaw slavery, both in England and America, than did all the political humanitarians put together.

The laboratories do far more for mankind than do the legislatures. If modem Americans were to go back to the same tools and horsepower that were available when Benjamin Franklin was trying to capture lightning from the sky, our production of wealth would at once go down 90 per cent; wages would go down in proportion; hours of labor would increase to the limit of human endurance; the population would necessarily decrease drastically; and nothing that governments or humanitarians or labor unions or Communists could do would prevent it.

I mentioned the discovery of gold in California in connection with The Communist Manifesto of 1848. With pick and shovel and a pan in which to wash gravel from gold, didn’t men work long hours for a meager return, or for none? Didn’t they sleep in filthy cabins and live on jerked meat, and weren’t they often covered with lice?

If you saw that great motion picture, The Covered Wagon, you will recall the scenes of terrible toil—of men and women and children pulling the wagons across rivers and the trackless desert and over the Continental Divide; of families, on foot, pushing handcarts from the Mississippi to Salt Lake.

Yet, were those conditions due to greed and exploitation? No, the people were working for themselves. What was wrong? The answer is poor tools. The plow of the pioneer was a wooden plow, constantly breaking, constantly needing repairs.

Poor Transportation

In Vermont where I was raised, a man back in my great-grandfather’s time dug some iron ore out of a hill. He put 100 pounds in a bag on his back and walked 80 miles through the wilderness to sell it to an iron foundry in Troy, New York; and then he walked home—an infinite expenditure of human energy for an insignificant return.

What was wrong? Greed? Exploitation? The class struggle? No—he was working for himself. There was no relationship of employer and employee; no one was stealing the “surplus product” of his labor. He kept all of it—and it was little indeed.

What was wrong? Why did he have to work so hard for so little? The answer is poor tools. Today the steam engine, in the form of the modern locomotive, could move his 100 pounds of iron ore 80 miles for four cents—or a ton, one mile for one cent! Railroads, paved highways, motor trucks, and automobiles have solved his problem and will do it even better in the days to come, if we stay American.

Let us say that James Watt and the man who financed his project were not humanitarians. Let us say that they put their brains and money together in a common enterprise for the profit motive. What of it? Was the result good or bad? Did they take the women out of the coal mines or did

Karl Marx, with his gospel of hate and the class struggle?

What did the profit motive do? It made Watt and his partner, and all who followed them, work to make better engines and to offer them at a lower price to get the market from their competitors.

Was the result good or bad? The profit motive is just as honorable and useful to mankind as is the wage motive. Both do infinite good.

The wage motive prompts men to become skilled and efficient so they can produce more and earn higher wages; and because they do, all mankind benefits.

The profit motive prompts men to make better tools and to cut costs in order to sell cheaper; and again, all mankind benefits.

The radio which only 25 years ago sold for $300 now sells for $30 or less, and it is a better radio.

Has the result of the competitive struggle in the field of radio been good or bad? The result has been good—humanitarian, if you please. It brings the news of the world, good music, and discussions of public affairs to the remotest farmhouses and to people on their sickbeds.

Not many centuries ago, starvation was a common occurrence—even in England, where 90 per cent of the people lived on the land. Was the conquest of starvation a humanitarian thing? What conquered it? Who conquered it? Karl Marx? No!

In America, the time in the field required to raise an acre of wheat has gone down from 60 hours of human labor in 1830 to two hours or less in 1930.

What caused this decrease? The steel plow, the tractor, the harvester, better seed, the conquest of insects and plant diseases, and cheap transportation were responsible. Today, American wheat feeds millions in a Europe that is adopting the philosophy of Karl Marx!

Aluminum was so expensive in 1870 that Napoleon III of France had an aluminum table set— more valuable than gold—for state dinners. Today, aluminum is commonplace in the American kitchen.

The Answer

No, my friends, Karl Marx did not have the answer—he lifted no burdens from human backs. The answer is not in the class struggle. The answer is in competitive free enterprise. The answer is in the cooperation of inventor and investor; in the cooperation of the manager and the worker with his know-how. The answer is to substitute slaves of iron and steel for the strength of human backs. The answer is constitutional liberty, which sets men free and says that what any man honestly makes is his “to have and to hold.”

Wages can be paid only out of the product; and the larger the production, the higher the wage. The more money that is invested in horsepower and equipment—the more capital that is put to work— the less will children and women and men have to work at killing toil. The true remedy for our troubles is more capitalism, not less.

Benjamin F. Fairless

Karl Marx completely rejected the only economic system on earth under which it is possible for the workers themselves to own, to control, and to manage directly the facilities of production. And shocking as the news may be to the disciples of Marx, that system is capitalism!

Here in America, ownership of our biggest and most important industries is sold daily, in little pieces, on the stock market. It is constantly changing hands; and if the workers of this country truly wish to own the tools of production, they can do so very simply.

They do not have to seize the government by force of arms. They do not even have to win an election. All in the world they have to do is to buy, in the open market, the capital stock of the corporation they want to own—just as millions of other Americans have been doing for many decades.

Now I imagine that some persons may say: “Oh, that’s all very good in theory; but, of course, it isn’t possible in practice. No group of workers could ever purchase the great multibillion dollar corporations that we have today.”

Well, the other day I did a little simple arithmetic. The results may be as amazing to you as they were to me. At today’s market prices, the employees of U. S. Steel could buy every share of the outstanding common stock of the Corporation just as easily and just as cheaply as they can purchase one of the higher-priced automobiles.

We have approximately 300,000 employees. That is not just steelworkers, of course. It is all our workers—including me. And together, they could buy all the common stock of the Corporation by purchasing just 87 shares apiece. At today’s prices, the total cost of 87 shares is less than $3,500. And at today’s wages, the average steelworker earns that much in approximately ten months.

Ten Dollars

By investing $10 a week apiece—which is about what our steelworkers gained in the recent wage increase—the employees of U. S. Steel could buy all of the outstanding common stock in less than seven years; and—except for the relatively small fixed sum that is paid in dividends on the preferred stock—our employees would then be entitled to receive all of those so-called “bloated profits” they have heard so much about. But here, I’m afraid they would be in for a disappointing surprise. At current rates, the total dividend on 87 shares is only $261 a year.

But in order to control U. S. Steel, the employees would not even have to purchase 87 shares apiece; they would need only to purchase enough of the stock to give them a voting majority. Then they could elect their own Board of Directors, fire the present management, put their own president in my job, and run the business to suit themselves.

Before they become too overjoyed at this prospect, however, they should be warned that they still would not be their own bosses; for the true bosses of every American business are its customers. And unless those customers are satisfied as to the quality and price of the product, there will be no business and there will be no jobs. But as long as the new owners of the company could keep the customers happy, they could run the show exactly as they pleased.

If the workers of America ever did own the tools of production, all of us would quickly learn a few fundamental and simple economic truths that have somehow escaped a great many of our people. We would learn that this endless conflict between owner and worker over the division of income is the sheerest, unadulterated folly.

Of the total sum which the employees and the owners of U. S. Steel divided between them last year, more than 92 per cent went to the employees, while less than 8 per cent went to the owners. Yet that small share which went to the owners was the total “rent” we paid them for all of the billions of dollars worth of plants and furnaces and facilities we used in making steel. And without these facilities, of course, our men could not have made any steel at all.

A Startling Fact

Suppose the workers take everything the owners receive for the use of these tools—suppose they wipe out all of the dividends completely and forever—what would each get? Less than a dollar a day! And meanwhile this process would destroy the company, destroy our jobs, work infinite harm upon a vast segment of our national economy, and wipe out the savings which more than 275,000 of our fellow Americans have invested in our business. And for what? For the price of about three cartons of cigarettes a week, apiece!

American workers will never improve their standard of living by grabbing the meager share which the owners get. They will improve their position only by producing more; for if we produce more goods, we shall have more goods to divide among ourselves. If we produce fewer goods, we shall have less to divide and less to live on.

And there we have the simple, economic truth of the matter. To live better, we must produce more; but production is the result of teamwork, not of conflict. We cannot produce by fighting each other and hating each other; for by doing that, we destroy ourselves. And we shall only achieve our fullest measure of production when we begin to understand that the interests of worker and owner are not antagonistic, but identical—that under our American system of enterprise, it is impossible over a period of time for one to prosper while the other suffers.

One of the least appreciated aspects of the private enterprise system is the role of savings in increasing the wealth of all the people. That the savings of some can increase the wealth of all may seem, at first glance, paradoxical, so let us consider for a moment just what happens when an individual—call him Joe—forgoes a little spending to put a sum in the bank.

Brian Summers

Some people say: “The money that Joe has saved is money that won’t be spent. The decrease in Joe’s consumption can only mean a commensurate decrease in production and a resulting rise in unemployment. Saving should really be discouraged.”

Saving is a form of spending! Joe’s money doesn’t just sit in the bank; the bank must lend it to someone in order to earn money to pay Joe interest. This lending is not only a form of spending, it is, in fact, the only kind of spending that actually increases wealth: investment.

What happens when money is invested? Say a corporation goes to Joe’s bank and borrows money to build a factory. The corporation then spends Joe’s money on building materials, machines, tools, and labor. The money that Joe has saved winds up being spent just the same as if he had spent it himself. There is no decrease in production and no rise in unemployment. In fact, as we shall see, there is an increase in production and a decline in unemployment!

Soon the factory is complete. The corporation then proceeds to hire workers. Joe’s savings have increased employment!

How does the corporation hire workers? By offering better conditions of employment than their competitors. Perhaps the most important condition—as far as workers are concerned—is the level of wages. In all probability, the workers in the new factory have been lured by higher salaries. Joe’s savings, whether he realizes it or not, have increased the wealth of workers in a factory he probably has never seen.

“You said that savings increase the wealth of all the people. What about the 210 million Americans who don’t work in Joe’s factory?”

Competitive Bidding

Consider first the workers in competing factories. If these factories don’t want to lose their workers to new factories, they had better raise their wages. Joe’s savings have increased salaries throughout an entire industry!

As for workers in other fields, we should remember that most of them are potential factory workers. If you want to keep your best farm hand from going off to work in Joe’s industry or taking a job that has been vacated by someone else who went off to work in Joe’s industry, you had better give him a raise. Competition among employers means that Joe’s savings, and the savings of millions of other Americans, raise the wages of all workers.

“That is still not everybody! How about people who don’t work?”

Every man, woman, and child—worker and nonworker—is a consumer. The end of economic activity—saving, factory building, working, and all the rest—is consumption. We should always keep this end in mind. The higher wages we have talked about would prove meaningless if they didn’t result in increased consumption.

Joe’s savings benefit everyone because the factory, machines, and tools they helped build are designed to produce goods that consumers will prefer to those already being offered on the market. The corporation that borrowed money from Joe’s bank took a financial risk because they think that they can satisfy consumers better than their competitors. In other words, they hope to give the consumer more for his money. If they fail, then the loss is theirs. If they succeed, then consumers consume more of what they want and thus enjoy a higher standard of living. The consumer—each and every one of us—is the final judge and ultimate winner.

“Savings seem to be pretty good after all. What should be done to encourage more saving?”

Instead of doing things to encourage saving, we should undo things that discourage it. In particular, the law itself is probably the greatest hindrance potential savers face. Let us make a brief survey of some of the ways in which the law discourages saving.

To begin with, people can’t save money they no longer have. Every dollar that goes in taxes is a dollar that won’t be saved. Add up all the taxes that Joe pays, and he may find himself withdrawing from, rather than adding to, his bank account.

Tax Disincentives

In addition to the general level of taxation, several specific taxes are especially discouraging to savers. Corporate profits taxes, capital gains taxes, and taxes on dividends and bank account interest hit the saver particularly hard and must be taken into account by every potential saver.

High as taxes are, government spending is even higher. The difference, of course, is “made up” by running fiat money off the government printing presses—inflation. And inflation, combined with other ramifications of over-extended government, is enough to give even the most devoted saver cause to re-think his frugal habits.

The saver sees inflation galloping along faster than legal limits on interest rates. Even though he actually has lost money, in terms of purchasing power, he finds himself forced to pay taxes on his “earnings.”

The saver sees inflation increasing the paper value of his capital holdings. When he sells his holdings he must pay capital gains taxes—even though his “capital gains,” in terms of real wealth, actually may have been capital losses.

The saver sees inflation increasing the replacement costs of capital equipment—machines, spare parts, tools—while depreciation allowances are determined by original costs. He finds that depreciation allowances have become inadequate to pay for new equipment to replace the old.

The saver sees inflation increasing the paper profits of his corporation. In particular, inventory “profits”—the difference between the cost of producing an item and the cost of later replacing it in inventory after it has been sold—are a direct result of inflation. Were all these inventory “profits” available for investment in new inventory, the corporation could at least hold its own. However, almost half these “profits,” on the average, wind up as corporate profits taxes. Thus, the saver may find his corporation losing money and paying profits taxes at the same time.

Inflation itself, even without being combined with various governmental controls and taxes, is discouraging to potential savers. With prices rising, people are encouraged to make purchases before prices go any higher, rather than to save for future purchases.

This brief survey of ways in which the law discourages saving is, of course, by no means complete. However, I would like to conclude with one factor that can never be measured, but which is nonetheless very real. This is the factor of uncertainty. In recent years, the United States government has grown so interventionistic that every few months the president is announcing “strong new” economic measures. Who knows what is next? Already we hear congressmen calling for a virtual nationalization of oil companies. Who is going to invest under such circumstances? To complete the destruction of the American economy, the government does not have to expropriate the means of production. It merely has to make conditions so onerous and so frightful that no one will dare invest in private enterprise.

A free market, and the belief that the market will continue to be free, is all the encouragement savers need.

A prominent American industrialist made a trip through the Orient recently, and in every country he visited from Russia to Hong Kong and Japan he met and talked with the ruler of that country. In every one of these conversations he would ask what he called the “$64 question”—“You have heard of the high standard of living in the United States. What do you believe to be the cause of America’s prosperity?” Most of those interviewed replied that it was our abundant natural resources with plentiful raw materials. The industrialist would then state that this was quite untrue, that some of these countries had more natural resources per capita than we did in America. The ruler of the country would then flounder about, but not one gave a reasonable reply. For instance, Nehru of India, a great man with complete authority over more than four hundred million people, thoughtfully considered the question and finally came out with the reply, “You’re lucky.”

Jasper E. Crane

Yet, the true answer to the $64 question is simple—the provision of tools in a free country.

That answer is clearly manifested in our own country’s history as well as in other past and contemporary events. At the end of the eighteenth century, immediately after Independence, Americans turned to making things which the British, with their policy of mercantilism, had not permitted the colonials to do. There developed a great center of industry on the little Brandywine River, with 120 mills on the last twenty miles of that stream. Elsewhere, the growth of manufacturing industry throughout the country was prodigious. The tremendous release of energy among free men was the potent factor in manufacturing enterprises throughout the new nation. “Yankee ingenuity” was often spoken of, but the outburst of energy and the reasons for it have seldom been explained. It proceeded at an accelerating pace.

Throughout human history there have been occasional occurrences of increased freedom in various places, always accompanied by increased production and a better standard of living. The correct answer to the $64 question explains why this is always so.

We have recently witnessed the phenomenal progress of Western Germany. Prostrated by military defeat and in dire trouble in 1948, its situation seemed hopeless. Vice Chancellor Erhard consulted W. Ropke, the great economist at Geneva, and he advised, “Try freedom.” Thereupon, despite the remonstrance of American officials in Germany, controls were taken off of wages and prices. In this climate of freer enterprise, the rebound of the German economy was theatrical. West Germany soon became the most prosperous country in Europe, with a much higher standard of living for themselves and for over six million refugees from communist countries. Moreover, they brought into their country great numbers of workers, particularly from Greece and Italy.

All goods and services are produced by changing the form, condition, and place of raw materials with the aid of human energy and tools. These are the three factors of production—human energy, raw materials, tools.

About 78 per cent of all private goods and services produced in the United States in 1965 came from firms using the corporate form of organization. The remaining 22 per cent of production covered the output of nonincorporated agriculture, shopkeepers, professions, personal and business service industries, and other unincorporated enterprises.

The relative importance of the three basic factors of production in noncorporate enterprises is difficult to judge, for lack of statistics, but some figures are available for corporate industry.

Tools are instruments of production (in addition to natural resources and human energy, mental and physical)—cultivated land, mechanical power, buildings, machinery, equipment, and apparatus of all sorts.

The use of tools by all animals other than man is practically nil. They use unchanged the raw materials presented by nature. Charles Kettering told the story of travelers in Africa who would sit around a bonfire to counteract the chill of the evening. When they retired to their tents, monkeys would come down from the trees to warm themselves by the fire. And, he added, no monkey was ever known to put a piece of wood on the fire!

One of Aesop’s fables tells of the quarrel between the organs of digestion, each claiming that it did the major part of digestion and was not properly rewarded for its work. Their proper proportions of the digestive process can hardly be determined. However, the factors or elements of production of goods and services can be approximated by considering that a worker in the highly industrialized United States produces at least twenty times as much as a coolie laborer with only a tool such as a basket or other simple instrument. The toolless coolie is paid a few cents a day; the average American factory worker received $20.88 for an eight-hour day in 1965.

A prominent clergyman visiting Egypt found his sense of justice and decency offended by the fact that the “fellah” was paid only twelve cents a day. Yet, examination of the total income of Egypt showed that if it were divided equally to all the people, the daily wage would be thirteen cents a day. It wasn’t a question of distribution of income to be corrected by a sense of charity; for that was all the “fellah” could earn in the Egyptian economy. What they needed was more tools.

In America, the corporate investment in tools averaged over $12,000 per worker last year, and in some industries, such as petroleum, it ran as high as $97,000 per worker.

Analysis of the facts of private production in the United States indicates that raw materials—the value of ore, oil, and minerals in the ground; uncultivated land; standing timber in the forests; naturally occurring raw foodstuffs; and the like— account for about 2 per cent of the final price paid for goods and services in a free market. In some products, such as textiles, raw materials may constitute as much as 6 per cent of this final value; but the average for all goods and services seems to be approximately 2 per cent. About 4 per cent of end values may be ascribed to unassisted human energy, physical and mental. About 94 per cent of the value of private goods and services produced in the United States, therefore, may be attributed to the use of tools. This high figure attributable to tools may surprise those who have not studied this matter; but it will be realized that production in other times and, sadly, even today in some places, depends on slave labor and crude tools.

Today in the United States, every worker has sixty “slaves” working for him in the form of mechanical power. Several times more power is released by the automobile than by all other mechanical energy and only a small portion of this motor car energy is used for production purposes. So we modify the statement above, the correct figure being close to twenty mechanical slaves for each worker, and that worker is paid seven to ten times as much as is paid out in dividends.

The truth of this is evident when we consider how much useful work a man can do on a farm or garden with only his bare hands as tools, and how dependent we are upon even the simple farm tools for winning livelihood from the land. It is clearly revealed when one sees in backward lands farmers plowing with a wooden plow or sharpened stick. One must realize that the amount of a farmer’s production has been multiplied many times by the complicated and efficient farm machinery available today in the United States.

The proof of these assertions is clearly shown by the fact that when the white man came to America the estimated Indian population was two hundred thousand—all the country could support in their practically toolless economy. Today, there are two hundred million inhabitants (including almost four hundred thousand Indians) with a per capita income twenty-five times that of the Indian before the white man came.

The production of automobiles is truly marvelous. The assembly line was one of man’s greatest inventions. A leading automobile manufacturer some years ago experimentally constructed an ordinary car by bringing simple tools to the point of manufacture, similar to the way in which a house is built. The result was a cost of $10,000 for that car, whereas his company was selling the model at the time for less than $2,000.

Another instance of the value of the best tools was given to me while visiting one of the largest motor car manufacturers in a foreign country a few years ago. The manager of the plant, and a great admirer of American methods, said that it cost them eighteen cents a pound to produce a car of the Chevrolet type; whereas, in Michigan the cost was ten cents a pound for the same type. Yet, the American worker received three times the daily wage of the worker in the plant abroad. They still had a long way to go in reducing manual operations and using better tools.

How Are Tools Supplied?

In a free country, investors in companies supply tools for use by the worker who has not sufficient capital to buy them himself. Such companies are in competition with other corporations in the same line of business. The payment investors receive for the use of tools they supply for manufacturing purposes averaged about 4.8 per cent of the market price of the goods produced over the past decade.

In a socialist country, government supplies the tools, but at a high cost. For instance, according to figures for Russia released some twenty years ago, the government in effect owned all tools and supplied them to the worker at markups averaging over 15 per cent of sales. Thus, the Russian worker at that time, although he did not realize it, was paying three times as much for his tools as did the American.

So-called “surplus income,” both private and corporate, is not only a mighty force in helping to finance charitable, community, educational, and religious organizations, but is the principal source of the funds for providing tools.

Socialists claim that they will finance their services by appropriating “surplus income,” by which they mean corporation profits and private income beyond the necessities of life. Every such effort has failed. Bismarck, taking over the Sozialpolitik from the socialists, thought to finance it by seizing the railroads and employing their income for the government’s social services. Soon, railroad income turned into deficits. Heavier taxation followed and, finally, war and disaster.

Britain employed the Marxian formula of heavy and steeply graduated income taxes. This destroyed private fortunes. Clement Atlee boasted that while there once had been several thousand personal incomes of $16,000 or more per year after taxes, now there were only sixteen such fortunes left in the country. The deficits of British socialism have outrun the loans and gifts from America. Now the “luxuries” of the people—“beer, baccy, and bedding”—are taxed to fuel the socialist state. The resulting poverty, particularly in formerly thrifty Scotland, is appalling. But it is the consequence of government ownership and control of industry.

And in Britain, as in other welfare states, what cannot be taxed directly is confiscated through inflation.

So-called “surplus income” is important in an economy, for out of corporate profits and the savings of the people comes the money needed to buy the tools. In fact, successful corporations and other cooperative enterprises retain much of their income for the renewal, improvement, and expansion of tools. This vital point is often ignored, people imagining that once an industry is fully operating, it needs no further supply of tools. The success of any industry depends on keeping its tools up-to-date by repairs, replacement, and improvement. This vital supply of equipment comes from adequate charges for depreciation and obsolescence, from income retained and invested in business, and from additional capital supplied by investors. Corporation dividends, along with personal savings such as are invested in savings banks and life insurance, are important phases in the process of providing tools.

The most valuable public-service income in any country is the part of savings used for buying tools. Capital formation in plant and properties is the life blood of a successful corporation, enabling it to continue and increase its services to customers. If earnings and savings are insufficient to meet the needs and growth of the business, the corporation goes downhill or succumbs. And a nation that thus cuts off the source of tools is destined to lose position in the world and dwell in poverty.

Those of socialistic philosophy object that the use of tools is at the expense of employment, that it throws people out of work. Historically, in England, the early use of labor-saving machinery was violently fought and the new equipment often destroyed on the ground that men were losing their jobs. The record shows, however, that labor-saving machinery not only lifted drudgery from men’s backs but also greatly increased the production of goods and services, creating new jobs and greater income for all.

That the process of industrialization, the saving and investing in tools, is further advanced in the United States than elsewhere explains our high and rising wage rates and level of living. And of total corporate income in the country, 85 per cent goes to employees—the users of tools—and 15 per cent to the suppliers.

So, let us beware of foolish talk about the evils of this tool-using age! Let us not kill the goose that lays the golden eggs!

Bettina Bien Greaves

Legal and political rights, without distinction as to sex, have been recognized gradually by the governments of most civilized nations of the world. By legislation and common law decisions, women have acquired freedom on a par with men to act, own property, and make contracts in their own behalf. (This freedom is being eroded by the present trend toward socialism—to the disadvantage of both men and women. Special government privileges and subsidies, progressive taxation, legislation limiting the right of contract, hours of work, and so on, have already seriously interfered with the rights of property owners and the freedom of contract. But this is another story.) For all practical purposes, laws now deal with men and women pretty much the same.

Economic Opportunities

In recent decades, economic and professional opportunities have been opened to women. Step-by-step, insofar as social customs have permitted, and within the limitations imposed by the “différence” between the sexes which at least the French appreciate, women in this country are relatively free. They may now compete with men, each to the extent of her abilities, in seeking their chosen goals—economically and professionally.

The tremendous advances, which have made it possible for women to achieve recognition as persons—legally, politically, economically, and professionally—are undoubtedly due in large part to capitalistic contributions. Savers, inventors, and producers, operating in a relatively free market economy risking their own private property in the hope of profit, supplied the goods and services which have freed women from the daily drudgery and heavy manual labor expected of them for centuries simply to fulfill their roles as sexual companions, mothers to their children, and homemakers for their families. The improved production and preparation of food, more efficient transport, better retail outlets, and inventions of modern household appliances have given women more time to pursue interests outside the home.

In this day of push button kitchens, automatic timers, electric refrigeration, home freezers, mechanical beaters and choppers, prepared foods and instant mixes, a housewife cannot begin to conceive of the many strenuous chores her grandmothers and great-grandmothers coped with daily. Imagine a home without heat or electricity. Imagine a kitchen without a stove, refrigerator, or running water. Suppose there were no corner stores or supermarkets with milk, butter, bread, meat, vegetables, or soap. Think of a life when each family had to grow its own food, gather the fuel to cook it, tote all water, produce the textiles, and sew, patch, and mend the family clothing.

Early Household Hints

Early cookbooks offer helpful hints to save the housewife’s time and energy, hints which no modem bride need consider. For instance, keep kettles of water, both hot and cold, handy always in the kitchen. Pine wood is an economical fuel for heating ovens but hard wood makes much hotter coals. Lamps will have a less disagreeable smell if you dip your wick-yarn in strong hot vinegar, and dry it. Teach children to prepare and braid straw for their own bonnets, and their brothers’ hats. Fresh meat brought into the house should be carefully covered from the flies, put in the coldest place in the cellar, and then cooked promptly—especially in summer. Save all the nice pieces of fat to make lard, and put those that are not so nice into the soap grease.

The earliest cookbooks and housekeeping manuals appeared only about 200 years ago. Few women could read before then; and how-to-do-it information, so much of which was needed to run a household smoothly, was passed along by example and by word-of-mouth.

One early cookbook published in this country was The American Frugal Housewife by Mrs. Lydia Maria Childs (12th ed., 1832). The housewife of that day cooked over an open fire, roasted meat on a spit, or baked in a reflecting oven before the fire or in a brick oven built in the chimney. To fire up the oven was such a chore that one or two days a week were set aside just for baking. With good planning, five successive bakings could be done in the oven with one heating: “The bread first—then the puddings—afterward pastry—then cake and gingerbread—and lastly, custards.” This last suggestion comes from Mrs. M. H. Cornelius, whose book, The Young Housekeeper s Friend, appeared in 1859. At the time she wrote, brick ovens were going out, cooking stoves and ranges coming in. Yet, boiled dinners, stews, soups, and steamed cakes and puddings prepared on top of the stove were still more popular with the cooks than cakes which called for firing up the oven.

In 1832, Mrs. Childs wrote for the rural housewife who had her own vegetable garden, a few fruit trees, and chickens. The whole family shared in the household chores, of course, and most housewives had extra help from a hired girl or a female relative living with the family. Yet, the responsibility for the work was the housewife’s. She grew the herbs for flavoring, gathered the eggs, and oft-times milked the cow. She baked with yeast of her own making, or used eggs or baking soda and cream of tartar for leavening—baking powder was not for sale until about 1850. She did the family’s cooking, and did it all with crude utensils. She beat eggs with a fork or a wire whisk, and elbow grease—the rotary egg beater did not come into general use until the second half of the nineteenth century.

Housewives had to bake the family’s bread regularly. This meant mixing the dough, usually in the evening, setting it to rise overnight, and kneading it “very thoroughly.” Mrs. Cornelius wrote, “A half an hour is the least time to be given to kneading a baking of bread, unless you prefer, after having done this till it ceases to stick to your hands, to chop it with a chopping-knife four or five hundred strokes. An hour’s kneading is not too much.” Bread was the staff of life and good bread was a source of pride to the housewife.

Lack of refrigeration was a continual challenge. The housewife took care to use things before they spoiled or to find satisfactory ways to preserve them. Before the canning industry developed in the late 1800’s, she had to preserve fruits and vegetables in season to be assured of provisions year round. In 1859, Mrs. Cornelius advised putting preserves in wide-necked bottles, pasting paper over the tops, and then brushing egg white over the paper with a feather to seal the bottles and discourage mold.

First, Get a Cow

The nineteenth century housewife had to be a Jill of all trades. The industrial revolution with its increased specialization and division of labor barely ruffled the surface of traditional housekeeping practices. The 1859 housewife purchased a few more household items than her grandmother could have in 1832. But she still had to kill her own fowl, cut up the family’s meat, salt it, smoke it, or otherwise cure it and keep it safe from bugs and animals. To be sure of good dairy products, she was told: “The first requisite is to have a good cow.” Keeping a cow added to the household chores. Someone had to feed the cow and milk her, day in and day out, set the milk for the cream to rise, and chum butter at least twice a week. Without refrigeration, keeping milk, cream, butter, and dairy utensils sweet was a continual worry. Now that dairy products are sold in stores, packaged and ready to use, men do most of this heavy manual labor on a mass production basis, using methods developed and equipment produced with the aid of increased savings and investments.

Doing the family wash was another backbreaking chore in the nineteenth century. First the soap had to be prepared from lye made out of wood ashes, and fat and grease saved from cooking. The water had to be toted and heated, heavy wash tubs filled, with countless trips back and forth to the stove. After the clothes were sorted, the finest and less soiled things were washed first, the coarser and dirtier items later in the same water. Most pieces were scrubbed by hand on a washboard. The white things were boiled. After washing, rinsing, boiling, wringing, bluing, and starching as necessary, the clothes were wrung and hung outdoors on a line. Doing the family wash took another full day of the housewife’s time.

Ironing consumed most of a third day each week. The flat irons and special “polishing irons” for final touchups had to be heated on the stove and reheated again and again as they cooled.

Then Came Automation

The kitchen stove or range using wood or coal gradually came into use in the mid-nineteenth century. These had advantages over the open fireplace and the brick oven. With the use of gas and the construction of gas lines in the late 1800’s, new cooking jets became available—gas ovens came considerably later—making meal preparations a little easier. The development of electricity, refrigeration, large scale specialized farming, improved transportation, professional bakeries, and the expansion of retail outlets have further liberated women from the grueling household labor which had been their lot in life. Automatic washing machines and dryers have taken the drudgery out of doing the family wash. Moth-proofed woolens and new miracle fibers have simplified the care of the family’s clothing. Vacuum cleaners, floor polishers, and local dry cleaning establishments help to keep homes and their furnishings clean the year round, doing away with the need to scour the house and everything in it from top to bottom spring and fall. Refrigeration and other effective ways of preserving foods have freed the family menu from dependence on the season. When compared with her nineteenth century counterpart, the modern housewife is truly liberated from grinding household drudgery and endless kitchen chores.

When a housewife presses a button or turns a switch on a modem household appliance, she has at her command the labor of countless specialists—savers, investors, inventors, producers, and merchants—each of whom then helps with her daily chores. In effect, they help tote the wood when she turns up the thermostat. A twist of the faucet draws the water. Turning a dial will fire the oven. A push-button machine will wash, rinse, and wring the weekly wash. With a trip to a grocery store, the housewife can in effect grow the family’s food, milk the cow, chum the butter, make the cheese, gather the eggs, knead and bake the bread, grind the spices, kill the poultry, cure the meat, preserve fruits and vegetables, and make the soap.

Capital, the Key

Each person in the world differs from every other person. Thanks to these differences, everyone benefits if each of us is free to concentrate in the field of his (or her) greatest aptitude and interest. There is some specialization and division of labor even in small groups and primitive communities. But under capitalism, with private property and the freedom to move, invest, and exchange goods and services throughout large areas and among increasingly large populations, it has been possible to develop and exploit our differences more fully than ever before, to everyone’s advantage. It was this complex economic system, developed on the basis of highly specialized division of labor, which liberated women from their traditional household chores.

Women are different from men—and always will be. The woman of the 1970’s has gained recognition as an individual under law. She may own property, make contracts and, thanks to the development of capitalism, now has time to pursue her special aptitudes and interests outside the home and thus compete with men economically and professionally. Rather than trying to compel denial by law of the physical and physiological differences between the sexes, let’s acknowledge and accept them philosophically as the French do: “Vive la différence.”

V. Orval Watts

Capitalistic industry today stands before Judge Public Opinion charged with various high crimes and misdemeanors.

Among the charges are (1) that it makes those who take part in it materialistic in tastes, interests, and ways of living; (2) that it standardizes people— turns them into robots, kills individualism; (3) that it concentrates “power” in the hands of a few who use this power with little regard for the welfare of others.

Those making the charges demand increasing government action to punish and prevent these alleged offenses against the common weal. Unfortunately, all too many Americans are ready to cast their ballots for the prosecution when they enter the polling booths on election days.

Yet, nearly all Americans show by their daily conduct that they really like what modern industry—big and little—does; and the vast majority of mankind look to the most industrialized, free-enterprise nation—the United States—as a Mecca which they would like most of all to visit and if possible make their permanent home.

Most people, worldwide, for example, like what modem industry produces. From chewing gum to cameras, from aspirin to automobiles, they buy machine-made goods. Moreover, they buy, often and abundantly, the products of the free-enterprise elite, that is, the products of the industrial giants; and they generally buy with confidence that they will get a fair deal. Similarly, where they can, millions of housewives go to the super-markets, chain stores, and big department stores for the necessaries of life, as well as for thousands of comforts, gadgets, and sundries from toothpaste to tissues, from soap to stockings, and from vitamins to vacuum cleaners. And when shoppers go to small stores, or dealers, they usually buy goods that big companies, in some way or other, have helped to make.

Millions of these customers also earn their wages and salaries in the employ of the biggest manufacturing, commercial, and financial firms where free-enterprise industrialism is supposedly doing most to turn them into dehumanized robots. Fully one-fourth of the working force of the United States prefer the wages, working conditions, and “fringe benefits” of the big employers; and I never met any of these who seemed ashamed of his employer. On the contrary, they generally appear proud to be associated with one of these outstanding enterprises.

More millions of Americans, including millions of employees and customers, also invest their savings in the stocks and bonds of these big companies. Or they put their money in banks, insurance companies, and other agencies which buy the securities of big companies in the belief that these are likely to be especially safe and profitable ways to invest the funds entrusted to them.

Big Businesses Foster Small Businesses

Millions of small businesses buy, sell, and service the products of the biggest industrial companies; and hundreds of thousands of small producers act as suppliers for the “big boys.” For example, the United States Steel Co. buys from 50,000 small and medium-size concerns and sells to 100,000 more.

Thus, small and medium-size establishments do most of the business in the United States, the world’s most industrialized country. A firm with less than 500 employees is a small or medium-size business by U.S. standards. Such firms, together with farmers and the self-employed, account for two-thirds or more of the total work force outside of government service.

The fact is that big business gives rise to smaller businesses. So the “Big Four” in the automobile industry create opportunities for many thousands of dealers in cars and accessories, car “laundries,” and garages, and the big oil producers and refineries create opportunities for more thousands of service stations. Furthermore, the growth of big business provides the jobs, income, and materials necessary for new enterprises to develop and market new products. Some of these may rise from a basement or garage to skyscraper status; but they all start small, and most of them remain small.

Without large-scale industrialism and big business, in fact, America would be still in the horse-and-buggy age, and so too would be the rest of the world. The industrial giants—railroad companies, producers of steel, aluminum and copper, auto manufacturers, producers of farm machinery and chemicals—these built the foundations of our modem economy, and they are still maintaining our unprecedented affluence.

We should remember, too, that mass merchandising is essential for large-scale industry. The great selling organizations—mail-order houses, department stores, chain stores, and supermarkets— have brought down the costs of trade as the great industrial organizations have reduced costs of extraction, transportation, and processing. These “distributors” are as truly productive and as necessary for economic progress as the mines and factories. The same may be said for finance. Without large-scale banking, investment, insurance, and brokerage there would be neither large-scale merchandising nor large-scale output of goods to market.

But is this affluence provided by modern industry too costly in terms of the human spirit and individual dignity? Does mass production turn human beings into materialistic, standardized robots?

Mass Production Means Mass Prosperity

True, “mass production” means standardization of products and methods, and this mass production implies a mass market. It is production for “the masses.” At first thought—without looking at the facts—this seems to mean standardization of people—turning them into faceless non-persons. Yet, this mass production by way of standardization is precisely what the communist rulers of Russia and China want for their subjects because it means mass prosperity.

What big concerns arise in freedom to serve only a wealthy few? In freedom, big business must produce mainly for factory workers, farmers, stenographers, school teachers, bookkeepers, sales clerks, mechanics, waiters, government employees, carpenters, and plumbers, along with other modestly paid producers and their dependents. These buy most of the products of industry because they get most of the total income of this nation.

And let us not forget that the pensioners and “reliefers” also have radios, TV sets, and drip-dry shirts, along with the necessaries of life. If any American goes barefoot, it is from choice, not necessity, for our mass production has made shoes so abundant that Americans commonly give away or throw into the trash cans better shoes than the shoddy new footwear the victims of Communist “planning” can buy in their dingy shops.

But besides an abundance of the necessaries and comforts of life, and besides the great variety of recreations and entertainments, free-enterprise industry and business provide the high purchasing power and leisure necessary for cultivation of the arts and literature, for schooling and research, for books and free lectures on every conceivable subject. They provide these on a scale never known before the advent of modern industrialism, and have made them available even to the poorest of our population.

The victims of communist rule covet these fruits of free-enterprise capitalism; and their rulers try hard to establish the same great industries and marketing organizations that we have in the United States. And they do get a certain bigness and large-scale industry. But their industries, big and little, lack efficiency; and lacking efficiency, they progress only at a painfully slow rate—and I do mean painfully. Consequently, communist countries lag behind the U.S., economically, as far as they did 30 or 40 years ago.

But we come back to the question: does mass production and mass prosperity produce a mechanized, standardized, collectivized, materialistic people?

Industry Fosters Personality

In the answer to this question we find a strange paradox. In freedom, mass production actually personalizes—individualizes—both consumer goods and the uses we make of them. It continually creates a greater variety of occupations and greater opportunity for individuals to choose the kind of work and working conditions which best fit their particular interests and abilities. It provides increasing opportunities for intellectual and artistic pursuits, for extending each person’s circle of friends, for increasing awareness and sensitivity, that is, for the development of personality. In short, modem free-enterprise industrialism reduces the amount of drudgery, the long hours of monotonous, mind-dulling toil, and the subsistence levels of poverty which held the vast majority of mankind at a near-animal level of mind and spirit for untold aeons of the past. It enables humans to become persons.

Furthermore, it is the opportunity for individuals to satisfy a vast variety of tastes and pursue countless individual interests—intellectual, artistic, literary and social, as well as recreational—that provides the drive and enterprise which in freedom gives rise to rapid economic progress, with its mass production and giant business organizations.

Look in on any typical American assemblage—a roomful of students, a concert audience, a crowd of diners—what do you see? Outside the ranks of the few militant revolutionaries, it is hard to find two persons dressed in any way alike. Similarly, if you ask Americans about their life experiences and expectations, their work and their leisure pursuits, you will find individual variations too numerous to list.

Where else but in highly industrialized America, the land where most of the giant businesses arose and flourish, will you find the variety of consumers’ goods offered for sale, the variety of jobs, the variety of leisure pursuits, the proportion of the population in colleges and universities, the amount and variety of scientific research, the wide circles of friends possessed by everyone who wants them, the amount of travel, and the widespread awareness of human problems and opportunities? And, insofar as other nations permit freedom for private enterprise, they correspondingly provide opportunity for development of more humane and individualized personalities.

Communism Standardizes and Dehumanizes

This points to a seldom-noted paradox: When they gain power, as in Soviet Russia and Red China, socialist authorities impose on their people, by force, the very same mass production methods which they say make robots of workers in capitalistic countries. In fact, they often carry the standardization much further than in capitalistic countries and in more burdensome fashion, as, for example, in use of the manual labor of women street sweepers and construction workers. But despite thefts, loans and subsidies from capitalistic countries, and despite ruthless coercion to get labor and capital from their subjects, they fail to achieve the prosperity necessary for individualized living—except for a small minority of privileged bureaucrats and their favorites of the moment (ballet dancers, mistresses, champion athletes or chess players, and a few scientists).

The reason for the continued deprivations and standardized ways of living for the masses in communist countries should be obvious. Centralized planning, imposed by legal force, suppresses individual experimentation, reduces individual incentive, and denies individual responsibility. Indeed, suppressing individual freedom to experiment is precisely what socialists mean by “planned production.”

Communists regard people as no more than complex machines to be manipulated by physical means as are inanimate tools. Or they look on the proletarian masses as rather dull-witted creatures to be fed, stalled and herded about as domesticated animals. Therefore, although communist governments impose on their subjects much standardization and some mechanization, they so dehumanize their people that they lose the individual enterprise necessary for mass prosperity and general economic progress. They have achieved a measure of technical (“material”) progress; but they provide less opportunity for developing individual talent, personality, character, and intellect than prevailed three generations ago under czarist rule.

Despite the standardization of machines, materials, and gadgets, free-enterprise industrialism provides increasing opportunities for “the masses” to develop, individually, the highest human qualities. This freedom for individuation in these United States is precisely why we have so much big industry, big business, mass production, mass prosperity, and mass opportunity. It releases human energies and imagination which are the driving and directing factors in progress.

Why Communist Economies Are Backward

Under socialism and communism, on the other hand, the “planners” dictatorially restrict individuation of products and personal pursuits. As a result, they fail to develop the mass production and universal affluence which they so much covet and try to produce without regard for human life and human dignity. It is under socialism, or communism, therefore, that we find the actual concentration of power and rampant abuses of power. Only under socialism or communism can the few force the rise of great industries to serve their whims about what standardized goods their subjects should have, including the weapons for imperialism, war, and their own enslavement.

For these reasons, the victims of this concentrated power remain poor—drably dressed, badly housed, misinformed, restricted, standardized, materialistic and collectivized. As a consequence, their masters must maintain mine fields, great walls, and millions of armed guards to keep their people at home.

If we can understand these facts and the reasons for them, perhaps we can enlarge the freedom for enterprise which this and other “capitalistic” nations have so well demonstrated is necessary for all truly human (“humane”) progress.

Freedom Depends on Understanding

I say we can “enlarge freedom” advisedly; and I mean that we can enlarge it everywhere that humans congregate.

Complete freedom is as unattainable as complete understanding. In fact, we gain in freedom— freedom from trespass, freedom from infringement of individual rights—only as we progress in understanding of human nature, human conduct, individual rights and responsibilities.

How many Americans, for example, understand that minimum-wage laws restrict the freedom of our young people and the less skilled adults? And how much thought do we give to the demoralizing effects of this tragic denial of opportunity to bear and discharge self-responsibility?

We know that “unemployment”—useless or destructive dissipation of human energies—demoralizes its victims. But how often do we hear or read of anyone relating the sudden rise in teen-age unemployment, especially among black teenagers, to the hikes in minimum-wage rates in the past 20 years in this country?

Yet, that relation is clear and obvious; and time and time again, research has verified it as well as any cause-and-effect relationship can be demonstrated in human affairs.

We hear and read that “welfare” is demoralizing millions of our fellow citizens. But how often do we stop to think that the confiscation of some two-thirds or more of business profits by taxes is restricting the freedom of every competent employer to offer jobs to unemployed job-seekers?

I repeat: in freedom, industrialism provides increasing opportunity for humans to develop morally, intellectually, physically, and esthetically; and this freedom is far from complete in these United States or anywhere else on earth.

But although it is an unattainable ideal, it is imperative that man pursue it. For that pursuit requires of us the pursuit of understanding that is the very wellspring of all human progress.

Wisdom is the principal thing; therefore get wisdom; and with all thy getting get understanding. And ye shall know the truth, and the truth shall make you free.

Ludwig von Mises

As the popular philosophy of the common man sees it, human wealth and welfare are the products of the cooperation of two primordial factors: nature and human labor. All the things that enable man to live and to enjoy life are supplied either by nature or by work or by a combination of nature-given opportunities with human labor. As nature dispenses its gifts gratuitously, it follows that all the final fruits of production, the consumers’ goods, ought to be allotted exclusively to the workers whose toil has created them. But unfortunately in this sinful world conditions are different. There the “predatory” classes of the “exploiters” want to reap although they have not sown. The landowners, the capitalists, and the entrepreneurs appropriate to themselves what by rights belongs to the workers who have produced it. All the evils of the world are the necessary effect of this originary wrong.

Such are the ideas that dominate the thinking of most of our contemporaries. The socialists and the syndicalists conclude that in order to render human affairs more satisfactory it is necessary to eliminate those whom their jargon calls the “robber barons,” i.e., the entrepreneurs, the capitalists, and the landowners, entirely; the conduct of all production affairs ought to be entrusted either to the social apparatus of compulsion and coercion, the state (in the Marxian terminology called Society), or to the men employed in the individual plants or branches of production.

Other people are more considerate in their reformist zeal. They do not intend to expropriate those whom they call the “leisure class” entirely. They want only to take away from them as much as is needed to bring about “more equality” in the “distribution” of wealth and income.

But both groups, the party of the thoroughgoing socialists and that of the more cautious reformers, agree in the basic doctrine according to which profit and interest are “unearned” income, are therefore morally objectionable, are the cause of the misery of the great majority of all honest workingmen and their families, and ought to be sharply curbed, if not entirely abolished, in a decent and satisfactory organization of society.

Yet this whole interpretation of human conditions is fallacious. The policies engendered by it are pernicious from whatever point of view we may judge them. Western civilization is doomed if we do not succeed very soon in substituting reasonable methods of dealing with economic problems for the present disastrous methods.

Three Factors of Production

Mere work—that is, effort not guided by a rational plan and not aided by the employment of tools and intermediary products—brings about very little for the improvement of the worker’s condition. Such work is not a specifically human device. It is what man has in common with all other animals. It is bestirring oneself instinctively and using one’s bare hands to gather whatever is eatable and drinkable that can be found and appropriated.

Physical exertion turns into a factor of human production when it is directed by reason toward a definite end and employs tools and previously produced intermediary products. Mind—reason—is the most important equipment of man. In the human sphere, labor counts only as one item in a combination of natural resources, capital goods, and labor; all these three factors are employed, according to a definite plan devised by reason, for the attainment of an end chosen. Labor, in the sense in which this term is used in dealing with human affairs, is only one of several factors of production.

The establishment of this fact demolishes entirely all the theses and claims of the popular doctrine of exploitation. Those saving and thereby accumulating capital goods, and those abstaining from the consumption of previously accumulated capital goods, contribute their share to the outcome of the processes of production. Equally indispensable in the conduct of affairs is the role played by the human mind. Entrepreneurial judgment directs the toil of the workers and the employment of the capital goods toward the ultimate end of production, the best possible removal of what causes people to feel discontented and unhappy.

What distinguishes contemporary life in the countries of Western civilization from conditions as they prevailed in earlier ages—and still exist for the greater number of those living today—is not the changes in the supply of labor and the skill of the workers and not the familiarity with the exploits of pure science and their utilization by the applied sciences, by technology. It is the amount of capital accumulated. The issue has been intentionally obscured by the verbiage employed by the international and national government agencies dealing with what is called foreign aid for the underdeveloped countries. What these poor countries need in order to adopt the Western methods of mass production for the satisfaction of the wants of the masses is not information about a “know how.” There is no secrecy about technological methods. They are taught at the technological schools and they are accurately described in textbooks, manuals, and periodical magazines. There are many experienced specialists available for the execution of every project that one may find practicable for these backward countries. What prevents a country like India from adopting the American methods of industry is the paucity of its supply of capital goods. As the Indian government’s confiscatory policies are deterring foreign capitalists from investing in India and as its prosocialist bigotry sabotages domestic accumulation of capital, their country depends on the alms that Western nations are giving to it.

Consumers Direct the Use of Capital

Capital goods come into existence by saving. A part of the goods produced is withheld from immediate consumption and employed for processes the fruits of which will only mature at a later date. All material civilization is based upon this “capitalistic” approach to the problems of production.

“Roundabout methods of production,” as

Boehm-Bawerk called them, are chosen because they generate a higher output per unit of input. Early man lived from hand to mouth. Civilized man produces tools and intermediary products in the pursuit of long-range designs that finally bring forth results which direct, less time-consuming methods could never have attained or only with an incomparably higher expenditure of labor and material factors.

Those saving—that is consuming less than their share of the goods produced—inaugurate progress toward general prosperity. For the seed they have sown enriches not only themselves but also all other strata of society.

It benefits the consumers. The capital goods are for the owner a dead fund, a liability rather than an asset, if not used in production for the best possible and cheapest provision of the people with the goods and services they are asking for most urgently. In the market economy the owners of capital goods are forced to employ their property as if it were entrusted to them by the consumers under the stipulation to invest it in those lines in which it best serves those consumers. Virtually, the capitalists are mandataries of the consumers, bound to comply with their wishes.

In order to attend to the orders received from the consumers, their real bosses, the capitalists must either themselves proceed to investment and the conduct of business or, if they are not prepared for such entrepreneurial activity or distrust their own abilities, hand over their funds to men whom they consider as better fitted for such a function. Whatever alternative they may choose, the supremacy of the consumers remains intact. No matter what the financial structure of the firm or company may be, the entrepreneur who operates with other peoples’ money depends no less on the market, that is, the consumers, than the entrepreneur who fully owns his outfit.

There is no other method to make wage rates rise than by investing more capital per worker. More investment of capital means: to give to the laborer more efficient tools. With the aid of better tools and machines, the quantity of the products increases and their quality improves. As the employer consequently will be in a position to obtain from the consumers more for what the employee has produced in one hour of work, he is able—and, by the competition of other employers, forced—to pay a higher price for the man’s work.

As the labor union doctrine sees it, the wage increases that they are obtaining by what is euphemistically called “collective bargaining” are not to burden the buyers of the products but should be absorbed by the employers. The latter should cut down what in the eyes of the communists is called “unearned income,” that is, interest on the capital invested and the profits derived from success in filling wants of the consumers that until then had remained unsatisfied. Thus the unions hope to transfer step by step all this allegedly unearned income from the pockets of the capitalists and entrepreneurs into those of the employees.

What really happens on the market is, however, very different. At the market price m of the product p, all those who were prepared to spend m for a unit of p could buy as much as they wanted. The total quantity of p produced and offered for sale was s. It was not larger than s because with such a larger quantity the price, in order to clear the market, would have to drop below m to m-. But at this price of m- the producers with the highest costs would suffer losses and would thereby be forced to stop producing p. These marginal producers likewise incur losses and are forced to discontinue producing p if the wage increase enforced by the union (or by a governmental minimum wage decree) causes an increase of production costs not compensated by a rise in the price of m to m+. The resulting restriction of production necessitates a reduction of the labor force. The outcome of the union’s “victory” is the unemployment of a number of workers.

The result is the same if the employers are in a position to shift the increase in production costs fully to the consumers, without a drop in the quantity of p produced and sold. If the consumers are spending more for the purchase of p, they must cut down their buying of some other commodity q. Then the demand for q drops and brings about unemployment of a part of the men who were previously engaged in turning out q.

The union doctrine qualifies interest received by the owners of the capital invested in the enterprise as “unearned” and concludes that it could be abolished entirely or considerably shortened without any harm to the employees and the consumers. The rise in production costs caused by wage increases could therefore be borne by shortening the company’s net earnings and a corresponding reduction of the dividends paid to the shareholders. The same idea is at the bottom of the unions’ claim that every increase in what they call productivity of labor (that is, in the sum of the prices received for the total output divided by the number of man hours spent in its production) should be added to the wage bill. Both methods mean confiscating for the benefit of the employees the whole or at least a considerable part of the returns on the capital provided by the saving of the capitalists. But what induces the capitalists to abstain from consuming their capital and to increase it by new saving is the fact that their forbearance is counterbalanced by the proceeds of their investments. If one deprives them of these proceeds, the only use they can make of the capital they own is to consume it and thus to inaugurate general progressive impoverishment.

The Only Sound Policy

What elevates the wage rates paid to the American workers above the rates paid in foreign countries is the fact that the investment of capital per worker is in this country higher than abroad. Saving, the accumulation of capital, has created and preserved up to now the high standard of living of the average American employee.

All the methods by which the federal government and the governments of the states, the political parties, and the unions are trying to improve the conditions of people anxious to earn wages and salaries are not only vain but directly pernicious. There is only one kind of policy that can effectively benefit the employees, namely, a policy that refrains from putting any obstacles in the way of further saving and accumulation of capital.

Private ownership, private initiative, the hope of reward, and the expectation of achievement have always been primarily responsible for the advancement of mankind. Continued progress—be it spiritual, mental, or material—rests squarely upon a better understanding of the idea of individual freedom of choice and action, with personal responsibility for one’s own decisions.

Footnotes

1 Reprinted from Economic Council Letter

2 From The Freeman, February 1969. Reprinted by permission from Analog Science Fiction-Science Fact. Copyright 1968 by the Condé Nast Publications, Inc.

3 Based on a radio address (ABC Network, April 6, 1947). Revised 1953 for publication by FEE

4 Address at 35th Annual Meeting of the Pennsylvania State Chamber of Commerce, October 22, 1952

5 From The Freeman, May 1974

6 From The Freeman, March 1968

7 For a discussion of some effects of prohibiting discrimination on the basis of sex in economic dealings, see Gary North’s “The Feminine Mistake: The Economics of Women’s Liberation,” The Freeman, January, 1971.

8 From The Freeman, February 1971

9 From The Freeman, April 1973

10 From The Freeman, August 1963

• 1LETTER TO HIS GRANDSON19.*
• 2TECHNOLOGICAL STATUS20.*
• 3WHERE KARL MARX WENT WRONG21.*
• 4THE GREAT MISTAKE OF KARL MARX22.*
• 5THE ROLE OF SAVINGS23.*
• 6TOOLS24.*
• 7“Vive la différence,” say the French in referring to the difference between the sexes due to physical and physiological causes. This difference can be a source of delight to those free to enjoy it, but can generate ill-feeling and friction between the sexes if they are compelled by law to ignore it.24.1 Our physical and physiological characteristics are bound to have economic consequences, which will persist so long as human life continues as we know it.
• 8THE LIBERATION OF WOMEN25.*
• 9INDUSTRIALISM: FRIEND OR FOE?26.*
• 10THE ECONOMIC ROLE OF SAVING AND CAPITAL GOODS27.*