Transfer Machine
Transfer Machine
“The government who robs Peter to pay Paul can always depend on the support of Paul,” George Bernard Shaw once said.
For a socialist Shaw demonstrated good sense with that quotation. Unfortunately, America has become a laboratory in which his hypothesis is being tested.
The theory of government I was taught says that government provides benefits, primarily security, to the entire population. In return we pay taxes. But lately the government has been a distributor of special privileges, taking money from some and giving it to others. America is now about evenly split between those who pay income taxes and those who consume them.
The Urban-Brookings Tax Policy Center recently disclosed that close to half of all households will pay no income tax this year. Some will pay less than zero—that is, they’ll get money from those of us who do pay taxes.
The Tax Policy Center adds that this year the average income-tax rate for the bottom 40 percent of earners will be negative and that their cash subsidy will equal 10 percent of the total amount the income tax brings in, thanks to the Earned Income Tax Credit and President Obama’s “Making Work Pay” program.
The view from the top also shows the lopsidedness of the tax system. The top 20 percent of earners make about 53 percent of the income in America but pay 91 percent of the income tax. The top 1 percent pay 36 percent. The IRS says the bottom half of earners pay less than 3 percent.
How the Other Half Votes
This presents a serious problem because government has such vast powers to dispense favors. As Shaw suggested, people who pay no tax will not hesitate to vote for politicians who promise big spending. Why not? They will get stuff without having to pay for it.
Yes, working people who pay no income tax still pay taxes: sales tax and payroll (Social Security and Medicare) taxes. But the income tax is big and visible, so it’s a problem that a growing number of people don’t pay but get benefits from those who do.
Frédéric Bastiat, the great nineteenth-century French economist, defined the State as “that great fiction by which everyone tries to live at the expense of everyone else.” I don’t know if he envisioned one half of the population living off the other half.
It’s important not to confuse the interests of the taxpayers with the interests of the politicians and other tax consumers. Yet that is done all the time. When the government bought toxic assets (of zero market value) from the banks, it said taxpayers would profit when the economy recovered and the assets once again commanded a positive price in the market. Even if we make the dubious assumption that the government is savvy enough to buy low and sell high, it’s not the taxpayers who would benefit from any profits. The politicians will spend every penny rather than cut taxes.
To put it bluntly, we are not the government.
The built-in unfairness of the tax system has prompted a range of tax-reform proposals, such as a flat tax and replacing the income tax with a sales tax. These alternatives are better, but they have their drawbacks, too. For that reason, there is something more urgent than tax reform: spending reform.
The true burden of government, the late Milton Friedman said, is not the tax level but the spending level. Taxation is just one way for the government to get money. The other ways—borrowing and inflation—are also burdens on the people. The best way to lighten the tax burden is to lessen the spending burden. If government spends less, it takes less. And if it takes less, the tax system will weigh less heavily on us all.
Once again, we find wisdom in Adam Smith: “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things.”
Judicial Monopoly
Judicial Monopoly Over the Constitution: Jefferson’s View
Dr. Carson has written and taught extensively, specializing in American intellectual history. He is the author of several books, his most recent being Organized Against Whom? The Labor Union in America. He is working at present on A Basic History of the United States, to be published by Western Goals, Inc.
Do the Federal courts have a monopoly of the interpretation of the Constitution? Further, are the judges, in the words of Thomas Jefferson, “the ultimate arbiters of all constitutional questions . . .”?[1] There is little reason to doubt that the prevailing view in the country would give a resounding affirmative answer to the first question. There are dissenters, of course, but so far as they are numerous and widely influential, their dissents are to particular decisions or opinions of the courts, not to the propriety of the courts making some decision.
The judges act as if they have a monopoly of the interpretation of the Constitution. Members of Congress usually make it clear that they believe the opinions of the Federal courts, especially the Supreme Court, are determinative. Presidents increasingly leave to the courts the questions they may have about the constitutionality of laws that come before them. The academic world generally supports this view, and many legal scholars make pro nouncements that suggest they do not think it worthwhile to consider any other view.
In recent decades, the press, or the media, have mightily assisted the courts in maintaining this position. For example, when the courts began compelling states to reapportion legislative seats on the basis of population, the Washington Post declared that
these rulings have unquestionably become the law of the land. It is not the function of Congress to set aside that law, or to thwart its operation. The spectacle of Congress trying to use its legislative power to deny or temporarily nullify constitutional rights which the Supreme Court had clearly upheld is such a serious encroachment upon the orderly division of powers that even extraordinary measures would be justified to defeat it.
There is much controversy, to be sure, over the soundness of the Constitution’s edict that both houses of the state legislature must be apportioned on the basis of population . . . . The next Congress will be free, if it wishes, to propose a constitutional amendment . . . ; however, Congress should not seek to shortcircuit judicial decisions.[2]
The editorial assumes that the courts have a monopoly of the interpretation of the Constitution. It enjoins the Congress against intermeddling in such matters. It asserts that the decisions are “the law of the land.” More, it appears to add the court decisions to the body of the Constitution itself, for it holds that these are edicts of the Constitution. If it was not commonplace to make this last identification at the time, it has become so since, for writers and speakers frequently refer to the decisions of the court as if they were an integral part of the Constitution itself. In any case, the view prevails that the Federal courts have a monopoly of the interpretation of the Constitution.
It is not equally clear, however, that the view has triumphed that the courts are the “ultimate arbiters of all constitutional questions.” There is at least a shadow of doubt about this, as yet. The Washington Post noted that a constitutional amendment could be adopted to change the courts’ rulings. If so, the courts are not the ultimate arbiters, or perhaps it would be more accurate to say that they are not the penultimate arbiters, since such amendments are extremely rare. By my reading of it, the 16th Amendment, adopted in 1913, was the last amendment passed to resolve a constitutional question. More important, perhaps, there is now strenuous public resistance, at least from opinion makers, to reversing a court decision in this way. Nor is it clear, given the current mood, how the courts might respond to such a direct restraint on their powers. But for now, at least, there appears to be the remote possibility of amending the Constitution as an arbiter beyond the courts.
Questioning the Monopoly
There are several reasons for raising the question of the court’s monopoly of interpreting the Constitution. The first is to make clear that in the version in which it now prevails the monopoly is of recent vintage. The second is to emphasize that the Constitution does not allot the interpretation of the Constitution to any particular branch of government, any special tribunal, or any class or order of men. The main reason, however, is to explore the view of Thomas Jefferson, both because of its contrast with the contemporary one and because it was more or less in accord with a widely held view for much of the 19th century. And last, I want to point up some of the incongruities, tendencies, infelicities, and dangers of the current view.
None of this is meant to suggest that the courts do not have a role in the interpretation of the Constitution, that they have not always claimed and acted upon a role, or that this was unexpected by the makers of the Constitution. On the contrary, many of the Founders anticipated that the courts would have a role in applying the laws and establishing the supremacy of laws made in pursuance of the Constitution vis à vis the states especially. That they would do so was mentioned a number of times in the Constitutional Convention.[3] Moreover, Hamilton argued in The Federalist, number 78, that it was the duty of “courts of justice . . . to declare all acts contrary to the manifest tenor of the Constitution void. Without this,” he said, “all the reservations of particular rights or privileges would amount to nothing.”[4]
But it should be emphasized that the Constitution grants no special powers of interpretation of it to the courts. Specifically, it grants no power of judicial review of legislation to the courts. The President is granted a power of the review of legislation, and he may veto bills on constitutional or other grounds. The Convention considered more than once the advisability of having the Supreme Court review legislation in conjunction with the executive. The proposal was rejected.
“Judicial Review”
In fact, the courts do not “review” acts of Congress to determine whether or not they are in accord with the Constitution. Any literal minded person might suppose that is what they do, or have done, by the use of the dubious phrase “judicial review” to describe their procedures. In the course of applying the law to particular cases, courts sometimes adjudge an act of the legislature to be in conflict with the Constitution. They may then refuse to give the force of law to the legislative act. That is the basis of the traditional claim of the courts to make decisions, binding on themselves, regarding the constitutionality of acts. The power is not mentioned in the Constitution.
Jefferson was the first President to challenge the extent of the powers of the Federal courts. Indeed, he raised the challenge even before he attained the highest office in the land and continued to express various concerns in letters to individuals long after he retired to private life. Also, he was the most outstanding public figure in his day to confront directly the question of a judicial monopoly of the interpretation of the Constitution. From the confrontations he developed a coherent view of the matter.
Jefferson became embroiled in this question for both broad and general as well as particular considerations. From the outset, he was a strict constructionist of the Constitution. The first major constitutional question that came up for him was about the Bank of the United States. Jefferson was Secretary of State, and President Washington asked for the opinions of his heads of departments. He wrote Washington that ours is a government of delegated powers. “The incorporation of a bank,” he said, “and the powers assumed by this bill, have not, in my opinion, been delegated to the United States by the Constitution.”[5] He went on to explain the case by an examination of the powers enumerated and to recommend that the bill be vetoed.
Jefferson’s Concern for Liberty
Jefferson’s insistence on the strict construction of the Constitution was based on two broad and enduring concerns which lasted the whole of his adult life. One was his commitment to individual liberty. On one occasion, he wrote: “I have sworn upon the altar of God eternal hostility against every form of tyranny over the mind of man.”[6] As to a definition “of liberty,” he explained, “I would say that, in the whole plenitude of its extent, it is unobstructed action according to our will, but rightful liberty is unobstructed according to our will within limits drawn around us by the equal rights of others.”[7] Jefferson subscribed to the natural rights theory, holding that man has certain God-given rights. Although there are many listings of these rights, he thought those most often threatened were “the rights of thinking and publish ing our thoughts by speaking or writing; the right of free commerce; the right of personal freedom.”[8]
His second broad concern was to restrain and limit government so that people might enjoy their rights. “The natural progress of things,” he said, “is for liberty to yield and government to gain ground.”[9] It was not safe, he thought, to confide overmuch power in government. “I own,” Jefferson said, “I am not a friend to a very energetic government. It is always oppressive. It places the governors indeed more at their ease, at the expense of the people.”[10] It was to hold governments in their place and restrain them in their activities that he was so concerned with strict construction of the Constitution.
“In questions of power, then,” Jefferson declared in his draft of the Kentucky Resolution, “let no more be heard of confidence in man but bind him down from mischief by the chains of the Constitution.”[11] Further, “Our peculiar security is in the possession of a written Constitution. Let us not make it a blank paper by construction. I say the same as to the opinion of those who consider the grant of the treaty making power as boundless. If it is, then we have no Constitution. If it has bounds, they can be no others than the definitions of powers which that instrument gives.”[12]
Although Jefferson wrote boldly and frequently without equivocation, it may be well to point out that he was not by temperament a controversialist. He did not like to debate, and avoided public confrontations before crowds. Though he was trained in the law, Jefferson did not like the courtroom clashes and only practiced it briefly. He relished intellectual exchanges among people of a questing disposition and much preferred the search for truth to any contest of wills for dominance.
All that is a way of saying that Jefferson did not enjoy political controversy, nor was he long a member of Washington’s cabinet before he was thinking of some way to retire. He wrote James Madison that he had devoted more than 20 years to the public service and that he thought he ought to be able to leave it with a clear conscience, having paid his debt to society, so to speak. He wrote the President in 1792 that he looked forward to his early retirement “with the longing of a wave-worn mariner, who has at length the land in view, and shall count the days and hours which still lie between me and it.”[13]
As he prepared to step down the next year, he wrote Madison that “The motion of my blood no longer keeps time with the tumult of the world. It leads me to seek for happiness in the lap and love of my family, in the society of my neighbors and my books, in the wholesome occupations of my farm and my affairs, in an interest or affection in every bud that opens, in every breath that blows around me . . . .”[14] It was in this frame of mind, so far as we can know, that he left public life in 1793, hoping never to return to it.
Return to Public Office
But however strong his resolve to stay out, Jefferson was drawn, almost inevitably, back into the political maelstrom within two or three years. He was a man still in the full vigor of his middling years, among the most prominent men in America, and the concern he felt for restraining the government by strict construction and thus protecting individual liberty did not diminish out of office. A political party was abuilding in the mid-1790s, the Republican Party, Jefferson called it, which opposed Hamilton’s banking and taxing policies, and Jefferson became its leader. He was elected Vice President in 1796, but this did not alter the course of the government, which was controlled by the Federalists, with
Although there were other issues, Jefferson’s concern about how the Constitution was being interpreted had been increasing from the early 1790s. These concerns provided him with the particulars of the case. As already noted, Jefferson opposed Hamilton’s broad construction of the Constitution to justify the chartering of the bank. Indeed, that Hamilton won Washington to his side may have precipitated Jefferson’s resignation from the cabinet as early as he thought he decently could.
The manner of the imposition of the whiskey and other similar taxes in the course of the 1790s disturbed Jefferson just as much. The Constitution required that direct taxes be apportioned among the states on the basis of their populations. To Jefferson, and to many others, these were clearly direct taxes. But Hamilton and the Federalists called them excises, thus evading the constitutional requirement. That aside, however, Jefferson was bothered by the intrusion of revenue agents in the affairs of citizens in order to collect these taxes.
The Alien and Sedition Acts
But it was the Alien and Sedition Acts, passed in 1798, that really aroused Republicans in general and Jefferson in particular. It certainly appeared that the Federalists were bent on riding roughshod over constitutional limitations, to say nothing of what they were prepared to do to their Republican opponents. The Alien Acts were bad enough, particularly for their ignoring due process, required by the 5th Amendment, in authorizing the President to deport aliens without even the semblance of a trial. Good
The Sedition Act, however, was another matter. It prohibited people to defame or slander high government officials either in speech or in writing. Jefferson drew up what became known as the Kentucky Resolution in which he declared that these acts violated constitutional prohibitions, and he called on other states to join in opposing it. Madison followed suit in a somewhat milder Virginia Resolution.
The Sedition Act was no idle threat to Republicans and particularly newspaper publishers. Government attorneys and the courts began to bring them to trial and punish them for their alleged seditious acts. Only Republicans, it should be added, were prosecuted. The Jeffersonian suspicion of the courts dates from the late 1790s, if not before. Indeed, judges did seem to try such cases with inordinate zeal, charging juries sometimes in such a way as to assure guilty verdicts, and meting out tough sentences. Even Supreme Court justices who, in those days, rode circuit and tried cases, were high handed in conducting their courts.
By the time he became President in 1801, then, Jefferson had incentive aplenty for limiting the government by a strict construction of the Constitution. He had a theory for how it could be done and was determined to do it. Meanwhile, another development had occurred which aroused his fears about a judicial monopoly of the interpretation of the Constitution. Before leaving office, the Federalists had created new courts, new judgeships, positions for government attorneys, and the like. The outgoing President Adams filled these positions with Federalists, so that Federalists were solidly ensconced in the courts with lifetime appointments. The stage was set for a confrontation between the Jeffersonians and the courts, if ever there was to be one.
But Jefferson was not a man inclined to engage in confrontations. He was quiet and thoughtful, even philosophical, in demeanor, not given to attempting to ride roughshod over anyone. He always professed to respect the independence of the other branches in their proper spheres, and there is evidence to support his claims. He simply acted with the powers of the President and encouraged Congress to act with its powers so as to prevent any monopoly by the courts over the Constitution. He took care, generally, to see that if there were a confrontation it would be instituted by one of the other branches, not by himself. Nor did he engage in public declamations on the question, as a rule; most of what we know of his views comes from private correspondence—and what may be deduced from his acts.
First, do the courts have a monopoly of the interpretation of the Constitution? Jefferson did not equivocate on his answer. He answered the question most emphatically in a letter written in 1820, long after he had left office. “You seem . . . to consider the judges as the ultimate arbiters of all constitutional questions,” he wrote to a correspondent. But that, Jefferson said, is “a very dangerous doctrine indeed and one which would place us under the despotism of an oligarchy . . . . The constitution has erected no such single tribunal, knowing that, to whatever hands confided, with the corruptions of time and party its members would become despots.”[15]
Who Decides?
Who, then, does decide constitutional questions? Let us leave to the side for the moment how they may be ultimately decided, so far as they ever are, in order to get to Jefferson’s intermediate answer. So far as the Federal government is concerned, each of the branches—and in the Congress, each of the houses—decides for itself in matters that come before them. “The constitution has,” Jefferson pointed out, “wisely made all the departments co-equal and co-sovereign within themselves.”[16] He explained how it works this way: “Questions of property, of character, and of crime being ascribed to the judges through a definite course of legal proceeding, laws involving such questions belong of course to them, and as they decide on them ultimately and without appeal, they of course decide for themselves. The constitutional validity of the law or laws again prescribing executive action and to be administered by that branch ultimately and without appeal, the executive must decide for themselves also . . . . So also as to laws governing the proceedings of the legislature, that body must judge for itself the constitutionality of the law and equally without appeal or control from its co-ordinate branches. And, in general, that branch which is to act ultimately and without appeal on any law is the rightful expositor of the validity of the law, uncontrolled by the opinions of the other co-ordinate authorities.”[17]
On first reading of the above it may appear that Jefferson has evaded the issue or begged the question. It may be given that appearance, I think, because he used the qualifying phrase, “without appeal,” and that may have a legal ring to it, suggesting an appeal to the judiciary. But that was not his meaning, or not his only meaning. Of course, in a case taken and decided in a lower court there may be an appeal to a higher court. But Jefferson was referring to something much broader than this. Many of the powers of the government are jointly exercised by or intertwined with other branches. In that case, usually there is no appeal from a negative decision of one of the other branches. For example, if the Senate refuses to approve an appointment of the President, there is no appeal, and the decision is final.
Checks and Balances
In order to understand Jefferson’s view it is necessary to view it in the context of the constitutional provision of checks and balances and the separation and partial independence of powers, not in the judicial framework to which we have become accustomed. The powers of government are divided among the branches, Jefferson was maintaining, and with that division goes the power of determining the constitutionality of what they do. To put it in its strongest form, none of the branches may force the others to act on its view of the Constitution. Jefferson said, “If the legislature fails to pass laws for a census . . . ; if the President fails to supply the place of a judge . . . . the judges cannot force [them] . . . .”[18]
How these checks and balances work, how each branch interpreting the Constitution for itself limits and restrains government, may best be illustrated with actual examples. When Jefferson became President, he pardoned those who had been convicted under the Sedition Act. He explained his action in letters to Abigail Adams: “I discharged every person under punishment or prosecution under the Sedition Law because I considered, and now consider, that law to be a nullity . . . . The judges, believing the law constitutional, had a right to pass a sentence of fine and imprisonment, because the power was placed in their hands by the Constitution. But the executive, believing the law to be unconstitutional, was bound to remit the execution of it, because that power has been confided to them by the Constitution. That instrument meant that its co-ordinate branches should be checks on one another.”[19]
Marbury vs. Madison
Chief Justice John Marshall also wisely avoided a confrontation with the President by his opinion in the celebrated case of Marbury vs. Madison. William Marbury had been appointed justice of the peace by President Adams, but the appointment was so late that the commission was not delivered. James Madison, the incoming Secretary of State, refused to deliver it under orders from Jefferson. Marbury sued in the Supreme Court for a writ of mandamus that would force Madison to deliver the commission.
Marshall held that Marbury was indeed entitled to a commission and force was appropriate, but, unfortunately, by his reading of the Constitution, he had applied to the wrong court. Thus, petition denied, and no mandamus was issued. It was just as well, too, for the general view has been that Jefferson would not have honored it, and the court would have been powerless to enforce it. By Jefferson’s interpretation of the Constitution the court could no more force him to act than he could force it to render a decision in accord with his wishes.
Marshall got his opportunity to try force on the President again in the Burr trial for treason in 1807. He issued a subpoena, on motion of defense, for Jefferson to appear in court. Jefferson declined, though he did send some papers, and gave the court a lecture on the separation of powers.[20] Marshall took no further action.
But before either of these cases came before the courts, Congress had begun to move to rein in and restrain the courts. In 1802, it repealed the Judiciary Act of 1801, taking away a number of new offices. Shortly after, it passed a new act returning Supreme Court justices to riding circuit and restricting the Supreme Court to one session each year. Then, gently prodded by Jefferson, it zeroed in on the most notorious of the judges.
District Judge John Pickering, ill-famed for his drunken, if not insane, carrying on in court, was impeached by the House and removed from office by the Senate. Supreme Court justice Samuel Chase was impeached by the House for his intemperate behavior in court, but the Senate failed of the two-thirds majority required for conviction. Jefferson was disappointed and thereafter maintained that impeachment was very nearly an empty threat. That was surely an overly pessimistic assessment, however, for it appears that the behavior of judges improved perceptibly for quite a while after the Pickering and Chase cases.
The broader point is this. As Jefferson held, the House of Representatives, the Senate, and the President, as well as the courts, are empowered to act in ways that depend upon interpreting the Constitution. They take oaths to uphold and defend the Constitution, and if its meaning could only be divined by the courts this would amount to nothing more than oaths to obey the courts. Happily, however, the Constitution is written in English, and the other branches have powers that enable them to act upon their own interpretations and even restrain the courts if they get out of line.
All legislative power is vested in the Congress and executive power in the President. If the courts invade the legislative domain of the Congress by their constructions of the Constitution, as they have most certainly done in recent years, Congress has the power to set them straight. The Constitution authorizes Congress to define and limit (or expand) the appellate jurisdiction of the courts.
The President can refuse to enforce court orders he believes in conflict with the Constitution. (The courts have no enforcement machinery, i.e., prosecuting attorneys, police, armies, prisons, or electric chairs, of their own.) As Andrew Jackson is alleged to have said, “John Marshall has made his decision; now let him enforce it.”
Judges can be impeached and removed from office, though lawyers rail impotently that they can only be removed for indictable crimes. It happens that when the Senate acts as such a high court, there is no appeal from its decisions. As a last resort, Congress can refuse to appropriate money for the operation of the courts. In short, not only can the other branches interpret the Constitution, but they are also in as good position as the courts to make their interpretations stick.
A System of Limited Government
What I have been describing is a system of checks and balances, a system in which no branch has a monopoly of interpretation, in which any branch with a will can work to restrain the others. It is a system of limited government, limited toward the branch which most strictly construes the Constitution. Jefferson hoped that clashes between the branches over the Constitution could be avoided. To that end, he recommended that each branch refrain from approaching too near to the bounds of its powers. That would tend to limit government even more and give room for the liberty of the people, which he thought was the greater end of government.
Jefferson did not believe, however, that all the branches of government together are the final arbiters of constitutionality. Not even the Federal and state governments, to whom he would certainly provide some place, are the ultimate arbiters. Government is too dangerous, too bent on aggrandizing its own powers, to leave to it or them the final decision. “I know of no safe depository of the ultimate powers of the society but the people themselves,” he said.[21] In the final analysis, he thought, that was where the power of interpreting the Constitution resides. The people may turn out members of Congress who displease them on constitutional issues. They can refuse the re-election of a President. If all else fails, or if the branches of government cannot agree, the Constitution can be amended by the consensual process prescribed.
There is great danger, Jefferson thought, in a court monopoly of the interpretation of the Constitution. Any monopoly would be fearsome, but that of the courts would be the most dangerous. The members of the court are appointed for life, are difficult to remove, and hold perilous power over the populace. Although Jefferson’s nose was undoubtedly finely tuned to sniff the threat of despotism in every tainted breeze, he meant no exaggeration when he said that it would be an oligarchic despotism.
Haitians struggle to find the dead
Haitians struggle to find the dead and keep survivors alive after earthquake
GraphicsHampered relief efforts
What caused the quake?
In the aftermath
Satellite image of damage
Haiti earthquake map
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Discussion PolicyFriday, January 15, 2010
PORT-AU-PRINCE, HAITI -- Desperate Haitians clawed at the rubble of their ruined capital for a second day Thursday, retrieving their dead and rescuing the living, as an international armada of ships and aircraft struggled to provide food, water, medicine and shelter.
Forty-eight hours after much of the impoverished Caribbean nation was devastated by an earthquake, it was mainly the people of this shattered city, working with bare hands and simple tools, who pulled at slabs of concrete and blocks of debris to get at those still trapped.
The dead and injured were pushed through the streets in wheelbarrows. At the overwhelmed central hospital, anguished patients lay in a weedy parking lot on gurneys fashioned from wooden doors. Calls for help went unanswered, and no doctors were in sight.
Even as a 90,000-ton American nuclear aircraft carrier was expected Friday, and transport planes arrived from as far away as China and Belgium, the first shipments of aid were just starting to reach the stunned nation.
There were scant signs of help from the Haitian government, itself scattered by the 7.0-magnitude earthquake Tuesday evening. The streets were filled with beleaguered residents milling about, left with no jobs, no instructions on what to do, and no place to buy food or to take the injured. Many said they felt totally alone and saw no evidence that relief was on the way, as their mournful pleas began to give way to anger.
"The government is mute," a dismayed young Haitian said while he hurried past a body left on a traffic median. "They do nothing."
Further hampering relief efforts, the Federal Aviation Administration temporarily stopped all private and humanitarian flights from the United States to Haiti's clogged airports for slightly more than five hours on Thursday, allowing only military planes, at the request of the Haitian government, a U.S. official said. Nine planes from the United States were already in the air when FAA issued the order, the official said. They could not land in Haiti.
Despite the arrival of some aid and rescue teams on Thursday, Port-au-Prince remained a haunted place of destruction, with many of its pastel buildings collapsed into death traps.
A Haitian Red Cross official said the quake may have killed as many as 50,000 people.
Across the sprawling city, makeshift citizen rescue crews squirmed through openings in the debris and past bodies to search for survivors. The living cried with joy when they were extricated. The dead were stacked on streets and sidewalks, some victims covered with blankets or cardboard, or bound in winding sheets.
Many of the deceased remained in the rubble, with an arm protruding here, a leg there.
In a collapsed school, the body of a student was slumped over what appeared to be a desk -- her dark-blue jumper and pink blouse covered in white dust.
"Somebody has to help us," Baptiste said weakly.
Among the dead, the State Department announced, was Victoria J. DeLong, a cultural affairs officer at the U.S. Embassy in Port-au-Prince. DeLong, who had been in Haiti less than a year, was killed when her home collapsed.
There were some victories amid the destruction.
An urban search-and-rescue team from Fairfax County pulled an Estonian security guard from the collapsed U.N. headquarters building.
The guard, identified as Tarmo Joveer, was discovered after rescuers heard scratching. Television footage showed him emerging from the rubble, pumping a fist in the air as rescuers dusted him off.
U.N. officials called it a miracle, noting that 36 other U.N. workers had been found dead, and that nearly 200 others -- including mission chief Hédi Annabi and his chief deputy, Luiz Carlos da Costa -- were still missing.
"The entire building was shaking violently," David Wimhurst, a U.N. spokesman who was in the headquarters at the time, said Thursday. "I was hanging on to furniture just to stop myself being thrown around the world, and praying that the big concrete pillar in the middle of my office would not break and bring the whole building down on me. When it subsided, the [building] . . . had collapsed."
He said he escaped out a window and down a rickety ladder.
U.S. vows aid
At the White House, President Obama pledged $100 million in aid to Haiti, to support what he called one of the largest international relief efforts in history.
Obama, flanked by Secretary of State Hillary Rodham Clinton, Defense Secretary Robert M. Gates and Vice President Biden, said the rescue of Haiti's people, as well as the nation's long-term recovery, is a top U.S. priority.
The U.S. military now has a 24-hour-a-day airlift underway.
U.S. disaster medical assistance teams, along with a disaster mortuary assessment team, were set to depart for Haiti from Atlanta on Thursday night.
And before the pause in nonmilitary air traffic, the international airport was busy with incoming planes, ferrying journalists and relief workers.
Supplies from a huge U.S. Air Force cargo and personnel plane from Travis Air Force Base in California were being unloaded a few hundred feet from an enormous Belgian air force plane.
Despite the traffic, six specialized urban search-and-rescue teams were still awaiting permission to fly to Haiti to join four other U.S. teams delayed because of the airport congestion, an American official familiar with the situation said.
Adding to the trouble is the need to prioritize the flow of communications gear, medical supplies and critical personnel, and the need to coordinate flight slots among countries, the official said.
But authorities said the airlift alone will not be enough to meet the needs of the estimated 3 million people affected by the quake.
Work is underway to set up a temporary port near Port-au-Prince. The main commercial pier, wharf and crane that offloads shipping containers collapsed and are in the water, Coast Guard officials said.
"The population of Haiti cannot be sustained without some way of getting large quantities of cargo in quickly, and with the port facilities in Port-au-Prince, that's going to be very difficult," said Capt. Peter Brown, chief of response operations for the U.S. Coast Guard 7th District, based in Miami.
"The only option will be breaking cargo down into much smaller containers and bringing them ashore by small boat," he said. "That's going to limit the ability to deliver sufficient quantities," especially of food.
'Help is arriving'
Steve Matthews of the international aid organization World Vision said Haiti needs all the help it can get.
"It's worse than I thought it would be," he said. "Most countries have some capacity to deal with emergencies; this one has no capacity to deal with emergencies."
The USS Carl Vinson, the Navy carrier -- loaded with 19 helicopters -- was scheduled to arrive Friday. And the hospital ship, USNS Comfort, was preparing to get underway.
Coast Guard cutters have begun to remove people and ferry supplies, and more are steaming toward Haiti.
As of late Thursday, the Coast Guard had flown out more than 100 Americans, including injured and nonessential U.S. Embassy personnel. Eighteen other people with severe injuries -- major lacerations, fractured skulls and other broken bones -- were taken by helicopter.
"Help is arriving," Obama said in Washington. "Much, much more help is on the way."
But he acknowledged: "None of this will seem quick enough if you have a loved one who is trapped, if you're sleeping on the streets, if you can't feed your children."
Ruane reported from Washington.
By Rita Nazareth and Justin Carrigan
Jan. 15 (Bloomberg) -- U.S. stocks and commodities slid, while the dollar and Treasuries rose, as a loss at JPMorgan Chase & Co.’s retail bank and growing concern over Greece’s budget deficit triggered a flight from riskier assets. Crude oil fell for a fifth day.
The Standard & Poor’s 500 Index lost 1.1 percent to 1,136.03 at 4:08 p.m. in New York, retreating from a 15-month high. The S&P GSCI Index of commodities extended its weekly decline to 4.2 percent, the biggest since October. The dollar strengthened against 15 of 16 major currencies, gaining as much as 1.1 percent versus the euro, while the benchmark 10-year Treasury note yield slid 0.08 percentage point to 3.66 percent.
JPMorgan shares lost 2.3 percent as the first major U.S. bank to release fourth-quarter results also reported revenue below the average analyst estimate. European Central Bank President Jean-Claude Trichet’s warning yesterday that no member nation will get “special treatment” fueled concern Greece’s debt will be ineligible as collateral at the central bank. The cost of insuring Greek bonds from default was near a record.
“Any disappointment will make people rethink their level of risk at this particular stage of the economy,” said Bruce McCain, chief investment strategist at Cleveland-based Key Private Bank, which manages $22 billion. “The credit issues here and outside the U.S. clearly have not been fully resolved. That area will be more vulnerable to disappointments.”
Financials Lead Retreat
Financial shares in the S&P 500 lost 2 percent for the biggest decline among 10 industries. Goldman Sachs Group Inc. and Bank of America Corp. fell at least 2 percent. Producers of raw materials in the index declined 1.1 percent as the stronger dollar reduced the appeal of commodities as an alternative investment.
The euro dropped as much as 1.5 percent against the yen and 0.7 percent versus the pound. The Dollar Index, which gauges the U.S. currency against those of six major trading partners, climbed 0.6 percent to 77.201 for its biggest gain in a month.
The yield on the benchmark Greek two-year note jumped 11 basis points to 3.71 percent, the highest level in almost a year. Rating downgrades sparked a rout in Greece’s bonds in December as the budget deficit headed for 12.7 percent of gross domestic product, more than four times the European Union limit. Greece will present proposals to the European Commission today to lower the deficit to 8.7 percent by year-end.
Credit-default swaps on Greek debt rose to 340 basis points, near a record reached yesterday, according to CMA DataVision prices.
Europe, Asia
The Dow Jones Stoxx 600 Index of European shares declined 0.9 percent. The MSCI Asia Pacific Index gained 0.4 percent to its highest level since August 2008. Commonwealth Bank of Australia, the nation’s biggest lender, jumped 2.3 percent in Sydney after saying first-half profit rose.
The MSCI Emerging Markets Index slipped 0.3 percent. The Shanghai Composite Index advanced 0.3 percent as China’s foreign-exchange reserves increased to a record.
Oil fell for a fifth day, its longest losing streak in five weeks. February crude fell 1.8 percent to $77.97 a barrel on the New York Mercantile Exchange and touched $77.70, the lowest since Dec. 24.
The S&P GSCI Index of commodities fell for a fifth day, the longest losing streak in a month.
Corn fell, capping the biggest weekly decline 13 months, on mounting concern that rising global supplies will increase competition for exports from the U.S. Corn futures for March delivery fell 9.5 cents, or 2.5 percent, to $3.715 a bushel on the Chicago Board of Trade. This week, the price dropped 12 percent, the most since December 2008.
Soybeans fell 1 percent and lost 4.7 percent over the past five days for the biggest weekly decline since September, as the dollar’s rally cut demand for commodities as an alternative investment.
Industrial production increased 0.6%
________________________________________
Industrial production increased 0.6% in December, exactly as the consensus expected
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Industrial production increased 0.6% in December, exactly as the consensus expected. Production is up at a 9.6% annual rate in the past six months.
Manufacturing output was unchanged in December but down 0.1% excluding autos. In the past six months, total manufacturing is up at a 9.6% annual rate while manufacturing ex-autos is up at a 6.2% rate.
The production of high-tech equipment increased 2.4% in December and was revised up for the previous few months.
Overall capacity utilization increased to 72.0% in December, beating the consensus expected 71.8%. Manufacturing capacity utilization rose to 68.6%.
Implications: Industrial production increased exactly as the consensus expected in December, but the “mix” of production was unusual due to uncommonly severe weather. Manufacturing was unchanged in December while the strength in overall production was almost all due to utility output, which increased 6%, the most in 20 years. We don’t see flat manufacturing in December as a reason to think the recovery is stalling out. First, this December was the second coldest in the past 20 years and much of the Eastern seaboard was hit by the largest snowfall in recorded history. So the same weather that boosted utilities temporarily suppressed manufacturing. Second, now that we have both auto production and sales numbers for December, we estimate that auto dealers now have too few cars/trucks on their lots. As a result, auto production – which grew at a 38% annual rate in Q4 – is likely to grow rapidly again in Q1. Third, in other news this morning, the Empire State Index, a measure of manufacturing in New York, jumped to 15.9 in January from 4.5 in December. The indexes for new orders and shipments were both above 20 and even the employment index was in positive territory. We anticipate a clear rebound in manufacturing next month.
The Consumer Price Index (CPI) was up 0.1% in December
________________________________________
The Consumer Price Index (CPI) was up 0.1% in December
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
The Consumer Price Index (CPI) was up 0.1% in December, slightly below consensus expectations. The CPI is up 2.7% versus a year ago, and is up at a 3.3% annual rate in the past three months.
“Cash” inflation (which excludes the government’s estimate of what a homeowner would charge himself for rent) increased 0.2% in December, is up 3.5% versus a year ago, and is up at a 4.5% annual rate in the past three months.
Energy prices and food prices were each up 0.2% in December. Excluding food and energy, the “core” CPI was up 0.1% in December and is up 1.8% versus last year.
Real average hourly earnings – the cash earnings of production workers, adjusted for inflation – were unchanged in December and are down 1.3% versus a year ago.
Implications: Investors and the Fed need to stop worrying so much about economic growth and start to show more concern about inflation. Consumer prices were 2.7% higher in December than they were a year ago and prices have risen at a 3.3% annual rate in the past three months. While some analysts focus on “core” inflation, which excludes food and energy and is up only 1.8% in the past year, we think our measure of “cash” inflation is a better gauge of the true pain consumers are feeling. Cash inflation counts everything, including food and energy, but takes out something called “owners’ equivalent rent” or OER – the government’s estimate of what homeowners would get for their homes if they rented them out. Remember, OER does not reflect an actual transaction; if OER goes up no one has to pay anyone else any more money. Excluding OER, consumer prices were up 3.5% in 2009 and are accelerating. Cash inflation is up at a 4% annual rate in the past six months and up at a 4.5% rate in the past three months. Some analysts are focusing on the average level of prices in 2009 versus the average level of prices in 2008 and are saying that the decline of 0.3% indicates deflation. But that decline is due to the steep drop in prices in late 2008 during the panic. Focusing on that measure is like awarding a playoff win to the team that averages the most points over the last four games, instead of to the team that wins in a head-to-head battle.
Bailing out the Banks Was Wrong
Bailing out the Banks Was Wrong, but New Tax Won't Make It Right
by Jeffrey A. Miron
The Obama administration has just proposed a new fee — otherwise known as a tax — on the country's largest financial institutions.
The tax aims to recover the difference between the bailout funds provided to these institutions a year and a half ago and the amounts ultimately returned to the Treasury. In so doing, the tax will allegedly reduce the federal deficit by some $90 billion.
This tax has popular appeal because the bailed-out financial institutions are now earning large profits and appear ready to announce huge bonuses for their executives. Given an unemployment rate of 10%, populist demand to punish bankers and financiers is almost inevitable.
The U.S. made a huge mistake in bailing out the financial industry.
Yet the proposed tax is misguided at every level.
The tax will not fall solely or even mainly on its desired political target, the shareholders and highly paid executives of large financial firms. The true burden of a tax often lands far from its intended target as the target attempts to shift the burden.
In this case, higher taxes mean higher costs and therefore higher prices, so customers (borrowers) will bear some of the burden of the tax. Higher costs (along with limits on compensation) will also induce financial firms to shift their operations overseas, where taxation and regulation are often more benign.
Thus the tax will impose little harm on those that the populist outrage seeks to punish. Instead, the tax will hurt borrowers — an odd move from an administration concerned about a credit crunch — along with the employees of these firms, from middle management to secretaries and janitors.
The proposed tax will also raise less revenue than promised, again because those subject to the tax will take steps to avoid it. Relocation overseas is one approach; accounting gimmickry is another. The net revenue raised may even be negative because the U.S. will not collect income or payroll taxes from those thrown out of work by an exodus of financial institutions.
The new tax will thus fail to promote its stated goals. Worse, it distracts attention from the real issue.
The U.S. made a huge mistake in bailing out the financial industry. Bankruptcy would have been the right way to punish the financial sector for its excesses. High profits and large bonuses are perfectly fine — they are the reward for risk-taking — but only if those reaping the rewards in good times actually pay the piper in bad times.
Absent the bailout, many financial institutions would have failed or suffered serious losses, driving down profits and bonuses. This is the way capitalism is supposed to work.
The bailout short-circuited this process, protecting the financial sector from much of the risk it assumed in the pursuit of high profits. Advocates believe the bailout was necessary to prevent a financial meltdown, but even if they are right — which is highly debatable — the bailout let Wall Street off the hook. And by rewarding excessive risk-taking, the bailout planted the seeds of the next crisis.
The Obama administration did not institute the bailout, but Sen. Obama voted for it, and President Obama appointed one key architect, Timothy Geithner, as Treasury Secretary and has nominated another, Ben Bernanke, for a second term as Fed Chairman. More broadly, the administration has not criticized the bailout as misguided, but instead characterized it as necessary to save the financial system.
Jeffrey A. Miron is senior lecturer in economics and director of undergraduate studies at Harvard University and a senior fellow at the Cato Institute. He also is the author of Libertarianism, from A to Z, forthcoming from Basic Books.
More by Jeffrey A. MironYet despite the bailout and the $780 billion fiscal stimulus, which the administration signed in February, the economy still languishes. This is the real reason for the tax on financial firms: a desire to scapegoat the banks and shift attention from growing concern that neither the bailout nor the stimulus has resuscitated the economy.
Two wrongs do not make a right. The bailout is a done deal, so the goal for the government now must be to end all special treatment of the financial industry, favorable or punitive. Policy must focus on providing a stable environment that rewards success rather than punishing it.
The proposed tax impedes these objectives because it responds to a political need rather than reflecting a rational analysis of the costs and benefits of government policies.
If America continues on this path, the end point will be crony capitalism in which the politically connected thrive while almost everyone else suffers. It is not too late to turn back. Rejecting the bank tax is a good first step.
Omnipotent Government
Omnipotent Government
[This review originally appeared in the Freeman, 1970. An MP3 audio file of this article, read by Floy Lilley, is available for download.]
Mises's Omnipotent Government: The Rise of the Total State and Total War was first published in 1944 when 57 nations were locked in a total war that slew more than 15 million fighting men and countless women and children. It offers an ideological explanation of the international conflicts that caused both World Wars and continue to breed wars the world over.
Professor Mises illustrates his case with a review of the fall of Germany, from the collapse of classical liberalism to the rise of nationalism and socialism. But Germany merely constitutes an early example of the things to come — all of Western civilization is at stake.
Durable peace, Mises concludes, is only possible under perfect capitalism and laissez-faire government, a world of unhampered markets, free mobility of capital and labor, and equal treatment of everyone under one law. Government interference with business necessarily aims at autarky. But protectionism and autarky mean discrimination against foreign labor and capital and thus create international conflict.
The very ideas that breed bitter domestic conflict between classes and races also generate international conflict and war. "Progressives" at home and abroad aim at equality of income. But their own policies result in a perpetuation of the inequalities between classes and nations.
In Professor Mises's own words:
The same considerations which push the masses within a country toward a policy of income equality drive the peoples of the comparatively overpopulated countries into an aggressive policy toward the comparatively under populated countries. They are not prepared to bear their relative poverty for all time to come simply because their ancestors were not keen enough to appropriate areas better endowed by nature.
What the "progressives" assert with regard to domestic affairs — that traditional ideas of liberty are only a fraud as far as the poor are concerned, and that true liberty means equality of income, the spokesmen of the "have not" nations declare with regard to international relations.
At home and abroad they style themselves revolutionaries fighting for equal shares and proclaiming the right to take them by force if necessary. This is why our age is marked by perpetual conflict.
According to Professor Mises,
Government control of business engenders conflicts for which no peaceful solution can be found. It was easy to prevent unarmed men and commodities from crossing the borders; it is much more difficult to prevent armies from trying it. The socialists and other etatists were able to disregard or to silence the warning voices of the economists. They could not disregard or silence the roar of cannon and the detonation of bombs.
All the oratory of the advocates of government omnipotence cannot annul the fact that there is but one system that makes for durable peace: a free market economy. Government control leads to economic nationalism and thus results in conflict.
New Producer Tax
Healthcare Reform and a New Producer Tax
The US Senate recently passed their altered version of the House's healthcare reform bill. Among hundreds of other economically harmful proposals, the Senate bill, HR 3590, will create several onerous new taxes on the producers of health goods and services.
The Tax on Insurers
In Title IX, Section 9010 of the bill, the Senate proposes a new direct tax on health-insurance providers in dense and esoteric language. The annual amount of the new tax for any insurer is defined as the sum that when divided by $6.7 billion yields the same result as
(The firm's net premiums for all US health risks insured + 200% of third-party administration fees received by the firm)
Divided by
(Aggregate premiums received by all private insurers + 200% of all third-party administration fees received by all firms)
Simple mathematical understanding reveals that the structure of this ratio ensures that the tax will fall most heavily on those insurers whose total premiums constitute the largest share of the total market for health insurance. Politically, this tax is an attempt by Congress to award itself a certain measure of backdoor authority over the execution of antitrust law.
Economically, this tax is a draconian attack on the largest health insurers in America. While Austrian analysis advocates against attacks on firms of an arbitrary size or market share in all cases, this conclusion is especially important when considering the market for health insurance.
Insurance companies profit by separating their clients into "risk pools" and charging monthly premiums that reflect the collective financial risks of those pools. If both the timing and the cost of consumers' future health outlays were known by insurers in advance, insurers would enjoy guaranteed profits by selling insurance to each consumer at a price just above his future health outlays.
In reality, however, health insurers must constantly collect new data on maladies and their methods of treatment, hedge against the financial risks of unknown future costs, and account for the possibility of losses due to fraud and errors in calculation, all while optimizing the timing of their cash flows.
With such monumental challenges in mind, it is clear that insurance is a market that favors large firms with diverse clienteles. The addition of new customers, rather than indicating some sort of unfair monopolization or "bloating," is a natural and necessary outcome of the provision of insurance. Increases in size will occur until a firm's management is no longer able to handle additional growth.
Large firm size benefits both clients and insurers, and should not be penalized with a new progressive tax. This tax will result in a smaller-than-efficient typical firm size and therefore smaller-than-efficient risk pools, which will create unnecessary and unwanted financial risks that must be mitigated by higher premiums.
The ratio also includes 200% of all fees received by a firm for managing another insurer's health risks, which is a harsh disincentive for those insurance firms who manage other firms' health benefits packages. By making such contracts much more expensive for the insurance firm, the tax makes any "outsourcing" of benefits management by a large employer much more expensive.
As a result, large firms that now provide employee health insurance will either deduct more for their benefits packages or attempt to manage the plan internally. Firms that outsource plan management to insurers, by the very act of doing so, demonstrate that their managers do not believe themselves competent to manage the plans.
Therefore, this tax will lead to poorer management of employer-provided health insurance plans that, by government fiat, can no longer be inexpensively outsourced. For employees, this will mean more expensive premiums and more erratic claims-payment practices, both of which undermine the benefits to employees of having insurance in the first place.
The Tax on Capital Production
Section 9009 of Title IX establishes a new tax, or as the bill calls it, an "annual fee," on all producers and importers of medical devices. This tax is calculated similarly to the tax analyzed above, the tax to each individual producer being defined as that sum which, divided by $2 billion, is equal to the producer's percentage share of the market.
The implications of this tax are similar to those of the tax on insurers; it is an attack on the utilization of economies of scale in the production of medical capital goods. However, the analysis of a tax on producers of medical devices must take into consideration another dimension, namely that of economies of scope. "Economies of scope" refers to the profitability of diversifying rather than specializing.
For example, a firm specializing in artificial hearts may enjoy economies of scope in the production of vascular-care equipment due to the firm's access to dually useful knowledge. The same firm, however, will likely face diseconomies of scope in the production of prosthetic arms, due to the need to maintain an entirely separate stock of capital goods.
Just as with firm size, a firm's optimal scope would be determined by the profit-and-loss mechanism on the market. This tax, then, will discourage expansions of firm scope along the margins.
In more concrete terms, this means that medical-goods companies will be less likely to produce medical devices that have complementary relationships with their main products, or to produce different devices that enable the treatment of similar afflictions. To the health-services consumer, this implies higher risks of device failure and fewer available treatment methods for any given malady.
This tax on the capital supply also implies that hospitals and clinics will face higher costs to replace their capital stocks, which of course are composed almost entirely of medical devices that will be made scarcer by the tax. Thus, institutions will likely continue to use their medical devices beyond the point of degradation at which they would now be deemed unsafe for medical use.
Conclusion
The so-called "Patient Protection and Affordable Care Act" in fact will make access to health insurance more expensive and less useful, and will also render the care provided by insurance less effective, more risky, and more expensive by taxing the production of new capital goods. The taxation approach taken by Senate Democrats is a purely foolish method of funding regulations that are themselves horrible.
Economics of Liberty
Preface to Literature and the Economics of Liberty
This book explores the possibility that forms of economic thinking sympathetic to capitalism may be able to illuminate our understanding of literature in new ways. For example, the idea that free competition spurs creativity and progress in commerce and industry is well-established and well-documented. Might it be possible that competition is a healthy force in the cultural realm as well? In the introductory essay, Paul Cantor argues that in the case of serialized novels, the highly competitive nature of the publishing industry in 19th-century Britain in some ways actually improved the quality of the literature produced. This notion would seem obvious to most economists, but some literary critics may find it difficult to accept. Ever since the Romantics, commerce and culture have been viewed as antithetical, and many authors and critics have hoped to shield literature from the supposedly harmful effects of a competitive marketplace. Marxist literary theory has only deepened what was originally an aristocratic contempt for and distrust of market principles and practices. And in the field of literature and economics, Marxism and its offshoots, such as cultural materialism and the new historicism, have achieved a virtual monopoly in the contemporary academy.
Like any monopoly, this Marxist domination needs to be challenged. In the academy, just as in the economy, people who face no competition grow complacent, failing to question their assumptions or to adapt to new developments. There have of course been many attacks over the years on Marxist approaches to literature, but they have generally come from critics who simply reject economic discussions of literature in any form, and support a purely aesthetic approach that disdains any consideration of the marketplace. To our knowledge, this is the first collection of essays that accepts the idea that economics is relevant to the study of literature, but offers free-market principles, rather than Marxist, as the means of relating the two fields. As the introductory essay explains, we have turned specifically (though not exclusively) to what is known as the Austrian School of economics, represented chiefly by the writings of its most important theorists, Ludwig von Mises and Friedrich Hayek. We argue that this brand of economics, which focuses on the freedom of the individual actor and the subjectivity of values, is more suited to the study of literature and artistic creativity than a materialist, determinist, and collectivist doctrine such as Marxism. The Austrian School is the most humane form of economics we know, and the most philosophically informed — hence we regard it as the most relevant to humanistic studies. Still, most of the principles we draw upon — the advantages of private property and free competition, the disadvantages of central planning and collectivism, the value of sound money and the dangers of inflation — are not unique to the Austrian School but are embraced by a wide range of economists today.
Marxists themselves have increasingly been struggling with their Marxism, and trying to moderate its economic determinism. This is especially true in the field of Cultural Studies, where in recent decades scholars who basically associate themselves with Marxism have nevertheless begun to develop an understanding of the virtues of the marketplace. They have broken with the old Frankfurt School model of consumers as the passive dupes of an all-powerful capitalist marketing system. In spite of their anticapitalist leanings, some scholars have found that they cannot appreciate and celebrate popular culture without to some extent appreciating and celebrating the commercial world that produces it. We applaud these efforts, but suggest that these scholars could make more progress if they finally broke with Marx. His materialistic, deterministic, and mechanistic view of reality stamps him as very much a man of the mid-19th century. A great deal has been discovered in the sciences since Marx's day, including the science of economics, and our model of reality is no longer a steam engine. The more we have come to understand the nature of complex systems and what is called their non-linearity, the more unpredictable they appear to be, and that is above all true of social systems. Marx's laws of inevitable economic development now look like relics of the age of Newtonian physics, Hegelian historicism, and Comtean positivism. Modern discoveries in fields such as physics, biology, neuroscience, cognitive psychology, and chaos theory have stressed the importance of contingency in nature and thus opened up a space for indeterminacy and human freedom, especially in the realm of culture. Austrian economics, with its emphasis on chance, uncertainty, and unpredictability in human life, is far more in tune than Marxism with these trends in modern science.
How might thinking in terms of free-market principles give us fresh insights into the relation of literature and economics? To begin with, the free market itself provides a valuable model — it at first appears chaotic but upon closer inspection it turns out to have an underlying order, a self-organizing order that never achieves a static perfection, but is always working out imperfections over time. The idea of the market as a self-correcting feedback mechanism helps explain how commercial publishing could actually nurture the development of literature. Moreover, several of the essays in this book use the model of what Hayek calls "'spontaneous order" to rethink the issue of literary form. The evolution of language and the growth of cities are good examples of what Hayek means by "spontaneous order" — human activities and developments that are not centrally planned and commanded but rather involve the free and uncoordinated interaction of individuals who may be aiming at their own limited goals but nevertheless end up producing a larger social good that only appears to have been designed in advance. Languages, for example, are profoundly ordered, but not because anyone planned them out in advance. A language develops its rich vocabulary and complex syntax over time in an evolutionary process to which all the speakers of the language contribute, usually without even knowing that they are doing so. The precise determination of the meanings of words and the rules of grammar is a late cultural development, and involves ex post facto reasoning. Lexicographers and grammarians discover and articulate the logic that a language develops on its own and without their help.
Language, in fact, often looks messy to lexicographers and grammarians, but their attempts to clean it up and regularize it usually fail as popular usage overwhelms academic attempts to dictate linguistic order. Efforts to design a more logical language from the ground up, such as Esperanto, have even less success when their inventors try to get people actually to use the artificial language in their daily lives. Academicians want language to achieve a static perfection, but fortunately real languages continue to evolve and develop new possibilities. As the history of Latin shows, only a dead language can truly please academicians. A living language never settles into an equilibrium, a fixed form that follows the grammarian's paradigms perfectly. The irregular verb is the lifeblood of language. Language is a tribute to the creativity of human beings and their ability to cooperate in productive ways without advance planning or supervision by so-called experts in the field.
The way languages resist attempts by central authorities such as national academies to regulate them illustrates what Hayek means by "spontaneous order."[1] In his Law, Legislation and Liberty, he discusses the evolution of British common law in similar terms. He argues that common-law judges do not make the law; rather they discover and articulate the principles and rules of conduct that human beings develop gradually over the years on their own in the course of their social interaction. The economic marketplace itself is Hayek's primary example of spontaneous order, involving unregulated and apparently chaotic activity that nevertheless results in a deeper and more complex order than any individual or set of individuals would be able to plan in advance. Drawing upon this idea of a deeper order beneath an apparent disorder, several of our essays argue for the possibility of a more open-ended and looser conception of literary form than the one championed by the New Criticism, with its ideal of the perfectly integrated work of literature. Cantor's essay on Jonson's Bartholomew Fair, for example, and Thomas Peyser's essay on Whitman's Song of Myself suggest that the chaotic appearance of these works mirrors the paradoxically ordered disorder of the commercial societies they portray.
In our effort to secure a place for freedom in the understanding of culture, "spontaneous order" is in many ways the central concept of this book.[2] We show that works of literature often have the "look" of a spontaneous order, that they can be generated in a process of spontaneous order, and that they sometimes celebrate the spontaneous order of society, especially in its economic form, the marketplace. Indeed, if one believes in the value of economic freedom, one will look for authors who share this attitude, and not dismiss them, as Marxist critics tend to do, as mere captives of capitalist ideology. Several of our essays explore the ways in which authors have celebrated the vitality, flexibility, and productivity of free markets. We have found such celebrations in unexpected places. Darío Fernández-Morera's essay on Don Quijote reveals Cervantes portraying the advantages of economic freedom as early as the beginning of the 17th century — long before Adam Smith is supposed to have "discovered" the free market. Stephen Cox's essay on Willa Cather's O Pioneers! shows why a woman had special reasons for supporting economic freedom. Contrary to the common idea that women should view capitalism as oppressive, Cox demonstrates that Cather found it liberating — both for her characters and herself as an author. Chandran Kukathas's essay on Ben Okri shows that a favorable treatment of market activity can be found, not only in classic works of the Western canon, but also in works of non-Western literature. Beginning with Cervantes and Jonson at the fountainhead of European literature, this book fittingly ends with a contemporary Nigerian author. It thus reminds us that economic freedom is not the exclusive discovery or preserve of Western nations, but potentially the common heritage of human beings everywhere.
Marxist critics often practice what is known as the hermeneutics of suspicion — that is, they question the motives of authors and seek to explain why some would ever choose to support capitalism. If one believes that socialism is the best economic system and that capitalism oppresses humanity, one would of course not accept a favorable portrayal of capitalism at face value. But once one adopts a free-market perspective, the positions are reversed and one begins to wonder why so many authors have supported socialism. One might then turn the tables on Marxism and apply its technique of ideology critique to socialist authors, questioning whether they may have dubious motives for attacking capitalism. Several of the essays in this volume explore the issue of what Mises calls the anticapitalistic mentality. Cox in his essay on Conrad's The Secret Agent and Cantor in his essay on Wells's The Invisible Man pose the question of whether anticapitalistic intellectuals have their own kind of parochial class interest. Both essays argue that these intellectuals believe that they are not sufficiently respected and rewarded under capitalism and thus turn to socialism as the only way to give the cultural elite they think they belong to its "rightful" place in society — namely, ruling over the ignorant masses.
The free-market perspective also leads to reinterpreting economic history, and hence literary history as well, insofar as it reflects or even seeks to portray economic history. In the standard view of economic history, especially in Marxist versions, capitalism is blamed for much of the suffering of humanity. But Austrians and many other economists would counter that capitalism has vastly improved the human condition and that many of the evils laid at its doorstep are really the result of government interference with the normal functioning of the market. The essays on Cervantes and Shelley show how these authors directed their criticism against the war, tax, and monopoly policies of their governments; the Shelley and Mann essays look at how these authors trace the economic suffering of their day to governmental tampering with the money supply and the inevitable — and corrosive — inflation that results. Cantor's revisionist essay on Shelley, for example, shows that the Romantic poet blamed the misery of his day, not on the Industrial Revolution as is commonly supposed, but on the mercantilist and antimarket policies of the British government.
These are just some of the ways in which a free-market perspective might shed new light on literature and literary history. In relating literature and economics, everything depends on the form of economics one uses, and, contrary to what most literary scholars seem to believe, alternatives to Marxist concepts are available. Our essays demonstrate how fruitful and liberating concepts of economic freedom can be in the understanding of culture. Some of these essays have been published in preliminary versions, but even they have been extensively revised and rewritten for this volume. As the work of a group of individualists, this book was not centrally planned, and the topics of the essays emerged independently over the years. Thus we do not claim to offer a systematic and comprehensive treatment of our subject. We have neglected many interesting points at which literature and economics intersect, including some of the most frequently discussed texts in this field, such as Defoe's Robinson Crusoe and Goethe's Faust. Nevertheless we hope that we have spontaneously produced a book that offers a well-balanced coverage of its subject. Most of the essays deal with fiction, but one deals with drama and another with poetry — demonstrating that our approach works across the boundaries of genre. The historical range of the essays is broad, beginning with the early 17th century and extending almost to the present day. The geographic scope of the essays is also wide ranging; they deal with authors from six different countries and three different continents.
We hasten to point out that what we are offering in this book is only one approach to literature. Although our subject is large and important, this book is in a sense narrowly targeted — we are developing an alternative to Marxist and quasi-Marxist analyses of the relation of literature and economics. We are not monomaniacally claiming that in Austrian economics we have found the master key to all literature. We readily acknowledge that there are many other valid ways of discussing literature, including purely aesthetic approaches that have nothing to say about economic matters. As we will show, one of the differences between Austrian economics and Marxism is that it does not present itself as a master science, with an underlying explanation for all phenomena. Thus our reliance on Austrian economics allows us to avoid the reductionist tendencies of readings of literature that are rooted in Marxist assumptions. The emphasis on freedom and individualism in the Austrian School means that when we analyze authors in an economic context, we do not treat them as representatives of a particular ideology, class consciousness, or historical moment. We look at each author as an individual and seek for his or her distinctive ideas. If we find specific economic ideas in the authors we discuss, we believe that the ideas are genuinely those of the authors and worthy of being taken seriously and treated with respect.
Some may accuse us of being just as ideologically motivated and biased as Marxist critics — simply trying to impose a free-market perspective on authors where Marxists have been imposing socialist ideas. However, our analyses are based on detailed, careful readings of individual texts treated in their integrity — in sharp contrast to the Marxist tendency to disregard authorial intention and, in the style of Fredric Jameson, to seek to ferret out the "political unconscious" in literary works. Our readings are not Marxist-style interpretations with a free-market twist. Although our claims about the relevance of Austrian economics to literary criticism are novel, our mode of interpretation is actually quite traditional, with a respect for conventional canons of literary evidence and procedures that could generally be described as close reading. Our Austrian perspective helps make our readings concrete and practical, rather than abstract and theoretical, and it keeps us focused on what the authors have to say as individuals and not in Marxist fashion on how they reflect a class position (the closest we come to a Marxist-style reading is Cantor's essay on Wells, which turns Marxist ideology critique back on itself).
In one respect we have set ourselves an especially difficult task in this book. The majority of our readers, particularly those coming from a literary background, are unlikely to be familiar with Austrian economics. Unlike Marxist critics, who can assume at least a passing acquaintance with Marxism among their readers, we have had to spend more time than is usual in a book of literary criticism expounding some of the principles of Austrian economics. In addition, to be fair to the schools of criticism we are challenging, we have had to demonstrate our familiarity with their work and also with Marxist economics itself. As a result, the scholarly apparatus of some of these essays may at times seem excessive. To the targets of our critique, however, it may appear insufficient. We have tried to strike a balance — to document our claims adequately, while not overburdening our readers with scholarship. We have used the notes to point our readers to the literature of Austrian economics, especially the writings of Mises and Hayek, where they can find the full articulation of the principles we refer to and rely on. Books of Marxist or quasi-Marxist literary criticism do not contain a full exposition of Marxist economics. Similarly, this book is not a treatise on economics. It is fundamentally a book of literary criticism, and we cannot replay the whole dispute between Marxism and Austrian economics. Nevertheless, we are trying to contribute to this all-important debate by opening up a new, cultural front in the ongoing conflict.
In the end, we do not fool ourselves that Marxist critics will be persuaded by our arguments, although we hope that they will give us a fair hearing. But this book is principally directed to anyone who is interested in the relation of literature and economics, but is not committed to a Marxist approach and may in fact be searching for an alternative to it. Literary scholars should appreciate our pointing them in the direction of a more humane form of economics and sketching out some of its basic principles. They may be surprised to see how different literature looks when viewed from the perspective of an economic school that presents the marketplace as a site of freedom and creativity. And they might gain a new appreciation of the free market when they realize that it operates on the same principle — spontaneous order — that is at work in language and culture. By the same token, economists should appreciate our demonstrating that literary scholarship does not have to be Marxist and that free-market principles can be profitably applied in the humanities. Economists will be interested to see that principles they are familiar with from the spontaneous order of the market, such as the division of labor, can be observed operating in the realm of literature as well.
We ask only that people from all fields read our essays with open minds. Much that we argue may initially sound strange, but that is just one more sign of how dominant the Marxist paradigm has become in the humanities in recent decades and how it has limited the horizons of what passes for legitimate scholarly discourse on literature and economics. Once one suspends the misleading assumptions about human action that Marxism has promulgated, the principles of Austrian economics begin to sound a lot like common sense — human beings are free and make their choices as individuals. What the Austrian School can offer literary criticism is a way of thinking that is fully grounded in economic reality and still supports the principles of freedom and individualism. And, as we show throughout this book, the principles of freedom and individualism are vital to understanding literature and artistic creativity.
