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Ludwig von Mises Institute
Auburn, Alabama
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Copyright !008 Ludwig von Mises Institute
Copyright 1--1 Fox and Wilkes
Copyright 1-76 by Fleet Press Corporation
All rights reserved. Written permission must be secured rom the publisher
to use or reproduce any part o this book, except or brie quotations in crit-
ical reviews or articles.
Published by the Ludwig von Mises Institute, 18 West Magnolia Avenue,
Auburn, Alabama 68!.
ISBN: -78-1--0-17-6
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1his book is dedicated to those who have taught me political
economy and inspired me with a passion or justice:
Nathaniel Branden
Walter E. Grinder
Henry Hazlitt
Benjamin Klein
Ayn Rand
}erry Woloz
and especially Murray N. Rothbard
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Foreword by Murray N. Rothbard . . . . . . . . . . . . . . . . .ix
Commentary by F.A. Hayek . . . . . . . . . . . . . . . . . . . . . .xii
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xiii
I. Sexual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1. 1he Prostitute . . . . . . . . . . . . . . . . . . . . . . .
!. 1he Pimp . . . . . . . . . . . . . . . . . . . . . . . . . . .-
. 1he Male Chauvinist Pig . . . . . . . . . . . .1
II. Medical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .!
!. 1he Drug Pusher . . . . . . . . . . . . . . . . . . .!7
. 1he Drug Addict . . . . . . . . . . . . . . . . . . .
III. Free Speech . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-
6. 1he Blackmailer . . . . . . . . . . . . . . . . . . . .!1
7. 1he Slanderer and Libeler . . . . . . . . . . . .!7
8. 1he Denier o Academic Freedom . . . . .1
-. 1he Advertiser . . . . . . . . . . . . . . . . . . . . . .7
10. 1he Person Who Yells Fire'` in a
Crowded 1heater . . . . . . . . . . . . . . . . . . .6-
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viii !"#"$%&$' )*" +$%"#"$%,-."
IV. Outlaw . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
11. 1he Gypsy Cab Driver . . . . . . . . . . . . . . .7
1!. 1he 1icket Scalper . . . . . . . . . . . . . . . . . .8
1. 1he Dishonest Cop . . . . . . . . . . . . . . . . .-1
V. Financial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-7
1!. 1he (Nongovernment) Countereiter . .--
1. 1he Miser . . . . . . . . . . . . . . . . . . . . . . . .111
16. 1he Inheritor . . . . . . . . . . . . . . . . . . . . .117
17. 1he Moneylender . . . . . . . . . . . . . . . . . .1!1
18. 1he Noncontributor to Charity . . . . . .1!-
VI. Business and 1rade . . . . . . . . . . . . . . . . . . . . . . .17
1-. 1he Curmudgeon . . . . . . . . . . . . . . . . . .1-
!0. 1he Slumlord . . . . . . . . . . . . . . . . . . . . .1!7
!1. 1he Ghetto Merchant . . . . . . . . . . . . . .1
!!. 1he Speculator . . . . . . . . . . . . . . . . . . . .16
!. 1he Importer . . . . . . . . . . . . . . . . . . . . . .16-
!!. 1he Middleman . . . . . . . . . . . . . . . . . . .17-
!. 1he Proiteer . . . . . . . . . . . . . . . . . . . . . .18
VII. Ecology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1-7
!6. 1he Stripminer . . . . . . . . . . . . . . . . . . . .1--
!7. 1he Litterer . . . . . . . . . . . . . . . . . . . . . . .!0
!8. 1he Wastemakers . . . . . . . . . . . . . . . . . .!1
VIII. Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .!!1
!-. 1he Fat Capitalist-Pig Employer . . . . .!!
0. 1he Scab . . . . . . . . . . . . . . . . . . . . . . . . .!
1. 1he Rate Buster . . . . . . . . . . . . . . . . . . .!7
!. 1he Employer o Child Labor . . . . . . .!!
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .!
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or many years, ree-market economists have shown how
market activities beneit the oten heedless public. Ever
since the days o Adam Smith, they have shown how pro-
ducers and businessmen, generally motivated solely by personal
gain, unwittingly coner enormous beneits on the general pub-
lic. By seeking to maximize their proits and minimize losses, or
example, businessmen are driven to satisy the most urgent
demands o the consumers in the most eicient way. Economists
have long shown these truths &$ )*" ,-/)0,1), and in recent years
they have added to our knowledge by illustrating in case ater
case, in the concrete, the superiority and eiciency o private
operation. But the inquiries o economists have been conined,
with sober pedantry, to the respectable` industries: to such
activities as agriculture, natural gas, housing, airways, and so
orth. Until this book, no economist has had the courage o Pro-
essor Walter Block in tackling head-on the moral and economic
status o the dozens o reviled, scorned, and grievously misun-
derstood proessions and occupations in our society: those
whom he rightly calls the economic scapegoats.` Fearlessly, and
with logic and trenchant wit, Proessor Block rehabilitates and
demonstrates the considerable economic merits o such scape-
goat occupations as the pimp, the blackmailer, and the slumlord.
In this way, in addition to redeeming the stature o these much
reviled occupations, !"#"$%&$' )*" +$%"#"$%,-." perorms the
service o highlighting, in the ullest and starkest terms, the
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essential nature o the productive services perormed by all peo-
ple in the ree market. By taking the most extreme examples and
showing how the Smithian principles work even in these cases,
the book does ar more to demonstrate the workability and
morality o the ree market than a dozen sober tomes on more
respectable industries and activities. By testing and proving the
extreme cases, he all the more illustrates and vindicates the the-
1hese case studies also have considerable shock value. By
relentlessly taking up one extreme` case ater another that is
generally guaranteed to shock the sensibilities o the reader, Pro-
essor Block orces the reader to think, to rethink his initial
knee-jerk emotional responses, and to gain a new and ar
sounder appreciation o economic theory and o the virtues and
operations o the ree-market economy. Even many readers who
now )*&$2 they believe in a ree market must now be prepared to
grasp ully the logical implications o a belie in a ree economy.
1his book will be an exciting and shocking adventure or most
readers, even or those who believe that they are already con-
verted to the merits o the ree-market economy.
All right, some readers might concede, we grant that these
people ,0" perorming valuable economic services. But why, or
heaven`s sake, call them heroes` Why is the pimp or the med-
ical quack any more heroic,` and thereore in a sense more
moral, than other, more respectable producers: the grocers,
clothiers, steel manuacturers, etc. 1he explanation is precisely
wrapped up in the extreme lack o respectability o Proessor
Block`s scapegoats. For the grocer, the steel producer, and the
others are generally allowed to go about their business unmo-
lested, and indeed earn respect and prestige rom the ellow
members o the community. Not so these scapegoats, or not
only are their economic services unrecognized, but they ace the
universal bile, scorn, and wrath o virtually every member o
society, plus the additional restrictions and prohibitions that
governments have almost universally placed upon their activi-
ties. Scorned and condemned unmerciully by society and state
alike, social outcasts and state-proclaimed outlaws, Proessor
x !"#"$%&$' )*" +$%"#"$%,-."
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340"540% xi
Block`s collection o scapegoats go about their business never-
theless, heroically proceeding to coner their economic services
in the teeth o universal scorn and outlawry. 1hey are heroes
indeed, made so by their unjust treatment at the hands o soci-
ety and o the state apparatus.
Heroes yes, but not necessarily /,&$)/. When the author con-
ers the moral stature o hero on the scab, the usurer, the pimp,
and so on, he does not mean to imply that these activities are
intrinsically more moral than any other. In a ree market, and in
a society that treats the usurer, slumlord, and sweat shop
employer in precisely the same just way as it treats other occu-
pations, they would no longer be heroes, and they would cer-
tainly be no more moral than anyone else. 1heir heroic status,
or Proessor Block, is solely a unction o the unjust restrictions
that other men have been placing upon them. It is the happy
paradox o this book that i its implicit advice is ollowed, and
the men and women described in these pages are no longer
treated to scorn and legal coercion, then and only then will they
no longer be heroes. I you don`t like the idea o a usurer or a
slumlord being a hero, then the 4$.6 way to deprive him o this
stature is to remove the shackles that misguided people have
placed upon him.
Murray N. Rothbard
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ooking through !"#"$%&$' )*" +$%"#"$%,-." made me
eel that I was once more exposed to the shock therapy by
which, more than ity years ago, the late Ludwig von
Mises converted me to a consistent ree market position. Even
now I am occasionally at irst incredulous and eel that this is
going too ar,` but usually ind in the end that you are right.
Some may ind it too strong a medicine, but it will still do them
good even i they hate it. A real understanding o economics
demands that one disabuses onesel o many dear prejudices and
illusions. Popular allacies in economics requently express
themselves in unounded prejudices against other occupations,
and in showing the alsity o these stereotypes you are doing a
real service, although you will not make yoursel more popular
with the majority.
F.A. von Hayek, Nobel Laureate
Institut or Nationalkonomie
Universitat Salzburg
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he people presented in this book are generally consid-
ered villainous, and the unctions they perorm, harm-
ul. Sometimes society itsel is damned because it
spawns such reprehensible characters. However, the thrust o
this book will concentrate on the ollowing propositions:
1. they are guilty o no wrongdoing o a violent nature,
!. in virtually every case, they actually beneit society,
. i we prohibit their activities, we do so at our own loss.
1he impetus or this book is Libertarianism. 1he basic
premise o this philosophy is that &) &/ &.."'&)&7,)" )4 "$','" &$
,''0"//&4$ ,',&$/) $4$,''0"//40/. What is meant by aggression is
not assertiveness, argumentativeness, competitiveness, adven-
turousness, quarrelsomeness, or antagonism. What is meant by
aggression is the use o violence, such as that which takes place
in murder, rape, robbery, or kidnapping. Libertarianism does
not imply paciism, it does not orbid the use o violence in
deense or even in retaliation against violence. Libertarian phi-
losophy condemns only the &$&)&,)&4$ 4# 8&4."$1"-the use o vio-
lence against a nonviolent person or his property.
1here is nothing untoward or controversial about such a
view. Most people would give it their wholehearted support.
Indeed, this sentiment is part and parcel o our Western civiliza-
tion, enshrined in the law, in our Constitution, and in the natu-
ral law.
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xiv !"#"$%&$' )*" +$%"#"$%,-."
1he uniqueness o Libertarianism is ound not in the state-
ment o its basic principle but in the rigorously consistent, even
maniacal manner with which the principle is applied. For
example, most people do not see any contradiction between this
principle and our system o taxation. Libertarians do.
1axation is contrary to the basic principle because it involves
aggression against nonaggressive citizens who reuse to pay. It
makes not the slightest dierence that the government oers
goods and services in return or the tax money. What is impor-
tant is that the so-called trade` (tax money or government
services) is 14"01"%. 1he individual is not ree to reject the oer.
Nor does the act that a majority o the citizens support this
coercive taxation make any dierence. 1he initiation o aggres-
sion, even when endorsed by the majority, is not legitimate. Lib-
ertarianism condemns it in this area as it condemns it wherever
it occurs.
Another dierence between the belies o Libertarians and
the belies o other members o society is the obverse o the view
that initiatory violence is evil. Libertarians maintain that as ar
as political theory is concerned, anything which does $4) involve
the initiation o violence is not evil and that as ar as political
theory is concerned, anything which does not involve the initia-
tion o violence is not a punishable evil and should not be out-
lawed. And this is the basis or the irst part o my argument.
1he so-called villains` are not villains at all, in this sense,
because )*"6 %4 $4) &$&)&,)" 8&4."$1" ,',&$/) $4$,''0"//40/.
Once it is realized that no one in this seeming rogue`s
gallery is guilty o any coercive wrongdoing, it is not diicult to
appreciate the second point: 8&0)9,..6 ,.. 4# )*" :"4:." 5&)* 5*47
5" ,0" 14$1"0$"% ,0" 0"/:4$/&-." #40 -"$"#&)&$' )*" 0"/) 4# /41&")6.
1he people we are considering are not aggressors. 1hey do not
orce themselves on anyone. I the other members o the com-
munity have any dealings with them, these dealings are volun-
tary. People engage in voluntary transactions because they eel
that some beneit can be derived. Since people voluntarily trade
with our villains,` they must get rom them something they
desire. 1he villains` 79/) be providing a beneit.
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;$)04%91)&4$ xv
1he third premise ollows ineluctably rom the second.
Given that voluntary trade (the only avenue o interaction open
to those who, like the scapegoats, have eschewed violence) must
always beneit all parties, it ollows that the prohibition o vol-
untary trade must *,07 all parties. In act, my point is even
stronger. I will argue that prohibiting the activities o the people
we are considering harms not only the potential parties to the
trade, but it can seriously harm third parties. One blatant exam-
ple is the prohibition o the activities o the heroin seller. In
addition to harming the seller and the customer, the prohibition
o the sale o heroin is responsible or a high proportion o the
crime committed in our society, or police grat, and in many
areas, or the general breakdown o law and order.
1he chie point I wish to make in this introduction-the
core o my position-is that there is a crucial dierence between
the initiation o aggression and all other acts which, while they
may displease us, do not involve such aggression. It is 4$.6 the
act o aggressive violence that violates man`s rights. Reraining
rom aggressive violence must be considered a undamental law
o society. 1he people dealt with in this book, though reviled by
the media and condemned out o hand by almost everyone, do
not violate anyone`s rights, so they should not be subjected to
judicial sanctions. It is my belie that they are scapegoats-they
are visible, they are available to attack, but they must be
deended, i justice is to prevail.
1his book is a deense o the marketplace. It singles out or
special praise those participants in the ree enterprise system
who are the most reviled by its critics. It does so because i the
price system can be shown to be mutually beneicial and pro-
ductive in these extreme examples, then the case or markets in
general is strengthened even the more.
However, it is important to counteract one possible misinter-
pretation. 1his book does $4) claim that the marketplace is a
moral economic institution. 1rue, the proit and loss business
system has brought mankind a plethora o consumer goods and
services unknown in the entire history o the world. 1hese ben-
eits are the envy o all peoples not ortunate enough to live
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under its banner. Given the tastes, desires, preerences o the
ultimate consumer, the market is the best means known to man
or providing or his satisaction.
But the marketplace also produces goods and services-
such as gambling, prostitution, pornography, drugs (heroin,
cocaine, etc.), alcohol, cigarettes, swinger`s clubs, suicide abett-
ment-whose moral status is, to say the least, highly question-
able and in many cases highly immoral. 1he ree enterprise sys-
tem, thus, cannot be considered a moral one. Rather, as a means
o consumer satisaction, it can only be as moral as are the goals
o the market participants themselves. Since these vary widely,
all the way rom the completely depraved and immoral to the
entirely legitimate, the market must be seen as amoral-neither
moral nor immoral.
1he market in other words is like ire, or a gun, or a knie,
or a typewriter: a splendidly eicient means toward both good
and bad ends. 1hrough ree enterprise we are capable o achiev-
ing virtuous actions, but also their very opposite as well.
How, then, can we deend the immoral activities o some
market actors 1his stems rom the philosophy o libertarian-
ism, which is limited to analyzing one single problem. It asks,
under what conditions is violence justiied And it answers,
violence is justiied only or purposes o deense, or in response
to prior aggression, or in retaliation against it. 1his means,
among other things, that government is not justiied in ining,
punishing, incarcerating, imposing death penalties on people
who act in an immoral manner-as long as they rerain rom
threatening or initiating physical violence on the persons or
property o others. Libertarianism, then, is not a philosophy o
lie. It does not presume to indicate how mankind may best live.
It does not set out the boundaries between the good and the
bad, between the moral and the immoral, between propriety
and impropriety.
1he deense o such as the prostitute, pornographer, etc., is
thus a very limited one. It consists solely o the claim that they
do not initiate physical violence against nonaggressors. Hence,
according to libertarian principles, none should be visited
xvi !"#"$%&$' )*" +$%"#"$%,-."
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upon them. 1his means only that these activities should not be
punished by jail sentences or other orms o violence. It decid-
edly does $4) mean that these activities are moral, proper, or
Walter Block
;$)04%91)&4$ xvii
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!" $%&'()
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+,% -./$+!+'+%
ubject to ceaseless harassment by blue laws, church
groups, chambers o commerce, etc., prostitutes neverthe-
less continue to trade with the public. 1he value o their
service is proven by the act that people continue to seek them
out, despite legal and civic opposition.
A prostitute may be deined as one who engages in the vol-
untary trade o sexual services or a ee. 1he essential part o the
deinition, however, is voluntary trade.` A magazine cover by
Norman Rockwell some time ago illustrated the essence o pros-
titution, i not the speciics. It portrayed a milkman and a pie-
man standing near their trucks, each busily eating a pie and
drinking milk. Both obviously pleased with their voluntary
1hose lacking suicient imagination will see no connection
between the prostitute entertaining her customer and the aore-
mentioned milk and pie episode. But in both cases, two people
have come together on a voluntary basis, in an attempt to mutu-
ally gain satisaction. In neither case is orce or raud applied. O
course, the customer o the prostitute may later decide that the
services he received were not worth the money he paid. 1he
prostitute may eel that the money she was paid did not ully

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compensate her or the services she provided. Similar dissatis-
actions could also occur in the milk-pie trade. 1he milk could
have been sour or the pie underbaked. But both regrets would be
!"#$% #'$ "!(# and would not alter the description o these trades
as voluntary.` I all the participants were not willing, the trades
would not have taken place.
1here are those, women`s liberationists among them, who
lament the plight o the poor downtrodden prostitute, and who
think o her lie as demeaning and exploitative. But the prosti-
tute does not look upon the sale o sex as demeaning. Ater con-
sidering the good eatures (short hours, high remuneration),
with the drawbacks (harassment by the police, enorced com-
missions to her pimp, uninspiring working conditions), the
prostitute obviously preers her work, otherwise she would not
continue it.
1here are o course many negative aspects experienced by
prostitutes which belie the happy hooker` image. 1here are
prostitutes who are drug addicts, prostitutes who are beaten by
pimps, and prostitutes who are held in brothels against their
will. But these sordid aspects have little to do with the intrinsic
career o prostitution. 1here are nurses and doctors who are kid-
napped and orced to perorm or ugitives rom justice, there
are carpenters who are drug addicts, there are bookkeepers who
are beaten by muggers. We would hardly conclude that any o
these proessions or vocations are suspect, demeaning, or
exploitative. 1he lie o the prostitute is as good or as bad as she
wishes it to be. She enters it voluntarily, )*! prostitute, and is
ree to leave at any time.
Why then the harassment and prohibitions against prostitu-
tion 1he momentum does not come rom the customer, he is a
willing participant. I the customer decides that patronization o
a prostitute is not to his advantage, he can stop. Nor does the
move toward prohibition o prostitution come rom the prosti-
tutes themselves. 1hey have volunteered or their tasks, and can
almost always quit i they change their minds about the relative
! +$"$,-.,/ #'$ 0,-$"$,-!12$
chap1prost..qxd 2/21/2008 12:27 PM Page 4
1he impetus or the prohibition o prostitution is initiated
by third parties` not directly involved in the trades. 1heir rea-
sons vary rom group to group, rom area to area, and rom
year to year. What they have in common is the act that they
are outside parties. 1hey have neither stake nor standing in the
matter, and should be ignored. 1o allow them to decide this
matter is as absurd as allowing an outsider to decide about the
trade between the milkman and the pieman.
Why then are the two cases treated dierently Imagine a
league called the decent eaters,` organized to espouse the doc-
trine that eating pie together with milk is evil. Even i it could be
demonstrated that the league against pie-and-milk and the
league against prostitution had identical intellectual merit-
namely, none-the reaction to the two would still be dierent.
1he attempt to prohibit pie and milk would evoke only laughter
but there would be a more tolerant attitude toward the attempt
to prohibit prostitution. 1here is something in operation which
staunchly resists an intellectual penetration o the prostitution
question. Why has prostitution not been legalized 1hough the
arguments against this legalization are without merit, they have
never been clearly assailed by the intellectual community as spe-
1he dierence between sexual trades such as the ones that
take place in prostitution, and other trades, such as the pie-milk
trade, seems to be based on, or at least connected to, the shame
we eel, or are made to eel, at the prospect o having to 1*3
sex.` One is hardly really a man,` nor in any way to be conused
with an attractive woman, i one pays or sex.
1he ollowing well-known joke illustrates this point. A good
looking man asks an attractive and virtuous` woman i she will
go to bed with him or ;100,000.00. She is appalled by the oer.
However, ater some relection she concludes that as evil as pros-
titution is, she could use the proceeds o the oer or charity and
good works. 1he man seems charming, not at all dangerous or
repugnant. She shyly says, Yes.` 1he man then asks: How
about or ;!0.00` 1he woman indignantly replies, How dare
you, what kind o woman do you think I am'` as she slaps his
4'$ 5%67#.#*#$
chap1prost..qxd 2/21/2008 12:27 PM Page 5
ace. Well we`ve already established what kind o woman you
are. Now, we`re trying to establish the price,` he replies. 1he
degree to which the man`s reply strikes a telling blow against the
woman is a small measure o the scorn heaped upon individuals
involved in this kind o endeavor.
1here are two approaches which might combat the attitude
that paying or sex is degrading. 1here is the rontal attack
which simply denies that it is a wrong to pay or sex. 1his, how-
ever, would hardly convince those who think o prostitution as
an evil. 1he other possibility would be to show that we are
!28!37 paying or sex-all o us, all the time-and, thereore, we
should not cavil at the arrangements between a proessional
prostitute and a customer.
In what sense can it be said that we all engage in trade and
payments when we engage in sexual activity At the very least,
we have to oer 769$#'.,/ to our prospective partners beore
they will consent to have sex with us. With explicit prostitution,
the oer is in terms o cash. In other cases, the trade is not so
obvious. Many dating patterns clearly conorm to the prostitu-
tional model. 1he male is expected to pay or the movies, din-
ners, lowers, etc., and the emale is expected to reciprocate with
sexual services. 1he marriages in which the husband provides
the inancial elements, and the wie the sexual and housekeep-
ing unctions, also conorms clearly enough to the model.
In act, all voluntary human relationships, rom love rela-
tionships to intellectual relationships, are trades. In the case o
romantic love and marriage, the trade is in terms o aection,
consideration, kindness, etc. 1he trade may be a happy one, and
the partners may ind joy in the giving. But it is still a trade. It is
clear that unless aection, kindness, etc., or 769$#'.,/ is given, it
will not be reciprocated. In the same way, i two nonmerce-
nary` poets did not get anything` rom each other, their rela-
tionship too would terminate.
I there are trades, there are also payments. Where there are
payments or relationships which include sexual congress such
as marriage and in some dating patterns-there is prostitu-
tion-according to the deinition o that term. Several social
6 +$"$,-.,/ #'$ 0,-$"$,-!12$
chap1prost..qxd 2/21/2008 12:27 PM Page 6
commentators have correctly likened marriage to prostitution.
But all relationships where trade takes place, those which include
sex as well as those which do not, are a orm o prostitution.
Instead o condemning all such relationships because o their
similarity to prostitution, prostitution should be viewed as just
one kind o interaction in which all human beings participate.
Objections should not be raised to any o them-not to mar-
riage, not to riendship, not to prostitution.
4'$ 5%67#.#*#$ 7
chap1prost..qxd 2/21/2008 12:27 PM Page 7
chap1prost..qxd 2/21/2008 12:27 PM Page 8
"#$ %&'%
rom time immemorial, pimps have been treated as para-
sites who prey on prostitutes. But in a air assessment, an
examination o the true unction o the pimp must be
An initial point requiring clariication is the claim that
pimps use coercion and threats o violence to gather and keep
prostitutes on their payrolls. Some pimps do, but does this act
justiy condemning the proession itsel Is there !"# proession
that does not have a single practitioner who is not guilty o oul
play 1here are bricklayers, plumbers, musicians, priests, doc-
tors, and lawyers who have violated the rights o their ellow
creatures. But these proessions are not $%! proessions to be
condemned in their entirety.
And so it should be with the proession o pimping. 1he
actions o any one, or even o all pimps together, cannot legiti-
mately be used to condemn the proession $%! proession, %"&'((
)*' !,)-." -( ! "','((!/# 0!/) .1 )*' 0/.1'((-.". Now the proession
o kidnapping small children or ransom is an evil proession,
$%! 0/.1'((-.". Even though some kidnappers may perorm good
deeds, such as contributing a part o the ransom to charity, or
even i all o them do so, the proession does not thereby become
less o an abomination, because the action which deines it is
chap2pimp.qxd 2/21/2008 12:27 PM Page 9
evil. I the action which deines the proession o pimping were
evil, then it should be condemned also. In order to evaluate
pimping, any extraneous evil acts which may be committed by
some pimps must be ignored as having little to do with the pro-
ession as such.
1he unction o the pimp $%! pimp is that o a broker. In the
same way as do brokers o real estate, insurance, stock market
10 2'1'"3-"4 )*' 5"3'1'"3!6&'
!"##$% '() *+, -./*+,% '() #012 30/+,+4/+5 30 *+, 6+17
-.,+89:/ 4*+ 6#0(/ 134/+0 /# )+; <1+.4+ /.1$ /# *+,8
/+11 *+, /# =#)+ *#)+ 63/* )+ /# >$,#0? @*+(11 134/+0 /#
2#:% 2#:(,+ *+, A3)A?B
chap2pimp.qxd 2/21/2008 12:27 PM Page 10
shares, investments, commodity utures, etc., the pimp serves
the unction o bringing together two parties to a transaction at
less cost than it would take to bring them together without his
good oices. Each party to a transaction served by a broker gains
rom the brokerage, otherwise they would not patronize him.
And so it is in the case o the pimp. 1he customer is spared use-
less or wasteul waiting and searching time. It is easier to phone
a pimp or an assignation with a prostitute than to spend time
and eort searching one out. 1he customer also has the security
o knowing that the prostitute comes recommended.
1he prostitute beneits too. She gains the time that would
otherwise be spent in searching or the customer. She is also pro-
tected by the pimp-rom undesirable customers, and rom
policemen, part o whose proession, $%! proession, is to pre-
vent prostitutes rom engaging in voluntary trade with consent-
ing adults. Assignations arranged by the pimp aord the prosti-
tute additional physical security over street walking or bar
1he prostitute is no more exploited by the pimp than is the
manuacturer exploited by the salesman who drums up business
or him, or the actress who pays an agent a percentage o her
earnings to ind new roles or her. In these examples the
employer, by means o the employee`s services, earns more than
the cost o hiring the employee. I this were not so, the employer-
employee relationship would not take place. 1he relationship o
the prostitute to the pimp (employer to employee), contains the
same mutual advantages.
1he proessional pimp perorms the necessary unction o
brokering. In this perormance he is i anything more honorable
than many other brokers, such as banking, insurance, and the
stock market. 1hey rely on restrictive state and ederal laws to
discourage their competition, whereas the pimp can never use
the law to saeguard his position.
7*' 8-90 11
chap2pimp.qxd 2/21/2008 12:27 PM Page 11
chap2pimp.qxd 2/21/2008 12:27 PM Page 12
"#$ %&'$ (#&)*+,+-" .+/
he women`s liberation movement is an amalgam o di-
erent programs and composed o diverse groups with
diering aims. 1he discriminating intellect may accept
some o the aims, purposes, motivations, and programs o
women`s liberation, and reject others. It would be olly to treat
as equivalent a host o dierent values and attitudes merely
because they have been packaged together. 1he views o the
women`s liberation movement can be divided into our major
categories-each o which requires a dierent approach.
Apart rom murder, the most brutal coercive action taken
against women is rape. Yet in this male dominated society rape
is not always illegal. It is not illegal when perpetrated upon a
woman by her husband. And, although rape is illegal when it
occurs outside the sanctity` o marriage, the way in which it is
treated by the law leaves much to be desired. For one thing, i
there was any previous acquaintanceship between the rapist and
his victim, the court presumes that there was no rape. For
another, in order to prove rape, it was necessary in many states
until recently, that there be a witness to the crime. Furthermore,
chap3malepig.qxd 2/21/2008 12:27 PM Page 13
i riends o the rapist swore they had sexual intercourse with the
victim, she could be characterized as immoral,` and it becomes
virtually impossible to obtain a conviction. I the victim is a pros-
titute, it is equally impossible to obtain a conviction. 1he rea-
soning behind the legal inability or a prostitute to be raped is
the ludicrous view that it is impossible to compel a person to do
that which she does willingly at other times.
One o the most attractive aspects o the women`s liberation
movement is its support or greater penalties or rape, plus resti-
tution to the victim. Previously people who occupied a compa-
rable position on the political spectrum as do most o today`s
eminists (e.g., liberals and letists) urged lighter sentences or
rapists and general mollycoddling o criminals. In their view, all
crime, rape included, was caused mainly by poverty, amily
breakdown, lack o recreational acilities, etc. And their solu-
tion` ollowed directly rom this insight`: more welare, more
parks and playgrounds or the underprivileged, counseling, ther-
apy, etc. In contrast, the eminists` insistence on stier jail sen-
tences or rapists-and worse-comes like a breath o resh air.
Although rape is the most striking instance in which the
government acquiesces in coercive actions against women, there
are others. Consider what is implied by the laws against prosti-
tution. 1hese laws prohibit trade between mutually consenting
adults. 1hey are harmul to women in that they prevent them
rom earning an honest living. I their anti-woman bias is not
clear enough, consider the act that although the transaction is
just as illegal or the customer as or the seller, the male (cus-
tomer) is almost never arrested when the emale (seller) is.
Abortion is another case in point. Although inroads have
inally been made, abortion is limited by obstructive rules. Both
outright prohibition o abortion and abortion under present
controls deny the great moral principle o sel-ownership. 1hus,
they are throwbacks to slavery, a situation essentially deined by
the barriers put up between people and their right o sel-own-
ership. I a woman owns her body then she owns her womb, and
she alone has the complete and sole right to determine whether
to have a child or not.
1! !"#"$%&$' )*" +$%"#"$%,-."
chap3malepig.qxd 2/21/2008 12:27 PM Page 14
1he ways in which the government supports or is itsel
actively involved in coercing women are maniold. Until very
recently, or example, women did not have the same rights as
men to own property or to engage in contracts. 1here are still
laws on the books that prevent /,00&"% women, but not married
men, rom selling property or engaging in business without the
permission o their spouses. 1here are stier entrance require-
ments or women than men at some state universities. 1he ina-
mous tracking system in our public schools shunts young boys
into male` activities (sports and carpentry), and young girls
into emale` activities (cooking and sewing).
It is important to realize that these problems all have two
things in common: they are instances o aggressive orce used
against women and they are all inextricably bound up with the
apparatus o the state. Although not widely appreciated, this is
no more true o rape and prostitution than o the other actions
and activities described. For what does it mean to say that
women do not have the right to abort, to own property, or to set
up businesses, except that women who engage in these activities
will be stopped by state compulsion, ines, or jail sentences.
Clearly, both the government as well as individuals can dis-
criminate. But 1$.2 state and $1) private discrimination violate
the rights o women. When a private individual discriminates,
he (or she) does so with his (or her) own resources, in his (or
her) own name. But when the state discriminates, it does so with
resources taken rom its citizenry and in the name o all o its
subjects. 1his is a crucial dierence.
I a private enterprise such as a movie discriminates, it runs
the risk o losing money and possible bankruptcy. People oppos-
ing the discrimination may withhold unds or not patronize the
institution. However, when the state discriminates, these people
do not have this option, and there is no risk o bankruptcy. Even
when people oppose discrimination in a state institution rom
which they can withhold unds, (students can, or example, at a
state university) the state has other alternatives. It can make up
or the dwindling unds rom tax revenues, and these must be
paid under threat o compulsion.
3*" 4,." 5*,67&$&8) 9&' 1
chap3malepig.qxd 2/21/2008 12:27 PM Page 15
Even the pinches that women are subject to are inextricably
bound up with the state apparatus. Contrast what happens
when sexual harassment takes place :&)*&$ the conines o a pri-
vate place (a department store) and when it takes place 16)8&%"
(on a street one block away rom the store). When a woman is
molested within the conines o a private place the whole orce
o the proit-and-loss ree-enterprise system comes to bear on
the problem. It is in the entrepreneur`s sel-interest to appre-
hend and discourage oensive actions. I he does not, he will
lose customers. 1here is, in eect, competition between store
owners to provide sae and comortable environments or cus-
tomers. 1he ones who succeed to the greatest degree in their
antipinching drive will tend to reap the greatest proits. 1he
ones who ail, whether because they ignore the issue or are
unsuccessul in implementing their programs, will tend to incur
the greatest losses. 1his, o course, is not a guarantee that pinch-
ing and other oensive behavior will cease. It will always occur
as long as people remain imperectly moral. But this system does
encourage, by proits and losses, those who are most able to con-
trol the situation.
Contrasted with what occurs in the public domain, however,
the private system begins to look like perection itsel. In the
public domain there is almost no incentive to deal with the
problem. 1here is no one who ,6)1/,)&;,..2 loses anything
when a woman is pinched or otherwise harassed. 1he city police
are supposedly charged with the responsibility, but they unction
without beneit o the automatic proit-and-loss incentive sys-
tem. 1heir salaries which are paid or by taxation, are not related
to perormance and they suer no inancial loss when women
are molested. It is clear then why most o this type o harassment
occurs on the streets and not within shops and stores.
Many actions taken against women are not, strictly speaking,
coercive. For example, whistling, leering, derision, innuendo,
unwelcome lirtation, etc. (O course, it is oten diicult to tell
16 !"#"$%&$' )*" +$%"#"$%,-."
chap3malepig.qxd 2/21/2008 12:27 PM Page 16
beorehand whether a lirtatious remark will be welcome or
not.) Consider the sexual come-ons which continually occur
between men and women. Although to many people, and espe-
cially those in the women`s movement, there is no real dier-
ence between this type o behavior and coercive acts, the distinc-
tion is crucial. Both may be objectionable to many women, but
one is a physically invasive act, the other is not.
1here are many other kinds o actions which all into the
same category. Examples include the use o sexual vulgarisms
(broad` or piece o ass`), the advocacy o double-standard
mores, certain rules o etiquette, the encouragement o the men-
tal capacity o boys and not o girls, the societal opprobrium o
women who participate in male` athletic activities, sexist`
advertising, and the pedestals that women are placed upon.
1here are two important points to be made with regard to
these and other attitudes and behavior which may be oensive
but not coercive. 1he irst is that such noncoercive actions can-
not legitimately be outlawed. Any attempt to do so would
involve the mass violation o the rights o other individuals.
Freedom o speech means that people have the right to say what-
ever they like, even to make possibly reprehensible and boorish
1he second point is more complicated and by no means
obvious. 1o a considerable extent, these reprehensible but non-
coercive actions are themselves ostered and encouraged by ;1"0<
;&7" statist activities which operate behind-the-scenes. For exam-
ple, the widespread incidence o government ownership and
management o land, parks, sidewalks, roads, businesses, etc.
1hese coercive activities, based on illegitimate compulsory tax-
ation, can be legitimately criticized. I they were eliminated, the
unsavory but legal behavior they support would diminish, with
the aid o the ree market.
Consider as an example the case in which a (male) boss
harasses a (emale) secretary in an objectionable but noncoer-
cive manner. We shall compare the situation when such activity
takes place on public and private property. 1o analyze this, we
must understand what the labor economist calls compensating
3*" 4,." 5*,67&$&8) 9&' 17
chap3malepig.qxd 2/21/2008 12:27 PM Page 17
dierentials.` A compensating dierential is the amount o
money just necessary to compensate an employee or the psychic
losses that go with the job. For instance, suppose there are two
job opportunities. One is in an air-conditioned oice, with a
good view, pleasant surroundings and pleasant coworkers. 1he
other is in a damp basement, surrounded by hostile ellow work-
ers. However, there is usually 81/" wage dierential large
enough to attract an individual to the less pleasant job. 1he
exact amount o the dierential varies or dierent people. But
it exists.
}ust as a compensating dierential must be paid to hire
employees to work in damp basements, so it must be paid to
emale workers in oices where they are subject to sexual harass-
ment. 1his increase in wages comes out o the boss`s pocket i he
is a private businessman. 1hus he has a strong monetary incen-
tive to control his behavior and the behavior o those who work
or him.
But the increase in wages is not paid by the boss o a gov-
ernment or government-supported enterprise' It is paid by the
taxpayer`s money, which is not paid upon the deliverance o sat-
isactory services, but is collected by coercion. 1hus the boss
has less reason to exercise control. It is clear that this type o
sexual harassment, in itsel oensive but not coercive, is made
possible by the coercive actions o the government in its role as
tax collector. I taxes were paid voluntarily, the boss, even in a
government oice, would be subject to meaningul control. He
would stand to lose money i his behavior oended his employ-
ees. But because he is supported by money rom coercive taxa-
tion, his employees are at his mercy.
In like manner, contrast the situation where a group o men
whistle, jeer, and make disparaging and insulting remarks to
and about women passersby. One group does this on a publicly
owned sidewalk or street, the other in a privately owned place
such as a restaurant or shopping mall.
Now, under which condition is this legal but reprehensible
behavior more likely to be ended In the public sector, it is in no
businessperson`s inancial interest to end the harassment. Since
18 !"#"$%&$' )*" +$%"#"$%,-."
chap3malepig.qxd 2/21/2008 12:27 PM Page 18
by assumption this behavior is legal, the public police orces can-
not do anything to stop it either.
But in the realm o private enterprise, every entrepreneur
who hopes to employ or sell to women (or to men who object to
this maltreatment o women) has a strong pecuniary incentive
to end it. 1his is why it is no accident that such harassment
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4,02 A.."$ B&.81$ &8 CD *1608 &$)1 *"0 /"$8)06,. ;2;." :&)*
1$.2 1;;,8&1$,. -608)8 1# ,$'"0 %&0";)"% )1:,0% E)F 51/<
/,$%"0 G1" H,0."2 ,$% 5,I),&$ A% J"&%) &$)"08I"08"% :&)*
/1%"0,)" 81--&$'FK
chap3malepig.qxd 2/21/2008 12:27 PM Page 19
almost always takes place on public sidewalks or streets, and vir-
tually never in department stores, restaurants, shopping malls,
or other establishments which seek proits and care about their
bottom line.
Consideration in some detail should be given to two grievous
errors committed by the adherents o women`s liberation. It is
or his good sense in opposing these programs that the male
chauvinist pig can be considered a hero.
E,:8 ;1/I"..&$' ="L6,. :,'"8 #10 "L6,. :10MFK 1he question
is, o course, how to deine equal work.` I equal work` is
taken literally, it embraces all aspects o the employee`s produc-
tivity in the short run as well as in the long run, including psy-
chic dierentials, the discrimination o customers and other
workers, and the ability o the employee to mesh with the likes,
dislikes, and idiosyncrasies o the entrepreneur. In short, all
these components must be weighted, i equal work is exactly the
same as equal proitability or the entrepreneur. Only then, in
the ree market, workers with such equal abilities will tend to
earn equal wages. I, or instance, women were paid less than
men even though they were equally good workers in this sense,
orces would be set up which, when carried to their conclusion,
would insure equal pay. How 1he employer would be able to
make more money by replacing male workers with emale work-
ers. 1he demand or male workers would decrease, thus lower-
ing male wages, and the demand or emale workers would
increase, raising emale wages. Every employer who substituted
a woman or a man would have a competitive advantage over
the one who reused to do so. 1he proit maximizing employers
would continually earn greater proits than would the discrimi-
natory employers. 1he proit maximizers would be able to
undersell the discriminators, and, other things being equal,
eventually drive them into bankruptcy.
In actual point o act, however, the proponents o equal
wages or equal work do not have this strict type o equality in
!0 !"#"$%&$' )*" +$%"#"$%,-."
chap3malepig.qxd 2/21/2008 12:27 PM Page 20
mind. 1heir deinition o equality` is equal years o schooling,
equivalent skills, equivalent college degrees, and perhaps simi-
lar scores in qualiication tests. However, individuals who are
virtually identical with respect to such criteria can have vastly
dierent abilities to earn proits or employers. For example,
consider two workers, one male, one emale, identical as ar as
test scores and college degrees are concerned. It is an indis-
putable act that in the event o a pregnancy, it is ar more likely
or the woman to stay home and raise the child. Consideration
o whether this custom is #,&0 or not is not relevant. What is per-
tinent is whether it is #,;)6,. or not. I the woman stays at home,
interrupting a career or employment, she will be worth less to
the employer. In this case, although the male and emale candi-
dates or the job might be identically qualiied, in the long run,
the man will be more productive than the woman and, there-
ore, more valuable to the employer.
Paradoxically, many pieces o evidence which indicate that
men and women are not equally productive come rom the
women`s liberation movement itsel. 1here are several studies in
which women and men were irst tested as groups, in isolation
rom one another, and then together, in competition with one
another. In some cases, when the groups were tested in isolation,
the women showed clearly that they had higher innate abilities
than the men. Yet, when the two groups were tested in competi-
tion, the men invariably scored better than the women. Again, it
should be emphasized that the concern here is not with the #,&0<
$"88 o such occurrences, but with the "##";)8. 1he point is that in
the world o work, women will oten ind themselves in compe-
tition with men. I they constantly deer to men, and cannot do
their best in competition with men, they are, in act, o less help
in procuring proits or the entrepreneur. I women are equal to
men in test scores and are inerior to them when it comes to
proit maximizing, then the equal pay or equal work law will
prove disastrous or women.
It will be calamitous because the proit maximizing incen-
tives will be turned around. Instead o the market exerting a
strong steady push toward iring men and hiring women,
3*" 4,." 5*,67&$&8) 9&' !1
chap3malepig.qxd 2/21/2008 12:27 PM Page 21
employers will be motivated to ire women and hire men in their
place. I he is orced to pay men and women the same wages,
even though they are not equally productive, proits will be
increased to the degree that male workers replace emales.
Employers who are inclined to take the eminist view, and insist
on keeping woman workers, will have decreased proits, and lose
their share o the market. 1he employers who prosper will be
those who do not hire women.
It should be stressed that the tendency or women who are
truly equal to men in productivity to receive equal wages exists
only in the prot-and-loss ree market. Only in ree enterprise
are there inancial incentives to hire highly productive under-
priced women, to take advantage` o their plight, and thus to
raise their wages.
In the government and nonproit sectors, these proit incen-
tives are, by deinition, absent. It is hardly an accident, then, that
virtually all real abuses o women in this respect take place in
government and nonproit areas such as schools, universities,
libraries, oundations, social work, and public services. 1here
are ew allegations o underpayment to women in private enter-
prise ields such as computers, advertising, or the media.
McSorley`s is a bar in New York City that catered exclusively to
men, until it was liberated.` Under the banner o the new
antidiscrimination law in New York State, women were served
or the irst time in the history o the establishment. 1his was
hailed as a great progressive step orward by liberal, progressive,
and women`s liberation actions. 1he basic philosophy behind
the law and the attendant liberation o McSorley`s seems to be
that it is illegitimate to discriminate between potential cus-
tomers on the basis o sex.
I the problems with this philosophy are not readily appar-
ent, they can be made so by considering several 0"%6;)&1$"8 ,%
,-860%6/. I the philosophy were strictly adhered to, or exam-
ple, would not separate bathrooms or men at public` places be
!! !"#"$%&$' )*" +$%"#"$%,-."
chap3malepig.qxd 2/21/2008 12:27 PM Page 22
considered discriminatory` And separate residence halls or
men What about male homosexuals 1hey could be accused o
discrimination` against women. And aren`t the women who
marry men discriminating against other women
1hese examples, o course, are ridiculous. But they are con-
sistent with the philosophy o antidiscrimination. I they are
ridiculous, it is because that philosophy is ridiculous.
It is important to realize that ,.. human actions imply dis-
crimination in the only sensible deinition o that much abused
term: picking and choosing rom available alternatives, the one
which best serves his or her interests. 1here is no action taken
by human beings which ails to accord with this dictum. We dis-
criminate when we choose a toothpaste, decide upon a means o
transportation, whom to marry. 1he discrimination practiced by
the gourmet or wine taster is and can only be the discrimination
practiced by all human beings. Any attack upon discrimination,
thereore, is an attempt to restrict the options open to all individ-
But what o the women`s option to drink at McSorley`s Was
their right to choose being violated No. What they experienced
was what a man experiences when a woman rejects his sexual
advances. 1he woman who reuses to date a man is not guilty o
violating his rights-or his rights do not include a relationship
with her. 1hat exists as a possibility, but not a right, unless she is
his slave. In the same way, a man who wishes to drink in the
company o other men is not guilty o violating women`s rights.
For women`s rights do not include drinking with people who do
not wish to drink with them. It is only in a slave society that this
is not so. It is only in a slave society that the master can compel
the slave to do his bidding. I the antidiscriminatory orces suc-
ceed in orcing their philosophy on the general public they will
also succeed in orcing on the public the cloven hoo o slavery.
1o the extent that the male chauvinist pig succeeds in resisting
these trends, he must be looked upon as a hero.
3*" 4,." 5*,67&$&8) 9&' !
chap3malepig.qxd 2/21/2008 12:27 PM Page 23
chap3malepig.qxd 2/21/2008 12:27 PM Page 24
!!" $%&!'()
chap4pusher.qxd 2/21/2008 12:27 PM Page 25
chap4pusher.qxd 2/21/2008 12:27 PM Page 26
+,% &-./ 0.1,%-
he drug business, an evil business, is responsible or ago-
nizing deaths, crime, robbery, enorced prostitution, and
oten murder. 1he addict is usually marked or lie, even
ater kicking the habit.` During the addictive period, the addict
is a helpless slave to the drug, willing to enter into any degrada-
tion to secure one more ix.`
How then can the evil nature o the drug pusher be ques-
tioned How can we even presume to look upon him with
1he evils commonly blamed on heroin addiction are in real-
ity the ault o the !"#$%&%'%#( o drugs and not o the addiction
itsel. Given the prohibition o drugs, it is the person who sells
drugs illegally who does more than anyone to )%'%*+', the evil
eects o the original prohibition.
1he prohibition o heroin has the devastating eect o orc-
ing the price up to a level which can only be characterized as
astronomical. When a commodity is outlawed, in addition to all
the usual costs o growing, harvesting, curing, transporting,
merchandising, etc., the costs o evading the law and paying or
the punishments meted out when the evasion ails, must be
added. In the case o bootleg whiskey (during the prohibition
era o the !0s), these extra costs were not excessive because law
chap4pusher.qxd 2/21/2008 12:27 PM Page 27
enorcement was lax and the legislation did not have widespread
popular support. In the case o heroin, these costs are enormous.
Anti-heroin legislation enjoys wide popular support, with
demands or even stricter laws and penalties. Vigilante groups
and youth gangs in the inner city ghetto areas have inlicted
their own punishment on drug pushers and addicts. 1hese
groups have had the quasi-support o the law and order` ac-
tion, making it diicult and expensive to bribe the police who
ear the great penalties society would impose on them i they
were caught.
In addition to having to pay costly bribes to the police, the
drug merchants must also pay high salaries to their employees
or the dangers they encounter in smuggling and operating the
actories which prepare the drugs or street sales. 1hey must also
exercise a degree o paternalism in taking care o those employ-
ees who are caught bribing politicians, lawyers, and judges to
minimize the penalties.
1hese are the actors which account or the high price o
heroin. But or these many extra costs imposed by the prohibi-
tion o heroin, the price would not dier in any signiicant way
rom the price o other crops (wheat, tobacco, soya beans, etc.).
I heroin were legalized, an addict could obtain his daily need
or about the cost o a loa o bread, according to the best esti-
Under prohibition, heroin addiction may cost as much as
;100 per day or a mature habit. Depending upon market inor-
mation and alternative sources o supply, the addict spends
about ;,000 per year to support his habit. It is obvious that '$%-
.#-' is responsible or the untold human suering usually
blamed on heroin addiction. 1he typical addict is usually young,
uneducated, and unable to earn a suicient amount o money by
honest means to support his habit. I he does not seek medical
and psychiatric help, the only choice the addict can make to
secure his ix` is to enter into a lie o crime where he may even-
tually be hunted down by the police or street gangs. Further-
more, the addict criminal is in a ar worse position than the non-
addict. 1he nonaddict criminal can select the most opportune
!8 /,0,(1%(* '$, 3(1,0,(1+&4,
chap4pusher.qxd 2/21/2008 12:27 PM Page 28
time and place or a robbery. But the addict must commit a
crime whenever he needs a ix,` and these times usually occur
when his reactions are dulled by his drug deprivation.
In relecting upon the economics o encing` stolen mer-
chandise, it becomes obvious that the addict must commit an
enormous amount o crime to support his habit. 1o have the
annual amount o ;,000 necessary to buy drugs, the addict
must steal roughly 0%5, '%),- that amount (almost ;!00,000 per
year), since the buyers o stolen merchandise (ences), usually
pay only !0 percent or less o the retail value o what they buy. I
the igure o ;!00,000 is multiplied by the estimated 10,000
addicts in New York City, the total o ;!0 billion is the amount
o the total value lost in crimes committed by addicts in the Big
It cannot be stressed strongly enough that these crimes are
due to the !"#$%&%'%#( #0 $,"#%( and not the result o heroin
addiction. It is the prohibition that drastically orces its price up
and drives the addict into a lie o crime and brutishness which
may end in his own death or that o the victim.
1o prove this point, consider the small but signiicant num-
ber o medical doctors who, having access to heroin, have
addicted themselves. Its price is not prohibitive since their sup-
ply o the drug is not illegal. 1heir lives are normal,` useul,
and ulilling-with just this one dierence. Economically
speaking, their lives would not be too dierent i, instead o
being addicted to heroin, they were diabetics and addicted to
insulin. With either addiction, these doctors would still be able
to unction proessionally. I, however, their legal supply o
heroin were cut o (or insulin were suddenly declared illegal),
these doctors would be at the mercy o the street pusher, unable
to ascertain the quality o the drugs they purchased, and orced
to pay exorbitant prices or their supply. Under these changed
circumstances the position o the addicted doctor would be more
diicult, but it would not be catastrophic, since most o these
proessionals could easily aord the ;,000 annual cost o their
habit. But what o the uneducated addict living in poverty, who
does not have these prospects
6$, /"7* 87-$," !-
chap4pusher.qxd 2/21/2008 12:27 PM Page 29
1he 07(.'%#( o the heroin seller, as opposed to his motiva-
tion in entering the ield, is to keep the price o the drug 1#9(.
Each time a ew more heroin sellers enter the industry, the price
goes down even more. Conversely, each time the number o
heroin sellers decreases (through discouragement or prosecu-
tion), the price rises. Since it is not the sale or use o heroin itsel
that is responsible or the plight o the addict or or the crimes
he commits, but rather the $%*$ !"%., #0 $,"#%( caused by its pro-
hibition, it must ollow that any action which results in a drop
in the price o the drug alleviates the problem. I the problem is
caused by the high cost o the drug, then lowering the cost must
be considered as a solution.
But it is the heroin pusher who is instrumental in lowering
the price o the drug, and the orces o law and order` who are
responsible or raising these prices by interering with the activ-
ities o the pusher. 1hereore, it is the much reviled drug dealer,
not the widely beloved narcotics agent (narc`), who must be
considered the heroic igure.
Legalization o heroin has been rejected on the grounds that
progress and civilization would come to a halt. 1he British and
Chinese experience with addictive drugs are cited, and we are
supposed to picture scores o people lying around in the street,
zonked out o their minds. 1he argument is that anything
which intereres with progress, such as the widespread use o
heroin, should be prohibited. But there are other things that can
interere with continued progress which most people would not
be willing to prohibit-leisure, or one. I employees took vaca-
tions which amounted to -0 percent o the working year,
progress` would certainly alter. Should long vacations be pro-
hibited Hardly. In addition, the present prohibition o heroin
does not eliminate access to the drug. Formerly, it was available
only in the inner city ghettos, today it can be purchased on alu-
ent suburban street corners and schoolyards.
In the example o the Chinese experience with drugs, Chi-
nese merchants were 0#".,1 by gun boat diplomacy` to accept
opium. 1he legalization o addictive drugs would in no way
0#"., individuals into the habit. Indeed, orce, or the elimination
0 /,0,(1%(* '$, 3(1,0,(1+&4,
chap4pusher.qxd 2/21/2008 12:27 PM Page 30
o orce, is the chie reason or scrapping the prohibition o
In the British case (drugs administered legally, at a low cost,
by a doctor or licensed clinic), the argument has been made that
the number o addicts has risen sharply since their low cost pro-
gram started. But this rise is a statistical artiact. Formerly, many
people were reluctant to report themselves as addicts when it
was illegal to be one. When addiction was legalized and low cost
drugs were available, the statistics naturally rose. 1he British
Government Health Service administers drugs to certiied
addicts #(4:. It would, indeed, be surprising i there were any
marked increase in the rate o addiction under these circum-
Another source o the increase in the number o statistically
.#7(',1 addicts is the migration to the United Kingdom rom
Commonwealth countries. 1his sudden immigration might
well cause temporary problems o adjustment, but it is hardly an
indictment o the British plan. On the contrary, it provides
ample testimony to the arsightedness and progressiveness o the
program. 1o blame this program or the rise in addiction would
be similar to blaming Dr. Christiaan Barnard (the irst doctor to
perorm transplant heart surgery) or the rise in the number o
people in South Arica who wanted heart surgery.
In conclusion, it should be stated that heroin addiction may
be an unmitigated evil, without any socially redeeming eatures.
I so, eorts to publicize the evils o addiction can only be
applauded. However, the present prohibition o heroin and
other hard drugs serves no useul purpose. It has caused a
countless amount o suering, and great social upheaval. In
seeking to uphold this vicious law, the narcotics agent keeps
prices up and adds to the tragedy. It is only the heroin seller, by
acting so as to lower prices, even at considerable personal risk,
who saves lives and alleviates the tragedy somewhat.
6$, /"7* 87-$," 1
chap4pusher.qxd 2/21/2008 12:27 PM Page 31
chap4pusher.qxd 2/21/2008 12:27 PM Page 32
"#$ %&'( )%%*+"
t the present time, with the intense discussion on the
evils o heroin addiction, it is well to heed the old
adage-listen to both sides o the story.` Among the
many reasons or this, and perhaps most important, is the act
that i everyone is against something (particularly heroin addic-
tion), one can assume that there is !"#$%&'() which can be said
in its avor. 1hroughout mankind`s long and disputatious his-
tory, the majority opinion has, the majority o times, been wrong.
On the other hand, even those who agree with the majority
opinion should also welcome an attack upon it. 1he best way to
teach the verities o lie, according to the Utilitarian }ohn Stuart
Mill, is by hearing the opposition. Let the position be chal-
lenged, and let the challenge ail. 1his method was considered
by Mill to be so important that he recommended inventing a
challenging position, i a real one was not orthcoming, and pre-
senting it as convincingly as possible. 1hus, those who believe in
the unmitigated evils o heroin addiction should be eager to hear
an argument in avor o it.
1he phenomenon o addiction should be considered rom
an intrinsic point o view. 1hat is, the assumption will be that
the social or interpersonal problem-the necessity or an addict
to become involved in criminal activities in order to support his

chap5addict.qxd 2/21/2008 12:27 PM Page 33

habit-has been solved. For this is caused by the legislation
which prohibits the sale o narcotic drugs, and thus is a problem
extrinsic to the drug itsel. 1he intrinsic problems o addiction
are all the other problems addicts are alleged to ace.
Primary on any list o the nonsocial problems o drug addic-
tion is the allegation that addiction shortens lie. Depending on
the age and health o the addict, and the pessimism or optimism
o the alleger, the igure by which lie is said to be shortened
varies between 10 and !0 years. 1his is indeed unortunate, but
it hardly constitutes a valid criticism o addiction, and it most
certainly does not justiy the prohibition o heroin use.
! *$+$(,'() %&$ .(,$+$(,/01$
23" 0$ &"($!% 4'%& 5"6 78# 9$:5 #6;& !/%'!+'$, 4'%& %&$
<6/1'%5 "+ ,:6)! +:"# %&$ =&/:#/;$6%';/1 &"6!$ 7 ,$/1 4'%&
chap5addict.qxd 2/21/2008 12:27 PM Page 34
It does not constitute a valid criticism or justiy prohibition
because it is up to the individual to determine the kind o lie he
will lead-a short one, including what he considers to be pleas-
urable activities, or a longer one, without such enjoyment. Since
there is no objective criterion or such choices, there is nothing
irrational or even suspect about any choice on the spectrum. One
may choose to maximize the possibility o longevity, even i this
means the renunciation o liquor, tobacco, gambling, sex, travel,
crossing the street, heated debate, and strenuous exercise. Or, one
may choose to engage in any or all o these activities, even i that
means a shortened liespan.
Another argument leveled against addiction is that it pre-
vents people rom ulilling their responsibilities. 1he example
usually given is that o a ather who, under the continuous inlu-
ence o heroin, becomes incapable o ulilling his inancial and
other obligations to his amily. Let us assume that heroin addic-
tion incapacitates the ather. It still does not ollow that the use
and sale o heroin should be prohibited. It would be unreason-
able to prohibit any activity on the grounds that it prevents some
people rom unctioning in certain ways. Why should the peo-
ple who are not impaired or who do not have like responsibili-
ties be restricted Were it proper to prohibit heroin or this rea-
son, surely it would also be proper to prohibit gambling,
drinking, smoking, automobile driving, air travel, and other
dangerous or potentially dangerous activities. But this would be
patently absurd.
Should heroin be legal or some people but not or the oth-
ers who do not accept or ulill their responsibilities because o
their addiction No. When a man, to continue the example,
marries, he does not agree to renounce all activities which might
be dangerous. 1he marriage contract is not, ater all, a slave con-
tract. Marriage does not prevent either party rom engaging in
activities which might discomort the other. People with respon-
sibilities do get heart attacks rom playing tennis. But no one
would suggest that people with responsibilities be barred rom
sports activities.
3&$ *:6) @,,';%
chap5addict.qxd 2/21/2008 12:27 PM Page 35
Another argument against drug addiction is the claim that
users become totally nonproductive and thus, as a group, lower
the GNP (Gross National Product)-an index o the economic
well-being o the country as a whole. 1hus, the argument runs,
drug addiction hurts the country.
1he argument is specious, because it considers the country`s
well-being a meaningul concept, rather than the addict`s. But
even in its own terms, it is not convincing. It is based upon an
equation o the GNP with economic well-being. And this equa-
tion is allacious. 1he GNP, or example, counts all government
spending as contributing to the well-being o the country,
whether it actually does so or not. It ails to take into account the
work o housewives done in the home. Furthermore, it com-
pletely miscontrues the economic status o leisure. Any assess-
ment o economic well-being must assign some value to leisure,
but the GNP does not. For example, the GNP should double
with the introduction and ull-time implementation o an
invention which allowed people to double their output o real
goods and services. But i the people ;&""!$ to use the invention
to just maintain their standard o living and instead halve their
workday, the GNP would not change by one iota.
It is true that i addiction to heroin leads to increased leisure,
it will cause a all in the GNP. But an increase in leisure +": /(5
:$/!"( will have the same eect. 1hereore, i we oppose addic-
tion on this ground, we must also oppose enjoyable vacations,
poetic contemplation, and walks in the woods. 1he list o pro-
scribed activities could be endless. 1here is nothing wrong with
choosing to utilize an increase in wealth by increasing one`s
leisure. And i the GNP decreases thereby, so much the worse or
the GNP.
Finally, it is by no means clear that addiction necessarily
leads to lessened economic activity. Most o our knowledge
about the behavior o addicts comes rom the study o those
who, because o legislation which prohibits heroin and, there-
ore, skyrockets its price, must spend most o their time in an
agonizing search or vast sums o money. 1hey cannot hold
traditional jobs because most o their time is spent stealing,
6 *$+$(,'() %&$ .(,$+$(,/01$
chap5addict.qxd 2/21/2008 12:27 PM Page 36
murdering, and prostituting. Since we are concentrating on the
personal problem o addiction and not on the social problem,
the evidence aorded by these people is irrelevant to the discus-
sion. 1o study the behavior o addicts who are not prohibited by
law rom being productive, we must turn to those ew addicts
who are lucky enough to be insured a steady supply o low-cost
1his group is composed mainly o doctors who can use their
prescription-writing powers to insure themselves a steady sup-
ply. 1he limited evidence urnished by this small sample seems
to indicate that addicts, reed rom the compulsions induced by
heroin prohibition, are able to lead rather normal and produc-
tive lives. 1he doctors in question provide service as adequately
as other doctors. From all indications, they are able to keep up
with the latest developments in their ield, maintain a proper
relationship with their patients, and unction no dierently, in
all relevant aspects, rom other physicians.
1o be sure, were heroin legal, addicts would continue to
have drug-related personal problems. 1here would be the ear o
possible renewal o prohibition, and the relative incapacitation
ollowing the periods o drug use. 1here would be the danger o
overdosing, although it would lessen under legalization, since
the drug could be administered under the supervision o a doc-
tor. Vestiges o the old prohibitory attitude might remain and
maniest themselves in the orm o prejudice against addicts.
1he point to be stressed, however, is not that addicts will
have drug-related problems even under legalization. Special
problems almost always accompany special interests, violin
players are always in ear o injuring their ingers and ballerinas
cannot aord stubbed toes. Addiction to heroin is not in and o
itsel an evil. I it is legalized, it cannot possibly hurt anyone but
the user o the drug. 1here are those who may want to speak
out, educate, and advertise against it, but to prohibit it is clearly
a violation o the rights o those who wish to use it.
3&$ *:6) @,,';% 7
chap5addict.qxd 2/21/2008 12:27 PM Page 37
chap5addict.qxd 2/21/2008 12:27 PM Page 38
!!!" $%&& '(&&)*
chap6blackmail.qxd 2/21/2008 12:27 PM Page 39
chap6blackmail.qxd 2/21/2008 12:27 PM Page 40
,*& -./)01/!.&%
t irst glance it is not hard to answer the question, Is
blackmail really illegitimate` 1he only problem it
would seem to pose is, Why is it being asked at all` Do
not blackmailers, well . . . !"#$%&#'" people And what could be
worse Blackmailers prey on people`s dark hidden secrets. 1hey
threaten to expose and publicize them. 1hey bleed their victims,
and oten drive them to suicide.
We will ind, however, that the case against the blackmailer
cannot stand serious analysis, that it is based upon a tissue o
unexamined shibboleths and deep philosophical misunder-
What, exactly, is blackmail Blackmail is the ())*+ o trade. It
is the oer to trade something, usually ,'"*-$*, or some other
good, usually money. I the oer o the trade is #$$*./*0, the
blackmailer then maintains his silence and the blackmailee pays
the agreed-upon price. I the blackmail oer is +*1*$/*0, the
blackmailer may exercise his rights o ree speech and publicize
the secret. 1here is nothing amiss here. All that is happening is
that an ())*+ to maintain silence is being made. I the oer is
rejected, the blackmailer does no more than exercise his right o
ree speech.
chap6blackmail.qxd 2/21/2008 12:27 PM Page 41
1he sole dierence between a gossip and a blackmailer is
that the blackmailer will rerain rom speaking-or a price. In
a sense, the gossip is much 2(+,* than the blackmailer, or the
blackmailer has given the blackmailee a chance to silence him.
1he gossip exposes the secret without warning. Is not the person
!! 3*)*-0'-4 /6* 7-0*)*-0#!"*
!"#$% $% '( )$*+ ,-. ". /0122 30 3245)'4$2$67 (89 :-8'
68; 86 <=1' -0>$-$67 >8 ?28-$*4.@
chap6blackmail.qxd 2/21/2008 12:27 PM Page 42
with a secret better o at the hands o a blackmailer than a gos-
sip With the gossip, all is lost, with the blackmailer, one can
only gain, or at least be no worse o. I the price requested by the
blackmailer is lower than the secret is worth, the secretholder
will pay the blackmailer-this being the lesser o the two evils.
He thus 4#'-, the dierence to him between the value o the
secret and the price o the blackmail. When the blackmailer
demands more than the secret is worth, his demand will not be
met and the inormation will become public. However, in this
case the person is no worse o with the blackmailer than he
would have been with the inveterate gossip. It is indeed diicult,
then, to account or the viliication suered by the blackmailer,
at least compared to the gossip, who is usually dismissed with
slight contempt and smugness.
Blackmail need not entail the oer o ,'"*-$* in return or
&(-*8. 1his is only the best known orm. But blackmail may be
deined without reerence to either. Deined in general terms,
blackmail is the threat to do something-anything which is not
in itsel illegal-unless certain demands are met.
Many actions in the public arena qualiy as acts o black-
mail, but, instead o being viliied, they have oten attained a sta-
tus o respectability' For example, the recent lettuce boycott is a
orm o blackmail. 1hrough the lettuce boycott (or any boycott)
/6+*#/, #+* &#0* to retailers and wholesalers o ruits and vegeta-
bles. I they handle nonunion lettuce, the boycotters assert, peo-
ple will be asked not to patronize their establishments. 1his
conorms perectly to the deinition: a threat that something, not
in itsel illegal, will take place unless certain demands are met.
But what about the /6+*#/, involved in blackmail 1his per-
haps more than anything else, is the aspect o blackmail that is
most misunderstood and eared. At irst glance, one is inclined
to agree that threats are immoral. 1he usual dictum against
aggression, or example, warns not only against aggression .*+ ,*
but also against /6* /6+*#/ () #44+*,,'(-. I a highwayman accosts
a traveler, it is usually the /6+*#/ o aggression alone that will
compel obedience.
96* :"#$%&#'"*+ !
chap6blackmail.qxd 2/21/2008 12:27 PM Page 43
Consider the nature o threats. When what is threatened is
aggressive violence, the threat is condemnable. No individual
has the right to initiate aggressive violence against another. In
blackmail, however, what is being threatened` is something
that the blackmailer 0(*, have a right to do'-whether it be exer-
cising the right o ree speech, or reusing to patronize certain
stores, or persuading others to do likewise. What is being threat-
ened is not in itsel illegitimate, it is, thereore, not possible to
call the threat` an '""*4'/'&#/* /6+*#/;
Blackmail can only be illegitimate when there is a special
oresworn relationship between the blackmailer and the black-
mailee. A secret-keeper may take a lawyer or a private investiga-
tor into his conidence (- /6* $(-0'/'(- /6#/ /6* $(-)'0*-$* !*
&#'-/#'-*0 '- ,*$+*$8. I the lawyer or private investigator
attempts to blackmail the secret-keeper, that would be in viola-
tion o the contract and, /6*+*)(+*, illegitimate. However, i a
stranger holds the secret without contractual obligations, then it
is legitimate to oer to sell` his silence.
In addition to being a legitimate activity, blackmail has some
good eects, litanies to the contrary notwithstanding. Apart
rom some innocent victims who are caught in the net, whom
does the blackmailer usually prey upon In the main, there are
two groups. One group is composed o criminals: murderers,
thieves, swindlers, embezzlers, cheaters, rapists, etc. 1he other
group consists o people who engage in activities, not illegiti-
mate in themselves, but which are contrary to the mores and
habits o the majority: homosexuals, sado-masochists, sexual
perverts, communists, adulterers, etc. 1he institution o black-
mail has beneicial, but dierent, eects upon each o these
In the case o criminals, blackmail and the threat o black-
mail serves as a deterrent. 1hey add to the risks involved in
criminal activity. How many o the anonymous tips` received
by the police-the value o which cannot be overestimated-
can be traced, directly or indirectly, to blackmail How many
criminals are led to pursue crime on their own, eschewing the
aid o ellow criminals in jobs` that call or cooperation, out o
!! 3*)*-0'-4 /6* 7-0*)*-0#!"*
chap6blackmail.qxd 2/21/2008 12:27 PM Page 44
the ear o possible blackmail Finally, there are those individu-
als who are on the verge o committing crimes, or at the mar-
gin o criminality` (as the economist would say), where the least
actor will propel them one way or another. 1he additional ear
o blackmail may be enough, in some cases, to dissuade them
rom crime.
I blackmail itsel were legalized, it would undoubtedly be
an even more eective deterrent. Legalization would undoubt-
edly result in an increase in blackmail, with attendant depreda-
tions upon the criminal class.
It is sometimes said that what diminishes crime is not the
penalty attached to the crime but the certainty o being caught.
Although this controversy rages with great relevance in current
debates on capital punishment, it will suice to point out that the
institution o blackmail does both. It increases the penalty asso-
ciated with crime, as it orces criminals to share part o their loot
with the blackmailer. It also raises the probability o being appre-
hended, as blackmailers are added to police orces, private citizen
and vigilante groups, and other anticrime units. Blackmailers,
who are oten members in good standing in the criminal world,
are in an advantageous position to oil crimes. 1heir inside` sta-
tus surpasses even that o the spy or iniltrator, who is orced to
play a role. Legalizing blackmail would thus allow anticrime
units to take advantage o two basic crime ighting adages at the
same time: divide and conquer,` and lack o honor among
thieves.` It is quite clear that one important eect o legalizing
blackmail would be to diminish crime, real crime, that is.
1he legalization o blackmail would also have a beneicial
eect upon actions which do not involve aggression, but are at
variance with the mores o society as a whole. On these actions,
the legalization o blackmail would have a liberating eect.
Even with blackmail still illegal, we are witnessing some o its
beneicial eects. Homosexuality, or instance, is technically ille-
gal in some instances, but not really criminal, since it involves
no aggression. For '-0'<'0=#" homosexuals, blackmail very oten
causes considerable harm and can hardly be considered benei-
cial. But or the group as a whole, that is, )(+ *#$6 '-0'<'0=#" #, #
96* :"#$%&#'"*+ !
chap6blackmail.qxd 2/21/2008 12:27 PM Page 45
&*&!*+ () /6* 4+(=., blackmail has helped by making the public
more aware and accustomed to homosexuality. Forcing individ-
ual members o a socially oppressed group into the open, or out
o the closet,` cannot, o course, be considered a service. 1he use
o orce is a violation o an individual`s rights. But still, it does
engender an awareness on the part o members o a group o one
another`s existence. In orcing this perception, blackmail can
legitimately take some small share o the credit in liberating peo-
ple whose only crime is a deviation rom the norm in a noncrim-
inal way.
In relecting on the old aphorism, the truth shall make you
ree,` the only weapon` at the disposal o the blackmailer is the
truth. In using the truth to back up his threats (as on occasion
he must), he sets the truth ree, very oten without intent, to do
whatever good or bad it is capable o doing.
!6 3*)*-0'-4 /6* 7-0*)*-0#!"*
chap6blackmail.qxd 2/21/2008 12:27 PM Page 46
#$% &'()*%+%+ ()* ',-%'%+
t is easy to be an advocate o ree speech when it applies to
the rights o those with whom one is in agreement. But the
crucial test concerns controversial speech-statements
which we may consider vicious and nasty and which may, in
act, even !" vicious and nasty.
Now, there is perhaps nothing more repugnant or vicious
than libel. We must, thereore, take particular care to deend the
ree speech rights o libelers, or i they can be protected, the
rights o all others-who do not give as much oense-will cer-
tainly be more secure. But i the rights o ree speech o libelers
and slanderers are not protected, the rights o others will be less
1he reason civil libertarians have not been involved in the
protection o the rights o libelers and slanderers is clear-libel
is ruinous to reputations. Harsh tales about lost jobs, riends,
etc., abound. Far rom being concerned with the ree speech
rights o the libeler and slanderer, civil libertarians have been
concerned with protecting those who have had their reputations
destroyed, as though that in itsel was unpardonable. But obvi-
ously, protecting a person`s reputation is not an absolute value.
I it were, i, that is, reputations were really sacrosanct, then we
chap7slander.qxd 2/21/2008 12:27 PM Page 47
would have to prohibit most categories o denigration, even
truthul ones. Unavorable literary criticism, satire in movies,
plays, music or book reviews could not be allowed. Anything
which diminished any individual`s or any institution`s reputa-
tion would have to be orbidden.
!8 #"$"%&'%( *+" ,%&"$"%&-!."
/0+'1 '1 2-.34%56 1.-%&"78 9:3;.. +"-7 $7:4 45 -**:7%"5<=
1>"%* 5"-71 !3'.&'%( 3> *+" 7">3*-*':% :$ 45 7"1*-37-%*8?
chap7slander.qxd 2/21/2008 12:27 PM Page 48
O course, civil libertarians would deny that their objection
to slander and libel commits them to the view described. 1hey
would admit that a person`s reputation cannot always be pro-
tected, that sometimes it must be sacriiced. But this, they might
say, does not exonerate the libeler. For a person`s reputation is
not something to be taken lightly. It may not be damaged with-
out good reason.
But what is a person`s reputation` What is this thing
which may not be taken lightly` Clearly, it is not a possession
which may be said to belong to him in the way, or example, his
clothes do. In act, a person`s reputation does not belong` to
him at all. A person`s reputation is @+-* :*+"7 >":>." *+'%A :$
+'4, it 2:%1'1*1 o the thoughts which :*+"7 people have.
A man does not :@% his reputation any more than he owns
the thoughts o others-because that is all his reputation con-
sists o. A man`s reputation cannot be stolen rom him any more
than can the thoughts o :*+"7 people be stolen rom +'4.
Whether his reputation was taken rom him` by air means or
oul, by truth or alsehood, he did not own it in the irst place
and, hence, should have no recourse to the law or damages.
What then are we doing when we object to, or prohibit,
libel We are prohibiting someone rom aecting or trying to
aect the *+:3(+*1 :$ :*+"7 people. But what does the right o ree
speech mean i not that we are all ree to try to aect the
thoughts o those around us So we must conclude that libel
and slander are consistent with the rights o ree speech.
Finally, paradoxical though it may be, reputations would
probably be more secure without the laws which prohibit
libelous speech' With the present laws prohibiting libelous alse-
hoods, there is a natural tendency to !".'"B" any publicized slur
on someone`s character. It would not be printed i it were not
true,` reasons the gullible public. I libel and slander were
allowed, however, the public would not be so easily deceived.
Attacks would come so thick and ast that they would have to be
13!1*-%*'-*"& beore they could have any impact. Agencies simi-
lar to Consumers Union or the Better Business Bureau might be
0+" C.-%&"7"7 -%& D'!"."7 !-
chap7slander.qxd 2/21/2008 12:27 PM Page 49
organized to meet the public`s demand or accurate scurrilous
1he public would soon learn to digest and evaluate the state-
ments o libelers and slanderers-i the latter were allowed ree
rein. No longer would a libeler or slanderer have the automatic
power to ruin a person`s reputation.
0 #"$"%&'%( *+" ,%&"$"%&-!."
chap7slander.qxd 2/21/2008 12:27 PM Page 50
"#$ %$&'$( )* +,+%$-', *($$%)-
ore crocodile tears have been shed over the issue o
academic reedom than perhaps any other. Academics
are possibly more eloquent on this reedom than any
other topic receiving their attention. In the eyes o some, it seems
to be equated with the very basis o Western civilization' Hardly
a day passes without indignant statements rom the American
Civil Liberties Union over some real or imagined violation o
academic reedom. And all this seems pale in comparison with
the anger o the labor unions o proessional academics and
From the name itsel, academic reedom would seem to be
innocuous enough. Certainly academics,` like everyone else,
should have reedom-reedom o speech, reedom to travel,
reedom to take or leave a job-the usual reedoms that every-
one enjoys. But that is not what is meant by the phrase aca-
demic reedom.` Instead, it has a very special meaning-the
reedom to teach the subject matter in whatever orm the aca-
demic wishes to teach it, despite any wishes to the contrary his
employer may harbor. 1hereore, academic reedom` prohibits
the employer rom iring the teacher as long as he teaches the
subject matter, no matter how objectionable the teaching is.
chap8denier.qxd 2/21/2008 12:27 PM Page 51
! D:/:a/a //: Ua:/:a.//:
I/:.: aa:/.a Io/:o R.a u: .: ao/ ,a://oa/a
,oa ...:m/. /::om. B:': /a/ .a/oa. + . /.o .oa/
,oa //// a /a . ////: ./oa/ ,oa .oa: fo/a B.,a: I.//:
o/ N./o'.'
Now this is a very special and spectacular doctrine. Con-
sider what would happen i it were applied to almost any other
occupation-sanitation work or plumbing. Plumber`s ree-
dom` would consist o the right to install pipes and plumbing
chap8denier.qxd 2/21/2008 12:28 PM Page 52
equipment in a way the plumber thought best. What i a cus-
tomer wanted his plumbing done in a way which diered with
the plumber`s proessional judgment. Without the doctrine o
plumber`s reedom` the plumber would, o course, be ree to
reuse the job. But under the doctrine o plumber`s reedom,`
he would not have to turn it down. He would have the right to
take the job and do it // way. He would have the right to say that
his views should prevail, and the customer would not have the
right to dismiss him.
1axi driver`s reedom,` would guarantee to drivers the right
to go where //:, wanted to go, regardless o where the paying
customer wanted to be taken. Waiter`s reedom,` would give
the waiter the right to decide what ,oa will eat. Why should not
plumbers, waiters, and taxi drivers have a vocational reedom`
Why should it be reserved or academics
Basically, the dierence which is said to exist between these
vocations and the academics is that the academics :,a/: ree
inquiry, untrammeled rights o expression, and the right to pur-
sue thoughts wherever they may lead. 1his claim and this dis-
tinction is, o course, made by the academics. In addition to
being objectionably elitist, this argument also misses an impor-
tant point, one which is not concerned with the question, o
what is involved in intellectual activity. It is the impropriety o
vocational reedom` in upholding the employee`s right` to a
job on the basis o purely ormalistic requirements, :./: o/
//: u//: .a :/: o/ .a/om: .a :mo/o,:.
I there is an acceptance o the elitist argument which claims
that the intellectual` proessions must be granted a reedom
inappropriate to other proessions, what o others which qualiy
as intellectual` What about medical reedom` or doctors,
legal reedom` or lawyers, artistic reedom` or artists, etc.
Medical reedom` might give doctors the right to perorm oper-
ations, regardless o whether the patient approved. Would it pre-
vent patients rom iring doctors whose procedures they disap-
proved o Would artist reedom` give artists the right to charge
or art which is neither wanted nor appreciated Considering
the way academic reedom` operates, these questions must all
1/: D:a/: o/ +..:m/. I::om
chap8denier.qxd 2/21/2008 12:28 PM Page 53
be answered airmatively. One shudders at the possibility that
these reedoms be granted to chemists, lawyers, or politicians.
What is really at issue in the question o academic ree-
dom` is the right o individuals to reely contract with one
another. 1he doctrine o academic reedom is a denial o the
sanctity o contract. 1he odds are against the employer, and
reezes the situation in avor o the academic. It resembles noth-
ing so much as a medieval guild system, with its restrictions,
protectionism, and the ostering o a caste system.
1hus ar, it has been implicitly assumed that the schools and
universities are privately owned. 1he contention has been that
academic reedom amounts to a violation o the rights o these
property owners.
But virtually all o the institutions o learning in the United
States are controlled by the government, i.e., they are stolen
property. Academic reedom, thereore may be deended on the
ground that it is perhaps the only device by which control over
the educational system may be wrested away, at least in part,
rom the ruling class or power elite, which controls it.
ing that this claim is true, or the sake o argument, there is a
powerul deense o academic reedom.
In this view, it would not be the innocent student-consumer
who is being derauded by claims to academic reedom, or it is
not the innocent student-consumer who is presently being
orced to maintain in employment an academic whose services
he does not wish. It would be the aoa-/aao.:a/ ruling class
which is being so orced. I the ruling class theory is correct, aca-
demicians with views avorable to the ruling class have nothing
to gain rom academic reedom. 1hey will be retained in their
jobs in any case. It is the academic with views that are ao/
amenable to the ruling class, and he alone, who beneits. He
gains rom academic reedom because it prevents a//a ./.
! D:/:a/a //: Ua:/:a.//:
See G. William Domho, 1/: H//: c/./: (New York: Random
House, 1-70).
chap8denier.qxd 2/21/2008 12:28 PM Page 54
employers rom dismissing him on ideological or other nonor-
malistic grounds.
Academic reedom, as such, can be looked upon as a raud
and thet, because it denies individuals the right o ree and
voluntary contracts. But that a bad` means can also be used or
good ends should occasion no surprise.
1/: D:a/: o/ +..:m/. I::om
chap8denier.qxd 2/21/2008 12:28 PM Page 55
chap8denier.qxd 2/21/2008 12:28 PM Page 56
"#$ %&'$(")*$(
dvertising has long had a bad press.` 1he case against it
is detailed and seemingly compelling. It is claimed that
advertising entices people, orcing them to buy products
they would otherwise not buy. It preys on the ears and psycho-
logical weaknesses o people. It is misleading, with its justaposi-
tion o a beautiul woman and a commercial product, implying
that she is somehow part o the deal. It is oolish, what with its
contests, marching bands, and jingles. It is an insult to our intel-
1he argument is usually capped with an appeal to our sel-
ish natures-advertising is very costly. A minute o prime televi-
sion time or a ull-page adverstisement in a popular magazine or
newspaper can run into thousands o dollars. 1he advertising
industry as a whole is a multibillion dollar industry. I we banned
advertising, it is alleged, all o this money could be saved. 1he
money could then be used to improve the product, or lower its
price, or both. 1he advertising industry could be replaced with a
governmental board which would present objective descriptions
and ratings. Instead o sexy misleading jingles, we would have
product descriptions, perhaps summarized by a grade level o
Grade A,` Grade B,` etc. In any case, the advertisers, who are
chap9advertise.qxd 2/21/2008 12:28 PM Page 57
8 !"#"$%&$' )*" +$%"#"$%,-."
nonproductive and essentially parasitical, would be put out o
1here is much that is wrong with this view o advertising, but
it is not without its historical precedents. In act, it is only the
most recent in a long line o arguments purporting to show that
one or another industry is parasitical and unproductive. 1he
chap9advertise.qxd 2/21/2008 12:28 PM Page 58
physiocrats, a school o economic thought in mid-eighteenth
century France, thought all industries except arming, ishing,
and hunting were wasteul. 1hey reasoned that anything not
connected with the soil was sterile, and dependent and parasiti-
cal upon the soil-based industries. Other economists have dis-
tinguished between goods, which were considered productive,
and services, which were not. Still others have held that all
goods but only some services were productive. For example, it
has been denied that monetary services such as inancial inter-
mediation, brokerage, banking, and speculation have any value.
It is easy, nowadays, to see the limitations o these theories. A
good need not come directly rom the soil to be productive, nor
need a service be tangible,` such as medical care, to be produc-
tive. We know that brokers bring people together at lower costs
than they could manage on their own. We know that the non-
tangible product o the insurance industry provides or the pool-
ing and consequent lessening o risks. But even in these
sophisticated times the advertising industry enjoys a widespread
reputation as a parasite.
How strong is the case First, it seems clear that advertising
does not lure or orce people to buy what they would not other-
wise buy. Advertising attempts to persuade people-perhaps in
ways some members o the community ind objectionable. But
it does not and cannot /0"1/". (Fraudulent advertising is logically
equivalent to thet, and is not to be conused with advertising 2"1
3". I the seller advertises wheat but delivers rocks, he has actu-
ally stolen the money price o wheat.`)
Subliminal advertising, i it exists, would be considered coer-
cive. But it cannot be claimed that ordinary advertising is coer-
cive without completely obliterating the distinction between
coercion and persuasion.
Second, advertising does have an inormational content.
1his is conceded even by its most ervent detractors, although
they think that the government could do a better job. But gov-
ernmental action in the ield o advertising is no less advertising
just because it is government advertising. I anything, there are
more problems which are harder to deal with in government
4*" 5%6"1)&3"1 -
chap9advertise.qxd 2/21/2008 12:28 PM Page 59
issued` advertisements. Unencumbered by the usual necessity to
make proits by pleasing consumers, when the government gets
out o hand, there is very little that can be done. Governmental
advertising or United States War Bonds or the military drat are
but two examples that come to mind.
1hird, the importance o advertising in helping new com-
panies, and thus encouraging competition, should not be
underestimated. I advertising were prohibited, the large es-
tablished companies would have a powerul advantage in the
market. Even with things as they are, older irms are more likely
to monopolize a given industry than newer ones. Advertising,
by giving a comparative advantage to newcomers, lessens the
degree o concentration in the economy.
Finally, much i not all o the advertising that violates com-
munity standards o intelligence and decency can be traced to
and blamed on governmental edicts in other areas. For example,
the government
does not allow airlines to compete with one
another in trivial areas. 1heir advertising campaigns bombard
us with news` about early bird specials, new decor, the number
o seats in an aisle, airplanes named ater stewardesses, etc. (I`m
Marybeth. Fly me to Miami`). I airlines were ree to compete
with respect to price, the passengers might be spared this con-
stant reiteration about nonessential aectations.
1he same is true or banks. Banks are limited in the amount
o interest they can pay to depositors (zero percent to demand
depositors, percent-7 percent to time depositors, as o this
date). 1hey compete, thereore, with each other as to which can
give the best kitchen utensils, radios, etc., as lures or new depos-
itors. (Note that since they can charge as much as the market
will bear or loans, they spend ar less advertising money to try
to convince anyone to -01107 money rom them.) 1he true
60 !"#"$%&$' )*" +$%"#"$%,-."
For the view that it was not the government that initiated controls o this
type in an eort to regulate business in the public interest, but rather
business in an eort to control the competition o newcomers, see
Gabriel Kolko, 41&892* 0# :0$3"16,)&39 (New York: Quadrangle, 1-67).
chap9advertise.qxd 2/21/2008 12:28 PM Page 60
blame or advertisements o this kind belongs not to the adver-
tising industry, but to the government.
1hese our arguments, when taken together, constitute a
valid deense against the critics o advertising. Yet they do not
strike at the heart o the matter. For they ignore the main allacy
o the critics-the assumption that deep down, there is a distinc-
tion to be made between motivational advertising and inorma-
tional advertising, that motivational advertising is bad` in vari-
ous ways while inormational advertising is good.` 1he truth
is, however, that exposing people to inormation and motivating
them are so inextricably bound up together that it makes little
sense to even distinguish between them.
For a better perspective, consider several examples where it is
not )*"; who are trying to impart inormation and motivation to
83, but 7" who are trying to impart inormation and motivation
to )*"9. Most o 83, or instance, have had the experience o being
interviewed or a new position. How do we prepare We com-
mence by writing an advertising brochure about ourselves. (1his
document is sometimes called a resume` by those anxious to
obuscate and to hide the act that each o us is, at almost all
times, an advertiser.) In this advertising brochure we put the
acts o our employment lie as they pertain to the prospective
job. And in splendid advertising tradition, we try to make these
acts appear as lattering as possible. We hire a proessional typ-
ist to help entice` an employer into hiring us, and we have the
brochure printed on ine paper in order to create an impres-
sion,` as a good advertiser should.
Strictly speaking, we are only providing inormation on the
brochure. It is merely` inormational advertising on the ace o
it, but the attempt to present the inormation in a avorable light
involves us, willy nilly, in motivational advertising.
During the interview, we continue to advertise. We pack-
age` ourselves as best we can. Even though we might not do so
every day, at the job interview we will give special attention to
grooming eects.
Even when not engaged in job-hunting, we advertise, by
constantly trying to portray ourselves in a good light. Even
unconsciously we try to package ourselves well. From the very
cradle parents are busy advertising us or laying the groundwork
4*" 5%6"1)&3"1 61
chap9advertise.qxd 2/21/2008 12:28 PM Page 61
or uture advertising. How else can we explain those ballet,
violin and piano lessons and visits to the orthodontist or skin
1he }ewish mother,` with her constant exhortations about
good posture and good eating habits (Eat, eat, children are
starving in Europe and you`re not eating`), is the great unsung
heroine o the advertising business. And the }ewish mother`s
bragging about her children }ust more advertising.
As we grow up we carry on the ine traditions o advertising.
We wear clothing that latters our igures. We diet, or try to. At
least part o our expenditures on education, psychiatry, hair
grooming, and clothing can only be understood as advertising
expenditures. Later on we purchase cars, houses, recreation, in
large part as advertisements or ourselves. Incidentally, the
greater expenditures (as a percentage o income) on luxury`
items such as clothing and cars, made by groups who are dis-
criminated against, such as women and blacks, can be explained
by advertising.
1hey eel they must engage in greater advertis-
ing expenses in order to counteract the discrimination. 1he rest
need not invest so heavily in advertising because 7" are &$.
Even members o the radical let, who are among the bitter-
est critics o advertising, engage in advertising themselves. (1his
should not be surprising, since we are deining advertising in its
proper but broad sense o creative and interesting packaging.)
Usually whenever the radical let has access to a bulletin board,
the messages placed on it are at irst uniormly small, neat, and
similarly printed. Ater a while, in order to attract attention,
some o the messages are printed in dierent colors, and on di-
erent-size placards. Eventually, in the competition to attract
attention, larger and larger placards are used, with bolder print-
ing, coloring, and illustrations. In their attempt to spread inor-
mation, they are led as i by an invisible hand` to engage in
motivational advertising. 1he reason radicals write messages
6! !"#"$%&$' )*" +$%"#"$%,-."
1his point has been made by Proessor Benjamin Klein o the de-
partment o economics, University o Caliornia, Los Angeles.
chap9advertise.qxd 2/21/2008 12:28 PM Page 62
such as, OFF 1HE PIG` or FUCK 1HE S1A1E` on walls
or buildings in big red letters, is not entirely out o a desire to
shock. It is also out o a desire to impart the revolutionary mes-
sage, by irst attracting attention to it. I it is not read, however
inormational it may be, it will impart no inormation. But as
much can be said or the typical soap opera advertisement.
Anyone who has ever been called upon to give a speech
where there was a distinct possibility o putting the audience to
sleep will understand the diiculty o distinguishing between
imparting inormation and packaging a speech. Surely, no more
boring a speech can be imagined than a lecture on economics.
1he public speaker or teacher will engage in certain practices,
such as maintaining eye contact, telling jokes, or posing rhetor-
ical questions. 1hese are sometimes known as public speaking
techniques. A more appropriate term would be advertising
techniques`-packaging the product well, making it appear
interesting, highlighting the talk, bringing points into ocus, and
capturing the attention o the audience. 1hese advertising tech-
niques have about as much to do with the subject o the talk as
bicycling has to do with Coca-Cola, as deep throaty, sexy emale
voices have to do with shaving cream, or as the sporting events
o the more than one beer men` have to do with beer. 1hat is
not the point. 1he point is that i one hopes to get inormation
across-even to people who are well-motivated, such as the stu-
dent in the economics class who has to stay awake to receive a
good grade-one must engage in advertising techniques. I this
is important when dealing with people who are well-motivated,
imagine how much more important it is to advertise` inorma-
tion when your audience` is not well-motivated. 1elevision
advertising should be interpreted at least as avorably, i not
more so, than the advertising engaged in by public speakers.
1hey are both attempts to impart inormation by making that
inormation interesting and attractive. But the television ad aces
the additional burden o keeping the viewer away rom his
rerigerator. I all content which was not strictly inormational
was banned, we would have to prevent speakers and teachers
rom even ,))"92)&$' to be interesting. 1hey would not be
4*" 5%6"1)&3"1 6
chap9advertise.qxd 2/21/2008 12:28 PM Page 63
allowed to tell jokes, maintain eye contact, or discuss questions
with the audience. 1hese techniques are above and beyond the
strict imparting o inormation. Like television advertising gim-
micks, they are attempts to waylay the audience.`
Is it 2033&-." to ban motivational advertising while allowing
inormational advertising No. Inormation can be presented
well or badly (i.e., in such a way as to bore and alienate the audi-
ence, or charm and amuse it), but it must be packaged` or pre-
sented` in 309" way. For example, imagine that a magic carpet
was invented, and it was decided that inormation about it was
to be given out (the lying speed, cruising range, upkeep costs,
how to roll it up and store it while not in use, etc.), but the pres-
entation was to be purely inormational. Anything which even
hinted at promotion` o the carpet would be banned. Given
this condition, a regular television announcer, with his good
looks, orceulness and sel-conidence, could not present the
inormation. His personality might promote the carpet. Nor
could there be music in the background. It might seem inspira-
tional.` 1he carpet certainly could not be shown in action,`
that is, with an attractive woman on it. We could not risk ooling
people into believing that i they bought the carpet they would
get a copy o the inspirational music or o the inspirational
I we could not use a proessional announcer, could we use
a nonproessional one, or just an ordinary man o the street We
could not. Some advertising companies with their low cunning
are already using testimonials rom the man-in-the-street` with
great success, proving that this procedure has a 90)&6,)&0$,.
I the inormation cannot be read, can it be printed But
what kind o typeace should be used Certainly not a style that
would induce someone to-horrors'--8; the lying carpet. It
would have to be an almost indecipherable typeace so that peo-
ple could hardly read it. Otherwise, at a low enough price, many
people would be led down the garden path into making a pur-
chase. 1he whole message would have to be presented in a pur-
posely inerior manner so as not to attract any attention to itsel.
6! !"#"$%&$' )*" +$%"#"$%,-."
chap9advertise.qxd 2/21/2008 12:28 PM Page 64
Clearly, there is no way to separate the package` rom what
it contains. 1here is no way to present pure` inormation. 1o
believe that the presentation o inormation without motivation
is oolishness o the highest degree.
1he objection that advertising adds to the cost o the prod-
uct is an objection that has not been clearly thought out. Would
the critics object because wrapping a product adds to the cost
Or transporting it 1hey would not. It is understood that these
additional costs are necessarily incurred i the product is to be
made available to the consumer. But the same is true o adver-
tising' Suppose the magic carpet previously mentioned costs
;-0 to manuacture, ;10 to wrap it, and ;!0 or transportation.
I customers want to take advantage o the wrapping and deliv-
ery services, they must pay the ull ;1,000. But they have the
choice o picking up a wrapped carpet at ;-60, an unwrapped
one or ;-0, or an unwrapped one delivered to their homes or
So is it with advertising costs. I it costs ;100 to advertise the
carpet, the customers have a choice between the advertised
brand or ;1,100 and an unadvertised brand (which presumably,
they could ind i they searched long enough) or ;1,000. I a
substantial number o consumers were willing to ind unadver-
tised brands or outlets, manuacturers would be oolish to adver-
tise. However, some consumers may not be so enterprising or
energetic in shopping or unadvertised brands at cheaper prices.
1his would give the manuacturer the incentive to advertise, and
the costs o the advertisements would be added to the purchase
price. It is true, thereore, that advertising would add to the cost
o the product. But then it is true that advertising is necessary in
order to bring the product to the people. I some reused to buy
unwrapped, undelivered magic carpets, but 708.% buy wrapped,
delivered ones, could it be said that wrapping costs and delivery
costs were added to the total costs 8$$"/"33,1&.; Decidedly not.
In the same manner, advertising does not add unnecessarily to
the costs o the product.
What o a governmental ratings board or advertising
Beore giving the government still another task, because o
4*" 5%6"1)&3"1 6
chap9advertise.qxd 2/21/2008 12:28 PM Page 65
alleged imperections` in the market, consider the dismal
record o the government to date. 1he grat and corruption
unearthed by Ralph Nader and his associates should give pause
or thought. Regulation agency ater regulation agency, rom
ICC and CAB to F1C, FPC, and others, have been shown to be
regulating industry not or the beneit o the consumer, but or
the beneit o the industry as against the consumer. And this is
not just an accident. 1here is a reason or it.
Each o us is a purchaser o literally thousands o items, but
producers o only one. Our ability to inluence regulatory legis-
lation passed by the state is, thereore, much more concentrated
as producers than as consumers. Government agencies, accord-
ingly, tend to regulate in avor o the producing industry rather
than the mass o consumers. In act, government regulatory
agencies tend to be set up by the very industries they are to reg-
ulate. Milton Friedman, in the chapter entitled Occupational
Licensure` in :,2&),.&39 ,$% <1""%09,

brilliantly demonstrates
the dismal record o governmental rating agencies in the med-
ical ield. 1here is no reason to assume that a rating agency in
advertising would be any dierent. Rather, it would not be sur-
prising i the calls or governmentally regulated objective,`
inormational` advertising were begun by the larger, estab-
lished, advertising irms as a way o slowing down the rising
competition rom smaller irms and newcomers.
But the strongest argument against governmental regulation
o advertising is not the empirical one showing its dismal record
to date, strong though that may be. 1he strongest argument is
the logical one. 1he reasoning employed by those who want
governmental regulation contains a sel-contradiction. On the
one hand they assert that the American people are unalterably
gullible. 1hey must be protected because, let to their own
devices, they become victims. 1hey can be made to think, or
66 !"#"$%&$' )*" +$%"#"$%,-."

Milton Friedman, :,2&),.&39 ,$% <1""%09 (Chicago: University o

Chicago Press, 1-6!).
chap9advertise.qxd 2/21/2008 12:28 PM Page 66
example, that i they use a certain brand o atershave lotion,
they will end up with the girl in the ad. On the other hand, the
argument assumes that the boobs are smart enough to pick
political leaders capable o regulating these sirens. 1his is
In any case, i the public is suiciently enamored o objec-
tive` inormation on consumer products, it can avail itsel o the
services o irms and organizations such as :0$389"1 ="201)3,
>00% ?083"@""2&$', the Better Business Bureau, commercial
testing laboratories, and other private-enterprise certiication
agencies. 1he ree market is lexible. It can provide this kind o
service too. (But the inability to separate motivational and inor-
mational advertising still holds. When :0$389"1 ="201)3 states
that Zilch Flakes are the best lakes to buy, it is necessarily moti-
vating people to buy Zilch` over and above other lakes. It can-
not provide inormation without providing ,$; motivation to do
Advertising can be deended only when it occurs on the ree
market. In the case o government or government-aided big
business advertising, none o the ree-market deenses hold.
Here, people are orced to pay or the advertising whether they
choose to buy the product or not. When the government adver-
tises, it is with tax money collected on an involuntary basis. 1he
advertising in which the government engages is highly motiva-
tional (Uncle Sam Wants You`) and not inrequently raudu-
lent. It is strange that government advertising has been so com-
pletely ignored, even by the most vocierous critics o
advertising. Imagine what would ensue i a private businessman
were to engage in raudulent advertising on even 1 percent o the
scale committed by Franklin Roosevelt, Lyndon }ohnson, or
Richard Nixon, who campaigned on advertised peace planks,
and yet involved the country in oreign wars. How can we
entrust punishment o raudulent advertising to the worst raud-
ulent advertisers o all time-the government
Finally, advertising must be deended by those who believe
in reedom o speech-or that is all advertising is. It is all too
easy to deend the right to speak o those whose speech we avor
4*" 5%6"1)&3"1 67
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in any case. But i the rights o ree speech are to mean any-
thing at all, those who are not in public avor must be
deended. Libertarians anxiously await a deense by the Ameri-
can Civil Liberties Union o the ree speech rights o advertisers.
1his organization was ominously quiet during the banning o
cigarette commercials rom television.
68 !"#"$%&$' )*" +$%"#"$%,-."
chap9advertise.qxd 2/21/2008 12:28 PM Page 68
#$% &%'()* +$) ,%--( ./0'%12
0* 3 4')+5%5 #$%3#%'
n a case against ree speech, the ire'` screamer is Exhibit A.
Even those who argue in deense o civil liberties and the
right o ree speech stipulate that these rights do not include
the right to yell ire'` in a crowded theater. 1his is the one case
where all parties seem to agree that the right to ree speech is not
as important as other rights.
But to override the right o ree speech, or any reason, is a
dangerous precedent, and never necessary. Certainly it is not
necessary in the case o the person who yells ire'` 1he rights
o theater patrons can be protected without legally prohibiting
ree speech. For example, theater owners could contract with
their customers not to yell ire'` (unless, o course, there is a ire
in the theater). 1he contract might take the orm o an agree-
ment, in small print, on the back o a theater ticket or a large
message on wall posters placed throughout the theater, prohibit-
ing any disturbance o the entertainment or singling out the
shouting o the word, ire'` But however the prohibition
appeared, the contract would eectively put an end to the sup-
posed conlict between the right o ree speech and other rights.
For the person who yelled ire'` would then simply be violating
chap10fire.qxd 2/21/2008 12:28 PM Page 69
70 !"#"$%&$' )*" +$%"#"$%,-."
!"#$ &'(($ )*+,- .*+ #/0012 3* 42*) 3#1 50/2'(# )*6-
7*6 89'61:;<
a contract and could be dealt with accordingly. 1he situation
would be entirely analogous to that o someone under contract
to sing at a concert, but who reuses to sing, and instead lectures
on economics. What is involved in both cases is not the right o
ree speech, but the obligation to honor a contract. Why look at
chap10fire.qxd 2/21/2008 12:28 PM Page 70
the prohibition in this way 1here are several important rea-
First, the market would be much more eective in removing
threats to the public health and saety-such as the one posed by
the ire'` screamer-than an all-encompassing governmental
prohibition. A market contract system would work more ei-
ciently because theater entrepreneurs would be in competition
with each other with regard to the eiciency with which they
prevented outbursts disruptive to the audience. 1hus, they
would have a great incentive to diminish the number and sever-
ity o such outburts. 1he government, on the other hand, oers
no incentive. No one ,/)01,)&2,..3 loses money when the gov-
ernment ails to maintain order in a theater.
A second reason we can expect greater success rom the mar-
ket than rom the government is that the market is, by its very
nature, more lexible. 1he government can only make one all-
embracing rule, with at best, one or two exceptions. 1he market
does not have such restrictions. 1he lexibility and complexity o
the market are limited only by the inventiveness o the actors in
1hird, the government system o protection against yelling
ire'`-outright prohibition-violates the rights o perhaps one
o the most oppressed minorities: the sadists and the masochists.
What o the rights o the sadists who enjoy yelling ire'` in a
crowded theater, and then watching the crowd tear itsel to
pieces in the resultant mad rush or the exits What o the
masochists who relish the thought o having ire'` yelled at
them while in the conines o a crowded theater with the same
mad but exhilarating` crush at the door Under the govern-
ment system o outright prohibition, these people are denied
what may be their most ervent wish-their chance to go out in
a blaze o glory. In the lexible market system, however, where
there is a demand or a service, a supply will soon arise. Where
there is an unulilled demand or sado-masochists screaming
ire'` and then watching the rantic crushes, entrepreneurs will
rise to the occasion and provide the requisite service.
4*" 5"670$ 8*0 9"..7 :;&6"<= &$ , >60?%"% 4*",)"6 71
chap10fire.qxd 2/21/2008 12:28 PM Page 71
Such musings will undoubtedly strike the straights` on the
sado-masochistic question as just so much idle talk. But that is
only to be expected. No ruling class ever viewed the plight o
their downtrodden with anything but contempt and scorn.
Nonaggressing adult sado-masochists have just as much right to
their mutually agreeable practices as anyone else. 1o dismiss the
rights o sado-masochists as not being worthy o consideration
provides evidence o the ascistic habits o thought to which
most straights` have succumbed. Sado-masochists should be
ree to indulge in their nonaggressive practices. 1he public, ater
all, need not attend any theater which clearly advertises that
unplanned disruptions` will be permitted. Sado-masochists,
or their part, would still have to curb their enthusiasm when
patronizing straight` theaters.
Finally, unless the prohibition against yelling ire'` in a
crowded theater stems rom a private contract, the right o ree
speech will be in conlict with what is held in very high
esteem-namely the rights o people not to have their show
interrupted and themselves crushed at the exits.
Freedom o speech is at best a weak reed. It is always in dan-
ger o being suppressed. Our hold on it is sometimes very tenu-
ous indeed. 1hereore, anything which tends to weaken it even
urther must be opposed. 1here is hardly a scare tactic better
designed to destroy reedom o speech than the creation o a
alse conlict between the right to speak reely and other rights
held in vastly higher esteem. Yet this is precisely what the usual
interpretation o yelling ire'` accomplishes. I exceptions` to
the right o ree speech are granted, our tenuous hold on the
right o ree speech is weakened. 1here are $0 legitimate excep-
tions to the right o ree speech. 1here are $0 cases in which the
right o ree speech is in conlict with any other right we hold
1hereore, the person who yells ire'` in a crowded theater
can be considered a hero. He orces a consideration o what is
involved and what needs to be done to protect a precious right
that is endangered.
7! !"#"$%&$' )*" +$%"#"$%,-."
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!"# %&'()*
chap11gypsycab.qxd 2/21/2008 12:28 PM Page 73
chap11gypsycab.qxd 2/21/2008 12:28 PM Page 74
',- ./01/ 2)3 45!"-5
he taxi business in the United States usually works to the
detriment o the poor and minority groups in two
ways-as consumers and as producers. As consumers,
their plight is well demonstrated by ethnic taxicab jokes,` and
by the subteruge and embarrassment blacks undergo in order to
get a cab, which they are requently unable to do. 1he reasons
are not diicult to athom. 1axi rates are set by law and are
invariant, regardless o the destination o the trip. However,
some destinations are more dangerous than others, and drivers
are reluctant to service these areas which are usually the home
neighborhoods o the poor and the minorities. So when given a
choice, cab drivers are likely to select customers on the basis o
their economic status or skin color.
It is important to realize that given the dierential crime
rates, it is !"#$#% government control o taxi rates that engenders
this situation. In the absence o such controls, rates to unsae
areas could be set so as to compensate cab drivers or the greater
risks involved. I this were done, blacks would have to pay more
than whites or a cab, i not in the orm o higher payments on
the meter, perhaps in the orm o older or lower quality cabs. But
at least they would be able to secure the services o a taxi i they
chap11gypsycab.qxd 2/21/2008 12:28 PM Page 75
so desired. Under the present system, they do not even have the
1he inability to obtain a cab is not a small inconvenience to
the poor black consumer, although many o the white middle
class might think otherwise. Public transportation (bus, trolley,
and train) plans and routes were designed and constructed 0
76 &$'$()*(+ -.$ /()$'$()01#$
23$4"5 67 89:;<= >9:? @$50! A(!-4<B$(- CD;<= D? E<(
F*# =4$'$44$) 8>;)"G( 0 H<04-$4? I$G J"4K L*-% @05*
M$)0##*"(! NCO?PCP;<= NDQ6RPPRS
chap11gypsycab.qxd 2/21/2008 12:28 PM Page 76
to 7 years ago. In those years transportation lines were usually
owned by =4*T0-$ concerns who were dependent on their cus-
tomers or their proits and success. 1hey were designed speci-
ically to meet customer needs. In many cases, these transport
lines are unsuitable or the needs o the present-day community.
(1ransit lines today are publicly owned and, thereore, lack the
incentive to tailor them to the needs o the customer. I cus-
tomers reuse to patronize a transit corridor, and that corridor
becomes unproitable, the public authority simply makes up the
dierence out o general tax revenues.) Consequently, city
dwellers must choose between a ast ride home by taxi, and a
long, indirect, and halting ride via public transit. 1his is espe-
cially true or the poor and minority groups who lack the politi-
cal power to inluence public transit authorities or decisions
concerning the construction o new lines.
Restricted access to cabs in areas where public transportation
is inadequate is oten more than inconvenient. When health is
involved, or example, the cab is an excellent and cheap substi-
tute or an ambulance. But in poor neighborhoods which are
inadequately served by public transportation, and whose resi-
dents cannot aord private cars, it is usually diicult to ind a
Under the present system, the poor also suer as producers.
In New York City, or example, the government requires all cabs
to be licensed. 1he licenses-medallions-are strictly limited in
number-so much so, that they have been sold or as much as
;0,000. 1he price varies, depending on whether the medallion
is or an individual cab or part o a leet. 1his eectively bars the
poor rom entering the ield as owners. What would have hap-
pened to the Horatio Alger hero i he had needed ;0,000 1$'"4$
he could enter the shoe-shine or newspaper delivery business
Some years ago, in response to the limitations placed upon
them both as consumers and as producers, the poor and minor-
ity group members began to enter the taxi industry in a time
honored American tradition dating back to the Revolutionary
War o 1776-disobedience o the law. 1hey simply had their
used cars outitted with meters, special lights and signs, and
@.$ U%=!% L01 &4*T$4 77
chap11gypsycab.qxd 2/21/2008 12:28 PM Page 77
declared them to be cabs. In these gypsy` cabs, they cruised the
streets o the ghetto areas which were shunned by medallioned
taxi drivers, and began to earn an honest, albeit illegal living.
1heir initial success in avoiding punishment under the existing
laws was probably due to two actors: police ear o unrest` in
the ghetto i these cabs were harassed, and the act that the gyp-
sies worked only within the ghetto, and, thereore, did not take
business rom the medallioned cabs.
1hese idyllic times, however, were not to last. Gypsy cab
drivers, perhaps emboldened by their success in the ghetto,
began to venture outside. I the medallioned taxi drivers had
looked upon the gypsies with suspicion beore, they now exhib-
ited outright hostility toward them. And with good reason. At
this time, the taxi lobby in New York succeeded in pressuring the
City Council to enact a bill allowing an increase in taxi ares.
Patronage dropped precipitously and the immediate eect was a
sharp decrease in the income o medallioned taxi drivers. It
became obvious that many o their ormer riders were using
gypsy cabs. At this juncture irate medallioned taxi drivers began
to attack and burn gypsy cabs, and they retaliated in kind. Ater
a ew violent weeks, a compromise was reached. Yellow, the tra-
ditional color o taxicabs, was to be reserved or medallioned
cabs. 1he gypsies would have to use another color. A tentative
plan or licensing gypsy cabs was also discussed.
What o the uture o the taxi industry in New York City I
the dominant liberal consensus` politics holds sway, as it usu-
ally does in questions o this kind, some compromise with the
gypsies will be reached and they will be brought under the rule
o the taxi commission. Perhaps they will be granted a restricted
license, out o deerence to the yellow cabs. I so, the system will
remain the same as it is at present -a situation which resembles
a gang o robbers allowing a ew new members to join. But the
robbery will not be halted, nor the victims substantially helped.
Suppose, according to one plan, ,000 new licenses are created.
1his may help in a minor way in that there will be extra cabs
potentially available or blacks. 1hus, although blacks will still
be second-class citizens, they may have a slightly easier time
78 &$'$()*(+ -.$ /()$'$()01#$
chap11gypsycab.qxd 2/21/2008 12:28 PM Page 78
inding a cab. But, paradoxically, this concession to the greater
need or cabs will stile uture demands or improvements. It
will enable the taxi commission to pose as the liberal and boun-
tiul grantor o taxi medallions based on its act o generosity` in
licensing gypsy cabs (even though it has not granted a single
extra medallion since 1--).
As producers and entrepreneurs, the position o the poor
may improve somewhat, or an additional ,000 licenses may
result in a decreased purchase price o a medallion. However,
there is a possibility that the purchase price will rise ater the
extra ,000 licenses are granted. For the great uncertainty
presently keeping down the value o a medallion may well end.
I it does, the value o medallions will remain high, and the posi-
tion o the poor will not have improved at all.
No' A proper solution to the taxicab crisis is not to co-opt the
movement o gypsy cab drivers by the oer to take them into the
system, but rather to destroy the system o restrictive cab
In terms o the everyday workings o the market, it would
mean that 0(% qualiied driver with a valid chaueur`s license
could use 0(% vehicle which has passed the certiication exam-
ination to pick up and deliver ares to 0(% street o their mutual
choosing, or 0(% mutually agreeable price. 1he market or
taxicabs in New York City would thus work in much the same
way that rickshaws work in Hong Kong. Or, to take a less
exotic example, the taxicab market would work in much the
way that the babysitter market operates-completely depend-
ent upon mutual agreement and consent between the contract-
ing parties.
1he taxi problems encountered by the poor and minority
group members would be quickly resolved. Residents in high
crime areas could then oer the cab drivers a premium. 1hough
it is deplorable that they will be orced to pay this premium, they
would no longer be second-class citizens insoar as obtaining a
cab was concerned. 1he only real and lasting solution to this
problem, however, is a reduction in the high crime rate in ghetto
@.$ U%=!% L01 &4*T$4 7-
chap11gypsycab.qxd 2/21/2008 12:28 PM Page 79
areas, which would be responsible or the extra charges. For the
present, however, the people living in these areas must not be
prohibited rom taking the necessary steps to obtain adequate
cab service.
Poor people would beneit as producers, as they set up their
own businesses. 1hey would, o course, have to assume owner-
ship o a car, but the artiicial and insurmountable ;0,000 bar-
rier would be removed.
1here are, however, objections that will be raised to a ree
market in taxicabs:
(1) A ree market would lead to chaos and anarchy i medal-
lions were eliminated. 1axis would lood the city and weaken
the capacity o any cab driver to earn a living. So drivers would
leave the industry in droves, and there would be ar ewer taxis
available than needed. Without medallions to regulate the num-
ber o taxis, the public would be caught between two unsatisac-
tory alternatives.`
1he answer is that even i there were an initial rush into the
industry, and the market was glutted, only !"B$ drivers would
leave the ield. 1he number o cabs, thereore, would not swing
erratically rom an horrendous oversupply, to none at all, and
back again. Moreover, the drivers who would tend to leave the
industry would be the ineicient ones whose earnings were low
or those with better alternatives in other industries. By leaving
they would allow the earnings o those who remained to rise,
and thus stabilize the ield. One does not, ater all, gain any
insurance against the possibility o too many or too ew lawyers,
doctors, or shoe-shine boys by ixing an arbitrary upper limit to
the number o people who can enter these occupations. We
depend upon the orces o supply and demand. When there are
too many workers in a ield, the relative salaries decrease, and
some will be encouraged to enter other occupations, i too ew,
wages and new occupants increase.
(!) 1he argument that licensing protects the riding public is
one o the most disingenuous arguments or taxi medallions. It
is the same one used by psychiatrists, who strive to protect` us
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rom encounter groups and others who make inroads in their
incomes, by lily white unionists who protect` the public by
keeping qualiied blacks out, and by doctors who protect` us
by reusing to grant medical licenses to qualiied oreign doc-
tors. Few people are ooled by these arguments today. Surely the
special chaueur`s license test and car inspections can insure the
quality o drivers and cars.
() 1he medallion would have no value i there were an
unlimited amount o taxis. 1his would be unair to all those
who have invested thousands o dollars in the purchase o their
Some light can be shed on this argument by considering a
short able:
A warlord granted permission to a group o highwaymen to
rob all passersby. For this right, the warlord charged the highway-
men a ee o ;!,00. And then the people overthrew the system.
Who should bear the cost o what turned out to be an
unproitable investment on the part o the highwaymen I the
choice was limited to the warlord and the robbers, we might say,
A plague on both your houses.` I we had to choose between
them, we might root or the highwaymen, on the grounds that
they were less o a threat than the warlord, and perhaps had
made the original payment out o monies honestly earned. But
in no case would we countenance a plan whereby the long su-
ering highway travelers were orced to pay o the highwaymen
or having lost the privilege o robbing them'
In the same way, the argument should not be accepted that
the long suering taxi riding =<1#*V should compensate owners
or valueless medallions already purchased. I it ever came to a
showdown between medallion owners and medallion grantors
(politicians), the public should perhaps avor the owners, on the
grounds that they pose less o a danger to them and perhaps had
originally paid or their medallions with money honestly earned.
It is the politicians` =$4!"(0# unds, or the unds o their estates
which should be used to pay o the medallion owners. A war-
lord is a warlord. Payment out o public unds would only
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chap11gypsycab.qxd 2/21/2008 12:28 PM Page 81
amount to urther penalizing the public. I the money is not
orthcoming rom the politicians` personal unds, the medallion
owners must suer the loss. When a permit which permits the
robbery o the public is purchased, the purchaser must accept
the risks attendant to his investment.
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#$% #&'(%# )'*+,%-
ebster`s dictionary deines scalper` as one who buys
and sells in order to make quick proits,` and scalp-
ing` as cheating, deeating, and robbing.` 1he latter
deinition is the one used by the public in its hostility toward
ticket scalpers.`
1he reason or this condemnation is easy to discern. Imag-
ine a theatergoer or sports an on the eve o the big event, arriv-
ing and inding, much to his consternation, that he must pay
;0 or a ;10 seat. He thinks that these outrageous prices are
charged by scalpers,` who purchase tickets at normal prices and
then deliberately withhold them until people are so desperate
that they were willing to pay any asking price. An economic
analysis, however, will show that the condemnation o the ticket
scalper is unjust.
Why does scalping exist A !"#$ &'( #)# o scalping, a neces-
sary condition or its existence, is a ixed, invariable supply o
tickets. I the supply could increase with increased demand, the
scalper would be totally displaced. Why would anyone patron-
ize a scalper when he could purchase additional tickets rom the
theater at the printed list price
chap12ticket.qxd 2/21/2008 12:28 PM Page 83
A second necessary condition is the appearance on the ticket
o a list price. I a stipulated price did not appear on the ticket,
scalping, by deinition, could not occur. Consider shares o stock
bought and sold on the New York Stock Exchange on which
there is no printed price. No matter how many are bought, how
long they are held, or how high the price at which they are
resold-they cannot be scalped.`
Why do theaters and ballparks print ticket prices Why not
allow them to be sold at whatever price the market will bring,
the way wheat is sold in the Chicago utures market or shares o
stock in the stock market I they were, scalping would be elim-
inated. Perhaps the public looks upon printed prices on tickets
as a great convenience, perhaps it helps people to budget, plan
vacations, etc. Whatever the reason, the public must preer
prices to be stipulated. I it did not, managers and producers
would ind it in their interest not to do so. 1hus the second nec-
essary condition or scalping exists by popular demand.
1he third condition which must be present is that the ticket
price chosen by management be lower than the market clearing
price` (the price at which the number o tickets people are will-
ing to buy is just equal to the number o seats available).
Stipulated prices *)+$, than the market clearing price are
open invitations to ticket scalping. For at the lower price there
are more customers willing to buy tickets than there are tickets
available. 1his imbalance sets in motion orces which tend to
correct it. Would-be purchasers begin to try harder to obtain
tickets. Some o them become willing to pay more than the price
printed on the ticket. Prices rise, and the original imbalance is
corrected as these higher prices cause a drop in demand.
Why do theater or ballpark managers set their ticket prices
below the market clearing price For one thing, lower prices
invite a large audience. Long lines o people waiting to enter a
theater or ballpark constitutes ree publicity. In other words,
management orgoes higher prices in order to save money it
might have had to spend on advertising. In addition, managers
are loath to raise ticket prices-even though they would have lit-
tle diiculty selling them or a big event or special movie-or
8! -$.$#/"#0 12$ 3#/$.$#/(4*$
chap12ticket.qxd 2/21/2008 12:28 PM Page 84
ear o a backlash. Many people eel that there is a air` price or
a movie ticket, and managers are responsive to this eeling.
1hus, even though they might be able to charge higher than
usual prices or a movie like 1he Godather,` they choose not
to. 1hey know many people will reuse to patronize the theater
at a later time, eeling that the management took advantage` o
the public during the showing o this very popular movie. 1here
52$ 5"67$1 86(*9$, 8
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chap12ticket.qxd 2/21/2008 12:28 PM Page 85
are several other motivations, less compelling, or keeping prices
ixed at below equilibrium levels. 1aken together they ensure
that this pricing policy-the third condition necessary or scalp-
ing-will continue.
In taking a closer look at the positive unction ulilled by the
ticket scalper, it has been shown that when tickets are priced
below the equilibrium level, there are more customers than tick-
ets. 1he problem becomes one o rationing the ew tickets
among the many claimants. It is in the solution to this problem
that the ticket scalper plays his role.
Suppose that during the baseball season the price o an aver-
age ticket is ;.00 and the ballpark is illed to its capacity o
!0,000 or every game. However, or the big game` at the end
o the season, 0,000 people want tickets. How will the !0,000
tickets be distributed or rationed among the 0,000 people will-
ing to buy them Which 10,000 o the 0,000 hopeuls will have
to orgo the game
1he two basic ways o rationing goods that are in short sup-
ply have been deined by economists as price rationing` and
nonprice rationing.` In price rationing, prices are allowed to
rise. 1his, in our opinion is the only air way to ration a com-
modity when demand exceeds supply. In the example above, the
average price o a ticket may rise to ;-.00 i that is the price at
which there will be only !0,000 people ready and willing to buy
the !0,000 tickets. 1he speciic 9,)6$/',$ through which this
increase o ;!.00 in the average price o a ticket takes place
varies. 1icket speculators or scalpers` might be permitted to
buy all the tickets and resell them at ;-.00 per ticket. Or, they
might be permitted to buy !,000 tickets, the other 18,000 being
sold or the printed ticket price o ;.00. 1hey might sell the
!,000 tickets or ;!.00 each, and this would also result in an
average price o ;-.00 per ticket. 1hough the ticket scalpers
would be blamed or the outrageously high` prices, the price
would really be the result o simple arithmetic. For i an average
price o ;-.00 is necessary to reduce the demand or tickets to the
available !0,000, and i 18,000 o them are sold at ;.00 each,
then the remaining !,000 ?'!1 be sold at ;!.00.
86 -$.$#/"#0 12$ 3#/$.$#/(4*$
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In nonprice rationing, prices are not allowed to rise in order
to decrease the demand to the level o the available supply.
Instead, other techniques are employed to attain the same end.
1he management may distribute the tickets on a irst-come,
irst-served basis. It may employ other types o avoritism in
order to narrow down the market-nepotism (selling the tickets
only to relatives or riends), racism (selling them to only certain
racial groups), sexism (selling them only to males). Certain age
groups may be singled out and all others barred, or perhaps war
veterans or members o certain political parties may be given
special privileges. All these nonprice rationing techniques are
discriminatory and arbitrarily avor some groups over others.
Consider a typical irst-come, irst-served (FCFS) method,
since this is the type o system most widely used and the one
usually thought to be air.` 1hough tickets are not scheduled to
be sold until 10:00 a.m. o the day o the event, hopeul cus-
tomers line up outside the box oice long beore. Some join the
line at the crack o dawn, some even begin the night beore.
FCFS is thus discriminatory against those who ind waiting in
line particularly onerous, those who cannot take a day o rom
work to wait in line, or those who cannot aord to hire servants
or chaueurs to wait in line or them.
Does price rationing, and thereore, ticket scalping, avor the
rich An equivocal answer must be given. From one perspective,
ticket scalping helps the lower and middle class, and hurts the
rich. Assuming that the lowest income class includes more peo-
ple who are unemployed or marginally employed, they have
time and opportunity to wait in line. Even i employed, they do
not lose as much as others when they take time o rom work.
For these people who have ew options, ticket scalping provides
employment and business opportunities. 1here is no other pur-
suit in which a poor person can begin his own business with so
little capital. In the case stated above, all that is needed is ;0.00
to buy ten ;.00 tickets. When and i these are resold at ;!.00
each, a proit o ;!00.00 is gained.
Members o the middle class are helped as well, or these
people are less likely to have time available or waiting in ticket
52$ 5"67$1 86(*9$, 87
chap12ticket.qxd 2/21/2008 12:28 PM Page 87
lines. It is more costly or them (in terms o income lost) to take
time o rom work than or a member o the lower class. It is
prudent or the member o the middle class to buy his ticket
rom the scalper or ;!.00 rather than wait in line and lose ar
more, which he might have earned had he gone to work. In
short, ticket scalping allows people in the lowest income brack-
ets to serve as the paid agents o people in the middle class, who
are too busy to wait in line or cheap tickets.
Rich people have servants who can wait in long lines or
them and, thereore, do not need scalpers. In one case, however,
the ticket scalper can help even the rich-when the scalper, who
is a specialist, can do the job or less than it would cost the rich
man to use a servant or the task. (It should occasion no surprise
that ticket speculation can beneit (** people. 1he market is not
a jungle where people can only beneit at the expense o others.
Voluntary trade is the paradigm case o mutually beneicial
action.) I the scalper`s proit margin is less than what it would
cost the rich man to use a servant, he can buy the ticket directly
rom the scalper, cut out the middleman servant, and save the
extra money.
From another perspective, however, price rationing and
ticket scalping avor the rich, by ensuring that they will ind it
easier to purchase tickets at the high market price, while the rest
o the public may ind it diicult or impossible. However, this is
the essence o a monetary economy and must be accepted as
long as we wish to reap the beneits only such a system can pro-
In the chapter on the importer, a deense will be made o a
monetary economy because it enables us to specialize and to
beneit rom the division o labor. Imagine the quality o lie and
the chances or survival i each o us was limited to what we
could produce ourselves. 1he spectre is rightening. Our lives
depend on trade with our ellows, and most i not all o the peo-
ple presently living would perish i the monetary system ell.
1he degree to which we do not permit money to ration goods,
the degree to which we do not allow the rich to obtain a greater
share o the goods o society in proportion to their monetary
88 -$.$#/"#0 12$ 3#/$.$#/(4*$
chap12ticket.qxd 2/21/2008 12:28 PM Page 88
spending, is the degree to which we allow the monetary system
to deteriorate. It is, o course, unair to allow the rich to obtain a
greater share o goods and services, to the degree that many o
them amassed their ortunes not through the market but
because o government aid. However, eliminating the monetary
system in order to rid it o illicitly gathered ortunes would be
like throwing out the baby with the bath water. 1he answer lies
in directly coniscating the ill-gotten wealth.
When wealth is earned honestly, there is nothing inappro-
priate about being able to receive a greater share o goods and
services, and it is essential to the preservation o the monetary
system. 1he scalper, by acilitating the price rationing o tickets,
is instrumental in assisting the rich in obtaining the rewards o
their eorts.
52$ 5"67$1 86(*9$, 8-
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$%& '()%*+&)$ ,*-
he hero o !"#$%&', a best selling book and movie, is a
renegade, bearded, hippie cop who reuses to obey the
unspoken code o policemen, Don`t turn against your
ellow oicers.` As Serpico states, 1he only oath I ever took was
to enorce the law-and it didn`t say against everybody except
other cops.`
1he story traces Serpico`s development, beginning with his
boyhood ambition to be a good police oicer. It reveals his ini-
tial navete about the corruption on the orce, his solitary and
unsuccessul attempts to interest the police brass in the situa-
tion, the contempt and hatred he experienced at the hands o his
ellow oicers, and his inal disillusionment. 1hroughout, the
assumption made about the good guys` and the bad guys` is
evident. 1he good guys are Frank Serpico and one or two police-
men who gave him limited aid in his quest or justice` and
punishment o the graters. 1he bad guys were those cops on the
take, and those who protect them rom prosecution. It is pre-
cisely this view which should be questioned.
chap13discop.qxd 2/21/2008 12:28 PM Page 91
An envelope containing ;00 plays an important part in the
story o Serpico. It was delivered to him by a messenger rom
someone known only as }ewish Max,` a powerul gambler.
Ater many attempts, Serpico was unable to interest any o his
superior oicers in the attempted bribe.
Why was }ewish Max` attempting to bestow money and
gits on an unwilling Serpico }ewish Max,` the purveyor o
voluntary (gambling) services to consenting adults, was one o
the intended victims o Serpico and other honest` cops on the
gambling squad' 1heir intention was to harass, chase, capture,
and kidnap (jail) all those involved. 1he public is told that
aggressive violent behavior on the part o the oicers is necessary
because gambling is against the law and it is their duty to
uphold the law. But the most vicious Nazi thug in a concentra-
tion camp could claim this argument as a deense.
In another incident, a ghetto mother complained to Serpico
that her son was being inducted into an illegal gambling opera-
tion. Serpico is asked to smash the operation. Now there can be
little opposition to the attempt to protect a child rom an activ-
ity that could be harmul to him. However, the disruption o an
activity which is legitimate or adults, on the grounds that a
child has become involved, is clearly objectionable. 1he solution
in a case such as this lies in preventing the child rom participa-
tion, not in the elimination o the activity. Sex, drinking, or driv-
ing should hardly be prohibited on the grounds that these activ-
ities are harmul or dangerous or children.
Serpico is inally wounded while attempting to break into an
apartment o a dope dealer, although his sworn duty is to $#'("&(
the rights o citizens. 1he explanation, o course, is that selling
narcotics is prohibited by law, and although he has sworn to
protect the rights o individuals, Serpico has also sworn to
uphold the law. In this instance, as elsewhere, when the two are
-! )"*"+,%+- (/" 0+,"*"+,123"
chap13discop.qxd 2/21/2008 12:28 PM Page 92
contradictory, he chooses the latter. His participation on the nar-
cotics squad itsel demonstrates Serpico`s overriding loyalty to
the law.
But prohibiting the sale o narcotics invariably increases the
purchase price, thereby making it diicult or addicts to obtain
the drugs. Consequently, they must commit greater and greater
crimes in order to obtain the necessary money. By prohibiting
the sale o narcotics, the citizenry thus becomes endangered. 1o
enorce that prohibition, as Serpico does, is to regard the protec-
tion o the law over that o the citizens.
Given that much o what the policeman is required to do is inju-
rious to the general public, it ollows that the less active the
policeman is, the less injurious he will be to the public at large.
1he majority o policemen, perhaps sensing this, act so as to
save the public rom harm, i.e., they shun their duties.
Instead o being up and about, interering with the rights o
the people, many policemen choose the honorable way out-
they coop. Cooping (sleeping in some out-o-the-way place
while on duty) was a situation which enraged Serpico. In the
inest tradition o the busybody who insists upon running other
people`s lives, Serpico insisted upon being out on the streets at
all hours, stopping a prostitute here, ambushing a gambler
there, harassing drug merchants everywhere.
It is, o course, impossible to deny that Serpico was also a
orce or good. He did, ater all, hunt down rapists, muggers,
robbers, thieves, murderers, and destroyers o the peace. More-
over, he carried out his duties in an enormously imaginative way.
Disguised as a Hasidic }ew, a hippie, a slaughterhouse worker, a
businessman, a drug addict, he prowled the city streets and
unearthed its secrets as none o his ellow police oicers-
dressed in suits, ties, trenchcoats, black shoes, and white socks-
could. But, the extent to which Serpico was able to achieve these
accomplishments was the extent to which he was willing to step
outside the realm o law and order.
4/" )%5/'+"5( 6'$ -
chap13discop.qxd 2/21/2008 12:28 PM Page 93
1ake the case o a young rapist. Serpico stopped a rape in
progress, in spite o the opposition o his police partner, who
objected to investigating the suspicious noises-on the grounds
that they were taking place out o the area which he and Serpico
were assigned to patrol. Oblivious to such specious reasoning,
Serpico insisted upon an investigation. He was able to capture
only one o the three rapists. When he brought him to the sta-
tion house, Serpico was dismayed at the brutal (and ineective)
treatment to which the rapist was subjected. When the prisoner
was about to be transerred to another location, Serpico brought
him a cup o coee, and talked kindly to him or several min-
utes. By using gentle persuasion he was able to unearth the
names o the rapist`s two accomplices.
Serpico then encountered the ull pattern o bureaucratic red
tape o the police department. He located the accomplices but,
upon phoning his precinct commander to report on their where-
abouts, was told that the detective assigned to the case was on
vacation. 1he commanding oicer insisted that Serpico +'(
arrest the accomplices, even though he had them under surveil-
lance rom the phone booth. Serpico again disobeyed the 317*83
order rom his commanding oicer, and arrested the two men.
(When he brought them to the station house he was told, by the
angry commander, that he would not be given credit or the
arrests-an appropriate ending to the story.)
It is instances such as this one which have made Serpico an
all-time hero, and which account or the massive popularity o
the book and movie. But this illustration also exposes the basic
contradiction in Serpico`s character. His attacks on prostitutes,
gamblers, and drug sellers, all o whom were engaged in volun-
tary acts between mutually consenting adults, reveal his
absolute devotion to the law. His boyhood dream o being a
policeman, it will be remembered, was in terms o 8$/'3,%+- (/"
317. However, in the case o the rapist, Serpico does the good
deed only because he is willing to violate the law. And in every
case where his behavior can be considered heroic, the same prin-
ciple o action is present.
-! )"*"+,%+- (/" 0+,"*"+,123"
chap13discop.qxd 2/21/2008 12:28 PM Page 94
In considering Serpico`s battle against the other, normal`
policemen (the ones he considers corrupt), there are two types o
cops. 1here are those who reuse to harass consenting adults
engaging in voluntary though illegal activities, and who 1&&"$(
money rom the individuals engaged in such activities, and there
are those who ,"91+, money rom these individuals or allow-
ing them to engage in these activities.
In the irst example, assuming the activities in question are
legitimate, even though prohibited by law, it would seem per-
ectly proper to 1&&"$( money or allowing them. 1he acceptance
o money cannot be logically distinguished rom the acceptance
o a git, and the mere acceptance o a git is not illegitimate.
1here are, however, some who take a contrary position by
stating that exceptions cannot be made even in the case o ill-
conceived laws, that mere` individuals should not be ree to
pick and choose, but must simply obey the law. Allowing the law
to be broken is necessarily evil, both in itsel and because i taken
as a precedent, it leads to chaos.
But it is diicult to countenance the notion that breaking the
law is necessarily evil. Indeed, i the Nuremberg 1rials have
taught us anything, it is the diametric opposite o this view. 1he
lesson o the 1rials is that some laws are in and o themselves
evil, and to obey them is wrong. It is equally diicult to under-
stand the notion that selective law breaking establishes a prece-
dent which ultimately leads to chaos. 1he only precedent such
an action establishes is that %33"-%(%91(" laws may be disobeyed.
1his does not imply chaos and arbitrary murder. It implies
morality. Had such a precedent been irmly established at the
time the Nazis came to power, concentration camp guards
might have reused to obey 317*83 orders to murder hapless vic-
Finally, the notion that no mere` individual should be ree
to pick and choose which law he will obey is nonsense. Mere`
individuals are all we have.
In conclusion, since lawbreaking can, on occasion, be legit-
imate, policemen who allow it are on occasion acting quite
4/" )%5/'+"5( 6'$ -
chap13discop.qxd 2/21/2008 12:28 PM Page 95
properly. Serpico`s attacks upon such oicers were, thereore,
quite unwarranted.
Now consider the second kind o police oicer condemned
by Serpico-those who did not simply allow illegal activities, or
accept money when oered, but ,"91+,", payment rom citi-
zens. 1he dictionary calls this extortion, to draw rom by orce
or compulsion, to wrest or wring rom by physical orce, vio-
lence, threats, 9%585" '* 18(/'#%(:, or by any illegal means, to
exact money rom, as conquerers extort contributions rom the
vanquished.` Extortion is usually considered contemptible, and
this evaluation is acceptable. However, does this imply approval
o Serpico`s attacks on the policemen involved in extortion No,
or Serpico`s role was even worse than extortion' Consider our
dierent ways a policeman may react to behavior which is ille-
gal but perectly moral. He may (1) ignore it, (!) accept money
or ignoring it, () demand money or ignoring it (extortion), or
(!) stop it.
O the our possible reactions, the ourth is the least desir-
able, or it alone absolutely prohibits a moral activity-just
because it happens to be illegal.
Had Serpico been a guard in a Nazi concentration camp, he
would have elt it his duty to ollow his orders to torture prison-
ers-as would all others who consider law and order` the pri-
mary value. I he had consistently maintained his position, he
would also have elt constrained to root out corruption` in the
camp by turning in those among his ellow oicers who (1)
reused to ollow orders, (!) reused to ollow orders and
accepted payment rom the prisoners, or () reused to ollow
orders and demanded payment (extortion). 1rue, it is immoral
to extort money rom prisoners or not torturing them, but
surely it is worse to not take their money-and instead, to obey
orders and torture them.
-6 )"*"+,%+- (/" 0+,"*"+,123"
chap13discop.qxd 2/21/2008 12:28 PM Page 96
!" $%&'&(%')
chap14counterfeit.qxd 2/21/2008 12:28 PM Page 97
chap14counterfeit.qxd 2/21/2008 12:28 PM Page 98
,-. /&0&10!.2&3.&,4
he dictionary deines countereit` as orged, alse, ab-
ricated without right, made in imitation o something
else with a view to deraud by passing the alse copy or
genuine or original.` 1hus, countereiting is a special case o
raud. In a general case o raud, the alseness` consists o pass-
ing some good or article o in return either or another good or
or money. In the case o countereiting, what is passed o as
genuine is not a commodity or an article, but money itsel. 1his
special case o raud constitutes thet, just as raud in general
does. But with countereiting, there are certain complications.
1he eects o countereiting depend entirely upon whether
or not the countereit money is ever exposed as such. I it is, then
the thet takes place in a rather straightorward way. I the alse-
ness is discovered beore the countereiter himsel can pass it o
to the irst recipient, he will have been caught red-handed, and
no countereiting will have taken place (point 1 in the diagram
below). I the alseness is discovered ater it has been given to the
irst recipient, but beore he has had a chance to pass it on (point
! in the diagram), the countereiting amounts to a thet rom
this irst recipient. Mr. B has given up a genuine good or service
chap14counterfeit.qxd 2/21/2008 12:28 PM Page 99
or a piece o paper which is then discovered to be raudulent
and worthless. 1he piece o paper is destroyed, and the irst
recipient is let with nothing.
I the discovery is made ater the irst recipient has passed it
o (unknowingly) to a second recipient, but beore the second
has had a chance to pass it along to a third, then this second
recipient takes the loss (point ).
Discovery o countereiting at point:
100 !"#"$%&$' )*" +$%"#"$%,-."
Mr. A Mr. B Mr. C Mr. D Mr. E, etc.
Point 1 Point ! Point





1he second recipient loses because he has given the irst
recipient something o value, and has gotten nothing in return.
I he can unearth the irst recipient, the incidence o the loss
would be complicated by the act that the irst recipient is inno-
cent o any wrongdoing. 1he loss would probably have to be
shared between the two recipients. O course, i the original
passer o the alse money can be ound and made to pay, no loss
will have taken place, since in eect no countereiting will have
taken place. But, i none o the previous passers can be ound
ater the act, the recipient who is discovered with the counter-
eit money in his possession will bear the ull loss, no matter
how many times it has already been passed.
I the countereit money is never discovered, the situation is
radically dierent. 1he losses due to countereiting are incurred,
not by any one individual, but by the entire society, in a rather
complicated way. 1he losses are not immediately apparent, or
there is no /$" recipient who loses the total value o the com-
modity given up in return or the countereit money. But, it is
chap14counterfeit.qxd 2/21/2008 12:28 PM Page 100
0*" 12/$'/3"4$5"$)6 7/8$)"4#"&)"4 101
9: 58;) ;,<= </8$' .,%<= &)>; 4"#4";*&$' )/ #&$% ;/5"/$"
,?@8,&$)"% A&)* )*" "3&.; /# )*" B"%"4,. C";"43" D<;)"5= -8)
A*"4" ?/8.% : '") '/.% /4 ;&.3"4 -8..&/$ ,) )*&; )&5" /#
easy to see that there are losses-or the countereiter has gained
a value, without adding to the store o value o the rest o soci-
ety. Since there are only so many goods in the society at any one
time and the countereiter has gained some through raud, there
must be others who have lost out.
chap14counterfeit.qxd 2/21/2008 12:28 PM Page 101
1he way the loss is spread out though the society depends
upon the rise in prices caused by the extra money (the counter-
eited money) now in circulation. 1hat prices A&.. rise in
response to the activities o the countereiters is a oregone con-
clusion, or countereiting increases the amount o money in cir-
culation while the amount o goods and services remains the
same. Prices will not rise all at once, nor will they rise smoothly
and regularly. Rather, prices will rise in waves as does the water
in a pool in response to a stone disturbing the equilibrium. 1hey
will irst be driven up in the industry or area o which the irst
recipient o the countereit money is a member. Prices will be
driven up because the countereit money spent in the industry is
extra`, that is, in the absence o the countereiting, it would not
have been spent, thereore the irst recipient beneits. He has
received money which would not have been orthcoming but or
the countereiting, and he is able to spend this extra money in an
area where prices have not yet risen. 1he irst recipient gains this
incremental dierence (though it may be substantial, it is in no
way comparable to the countereiter`s gain).
1he second recipient also gains, as do all other recipients at
the beginning o the ever-spreading ripple eect. For these peo-
ple all receive the new money beore prices have had a chance to
be pushed up by the extra money put into circulation by coun-
tereiting. However, in time there will be a recipient o the imi-
tation money who will just come out even. He will receive
money at a time when it is still possible to spend part o it in an
area which has not yet had a countereit-induced price rise. I he
spends his money in an area which has not yet received a boost
in prices, he will gain slightly rom the inlation, i not, he will
lose. On the average, people in this phase o the monetary
expansion will be neither greatly beneited nor greatly harmed
rom the countereiting.
People receiving the countereit money ,#)"4 this stage bear
the losses o the monetary expansion. Beore they receive any
extra money, prices will have risen. When the countereit money
inally ilters down to them they will be net losers. 1here are
some groups, such as widows and retired people, who will
10! !"#"$%&$' )*" +$%"#"$%,-."
chap14counterfeit.qxd 2/21/2008 12:28 PM Page 102
always lose rom countereiting, because during the spread o
the countereit-induced inlation, their incomes are ixed.
I all this is true, how can the countereiter be considered a
hero Given that the main result o countereiting which is
eventually discovered is to bilk the person caught holding the
bag,` and that the main result o undiscovered countereiting is
inlation which eventually harms many o us, it does indeed
seem strange to call the countereiter a hero.
1he justiication or calling the common private counter-
eiter heroic is that there is a G4&/4 countereiter in action and
that the money alsiied by the private countereiter is not really
legitimate money, instead, it is itsel countereit. It is one thing
to say that countereiting '"$8&$" money amounts to thet, it is
quite another thing to say that countereiting ?/8$)"4#"&) money
amounts to thet'
Perhaps an analogy will clariy this point. 1aking someone`s
rightully owned property is thet, and thereore unjustiied. But
no such proscription holds or taking the wrongully owned
(stolen) property o the thie. Indeed, such an activity need not
even be called thet. In other words, an act which seems to be
seemingly identical with thet is not illegitimate at all i the vic-
tim has no legitimate claim over the articles taken. I B steals
something rom A, and then C takes it away rom B, we cannot
hold C guilty o thet. (For the sake o simplicity, we can assume
that the original owner, A, cannot be ound by C.) A orced
transer o goods is illegitimate /$.< i the original owner was the
4&'*)#8. owner, i he was not, there was nothing untoward about
the transer.
In like manner, we can see that it does not ollow rom the
act that countereiting genuine money is illegitimate that coun-
tereiting ?/8$)"4#"&) money is illegitimate. I the claims can be
substantiated that the countereiting o countereit money is not
itsel illegitimate, and that i the original` money is indeed
countereit, then it will have been demonstrated that the private
enterprise` countereiter is not guilty o wrongdoing, and can
perhaps be considered heroic.
0*" 12/$'/3"4$5"$)6 7/8$)"4#"&)"4 10
chap14counterfeit.qxd 2/21/2008 12:28 PM Page 103
1he claim that the countereiting o countereit money is not
itsel illegitimate is based on our understanding that such an
activity is identical in orm with stealing rom a thie. 1he orig-
inal dictionary deinition o countereiting spoke o abricating
without right,` and o passing the alse copy or genuine or
original.` But i what is being copied is itsel countereit, then
the countereiter is not passing the alse copy or genuine. He is
only passing o (another) alse copy. And i abricating without
right means passing something o as genuine, then our counter-
eiter is not abricating without right, or he is not in act trying
to pass something as genuine-he is only trying to pass his
handiwork as a copy o a ?/8$)"4#"&).
1he money which our countereiter is copying is itsel coun-
tereit. It is made by a nonprivate countereiter-the govern-
1his is a serious charge, and is not made lightly. Unappetiz-
ing though it may be, the act is that governments everywhere
make countereits o real money-gold and silver. Virtually all
governments then #/4-&% the use o real money and allow only
the use o the countereits they abricate. 1his is equivalent to a
private enterprise countereiter not only copying the money in
circulation, but also preventing and prohibiting the circulation
o the legal` money.
Consider the monetary system beore governments became
deeply involved with it. Gold and silver (and paper certiicates
representing them) were the circulating medium. 1he govern-
ment could not simply intrude on this system and impose its #&,)
?844"$?< (currency based upon the compulsion o emperors,
kings, and presidents, not upon the voluntary decisions o the
people). 1he people would not accept it as money, and would
not voluntarily give up their hard earned possessions or such
tokens. Instead, the government utilized gradualist methods in
its quest to seize control o the monetary mechanism.
Under the gold standard, private minters converted gold
bullion into coins. 1he weight o these coins was certiied by the
private minters, whose reputations or accuracy and probity
were their main stock in trade. 1he irst step o government was
10! !"#"$%&$' )*" +$%"#"$%,-."
chap14counterfeit.qxd 2/21/2008 12:28 PM Page 104
to seize monopoly control o the mints, proclaiming that
coinage was the proper domain o the sovereign, and that private
coiners could not be entrusted with such an important task. 1he
government thus $,)&/$,.&H"% the mint.
1he second stage was %"-,;"5"$). Ater aixing the picture
o the monarch on the coin, to insure the weight and quality, the
coins were sweated` (stamped at a greater ace weight than
actual weight). It was in this way that government countereit-
ing began.
1he third step was the enactment o ."',. )"$%"4 .,A;. 1hese
laws required that money be traded and counted at its oicial
stamped value, and not at any other value, such as that based on
weight. A coin stamped at 10 gold ounces could legally be used
in payment o a debt o 10 gold ounces, even though the actual
coin weighed only 8 gold ounces. 1he protests o the creditor
were ignored by the sovereign`s court system under the legal ten-
der laws. 1he purpose o such laws was, o course, to establish
the acceptability o money countereited by the government.
1he government soon ound that this was a small-time oper-
ation. 1here were limitations to the sweating o coins. However,
even slowly replacing ull-bodied coins (coins whose gold con-
tent equaled the stamped value) with token coins (coins which
are intrinsically valueless as metals) would still not yield
enough. Even i the government seized as much as 100 percent
o the value o the coin, the value o all coins in total was lim-
ited. A course o action with much greater potential or counter-
eiting was begun.
Step our was then introduced.
1he government stopped
simply replacing gold coins with token coins, and began creat-
ing tokens representing more gold than it possessed. Not the
gold value o coins, nor o bullion, nor even the value o the gold
in the ground, any longer limited the scope o government coun-
0*" 12/$'/3"4$5"$)6 7/8$)"4#"&)"4 10
We do not claim a strict, nonoverlapping temporal order or these stages.
1hey are rather devices to clariy exposition.
chap14counterfeit.qxd 2/21/2008 12:28 PM Page 105
With this innovation, government countereiting entered the
ith stage-the irst civilized` stage. Greenbacks, dollar bills,
etc., could now be created seemingly without restraint. 1he
printing presses were turned up to high speed, and government-
countereit induced inlations began to take their place in the
modern world.
With the sixth step, government spending received another
shot in the arm.` Countereiting paper money, begun in the
ith stage, had been an improvement` over countereiting
coins, but the prospect o taking over banks and checkbook
money oered an even greater improvement. Depending on the
reserve requirements o the banks, the banking system could
create a multiple monetary expansion, through the well-known
multiplier eect.` In all expanding economies, paper money
outstrips coins, and bank checking deposit money outstrips
paper money. 1aking over the banks, then (as well as the
monopoly o coin and paper note issue), provided urther scope
or the countereiting plans o government.
Again under the guise that the ree market could not be
trusted, the government enacted legislation setting up the Cen-
tral Bank, and later, the Federal Reserve System. 1he Central
Bank was given a monopoly over paper money note issue, and
the monetary tools (open market operations, setting the redis-
count rate, and loans to banks) with which to keep the entire
banking system in a harmonious state o countereiting.
1he main argument used by the government was that the
so-called ree` or wildcat` banks, located mainly in inaccessi-
ble areas o the Midwest, were negligent in backing up their
bank notes. 1his charge was true, in the main. But the reasons
or it, which stem rom the War o 181!, are illustrative. At the
time o that war, New England banks were the soundest in the
country. But New England was also the section o the country
most opposed to the war. 1he central government thus had to
borrow mainly rom the Midwestern banks whose note issue ar
outstripped their gold stocks. (1he government arrogated to
itsel the duty o maintaining the inancial probity o the banks,
but reneged.) 1he government spent much o this money (in the
106 !"#"$%&$' )*" +$%"#"$%,-."
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orm o notes) in New England. When these banks presented
the Midwestern notes or redemption, the government, urther
shirking rom its sel-procaimed duties, declared banking holi-
days,` and allowed the wildcat banks to renege on their obliga-
tions or several years. 1he consequent exuberant policies which
these banks ollowed gave private banking a bad name, and pro-
vided the government with a justiication or taking over. 1hese
private banks were encouraged in their countereiting opera-
tions by the government itsel.
At this stage o development, there was only one ly in the
ointment, and it led the government to take the seventh step.
Some countries engaged in countereiting, and hence inlation,
to a greater degree than others. But when one country engages
in a greater degree o countereiting-inlation than other coun-
tries, it becomes enmeshed in balance o payment problems. I
country A`s government countereits at a greater rate than coun-
try B`s government, prices will rise aster in A than in B. A will
ind it easy to buy rom B and hard to sell to B. 1hus A`s imports
(what it buys) will outstrip its exports (what it sells). 1he imme-
diate result o the imbalance between imports and exports will
be a low o gold rom A to B to pay or the excess in purchases.
But, because gold is limited, this cannot go on orever.
1here are several possible responses. Government A could
set a tax on imports (a tari), or B could set a tax on exports.
Quotas could be set by both countries prohibiting trade beyond
a certain point. A could %"3,.8" its currency, making it easier or
it to export, and harder or it to import. Or, B could 4"3,.8" its
currency, with the opposite eects. 1here are problems, how-
ever, with all o these responses. 1aris and quotas interere with
trade, specialization, and the international division o labor.
Devaluations and revaluations are very disruptive and interere
with the system o international trade which the world has spent
so many years building. In addition, they do not really solve the
problem o imbalance, and currency crises are bound to recur
every time changes in the relative value o the various currencies
o the world occur.
0*" 12/$'/3"4$5"$)6 7/8$)"4#"&)"4 107
chap14counterfeit.qxd 2/21/2008 12:28 PM Page 107
1he world is now undergoing this seventh step, hence, it is
diicult to trace it to its conclusion. 1wo patterns, however, seem
to be emerging. One is the advent o a world monetary coner-
ence o which Bretton Woods is an example. At conerences o
this type, the leading countereiter-inlationists gather to discuss
possible remedies or their actions (although o course they do
not see their role in this way). 1hey usually discuss adopting
some version o the central banking system o the United States
or worldwide use. Suggestions have been made or an interna-
tional equivalent o our Federal Reserve System. A strong world
bank o this type would have much the same power over the
entire world that a national bank has over its own country. It
would have the power to orce all banks to inlate in unison, and
to direct the inlation to ensure that no power but itsel shall be
able to countereit money. Because each nationalistic counter-
eiting center has so ar jealously guarded its own powers, such
a world central bank has not yet come into existence.
An alternative system, popularized by Milton Friedman o
the University o Chicago, is the system o lexible exchange
rates.` 1his system operates in such a way that whenever the
prices or value o two countries` currencies all out o line with
one another, they automatically readjust. 1hat is, the currency
prices o the various countries are allowed to change in terms o
one another. 1his is in signiicant contrast to the agreements
made at previous world monetary conerences, in which these
prices are #&I"% in terms o each other. With a lexible system, i
country A inlates at a higher rate than country B, there will be
a relative excess supply o the currency o A, which will drive its
price down, choke o its imports, and make its exports more
attractive. 1he great advantage o the lexible exchange system
over the ixed exchange systems o the world monetary agree-
ments is that it is an entirely ,8)/5,)&? system. 1hus the crises
which would occur under a ixed system every time currencies
change value with respect to one another are avoided.
However, since both these systems are only supericial
attempts to suppress the ill eects which result rom govern-
ment countereit-inlationary schemes, neither can be avored.
108 !"#"$%&$' )*" +$%"#"$%,-."
chap14counterfeit.qxd 2/21/2008 12:28 PM Page 108
Paradoxically, these ill eects are '//% things. }ust as a pain in
the body can be a warning o a ar more serious condition, and
is, thereore, beneicial, a balance o payments problem can be a
signal o the menace o international inlation. Attempting to
paper over these diiculties with lexible exchange rate schemes
leaves the world`s economy open to the ravages o inlation. It
would be ar better or the economy o the world, and or every
individual country, i instead o devising ways to prop up coun-
tereiting and the resultant inlation, the governments o the
world gave up these policies altogether.
In this connection, one cannot help daydreaming about
1reasury agents, the 1` men o modern television serials. Ded-
icated to the elimination o countereiting, dressed in the best
FBI modern` style, they represent the essence o uncorrupt-
ible` (ho, ho), tough law enorcers. On television their adven-
tures usually begin with an overview o them walking down the
steps o the 1reasury Building. Were they to turn around, and
walk back 8G the steps, and back &$)/ the oices o their superi-
ors, and arrest )*"5, they would be corralling perhaps the
biggest gang o countereiters the world has ever known.
As to the claim that the private countereiter is a hero, three
criteria or heroic actions must be applied. 1he act must not vio-
late the rights o innocent people, the act must be o great bene-
it to large numbers o people, and it must be perormed at great
personal risk.
1here can be no doubt regarding the third point. Non-
governmental countereiters operate at great risk to themselves.
1he government has declared such activity illegal. 1he 1reasury
Department spends large sums o money to apprehend private
countereiters. 1he government stands ready to prosecute all
those accused o countereiting, and to jail all who are ound
guilty. It cannot be doubted that the risk` criterion is more than
amply met.
Furthermore, it is clear that the activities o private counter-
eiters are beneicial to the public. Nongovernmental counter-
eiting, i allowed to be pursued, would spell the ruin o the gov-
ernment`s own system o countereit money. 1he extent to
0*" 12/$'/3"4$5"$)6 7/8$)"4#"&)"4 10-
chap14counterfeit.qxd 2/21/2008 12:28 PM Page 109
which nongovernment countereiters are active is the extent to
which the eectiveness o the government`s own countereit sys-
tem is decreased. 1he act that the government`s countereit sys-
tem is very harmul constitutes in itsel a strong G4&5, #,?&" case
or nongovernment countereiting. (O course, private counter-
eiting is illegal, and cannot, thereore, be advocated. Still it is o
interest to spin out the implications o economic theory.)
It may be objected that i private countereiters gained
power, and replaced the government, the people would be no
better o. 1his, o course, is true. But the act is that private
countereiters are small time,` and will undoubtedly remain so.
1hey could pose no more than a minor problem. It is in act this
reality which clinches the argument or private countereiters.
1hey do not pose a threat to the people, they are not, nor are
they likely to become strong enough to do that. 1he eect they
have is to reduce and counteract the great evil o government
countereiting. 1his is beneicial or great numbers o people.
Although a ew individuals may suer a loss rom this activity,
on balance, the activity o the private countereiter is more ben-
eicial than harmul. And, it must be remembered, their activity
is not raudulent and hence immoral, since they do $/) seek to
pass o countereit money or genuine.
110 !"#"$%&$' )*" +$%"#"$%,-."
chap14counterfeit.qxd 2/21/2008 12:28 PM Page 110
#$% &'(%)
he miser has never recovered rom Charles Dickens`
attack on him in ! #$%&'()*' #*%+,. Although the miser
had been sternly criticized beore Dickens, the depiction
o Ebenezer Scrooge has become deinitive and has passed into
the olklore o our time. Indeed, the attitude pervades even in
reshman economics textbooks. 1here the miser is roundly con-
demned and blamed or unemployment, changes in the busi-
ness cycle, and economic depressions and recessions. In the
amous-or rather inamous-paradox o savings,` young stu-
dents o economics are taught that, although saving may be sen-
sible or an individual or a amily, it may be olly or the econ-
omy as a whole. 1he prevalent Keynesian doctrine holds that
the more saving in an economy, the less spending or consump-
tion, and the less spending, the ewer jobs.
It is time that an end be put to all these misconceptions.
Many and various beneits are derived rom saving. Ever since
the irst caveman saved seed corn or uture planting, the human
race has owed a debt o gratitude to the hoarders, misers, and
savers. It is to those people who reused to use up at once their
entire store o wealth and chose rather to '*-. it or a needy
time, that we owe the capital equipment which enables us to
chap15miser.qxd 2/21/2008 12:28 PM Page 111
aspire to a civilized standard o living. It is true, o course, that
such people became richer than their ellows, and perhaps
thereby earned their enmity. Perhaps the whole process o saving
and accumulating was cast into disrepute along with the saver.
But the enmity is not deserved. For the wages earned by the
masses are intimately dependent upon the rate at which the
saver can accumulate money. 1here are, or example, many rea-
sons contributing to the act that the American worker earns
more than, say, his Bolivian counterpart. 1he American
worker`s education, health, and motivation play important roles.
But a )*/+% contribution to the wage dierential is the greater
amount o capital stored up by American employers than by
Bolivians. And this is not an exceptional case. 1he saver has
been instrumental throughout history in liting the pack above
the level o the savage.
Perhaps it will be objected that there is a dierence between
'*-&01 (acknowledged to be productive in the process o capital
accumulation), and $+*%2&01 (withholding money rom con-
sumption spending), and that the saver channels his money into
capital goods industries where they can do some good, hoarded
money is completely barren. 1he hoarder, it will be claimed,
reduces the money received by retailers, orcing them to ire
employees and reduce orders rom jobbers. }obbers in turn are
orced to reduce their sta and to cut back on orders rom
wholesalers. 1he whole process, under the inluence o hoard-
ers, will be repeated throughout the entire structure o produc-
tion. As employees are ired, they will have less to spend on con-
sumption goods, thus compounding the process. Hoarding is
thus seen as completely sterile and destructive.
1he argument is plausible except or a crucial point which
this Keynesian-inspired argument ails to take into account-
the possibility o changes in prices. Beore a retailer begins to lay
o employees and cut back on orders because o unsold goods,
he will usually try lowering his prices. He will hold a sale or use
some other technique which will be equivalent to a decrease in
price. Unless his troubles are due to the unsalability o his wares,
11! 3.4.02&01 ($. 502.4.02*6,.
chap15miser.qxd 2/21/2008 12:28 PM Page 112
this will suice to end the vicious circle o unemployment and
depression. How so
In withholding money rom the consumer`s market, and 0+(
making it available or the purchase o capital equipment, the
hoarder causes a decrease in the amount o money in circulation.
1he amount o available goods and services remains the same.
7$. 8&'.% 11
9:&; <;= >&,, ?*@= A2&($B C+< D0.> E >*'0@( * F.?0.'&*0
>$.0 ?+< )*%%&.2 ).BG
chap15miser.qxd 2/21/2008 12:28 PM Page 113
Since one o the most important determinants o price in any
economy is the relationship between the amount o money and
the amount o goods and services, the hoarder succeeds in low-
ering the level o prices. Consider a simplistic but not wholly
inaccurate model in which all the dollars in the economy are bid
against all its goods and services. 1hus the ewer the dollars, the
greater the purchasing power o each. Since hoarding can be
deined as reducing the amount o money in circulation, and,
other things equal, less money means lower prices, it can read-
ily be seen that hoarding leads to lower prices.
1here is no harm in lowering the level o prices. Quite the
contrary, one o the great beneits is that all other people, the
nonmisers, beneit rom cheaper goods and services.
Nor will lower prices cause depressions. Indeed, the course
o the prices o some o our most successul machinery has ol-
lowed a strong downward curve. When cars, televisions, and
computers were irst produced, they were priced ar beyond the
reach o the average consumer. But technical eiciency suc-
ceeded in lowering prices until they were within the reach o the
mass o consumers. Needless to say, neither a depression nor
recession was caused by these alling prices. In act, the only
businessmen who suer in the ace o such a trend are those who
ollow the Keynesian analysis and do not lower their prices in
the ace o alling demand. But ar rom causing an ever widen-
ing depression, as the Keynsenians contend, such businessmen
only succeed in driving themselves into bankruptcy. For the rest,
business continues as satisactorily as beore, but with a lower
price level. 1he cause o depressions, thereore, exists else-
1here is likewise no substance in the objection to hoarding
on the ground that it is disruptive, and continually orces the
economy to adjust. Even i true, it would not constitute an
indictment o hoarding, or the ree market is preeminently an
11! 3.4.02&01 ($. 502.4.02*6,.
See Murray N. Rothbard, !).%&H*@' I%.*( 3.;%.''&+0 (New Rochelle,
N.Y.: Van Nostrand, 1-6).
chap15miser.qxd 2/21/2008 12:28 PM Page 114
institution o adjustment and reconciliation o divergent and
ever-changing tastes. 1o criticize hoarding on this ground, one
would also have to criticize changing clothing styles as well, or
they continually call on the market or ine tuning` adjustment.
Hoarding is not even a very disruptive process because or every
miser stuing money into his mattress, there are numerous
misers` heirs erreting it out. 1his has always been the case, and
it is not likely to change drastically.
Claims that the miser`s hoard o cash is sterile because it
does not draw interest as it would i it were banked is also with-
out merit. Could the money held by individuals in their wallets
be characterized as sterile since it does not draw interest either
I people voluntarily orbear to earn interest on their money and
instead hold it in cash balances, the money may appear useless
rom our point o view, but it undoubtedly is not useless rom
theirs. 1he miser may want his money not or later spending,
not to bridge the gap between expenditures and payments, but
rather or the pure /+? o holding cash balances. How can the
economist, educated in the utility maximization tradition, char-
acterize /+? *' '(.%&,. Art lovers who hoard rare paintings and
sculpture are not characterized as engaging in a sterile enter-
prise. People who own dogs and cats, solely or the purpose o
enjoyment and not investment, are not described as engaging in
sterile activity. 1astes dier among people, and what is sterile or
one person may be ar rom sterile or another.
1he miser`s hoarding o large cash balances can only be con-
sidered heroic. We beneit rom lowered price levels, which
result rom it. 1he money which we have and are willing to
spend becomes more valuable, enabling the purchaser to buy
more with the same amount o money. Far rom being harmul
to society, the miser is a beneactor, increasing our buying power
each time he engages in hoarding.
7$. 8&'.% 11
chap15miser.qxd 2/21/2008 12:28 PM Page 115
chap15miser.qxd 2/21/2008 12:28 PM Page 116
#$% &'$%(&#)(
eirs and heiresses are usually depicted as irresponsible,
idle, lazy individuals who enjoy lives o unearned lux-
ury. 1his is perhaps a true characterization o many in
the class. But it does not detract rom the heroic role played by
the inheritor.
An inheritance is simply a orm o git-a git that is given
upon death. Like gits that are given upon births, birthdays,
weddings, anniversaries, and holidays, it can be deined as the
voluntary transer o considerations rom one party to another.
One cannot, thereore, oppose inheritances, and at the same
time avor other types o gits. Yet, many people do just that.
1heir anti-inheritance bias is spurred on by images o thieves
who pass on their ill-gotten gains to their children. 1hey see
members o the ruling class accumulating ortunes, not through
honest trade, but through government subsidies, taris, and
licensing protections, and passing on what they have accumu-
lated. Surely this should be prohibited. 1he elimination o an
inheritance seems to be a solution.
It would, however, be impossible to eliminate inheritance
unless all other types o gits were also eliminated. 1he 100 per-
cent tax on inheritance, oten suggested as the means by which
chap16inheritor.qxd 2/21/2008 12:28 PM Page 117
118 !"#"$%&$' )*" +$%"#"$%,-."
/0") .12)3 45""678
to eliminate inheritance, would not accomplish this. For i other
types o gits were permitted, the tax could easily be circum-
vented. Money and property could simply be transerred by
means o birthday gits, Christmas gits, etc. Parents might even
have gits held in trust or their children, to be turned over on
the child`s irst birthday ater the death o the parent.
chap16inheritor.qxd 2/21/2008 12:28 PM Page 118
1he solution to the problem o illicitly earned wealth, white-
collar and otherwise, does not lie in preventing the next genera-
tion rom obtaining the ill-gotten unds, but in making certain
that these unds are not retained in the irst place. Attention
should rather be ocused on retrieving the illicit property and
returning it to the victim.
Will it be argued that the 100 percent inheritance tax is a
second best` policy 1hat since we do not have power to strip
the criminals o their ill-gotten gains, eorts should be made to
deny them the opportunity o passing the ortunes on to their
children 1his is contradictory. I the power is lacking to bring
criminals to justice because white-collar criminals control the
system o justice, then clearly there is a lack o power to impose
a 100 percent inheritance tax on them.
In act, even i such a tax could be enacted and enorced, the
yearning or egalitarianism which really animates all such pro-
posals would be rustrated. For true egalitarianism means not
only an equal distribution o money, but also an equal distribu-
tion o nonmonetary considerations. How would the egalitari-
ans remedy the inequities between those who are sighted and
those who are blind, those who are musically talented and those
who are not, those who are beautiul and those who are ugly,
those who are gited and those who are not What o the
inequities between those who have happy dispositions and those
who are prone to melancholy How would the egalitarians
mediate them Could money be taken rom those who have too
much happiness` and given to those who have too little` as
compensation How much is a happy disposition worth Would
;10.00 per year trade at par or ive units o happiness
1he ludicrousness o such a position might lead the egalitar-
ians to adopt a second best` policy, such as the one used by the
dictator in Harrison Bergeron,` a short story in 9".:1;" )1 )*"
<1$="> ?1@2" by Kurt Vonnegut.
In the story, strong people
were orced to carry weights in order to bring them down to the
A*" B$*"5&)15 11-
Kurt Vonnegut, 9".:1;" )1 )*" <1$="> ?1@2" (New York: Dell, 1-70).
chap16inheritor.qxd 2/21/2008 12:28 PM Page 119
level o the rest o the people, musically inclined individuals
were orced to wear earphones that gave orth shockingly loud
sounds in proportion to their musical talent. 1his is where the
desire or egalitarianism logically leads. 1he elimination o
monetary inheritance is but the irst step.
It is the inheritor and the institution o inheritance that
stands between civilization as we know it and a world in which
no talent or happiness is allowed to mar equality. I individual-
ity and civilization are valued, the inheritor will be placed on the
pedestal he richly deserves.
1!0 !"#"$%&$' )*" +$%"#"$%,-."
chap16inheritor.qxd 2/21/2008 12:28 PM Page 120
#$% &'(%)*%(+%,
ver since Biblical times, when the moneylenders were
driven rom the temple, they have been scorned, criti-
cized, viliied, persecuted, prosecuted, and caricatured.
Shakespeare, in !"# %#&'"()* +, -#).'#, characterized the mon-
eylender as a }ew scurrying around trying to exact his pound o
lesh.` In the movie, !"# /(0)1&+2#&, the moneylender was an
object o loathing.
1he moneylender, however, together with his irst cousins,
the usurer, the pawnbroker, and the loan shark, have been badly
misjudged. Although they perorm a necessary and important
service, they are, nevertheless, extremely unpopular.
Lending and borrowing take place because people dier as
to their &(*# +, *.3# 4&#,#&#)'# (the rate at which they are willing
to trade money they presently possess, or money they will
receive in the uture). Mr. A may be anxious to have money &.5"*
)+0, and not care too much about what money he may have in
the uture. He is willing to give up ;!00 )#6* 7#(& in order to
have ;100 )+0. Mr. A has a very ".5" rate o time preerence. At
the other end o the spectrum are the people with very 8+0 rates
o time preerence. 1o them, uture money` is almost as impor-
tant as present money.` Mr. B, with a low rate o time preer-
ence, is willing to give up only ;10! next year in order to receive
chap17moneylend.qxd 2/21/2008 12:28 PM Page 121
;100 now. Unlike Mr. A, who cares much more about present
money than uture money, Mr. B would not give up a large
amount o uture money or cash in hand. (It should be noted
that a negative time preerence does not exist, that is, a preer-
ence or money in the uture over money in the present. 1his
would be equivalent to saying that there would be a preerence
toward giving up ;100 in the present, in order to get ;- in the
uture. 1his is irrational unless there are conditions other than
time preerence which operate. For example, one might want to
purchase protection or money that is unsae now, but will be
sae a year hence, etc. Or, one may want to savor his dessert and
postpone consumption until ater dinner. Dessert-beore-din-
ner` would then be considered a 9.,,#&#)* good than dessert-
ater-dinner,` no matter how similar the two goods were in
physical terms. 1here is thus no preerence shown or a good in
the uture over the :(3# good in the present.)
Although it is not necessary, it is usual or a person with a
high time preerence (Mr. A), to become a net 1+&&+0#& o
money, and or a person with a low time preerence (Mr. B), to
become a 8#)9#&. It would be natural, or example, or Mr. A to
borrow rom Mr. B. Mr. A is willing to give up ;!00 a year rom
now in order to get ;100 now, and Mr. B would be willing to
loan ;100 now i he can get at least ;10! ater one year has
elapsed. I they agree that ;10 is to be repaid a year hence or a
present loan o ;100, they both gain. Mr. A will gain the dier-
ence between the ;!00 he would have been willing to pay or
;100 now and the ;10 that he will actually be called upon to
pay. 1hat is, he will gain ;0. Mr. B will gain the dierence
between the ;10 that he will actually get a year hence and the
;10! that he would have been willing to accept in a year or giv-
ing up the ;100 now, a gain o ;!8. In act, because moneylend-
ing is a trade, like any other trade, both parties must gain or they
would reuse to participate.
A moneylender may be deined as someone who loans out
his own money or the money o others. In the latter case his
unction is that o intermediary between the lender and bor-
rower. In either case, the moneylender is as honest as any other
1!! ;#,#)9.)5 *"# <)9#,#)9(18#
chap17moneylend.qxd 2/21/2008 12:28 PM Page 122
businessman. He does not orce anyone to do business with him
nor is he himsel compelled. 1here are, o course, dishonest
moneylenders just as there are dishonest people in all walks o
lie. But there is nothing dishonest or reprehensible about
moneylending 4#& :#. Some criticism o this view deserves ur-
ther examination.
1. Moneylending is inamous because it is requently
accompanied by violence. Borrowers (or victims) unable to pay
their debts are oten ound murdered-usually by the loan
shark.` Individuals who borrow money rom moneylenders usu-
ally have contracts with them to which they have ully agreed.
One is hardly a victim o a moneylender i one has agreed to
repay a loan, and then reneges on the contractual promise. On
the contrary, the moneylender is the victim o the borrower. I
the loan, but not the repayment is consummated, the situation
is equivalent to thet. 1here is little dierence between the thie
who breaks into the moneylender`s oice and steals money, and
the person who borrows` it contractually, and then reuses to
pay it back. In both cases, the result is the same-someone has
taken possession o money which is not theirs.
Killing a debtor is an unjust overreaction, just as the murder
o a thie would be. 1he primary reason moneylenders take the
law into their own hands, however, and do not hesitate to use
orceul means, even murder, is that moneylending is controlled
by the underworld. But this control came about virtually at the
public`s request' When courts reuse to compel debtors to pay
their rightul debts, and they prohibit the lending o money at
high rates o interest, the underworld steps in. Whenever the
government outlaws a commodity or which there are con-
sumers, be it whiskey, drugs, gambling, prostitution, or high
interest loans, the underworld enters the industry that law-abid-
ing entrepreneurs ear to service. 1here is nothing in whiskey,
drugs, gambling, prostitution, or moneylending that is intrinsi-
cally criminal. It is solely because o a legal prohibition that
gangland methods become associated with these ields.
!. Money is sterile and produces nothing by itsel. 1here-
ore, any interest charge or its use is exploitative. Moneylenders,
!"# %+)#78#)9#& 1!
chap17moneylend.qxd 2/21/2008 12:28 PM Page 123
who charge abnormal interest rates, are among the most
exploitative people in the economy. 1hey richly deserve the
opprobrium they receive.`
Apart rom the ability o money to buy goods and services,
having money earlier, rather than later, provides an escape rom
the pain o waiting or ulillment. It osters a productive invest-
ment which, at the end o the loan period, even ater paying the
interest charge, yields more goods and services than at the
As or the exorbitantly high` rates o interest, it should be
understood that in a ree market, the rate o interest tends to be
determined by the time preerences o all the economic actors. I
the rate o interest is inordinately high, orces will tend to
develop which will push it down. I, or example, the rate o
interest is higher than the time preerence rate o the people
involved, the demand or loans will be less than the supply, and
the interest rate will be orced down. I the interest rate shows no
tendency to decrease, this indicates not that it is too high, but
that only a high rate o interest can equilibrate the demand or
loans, and satisy the time preerence rate o the economic
1he critic o high interest rates has in mind a air` rate o
interest. But a air` rate o interest or a just` price does not
exist. 1his is an atavistic concept, a throwback to medieval times
when monks debated the question, along with the question o
how many angels can it on the head o a pin. I there is any
meaning to the air` rate o interest doctrine, it can only be the
rate which is mutually agreeable to two consenting adults, and
that is exactly what the market rate o interest is.
. Moneylenders prey upon the poor by charging higher
rates o interest than they charge other borrowers.`
It is a common myth that the rich compose virtually the
whole moneylending class and that the poor virtually all the
borrowing class. 1his, however, is not true. What determines
whether a person becomes a net borrower or lender is his rate o
time preerence, not his income. Rich corporations that sell
bonds are borrowers, or the sale o bonds represents money
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chap17moneylend.qxd 2/21/2008 12:28 PM Page 124
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=>?3 )+* :@&4&.:#9A B)87 7#:*#&9(7 *"# CD+@&)(8? &#4+&*#9 *"(*
*"# 9#,(@8* &(*# +) 8+(): 0(: @4 EAFG +H#& *"# ,.&:* I@(&*#&AJ
borrowed. Most wealthy people who own real estate or other
properties which are heavily mortgaged, are almost certainly net
borrowers, not net lenders. On the other hand, every poor
widow or pensioner with a small bank account is a mon-
chap17moneylend.qxd 2/21/2008 12:29 PM Page 125
It is true that moneylenders charge the poor higher rates o
interest than they charge other people, but when stated in this
way it can be misleading. For moneylenders charge higher rates
o interest to individuals who are greater risks-those who are
less likely to repay the loan-regardless o wealth.
One way to decrease the risk o deault and, thereore, the
rate o interest charged, is to put up collateral or real property
that would be oreited i the loan is not repaid. Since rich peo-
ple are more capable o putting up collateral or loans than poor
people, their loans are granted at lower rates o interest. 1he rea-
son, however, is not because they are rich, but because the lender
is less likely to undergo losses in case o deault.
1here is nothing untoward or unique about this situation.
Poor people pay a higher rate or ire insurance since their
houses have less reproong than rich people`s houses. 1hey
are charged more or medical care since they are less healthy.
Food costs are higher or poor people because there is more
crime in their neighborhoods, and crime raises the cost o con-
ducting a business. 1his is, to be sure, regrettable, but it is not
the result o malice against the poor. 1he moneylender, like the
health insurance company and the grocer, seeks to protect his
Imagine the results o a law which prohibits @:@&7, which
can be deined as charging a rate o interest higher than the law-
maker approves o. Since the poor and not the rich pay the
higher interest rate, the law would have its irst eects on them.
1he eect would be to "@&* *"# 4++&, and, i anything, #)"()'# *"#
&.'". 1he law seems to be designed to protect the poor rom hav-
ing to pay high interest rates, but in reality it would really make
it impossible or them to borrow money at all' I the money-
lender must choose between loaning money to the poor at rates
he regards as too low, and not loaning them any money at all, it
is not diicult to see what choice he will make.
What will the moneylender do with the money he would
have loaned to the poor but or the prohibitory law He will
make loans exclusively to the rich, incurring little risk o nonre-
payment. 1his will have the eect o lowering the interest rates
1!6 ;#,#)9.)5 *"# <)9#,#)9(18#
chap17moneylend.qxd 2/21/2008 12:29 PM Page 126
or the rich, because the greater the supply o a good in any given
market, the lower the price. 1he question o whether or not it is
air to prohibit exorbitant rates o interest is not now under dis-
cussion, only the eects o such a law. And these eects are,
quite clearly, calamitous or the poor.
!"# %+)#78#)9#& 1!7
chap17moneylend.qxd 2/21/2008 12:29 PM Page 127
chap17moneylend.qxd 2/21/2008 12:29 PM Page 128
#$% &'&('&#)*+,#') #' ($-)*#.
e are beset by the view that it is blessed to give to
charity. 1hat it is also virtuous, seemly, good, air, re-
spectable, altruistic, and endearing. In like manner,
the reusal to give to charity is met with contempt, derision,
incredulity, and horror. 1he person who reuses to contribute to
charity is considered a pariah.
1his sociological imperative is supported by legions o beg-
gars, undraisers, clerics, and other needy` groups. We are
exhorted rom the pulpit and the media, by the Hare Krishnas
and the panhandlers, the lower people and the March o Dimes
children, the cripples, the helpless, the impoverished, and the
beaten down.
Contributing to charity is not in itsel evil. When it is a vol-
untary decision on the part o responsible adults, it does not vio-
late an individual`s rights. Yet there are dangers in charity, and
compelling reasons or reusing to contribute to it. In addition,
there are serious laws in the moral philosophy upon which
charity is based.
One o the great evils o charity, and one o the most cogent rea-
sons or reusing to contribute to it, is that it intereres with the
chap18nocharity.qxd 2/21/2008 12:29 PM Page 129
survival o the human species. According to the Darwinian
principle o the survival o the ittest,` those organisms most
able to exist in a given environment will be naturally selected`
(by showing a greater propensity to live until the age o procre-
ation, and thus be more likely to leave ospring). One result, in
the long run, is a species whose members have a greater ability
to survive. 1his does not imply that the strong kill o ` the
weak, as has been alleged. It merely suggests that the strong will
be more successul than the weak in the procreation o the
species. 1hus the ablest perpetuate themselves and the species
Some contend that the law o natural selection does not
apply to modern civilization. Critics point to artiicial kidney
machines, open heart surgery, and other scientiic and medical
breakthroughs, and argue that Darwin`s survival law has been
preempted by modern science. For people with diseases and
genetic drawbacks, which in the past led to an early death, today
live on to reproduce.
1his does not, however, demonstrate that the Darwinian
law is inapplicable. Modern scientiic breakthroughs have not
repealed` Darwin`s law, they have only changed the speciic
cases to which it applies.
In the past, the characteristic antithetical to human survival
might have been a deective heart or poor kidneys. But with the
advent o modern medical advances, medical ailures are likely
to become less and less important as grounds or natural selec-
tion. What will become more and more important is the ability
to live on a crowded planet. Characteristics opposed to survival
may include an allergy to smoke, excessive argumentativeness,
or bellicosity. Such characteristics will tend to lessen a person`s
ability to survive to adulthood. 1hese characteristics lessen the
person`s chances o maintaining a situation (marriage, employ-
ment) in which reproduction is possible. 1hus, i the Darwinian
laws are allowed to work themselves out, such negative traits
will tend to disappear. But i charity is extended, these harmul
traits will be carried over to the next generation.
10 !"#"$%&$' )*" +$%"#"$%,-."
chap18nocharity.qxd 2/21/2008 12:29 PM Page 130
While charity o this type is undeniably harmul, when it is
private, it is limited in scope by a type o Darwinian law that
applies to the givers: they come to bear some o the harm they
cause. 1hus they are led, as i by Adam Smith`s invisible hand`
to cut back on their giving. For example, i parental charity
takes the orm o sparing the rod and spoiling the child,` some
o the harmul eects o this charity rebound upon the parents.
Being on the receiving end o spoiled children tends to temper
the giver. (Many o the parents who supported their adult hip-
pie` children throughout the sixties discontinued such support
when they themselves suered rom its harmul eects.) Private
charity also has a built-in limitation because any given private
/*" 01$21$)3&-4)13 )1 5*,3&)6 11
781 &$*"3&) 6143 19$ :1$"6;<
chap18nocharity.qxd 2/21/2008 12:29 PM Page 131
ortune is circumscribed. 1he case o public charity is ominously
In public charity, all natural barriers are virtually absent. It is
a rare case indeed when public charity is reduced because o its
harmul eects. 1he ortune at the goverment`s disposal is only
limited by its desire or taxes and its ability to levy them on an
unwilling public.
A case in point is the American oreign aid program o the
1-0s and 1-60s. 1he government o the United States paid
American armers more than the market price or their produce,
thus creating gigantic surpluses, or which still more money had
to be allotted. Large quantities o this produce were then sent to
countries such as India, where the domestic arm industry was
virtually ruined by this subsidized importation.
Other detrimental eects o governmental charity` have
been documented by a number o social scientists. G. William
Domho in his book /*" =&'*"3 5&32.">,
shows that charita-
ble` institutions such as workmen`s compensation, collective
bargaining in labor, unemployment insurance, and welare pro-
grams were begun not by advocates o the poor, as is universally
accepted, but by the rich. 1hese programs promote their own
class interests. 1he aim o this state-corporate charity system is
not to redistribute wealth rom rich to poor, but to buy up the
potential leaders o the poor and tie them to the hegemony o the
ruling class, while maintaining an intellectual class determined
to convince an unwary public that government charity actually
beneits them.
In like manner, Piven and Cloward point out in ?"'4.,)&$'
)*" @113
that the charitable` institution o welare serves not
mainly to aid the poor, but rather to suppress them. 1he :1%4>
1A"3,$%& here is to allow the welare rolls to increase not in times
1! !"#"$%&$' )*" +$%"#"$%,-."
G. William Domho, /*" =&'*"3 5&32."> (New York: Random House,
Frances F. Piven and Richard A. Cloward, ?"'4.,)&$' )*" @113 (New
York: Random House, 1-71).
chap18nocharity.qxd 2/21/2008 12:29 PM Page 132
o great need, but in times o social upheaval, and to decrease the
welare rolls not in times o plenty, but in times o social tran-
quility. 1hus the welare system is a kind o bread and circus`
method o controlling the masses.
Despite these problems, there are those who view charity as a
blessed state, and consider contributions a moral obligation.
Such people would make charity compulsory, i they could. I,
however, an act is made compulsory, it is not charity, or charity
is deined as B1.4$),36 giving. I an individual is #132"% to give,
he is not a contributor to charity, he is the victim o a robbery.
1he crux o charity, or those who would wish it to be made
compulsory, the laws o logic and linguistics notwithstanding, is
that there is a duty, an obligation, a moral imperative, or all to
give to the less ortunate. 1his rests on the premise that we are
each our brother`s keepers.`
1his philosophy, however, contradicts a basic premise o
morality-namely, that it should always be at least A1>>&-." or a
person to do what is moral. I there are two people in dierent
geographical areas who are in dire need o }ohn`s aid ,) )*" >,:"
)&:", it would be impossible or }ohn to help -1)* o them. I
}ohn 2,$$1) help both needy people, and since helping both is a
requirement o the brother`s keeper morality, then clearly, with
the best intentions, }ohn 2,$$1) be moral. And i, according to
any given theory o ethics, a well-intentioned person cannot be
moral, the theory is incorrect.
1he second basic law in the brother`s keeper moral view is
that it logically calls or ,->1.4)" &$21:" "C4,.&)6, whether or not
its proponents realize this. Remember, this morality preaches
that it is the moral duty o those who have more, to share with
those who have less. Adam, who has ;100, shares with Richard,
who has only ;, by giving Richard ;10. Adam now has ;-0 and
Richard ;1. One might think that Adam has ollowed the dic-
tates o the sharing philosophy. However, this philosophy states
that it is the duty o all people to share with the less ortunate,
/*" 01$21$)3&-4)13 )1 5*,3&)6 1
chap18nocharity.qxd 2/21/2008 12:29 PM Page 133
and Adam >)&.. has more than Richard. I Adam wishes to act
morally, according to the brother`s keeper moral view, he will
have to share again with Richard. 1he sharing can end only
when Richard no longer has less than Adam.
1he doctrine o absolute income equality, a necessary conse-
quence o the brother`s keeper philosophy, will admit o no pros-
perity or anyone over and above the meager pittance the most
helpless individual is able to amass. 1hus the brother`s keeper
philosophy is in direct and irreconcilable opposition to the nat-
ural ambition to improve one`s lot. Believers in it are torn by
ultimately conlicting views and the result, naturally enough, is
hypocrisy. How else can one describe people who claim to be
A3,2)&)&1$"3> o the brother`s keeper philosophy, and yet have
well-stocked pantries, a television, a stereo set, a car, jewelry, and
real estate, while in many parts o the world people ace starva-
tion 1hey dogmatically airm their commitment to equality,
yet deny that their lush wealth is in any way contradictory to this
One explanation oered is that a certain amount o wealth
and well-being is necessary or them to maintain their jobs,
which allows them to earn the money to contribute to the less
ortunate. Clearly, it is true that the brother`s keeper must main-
tain his own ability to keep` his brothers. His demise due to
starvation is not called or by the brother`s keeper philosophy.
1he wealthy brother`s keeper thus explains himsel as being
in a position similar to the slave owned by the rational` slave
owner. For the slave must be at least minimally healthy and
comortable, even contented, i he or she is to produce or the
owner. 1he wealthy brother`s keeper has, in eect, enslaved *&:D
>".# or the beneit o the downtrodden whom he aids. He has
amassed the amount which he needs in order to best serve his el-
low man. His wealth and standard o living are just what a
rational proit-maximizing slave owner would allow his slave to
enjoy. Everything in his possession is enjoyed only to the extent,
and or the sole purpose o, increasing and/or maintaining his
economic ability to help those who are less ortunate than he is,
according to this argument.
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chap18nocharity.qxd 2/21/2008 12:29 PM Page 134
It might be barely possible that a brother`s keeper living in a
garret !"#$% be telling the truth when he explains his possessions
in these terms. But what o the average person who claims to
practice the brother`s keeper morality-the civil servant earning
;17,000 a year, and living in a cooperative apartment in New
York City It can hardly be seriously contended that the posses-
sions he has collected are necessary or his productivity-espe-
cially when these holdings could be sold or money which could
signiicantly aid the downtrodden.
Far rom being a blessed activity, contributing to charity can
have harmul eects. In addition, the moral theory upon which
charity rests is riddled with contradictions and makes hypocrites
o those who are pressured by it.
&'( )"*!"*+,-.#+", +" 0'1,-+2 1
chap18nocharity.qxd 2/21/2008 12:45 PM Page 135
chap18nocharity.qxd 2/21/2008 12:29 PM Page 136
!"# %&'"()'' *(+ ,-*+)
chap19curmudgeon.qxd 2/21/2008 12:29 PM Page 137
chap19curmudgeon.qxd 2/21/2008 12:29 PM Page 138
,0) 1&-2&+3)4(
magine, i you will, the problems o the real estate developer
who is trying to supplant a city block o crumbling tene-
ments with a modern residential complex, replete with gar-
dens, swimming pools, balconies, and other accoutrements o
comortable living. Many problems arise, some by governmental
obstacles (zoning laws, licensing requirements, bribes or
acceptance o architectural plans). Nowadays, these are wide-
spread, and stultiying. However, in some cases, an even greater
problem is posed by the curmudgeon who owns and lives in the
most decrepit tenement on the block. He is overly ond o his
building and reuses to sell at any price. 1he builder oers pre-
posterous sums o money, but the curmudgeon steadastly
1he curmudgeon, who may be a little old lady or a bitter old
man, has long been active deending his homestead against the
inroads o highway builders, railroad magnates, mining compa-
nies, or dam and irrigation control projects. Indeed, the plots o
many western movies are based on this resistance. 1he cur-
mudgeon and his spiritual soulmates served as the inspiration
or the enactment o eminent domain legislation. He has been
portrayed as a staunch human barrier to progress, with eet
chap19curmudgeon.qxd 2/21/2008 12:29 PM Page 139
planted irmly at the crossroads, and his motto a strident, dei-
ant no.`
Cases like this abound, and are said to demonstrate the cur-
mudgeon`s intererence with the progress and well-being o the
multitude. 1his popular view, however, is mistaken. 1he cur-
mudgeon, who is depicted as standing in the way o progress,
actually represents one o the greatest hopes that progress ever
had-the institution o property rights. For the abuse heaped
upon him is a disguised attack on the concept o private property
Now i private property means anything, it means that own-
ers have the right to make decisions with regard to the use o
their property, as long as this use does not interere with other
property owners and their rights to the use o their own property.
In the case o eminent domain, when the state orces the prop-
erty owner to give up the rights to his property on terms that he
would not voluntarily choose, the rights to private property are
1he two primary arguments or private property are the
moral and the practical. According to the moral argument, each
man is, irst o all, the complete owner o himsel, and o the
ruits o his labor. 1he principle behind his ownership o him-
sel and his artiacts is the principle o homesteading or !"#$%"&
governance. Each person is the natural owner o himsel
because, in the nature o things, '() will controls his actions.
According to the principle o homesteading, each man owns his
own person, and he thereore owns the things which he pro-
duces-those parts o nature hitherto unowned and which,
when mixed with his labor, are transormed into productive
entities. 1he only moral ways or these entities to change own-
ership are voluntary trade and voluntary git-giving. 1hese ways
are consistent with the original owner`s natural homesteading
rights, or they are methods by which ownership is given up vol-
untarily, in accordance with the owner`s will.
Let us assume that the property owned by the curmudgeon
was gained by this process o natural homesteading. I so, there
was an original homesteader, there were voluntary sales o the
1!0 *+,+!-(!. #'+ 0!-+,+!-"1&+
chap19curmudgeon.qxd 2/21/2008 12:29 PM Page 140
land or the land may have been given in the orm o a git at one
time or another. 1he land then passed into the control o the
curmudgeon through an unbroken chain o voluntary events, all
consistent with the principle o homesteading, in other words,
his land title would be legitimate.
Any attempt to wrest it rom him without his consent thus
violates the principle o homesteading, and hence is immoral. It
is an act o aggression against an innocent party. (1he question
will be raised regarding land which has been stolen. In act, 23)#
o the earth`s surace meets this criteria. In such cases, i there is
evidence that (1) the land has been stolen, and (!) another indi-
vidual can be ound who is the rightul owner or heir, this per-
son`s right o ownership must be respected. In all other cases, the
actual owner must be considered the rightul owner. *+ ,"4#3
ownership is suicient when the owner is the original home-
steader or when no other legitimate claimant can be ound.)
Many recognize this when the curmudgeon resists the
demands on his property by private business. It is clear that one
private interest does not have the right to intrude upon another
private interest. However, when it is the state, as represented by
eminent domain laws, the case seems dierent. For the state, it
is assumed, represents all the people, and the curmudgeon pur-
portedly is blocking progress. Yet in many cases-i not all-
governmental laws o eminent domain are used to urther pri-
vate interests. Many urban relocation programs, or example, are
at the behest o private universities and hospitals. Much o the
condemnation o private property by eminent domain laws is
accomplished or the special interests o lobbies and other pres-
sure groups. 1he condemnation o the land on which Lincoln
Center or the Perorming Arts in New York City was built is a
case in point. 1his tract o land was condemned to make way or
high culture.` People were orced to sell their land at prices the
government was willing to pay. 5'3)+ culture this center serves
is clear to anyone who reads the list o subscribers to Lincoln
Center. It is a 5'36) 5'3 o the ruling class.
In considering the second set o arguments or private prop-
erty rights, the practical arguments, there is one based on the
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chap19curmudgeon.qxd 2/21/2008 12:29 PM Page 141
1!! *+,+!-(!. #'+ 0!-+,+!-"1&+
9:!3$.'; +!3$.' 3, #'() <&+"-(!. "!- 4"=3&(!.> ?) <%+)(-+!#
3, #'+ $!(@+%)(#A B #+&& A3$ #'()CD+6&& .+# A3$% <%3<+%#A ,3%
3$% '$2"!(#(+) 1$(&-(!. 3!+ D"A 3% "!3#'+%; )3 D"#4' 3$#;
concept o )#+D"%-)'(<. Under private stewardship, it is claimed,
property receives the best` possible care. 5'3 controls the piece
o property is not important. What is important is that all prop-
erty be privately owned, that precise delineations between the
chap19curmudgeon.qxd 2/21/2008 12:29 PM Page 142
properties be clearly marked o, and that no orced or involun-
tary transers o property be allowed. I these conditions are met,
and a &"())+F ,"(%+ market is maintained, those who mishandle`
their property lose proits they could otherwise earn, and those
who nurture their property can accumulate unds. 1hus, those
better able to maintain a good stewardship eventually become
responsible or more and more, since they can aord to buy up
extra property with their earnings, while the poor stewards will
have less and less. 1he general level o stewardship, thereore,
will rise, and better care will be taken o property in general. 1he
stewardship system, by rewarding good stewards and penalizing
poor ones, increases the average level o stewardship. It does so
automatically, without political votes, without political purges,
and without uss or anare.
What happens when the government steps in and props up,
by means o loans and subsidies, ailing enterprises managed by
incompetents 1he eectiveness o the stewardship system is
vitiated, i not destroyed altogether. 1he ailing enterprises are
protected by government subsidies rom the consequences o
their mismanagement. Such government inringements take
many orms-the granting o ranchises, licenses, and other
types o monopoly advantages to one select individual or group,
the granting o taris and quotas to protect ineicient domestic
caretakers` against competition rom more eicient oreign
stewards, and the awarding o government contracts which per-
vert the original consumption wishes o the public. All perorm
the same unction. 1hey enable the government to interpose
itsel between a bad caretaker and a public which has chosen not
to patronize him.
What i the government interposes itsel in the opposite way
What i it tries to hasten the process by which good stewards
acquire more and more property Since the sign o good stew-
ardship in a ree market is success, why can`t the government
simply analyze the present distribution o property and wealth,
ascertain who the successes and the ailures are, and then com-
plete the transer o property rom poor to wealthy 1he answer is
that the market system works "$#32"#(4"&&A, making day-to-day
7'+ 8$%2$-.+3! 1!
chap19curmudgeon.qxd 2/21/2008 12:29 PM Page 143
adjustments in immediate response to the competence o the
various stewards. Governmental attempts to hasten the process
by transerring money and property rom the poor to the rich can
only be done on the basis o the <")# behavior o the stewards in
question. But there is no guarantee that the uture will resemble
the past, that those who were successul entrepreneurs in the
past will be successul entrepreneurs in the uture' Similarly,
there is no way o knowing who among the present poor have
the innate competence to eventually succeed in a ree market.
Governmental programs, based as they would have to be on <")#
accomplishments, would be arbitrary and inherently contrived.
Now the curmudgeon is a prototype o a backward,` poor
individual, who is, by all standards, a bad manager. 1hus he is a
prime candidate or a governmental scheme whose goal is to
speed up the market process by which good stewards acquire
more property and bad stewards lose theirs. But this, as we have
seen, is a scheme bound to ail.
1he second practical deense o private property may be
called the <%"G+3&3.(4"& argument. 1his view ocuses on the
question o who is to evaluate transactions. According to it, the
only scientiic evaluation that can be made o a voluntary trade
is that all parties to it gain in the +G "!#+ sense. 1hat is, at the
time o the trade, both parties value what they will gain more
than they value what they will give up in exchange. 1he parties
would not voluntarily make the trade unless, at that time, each
valued what is to be received more than what is to be given up.
1hus a mistake in a trade will not be made in the +G "!#+ sense.
However, a mistake can be made in the +G <3)# sense-ater the
trade has been completed, one can change one`s evaluation.
However, in most instances, the trade usually relects the desires
o both parties.
How is this relevant to the situation o the curmudgeon,
who is charged with blocking progress and thwarting the natu-
ral transer o property rom the less able to the more able
According to the praxeologist, the answer to the question,
Shouldn`t he be orced to sell his property to those who can
manage it more productively` is a resounding no.` 1he only
1!! *+,+!-(!. #'+ 0!-+,+!-"1&+
chap19curmudgeon.qxd 2/21/2008 12:29 PM Page 144
evaluation that can be made, rom a scientiic perspective, is o a
voluntary trade. A voluntary trade is, in the +G "!#+ sense, good.
I the curmudgeon reuses to trade, no negative evaluation is
possible. All that can be said is that the curmudgeon values his
property at more than the developer was willing or able to pay.
Since no interpersonal comparisons o utility or welare have
scientiic oundation (there is no unit by which such things can
be measured, let alone compared between dierent people),
there is no legitimate basis on which to say that the curmud-
geon`s reusal to sell his property is harmul or causes problems.
1rue, the curmudgeon`s choice serves to obstruct the real estate
developer`s goal. But then, the goals o the real estate developer
are just as obstructive o the goals o the old curmudgeon.
Clearly, the curmudgeon is under no obligation to rustrate his
own desires in order to satisy another`s. Yet the curmudgeon is
usually the object o unjustiied censure and criticism as he con-
tinues to act with integrity and courage in the ace o enormous
social pressures. 1his must stop.
7'+ 8$%2$-.+3! 1!
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#$% &'()'*+,
o many people, the slumlord-alias ghetto landlord and
rent gouger-is proo that man can, while still alive,
attain a satanic image. Recipient o vile curses, pin-
cushion or needle bearing tenants with a penchant or voodoo,
perceived as exploiter o the downtrodden, the slumlord is surely
one o the most hated igures o the day. 1he indictment is man-
iold: he charges unconscionably high rents, he allows his build-
ings to all into disrepair, his apartments are painted with cheap
lead paint which poisons babies, and he allows junkies, rapists,
and drunks to harass the tenants. 1he alling plaster, the over-
lowing garbage, the omnipresent roaches, the leaky plumbing,
the roo cave-ins and the ires, are all integral parts o the slum-
lord`s domain. And the only creatures who thrive in his premises
are the rats.
1he indictment, highly charged though it is, is spurious.
1he owner o ghetto housing diers little rom any other pur-
veyor o low cost merchandise. In act, he is no dierent rom
any purveyor o any kind o merchandise. 1hey all charge as
much as they can.
First consider the purveyors o cheap, inerior, and second-
hand merchandise as a class. One thing above all else stands out
about merchandise they buy and sell: it is cheaply built, inerior
chap20slumlord.qxd 2/21/2008 12:29 PM Page 147
in quality, or secondhand. A rational person would not expect
high quality, exquisite workmanship, or superior new merchan-
dise at bargain rate prices, he would not eel outraged and
cheated i bargain rate merchandise proved to have only bargain
rate qualities. Our expectations rom margarine are not those o
butter. We are satisied with lesser qualities rom a used car than
rom a new car. However, when it comes to housing, especially
in the urban setting, people expect, even insist upon, quality
housing at bargain prices.
But what o the claim that the slumlord overcharges or his
decrepit housing 1his is erroneous. L:,oa: tries to obtain the
highest price possible or what he produces, and to pay the low-
est price possible or what he buys. Landlords operate this way,
as do workers, minority group members, socialists, babysitters,
and communal armers. Even widows and pensioners who save
their money or an emergency try to get the highest interest rates
possible or their savings. According to the reasoning which
inds slumlords contemptible, all these people must also be con-
demned. For they exploit` the people to whom they sell or rent
their services and capital in the same way when they try to
obtain the highest return possible. But, o course, they are not
contemptible-at least not because o their desire to obtain as
high a return as possible rom their products and services. And
neither are slumlords. Landlords o dilapidated houses are sin-
gled out or something which is almost a basic part o human
nature-the desire to barter and trade and to get the best possi-
ble bargain.
1he critics o the slumlord ail to distinguish between the
desire to charge high prices, which everyone has, and the ability
to do so, which not everyone has. Slumlords are distinct, not
because they want to charge high prices, but because they can.
1he question which is, thereore, central to the issue-and
which the critics totally disregard-is why this is so.
What usually stops people rom charging inordinately high
prices is the competition which arises as soon as the price and
proit margin o any given product or service begins to rise. I
the price o risbees, or example, starts to rise, established
1!8 D:/:a/a //: Ua:/:a.//:
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manuacturers will expand production, new entrepreneurs will
enter the industry, used risbees will perhaps be sold in second-
hand markets, etc. All these activities tend to counter the origi-
nal rise in price. I the price o rental apartments suddenly began
to rise because o a sudden housing shortage, similar orces
would come into play. New housing would be built by estab-
lished real estate owners and by new ones who would be drawn
into the industry by the price rise. Old housing would tend to be
renovated, basements and attics would be pressed into use. All
these activities would tend to drive the price o housing down,
and cure the housing shortage.
I landlords tried to raise the rents in the absence o a hous-
ing shortage, they would ind it diicult to keep their apart-
ments rented. For both old and new tenants would be tempted
away by the relatively lower rents charged elsewhere. Even i
landlords banded together to raise rents, they would not be able
to maintain the rise in the absence o a housing shortage. Such
an attempt would be countered by new entrepreneurs, not party
to the cartel agreement, who would rush in to meet the demand
or lower priced housing. 1hey would buy existing housing, and
build new housing. 1enants would, o course, lock to the non-
cartel housing. 1hose who remained in the high price buildings
would tend to use less space, either by doubling up or by seek-
ing less space than beore. As this occurs it would become more
diicult or the cartel landlords to keep their buildings ully
rented. Inevitably, the cartel would break up, as the landlords
sought to ind and keep tenants in the only way possible: by low-
ering rents. It is, thereore, specious to claim that landlords
charge whatever they please. 1hey charge whatever the market
will bear, as does everyone else.
An additional reason or calling the claim unwarranted is
that there is, at bottom, no really legitimate sense to the concept
o overcharging. Overcharging` can only mean charging more
than the buyer would like to pay.` But since we would all really
like to pay ao///a or our dwelling space (or perhaps minus inin-
ity, which would be equivalent to the landlord paying the /:a.a/
an ininite amount o money or living in his building), landlords
1/: S/am/o 1!-
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who charge anything at all can be said to be overcharging.
Everyone who sells at any price greater than zero can be said to
be overcharging, because we would all like to pay nothing (or
minus ininity) or what we buy.
10 D:/:a/a //: Ua:/:a.//:
L:/' :: I /.: . a/.: oom .o./m:a/ oa //: aoo: B:/
S/:-No ao M..m ao/ . o:./ o/ /:. o./a/ oa //:
uoouo/-//' /::a .// ./:u: o//.'
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Disregarding as spurious the claim that the slumlord over-
charges, what o the vision o rats, garbage, alling plaster, etc.
Is the slumlord responsible or these conditions Although it is
ashionable in the extreme to say yes,` this will not do. For the
problem o slum housing is not really a problem o slums or o
housing at all. It is a problem o oo:/,-a problem or which
the landlord cannot be held responsible. And when it is not the
result o poverty, it is not a social problem at all.
Slum housing with all its horrors is not a problem when the
inhabitants are people who can aord higher quality housing,
but o:/: to live in slum housing because o the money they can
save thereby. Such a choice might not be a popular one, but
other people`s reely made choices which aect only them can-
not be classiied as a social problem. (I that could be done, we
would all be in danger o having our most deliberate choices, our
most cherished tastes and desires characterized as social prob-
lems` by people whose taste diers rom ours.)
Slum housing is a problem when the inhabitants live there
o necessity-not wishing to remain there, but unable to aord
anything better. 1heir situation is certainly distressing, but the
ault does not lie with the landlord. On the contrary, he is pro-
viding a necessary service, given the poverty o the tenants. For
proo, consider a law prohibiting the existence o slums, and,
thereore, o slumlords, without making provisions or the
slumdwellers in any other way, such as providing decent hous-
ing or the poor, or an adequate income to buy or rent good
housing. 1he argument is that i the slumlord truly harms the
slumdweller, then his elimination, u/// ::,///a :/:
aa./.a:, ought to increase the net well-being o the slum ten-
ant. But the law would not accomplish this. It would greatly
harm not only the slumlords but the slumdwellers as well. I
anything, it would harm the slumdwellers even more, or the
slumlords would lose only one o perhaps many sources o
income, the slumdwellers would lose their very homes. 1hey
would be orced to rent more expensive dwelling space, with
consequent decreases in the amount o money available or
ood, medicines, and other necessities. No. 1he problem is not
1/: S/am/o 11
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the slumlord, it is poverty. Only i the slumlord were the ..a: o
poverty could he be legitimately blamed or the evils o slum
Why is it then, i he is no more guilty o underhandedness
than other merchants, that the slumlord has been singled out or
viliication Ater all, those who sell used clothes to Bowery
bums are not reviled, even though their wares are inerior, the
prices high, and the purchasers poor and helpless. Instead o
blaming the merchants, however, we seem to know where the
blame lies-in the poverty and hopeless conditon o the Bowery
bum. In like manner, people do not blame the owners o junk-
yards or the poor condition o their wares or the dire straits o
their customers. People do not blame the owners o day-old
bakeries` or the staleness o the bread. 1hey realize, instead,
that were it not or junkyards and these bakeries, poor people
would be in an even worse condition than they are now in.
Although the answer can only be speculative, it would seem
that there is a positive relationship between the amount o gov-
ernmental intererence in an economic arena, and the abuse and
invective heaped upon the businessmen serving that arena.
1here have been ew laws interering with the day-old bak-
eries` or junkyards, but many in the housing area. 1he link
between government involvement in the housing market and
the plight o the slumlord`s public image should, thereore, be
1hat there is strong and varied government involvement in
the housing market cannot be denied. Scatter-site housing proj-
ects, public` housing and urban renewal projects, zoning ordi-
nances and building codes, are just a ew examples. Each o
these has created more problems than it has solved. More hous-
ing has been destroyed than created, racial tensions have been
exacerbated, and neighborhoods and community lie have been
shattered. In each case, it seems that the spillover eects o
bureaucratic red tape and bungling are visited upon the slum-
lord. He bears the blame or much o the overcrowding engen-
dered by the urban renewal program. He is blamed or not keep-
ing his buildings up to the standards set orth in unrealistic
1! D:/:a/a //: Ua:/:a.//:
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1/: S/am/o 1
building codes which, i met, would radically uo:a the situation
o the slumdweller. (Compelling Cadillac housing` can only
harm the inhabitants o Volkswagen housing.` It puts all hous-
ing out o the inancial reach o the poor.)
Perhaps the most critical link between the government and
the disrepute in which the slumlord is held is the rent control
law. For rent control legislation changes the usual proit incen-
tives, which put the entrepreneur in the :/.: o his customers,
to incentives which make him the direct enemy o his tenant-
Ordinarily the landlord (or any other businessman) earns
money by serving the needs o his tenants. I he ails to meet
these needs, the tenants will tend to move out. Vacant apart-
ments mean, o course, a loss o income. Advertising, rental
agents, repairs, painting, and other conditions involved in
rerenting an apartment mean extra expenditures. In addition,
the landlord who ails to meet the needs o the tenants may have
to charge lower rents than he otherwise could. As in other busi-
nesses, the customer is always right,` and the merchant ignores
this dictum only at his own peril.
But with rent control the incentive system is turned around.
Here the landlord can earn the greatest return ao/ by serving his
tenants well, but by mistreating them, by malingering, by reus-
ing to make repairs, by insulting them. When the rents are
legally controlled at rates below their market value, the landlord
earns the greatest return not by serving his tenants, but by :/-
//a / o/ //:m. For then he can replace them with higher pay-
ing non-rent-controlled tenants.
I the incentive system is turned around under rent control,
it is the sel-selection process through which entry to the land-
lord industry` is determined. 1he types o people attracted to
an occupation are inluenced by the type o work that must be
done in the industry. I the occupation calls (inancially) or
service to consumers, one type o landlord will be attracted. I
the occupation calls (inancially) or harassment o consumers,
then quite a dierent type o landlord will be attracted. In other
words, in many cases the reputation o the slumlord as cunning,
chap20slumlord.qxd 2/21/2008 12:29 PM Page 153
avaricious, etc., might be well-deserved, but it is the rent control
program /a //: /// o/..: which encourages people o this type to
become landlords.
I the slumlord were prohibited rom lording over slums,
and i this prohibition were actively enorced, the welare o the
poor slumdweller would be immeasurably worsened, as we have
seen. It is the prohibition o high rents, by rent control and sim-
ilar legislation, that causes the deterioration o housing. It is the
prohibition o low-quality housing, by housing codes and the
like, that causes landlords to leave the ield o housing. 1he
result is that tenants have ewer choices, and the choices they
have are o low quality. I landlords cannot make as much proit
in supplying housing to the poor as they can in other endeavors,
they will leave the ield. Attempts to lower rents and maintain
high quality through prohibitions only lower proits and drive
slumlords out o the ield, leaving poor tenants immeasurably
worse o.
It should be remembered that the basic cause o slums is not
the slumlord, and that the worst excesses` o the slumlord are
due to governmental programs, especially rent control. 1he
slumlord does make a positive contribution to society, without
him, the economy would be worse o. 1hat he continues in his
thankless task, amidst all the abuse and viliication, can only be
evidence o his basically heroic nature.
1! D:/:a/a //: Ua:/:a.//:
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$%& '%&$$( )&*+%,-$
How dare he charge such outrageously high prices or
such shoddy merchandise 1he store is ilthy, the service
horrible, and the guarantees worthless. 1he installment
buying will keep you in debt to them or the rest o your
lie. 1he customers o these leeches are among the poor-
est, the most inancially nave to be ound anywhere. 1he
only remedy is to prohibit the high prices, low quality
products, the devious installment plans, and the general
exploitation o poor people.`
uch is the view o a majority o those who have spoken out
on the ghetto merchant problem.` And indeed, it has a
certain plausibility. Ater all, ghetto merchants are mainly
rich and white and their customers are mainly poor minority
group members. 1he merchandise sold in ghetto shops is oten
more expensive than that sold in other areas, and o inerior
quality. However, the proposed solution, to compel ghetto mer-
chants to ollow the practices o nonghetto neighborhoods, will
not work. Rather, such compulsion will hurt the people it is
designed to help-the poor.
chap21ghetto.qxd 2/21/2008 12:29 PM Page 155
It is easy to argue that i you prohibit something that is bad,
something good will ollow. It is simple, but not always true.
And it is clearly untrue in the case o the ghetto merchant and
his business practices. 1his acile argument blithely ignores the
causes o the problem-why prices are really higher in the
Although at irst glance it might !""#!$ that prices are higher
in luxury neighborhoods than in the ghetto, this is due to the
act that stores in the ghettos and the luxury neighborhoods do
not really sell the same goods. 1he quality o the merchandise
sold is lower in the ghetto. 1his holds even in the case o seem-
ingly identical merchandise. A bottle o Heinz ketchup, or
example, might be priced higher in the luxury neighborhood,
but the product being sold there is the ketchup, plus the decor o
the store, delivery and other services, and the convenience o
shopping close to home or at all hours o the day and night.
1hese amenities are either lacking altogether in the ghetto shop,
or are present in a lesser orm. When they are taken into
account, it is clear that the ghetto consumer gets less or his
money than the consumer in a luxury neighborhood.
1his must be true because the price charged by the ghetto
merchant relects hidden` operating expenses which the
nonghetto merchant does not have to contend with. In the
ghetto, there are higher rates o thet and crime o all types.
1here is more damage by ire, and greater chance o damage
rom riots. All this increases the insurance premiums that the
merchant must pay. And it increases the necessary expenditures
on burglar alarms, locks and gates, guard dogs, private police-
men, etc.
Given that the costs o doing business are higher in the
ghetto, the prices charged there must be greater. I they were not,
ghetto merchants would earn a smaller proit than those outside
the ghetto and they would abandon the area or greener pas-
tures. What keeps prices in the ghetto high is not the greed` o
the ghetto merchant, !%% merchants, inside the ghetto and out,
are greedy. What keeps the prices in the ghetto high are the high
costs o doing business in these areas.
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In act, there is a constant tendency or proits in dierent
ields o endeavor to become equalized or to come to equilib-
rium (given the expected variation in proit risk, and other non-
pecuniary advantages or disadvantages). And the situation o
ghetto merchants exempliies this tendency. When proits in
area A are higher than those in area B, merchants are drawn
rom B to A. When, as a result, only a ew merchants are let in
area B, competition there decreases and proits rise. And, as
more and more merchants arrive in area A, competition
increases and proits all. 1hus, even i at some point, ghetto
merchants realized greater proits than others, they could not
continue to earn greater proits or long. I there were more pro-
its to be made in the ghetto, merchants would be drawn there,
and the resulting competition would tend to drive proits down
to equilibrium. And, in response to the lessened competition
outside the ghetto, proits there would rise to equilibrium.
1he question o nonpecuniary advantages and disadvantages
have not yet been dealt with. But they exist. And all the nonpe-
cuniary advantages are on the side o the merchant located out-
side the ghetto. 1he ghetto merchant, apart rom the risk he
aces to lie and property, must bear in addition, the scorn o an
outraged public who are angry and resentul at .*1 or, among
other things, selling shoddy merchandise at high prices.
Because o the indignities suered by the ghetto merchant,
the equilibrium proit rate will be higher in the ghetto than out-
side. In other words, proits will remain stable at a point at
which ghetto merchants earn a greater proit than other mer-
chants, but not so much greater that it tempts other merchants
to enter the ghetto. 1he merchants outside the ghetto will not be
attracted to the ghetto by this extra proit because it will be less
than suicient to compensate them or the extra indignities and
risks they would suer as ghetto merchants. 1he merchants who
remain in the ghetto are those who are least put o by the indig-
nities and risks involved. For them, the extra proit is enough
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chap21ghetto.qxd 2/21/2008 12:29 PM Page 157
compensation. In other words, there will be (and always is) a
sel-selection procedure whereby those with the greatest toler-
ance or the risks and indignities o the ghetto will be swayed by
the extra proit to remain there. 1hose with the least tolerance
will not be compensated by the extra proits and will head or
greener (whiter) ields.
18 &#'#()*(+ -.# /()#'#()!0%#
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I the tolerance o the ghetto merchants decreases, the equi-
librium proit rate will have to rise. I it does not rise, those
among the ghetto merchants who have the least capacity to bear
the indignities will leave. Competition will decrease, and the
remaining merchants will be able to raise their prices and,
hence, their proits. 1his rise in proits will be just enough to
compensate the remaining merchants in the ace o their height-
ened sensitivities. 1he reason, then, that prices are not higher
than they are in the ghetto is that these merchants have a great
ability to bear the risks, scorn, and abuse.
In the light o this, the ghetto merchant who charges outra-
geously high prices can be considered a beneactor. For it is his
ability to withstand the pressures placed upon him that keeps
prices in the ghetto no higher than they are. But or this ability,
prices would be even higher.
Another startling aspect should be considered. 1he villain, i
anyone, is not the ghetto merchant whose tolerance or outrages
keeps prices )47(, the villain is, rather, those who heap scorn
and abuse upon him and revile him or charging high prices or
shoddy merchandise. It is these nattering nabobs o nega-
tivism` who are instrumental in keeping ghetto prices up. It is
these grumblers, usually local politicians and community lead-
ers,` seeking power and a political base, who raise the equilib-
rium proit dierential necessary to keep merchants in the
ghetto. I they were to cease their ill-advised condemnations, the
nonpecuniary disadvantages o merchandising in the ghetto
would diminish along with the equilibrium price dierential,
and hence, ghetto prices. Paradoxical though it may be, those
who are most vocierous in their complaints about the high
prices charged by ghetto merchants are actually responsible or
keeping those prices higher than they would otherwise be'
1his analysis is not restricted to cases in which the ghetto
community is Hispanic or black and the merchants are white.
For the risks o thet, ire, and damage by vandalism and riots
would cause a black or Puerto Rican merchant to charge higher
prices too. And the resulting abuse to which he would be subject
would drive the prices even higher. I anything, the minority
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member merchant would have a more painul criticism to
bear-the charge that he is a traitor to his ethnic group. 1he
analysis, then, will become even more applicable when and i
blacks and Puerto Ricans begin to replace whites as ghetto mer-
1he eect o a law prohibiting the ghetto merchant rom charg-
ing higher prices than those charged elsewhere can now be
appreciated. It would simply drive merchants out o the ghetto'
Higher costs o doing business with no opportunity to recoup
them through higher prices, means lower proits. No merchant
would voluntarily remain in such a business situation. In act,
merchants will not remain in ghettos unless they can earn a
higher proit than can be earned elsewhere, to compensate them
or the nonpecuniary disadvantages.
I the prohibition was strictly enorced, virtually !%% the mer-
chants would leave the ghetto and seek their ortunes elsewhere,
with a minute raction remaining. Customers would then be
orced to queue up at whatever shops were available, thereby
reducing costs and increasing revenues to the point at which the
merchants might be compensated or the higher costs o operat-
ing in the ghetto. But this would mean that residents o the
ghetto would have to wait in line or long periods o time in
order to make a purchase. And it is more than likely that cus-
tomers would heap even greater abuse upon ghetto merchants
or the even poorer service they would be receiving. Such crowds
might even prove uncontrollable. In such a situation, the ew
remaining merchants would be orced to shut down. 1he citi-
zens o the ghetto, the community leaders,` pundits, and com-
mentators, would then blame the ghetto merchants or leaving
the community.
1he departure o the ghetto merchants would cause pain
and suering on a truly monumental scale. Ghetto residents
would be compelled to travel great distances to make purchases
which were ormerly made in their neighborhoods. 1hey would
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pay slightly lower prices or goods o slightly higher quality, but
these gains would be more than counteracted by the increased
carare, and time lost in transit. We know this because these
options are !%7!89 open to ghetto inhabitants. Since local people
patronize neighborhood stores presently, they must eel they do
better closer to home.
1he ghetto dwellers could not even make deals with one
another by which some would do the shopping or the rest. 1his
would implicitly convert some o them to ghetto merchants, and
the same choice would be open to these new ghetto merchants
as were available to the old ones. 1here is no reason to suppose
that they would be oblivious to the inancial incentives which
would sweep the old ones out o the ghetto. 1he only reasonable
way or ghetto dwellers to handle this unruly situation would be
to orm a shopping collective,` with members helping one
another in the arduous task o shopping. But to do this would be
to revert to a way o lie in which ood gathering becomes a very
time-consuming activity. Instead o developing skills as produc-
ers and pulling themselves out o poverty, ghetto dwellers would
be reduced to working on collectivist schemes made necessary
by the disappearance o the ghetto merchants. 1he proo that
this is an ineicient alternative is that it is not presently used, in
the ace o competition rom the ghetto merchant.
I this came to pass, the progressive orces` o city planning
would undoubtedly come orth with an alternative solution o
letting the government take over by nationalizing the (ghetto)
merchant business. 1he logic here deies analysis. For since it is
clear that government intervention would create the chaos (by
prohibiting price dierentials in the ghetto) in the irst place,
how can the solution lie in still more government intervention
1he irst problem with the suggested solution is that it is
immoral. It involves orcing everyone to pay or a nationalized
ood industry whether or not they wish to. It also curtails the
reedom o citizens by prohibiting them rom entering this
1he second problem is pragmatic. Based on the evidence
available, such a solution would be unworkable. Up to the
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present time, all government involvement in the economy has
been marked by ineiciency, venality, and corruption, and the
evidence suggests that this is not merely accidental.
1he ineiciency is easy to explain, and rather widely under-
stood. A government enterprise` can be expected to be inei-
cient because it is immune to the selective process o the market-
place. In the market, the entrepreneurs who are most able to
satisy consumer desires reap the greatest proits. Obversely, the
entrepreneurs who are least eicient, who provide the ewest
satisactions to consumers, suer losses. 1hey tend, thereore, to
drop out o the market, and make it possible or those most
adept at consumer satisaction to grow and expand. 1his contin-
ual process o the selection o the ittest ensures the eiciency o
entrepreneurs. Since the government is immune to it, it ails to
regulate governmental economic activity.
1he venality and corruption o the government is, i any-
thing, even easier to see. What is diicult, however, is to realize
that corruption is a (#6#99!$8 part o governmental operation o
business. 1his is more diicult to comprehend because o our
basic assumption about the motivations o those who enter gov-
ernment. We readily concede that people enter business in order
to gain money, prestige, or power. 1hese are basic human drives.
But when it comes to government, we lose contact with this
basic insight. We eel that those who enter government service
are above the ray.` 1hey are neutral` and objective.` We may
acknowledge that 941# government oicials are venal, corrupt,
and proit seeking, but these are considered exceptions to the
rule. 1he 0!9*6 motive o those in government is, we insist, sel-
less service to others.
It is time to challenge this erroneous concept. Individuals
who enter government are no dierent rom any other group.
1hey are heir to !%% the temptations that lesh is heir to. We know
we can assume sel-seeking on the part o businessmen, union-
ists, and others. It can be assumed just as clearly to be operative
in government oicials. Not in some o them, but in !%% o them.
It is hardly necessary to point out the signiicance o all the
government ailures in the ood area: agricultural subsidies,
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taris, minimum prices, maximum prices, and the don`t grow
on this land` policies. Clearly, these programs are not merely
ineicient attempts to provide or the public weal, although they
are that. But the giveaways to big-business armers and the pay-
ments or not growing ood are also thinly disguised attempts on
the part o government-bureaucrats to bilk the public.
I the government became the merchant o the ghetto, the
situation would be ar worse than that under private ghetto mer-
chants. Both groups are seeking proits. 1he only dierence is
that one has the power to compel us to obey, the other does not.
1he government can compel our patronage, private merchants
can only compete or it.
2.# 3.#--4 5#$6.!(- 16
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"#$ %&$'()*"+,
ill the speculators' is a cry made during every amine
that has ever existed. Uttered by demagogues, who
think that the speculator causes death through starva-
tion by raising ood prices, this cry is ervently supported by the
masses o economic illiterates. 1his kind o thinking, or rather
nonthinking, has allowed dictators to impose even the death
penalty or traders in ood who charge high prices during
amines. And without the eeblest o protests rom those usually
concerned with civil rights and liberties.
Yet the truth o the matter is that ar rom causing starvation
and amines, it is the speculator who prevents them. And ar
rom saeguarding the lives o the people, it is the dictator who
must bear the prime responsibility or causing the amine in the
irst place. 1hus, the popular hatred or the speculator is as
great a perversion o justice as can be imagined. We can best see
this by realizing that the speculator is a person who buys and
sells commodities in the hope o making a proit. He is the one
who, in the time-honored phrase, tries to buy low and sell
But, what does buying low, selling high, and making large
proits have to do with saving people rom starvation Adam
chap22speculator.qxd 2/21/2008 12:29 PM Page 165
Smith explained it best with the doctrine o the invisible hand.`
According to this doctrine, every individual endeavors to employ
his capital so that its produce may be o the greatest value. He
generally neither intends to promote the public interest, nor
knows how much he is promoting it. And he intends only his
own security, his own gain. He is led in this as i by an invisible
hand to promote an end which was no part o his intention. By
pursuing his own interest he requently promotes that o society
more eectually than when he really intends to promote it.`
successul speculator, thereore, acting in his own selish interest,
neither knowing nor caring about the public good, promotes it.
First, the speculator lessens the eects o amine by storing
ood in times o plenty, through a motive o personal proit. He
buys and stores ood against the day when it might be scarce,
enabling him to sell at a higher price. 1he consequences o his
activity are ar-reaching. 1hey act as a signal to other people in
the society, who are encouraged by the speculator`s activity to do
likewise. Consumers are encouraged to eat less and save more,
importers to import more, armers to improve their crop yields,
builders to erect more storage acilities, and merchants to store
more ood. 1hus, ulilling the doctrine o the invisible hand,`
the speculator, by his proit-seeking activity, causes more ood to
be stored during years o plenty than otherwise would have been
the case, thereby lessening the eects o the lean years to come.
However, objections will be raised that these good conse-
quences will ollow only i the speculator is correct in his assess-
ment o uture conditions. What i he is wrong What i he pre-
dicts years o plenty-and by selling, encourages others to do
likewise-and lean years ollow In this case, wouldn`t he be
responsible or /a.:./a the severity o the amine
Yes. I the speculator is wrong, he would be responsible or a
great deal o harm. But there are powerul orces at work which
tend to eliminate incompetent speculators. 1hus, the danger they
166 D:/:a/a //: Ua:/:a.//:
Adam Smith, +a Ia,a/, /a/o //: N./a: .a c.a: o/ //: B:./// o/
N.//oa (New York: Random House, 1-7), p. !!, paraphrased.
chap22speculator.qxd 2/21/2008 12:29 PM Page 166
represent and the harm they do are more theoretical than real.
1he speculator who guesses wrong will suer severe inancial
losses. Buying high and selling low may misdirect the economy,
but it surely creates havoc with the speculator`s pocketbook. A
speculator cannot be expected to have a perect record o predic-
tion, but i the speculator guesses wrong more oten than right,
he will tend to lose his stock o capital. 1hus he will not remain
in a position where he can increase the severity o amines by his
errors. 1he same activity which harms the public automatically
harms the speculator, and so prevents him rom continuing such
1/: So:.a/./o 167
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+/oa u/// /.o/: u:'// /o: ao /:a //oa.a /oa o/ oa-
m:/ /oo.'
chap22speculator.qxd 2/21/2008 12:29 PM Page 167
activities. 1hus at any given time, existing speculators are likely to
be very eicient indeed, and, thereore, beneicial to the economy.
Contrast this with the activity o governmental agencies
when they assume the speculator`s task o stabilizing the ood
market. 1hey too try to steer a ine line between storing up too
little ood and storing up too much. But i they are in error, there
is no weeding-out process. 1he salary o a government
employee does not rise and all with the success o his specula-
tive ventures. Since it is not his own money which will be gained
or lost, the care with which bureaucrats can be expected to
attend to their speculations leaves much to be desired. 1here is
no automatic, ongoing daily improvement in the accuracy o
bureaucrats, as there is or private speculators.
1he ot-quoted objection remains that the speculator causes
ood prices to rise. I his activity is careully studied, however, it
will be seen that the total eect is rather the /.////..//oa o prices.
In times o plenty, when ood prices are unusually low, the
speculator buys. He takes some o the ood o the market, thus
causing prices to rise. In the lean years which ollow, this stored
ood goes on the market, thus causing prices to all. O course,
ood will be costly during a amine, and the speculator will sell
it or more than his original purchase price. But ood will not be
as costly as it would have been u///oa/ his activity' (It should be
remembered that the speculator does not ..a: ood shortages
which are usually the result o crop ailures and other natural or
man-made disasters.)
1he eect o the speculator on ood prices is to level them
o. In times o plenty, when ood prices are /ou, the speculator
by /a,/a ao and storing ood causes them to rise. In times o
amine, when ood prices are ///, the speculator :// o// and
causes prices to all. 1he eect on him is to earn proits. 1his is
not villainous, on the contrary, the speculator perorms a valu-
able service.
Yet instead o honoring the speculator, demagogues and
their ollowers revile him. But prohibiting ood speculation has
the same eect on society as preventing squirrels rom storing
up nuts or winter-it leads to starvation.
168 D:/:a/a //: Ua:/:a.//:
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#$% &'()*#%*
he International Ladies` Garment Workers` Union
(ILGWU) has recently launched an unusual, extensive,
and costly advertising campaign. For racist, jingoistic
appeal, it is unparalleled. 1he theme o the campaign is that
oreigners` (dishonest and undeserving) are taking jobs away
rom Americans (honest, upstanding, and orthright). Perhaps
the most amous ad in the series is the one which depicts an
American lag above the caption Made in }apan.` Another
presents a picture o a baseball glove, with the caption 1he
Great Un-American Game.` 1he accompanying copy explains
that baseball gloves and American lags are imported.
1he !"#$%& ()*+!*, we are told, or these scathing attacks on
imports is that they create unemployment in America. And on a
supericial level, the argument seems plausible. Ater all, every
American lag or baseball glove that ,%-.( have been produced
domestically, but was instead imported, represents work that
could have been produced by Americans. Certainly, this means
less employment or American workers than would otherwise be
the case. I the argument was limited to this aspect, the
ILGWU`s case or the restriction, i not prohibition o imports,
would be well-made.
chap23importer.qxd 2/21/2008 12:29 PM Page 169
1. 1he argument, however, is allacious, and the con-
sequences to which it logically leads are clearly unsound. 1he
premise which justiies protectionism on the national level also
justiies it on the state level. We shall ignore the political
impossibility (unconstitutionality) o one state setting up taris
between it and other states. 1his is, ater all, irrelevant to the *,%/
&%0#, argument o the antiree trade ILGWU. 1heoretically,
any one state could justiy its policy in exactly the same way that
a nation can. For example, the state o Montana could bar
imports rom other states on the grounds that they represent
labor which a Montanan could have been given but was not. A
Buy Montana` program would then be in order. It would be
just as illogical and unsound as the ILGWU`s Buy American`
1he argument, however, does not end at the state level. It
can, with equal justiication, be applied to cities. Consider the
importation o a baseball glove into the city o Billings, Mon-
tana. 1he production o this item could have created employ-
ment or an inhabitant o Billings, but it did not. Rather, it cre-
ated jobs, say, or the citizens o Roundup, Montana, where it
was manuactured. 1he city athers o Billings could take the
ILGWU position and patriotically` declare a moratorium on
trade between the citizens o their city and the oreign economic
aggressors in Roundup. 1his tari, like those o the larger polit-
ical subdivisions, would be designed to save the jobs o the citi-
But there is no logical reason to halt the process at the city
level. 1he ILGWU thesis can be logically extended to neighbor-
hoods in Billings, or to streets within neighborhoods. Buy Elm
Street` or Stop exporting jobs to Maple Street` could become
rallying cries or the protectionists. Likewise, the inhabitants o
any one block on Elm Street could turn on their neighbors on
another block along the street. And even there the argument
would not stop. We would have to conclude that it applies even
to #&(#1#(-".$. For clearly, every time an individual makes a pur-
chase, he is orgoing the manuacture o it himsel. Every time
he buys shoes, a pair o pants, a baseball glove, or a lag, he is
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creating employment opportunities or someone else and,
thereby, oreclosing those o his own. 1hus the internal logic o
the ILGWU`s protectionist argument leads to an insistence
upon absolute sel-suiciency, to a total economic interest in or-
going trade with all other people, and sel-manuacture o all
items necessary or well-being.
Clearly, such a view is absurd. 1he entire abric o civiliza-
tion rests upon mutual support, cooperation, and trade between
people. 1o advocate the cessation o all trade is nonsense, and
yet it ollows ineluctably rom the protectionist position. I the
argument or the prohibition o trade at the national level is
accepted, there is no logical stopping place at the level o the
state, the city, the neighborhood, the street, or the block. 1he
only stopping place is the individual, because the individual is
the smallest possible unit. Premises which lead ineluctably to an
absurd conclusion are themselves absurd. 1hus, however con-
vincing the protectionist argument might seem on the surace,
there is $%0*+5#&4 terribly wrong with it.
Speciically, the essence o the allacy is a misunderstanding
o the nature and unction o ree trade. 1rade, we believe, out-
strips ire, the wheel, and the opposable thumb in explaining
man`s superiority over the animals. For it and it alone makes
specialization and the division o labor possible.
In their daily lives people consume virtually hundreds o
thousands o dierent items every year. I not or specialization,
each person would be orced to manuacture these items by him-
sel. 1his would be an impossible task. As a matter o act, peo-
ple would not even be able to produce enough ood or them-
selves, let alone produce all other goods which they might
desire. 833#,#*&+ production o ood involves the production o
many other things, including capital equipment. 1he produc-
tion o these things would involve *1*!9 :*!$%& in the manuac-
ture o all the items that are now distributed over an entire pop-
ulation. It is quite true that without ire, the wheel, and
opposable thumbs, mankind would ind itsel in a sorry state
indeed. But without specialization, since it would be impossible
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or virtually anyone to even eed himsel, everyone would be
aced with the prospect o starvation and death.
With specialization, each person can limit his productive
eorts to those areas he perorms best in. But trade is the linch-
pin that holds this system together. Without the possibility o
trade, people would amass enormous quantities o unusable
saety pins, paper clips, or whatever. Without the possibility o
trade, the incentive or specialization and the division o labor
would be gone. Everyone would be orced back into the suicidal
attempt to become sel-suicient.
!. Another signiicant reason or rejecting the protectionist
argument is that it ails to take exports into account. It is true
that or every American lag or baseball glove imported into this
country, some domestic jobs are lost. But what the protectionists
conveniently orget is that or every job lost in a domestic indus-
try because o competition with imports, a job can be gained in
an export industry.
Let us assume that the states o Vermont and Florida are sel-
suicient. Both produce, among other things, maple syrup and
oranges. Because o the diering climatic conditions, maple
syrup is scarce and expensive in Florida, and oranges are scarce
and expensive in Vermont. Vermont oranges have to be grown in
greenhouses, and Florida maple syrup comes rom maple trees
grown in large rerigerators.
What would happen i trade were suddenly begun between
the two states Vermont would o course begin to import
oranges and Florida would import maple syrup. Were the
ILGWU, or any other protectionist pressure group on the scene,
it would quickly point out that importing maple syrup into
Florida would ruin that state`s small maple syrup industry, and
the importation o oranges into Vermont would ruin the orange
industry there. 1he protectionists would ignore the act that jobs
would be gained in Florida in the orange industry, and in Ver-
mont, in the maple syrup industry. 1hey would ocus our atten-
tion on the jobs .%$+ due to #0:%!+$ and would completely ignore
the jobs 4"#&*( because o *=:%!+$. It is, o course, true that jobs
will be lost in Vermont in the orange industry and in the maple
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syrup industry in Florida. But it is no less true that jobs will
#&,!*"$* in the maple syrup industry o Vermont and in the
orange industry in Florida.
1here may well be ewer jobs available in both industries in
both states since orange growing can be done with less manpower
in Florida than in Vermont, and maple syrup can be manuac-
tured more eiciently in Vermont than in Florida. But ar rom
being a bad eect, this is one o the 4"#&$ o trade' 1he workers
reed rom these industries become available or projects that
could not be undertaken beore. For example, i a modern sys-
tem o transportation did not exist, and industry had to rely on
individuals carrying 100 pound loads on their backs, hundreds
and thousands o people would have to be withdrawn rom
other ields to ill the needs o the transport industry. 1hus,
many projects and industries would have to be abandoned. With
modern methods, ewer workers are needed. 1he extra workers
are thus ree to move into other areas, with all the consequent
beneits to society.
Whether or not there will be ewer jobs in the orange and
maple syrup industries in Vermont and Florida in the inal
analysis depends upon the way the people wish to spend their
newound income. It is only i these people decide to spend all
the newound income on extra oranges and maple syrup that the
total employment in these two industries will not change ater
trade begins. 1hen the same number o workers will produce
more maple syrup and oranges. More likely, though, the people
will decide to spend some o their newound income in these
two goods, and the rest on other goods. In that case, employ-
ment in these two areas will decrease somewhat (although this
decreased workorce may still be able to produce more than
beore), but employment will increase in the industries whose
products are most wanted by the consumers.
Viewed in its totality then, the opening o trade between the
two regions beneits both o them. Although employment will
all in the industries supplanted by imports, it will rise in export
industries and in the new industries developing because o the
availability o workers. But the protectionists are not entirely
;5* <0:%!+*! 17
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wrong. 1rade does create problems in the industries supplanted
and some workers will suer in the short run. 1here will, or
example, no longer be a brisk demand or Vermonters who spe-
cialize in the production o oranges, or or Floridians who pro-
duce maple syrup. 1here will be jobs or these people in other
industries, but since they will have to enter these ields as begin-
ners, they will probably have to accept a salary cut. 1hey may
also need considerable retraining.
So the question arises: Who is to pay or the retraining, and
who is to bear the loss associated with the lower salaries in the
new industry 1he protectionists, o course, would advocate
that the government or the capitalists should pick up the tab.
But this is not justiied.
First, it should be noted that only $>#..*( workers ace a cut
in wages because o a move to a new industry. 1he others will
enter the new industry on much the same level as that in which
they unctioned in the old. Instead o sweeping the loors o a
maple syrup plant, they will sweep the loors o perhaps a textile
actory. 1he skilled worker, by contrast, has speciic skills which
are o greater use in one industry than in another. He is not
equally useul in the new industry, and cannot command the
same salary.
Second, it should be understood that the skilled worker is an
investor, just as the capitalist. 1he capitalist invests in material
things, and the worker invests in his skills. All investors have one
thing in common, and that is that the returns on their invest-
ment are uncertain. In act, the greater the risk involved, the
more the investor may gain. In the example given, part o the
reason skilled orange growers in Vermont and skilled maple
syrup producers in Florida were earning high salaries, beore the
advent o trade between the states, was the risk that some day
such trade might begin.
Should the skilled orange growers, now that they must leave
the industry in which they were highly paid specialists, be sub-
sidized or retraining and or the salary cuts they must accept in
the interim Or should they bear the expenses and losses them-
selves It seems clear that any subsidy would be an attempt to
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maintain the skilled worker in the style to which he had become
accustomed, without asking him to bear any o the risk that
made such a high standard o living possible in the irst place. In
addition, such a subsidy, coming out o tax revenues which are
paid mainly by the poor, would constitute a orced subsidy to
rich skilled workers rom poor, unskilled workers.
. Now consider a situation which, on the surace, seems to
be the protectionist`s nightmare come true. Imagine that there is
one country which can outproduce the others in ".. industries.
Suppose }apan (the ILGWU`s bugaboo), can produce *1*!9+5#&4
more eiciently than America-not only lags, baseball gloves,
radios, televisions, cars, and tape recorders, but *1*!9+5#&4.
Would the ILGWU`s contention that we should orcibly restrict
trade be valid then
1he answer is that it is &*1*! justiiable to restrict trade
between two consenting adults, or even nations o consenting
adults, certainly not on the ground that the trade will harm one
o them. For i one party to the trade thought it was harmul, he
would simply reuse it. Prohibition would not be needed. And i
both parties consent to the trade, what right would any third
party have to prohibit it Prohibition would be tantamount to a
denial o the adulthood o one or both o the trading parties, by
treating them as juveniles who did not have the sense or the
right to enter into contractual obligations.
In spite o all such moral arguments, the protectionists
would still want to prohibit trade on the grounds that a disaster
would ollow i it were not done. Let us trace the situation which
would exist between the United States and }apan under the
nightmare conditions that have been stipulated. Supposedly,
}apan would export goods and services without importing any-
thing rom the United States. 1his would bring prosperity to
}apanese industry, and depression to our own. Eventually, }apan
would supply ".. our needs and, as there would be no exports to
counterbalance this, American industry would come to a grind-
ing halt. Unemployment would rise to epidemic proportions
and there would be a complete dependency on }apan.
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1his description may sound a bit absurd, yet the history o
protectionism in the United States, and the success o the
ILGWU campaign, indicate that such nightmares` have more
currency than might be imagined. Perhaps this horrid dream
prevails because it is easier to shrink back in horror rom it than
to conront it head-on.
In contemplating this nightmare, the question arises as to
what the Americans will use to 7-9 the }apanese goods with.
1hey cannot use gold (or any o the other precious monetary
metals), because gold is itsel a commodity. I Americans used
gold to pay or the imports they would in eect be *=:%!+#&4 gold.
1his would counter the loss o jobs due to imports, and we
would be back to the prototypical situation. Americans might
lose jobs in radio and television, but gain them in gold mining.
1he American economy would resemble that o South Arica,
which pays or its imports largely with exports o gold.
1he only other means o payment would be in the orm o
United States dollars. But what would the }apanese do with dol-
lars 1here are only three possibilities: they could return these
dollars to us as payment or our exports to them, they could keep
these dollars, or they could spend them on the produce o coun-
tries other than the United States. I they opted or the last alter-
native, the countries with whom they traded would have the
same three options: spending in the United States, hoarding, or
spending in other countries, and so on or the countries these
nations trade with in turn. I we divide the world into two
parts-the United States and all the other countries, we can see
that the three possibilities reduce to two: either the paper money
we send out comes back to buy our goods or it does not.
Assume that the worst` possibility happens-that none o
the money comes back to stimulate our exports. Far rom being
a disaster, as the protectionists allege, this would actually be an
unmitigated blessing' 1he paper dollars we would be sending
abroad would be just that, paper, worthless paper. And we would
not even have to waste` much paper-we could simply print
dollars with extra zeroes added on. So, in this ILGWU night-
mare, }apan would be sending us the products o their industry,
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and we would be sending }apan nothing but pieces o green
paper with many zeroes printed on them. It would be a prime
example o a giveaway. 1he reusal o oreigners to cash in their
dollars would amount to a large git to the United States. We
would receive the products, and they would receive worthless
Contrary to the antasies o the ILGWU and other protec-
tionist groups, the recipients o large gits do not usually suer
untold agonies. Israel has received reparations rom Germany
or many years, and gits rom the United States, without any
obvious deleterious eects. 1he recipient country does not 5"1*
to discontinue its own production. For the desires o any popu-
lace are ininite. I the }apanese gave a 1oyota car to every indi-
vidual in the United States, they would soon want two, three, or
many 1oyotas. Clearly, it is inconceivable or the }apanese (or
anyone else) to be so sel-sacriicing as to even try to satiate all
the desires o the American people without recompense. Yet only
i they succeeded in this impossible task would domestic indus-
tries collapse, because then *1*!9%&* would have all he wanted o
But in this imaginary case, the collapse o domestic industry
would be something to be :!"#$*(, not condemned. People in the
United States would discontinue all production only i they elt
they had enough material possessions and would continue to
have enough in the uture. Such a situation is not only not hor-
rible, it would be welcomed by Americans as the closest thing to
a Utopia.
In reality, o course, the }apanese and others would &%+ be
content to pile up the dollars we gave them as payment or their
products. As soon as their dollar balances went above the level
they chose, they would turn the dollars in, thereby stimulating
export manuacturing in the United States. 1hey might buy
American goods, and thus directly stimulate American exports.
Or they might demand gold or their dollars (attack` the dol-
lar), necessitating a devaluation which would make American
exports more competitive in the world markets. Either way, the
dollars would come back to the United States, and our domestic
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export industries would be stimulated. 1he employment lost
due to imports would be countered by increases elsewhere, just
as in the Vermont-Florida case.
Why would the }apanese trade with a country whose manu-
acturing was less eicient than their own Because o the di-
erence between what is called absolute advantage and compar-
ative advantage. 1rade takes place between two parties
(countries, states, cities, towns, neighborhoods, streets, persons)
not in accordance with their absolute ability to produce, but in
accordance with their relative ability. 1he classical example is
that o the best lawyer in town who is also the best typist. 1his
person has an absolute advantage over his secretary in the pro-
vision o both legal and typing services. Nevertheless, the lawyer
decides to specialize in the proession in which he has a ,%0:"!/
"+#1* "(1"&+"4*-the law. For suppose he is 100 times as good a
lawyer as his secretary, but only twice as eicient a typist. It is
more advantageous or him to pursue the legal proession, and
to hire (trade with) a typist. 1he secretary has a comparative
advantage in typing: she has only 1 percent o the eectiveness
in law, compared to her employer, but she is ully one hal as
good as he is typing. She is able to earn a living through trade
even though she is poorer at both skills.
1he }apan we have been imagining has an absolute advan-
tage in the production o all goods. But when the }apanese
return our dollars to us in return or our goods, America will
export the goods in which #+ has a comparative advantage. I we
are hal as good as the }apanese in the production o wheat, but
only one quarter as good in the production o radios, we will
export wheat in payment or our importation o radios. And we
will all gain.
1hus, no matter what situation is envisioned-even the
most extreme-the protectionist argument proves inadequate.
But because o the emotional potency o its appeal, importers
have long been viliied. For their persistence in a task which is
inherently helpul, importers should be looked upon as the great
beneactors they are.
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#$% &'(()%&*+
e are told that middlemen are exploitative. Even
worse than other proiteers-who at least provide
some type o service-the middleman is considered
entirely unproductive. He buys a product which someone else
has made, and resells it at a higher price, having added nothing
whatsoever to it, except the cost to the consumer. I there were
no middlemen, goods and services would be cheaper, with no
reduction in quantity or quality.
Although this concept is popular and prevalent, it is an
incorrect one. It reveals a shocking ignorance o the economic
unction o middlemen, who do indeed perorm a service. I they
were eliminated, the whole order o production would be
thrown into chaos. Goods and services would be in short supply,
i they were available at all, and the money that would have to
be spent to obtain them would rise wildly.
1he production process o a typical commodity` consists o
raw materials which must be gathered and worked on. Machin-
ery and other actors used in production must be obtained, set
up, repaired, etc. When the inal product emerges, it must be
insured, transported, and kept track o. It must be advertised and
retailed. Records must be kept, legal work must be done, and the
inances must be in good order.
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Production and consumption o our typical commodity
could be portrayed in the ollowing manner:
No. 10

Number 10 represents the irst stage in the production o our
commodity and no. 1 the last stage when the commodity is in
the hands o the consumer. Stages no. ! through no. - indicate
the intermediate stages o production. All o these are handled
by middlemen. For example, no. ! may be an advertiser, a
retailer, wholesaler, jobber, agent, intermediary, inancier,
assembler, or shipper. No matter what his speciic title or unc-
tion, this middleman buys rom no. and resells the product to
no. . Without speciying, or even knowing exactly what he
does, it is obvious that the middleman perorms a necessary
service in an eicient manner.
I it were not a necessary service, no. would not buy the
product rom no. ! at a higher price than that at which he could
buy the product rom no. . I no. ! were not perorming a valu-
able service, no. would cut out the middleman` and buy the
product directly rom no. .
So it is apparent that no. ! is doing an eicient job-at least
a more eicient job than no. could do himsel. I he were not,
no. would again cut out middleman no. !, and do the job him-
It is also true that no. !, although perorming a necessary
unction in an eicient manner, does not overcharge or his
eorts. I he did, it would pay or no. to circumvent him, and
180 !"#"$%&$' )*" +$%"#"$%,-."
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either take on the task himsel, or subcontract it to another mid-
dleman. In addition, i no. ! were earning a higher proit than
that earned in the other stages o production, entrepreneurs in
the other stages would tend to move into this stage, and drive
down the rate o proit until it was equivalent to the proit
earned at the other stages (with given risk and uncertainty).
I the no. ! middleman were eliminated by a legal decree, his
job would have to be taken over by the no. s, no. s, or others,
or they would not get done at all. I the no. s, or the no. s took
over the job, the cost o production would rise. 1he act that they
dealt with no. ! as long as it was legally possible to do so indi-
cates that they cannot do the job as well-that is, or the same
/*" 0&%%."1,$ 181
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price or less. I the no. ! stage were completely eliminated, and
nobody took over this unction, then the process o production
would be seriously disrupted at this point.
1he present analysis notwithstanding, many people will
continue to think that there is something more pure` and
direct` in exchanges which do not involve a middleman. Per-
haps the problems involved with what economists call the dou-
ble coincidence o wants` will disabuse them o this view.
Consider the plight o the person who has in his possession
a barrel o pickles which he would like to trade or a chicken.
He must ind someone who has a chicken and would like to
trade it or a barrel o pickles. Imagine how rare a coincidence
would have to occur or the desires o each o these people to be
met. Such a double coincidence o wants` is so rare, in act, that
both people would naturally gravitate toward an intermediary, i
one were available. For example, the chicken-wanting pickle
owner could trade his wares to the middleman or a more mar-
ketable commodity (gold) and then use the gold to buy a
chicken. I he did, it would no longer be necessary or him to
ind a chicken-owning pickle wanter. Any chicken owner will
do, whether he wants pickles or not. Obviously, the trade is
vastly simpliied by the advent o the middleman. He 1,2"3 ,
%45-." 64&$6&%"$6" 4# 7,$)3 5$$"6"33,89. Far rom preying on the
consumer, it is the middleman who in many instances makes the
trade the consumer wishes possible.
Some attacks on the middleman are based on arguments
which are represented in the ollowing diagrams. In an earlier
time, represented by diagram 1, the price o the good was low,
and the share that went to the middleman was low. 1hen (dia-
gram !), the share o the value o the inal good that went to the
middleman rose, and so did the cost o the good. Examples such
as these were used to prove that the high prices o meat in the
spring o 1-7 were due to middlemen. But they prove, i any-
thing, quite the opposite. 1he share going to the middlemen
may have risen, but only because the contributions made by
middlemen have also increased' An increased share without an
increased contribution would simply raise proits and attract
18! !"#"$%&$' )*" +$%"#"$%,-."
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/*" 0&%%."1,$ 18
Farmer Middlemen
many more entrepreneurs to the area. And their entry would
dissipate the proits. So i the share which goes to middlemen
rises, it must be because o their productivity.
Examples o this phenomenon abound in the annals o busi-
ness economics. Who can deny that department stores and
supermarkets play a greater role (and take a greater share o the
market) than middlemen in times past Yet department stores
and supermarkets lead to 148" eiciency, and .47"8 prices.
1hese new modes o retailing necessitate 148" expenditures on
the middleman phases o production, but greater eiciency leads
to lower prices.
Diagram 1
Diagram !
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#$% &'()*#%%'
t is clear that proits and everything associated with them
have been under attack or a long time. What is not so clear
is the reason or these attacks.
Several dierent patterns can be discerned. 1he objection
most oten made is that proits, unlike other sources o income
such as wages, rents, or even interest (payment or waiting risk),
are !"#$%"#&. 1here is no honest labor or eort associated with
proit making to justiy the beneits. Most people do not under-
stand the process by which proits are attained, and assume
there is '()#*+,"- untoward going on. . . . It isn`t air to make
proits without having to .(%/ or them.`
Another objection oten voiced against proits, and especially
against proiteering (unreasonable proits), is that such proits
impoverish the rest o mankind. 1he notion is that there is only
a inite amount o wealth available and i the proiteers get more
o it, there is less or everyone else. 1hus, not only are proits
undeserved` because they are unearned,` but they actually
harm people by diverting unds rom the rest o society.
It also appears to many that proits are earned by taking
advantage o the helplessness o others. 1his view constitutes a
third type o objection, and is relected in the scornul popular
chap25profiteer.qxd 2/21/2008 12:30 PM Page 185
expression that proiteers earn their income rom the misery o
others.` When the helplessness` consists o a lack o knowl-
edge, the critics o proits are especially vocierous in their con-
demnation. For example, the case where a proit is earned solely
because the customer is unaware that the same commodity is
being sold close by at a lower price, is particularly vexing. When
the customer is poor, the proiteer is even more condemned.
1he usual deenses o the idea and practice o earning a
proit leave a great deal to be desired. 1hey have in the past been
limited to pointing out: (1) proits are patriotic, and that to
attack them is un-American or perhaps communistic, (!) they
are not very big, anyway, and () they are used, in many cases,
or charitable contributions. Needless to say, these are not very
ormidable deenses. Consideration must be given to the unc-
tion o proits in a modern economy, and an eort made to pro-
vide a somewhat more spirited deense or the ancient and hon-
orable vocation o proiteering.
First, proits are earned by entrepreneurs who see and seize
upon opportunities which are not readily apparent to other peo-
ple. 1he opportunity grasped by the entrepreneur may vary
rom case to case, but in all cases people are oered trades which
they hold to be in their advantage, and which would not be
oered in the absence o the entrepreneur. In the most usual
case, the entrepreneur sees a discrepancy between dierent
prices-strawberries selling at !c per jar in New }ersey, and !c
in New York. As long as the costs associated with the transport
o strawberries (transportation, insurance, storage, breakage,
spoilage, etc.) are less than the price dierential o !0c per jar,
the enterprising entrepreneur is in a position to oer two sets o
trades. He can oer to buy strawberries in New }ersey at a price
slightly higher than the prevailing !c per jar, and then oer to
sell strawberries to New Yorkers at a price below the !c per jar
that prevails in that market. In both cases, i he inds any takers,
he will beneit those he deals with, either by oering a higher
price or their goods than they have been accustomed to receiv-
ing, or by oering to sell them goods at a lower price than they
are accustomed to paying.
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In addition to the intratemporal price discrepancy case, there
is the intertemporal case, where a price discrepancy between
present goods and uture goods is perceived. 1ake risbees as an
example. Consider all the actors o production-land, labor,
and capital-which are embodied in the inal good o the ris-
bees oered or sale. 1he actors o production are goods o a
sort themselves, and, thereore, have prices attached to them.
Ater taking due account o the time it will take to convert these
actors into the inal good, three possibilities emerge: (1) there is
no price discrepancy between the prices o the actors and the
price o the uture good, (!) there is a discrepancy, and the ac-
tor prices are high, relative to the price o the good, and () there
is a discrepancy, and the price o the inal good is high relative to
the prices o the actors.
I there is no price discrepancy, the successul entrepreneur
will not act. But i the actor prices are relatively high, the entre-
preneur will withdraw rom production. It would be wasteul to
devote relatively valuable resources on a inal good that will be
relatively valueless. He might sell his shares in the companies
which engage in such production. Or, i he does not hold shares,
he can contract to sell them in the uture at their present high
price (which does not yet relect the production error o manu-
acturing risbees with resources that are more valuable than the
risbees themselves will be). He can cover these sales by pur-
chases o the same amount o shares in the uture, when he
expects their value to be lower, because o the production error.
1here are many people who are mystiied by this process, oten
called selling short.` 1hey wonder how it is possible to sell
something that you do not own, in the uture, but at today`s
prices. Strictly speaking, one cannot sell anything that one does
not own. But it is certainly possible to 6%(),'# to sell something
in the uture that one does not yet own, on the understanding
that one can always 4!7 it in the uture, and *+#" deliver it, in
ulillment o the sales contract. In order to test the understand-
ing o this concept, we can ask who would agree to 4!7 shares in
the uture at the present price People who expect the price to
rise even urther, but do not want to invest their money now.
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I, on the other hand, the entrepreneur thinks that the price
o the inal good is likely to be greater than the combined costs
o all the actors, he will engage in the opposite behavior. He will
produce the risbees and/or invest in companies which under-
take such production.
1he third type o hidden opportunity which the en-
trepreneur can seize upon does not involve any price discrep-
ancies, either inter- or intratemporal. 1his type o opportunity
involves goods that have not yet been produced, and thereore
have no prices at all. Consider in this regard the risbee 4#1(%# it
was produced or invented. 1here was no guarantee, at that time,
that the public would accept it. In cases o this kind, the entre-
preneur eels, thinks, or divines that there is something, the lack
o which may not even be apparent to anyone else, that con-
sumers would greatly value i they could but be told o its exis-
tence and convinced o its beneicial attributes. In this case the
entrepreneur plays nursemaid to the idea, through the processes
o invention, inancing, advertising, and all other steps necessary
to bring an idea to public acceptance.
Ater having considered some o the types o activities proit
making entrepreneurs are likely to engage in, the results o proit
seeking can be assessed.
One result is immediately apparent-the collection and dis-
semination o knowledge. 1he knowledge o hitherto unpro-
duced products is an obvious and dramatic example, but as we
have seen, the knowledge engendered by proit seeking behavior
is by no means limited to such exotic occurrences. On a daily
basis, the proit seeker is constantly bringing to the market
knowledge about price dierentials, both inter- and intratempo-
1his knowledge is o great beneit to all concerned. Without
it, people in New }ersey would be eating strawberries which they
would much rather sell, i they could ind someone willing to
pay more than !c per jar. 1hat is, the New }erseyans only eat
the berries because o their lack o knowledge o people who
value them more than they themselves. In addition, without
this knowledge, there would be people in New York "(* eating
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strawberries because they assume that the only way to get them
is to pay !c a jar, when in truth, they could be had or less.
O course, the proit seeker does not bring this knowledge to
bear as a *#$:+#% might. He is not one who goes about the coun-
tryside explicitly imparting inormation. As a matter o act, ater
his work is done, none o the people in New }ersey and New
York may even be aware o the relative prices o strawberries in
those markets. What the proit seeker does is make sure that the
#11#:*' o knowledge o prices in the dierent areas are elt. 1he
proit seeker does not directly spread the knowledge himsel, he
merely spreads the strawberries which, in the absence o knowl-
edge o their prices, would not have been so allocated.
It is perectly true then, that the proit maker takes advan-
tage o the ignorance o other people. I the relevant knowledge
were present, the entrepreneur could hardly earn proits by ship-
ping strawberries rom New }ersey to New York. Although true,
however, it is hardly reprehensible. Anyone whose unction it is
to sell a commodity )!'* sell it to those who lack it. 1he act that
the lack is determined by ignorance does not make the lack-or
the need-any less real. 1he proit seeker takes advantage` o
the lack o knowledge o his customers in the same way that the
armer takes advantage` o the hunger o his customer-by
providing that which his customer lacks.
1he proits o the entrepreneur, thereore, are not made at
the expense o anyone else. It is not true that there must be losses
elsewhere in the economy equal to the gains o the entrepreneur,
because it is not true that the entrepreneur ails to create any-
thing. 1he entrepreneur does create. He creates the possibility o
cooperation between disparate, and in many cases widely sepa-
rated, groups. He is a broker or intermediary in (66(%*!",*,#', as
it were. It is his unction to see to it that mutually beneicial
opportunities are not bypassed. Why this type o eort should be
singled out and denigrated as not honest work` is beyond the
scope o reason.
In addition to serving as a ocal point or the utilization o
knowledge, the proit seeking entrepreneur beneits people by
oering them choices otherwise not open to them. 1he case in
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which the entrepreneur presents the public with an entirely new
product is again an obvious example. But the principle has
applications even in the more mundane case o intertemporal
price discrepancies. For society beneits when valuable resources
are "(* committed to inal products which are less valuable than
1-0 0#1#"&,"- *+# 3"&#1#"&$45#
;<+= > '!'6#:*#& $' )!:+? @#A' $ )$'(:+,'*=B
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the resources themselves. Such resources can be used in the pro-
duction o more valuable inal products, that is to say, in the pro-
duction o inal products which consumers value more.
It should be borne in mind that all entrepreneurial transac-
tions are strictly voluntary. 1he people with whom the entrepre-
neur deals are just as ree to reject as to accept his oers. I they
accept, thereore, it can only be because they eel that they ben-
eit rom trading with him. 1hey may rue their decision, and
wish they had made their purchase at a lower price, or sold their
goods at a higher price. But this does not alter the claim that the
proit seeking entrepreneur oers a trade which, at the time it is
oered, is considered beneicial by all the parties to it. 1his is an
important claim, and it speaks well or the entrepreneur. It is a
claim which cannot, or example, be made on behal o govern-
ment transactions because they cannot be said to be ully volun-
Another result o the proit making process is that ater it is
undergone in any given market, there is less scope or its contin-
uation. Its success sows the seeds or its demise. Once the oppor-
tunity has been pointed out and ulilled by the entrepreneur, his
unction is completed. Like the Lone Ranger o a bygone era,
the lone entrepreneur` must move on to make other pastures
greener. However, i imbalances in prices should arise shortly
thereater, the proit seeker will return.
1he incentive behind the entrepreneur`s attempt to hold
together the disparate parts o the economy is, o course, the
proits he hopes to gain thereby. 1his is an excellent example o
the beneicial eects o a proit and loss system. For the success-
ul entrepreneur-the one who earns proits-holds the econ-
omy together by decreasing price discrepancies. But the entre-
preneur who buys when he should sell, or sells when he should
buy (who instead o decreasing price discrepancies and holding
the economy together, increases them and disrupts the econ-
omy), loses money. 1he more mistakes he makes, the less able
he is to continue in his error. We cannot hope to completely rid
the economy o errors. But a mechanism that automatically
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tends to improve the perormance o the entrepreneurial class at
every given instant is not to be dismissed lightly.
Although a case has been made or the beneicial eects o
proits, proiteering has not been mentioned. It is important to
do so, or there are many who would contend, in the spirit o the
Aristotelian golden mean,` that proits in moderation are
acceptable, perhaps even beneicial, but that the extremism o
proiteering can only be deleterious.
1he word proiteering` has always been used in a smear
context. Proits` plus I hate the son o a bitch` equals proi-
teering` in the same way that irmness` plus I think he is
wrong` equals stubbornness.` (Bertrand Russell has said, to
illustrate this point, I`m irm, you`re stubborn, and he`s a pig-
headed son o a bitch.`) We do not have an equivalent term o
opprobrium or the wage earner (wageer) who seeks exorbi-
tant` or unconscionable` wage rates. Perhaps because public
opinion` (the mass media establishment) avors high wages but
not high proits.
Semantics aside, it would appear that i proits are a beneit
to our society, then proiteering is o even greater beneit. 1he
possibility o proits, as has been demonstrated, is a sign that
something is amiss in the economy, indicating that people are
not taking advantage o mutually beneicial trades. 1he actual-
ization o proits indicates that something is being done about
these missed opportunities (entrepreneurs are seeing to it that
the strawberries get properly spread around.` But i the possi-
bility o proits indicates something amiss, then the possibility o
proiteering signiies even greater gaps in the economic abric.
And i mere proits indicate an economic cure in progress, then
proiteering is a sign that something o a substantial magnitude
is operating to rectiy the situation. Instead o moderate proits
being acceptable, and proiteering being exploitative,` we can
see that the greater the proits, and the greater the proiteering,
the better o the economy is. A medical analogy comes to mind:
I Band-Aids are good` because the body can be cared or by
them, then surgery (proiteering`) is better, because it shows
that a much more needy patient is being cared or.
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1he most important deense o proit making is based on
political reedom:
1here are basically only two ways to run an economy. 1he
irst, voluntaristically, with decentralism and reliance on the
price and proit-and-loss system to provide inormation and
incentive. 1he second, compulsorily, with central planning,
economic orders and directives, reliance on the initiative o the
economic dictators, and the obedience o everyone else. 1hese
two systems are the two polar extremes. All other economic sys-
tems are permutations and combinations o these two pure`
1he compulsory or command economy is simplicity itsel in
outlook. 1he economic leaders simply decide what is to be pro-
duced, who is to produce it and how, and who is to reap the ben-
eits o such production.
By contrast, the voluntary or ree market economy is quite
complex. 1he individual must decide what to produce and how
to produce it. 1he incentive is his own enjoyment o the product
and what he may get or it by trading it with other people.
Instead o being coordinated by economic directives, the ree-
market economy, as we have seen, is coordinated by the proit-
and-loss mechanism.
Now consider this paradox: 1hose who are requently the
most virulent critics o proiteers` and, by extension, o the
whole ree market system, are requently also vocierous cham-
pions o decentralism and the rights o the individual in per-
sonal matters. Yet, insoar as they attack proits` and proiteer-
ing,` they are attacking not only the right o individuals to
unction reely in the economic domain, but the very oundation
or reedom in every other area o human lie.
In their attacks on proits and proiteering-indeed on all
things proitable`-they show themselves to be in league with
despots and dictators.
I they were to have their way, and proits were severely
restricted or outlawed entirely, coercive collectivism would be to
that degree strengthened. Personal liberties would be washed
away in a tide o orders rom the top. 1he individual cannot be
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ree i his economic existence is based on the decree o an eco-
nomic dictator rom whose dictates there is no appeal. In a ree
market, i you quit your job, an employee leaves your service, a
customer reuses to buy rom you, or a supplier reuses to sell to
you, there are other actual or potential bosses, employees, cus-
tomers or suppliers. But in a controlled economy, there are no
other alternatives. Deviations, eccentricities or nonorthodox
inclinations are not tolerated.
1he champions o civil liberties have a uniquely brilliant
insight, and a truly humane dictum which they apply assidu-
ously in the area o sexual morality-Anything goes between
consenting adults, and (implicitly), nothing goes but that which
is between consenting adults.` But they steadastly reuse to
apply this rule to any area other than that o sexual morality'
Speciically, they reuse to apply it to the economic arena. But
this humane dictum should be applied to $55 parts o human lie,
including the proiteer $' .#55 $' the sexual pervert or deviant, to
the entrepreneur $' .#55 $' the etishist, to the speculator $' .#55
$' the sado-masochist.
1o argue that perverts, deviants, and others o this ilk have
been unjustly denigrated is one o the main burdens o this
book. We cannot, thereore, be accused o having played ast and
loose with the deviant community. But it is C!'* $' unair to treat
members o the proiteering community as pariahs.
One last criticism o proiteering and the ree market is the
view that in the distant past, when there was an agrarian econ-
omy and lie was simpler,` perhaps a ree enterprise system was
viable. 1oday, what might have been appropriate or armers and
small tradesmen simply will not do. In our complex industrial
society, we cannot aord to leave things to the anachronistic
whims o individuals. We need the strong central control o an
economic planning board, and the elimination o proits and
proiteering rom our transactions.
1his view is widespread. In some circles it is thought to be
sel-evident.` But the analysis o proits as intimately tied up
with a lack o knowledge must lead to the opposite view. 1he
institution o proits is an invaluable aid in the gathering and
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dissemination o knowledge and the eects o knowledge. I
anything can be taken as a mark o a highly complex modern,
nonagrarian economy,` it is this selsame 5$:/ o economic
knowledge and the utilization o it. It would, thereore, seem to
ollow that the proit system becomes )(%# valuable as the econ-
omy becomes more complex' For in such an economy, the inor-
mation provided by the automatic price and proit and loss sys-
tem is essential. Economic dictatorship, i it is ever viable, which
it is not, is so only in a simple economy, one which can be easily
managed by one group o bureaucrats.
In conclusion, a sharp, rigid, and basic distinction must be
drawn between the proits that can be earned in the market-
place, and the proits that can be earned` through government
subsidies and inluence, in short, through the system o corpo-
rate-state capitalism. In the marketplace, all transers o unds
must be voluntary. 1hereore, all proits must be based on the
voluntary choices o the economic actors, and must hence be
indicative o, and bring about solutions or, the wants o the
economy. 1hus, the assertion that the possibility o proits shows
the scope o unrequited trades and that the actual earning o
proits indicates that these gaps are being illed, applies only to
the ree-market economy.
1hese assertions cannot be made in the absence o the ree
market. Proits in the mixed` economy (an economy that has
elements o the ree market as well as elements o coercion)
might well be due to no more than the prohibition o competi-
tion. For example, a tari on imports will increase the demand
or the domestic product, and proits in the domestic industry
will rise. But it can hardly be concluded rom this that any new
inormation was uncovered, or that consumer satisaction was in
any way increased. I anything, the opposite would be the case.
1he tie between proits and well-being is thus sundered and we
can no longer iner the latter rom the ormer.
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!""# %&'(')*
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-.% /-0"12"3%0
here are basically two methods o mining coal: strip
mining and deep mining. In deep mining, an intricate
set o tunnels, shats, and braces are set deep in the earth.
People who work in such mines or long periods o time com-
monly contract black lung disease,` the dreaded miner`s mal-
ady caused by breathing in coal particles. Deep mining is haz-
ardous to workers in other ways. Mine entrapments, or example,
in which hundreds o miners are trapped ar below the surace o
the earth, occur with deadly regularity. 1he immediate cause
may be a cave-in, escaping gas, an explosion, or water seepage,
but the ultimate cause is the deep-mining method itsel.
In strip mining, as the name implies, the earth is stripped,
layer by layer, until the coal stream is unearthed. Although espe-
cially well suited or coal beds that lie close to the surace, strip
mining has also proven easible at moderate depths. Strip min-
ing is ree o the danger o cave-ins, and other orms o entrap-
ment, and o black lung disease. It is also a much cheaper
method than deep mining. In spite o these advantages, strip
mining has been roundly condemned by practically all sources
o inormed,` liberal,` and progressive` opinion.
1he supposed explanation or this otherwise inexplicable
state o aairs centers around two criticisms o strip mining: it is
chap26stripmine.qxd 2/21/2008 12:30 PM Page 199
said to cause pollution, and to despoil the natural beauty o the
landscape. But as can be seen rom even a cursory examination,
these criticisms hardly suice. Even i they were correct, it
would be diicult to reconcile humanistic impulses with a pre-
erence or deep mining. For there is no black lung disease
among miners who work on the surace o the earth, there is no
danger o cave-ins or entrapment. Clearly, lie is on the side o
strip mining.
But, upon examination, it is clear that the criticism is by no
means correct. First consider pollution. Although it is true that
pollution does in act result rom strip mining, it is not a !"#"$%
$&'( concomitant. It can be eliminated, and it would be elimi-
nated, i laws prohibiting trespass were enorced.
What is presently done during the strip mining o coal is to
pile up in high mounds the earth that must be peeled away to
expose the coal. 1hese mounds are usually piled near streams o
water. Substantial amounts are borne away by the streams, con-
taminating them and the lakes and waterways into which they
eed. Also, the denuded land becomes a source o mudslides,
thus, as a result o what the strip miner does, the whole environ-
ment is damaged.
But these are not necessary elements o the strip mining
process. Although a person may do whatever he wishes with
land that he owns, i what he does damages land belonging to
others, he should be made to bear the costs o the damage. I, or
example, the strip miner`s activities result in mudslides and
destruction o other people`s land and goods, he is liable. Part o
his responsibility may be to reseed or otherwise rehabilitate the
land to eliminate the possibility o uture mudslides. I strip
miners were made to bear the ull costs o their activity, and i the
property owners downstream were granted preventative injunc-
tions i they were unwilling to be compensated or damages,
then the pollution would cease.
It is most important to see that the present link between pol-
lution and strip mining has no inherent status, but is rather
entirely due to the ailure to apply the common laws o trespass
against the strip miners. Imagine any other industry, such as the
!00 )"*"!+,!- /0" 1!+"*"!+&23"
chap26stripmine.qxd 2/21/2008 12:30 PM Page 200
40" 5/',67,!"' !01
hula hoop industry, that was allowed to violate the law in this
manner. Now there is no !"#"$$&'( connection between the hula
hoop industry and pollution. But i excess plastic clutter were
&3389"+, there soon would be a connection between this industry
and pollution, at least in the mind o the public. And so it is with
the coal mining industry, and with strip mining in particular.
1here is nothing about the strip mining method o coal mining
chap26stripmine.qxd 2/21/2008 12:30 PM Page 201
that is inherently pollution-causing. It is only because the laws o
trespass have not been rigidly applied to the strip miners that the
link between stripping and pollution exists. Let these laws be
ully adhered to and this argument against strip mining will dis-
What o the other argument against the strip miner: that
stripping spoils the natural beauty o the landscape 1his is a
shaky objection at best because, when it comes to beauty or aes-
thetics, there are no objective standards. What is beautiul to one
person may be ugly to another and vice versa. It is true that strip
mining removes the vegetation, grass, and trees rom the land-
scape. It can turn a lush, ertile landscape into a veritable desert.
But some people preer the desolation and emptiness o the
desert' 1he Painted Desert in Arizona, the salt lats o Utah, and
the Grand Canyon o Colorado are considered by many people
to be places o great beauty.
I contrast is one o the concomitants o natural beauty, then
the small bits o barren land created by strip miners amidst the
lush greenery o the Appalachians actually add to the beauty o
the scene. Certainly we cannot unambiguously and objectively
ault the strip miner on the grounds that he destroys the beauty
o the landscape.
But discussions about aesthetic criteria will not resolve the
issue raised by the critics, since the issue is not really about
beauty, though it is phrased as i it were. 1he real objection
seems to be that strip mining is an intrusion upon nature by an
oensive industrial society. 1he notion that land areas should be
let in their natural state` seems to be the operative one. But i
the lovers and protectors o nature as-is` have the right to pre-
vent strip miners rom operating, then they also have the right to
prevent armers rom clearing virgin soil and planting upon it,
and to prevent builders rom erecting buildings, bridges, acto-
ries, airports, and hospitals. 1he argument rom nature` is
really an argument against civilization and against the use o
human intelligence.
Actually, many among those who condemn strip mining
as unnatural` would themselves object vigorously i other
!0! )"*"!+,!- /0" 1!+"*"!+&23"
chap26stripmine.qxd 2/21/2008 12:30 PM Page 202
conditions-homosexuality or miscegenation, or example-
were objected to on those grounds. 1hey would point out very
little is natural` to man, and that sometimes what is natural-
murderous rage, or example-is not what is best. Civilization
depends to a great extent upon our being able to transcend
1o say o a thing that it is natural` or unnatural` is not to
say anything about that thing`s intrinsic value. A thing`s value
depends upon whether or not it satisies our needs, and con-
tributes to our well-being. Strip mining, when evaluated ration-
ally, ulills these more rational criteria.
40" 5/',67,!"' !0
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#$% &'##%(%(
he litterer today will ind ew deenders. He is beset on
all sides, bearing the brunt o the barbs o do-gooder
groups. Radio and television stations beam anti-litter
messages as a public service,` neighborhood and parent-
teacher associations, church groups, and civic organizations are
in agreement on the issue o littering. 1he ilm industry, which
must pass over many topics as too controversial, is united in its
hatred or litter. Litter is a great uniier.
1here is, however, one small, seemingly insigniicant detail
which destroys the case against litter and the litterer. Litter can
!"#$ take place in the public domain, "%&%' in the private
domain. 1he ads showing the supposed evils o litter take place
on highways, beaches, streets, parks, subways, or public bath-
rooms-all ()*#+, areas. 1his is not because -!./ littering occurs
in public places. It is deinitional. I something resembling litter-
ing in 1## other aspects were to occur in a private place, it would
not be considered littering. When large crowds leave a ballpark,
movie, theater, concert, or circus, what remains among the seats
and aisles is not and ,1""!/ be litter. It is garbage, dirt, or waste,
but not litter. Ater normal working hours in the downtown area
o our cities, a horde o cleaners descend upon the privately
owned banks, stores, restaurants, oice buildings, actories, etc.
chap27litter.qxd 2/21/2008 12:30 PM Page 205
What they do is ,#%1", and under no circumstances do they pick
up litter. Concurrent with this, the department o sanitation
cleans the public streets and sidewalks, picking up #+//%'.
Now there is no real distinction to be drawn between leav-
ing garbage in public places and leaving garbage in private
places. 1here is no reason to call the ormer and not the latter
littering,` since what is being done in both cases is the same. In
both cases, the creation o garbage is a concomitant o the
process o producing or o consuming.
In some instances, leaving garbage to be picked up later is
the optimal solution. For example, it is too time-consuming or
a carpenter to clean up the wood shavings as he works. It is eas-
ier and cheaper to allow the litter` (wood shavings) to accumu-
late and be swept away at the end o the day or at periodic inter-
vals. 1he actory manager ,!)#2 institute an anti-litter`
campaign and orce the carpenters to keep their work area ree
o any accumulation o wood shavings. He might even enorce
this edict with the threat o a ;0 ine. However, with these rules
his workorce might quit, or, i they did not quit, the costs o
production would rise inordinately, and he would lose business
to competitive actories.
In the medical practice, on the other hand, littering cannot
be tolerated. Operating, consulting, or treatment rooms must be
sanitary, well-scrubbed and ree o debris. Failure to adopt a
strong anti-litter campaign here would involve the administra-
tor o the hospital in inancial ailure, as it became known that
his institution was unsanitary.
In the case o consumption, most restaurants, or example,
do not pursue anti-litter campaigns. 1here are no signs on
restaurant walls orbidding the dropping o orks, napkins, or
bread crumbs. A restaurant ,!)#2 prohibit litter, but it would
lose its customers to other establishments.
What these seemingly disparate examples have in common
is to illustrate that in the -1'3%/, the decision o whether and
how much litter to allow is based ultimately on the wishes and
desires o the consumers' 1he question is not treated simplisti-
cally and there is no general outcry to get rid o litterbugs.`
!06 4%5%"2+"6 /7% 8"2%5%"21*#%
chap27litter.qxd 2/21/2008 12:30 PM Page 206
97% :+//%'%' !07
;<%$= >!?!= $!) @1"/ 1 ,+/1/+!" 5!' #+//%'+"AB C+,3 )( /71/
-1/,7*!!3 ,!&%'DE
1here is rather, a careul weighing o the costs and beneits o
allowing waste materials to accumulate. 1o the extent that the
costs o garbage collection are low and the harm caused by
garbage accumulating is high, there tend to be requent col-
lections and severe penalties or leaving garbage around, as in
the example given o littering in a medical acility. I the costs
o garbage collection are high and the harm caused by the
chap27litter.qxd 2/21/2008 12:30 PM Page 207
accumulation is low, there tend to be less requent collections
and no penalties or littering. 1hese dierences in policy are not
the result o any governmental law, but are a result o the mar-
ket process. Entrepreneurs who do not act in accordance with an
accurate cost-beneit analysis lose customers, either directly, as
customers stalk out in anger, or indirectly, as the higher costs o
operation allow the competition price advantages.
A system which is based on the needs and desires o the peo-
ple involved is very lexible. In each example, a policy on litter-
ing was tailored to the requirements o the speciic situation.
Moreover, such a system is capable o responding quickly to
changes, whether they be in the costs o litter collection or in the
harm caused by uncollected litter. I, or instance, a system were
installed in hospitals enabling litter to be taken out at very little
cost, or i consumer desires regarding litter underwent a marked
change, hospital administrators would have to relax their strin-
gent anti-litter stance. 1he hospitals which ailed to adjust to the
new technology and tastes would tend to lose patients to com-
peting institutions. (1hese are private, proit making hospitals.
Public hospitals, which obtain their unds through compulsory
taxation, have no such incentives to please customers.)
On the other hand, i it were discovered that soda cans and
popcorn boxes, let under the seats at baseball stadiums, were
disease carriers, or interered with the viewing o the game, the
stadium rules concerning litter would be changed 1)/!-1/+,1##$
by stadium owners, without any government edict.
In considering litter in the public domain, there is no inely
attuned system responding to the needs and desires o the people.
Rather, the public domain is the ward o the government, and the
government treats consumer demands in a rather cavalier man-
ner, virtually ignoring them. Government enterprise is the only
enterprise that will deal with an increased desire to litter with a
steadast determination to eliminate it, thereby reusing to adapt
to either consumer desires or changing technology.
1he law is
!08 4%5%"2+"6 /7% 8"2%5%"21*#%
Only a nonproit government agency could react to increased con-
sumer desires or road use (traic tie-ups) with a threat to ban cars. Only
chap27litter.qxd 2/21/2008 12:30 PM Page 208
the law. 1he government can unction this way because it is out-
side the market. It does not obtain its revenues rom the market
process o voluntary trade. It obtains its revenues through taxa-
tion, a process completely unrelated to its ability to satisy cus-
1he governmental argument against litter is that it is done
out o disrespect or others` rights. But this argument is without
merit. 1he whole concept o private litter is a case in point. I lit-
ter were a violation o rights and a reusal to consider the com-
ort o others, what o the litter` in restaurants, ballparks, acto-
ries, etc. Litter comes about in the private market precisely as a
means o .1/+.5$+"6 the desires o consumers or comort. One no
more violates the restaurant owner`s rights by littering than by
eating, since both are (1+2 or.
How is the government`s ailure to maintain a lexible litter-
bug policy in the public sector to be interpreted It is not entirely
due to indierence, although it is ar simpler to totally prohibit
something than to deal with it in a reasonable manner. 1he
explanation is that no government, no matter how interested or
beneicent, could maintain a lexible litterbug policy. Such a pol-
icy must be supported by a price system-a proit and loss sys-
tem-to measure the cost and beneits o littering, and to auto-
matically penalize managers who ailed to adjust accordingly. I
the government enacted a system o this type, it would no longer
be a governmental system, or it could not rely on the *F/% "!+'
o government-a tax system completely unrelated to success in
satisying the wants o consumers.
1he inability o the government to be lexible can occasion-
ally take strange turns. For many years there was no eective
restriction in New York City o dog owners who allowed their
dogs to deecate on the streets and sidewalks. Presently there is
a movement aoot to prohibit dog deecation on any street or
97% :+//%'%' !0-
a government agency ree rom the necessity o earning proits could
react to increased consumer desires or park use by orbidding people to
enter parks ater dark.
chap27litter.qxd 2/21/2008 12:30 PM Page 209
sidewalk, launched by citizens` groups organized under the ban-
ner o children beore dogs.` 1he lexibility o the market is
completely ignored by both o these actions. Nowhere is it real-
ized that dog litter` can be '%./'+,/%2 /! ,%'/1+" (#1,%.. 1he issue
is seen as a choice between prohibiting it altogether or allowing
it everywhere. Imagine the beneicent results that would ensue
i the streets and sidewalks were privately owned. A greater lex-
ibility would result because o the rewards entrepreneurs would
gain or devising methods o satisying *!/7 groups.
Some might object to the private ownership o the sidewalks
on the grounds that dog owners would have to pay or the use o
a dog lot` which they now use ree (assuming, there is no pro-
hibition o dog deecation). But this is incorrect, because no
individual, including the dog owner, has the ree use o the side-
walks. 1he sidewalks, as all other goods and services provided
by the government, are paid or by the citizens through taxes'
Citizens pay not only or the original cost o the sidewalks, but
also or upkeep, maintenance, policing, and cleaning services.
It is diicult to anticipate the exact way a ree market would
unction in this area, but some guesses may be hazarded. Per-
haps several enterprising entrepreneurs could set up enced-in
sandy areas which dogs could use. 1hese entrepreneurs could
have two separate contracts, one, with the dog owners, which
would speciy the ee or use o the area, the other with garbage
truck owners, speciying the cost o maintaining the areas. 1he
exact location and number o these areas would, as with any
service, be determined by the needs o the people involved.
In the light o the inlexibility o the government, and its
apparent lack o interest in accommodating public tastes, how is
the litterbug to be viewed 1he litterbug treats public property
in much the same way he would treat private property i he were
but ree to. Namely, he leaves garbage around on it. It has been
demonstrated that there is nothing intrinsically evil about this
activity, and that but or governmental calciication, it would be
as widely accepted in the public arena as it is in the private. It is
an activity which should be regulated by people`s needs, not by
government iat.
!10 4%5%"2+"6 /7% 8"2%5%"21*#%
chap27litter.qxd 2/21/2008 12:30 PM Page 210
We must conclude, thereore, that ar rom being a public
enemy, the litterer is actually a hero. 1he courage exhibited by
the litterer, given the intense campaign o viliication directed
against him, is considerable. Even more important, the behavior
o the litterer who purposeully takes the law into his own
hands` can serve as a protest against an unjust system.
97% :+//%'%' !11
chap27litter.qxd 2/21/2008 12:30 PM Page 211
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#$% &'(#%)'*%+(
eople have long suspected that a basic business practice is
to purposely manuacture products which are inerior.
Businessmen, it is assumed, do not want to turn out high-
quality, long lasting products. Instead, they manuacture shoddy
products with built-in` or planned` obsolescence. When these
products wear out, they must be replaced, thus manuacturers
stay in business and prosper. 1his idea, always with us even i
somewhat below the surace, received an unneeded, but widely
publicized shot in the arm several years ago with the publication
o Vance Packard`s book, !"#$% '"(%)#.
1he theory o built-in` obsolescence is allacious. And,
with the advent o the ecology movement and the neo-Malthu-
sian Zero Population Growth adherents, it is more important
than ever to lay the allacy to rest. According to the overpopula-
tionists, we have or are soon going to have too many people *+
)%,"$*-+ $- $.% %")$./# )%#-0)1%#. In the view o the environmental-
ists, we are (that is, the ree-market system is) presently wasting
the resources we have. In the view o still others, built-in obso-
lescence is a tragic, totally unnecessary component o this waste.
Vance Packard, !"#$% '"(%)# (New York: David McKay, 1-60).
chap28waste.qxd 2/21/2008 12:30 PM Page 213
1aken together, these groups pose an intellectual, moral, and
even physical threat to a healthy and sane economy.
It is important to begin this critique by noting a truism.
Either it costs more to build a product in the proper` way, so
that it does not wear out beore its time,` or it does not. A prod-
uct is shoddy because the manuacturer instructs the workers to
turn out inerior merchandise, or because it is cheaper to make
it that way.
A true example o built-in obsolescence is the case where no
cost saving is gained by making an inerior product. It is as i a
time bomb were placed in an otherwise sound piece o mer-
chandise. 1he consumer does not know it, but the object is
scheduled to sel-destruct.` 1his practice clearly *# wasteul. In
economic parlance, society is orgoing higher quality goods
which have no alternative uses.
Such behavior, however, will not take place in a private
enterprise market economy because it is not survival oriented.
Businessmen who engage in planned obsolescence o this sort
will decrease their proits, increase their losses, and eventually
go bankrupt. Some customers will surely stop buying rom a
irm which sells inerior quality merchandise at standard prices,
and patronize other irms which sell standard quality merchan-
dise at the same standard prices. 1he irm in question will lose
customers, without any compensation in the orm o lower costs,
and the other irms will gain the customers lost by the
wastemaking company.
But the ear which many consumers have is not that -+%
businessman will manuacture products with built-in ob-
solescence, but that all manuacturers will. In that case, it is sup-
posed, the consumer would be trapped.
What would the consequences be i all the manuacturers in
an industry agreed, via a cartel arrangement, to turn out low-
quality products in order to increase replacement sales It seems
clear that every manuacturer who was a party to the agreement
would be powerully tempted to raise the quality o the goods he
was making-in other words, to cheat on the agreement.
Because i all the others were turning out products o the same
!1! 2%3%+4*+5 $.% 6+4%3%+4"7,%
chap28waste.qxd 2/21/2008 12:30 PM Page 214
poor quality (as they agreed to do) and he made products which
were only slightly better, he would gain customers and increase
his proits. Given the proit motive (which was the incentive or
the cartel) the members are not likely to honor the agreement.
Second, there will be great temptations or businessmen out-
side the cartel agreement to enter the industry. By turning out
products even slightly better than those turned out by the cartel
manuacturers, they will attract customers and proits.
Paradoxically, the orces tending to break up the cartel would
become stronger as the cartel became more successul. For the
stronger the cartel, the greater the decrease in the quality o the
product. 1he lower the quality, the easier it would become to
attract competitors` customers. Even a slight increase in quality
would accomplish this.
Advertising also hastens the process o breaking up cartels
which try to restrict quality. In act, advertising tends to prevent
their ormation in the irst place. Advertising builds up brand
names with attached good will. 1he brand name stands or a cer-
tain level o quality. I a irm allows the quality o its product to
deteriorate, it loses the good will it has spent millions attaining.
Independent rating agencies like Consumers Union also
tend to prevent cartels rom orming, and to break them up i
they do occur. By keeping strict tabs on the quality o merchan-
dise, such rating agencies keep the public apprised o even slight
deteriorations o quality.
Finally, even i all members maintain the agreement, and no
outsiders step in, the restriction on quality is still more likely to
ail than to succeed. For it is impossible or all manuacturers to
restrict quality to exactly the same degree. 1he ones who restrict
quality least will inevitably gain better reputations, more cus-
tomers, and increased proits. 1he market will continue to be a
testing ground, weeding out companies which produce inerior
goods. Failing the test means bankruptcy, passing the test means
It seems clear then, that in a ree market, cartels cannot be
maintained. But they can be maintained, and built-in obsoles-
cence with them, i the government steps in. For example, when
8.% !"#$%9"(%)# !1
chap28waste.qxd 2/21/2008 12:30 PM Page 215
the government sets up guild-like restrictions on entry into an
industry, cartels are encouraged because competition is discour-
aged. 1hus the interests o those already in the ield are pro-
tected. Whatever agreements they may have made with one
another can be maintained. I they have agreed, as a matter o
policy, to restrict the quality o production, that policy has a
chance to succeed. 1he eects o government participation can
be seen in many ields. Consider medicine. 1he government, at
the behest o the American Medical Association, has succeeded
in banning the use o acupuncture. Acupuncture practitioners
threatened the positions o licensed doctors, and the AMA,
which unctions as a cartel, exerted great pressure against them.
1his was, o course, in line with its general policy o keeping
doctors` salaries high regardless o the quality o service. In the
same way, psychologists and psychiatrists, with the help o the
government, harass practitioners who are in competition with
them. 1hey are seeking to ban all those (encounter group lead-
ers, etc.), whom they themselves have not licensed to practice.
1he government has also at times prevented the operation o
the internal orces which tend to break up cartels. 1he railroad
cartel is a case in point. Member companies o the railroad car-
tel agreed to cut back on the quantity o service in order to orce
prices up. But, as could have been predicted, with higher prices
there were ewer passengers. Each railroad began to try to attract
the customers o the other railroads by cutting back on the stated
price. 1his would o course have destroyed the cartel. As it hap-
pened, the price-cutting took the orm o price rebates. But
instead o allowing this practice to continue, and thus ruin the
waste-making cartel, the government prohibited railroad
rebates. And the railroad industry has not recovered yet.
A third way in which the government contributes to the
problem o built-in obsolescence is by propping up companies
which, because o the low quality o the goods they produce,
cannot survive the competition o the market. Many o the sub-
sidies that the government makes available to businessmen serve
only to support businesses which are ailing because they have
been unable to serve their customers.
!16 2%3%+4*+5 $.% 6+4%3%+4"7,%
chap28waste.qxd 2/21/2008 12:30 PM Page 216
Let us now consider the second alternative, the case where it
costs more money to increase the quality o the product. Here
the analysis is just the opposite. 1his kind o planned obsoles-
cence occurs on the unhampered market every day, but it is by
no means wasteul or senseless' It is part and parcel o the choice
o quality oered to consumers.
Consider the ollowing hypothetical table o the cost o auto-
mobile tires and the lie expectancy o each tire.
Brand Cost Average Longevity
Tire A $10 1 year
Tire B $50 2 years
Tire C $150 5 years
When purchasing tires, the consumer is given a choice
between higher quality, and higher-priced tires, or lower quality,
and lower priced tires. O course the ;10 tire is not expected to
last as long as the ;10 tire' It was made in such a way that it will
wear out sooner. 1his might be termed built-in` obsolescence.
But where is the waste 1here is none. 1he manuacturers o
cheap tires are not taking advantage o a helpless consumer mar-
ket. 1hey are not trapping people into buying low quality goods.
1hey are manuacturing what people want. I some manuac-
turers o low quality tires were convinced by the ecologists that
their products were wasteul,` and stopped producing them,
the price o the low quality tires still available would simply rise,
because the demand would continue to exist while the supply
decreased. 1his would in turn set up irresistible pressures or
manuacturers to get back into (or enter or the irst time) the
low quality tire ield, as proits there began to rise. In this way
the market would tend to bring about consumer satisaction.
1he lowly paper plate can serve to urther illustrate the point
that built-in obsolescence is not wasteul when low quality prod-
ucts are cheaper to make than high quality products. Who would
8.% !"#$%9"(%)# !17
chap28waste.qxd 2/21/2008 12:30 PM Page 217
ever think o blaming paper plate manuacturers or built-in
obsolescence Yet there is the same quality-price combination o
choices in plates as in the tires. One can buy, at increasing prices,
paper plates, plastic plates o varying quality, ceramic and clay
baked plates, on and up through plates o the inest quality
It is indeed strange that people blame built-in obsolescence
or breakdowns in their cars, and +-$ or the rapid deterioration
o their paper napkins. But in 7-$. cases there is higher quality
merchandise available, at higher prices. 1he choice is the con-
sumer`s. 1here is no more sense in complaining that low qual-
ity cars break down than there is in complaining that paper cups
do not last very long. Less expensive products are not made to
last as long as more expensive products' 1hat is why they cost
less. Clearly, built-in obsolescence which relects consumer
choice is not wasteul.
But isn`t low quality in and o itsel wasteul because it uses
up our resources Even i built-in obsolescence is not a problem
in paper plates, aren`t paper plates themselves wasteul because
they use up wood
One problem with this way o looking at the matter is that it
assumes that lower quality products use up more resources than
higher quality products. 1o be sure, the lower the quality o the
product, the more likely it is that replacement and repair will be
necessary. But, on the other hand, higher quality products use
up more resources at the outset' 1he issue is really one between
a high initial outlay and small subsequent outlays or a high
quality product, versus a low initial outlay and greater subse-
quent outlays (repairs, replacements) or low quality products.
In a ree market, the 1-+#09%)# decide between these alterna-
tives. Products are made which are least wasteul *+ $.% :*%; -3
$.% 1-+#09%)#. I consumers decide that, given rapid changes in
ashion, it is wasteul to buy clothing that lasts or ive years or
more, manuacturers will ind it more proitable to produce less
durable, less expensive clothing. I the market called or it, man-
uacturers would oer clothing made out o paper. Similarly, i
consumers wanted cars that would last longer, producers would
!18 2%3%+4*+5 $.% 6+4%3%+4"7,%
chap28waste.qxd 2/21/2008 12:30 PM Page 218
oer such cars. 1hey would oer them at a higher price, i con-
sumers wanted these with all the present rills and comorts. I
the consumers preerred, the manuacturers would oer them at
the same price as lower quality cars, but without the extras.
Furthermore, in a ree market, using up` resources does
not pose a serious threat. As scarcities develop, powerul orces
automatically come into play to correct them. For example, i
wood were to all into short supply, its price would be orced up.
As a consequence, consumers would buy ewer products made
o wood. Producers would tend to substitute other materials or
wood wherever possible. Cabinets, urniture, boats, etc., would
be made o other, less expensive materials. New, possibly syn-
thetic, materials would be developed. Greater care would be
taken to recycle the suddenly more valuable used` wood. Old
newsprint, or example, would be chemically treated and reused
with greater eorts. 1he increased price o wood would provide
incentives or entrepreneurs to plant more seedlings and take
care o orests more intensively. In short, given a dearth o one
or even several resources, a ree economy automatically adjusts.
As long as its adjustment mechanism, the price system, is not
interered with, other cheaper and more plentiul resources will
be substituted, and those in short supply will be better pre-
But what would happen, it may be asked, i not just one or
several, but ",, resources were in short supply What would hap-
pen i we depleted all our resources at the same time 1his is the
stu rom which science iction is made, so we will have to
indulge in a bit o science iction ourselves to deal with it. But
we will stop short o assuming that everything magically van-
ishes rom the ace o the earth. In that eventuality, we would
have nothing helpul to suggest.
In order to make sense o the view, we will not assume that
all resources suddenly disappear, or that the earth suddenly
shrinks and shrivels away, but that economic resources get used
up and turn into ashes, waste, and dust. For example, we will
assume not that coal disappears entirely, but that it gets used up
and replaced by ashes, dust, pollutants, and chemical derivatives
8.% !"#$%9"(%)# !1-
chap28waste.qxd 2/21/2008 12:30 PM Page 219
o the burning process. We will also assume that all other
resources get used up` in the same sense, that is, that they
become useless to us.
1o deal with this horror, two things must be borne in mind.
First, there is good reason to believe that new sources o energy
will be discovered or invented as present sources are depleted.
1here are no reasons to assume that this will not be the case.
1he human race has passed rom the stone age, to the bronze
age, to the iron age. When coal sources were depleted, oil was
used. Ater oil, there will be other sources o energy, possibly
nuclear. 1o ignore this technological phenomenon would be to
hopelessly distort the issue.
In the second place, we must realize that the direct and indi-
rect source o all energy is the sun. It is the source o every type
o energy presently used, and it will be the source o whatever
types o energy our technology may produce in the uture. But
the sun itsel will not last orever. When it goes, humanity goes,
unless we are technologically advanced enough to either re-
energize the sun or relocate on another planet with a younger
sun. Whether we will have a technology competent to accom-
plish this when the time comes depends on choices we are mak-
ing now. I we exploit the resources o the earth, use them, ind
replacements or them, and learn rom such exploitation, our
technology will continue to develop. I we do not, and are moti-
vated by ear, and have no aith in our ability to meet challenges,
we will hoard the resources we have at present, and we will not
grow any urther. We will be waiting, ostrich-like, or the sun to
go out and the world to end, having orgone the advanced tech-
nology that only increased population and exploitation o the
resources the earth makes possible.
!!0 2%3%+4*+5 $.% 6+4%3%+4"7,%
chap28waste.qxd 2/21/2008 12:30 PM Page 220
!"""# %&'()
chap29cappig.qxd 2/21/2008 12:30 PM Page 221
chap29cappig.qxd 2/21/2008 12:30 PM Page 222
,-. /&, 0&1",&%"2,31"4 .51%(6.)
I not or the minimum wage law and other progressive
legislation, the employers, the at-capitalist-pig exploiting
employers, to be precise, would lower wages to whatever
level they wanted. At best, we would be pushed back to
the days o the sweatshop, at worst, to the days o the
industrial revolution and beore, when mankind waged
an oten losing battle with starvation.`
o goes the conventional wisdom on the merits o mini-
mum wage legislation. It will be shown, however, that this
conventional wisdom is wrong, tragically wrong. It
assumes a villain where none exists. What does the law actually
accomplish and what are its consequences
1he minimum wage law is, on the ace o it, not an employ-
ment law but an unemployment law. It does not orce an
employer to //: an employee at the minimum wage level, or at
any other level. It compels the employer ao/ to hire the employee
at certain wage levels, namely, those below the minimum set by
law. It coerces the uo/:, no matter how anxious he may be to
accept a job at a wage level below the minimum, ao/ to accept
the job. It obligates the worker who is aced with a choice
chap29cappig.qxd 2/21/2008 12:30 PM Page 223
between a low-wage job and unemployment to choose unem-
ployment. Nor does the law even push any wage up, it only lops
o// jobs which do not meet the standard.
How would wages be determined in the absence o mini-
mum wage legislation I the labor market consists o many sup-
pliers o labor (employees) and many demanders o labor
(employers), then the wage rate will tend to be set in accordance
with what the economist calls the marginal productivity o
labor.` 1he marginal productivity o labor is the extra amount o
receipts an employer would have i he employs a given worker.
In other words, i by adding a given worker to the payroll, the
employer`s total receipts rise by ;60 per week, then the marginal
productivity o that worker is ;60 per week. 1he wage rate paid
to the worker tends to equal the worker`s marginal productivity.
Why is this so, in view o the act that the employer would pre-
er to pay the worker virtually nothing, no matter what his pro-
ductivity 1he answer is, competition between employers.
For example, assume the worker`s marginal productivity is
equal to ;1.00 per hour. I he were hired at c per hour, the
employer would make -c per hour proit. Other employers
would bid or that worker. Even i they paid him 6c, 7c, or 10c
an hour, their proit would still make the bidding worthwhile.
1he bidding would end at the wage level o ;1.00 per hour. For
only when the wages paid equal the worker`s marginal produc-
tivity will the incentive to bid or the worker stop.
But suppose the employers mutually .:: not to hire work-
ers at more than c per hour 1his occurred in the Middle Ages
when cartels o employers got together, u/// //: ./ o/ //: /./:,
to pass laws which prohibited wage levels above a certain maxi-
mum. Such agreements can only succeed with state aid and
there are good reasons why this is so.
In the noncartel situation, the employer hires a certain num-
ber o workers-the number which he believes will yield the
maximum proit. I an employer hires only ten workers, it is
because he thinks the productivity o the tenth will be greater
than the wage he must pay and that the productivity o an
eleventh would be less than this amount.
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I, then, a cartel succeeds in lowering the wage o workers
with a marginal productivity o ;1.00 to c per hour, each
employer will want to hire many more workers. 1his is known
as the law o downward sloping demand` (the lower the price,
the more buyers will want to purchase). 1he worker whose pro-
ductivity was, in the eyes o the employer, just below ;1.00, and
thereore not worth hiring at ;1.00 per hour, will be eagerly
sought at c per hour.
1his leads to the irst law in the cartel: each employer who
is a party to the cartel has a great inancial incentive to cheat.
Each employer will try to bid workers away rom the others. 1he
only way he can do this is by oering higher wages. How much
higher All the way up to ;1.00, as we have seen beore, and or
the same reason.
1he second law is that nonmembers o the cartel arrange-
ment would want to hire these workers at c per hour, even
assuming no cheating` by members. 1his also tends to drive up
the wage rom c to ;1.00 per hour. Others, such as would-be
employers in noncartel geographical areas, sel-employed arti-
sans who could not beore aord employees, and employers who
had previously hired only part-time workers, would all con-
tribute to an upward trend in the wage level.
Even i the workers themselves are ignorant o wage levels
paid elsewhere, or are located in isolated areas where there is no
alternative employment, these orces will apply. It is not neces-
sary that /o// o.//: to a trade have knowledge o all relevant
conditions. It has been said that unless both parties are equally
well-inormed, imperect competition` results, and economic
laws somehow do not apply. But this is mistaken. Workers usu-
ally have little overall knowledge o the labor market, but
employers are supposedly much better inormed. And this is all
that is necessary. While the worker may not be well-inormed
about alternative job opportunities, he knows well enough to
take the highest paying job. All that is necessary is that the
employer present himsel to the employee who is earning less
than his marginal productivity, and oer him a higher wage.
1/: I./ c.o//.///-I/ Lmo/o,: !!
chap29cappig.qxd 2/21/2008 12:30 PM Page 225
And this is exactly what naturally happens. 1he sel-inter-
est o employers leads them as i by an invisible hand` to er-
ret out low-wage workers, oer them higher wages, and spirit
them away. 1he whole process tends to raise wages to the level
o marginal productivity. 1his applies not only to urban workers,
but to workers in isolated areas who are ignorant o alternative
job opportunities and would not have the money to get there
even i aware o them. It is true that the dierential between the
wage level and the productivity o the unsophisticated worker
!!6 D:/:a/a //: Ua:/:a.//:
Yoa ma/ /oo /// /a.a: /:/ f.1.-o u/./ // //: aa/oa
o: ..// ,oa . I+1 c+II1LIS1Ic IIC'|'
chap29cappig.qxd 2/21/2008 12:30 PM Page 226
will have to be great enough to compensate the employer or the
costs o coming to the worker, inorming him o job alternatives,
and paying the costs o sending him there. But this is almost
always the case, and employers have long been cognizant o it.
1he Mexican wetbacks` are a case in point. Few groups
have less knowledge o the labor market in the United States,
and less money or traveling to more lucrative jobs. Not only do
employers rom southern Caliornia travel hundreds o miles to
ind them, but they also urnish trucks or travel money to trans-
port them northward. In act, employers rom as ar away as
Wisconsin travel to Mexico or cheap labor` (workers receiving
less than their marginal product). 1his is eloquent testimony to
the workings o an obscure economic law they have never heard
o. (1here are complaints about the poor working conditions o
these migrant workers. But these complaints are mainly rom
either well-intentioned people who are unaware o the eco-
nomic realities, or rom those not in sympathy with these hap-
less workers receiving ull value or their labors. 1he Mexican
workers //:m:/: view the package o wages and working con-
ditions as avorable compared to alternatives at home. 1his is
seen in their willingness, year ater year, to come to the United
States during the harvesting season.)
It is not the minimum wage law, thereore, that stands
between Western civilization and a return to the stone age.
1here are market orces and proit maximizing behavior on the
part o entrepreneurs, which ensure that wages do not all below
the level o productivity. And the level o productivity is itsel
determined by technology, education, and the amount o capital
equipment in a society, not by the amount o socially progres-
sive` legislation enacted. Minimum wage legislation does not do
what its press claims. What o: it do What are its actual
What will be the reaction o the typical worker to a legislated
increase in wages rom ;1.00 to ;!.00 I he is already ully
employed, he may want to work more hours. I he is partially
employed or unemployed, it is virtually certain that he will want
to work more.
1/: I./ c.o//.///-I/ Lmo/o,: !!7
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1he typical employer, on the other hand, will react in the
opposite way. He will want to ire virtually all o the workers he
is orced to give raises to. (Otherwise he would have granted
raises beore he was compelled to.) Now, he has to keep produc-
tion up, so he might not be able to adjust this situation immedi-
ately. But as time passes he will replace his unexpectedly expen-
sive unskilled workers with ewer but more skilled workers and
with more sophisticated machinery, so that his total productivity
remains constant.
Students o an introductory economics course learn that
when a price level above equilibrium is set, the result is a sur-
plus. In the example, when a minimum wage level above ;1.00
per hour is set, the result is a surplus o labor-otherwise called
unemployment. Iconoclastic as it may sound, it is, thereore, /a:
that the minimum wage law causes unemployment. At the
higher wage level it creates more people willing to work and
ewer jobs available.
1he only debatable question is: how much unemployment
does the minimum wage law create 1his depends on how
quickly the unskilled workers are replaced by equivalently pro-
ductive skilled workers in conjunction with machines. In our
own recent history, or example, when the minimum wage law
increased rom !0c to 7c per hour, elevator operators began to
be replaced. It has taken some time, but most elevators are now
automatic. 1he same thing happened to unskilled dishwashers.
1hey have been and are still being replaced by automatic dish-
washing machinery, operated and repaired by semi-skilled and
skilled workers. 1he process continues. As the minimum wage
law is applied to greater and greater segments o the unskilled
population, and as its level rises, more and more unskilled peo-
ple will become unemployed.
Finally, it is important to note that a minimum wage law
only directly aects those earning less than the minimum wage
level. A law requiring that everyone be paid at least ;!.00 per
hour has no eect on an individual earning ;10.00 per hour. But
beore assuming that the minimum wage law simply results in
pay raises or low-wage earners, consider what would happen i
!!8 D:/:a/a //: Ua:/:a.//:
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a ;100.00 per hour minimum wage law went into eect. How
many o us have such great productivity that an employer would
be willing to pay ;100.00 or an hour o our services Only those
thought to be worth that much money would retain their jobs.
1he rest would be unemployed. 1he example is extreme, o
course, but the principle which uoa/ operate i such a law were
passed o: operate now. When wages are raised by law, the
workers with low productivity are discharged.
Who is hurt by the minimum wage law 1he unskilled,
whose productivity level is below the wage level legislated. 1he
unemployment rate o black male teenagers is usually (under-)
estimated at 0 percent, three times the unemployment level o
the 1- depression. And this percentage does not even begin to
take into account the great numbers who have given up search-
ing or a job in the ace o this unemployment rate.
1he lost income that this represents is only the tip o the ice-
berg. More important is the on-the-job-training these young
men could be receiving. Were they uo//a at ;1.00 per hour (or
even less) instead o being aa:mo/o,: at ;!.00 per hour, they
would be learning skills that would enable them to raise their
productivity and wage rates above ;!.00 in the uture. Instead
they are condemned to street corners, idleness, learning only
those skills which will earn them jail sentences at some early
uture time.
One o the greatest hurdles acing a black teenager is look-
ing or his irst job. Every employer demands work experience,
but how can the young black get it i no one will hire him 1his
is not because o some employer conspiracy` to denigrate
minority teenagers. It is because o the minimum wage law. I an
employer is /o.: to pay or an experienced-level worker, is it
any wonder that he demands this kind o labor
A paradox is that many black teenagers are worth more than
the minimum wage but are unemployed because o it. In order to
be employed with a ;!.00 an hour minimum wage law, it is not
enough just to /: worth ;!.00. You have to be //oa// to be worth
;!.00 per hour by an employer who stands to lose money i he
guesses wrong and may go broke i he guesses wrong too oten.
1/: I./ c.o//.///-I/ Lmo/o,: !!-
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With a minimum wage law, an employer cannot aord to take a
chance. And, unortunately, black teenagers are requently
viewed as risky,` as a class. When conronted with a reluctant
employer, a Horatio Alger hero could stride over manully and
oer to work or a token salary, or even or nothing, or a term o
two weeks. During this time our hero would prove to the
employer that his productivity deserved a higher wage rate.
More important, he would bear with the employer part o the
risk o hiring an untried worker. 1he employer would go along
with this arrangement because he would be risking little.
But the Horatio Alger hero did not have to do battle with a
minimum wage law which made such an arrangement illegal.
1he law thus insures that there is less chance or the black
teenager to prove his worth in an honest way.
1he minimum wage law hurts not only the black teenager,
but the black ghetto merchant and industrialist as well. Without
this law, he would have access, in a way which his white coun-
terpart would not, to a cheap labor pool o black teenager labor.
1he young black worker would be more accessible to him since
he tends to live in the ghetto and would have easier access to the
job site. He would undoubtedly have less resentment toward,
and a smoother work relationship with, a black entrepreneur.
Since this is one o the most important determinants o produc-
tivity or jobs o this type, the black employer could pay his
workers more than the white one could-and still make a proit.
Unortunate as the eects on young black workers are, a
greater tragedy o the minimum wage law concerns the handi-
capped worker (the lame, the blind, the dea, the amputee, the
paralyzed, and the mentally handicapped). 1he minimum wage
law eectively makes it illegal or a proit-seeking employer to
hire a handicapped person. All hopes o even a modicum o sel-
reliance are dashed. 1he choice the handicapped person aces is
between idleness and governmentally supported make-work
schemes which consist o trivial activities and are as demoraliz-
ing as idleness. 1hat such schemes are supported by a govern-
ment which makes honest employment impossible in the irst
place, is an irony ew handicapped people would ind amusing.
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Recently, certain classes o handicapped people (the slightly
handicapped) have become exempt rom the minimum wage
law. It is, thereore, in the interest o employers to hire the
slightly handicapped,` and they now have jobs. But i it has
been realized that the minimum wage law hurts the em-
ployment chances o slightly handicaped` people, surely it
should be realized that it hurts the chances o others. Why are
seriously handicapped people not exempt
I the minimum wage law does not protect the individual it
seems designed to protect, whose interests does it serve Why
was such legislation passed
Among the most vocierous proponents o minimum wage
legislation is organized labor-and this must give us pause or
thought. For the average union member earns much more than
the minimum wage level o ;!.00 per hour. I he is already earn-
ing ;10.00 per hour, as we have seen, his wage level is in accor-
dance with the law, and is not, thereore, aected by it. What
then accounts or his passionate commitment to it
His concern is hardly with the downtrodden worker-his
black, Puerto Rican, Mexican-American and American-Indian
brethren. For his union is typically --.!! percent white, and he
strenuously resists the attempts by members o minority groups
to enter his union. What then stands behind organized labor`s
interest in minimum wage legislation
When the minimum wage law orced up the wages o
unskilled labor, the law o downward sloping demand caused
employers to substitute skilled labor or unskilled labor. In the
same way, when a labor union, composed mainly o skilled
laborers, obtains a wage increase, the law o downward sloping
demand causes employers to substitute unskilled laborers or
skilled laborers' In other words, because skilled and unskilled
laborers are, within certain bounds, substitutable or each other,
they are actually in competition with one another. It might well
be that it is 10 or !0 unskilled workers who are in competition
with, and hence substitutable or two or three skilled workers,
plus a more sophisticated machine. But o the substitutability
itsel, especially in the long run, there can be no doubt.
1/: I./ c.o//.///-I/ Lmo/o,: !1
chap29cappig.qxd 2/21/2008 12:30 PM Page 231
What better way to get rid o your competition than to orce
it to price itsel out o the market What better way or a union
to insure that the next wage hike will not tempt employers to
hire unskilled, nonunion scabs (especially minority group mem-
bers) 1he tactic is to get a law passed that makes the wage o
the unskilled so high that they cannot be hired, no matter how
outrageous the wage demands o the union are. (I minority
groups could get a law passed requiring all aa/oa wages to rise
ten times their present amount, they could virtually destroy the
unions. Union membership would decline precipitously.
Employers would ire all unionists, and in cases where they
could not, or did not, they would go bankrupt.)
Do the unions purposeully and knowingly advocate such a
harmul law It is not motives that concern us here. It is only
acts and their eects. 1he eects o the minimum wage law are
disastrous. It adversely aects the poor, the unskilled, and
minority group members, the very people it was supposedly
designed to help.
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#$% &'()
ne o the most universally shared attitudes is that the
scab is a wretched character. He is unscrupulous and
sneakily in league with the boss.` 1ogether, scab and
boss plot to deprive union workers o their rights, and o the jobs
that are legitimately theirs. Scabs are hired to orce union work-
ers to accept lower wages. When it becomes known that scabs
are also used to beat up union workers and pickets, the case is
virtually complete-the scab is the greatest enemy o the worker.
1hese are the acts that are taught in many o our centers o
learning, to be challenged only at the risk o one`s reputation as
a scholar. Nevertheless, this lummery must be reuted.
1he irst point to establish is that a job is not a thing which
can be owned by a worker-or by anyone else. A job is the man-
iestation o a !"#$% between a worker and an employer. 1he
worker trades his labor or the money o the employer, at some
mutually agreeable rate o exchange. So when we speak o my
job,` we are only talking iguratively.
Although we are in the habit o using such phrases as my
job,` my customer,` and my tailor,` we do not presume own-
ership in #&' o these instances. 1ake irst the case o my cus-
tomer.` I this phrase were taken literally, it would denote that
the merchant has an ownership right over the custom` o the
chap30scab.qxd 2/21/2008 12:30 PM Page 233
people who habitually buy rom him. He would ()& the cus-
tomer`s patronage and he would, thereore, have a right to object
i his` customer patronized another merchant.
1he sword cuts both ways. Let us take the case o my tai-
lor.` I we were to take this phrase literally, we would have to say
that the tailor may not shut down his shop, relocate, or declare
himsel bankrupt, without the permission o the customers. He
is their` tailor.
In both these cases, o course, it is clear that the possessive
pronoun is not meant to imply literal possession. Clearly, neither
buyer or seller has the right to insist upon the permanence o a
business relationship, unless o course, a long-term contract has
been agreed upon by both parties. 1hen, and only then, would
the merchant and the customer have the right to object i either
party ended the relationship without the consent o the other.
Now let us consider my job.` What is the worker implying
when he objects to the scab taking his` job away 1he worker
is arguing as though he ()&%$ the job. He is, in other words,
assuming that service, ater a certain period o time, obligates
the employer to the employee as strictly as i they had agreed to
a contract. But in act, the employer has never obligated himsel
One wonders how the workers would react i the principle
upon which their anti-scab eeling is based were adopted by the
employer. How would they eel i employers assumed the right
to *("+,$ long-term workers rom leaving their employment
What i he accused another employer who dared to hire his`
worker o being a scab' Yet the situation is entirely symmetrical.
Clearly, there is something wrong with an argument which
asserts that once people -(./&!#",.' agree to trade, they are there-
ater 0(12%..%$ to 0(&!,&/% to trade. By what shit in logic is a
voluntary relationship converted into a strictly involuntary rela-
tionship Hiring an individual does not imply slave-holding
rights over that person, nor does having worked or an employer
give one the ",34! !( # 6(+. It should be evident that the worker
never owns` the job, that it is not his` job. 1he scab, thereore,
!! 7%*%&$,&3 !4% 8&$%*%&$#+.%
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is guilty o no irregularity when he takes the job which the
worker ormerly held.
1he issue o violence between workers and scabs is a sepa-
rate issue. 1he initiation o violence is condemnable, and when
scabs initiate violence, they deserve our censure. But the initia-
tion o violence is not their deining characteristic. When they
engage in it, they do so as individuals, not as scabs 9/# scabs.
Milkmen, ater all, sometimes go berserk and commit aggression
:4% ;0#+ !
chap30scab.qxd 2/21/2008 12:30 PM Page 235
against nonaggressors. No one would take this as proo that the
delivery o milk is an intrinsically evil enterprise. In like manner,
the use o illegitimate violence on the part o scabs does not ren-
der the enterprise o scabbing illegitimate.
In recent times, the muddled and inconsistent thinking
about scabs has become increasingly evident. Liberals, tradition-
ally most vocierous in denouncing scabs, have o late shown
signs o conusion on this issue. 1hey have come to realize that
in virtually all cases the scabs are poorer than the workers they
seek to replace. And liberals have almost always championed the
poor worker. Also, the specter o racism has been raised. In many
cases, black scabs have been pitted against white (unionized)
workers, Mexican workers against Mexican-American workers,
}apanese workers against higher paid American workers.
1he Ocean Hill-Brownsville decentralization school board
clash in Brooklyn, New York, is a dramatic case in point. Under
the local school board system, Rhody McCoy, the black school
board administrator, ired several white teachers or alleged
racist behavior toward their young black pupils. In response, the
white dominated United Federation o 1eachers Union struck
the entire New York City educational system, including Ocean
Hill-Brownsville. I the black Ocean Hill-Brownsville school
district was to continue to unction, unit administrator McCoy
would have to ind replacements or the striking white teachers.
He did, and they were, naturally, scabs. Hence, the quandary
aced by the liberals: on the one hand, they were unalterably
opposed to scabs, but on the other hand, they were unalterably
opposed to the racism o the United Federation o 1eachers.
Clearly, there was more heat than light in their attitudes.
Scabs obviously have been unjustly maligned. Employment
does not give the employee any proprietary privileges closed to
workers who wish to compete or the same job. Scabbing and
ree competition are opposite sides o the same coin.
!6 7%*%&$,&3 !4% 8&$%*%&$#+.%
chap30scab.qxd 2/21/2008 12:30 PM Page 236
#$% &'#% ()*#%&
he scene is amiliar rom hundreds o movies eaturing
labor themes: the young eager worker comes to the ac-
tory or the irst time, determined to be a productive
worker. In his enthusiasm, he happily produces more than the
other workers who have been at the actory many years, and who
are tired, stooped, and arthritic. He is a rate buster.`
Not unnaturally, antipathy springs up between our eager
young worker and his senior colleagues. Ater all, they are cast
in a slothul role. In contrast to his youthul exuberance, their
production levels look meager indeed.
As the young worker continues his accelerated work output,
he becomes more and more alienated rom the other workers.
He becomes haughty. 1he older workers, or their part, try to
treat him with compassion. But when he remains resistant, they
subject him to a silent treatment and commit him to a worker`s
As the ilm continues, there occurs a climactic moment
when the youthul rate buster comes to his senses. 1his comes
about in any number o ways, all dramatic. Perhaps he sees a
sick old woman, an ex-actory worker, or a worker who has been
injured in the actory. I the movie in question is !"!#$ &!'(), the
conversion can be sparked through the good oices o a cat
chap31ratebuster.qxd 2/21/2008 12:30 PM Page 237
grousing around in an overturned garbage can. Whatever the
method, the young man does come to see the error o his ways.
1hen, in the last dramatic scene, which usually ends with all
the workers-reormed rate buster included-walking o arm-
in-arm, a kindly old worker-philosopher takes over center stage.
He gives the young worker a ive-minute course in labor history,
rom ancient Roman times down to the present, showing the
constant peridy o the bosses,` and proving beyond question
that the only hope o the workers lies in solidarity.`
1here has always been, he explains, a class struggle between
the workers and the capitalists, with the workers continually
struggling or decent wages and working conditions. 1he bosses
are portrayed as always trying to pay the workers less than they
deserve, pushing them as ar as they can until they drop rom
exhaustion. Any worker who cooperates with the bosses in their
unceasing, merciless, and ruthless eorts to speed up` the
workers, and to orce them to increase their productivity levels,
is an enemy o the working class. With this summation by the
worker-philosopher, the movie ends.
1his view o labor economics contains a tangle o allacies
which is interwoven with each part resting in complex ways on
other parts. However, there is one core allacy.
1he core allacy is the assumption that $*)') +, -#./ ,- 012*
3-'4 $- 5) (-#) +# $*) 3-'.(. Sometimes called the lump o
labor` allacy, this economic view holds that the peoples o the
world only require a limited amount o labor in their behal.
When this amount is surpassed, there will be no more work to
be done, and hence, there will be no more jobs or the workers.
For those who hold this view, limiting the productivity o the
eager young workers is o overriding importance. For i these
workers work too hard, they will ruin things or everyone. By
hogging up` the limited amount o work which exists, they
leave too little or everyone else. It is as i the amount o work
that can be done resembles a pie o a ixed size. I some people
take more than their share, everyone else will suer with less.
I this economic view o the world were correct, there would
indeed be some justiication or the theory espoused by the
!8 6)7)#(+#& $*) 8#()7)#(!5.)
chap31ratebuster.qxd 2/21/2008 12:30 PM Page 238
labor-philosopher o the movie. 1here would be some justiica-
tion or insisting that the younger and more active worker not
take away more than his share o the pie.` However, adherence
to this theory has proved to be ineicient and uneconomic, with
tragic results.
1his alse view is based upon the assumption that people`s
desires-or creature comorts, leisure, intellectual, and aes-
thetic achievements-have a sharp upward boundary which can
be reached in a inite amount o time, and that when it is
reached, production must cease. Nothing could be urther rom
the truth.
1o assume that human desires can be ully and inally satis-
ied is to assume that we can reach a point at which human per-
ection-material, intellectual, and aesthetic-has been ully
realized. Paradise Perhaps. I it were somehow achieved, then
certainly there would be no unemployment` problem-or
who would need a job
1here is as much work to be done as there are unulilled
desires. Since human desires are, or all practical purposes, lim-
itless, the amount o work to be done is also limitless. 1hereore,
no matter how much work the eager young man completes, he
cannot possibly exhaust or even make an appreciable dent in the
amount o work to be done.
I the eager worker does not take work away rom others`
(because there is a limitless amount o work to be done), what
eect (-), he have 1he eect o working harder and more ei-
ciently is to increase production. By his energy and eiciency, he
increases the size o the pie-the pie that will then be shared
among all those who took part in its production.
1he rate buster should also be considered rom another van-
tage point. Consider the plight o a amily shipwrecked on a
tropical island.
When the Swiss Family Robinson sought reuge on an
island, their store o belongings consisted only o what was sal-
vaged rom the ship. 1he meager supply o capital goods, plus
their own laboring ability, will determine whether or not they
9*) :!$) ;1,$)' !-
chap31ratebuster.qxd 2/21/2008 12:30 PM Page 239
I we strip away all the novelistic supericialities, the eco-
nomic situation that the Swiss Family Robinson ound itsel in
was acing an unending list o desires, while the means at their
disposal or the satisaction o these desires was extremely lim-
I we suppose that all the members o the amily set to work
with the material resources at their disposal, we would ind that
they can satisy only some o their desires.
What would be the eect o rate busting` in their situation
Suppose one o the children suddenly becomes a rate buster and
is able to produce twice as much per day as the other members
o the amily. Will this young punk be the ruination o the am-
ily, take work away` rom the other amily members, and wreak
havoc upon the mini-society they have created
It is obvious that the Swiss Family Robinson rate buster will
not bring ruination upon his amily. On the contrary, the rate
buster will be seen as the hero he is, since there is no danger that
his increased productivity would cause the amily to run out o
work. We have seen that or practical and even philosophical
reasons, the wants and desires o the amily were limitless. 1he
amily would hardly be in trouble even i several members were
rate busters.
I the rate busting amily member can produce ten extra
units o clothing, it may become possible or other members o
the amily to be relieved o their clothing manuacturing chores.
New jobs will be assigned to them. 1here will be a sorting out
period during which it is decided which jobs should be under-
taken. But clearly, the end result will be greater satisaction or
the amily. In a modern, complex economy, the results would be
identical, though the process more complicated. 1he sorting out
period, or example, may take some time. 1he point remains,
however, that because o rate busting, society as a whole will
move toward greater and greater satisaction and prosperity.
Another aspect o rate busting is the creation o #)3 items.
1homas Edison, Isaac Newton, Wolgang Mozart, }.S. Bach,
Henry Ford, }onas Salk, Albert Einstein, plus innumerable oth-
ers, were the rate busters o their day, not o quantity, but o
!!0 6)7)#(+#& $*) 8#()7)#(!5.)
chap31ratebuster.qxd 2/21/2008 12:30 PM Page 240
quality. Each busted` through what was considered by their
society to be a normal` rate and type o productivity. Yet each o
these rate busters contributed incalculably to our civilization.
In addition to understanding rate busting rom the point o
view o quantity and innovation, rate busting should also be
considered in terms o the new lives on this earth that it makes
possible. 1he amount o human lie which the earth can support
is related to the level o productivity human beings achieve. I
there are ewer rate busters, the number o lives this earth can
support will be severely limited. I however, the number o rate
busters increases signiicantly in each respective ield, the earth
will then be able to support an ever-expanding population.
1he conclusion then is that not only are rate busters respon-
sible or satisying more o our desires than a slower, less ei-
cient rate o production, they are also responsible or preserving
the very lives o all those who would have to die were it not or
the rate busters enlarging the scope o human satisactions.
1hey provide the means with which the increasing global birth
rate can be supported.
9*) :!$) ;1,$)' !!1
chap31ratebuster.qxd 2/21/2008 12:30 PM Page 241
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#$% %&'()*%+ ), -$.(/ (01)+
igh on the list o the enemies o society, one can always
ind the employer o child labor-cruel, cold hearted,
exploitative, cunning, and evil. In the public mind,
child labor is almost equivalent to slave labor, and the children`s
employer is no better than the slave owner.
It is important to correct this view. Simple justice demands
it, or the majority opinion on this question is completely alla-
cious. 1he archetypical child labor employer is as kindly, benev-
olent, and illed with the milk o human kindness as anyone
else. Moreover, the institution o child labor is an honorable one,
with a long and glorious history o good works. And the villains
o the piece are not the employers, but rather those who prohibit
the ree market in child labor. 1hese do-gooders are responsible
or the untold immiseration o those who are thus orced out o
employment. Although the harm done was greater in the past,
when great poverty made widespread child labor necessary,
there are !"#$$ people in dire straits today. Present prohibitions o
child labor are thus an unconscionable intererence with their
1he irst plank in the deense is that the employer o child
labor has not orced anyone to join his employ. Any and all labor
chap32childlabor.qxd 2/21/2008 12:30 PM Page 243
agreements are completely voluntary. As such, unless they were
thought to be mutually beneicial, they would not be agreed to.
But in what sense can a labor contract with a child be com-
pletely voluntary Does not complete voluntarism imply an
awareness that a child is not capable o 1o answer this ques-
tion, consideration should be given to a proper deinition o
what a child is.
1his is an ancient question which has never been ully
resolved. Nevertheless, we shall consider several ages which
have been suggested as dividing the child rom the adult, ana-
lyze them, and then oer an alternative.
Among the earliest ages or the cut-o point between child-
hood and adulthood are those proposed by the various religions.
1he age o conirmation into the religion, which usually occurs
in the very early teens, or even beore, is the age at which many
religions deine adulthood. But the person (child) at, or exam-
ple, age 1 also is, except in rare instances, still immature, rela-
tively helpless, and ignorant o the skills necessary to care or
himsel. So it must be rejected.
1he next candidate or adulthood is age 18. Usually picked
because this is the age at which a young man becomes eligible
or the drat, this age also has several problems as a deinition o
adulthood. We may start o by questioning whether or not ight-
ing in wars is an adult` action. All too oten, going to war is vir-
tually the opposite o behavior usually indicative o adulthood.
Also, merely ollowing orders (the be-all and end-all o the
enlisted soldier) cannot be considered an adult paradigm. In
addition, there is the problem that the drat, an involuntary
institution i ever there was one, serves as the very basis or the
order-taking that ollows. At least i the original decision to obey
orders was made on a voluntary basis, such as the decision to
join an orchestra, and then to ollow all (musical) orders o the
conductor, there might be some adult-like behavior involved in
the drat. However, based as it is on original involuntarism, even
so much cannot be said or the 18 year old dratable age.
Another problem with the 18 year cut-o point is that the origi-
nal reason or our search was the ear that a mere child would be
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chap32childlabor.qxd 2/21/2008 12:30 PM Page 244
unable to make 01$2(".34 contracts on his own. How then can
we base such an age on a patently #(01$2(".34 institution such as
the drat
Perhaps the latest candidate or adulthood is the voting
age-!1 years old. But even this is open to harsh criticism.
1here is irst the problem that several, i not many 10 year olds,
have a greater grasp o political, social, historical, psychological,
and economic actors, presumably the actors that enable one to
vote wisely,` than do many people over the age o !1. One
would then think that i this were true, there would be some
recognition o the act in the orm o a movement to enranchise
all bright 10 year olds, or rather, all bright children o any age.
But this would deeat the original goal o allowing only adults to
vote. 1hrough this circularity o reasoning, we can see that the
age o !1 is only an arbitrary cuto point.
We can likewise see all other arbitrary deinitions o adult-
hood to be without merit. What is needed is not an arbitrary age
limit which will apply to all people regardless o ability, temper-
ment, and behavior, but rather a criteria which can take all these
qualities into account. Moreover, the criteria should be consis-
tent with the libertarian principle o sel-ownership o property:
namely homesteading. What is wanted is an application o the
principle o homesteading, which establishes sel-ownership
and ownership o property, but applied now to the perplexing
problem o when a child becomes an adult.
Such a theory has been put orth by Proessor Murray N.
Rothbard. According to Rothbard, a child becomes an adult not
when he reaches some arbitrary age limit, but rather when he
)1&! something to establish his ownership and control over his
own person: namely, when he leaves home, and becomes able to
support himsel. 1his criteria, and only this criteria, is ree o all
the objections to arbitrary age limits. Moreover, not only is it
consistent with the libertarian homesteading theory, it is but an
application o it. For by leaving home and becoming his own
means o support, the ex-child becomes an #(#"#."13, as the
homesteader, and owes his improved state to his own actions.
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1he theory has several implications. I the only way a child
may become an adult is by picking himsel up and establishing
such adulthood o and by his own volition, then the parent has
no right to interere with this choice. 1he parent cannot, then,
orbid the child rom leaving the parental household. 1he par-
ent has other rights and obligations over the child .! $1(* .! ",&
;,#$) 3&7.#(! #( ",& ,12!& 1' ",& 8.3&("!. (1his accounts or the
validity o the ot-heard parental order: As long as you`re in this
house, you`ll do things my way.`) But the one thing the parent
cannot do is orbid the child`s departure. 1o do this would be to
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4.3)B C.( )#) > ,.0& ;.$$2!&!B 5,& D#)! "1).4 *1" #" 7.)&BE
chap32childlabor.qxd 2/21/2008 12:30 PM Page 246
violate the volitional aspects o growing up rom a child to an
It should be noted that this theory o the passage rom child-
hood to adulthood is the only one consistent with the problem
o mental deiciency. According to the speciic arbitrary theories
o adulthood, a mental incompetent, aged 0, ought to be con-
sidered an adult, even though he maniestly is not. 1hese theo-
ries then come up with urther arbitrary .) ,1; exceptions` to
it the case. But the mental incompetent is no embarrassment to
the homesteading theory. Since he has not (been able to) seized
ownership and adulthood o and or himsel, the mental incom-
petent o whatever age is simply not an adult.
1he most important implication o the homesteading theory
o adulthood is, o course, the one regarding the prohibition o
so-called child` labor, where a child is deined as someone with
less than a certain arbitrary number o years. For this prohibi-
tion o so-called child` labor, as in the case o parental interer-
ence with the child`s decision to leave home, will eectively
remove the possibility o voluntarily` becoming an adult. I a
person o tender years is eectively prohibited rom working, the
option to leave home and to support himsel is removed rom
him. He is then excluded rom homesteading his own adult-
hood` and must perorce wait until the arbitrary number o
years deining` adulthood has been reached.
However, the adult homesteading theory does not 3&F2#3&
employers to hire young persons who are trying to establish
their adulthood. It is, o course, true that unless !17& employer
hires such a person, he will ind it as diicult to become an adult
as in the case where his parents orbade his departure, or the
government prohibited it. But the key dierence is that the 01$A
2(".3#!"#; nature o the passage rom childhood to adulthood will
not be inringed upon by employers reusing to hire young peo-
ple. 1his is so because true voluntarism requires voluntary
action on the part o /1", parties to an agreement. 1he
employer, as well as the employee, must agree. In any case, since
there can be no positive obligations, unless the individual him-
sel contracts or them, and the employer has made no advance
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chap32childlabor.qxd 2/21/2008 12:30 PM Page 247
commitment to employ the youngster, there is no moral obliga-
tion on the part o the employer. (Employers will o course,
employ young people when they eel it is to their advantage to
do so, as they have always done when not prohibited by law.)
Not only is it important to end prohibitions o employment
o children or the sake o their peaceul and voluntaristic tran-
sition into adulthood, it is also o overriding importance to the
small but growing kid liberation` movement. 1he prohibition
against job opportunities will have to be ended i children are to
be truly liberated rom their parents while in residence in the
parental abode. O what value is the right to leave the amily
household and seek a living outside, i a youngster is prohibited
rom supporting himsel 1he right o every kid to ire his par-
ents` i they become too onerous, is completely compromised by
the laws against child labor.
Can a labor contract with a mere child` be truly voluntary,
given his tender years, lack o experience, etc. 1he answer is
yes. A 8&3!1(, any person, who has had the ability to leave home
and to attempt to earn his own living #! mature enough to enter
into a contract on a voluntary basis, since such a person is a child
no longer. 1he opposite answer, as we have seen, would eec-
tively bar young people rom striking out on their own and
becoming adults through homesteading. 1heir only alternative
would be to wait until they have reached whatever arbitrary
number o years society,` in its ininite wisdom, has determined
to be necessary or adulthood.
1here are other objections, however, to the legalization o
child` labor. It will be said that a destitute youngster, even
though an adult through homesteading, will be taken advantage
o by employers, that the employer will make proit` rom the
plight the youngster happens to ind himsel in.
But it would be ar 713& harmul i his one source o sup-
port, however bleak, were legislated out o existence. Despite the
act that the employer might be cruel, the job menial, and the
salary low, it would be ar more injurious to orbid him the
18813"2(#"4. I there are other, more avorable, alternatives, the
young person will avail himsel o them even i the law allows
!!8 %&'&()#(* ",& -()&'&()./$&
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the choice o accepting or rejecting the unavorable job. I there
are no other opportunities, the law prohibiting child labor will
take rom him this one opportunity, however unavorable.
In a ree market society, the employer will (1" be able to take
advantage o the misery o the young worker, i by this it is
meant that he will not be able to pay him less than his marginal
product. As we have seen in the chapter on the capitalist-pig-
employer, there exist powerul orces on an open market which
will tend to orce all wages up toward the level o productivity o
the worker in question.
However destitute and helpless the youngster who is looking
or work may be, it is not the ault o the potential employer.
Even i the destitution and lack o bargaining power` o the
worker were very extreme, and even i the employer were able to
take advantage o this` (as we have seen is not the case), it
would still not be the ault o the employer. I anything, the
unortunate situation would have to be blamed on the back-
ground o the (ex-) child.
1he question arises as to what degree the parent is obligated
to support the child. As a general principle, the parent has no
positive obligations whatsoever in regard to the child. 1he argu-
ment to the contrary, that a parent does have some positive obli-
gations toward the child, based upon the supposed contractual
nature, or voluntary decision on the part o the parents to bear
the child, may be easily shaken. Consider the ollowing:
1. All children are equal in rights due them rom their par-
ents, regardless o the way in which they were conceived.
!. Speciically, the child who is a product o rape has as
many obligations due him rom his emale parent as any
other child. (We assume that the male parent, the rapist,
has gone.) No matter what views we have on rape, the
child who is a product o such rape is entirely guiltless o
this crime, or any other crime.
. 1he voluntary nature o child rearing and conception
does not apply in the case o rape.
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!. 1hereore, the argument that the parent owes some obli-
gations to the child which arise out o the voluntary
nature o the conception, or out o an implicit contract,`
cannot apply in the case o rape, i.e., in the case o rape,
at least, the emale parent owes no positive obligation to
the child, because she did not consent to its inception.
. All children, being equally guiltless o any crime, in spite
o any theory to the contrary, such as original sin,` have
equal rights due them rom their parents. Since all such
rights (supposedly) low rom the voluntary nature o
conception, and the children born o rape maniestly
lack this voluntary aspect, they, at least have no rights
due them rom their (emale) parent. G2" ",&#3 3#*,"! .3&
&F2.$ "1 ",1!& 1' .$$ 1",&3 ;,#$)3&(. 1hereore, no child,
whosoever, has any positive obligations due him rom his
Nor is it immediately or intuitively obvious that there are
any other grounds or establishing any parental duties to chil-
dren. Given, then, that nothing but a voluntary agreement on
the part o the parent ;12$) establish obligations to children, and
that this argument ails, it is obvious that there are no positive
obligations incumbent upon parents toward their children.
No positive obligations` implies that the parent has no
more o an obligation to eed, clothe, and shelter his own child
than he has to serve the children o other people, or, or that
matter, than to serve other adults who are completely unrelated
to him, by birth, agreement, etc. 1his is not to suggest, however,
that the parent may kill the child. }ust as the parent has no right
to kill the children o other parents, he has no right to kill his
own` children, or rather, children he has given birth to.
1he parent, when he assumes the role o parenthood, is a
sort o caretaker or the child. I ever the parent wishes to relin-
quish this role that he or she has voluntarily adopted, or not
assume this obligation in the irst place, she is completely ree to
do so. She can oer the baby or adoption, or, in the old tradition
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chap32childlabor.qxd 2/21/2008 12:30 PM Page 250
o the natural law, leave the baby on the steps o a church or
charitable institution specializing in the care o children.
But the parent may not secret the baby in a hidden corner o
the house without ood, or reuse to oer it or adoption, and
wait or it to die. 1o do this would be equivalent to murder-a
crime which must always be severely condemned. 1he parent
who keeps the child hidden while starving it (so as not to actu-
ally commit violent murder upon it) has renounced his caretak-
ership or the parental relationship others might be willing to
Perhaps the parental-caretaker role may be made clearer by
entering it into a hierarchy o homesteading: the child alls into
a realm between that o another adult and that o an animal. I
one adult helps another, he cannot by that help alone, come to
be the owner o the other person. I an adult domesticates an
animal, and through his own eorts brings the animal into pro-
ductive use (productive or mankind), he can thereby come to
own it. 1he child, an intermediate case, can be owned`
through homesteading, but only on a caretaker basis, until he is
ready to assert ownership over his own person, namely, to
assume adulthood by becoming independent o his parents. 1he
parent can exercise control over the child and rear it only as long
as he ;1("#(2&! his homesteading eorts. (With an animal, or
with land, once it is homesteaded, the owner need no longer
continue to homestead it in order to own it. He can, or exam-
ple, be an absentee landlord or animal owner.) I he discontin-
ues his homesteading operations with the child, he must then
either oer it or adoption, i it is too young and helpless to end
or itsel, or he must allow it to run away to set up its own lie, i
it is able and willing.
I the parent brought up the child with just enough help and
aid to qualiy as a continuance o homesteading, but no more,
and i the child is in a relatively deprived background, this can-
not be laid at the door o the prospective employer. Prohibiting
an employer rom hiring such a youngster will in no way
improve his lot-it can only worsen it.
1rue, there are parents who make 2(?#!& decisions concern-
ing children, unwise rom the vantage point o outside observers.
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It does not ollow, however, that the welare o children will be
raised by placing them in the hands o the state apparatus. 1he
state, too, makes unwise, and even 2(,&.$",4 decisions concern-
ing children, and a child can much more easily leave his parent
than leave his government, which rules us all.
We must conclude, then, that all labor contracts concerning
young people are valid as long as they are voluntary-and they
;.( be voluntary. Either the young person is an adult (whatever
his age), who has earned his adulthood and hence is able to con-
sent to contracts, or else he is still a child, and is able to work on
a voluntary basis through the intermediation o parental con-
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chap32childlabor.qxd 2/21/2008 12:30 PM Page 252
abortion, 1!
absolute advantage, 178
academic reedom, 1-
addiction, drug, !8, -7
adulthood, !!!-!7
advertisers, 7-68, !1
ban on, 6-6!
government-aided, 67
government ratings board or,
motivational and inormational,
aggression, xiii, xv, xvi
airlines, 60
banking, 60
central, 106-08
holidays, 107
wildcat, 106-07
beneits, social, xiv
blackmailers, !1-!6
blacks, !!--0
Block, Walter, ix-xi
boycotts, !
bribery, -
Britain, 1
brokerage, 10-11
brothers` keeper philosophy, 1-
business and trade issues, 1---
capital accumulation, 111-1!
cartels, 1!-, !1!-16, !!!
charity, 1!--
private vs. state, 11-!
child labor, !!-!
China, 0
civil liberties, 1---!
Cloward, Richard A., 1!
collateral, 1!6
collectives, shopping, 161
comparative advantage, 178
compensating dierentials, 17-18
competition, !1, 60, 16!, !08, !1!
Index.qxd 2/21/2008 12:33 PM Page 253
condemnation, land, 1!1
conscription, !!!
consumer sovereignty, !18-1-
contracts, !!, !, 6--71, 1!
cooping, -
cops, -1--6
corruption, 16!
costs, 6
countereiters, ---110
criminals, 1!, !!-!
curmudgeons, 1--!
Darwin`s law, 10
debasement, 10
delation, 11!
demand, law o, !!
devaluations, 107
discrimination, 6!
private vs. state, 1-16
sexual, !0-!1, !!-!
doctors, medical, !-, 7
Domho, G. William, 10
double coincidence o wants, 18!
drat, the, !!!
addicts o, -7
pushers o, !7-1, -!--
ecological issues, 1---!!0
economics, xii, 6
economists, ix
egalitarianism, 11--!0
eminent domain, 1!0-!1
employers, !!-!, !!-!
energy sources, !!0
entrepreneurs, 18--
equality, !0-!1, 11-
income, 1-!
evil, xiv
exchange rates, lexible and ixed,
exports, 17!-7
extortion, -6
amine, 16-68
arm price supports, 1!
ences, !-
iat currency, 10!
inancial issues, ---1
ire,` screaming in a crowded the-
ater, 6--7!
oreign aid, 1!
raud, -, --
ree speech, !1-7!
ree-enterprise, system o, xv-xvi,
16, !!, 1-
Friedman, Milton, 66, 108
gambling, -!
ghetto merchants, 1-6, !0
gits, 117-18, 177
gold, 10!-0, 176
gossips, !!-!
government, 1, 17-18
intervention in the economy,
1!, 161-6
market vs., 1-16, 67, 71, 77,
11-!, 1-, 1-, !08
Gross National Product (GNP), 6
gypsy cab drivers, 7-8!
handicapped, the, !0-1
harassment, sexual, 16, 18-!0
!! $%&%'()'* ,-% .'(%&%'(/01%
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heirs, 117-!0
heroes, x-xi, 10-
heroin, !7-0
hoarding, 11!-1
homesteading, 1!0-!1, !!-!7, !1
housing, 1!7-!
importers, 16--78
inlation, monetary, ---110
inheritors, 117-!0
innovation, !!0-!1
interest, 1!!-!6
invisible hand, 166
jobs, 16-, 17!-7, !-!
hunting or, 61
kid liberation movement, !!8
knowledge, 188, 1-, !!
labor issues, !!-!
lump o, allacy, !8--
skilled, 17!
organized, !1
landlords, 1!7-!
law, -!--
legal tender laws, 10
leisure, 0
lenders, 1!1-!7
libeler, !7-0
libertarianism, xiii-xiv, xvi
licensure, 77-7-
liespan, !-
litterers, !0-11
majority opinion,
male chauvinist pigs, 1-!
marketplace, xv
marriage, 6
means, ends and, xvi
medical issues, !7-7
medical proession, !-, 7, !16
mental incompetents, !!7
merchants, 1-6
middlemen, 17--8
migrant workers, !!7
Mill, }ohn Stuart,
minimum wage laws, !!-!!,
mining, 1---!0
minorities, 7-77, 7--80
minting, 10!-0
misers, 111-1
mixed economy, 1-
money, ---110, as sterile, 1!-!!
moneylenders, 1!1-!7
morality, xvi, 1, 1!0
murder, !1
natural selection, 10
nature, argument rom, !0!-0
obligations, positive, !!--0
obsolescence, planned, !1-!0
opportunities, 186-8-
outlaws, 7--6
Packard, Vance, !1
money, 106
products, !17-1-
2'(%3 !
Index.qxd 2/21/2008 12:33 PM Page 255
parenting, -, !!--1
physiocrats, -
pimps, --11
Piven, Frances F., 1!
policemen, -1--6
pollution, !00-!0!
poor, the, 7-77, 7--80, 1!!-!7
poverty, 11
praxeology, 1!!
prices, 6, !8, 0, 7, 8!, 86, 10!,
11!-1!, 1!-, 16, 186-8-, !0-, !1-
productivity, !!7-0, !!0-!1, !!-
proessions, !, -
proiteer, 18--
proits, 16--, 18--
prohibitions, 1!, 1!
drug, !7-0
property, 1
private, 1!0
private vs. public, 17-!0, !!, !,
prostitutes, -7, 1!
protectionism, 170-78
public speaking, 6
public transit, 76-77
racism, !6
radical letists, 6!-6
railroads, !16
rape, 1-1!, -!
rate buster, !7-!1
ratings agencies, !1
rationing, 86
regulatory agencies, capture o, 66
rent control laws, 1!-
rents, 1!-
reputation, !7-0
rights, !, 71
Rockwell, Norman,
Rothbard, Murray N., 11!n, !!
ruling class, !
sado-masochists, 71-7!
savings, 111-1!
scabs, !-6
scapegoats, ix-x
sel-ownership, 1!0
sex, -6
sexual issues, -!
short selling, 187
sidewalks, !10
silver, 10!
slanderer, !7-0
slumlords, 1!7-!
Smith, Adam, 166
specialization, 171-7!
speculators, 16-68
stewardship, 1!!-!
strikes, !6
stripminers, 1---!0
taxation, xiv
taxi drivers, 7-8!
thet, 10, 1!
third parties, xv,
threats, !-!!
ticket scalpers, 8-8-
time preerence, 1!1-!!
tires, !17
token coins, 10
torture, -6
trade, xv, , 6, 107, 1!!-!, 16--78
trespass, !00-0!
!6 $%&%'()'* ,-% .'(%&%'(/01%
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unemployment, !!-!!, !!8-0
unions, !1-!
usury, 1!6
utopia, 177
violence, xiii, xv, xvi
voluntarism, !!7, !!
Vonnegut, Kurt, 11-
voting, !!
wages, !!!-!
wastemakers, !1-!0
women`s liberation movement, 1
2'(%3 !7
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