His subject and its relation to freedom and prosperity were certainly worth capturing in such a clever, pleasing, and illuminating essay, which is why it is one of the best-known works in the popular free-market literature.

But there’s another lesson in “I, Pencil” that has been largely overlooked, perhaps by Read himself. “I, Pencil” is also an excellent primer in the Austrian approach to capital theory. It’s worth looking at Read’s essay in that light.

Early on, Read’s pencil describes his family tree, beginning with the cedars grown in northern California and Oregon that provide the wooden slats. But he doesn’t really start with the trees. He notes that turning trees into pencils requires “saws and trucks and rope and the countless other gear used in harvesting and carting the cedar logs to the railroad siding,” and those things have to be produced before a pencil can be produced. “Think of all the persons and the numberless skills that went into their fabrication: the mining of ore, the making of steel and its refinement into saws, axes, motors; the growing of hemp and bringing it through all the stages to heavy and strong rope; the logging camps with their beds and mess halls, the cookery and the raising of all the foods. Why, untold thousands of persons had a hand in every cup of coffee the loggers drink!”

What emerges here is what Austrian economists call a structure of production. This structure is characterized by two closely related elements: multiple stages (distinguished by their “distance” from the consumer) and time. The pencil that eventually emerges at the end of the process must first proceed, in various states of incompleteness, through a series of stations at which components are transformed in ways consistent with making pencils. The stations themselves have to be prepared through earlier stages of production. Thus before trees can be cut down and turned into wooden slats, saws, trucks, rope, railroad cars, and other things must be produced first. Before steel can be used to make saws, trucks, and railroad cars, iron ore must be mined and processed. And so on. The same kind of description can be provided for each component of the pencil: the paint, the graphite, the compound that comprises the eraser, the brass ferrule that holds the eraser.

Tracing the pencil’s genealogy back to iron, zinc, copper, and graphite mines; hemp plants; rubber trees; castor beans; and much more demonstrates the “roundaboutness” of production, the term of the early Austrian economist Eugen von Böhm-Bawerk. Much time and effort are spent not on making pencils but rather things that will–sooner or later–help to make pencils. Without central direction, entrepreneurs set up production this way because more, better, and cheaper pencils can be made more profitably than by some more direct process.

Price Communication

Several things are worth pointing out about the structure of production. First, while no central planner is responsible for pencil production overall, entrepreneurs and workers at each stage do have plans and expectations, which they strive to coordinate with one another across stages and time periods. The key to coordination is the price system. If there’s a brass shortage, rising prices will communicate that information to the ferrule and pencil makers. The downstream entrepreneurs will have to adjust their plans in response to the new conditions–say, by finding a substitute material. The demand for a substitute material will in turn set appropriate processes in motion as entrepreneurs react. In the real world of disequilibrium, change is the rule, so plans are always undergoing revision.

Moreover, a quantity of a resource cannot be used both at an early stage of production and a later stage simultaneously. A unit of iron could be devoted to making ferrule machines or it could be used to make a machine for mining more iron–or many other things in between. Tradeoff is the rule, and consumer welfare depends on having things arranged appropriately. Time-preference and the market for loanable funds–that is, interest rates–govern coordination across time and maximize consumer satisfaction. It all works marvelously well when government stays out of the way, but alas there are many opportunities for mischief by the central bank and the Treasury. For example, artificially depressing interest rates can shift resources from later to earlier stages in defiance of consumer preferences and resource scarcity.

Second, capital equipment wears out. Machines, engines, vehicles, saw blades, ropes and the rest need to be replaced. That requires money, which requires saving–that is, deferred consumption. Saving is also necessary to finance research and development so that better and cheaper machines, tools, materials, and writing implements might be created. Remember this when Keynesian politicians and economists who aspire to stimulate the economy deride saving as inimical to economic growth and increased consumption. Such derision invariably ignores the need for capital at stages of production remote from the final consumer level. That’s what inappropriate aggregation gets you.

Third, the stages of the capital structure consist in discrete, specific, scarce, and complementary things–buildings, machines, tools, materials, and more–in particular places at particular times. They were put in place, as part of an entrepreneur’s plan, to work together with labor to produce other specific things. In keeping with Austrian subjectivism, the plan gives meaning to the capital goods. A change in plan, for example, might convert equipment that was once complementary to the rest of the equipment into something of little or no value (besides scrap).

Menger and Value

This leads to the final point. Carl Menger, founder of the Austrian school, taught that capital goods get their value ultimately from the final consumer goods they help to produce. If there were a machine that could only make pencils and if people stopped wanting pencils, the value of the machine would drop to its scrap value. Capital goods are not a lump of Play-Doh. They are specific things, which means they cannot be adapted to any use whatever. Even when they can be adapted, the conversion will likely not be costless and certainly not instantaneous. Moreover the goods are in particular places. Equipment in the wrong place is not as valuable as equipment in the right place.

These facts have implications for booms and busts, which are much on people’s minds today. If government policy (monetary or other) artificially induces investment in unsustainable projects that are out of alignment with true consumer preferences, the realignment that will have to be undertaken later can be neither instantaneous nor costless. Equipment that was suitable for the now-liquidated projects may not work as well–or at all–in other endeavors. Much “investment” will be seen now as waste, and time and money will have to be spent putting things right. That’s the recession.

This description of the structure of production should raise no eyebrows. We see such things all around. But anyone who has taken a standard economics course will know that capital is usually discussed as though it were a lump of malleable and homogenous Play-Doh (“K”). If you assume this about capital and think in terms of aggregates and averages, you may underrate the need for the market process, which has no rival in its ability to coordinate the plans of strangers in order to raise living standards. The Play-Doh conception of capital may fit in mathematical equations, but that’s a case of the tail wagging the dog. Economics should be a way of thinking about the world we actually confront.

The New Deal did not end the Great Depression. This statement will come as no shock to FEE supporters, but it will to the many people who never encountered it before. Now people are encountering it — in newspaper columns and news-talk shows.

Why, after years of being taught that Franklin Roosevelt’s economic intervention saved the country from disaster, is the general public now being told — by FDR fans, not critics — that this is not the case?

It’s the Rooseveltians’ way of helping President Obama get over any fear he has of deficit spending. Paul Krugman, the newest Nobel laureate, a Keynesian, and a New York Times columnist, is explicit about this. “[H]ow much guidance does the Roosevelt era really offer for today’s world?” Krugman asks. “The answer is, a lot. But Barack Obama should learn from F.D.R.’s failures as well as from his achievements: the truth is that the New Deal wasn’t as successful in the short run as it was in the long run. And the reason for F.D.R.’s limited short-run success, which almost undid his whole program, was the fact that his economic policies were too cautious.”

By “too cautious” Krugman means that FDR’s deficits were too small. Roosevelt ran deficits (except for one year), but they were about the same size as those run by his predecessor, Herbert Hoover. Roosevelt’s biggest deficit, in 1936, was “only” 4.4 percent of GDP, Jim Powell points out in FDR’s Folly. Both Hoover and Roosevelt were big spenders — FDR doubled spending by 1940 — but they were also big taxers, which kept the deficit from growing. This is confirmed by University of Arizona economist Price Fishback, who wrote, “Once we take into account the taxation during the 1930’s, we can see that the budget deficits of the 1930’s and one balanced budget were tiny relative to the size of the problem….”

Roosevelt was quite a tax enthusiast. He levied or raised taxes on liquor, tobacco, gasoline,  corporate dividends, estates, incomes (top rate 75 percent versus Hoover’s 63), “excess” profits, and undistributed profits. (The last tax was repealed in 1939.) And then there was the payroll tax that came in with Social Security. All in all, the New Deal more than tripled the tax burden from 1933 to 1940: $1.6 billion to $5.3 billion. Serious deficit-spenders don’t raise taxes. But Roosevelt did. Is it any wonder that net investment dropped $3.1 billion during the decade or that unemployment was about as high in 1939 as it was in 1932?

Would Bigger Deficits Have Worked?

This raises the question of whether big-time deficit spending would have ended the Depression. Krugman and others think so. But how could it? Deficits are financed either by borrowing or by creating money out of nothing. When the government borrows money, that’s money no one else can borrow and invest. Where’s the gain? Moreover, the money is put to purposes selected by politicians, not entrepreneurs trying to please consumers.

When the government creates money, three things happen. First, the new money lowers interest rates below the level justified by society’s time preference; that produces perverse incentives to invest in longer-term projects far from the consumer-goods level. Second, the money early on changes relative prices (rather than raising prices evenly) because particular economic interests get it sooner than everyone else. Third, prices later rise generally, reducing everyone’s purchasing power. The result is a distorted structure of production and a boom that is unsustainable because it’s based not on real savings but on fiat money. When the inflation stops, the bust follows.

Since the New Deal didn’t end the Depression and a New Deal on steroids wouldn’t have done so, President Obama should pay no heed to Krugman and his Keynesian economic advisers. The way to wake up the economy is reduce the total government burden on producers and consumers by, among other things, slashing spending, taxes, and borrowing.

What is going on? Student loans for college are largely a creature of federal intervention. Decades ago, politicians decided that it would be good to have more people go to college, and they created a system of grants and subsidized loans to make that possible. As we have (or should have) learned from the great economist Ludwig von Mises, government intervention nearly always has unanticipated consequences that create the apparent need for still more intervention. That is exactly what we see when it comes to higher education and its financing.

Federal Intervention in Higher Education

Before World War II the federal government had virtually nothing to do with higher education. It had no regulations that colleges and universities had to obey and it paid for no one’s college attendance. Occasionally, it commissioned some scientific research from professors, but otherwise it played no role. Only a small percentage of the population pursued college studies; most people didn’t think it was worth the cost.

Things changed with the passage of the GI Bill in 1944, since that law provided, among other things, that returning soldiers would be eligible for federal grants if they enrolled in college. Many took advantage of that subsidy, and the government’s interventionist course was set. Almost immediately, the heads of colleges realized that this new revenue source could be tapped endlessly. Expand the student body and rake in the dollars! What had been a quiet backwater of American society would become a sizzling growth industry.

During the “Great Society” presidency of Lyndon Johnson, government intervention took several giant steps into student finance. After all, if going to college was good for those who had served in the armed forces, why not help make this good generally available? So Congress passed and LBJ signed the Higher Education Act of 1965, which established several grant and loan programs to make it easier for students to go to college. In particular, the Act created what is now called the Stafford Loan program. Stafford loans are made by private institutions. The government sets the interest rate at a level that is supposed to keep higher education “affordable”—currently 6.8 percent. And to make these fairly risky loans interesting to lenders, the government guarantees repayment. Until recently, lenders could recover 97 cents on the dollar on defaulted loans, but in 2007 Congress cut that to only 95 cents. (More on that later.)

With subsidies now flowing for a wide swath of the college-age population, expansion really took off. Before World War II, only 10 percent of high-school graduates enrolled in some sort of higher education. By the 1990s that figure was 70 percent. Americans were getting hooked on higher education and the idea that without a college degree a person would be hopelessly mired at the bottom of the labor market. It didn’t particularly matter what one studied or how diligently. Simply having a college degree was assumed to guarantee at least a good middle-class job.

Credential Inflation

The college mania was also fed by employers. First, with an ever-growing pool of people with college degrees to choose from, many firms adopted personnel policies that made the possession of a college degree a requirement for applicants—even for jobs that could easily be learned by anyone with a decent high school education. As James Engell and Anthony Dangerfield write in their book Saving Higher Education in the Age of Money, “Another reason students and parents choose as they do is that the United States has become the most rigidly credentialized society in the world. A B.A. is required for jobs that by no stretch of the imagination need two years of full-time training, let alone four.”

Presumably, college graduates are somewhat more reliable and easily trained than people with only high-school diplomas, so if there is a large enough number of applicants with college degrees, employers don’t have to bother with people who don’t have them.

The second reason for credential inflation is that in 1971 the U.S. Supreme Court issued a ruling (Griggs v. Duke Power) saying that if companies use aptitude testing to screen potential employees, they must be prepared to show that their tests are precisely calibrated to the needs of the job. Otherwise, they will be guilty of employment discrimination if their tests screen out minority workers who might have been able to do the work. Rather than face discrimination suits by the federal government, most employers started using a less precise but legally safe method of screening applicants—college degrees.

So thanks to the “generosity” of Congress and the Supreme Court’s willingness to unleash the demon of litigation, college degrees became more and more sought after. Politicians could not resist the urge to buy votes from families with college students (and children who might be heading for college) by increasing the size of federal grants and loans so as to make college “more affordable.” Not surprisingly, college administrators realized that when the subsidies went up, they could charge more in tuition. After a few years of tuition increases, politicians would proclaim that subsidies had to be raised to keep college “affordable” and to “increase access” for students. The subsidy dog was chasing its tuition tail. Our already bloated higher-education sector just kept happily growing, ingesting ever-increasing amounts of borrowed money.

A volcano erupted in 2007 that sent shockwaves through the student-lending industry. New York’s attorney general, Andrew Cuomo, who was investigating allegations of corruption in the industry, said he had uncovered a mass of favoritism and underhanded dealing. For example, many of the lenders had established cozy relationships with college officials; the lenders bribed them to refer students to the lenders for financial aid. Some top financial-aid officials at major universities had profited through their stock ownership in firms they put on their schools’ “preferred lender” list. Those practices were nothing new, but previously the lenders had managed to protect their sheltered high-profit business through their political influence.

Writing in April 2008, Peter Wood, executive director of the National Association of Scholars, summed up the situation: “The ‘free market’ in this case was never anything close to lean and efficient. To the contrary, it was (and still is) inefficient and frequently corrupt, dominated by players who found it easy to bribe college officials, wring favors from politicians by means of campaign contributions, bilk the Department of Education, and live off generous subsidies.”

Cuomo’s revelations brought swift political retribution from the Democrats who had taken control of Congress following the 2006 elections. Capitalizing on the bad odor in which the student lenders had put themselves, Congress passed the College Cost Reduction and Access Act of 2007. The bill, which President Bush signed in September 2007, was intended to score political points with angry voters by cutting the lenders’ subsidies. No longer would the government cover defaults at 97 cents on the dollar; the new law reduced that to only 95 cents. (Defaults were as high as 20 percent in the early 1990s, but currently are around 5 percent.) Among other provisions, the loan-origination fees lenders pay the government were doubled, and the allowable interest rate on federally backed loans was cut from 6.8 percent to 3.4 percent. In one fell swoop, the bad lenders were spanked and college was made more affordable for students.

Remember, though, what Mises said about intervention—always expect some unexpected reactions. That’s what happened in the student-lending industry.

A Fateful Coincidence

The developments in the student-lending industry happened to coincide with the cataclysm in the subprime-mortgage business. (There are strong similarities between the two. In both, government policy was responsible for the overexpansion of an industry that became dependent on cheap credit.) When the financial markets suddenly became leery of packages of mortgage loans that looked bad, causing some of the big mortgage lenders to take huge losses, the markets also became leery of packages of student loans. Big lenders that had counted on selling bonds backed by student loans found investors giving them the cold shoulder. Also, quite a few announced that they were exiting the student-loan business because Congress has taken the profit out of it.

Therefore, last spring the “student loan crisis” appeared—at least in the minds of politicians. Talk that some students might be unable to obtain loans was enough to cause another flurry of action. Bills named the Ensuring Continued Access to Student Loans Act were introduced in both the House and Senate in April with overwhelming bipartisan support and passed as rapidly as possible. President Bush signed the legislation on May 7 to the applause of Democrats and Republicans alike. This Christmas-tree bill does a lot of costly things to shore up the student-loan industry and further subsidize students who go to college. Most important, it authorizes the Department of Education to bail out the student lenders by buying up the portfolios of loans they couldn’t sell in the market. Other provisions expand student eligibility for “need-based” aid, allows parents who have taken out federally guaranteed, low-interest PLUS loans to defer payment until six months after their children graduate, and increase the amount of direct student lending the federal government does.

In other words, the politicians used the “crisis” they created as an excuse to throw still more taxpayer money into the black hole of college subsidies.

Is there any alternative? Most people are so accustomed to thinking that government is the solution to every problem that they can’t imagine anything else. There is at least one college—Hillsdale—that runs a successful student-aid program without taking a single dollar of government money. If the government had never blundered into the student-lending business, no doubt there would be much more reliance on market mechanisms than we now have. Freedom works when people bother to try it.

Intervention in the free market always leads to problems, and politicians invariably try to solve those problems by ratcheting up the degree of intervention. Here we have a perfect illustration. As the result of the College Cost Reduction and Access Act and the Ensuring Continued Access to Student Loans Act, the federal government is more deeply involved than ever in the business of college subsidies. The foolish notion that the government needs to help as many people as possible get college degrees has gotten another boost. Taxpayers will be shorn of more of their money so that no student who feels like getting a degree is left behind.

Most people now see college as an entitlement to be provided largely at “public” expense. It shouldn’t be. If we hadn’t made the blunder of getting government involved in college education, it would today cost much less and deliver more value. That’s because it would be subject to the test of the market. Instead, it’s like an overweight gorilla that has been stuffing itself on taxpayer dollars for many years.

Friedman’s evaluation corresponds to Hong Kong’s consistent ranking at the top of both the Heritage Foundation’s Index of Economic Freedom and the Fraser Institute’s Economic Freedom of the World reports. In the 2008 Index, for example, Hong Kong scored 90 percent or better on seven of the ten measures of economic freedom. Impressively, Hong Kong’s weakest score (freedom from corruption, where it ranks 13th of the 180 countries rated in 2006 by Transparency International) put it well ahead of the United States (fifth most free overall, 20th on freedom from corruption).

Why has Hong Kong been so free?

Hong Kong never would have become the economic powerhouse it is today if either British or Chinese senior politicians had had any say in the matter. Britain acquired Hong Kong island in 1842 (additional territory came later) through a deal between the British representative, Captain Charles Elliot, and the Chinese negotiator, the Marquis Ch’i-ying, to settle a small war that had broken out over trade issues. (Compensation for a Chinese seizure of British opium was one issue, but the dispute was broader than the issue of opium, and recent scholarship tends to cast doubt on the conventional labeling of the dispute an “opium war.”)

The resulting deal was unpopular both with the Chinese Imperial Court and the British government. The Chinese authorities disliked any cession of territory to the British and worried about the impact on tariff revenues of creating a British-controlled port. Moreover, the Chinese disdained the British obsession with trade. The British government thought Hong Kong a poor location compared to the possible alternatives, such as Formosa. Nonetheless, the limits to communication in the nineteenth century had forced the two governments to delegate the authority to resolve the dispute to their representatives on the scene, so they were left with what Frank Welsh’s excellent one-volume history, A History of Hong Kong, terms “a source of embarrassment and annoyance to its progenitors since it first appeared on the international scene.” (Unless otherwise indicated, quotations are from Welsh’s book.)

Early History

Early assessments of Hong Kong’s potential were pessimistic. Lord Palmerston, in possibly the worst prediction ever made by a British diplomat, concluded that it was “a barren island, which will never be a mart of trade.” The colonial treasurer, Robert Montgomery Martin, a prolific writer on Britain’s overseas possessions (including a five-volume History of the British Colonies published in 1840), echoed Lord Palmerston’s assessment in 1844, finding that “there is no trade of any noticeable extent in Hong Kong. . . . There is scarcely a firm in the island but would . . . be glad to get back half the money they have expended in the colony and retire from the place. . . . There does not appear the slightest probability that, under any circumstances, Hong Kong will ever become a place of trade.”

Some trade did begin, however, as a result of the establishment of British merchants’ warehouses. But early British policies concerning their new territory did little to promote economic growth. An 1847 Parliamentary investigation of the economic situation in Hong Kong found that British rule had initially brought with it a government bent on raising “as large a revenue as possible” and that this had damaged trade, concluding that the restrictions on trade instituted by the early British administration to raise revenue meant that “[f]rom this time may be dated the reverses of Hong Kong.”

Hong Kong physically expanded twice during the nineteenth century. Territory on the mainland opposite Hong Kong island, Kowloon, was acquired in a “casual way” for 500 taels during a Sino–British conflict in 1859 in a deal between a British Consul and a Ch’ing official. And in 1898 Britain leased for 99 years the New Territories, additional mainland territory plus some islands. In both cases, the rationale for expansion was to protect the harbor from the range of guns located on the mainland. Although the British hoped to eventually make the New Territories lease a more permanent arrangement, their agreement to the lease rather than a permanent cession of control played an important role in the eventual return of the entire territory to the People’s Republic of China in 1997.

Britain did relatively little with its new colony, beyond establishing public order and extending the rule of law. The result was essentially a treaty port, much like those that European powers established on the mainland under the Treaty of Nanking in 1842–43. One reason for Britain’s relatively hands-off policy was the persistence of the view formed by early colonial officials that the Chinese residents did not want or appreciate British lawmaking. This attitude is clear in the testimony to a mid-nineteenth-century Parliamentary committee looking into administration of the colony by Col. John Malcolm, an aide to the governor, who told the British M.P.s that “the Chinese are a peculiar people, and they do not like being interfered with. They do not understand us; they cannot understand our ways; and when they are told that they are to do first one thing and then another, they get frightened and will not come to us.” Whether it was a characteristic “peculiar” to the Chinese to dislike arbitrary government or not, the avoidance of conflicting mandates and general tendency to leave people alone—policies adopted in pursuit of trade—gave the colony the benefit of the rule of law from the start.

A Natural Trading Center

What did Britain create in Hong Kong? The combination of the excellent harbor and the rule of law meant Hong Kong was a natural trading center. But it was not the best place to trade in China, and by the early twentieth century Shanghai was successfully winning trade away from Hong Kong. Shanghai offered a more educated population, a more convenient location, access to European protection under treaty concessions by the Chinese government, and relatively little Chinese-government interference due to the decline of imperial power. By the 1910s Shanghai had become a significantly more important center of trade than Hong Kong. With the British choosing the more defensible Singapore as the center of British naval power in the region, Hong Kong also lost importance for the British government. As a result, the colony languished as a backwater, becoming known as a center for prostitution and gambling rather than the economic powerhouse it is today.

One thing Britain did not create in Hong Kong was a democratic government. No local democratic institutions were permitted to develop, as were allowed in most other British colonies, because the British were unwilling to give the Chinese majority a real voice in administration. As a result, as Welsh concludes, “Hong Kong was to continue as authoritarian an administration as any Chinese government, but the final authority was to be the law, rather than individual whim.”

China’s imperial central government rarely favored economic freedom, and the late nineteenth and early twentieth centuries were no exceptions. As the central government’s power ebbed away, regional warlords began to establish rival, but equally predatory centers of power. European, American, and Japanese power in China also expanded, focusing on access to the Chinese market for their nationals, but not creating economic freedom for the Chinese within their spheres of influence. Hong Kong’s stability increasingly drew migrants from elsewhere in China. Population grew from 600,000 in 1920 to over a million in 1938. As conditions worsened in China with the Japanese invasion and fighting between regional warlords, the Kuomintang (Nationalists), and communists, 5,000 migrants a day began to pour into Hong Kong. By March 1950 the city had 2.3 million people, which brought Hong Kong both a significantly increased workforce and the human capital of Chinese entrepreneurs who escaped ahead of Mao’s armies. Moreover, the communist victory on the mainland meant that Shanghai ceased to be a serious competitor.

Finding Freedom in Hong Kong

Life on the edge of communist China was not easy. During the Korean War, embargoes on trade hurt the city’s entrepot business, forcing many Hong Kong traders to reinvent themselves as manufacturers. The continuing influx of refugees from the mainland strained the colony’s infrastructure. But the flood brought refugees like Jimmy Lai, one of the millions of penniless individuals who sought freedom in Hong Kong.

While working in the Shanghai railway station as a porter, Lai was given his first chocolate bar by a traveler. Hungry, Lai immediately ate it. Running after the man, he asked where this wonderful food came from and the answer was “Hong Kong.” Determined to get to the place where such wonders were available, Lai eventually persuaded his mother to allow him to escape and was smuggled out of China in the bottom of a fishing boat. On his arrival in Hong Kong, he went to work the same night in a garment factory. Today, Lai is a billionaire, owner of one of the most successful media companies in Asia. His drive and entrepreneurial skills played a major role in his success, of course. (Lai movingly tells his story in the Acton Institute’s documentary The Call of the Entrepreneur.) But it was the freedom available in Hong Kong that allowed him to put his talents to work. That freedom took many forms, including an absence of the currency restrictions in force at the time in the United Kingdom and much of Europe, and few laws regulating businesses. As a result, Hong Kong began to flourish.

Why? As Hong Kong’s last British governor, Christopher Patten, wrote in his memoir, East and West, the refugees from communism who flooded into Hong Kong arrived in China’s only free city; it was indeed (in the words of Chinese journalist Tsang Ki-fan) “the only Chinese society that, for a brief span of 100 years, lived through an ideal never realized at any time in the history of Chinese society—a time when no man had to live in fear of the midnight knock on the door.” Hong Kong had a competent government, pursuing market economics under the rule of law. It was a government that fully met the Confucian goal—“Make the local people happy and attract migrants from afar.”

The laissez-faire attitude of the Hong Kong government on economic matters was cemented by Sir John Cowperthwaite, the colony’s financial secretary from 1961 to 1971, whom Welsh called a “political economist in the tradition of Gladstone or John Stuart Mill” and the personification of “unreconstructed Manchester-school free traders.” Cowperthwaite had almost complete control of Hong Kong government finances and used it to implement his policy of “positive nonintervention.” Friedman gave Cowperthwaite a great deal of the credit for Hong Kong’s success, citing approvingly Cowperthwaite’s refusal to collect most economic statistics on the grounds that “[i]f I let them compute those statistics, they’ll want to use them for planning.” Jimmy Lai has a bronze bust of Cowperthwaite at his company’s entrance (as well as ones of Friedman and F. A. Hayek).

Cowperthwaite deserves the accolades he has received. During his decade as financial secretary, real wages rose by 50 percent and the portion of the population in acute poverty fell from 50 to 15 percent. What is remarkable is that Hong Kong accomplished this with no resource other than its people. The colony had no real agricultural land, no natural resources, and even the one resource it did have—people—lacked much education. Indeed, few at the time thought that the masses of refugees who reached Hong Kong during the 1950s would amount to anything other than a burden for the state.

Most remarkably, Hong Kong’s transformation occurred when social democrats ruled Europe and Lyndon Johnson’s Great Society dominated American politics, both reflecting the consensus among the political elites in Europe and North America that the welfare state and interventionist economic policies were the only sensible direction for advanced societies. Even in the developing world, interventionist economic policies like industrialization through import substitution, which relied on high tariff walls to protect domestic industries, were widely accepted. Tiny Hong Kong thus managed to adopt and hold to free-market and free-trade policies that ran counter to the policies of the British government and the consensus of policy analysts and development economists everywhere, and did it while perched precariously on the edge of a massive communist dictatorship in the midst of self-destructive policies like the Great Leap Forward and the Cultural Revolution.

No Libertarian Paradise

While consistently freer than most places, Hong Kong has never been a libertarian paradise. Government-subsidized housing has long dominated Hong Kong’s residential market, with 60 percent of residents living in it at one time. And the government manipulated (and continues to do so) the land market to maximize sales revenues for public coffers, which plays an important role in causing the housing shortages that required the public housing “solution.” Medical care has also long been socialized. Moreover, Hong Kong had serious corruption problems even during the height of the Cowperthwaite era, with the police in the 1960s and early 1970s “riddled with corruption,” according to former Governor Patten.

Then there is Hong Kong’s persistent “democratic deficit.” Hong Kong managed to escape the post-World War II wave of democratization in the rapidly dwindling British Empire because, as one British official put it in a radio interview in 1968, “the electorate of Britain didn’t care a brass farthing about Hong Kong.” Indeed, Britain showed almost no interest in expanding representative government in the colony until it became clear that Hong Kong would “return” to China in 1997 when the lease on the New Territories expired.

In some sense this democratic deficit served Hong Kong well, for men like Cowperthwaite and Patten held classical-liberal ideas on economic freedom and so largely refrained from actions that might have won popular approval (and certainly would have in Britain). But the lack of representative government also allowed Britain to treat Hong Kong’s residents shamefully when Britain rejected allowing Hong Kong passport holders the right of residence in Britain, fearing a flood of refugees in advance of the return to China. (The rest of Europe behaved no better.)

“One Country, Two Systems”

Hong Kong returned to China in 1997 under an agreement negotiated between Britain and the People’s Republic which provided a guarantee that for at least 50 years Hong Kong and China would be “one country, two systems.” (Formally, Hong Kong and the former Portuguese colony of Macau are both “Special Administrative Regions” of China.) The return itself was inevitable, as was China’s willingness to preserve capitalism in its midst. Not only were Hong Kong island and Kowloon unsustainable without the leased New Territories, where much of the water supply was located, but British voters still didn’t care a farthing for Hong Kong in the 1990s. China’s interest in the preservation of the goose that laid the golden eggs was also clear. The People’s Republic had long made use of Hong Kong—which it could have seized by force at any time—as a means of accessing foreign markets and sources of capital. At times 80 percent of China’s foreign income came through Hong Kong. China also wanted to demonstrate to Taiwan that peaceful reunification was possible.

The danger was that China’s leadership would not understand what Patten, in his book, termed “the relationship between Hong Kong’s hardware—a capitalist economy—and its software—a pluralist society—and yet it was the latter that enabled the former to function so well.” Thus far Hong Kong’s new rulers have shown themselves remarkably adept at continuing the smooth functioning of both the hardware and the software. Whether that will remain true in the long run is still an open question, of course.

Chinese Emperor Tao-kuang’s initial reaction to the British had been that “these barbarians are wanting in any high purposes of striving for territorial acquisition; they always look on trade as their first occupation.” Frank Welsh concluded his history by noting that Hong Kong “proved the Emperor’s point.” It is not just the British who made Hong Kong a success. It is the people of Hong Kong, from factory workers to entrepreneurs, who turned Hong Kong from a barren island to an economic powerhouse. They were able to do so because the Hong Kong government generally left them sufficiently alone. Hong Kong is far from perfect, and far from a libertarian dream world. But it remains a dramatic example of how far human ingenuity and entrepreneurial talent can take a society.

Why has Hong Kong been so free? Partly, Hong Kong has been fortunate to be ruled by men who understood their role as quite limited. Not quite the classical-liberal ideal, even under Cowperthwaite, but nonetheless significantly closer than any other twentieth-century society. And the combination of Britain’s failure to provide any real democratic institutions and its lack of interest in Hong Kong allowed those men to hold to those policies, even as Britain herself experienced economic disaster under the socialism of the 1950s–70s. Hong Kong also benefited from the example of China’s disastrous 1960s economic policies. With so many residents having come as refugees from communism, demand for freedom in Hong Kong was high. Freedom made possible the success of Jimmy Lai, and that of the millions who did not become billionaires but who had a higher standard of living than most of the world through their own efforts.

Hong Kong was lucky that freedom was tried. But Hong Kong’s people proved that freedom worked.

His books include On Doing the Right Thing and Other Essays (1928), Jefferson (1926), The Theory of Education in the United States (1931), Our Enemy, the State (1935), Memoirs of a Superfluous Man (1943), and Cogitations (Nockian Society, 1985).

Nock believed that education, properly understood, was not the same as vocational training, and he famously took a dim view of politics. Conservative political scientist George W. Carey has lately (2004) named him as one of “the great conservative thinkers of the twentieth century.”

Perhaps so; but Nock was also profoundly radical. Jefferson and Our Enemy, the State are the keys to understanding Nock’s system, and inquiry into them sheds light on the relationship between Nock and the Old Right to Progressives and Progressivism and other strains of non-Marxist radicalism.

Nock’s Jefferson

Few would doubt that Nock is a pleasure to read. Jefferson packs interesting detail and observation into an admittedly off-center account of its subject. Thomas Jefferson is skillfully etched, foibles and all, and Nock notes favorably that he never speculated in land. Of his many inventions, Jefferson “never patented one” (being what we would now call a “freeware” inventor).

As ambassador to France, Jefferson supposed that country held 19 million paupers. He commented, “[W]herever there is in any country uncultivated lands and unemployed poor, it is clear that the laws of property have been so far extended as to violate natural rights. The earth is given as a common stock for man to labour and live on.” Adding in royal monopolies, Jefferson ascribed to France’s productive classes “all the oppressions which result from the nature of the general government . . . their particular tenures, and . . . the seigneurial [feudal] government to which they are subject.”

In England, Nock writes, Jefferson “saw a population expropriated from the land, and existing at the mercy of industrial employers, with the enormous exactions of monopoly standing as a fixed charge upon the producer.” The English state was essentially the agent of privileged orders. Jefferson commented that while Englishmen were honest, their constitution (see Paine, Shelley), “from its nature, must render their government forever dishonest”; as politically organized, England comprised “a nation of buccaneers . . . seizing to itself the maritime resources and rights of all other nations.”

Republicanism Is Superior, But Not Ideal

Europe’s monarchies bred such evils naturally. Nock writes that Jefferson saw American republicanism as obviously superior. But ours was “not the ideal system”—Native American anarchism was (Nock’s summary). Leaning that direction, Jefferson sometimes theorized a radical decentralization of the states themselves into ward-republics. In decentralized wards the people could, in Jefferson’s words, “crush regularly and peaceably the usurpations of their unfaithful agents.” Here, Nock writes, Virginia might have “set a good example, most of all to New England, which had the system, but was aborting its fruit.” Jefferson attributed Shays’ Rebellion to (in Nock’s words) “an unfair pressure of debt and taxation, applied by collusion. . . .”

Nock observes that the leading Federalist ideologist, Alexander Hamilton, united “certain broad classes of the ‘rich and well-born’ with the interests of the government,” starting with public creditors. As for “the natural-resource monopolist,” his position, Nock says, “was as impregnable under the Constitution as his opportunities were limitless.. . . Hence the association of capital and monopoly would come about automatically. . . .” The Revolution’s ideals had masked concrete economic interests; what really divided the country was the Federalists’ political means to wealth. As for the Alien and Sedition Acts, Nock writes, “Americans were never sticklers for theory; they have been always more concerned with the inconveniences of despotism than with its iniquities.”

Jefferson thought Hamilton’s national debt could be paid in 15 years, but commented: “[W]e can never get rid of his financial system.” He complained to Samuel Adams of “an artificial paper phalanx overruling the agricultural mass. . . .” Nock wryly notes “unaccountable fires among the Treasury records” just before Jefferson’s appointees came in.

Nock is no unreserved admirer of Jefferson. He finds Jefferson’s assessment of the Federalists inexact: “[W]hat really animated and held these people together was a predatory economic interest.” Jefferson suspected English influence but saw only its “external and superficial aspects.” The Federalists, Nock writes, devised their fiscal system “by no means because it was British, but because there was money in it” as “the most effective engine of exploitation by the ‘rich and well-born’ ” (italics added).

Jefferson was slow to see the Constitution “as an economic document of the first order. . . .” “The four great general powers” it granted were over taxes, war, commerce, and control of western lands. Mercer of Maryland, John Taylor of Caroline, and Jackson of Georgia were quicker “to assess the economic implications of Hamilton’s fiscal system.” They were correct, and Hamilton’s funding scheme created new assets amounting to an eighth of the national “wealth” out of nothing and gave them to “a single vested interest.”

In Nock’s opinion, Jefferson’s “legalistic” opposition to Hamilton made him seem “a doctrinaire advocate of State rights and of strict construction; whereas he was really neither.” Nor was he opposed to commerce in general; he understood the difference between everyday banking and public credit. For reasons of trade, Jefferson had supported the new Constitution, provided that “the United States should be a nation abroad, and a confederacy at home.”

Taylor had a superior grasp of free-trade principles and of how taxes are shifted back to productive factors. When Jefferson complains to Taylor about political patronage, Nock writes laconically, “[T]he Constitution was meant to work that way, and it did.” Jefferson’s plan of paying off the public debt by selling western lands served to create “unlimited private land-monopoly.” As for his Louisiana Purchase, “if it was a boon to the agrarian producer, it was a godsend to the speculator.” Jefferson’s unconcern about land monopoly aided the interests created by the Federalists.

Worse, Jefferson had an unfortunate faith in economic warfare—retaliatory tariffs and embargoes.

“He never anticipated,” Nock writes, “the appalling economic consequences brought indirectly upon the country in 1807.” Discussing the background of the War of 1812 (and with 1914–1917 fresh in mind), Nock writes that instead of informing American shippers that they took their own risks in sailing into the Anglo–French naval war zone, Jefferson backed an embargo “wholly subversive of the principle of liberty”—“the most arbitrary, inquisitorial and confiscatory measure formulated in American legislation up to the period of the Civil War. . . .” It made three states solidly Federalist and raised threats of New England secession.

Jefferson also failed to foresee the Federalists’ permanent lock on the Federal courts. In 1800 he predicted that “a single consolidated government would become the most corrupt government on earth,” exclaiming: “What an augmentation of the field for jobbing, speculating, plundering, office-building and office-hunting would be produced by the assumption of all the State powers into the hands of the General Government.” Yet Jefferson was not “a doctrinaire enemy of centralization.” He did not see his own constitutionally doubtful actions, as president, as comparable to things his enemies did (in Nock’s words) “for the final purpose of putting the legality of economic exploitation forever beyond the reach” of electoral politics and “official responsibility.”

In a “land of unprecedented monopolist opportunity,” Nock writes, men strove “to get out of the producing class and into the exploiting class as quickly as possible.” Jefferson “never seemed aware that the prospect of getting an unearned dollar is as attractive to an agrarian as it is to a banker. . . .” His Republicans kept their name while resisting “any tendency within the party to impair the system” that made extra-economic profits possible; hence, over time, “the essential identity of the parties.”

Our Enemy, the State

Nock deployed and criticized Jefferson in aid of reinterpreting American history. He made his theoretical ground explicit in Our Enemy, the State. Nock wrote that work in the shadow of the New Deal, which he treated as part of a two-century process of American state-building.

In Nock’s terminology, government serves society. But the state intervenes positively to divide society “into an owning and exploiting class, and a propertyless dependent class.” Only “incompetent observation” from Aristotle to Paine, had obscured this distinction. Franz Oppenheimer found the state’s origin in conquest, making every historical instance “a class-state”; but the state game only paid where economic exploitation could arise. For Nock, access to land was the key to preventing exploitation. Nock cites Turgot, Benjamin Franklin, John Taylor, Theodr Hertzka, and Henry George on the point.

The burden of Nock’s “theorem” is simply that few people with alternative economic means would beat down factory doors for mere “employment”—and at abysmally low wages, under miserable, dangerous conditions and quasi-military “discipline,” and with long, arbitrarily set working hours. The best alternative means was a plot of land and, short of that, access to traditional commons, “wastes,” and so on. These access rights were not especially tragic-because-common, but were in fact collective private rights held by specific persons in well-defined, once-feudal jurisdictions. All England could not show up one day and dissipate these resources. These little rights, however, gave people an edge, a minimal independence useful for avoiding abject dependence on would-be employers. The latter hated these arrangements and duly enrolled the state to destroy them. Nock’s insight is that conquest, land engrossment, and destruction of economic options are not a one-shot deal, done in 1066, but can be repeated as needed, in an ongoing process favoring those with the best access to the state. This is why Nock uses the inflammatory word “exploitation.”

In actual (non-Whig) history, commercial interests gradually refit the state “to their own special interests, and strengthened it immeasurably.” Later, republican forms allowed the individual to imagine “that State action is his action. . . .” Following Oppenheimer, Nock contrasts the economic and political means to wealth. Feudal and merchant states were “higher integrations of the primitive State”; while states as such, “primitive, feudal or merchant [were] the organization of the political means.”

America’s colonial period unfolded in the period in England when merchants and financiers “saw the attractive possibilities of production for profit, with the incidence of exploitation gradually shifting to an industrial proletariat.” This, Nock says, was “the actual inwardness of . . . the Puritan movement. . . .” Growing individualism and social power coexisted with a “weak” state, but one strong enough to oversee “a thorough-going economic exploitation with relatively little apparatus of legislation or of personnel.”

The “Merchant-State”

John Locke justified this new state and sought “to copper-rivet . . . a doctrine of the sacredness of property” blocking state confiscations of the private property of important persons. Under Locke’s Whiggism-with-a-vengeance, the rights of property “took precedence even over those of life and liberty.” Even war powers, Nock writes, were to intrude on men’s lives and liberties “but not on their property” (italics added). Popular sovereignty provided additional leverage “for ousting . . . status to make way for the regime of contract . . . displacing the feudal State and bringing in the merchant-State.” Like everyone else, merchants felt the disutility of labor and wanted a better “access to the political means.” Parliament was their chosen instrument.

In America, colonial states developed from the chartered trading company as “an autonomous State.” Indeed, “the merchant-State was set up complete in New England long before it was set up in Old England.” As a result, “the merchant-State is the only form of State that ever existed in America”—“a purely class State,” benefiting particular commercial interests. (This was also true in Virginia, despite a feudal-patriarchal overlay.)

The merchant-State’s exploits were limited by the above-mentioned theorem that successful exploitation requires prior expropriation of surplus lands. In America, Nock says, the state-system of land tenure—“monopoly of the use-value of land” and “monopoly of the economic rent of land”—provided the expropriation needed. Nock seems to be saying, first, that states tend to grant more land than the title holder can actually use; second, that in such cases, the title holder realizes illegitimate profits from selling or renting the land to those who do use it. His third point would be that by encouraging the existence of large landed estates, the state and its beneficiaries take away from other potential users a livelihood they could otherwise have had. The bourgeois state let “men of all sorts . . . climb into the exploiting class,” and with “a practically limitless field for speculation in rental-values,” Nock writes, “land speculation may be put down as the first major industry established in colonial America.” If land use rather than speculation had determined American settlement, “our western frontier would not yet be anywhere near the Mississippi River.” Hence all theses on “over-population,” beginning with Malthus, were “utterly incompetent” because deduced from “legal occupancy instead of actual occupancy.”

Pro-English commercial legislation cramped American would-be wielders of the political means to wealth, as did the King’s attempt in 1763 to curb colonial land grabs. Such interference irritated American elites no end. Political independence would provide them with full access to (and control of) state power.

Feudal elites “bequeathed” the idea of the political means to the bourgeoisie. “No other view of the State was ever held in colonial America,” Nock writes. He observes that since English policy limited colonial use of “both the political and economic means” (italics added), the language of natural rights and popular sovereignty had great appeal. The Declaration of Independence spoke to those who wished to combine “unlimited economic pseudo-individualism on the part of the State’s beneficiaries, and a judiciously managed exercise of political self-expression by the electorate.”

After American independence in 1783, Nock writes, “administration of the political means was not centralized in the federation, but in the several units. . . .” The federal level “had no taxing power, and no coercive power,” while each state had its own “bounties, concessions, subsidies,” and more. All 13 states continued the monopolistic state-system of land tenure defined above.

The struggle over a new constitution pitted “speculating, industrial, commercial and creditor interests” against “farmers and artisans and the debtor class generally.” The new plan widened the field of the political means, or of a specific mix of economic and political means. The outcome was free trade inside a bigger tariff zone: “the closer the centralization, the larger the exploitable area.” (This is Nock’s reading, in effect, of Federalist 10.) The classes behind the Constitution wanted “the British system . . . on a nation-wide scale”; they prevailed because mercantile interests were compact and agrarians dispersed—an early Public Choice insight. The Constitution provided republican forms with little democratic content. Under it, “the rights of life and liberty were recognized by a mere constitutional formality left open to eviscerating interpretations,” and sometimes “to simple executive disregard.” The point was to serve large property, however gotten, indiscriminately.

The 1789 Judiciary Act tied up the bundle, and with John Marshall’s able help the Supreme Court became “the highest law-making body.” Nock comments on the later “fetiches” of the party system and such “constitutional principles” as “strict construction,” always abandoned in practice. Jefferson’s dubiously constitutional Louisiana Purchase aimed at strengthening “agrarian control of the political means”—an achievement reversed after 1861. Nock scorns the embedded dishonesty of the system, even when defended with slogans involving “states rights” and “rugged individualism.” Over the long haul, business had “most eagerly urged on the State to take . . . the successive single steps that lead directly to collectivism.” Similarly, he says, modern farmers were not family farmers, but manufacturers and speculators typically clamoring for state intervention.

Nock was not optimistic about the future. Characterless “mass-men” were helping the state absorb society. Alongside ideological factors, he remarks on the state’s “overweening physical strength.” In any case, “reforming and revolutionary movements” showed an “incorrigible superficiality,” especially when “the only modification . . . necessary is that the smallest unit should reserve the taxing power strictly to itself.” History’s usual logic went as follows: “Conquest, confiscation, the erection of the State,” and ending, after a regular series of internal developments, with the victory of state power over social power. Social dissolution came last. A few “alien spirits” would record the tale.

Three Strands of Nockian Thought

It will be useful here to note key elements of Nock’s thought. (Unless noted, quotations are from Our Enemy, the State.)

Jeffersonianism. In 1787–1788, Americans chose between 13 predatory organizations and a large one at the center. Nock sided with the defeated parties. Echoing John Taylor, he writes that Federalists “aimed at bringing in the British system of economics, politics and judicial control, on a nation-wide scale.”

Progressive History. Nock dedicated Jefferson to Justice Louis Brandeis and wrote, too, that as “an old friend” of historian Charles Beard, he followed Beard’s interpretation of the politics of the early Republic. To this “economic interpretation,” Nock brought a breadth and resilience sometimes under- or unemployed by his successors (if any). When Nock says that ideological lags sustain institutions, or that the American Whigs of 1776 did not care deeply about popular sovereignty and natural rights, he adopts Progressive views containing considerable truth.

Georgism. Nock did not take Progressive history uncritically, but creatively modified it. His grounding in Henry George gave systematic character to his work. This should not astonish us. Edmund Opitz, long-time FEE staffer and member of the Nockian Society, thought George’s followers were “among the best libertarians we have,” and Murray Rothbard commended Georgists for seeing there is a land question. Georgism gave Nock somewhere to stand outside the existing order. The central claim about primal state allocation of resources gave Nock great theoretical leverage (but does not require belief in George’s single tax).

In Nock’s hands, these three strands afford the basis for startlingly radical historical conclusions. Thus individualism and laissez faire had not produced the “horrors” of English industrialization, “for no such regime ever existed in England.” The horrors arose instead from “the State’s primary intervention,” which expropriated peasant producers and kept land from competing “with industry for labour,” while Adam Smith preached the gospel of “landowners and mill-owners.”

Like Oppenheimer, Nock posits “an original allotment of the political means,” or “original intervention,” in place of Marx’s “primitive accumulation.” So armed, he calls American railroads “speculative enterprises enabled by State intervention.” Transportation was “purely incidental”; the railroads were really about “land-jobbing and subsidy-hunting.” Nock follows the trail of plunder. The French aristocracy, he notes, was “a closed corporation”; but a republic, “by an indefinite expansion of the cohesive power of public plunder, admits a steady accession of outsiders.” This made Britain a predatory republic rather than traditional monarchy (Jefferson).

Seeing the “cohesive power of public plunder” as a near-law of history, Nock anticipates the “mode of predation” analysis pursued by Pierre Bourdieu, Sir Ernest Gellner, Joan Dyste Lind, Rothbard, and others. Here the state becomes “an anti-social institution,” establishing injustice through law, “which the State itself manufactures for the service of its own primary ends.”

Nock also attended to ideology, noting that “certain arrangements of words” kept Americans (“the most unphilosophical of beings”) from seeing “how far the conversion of social power into State power has actually gone.” Americans cared nothing for “the theory of things.”

“State” and “Government”

To bare such mysteries, Nock distinguished “state” from “government.” This language probably owes something to late nineteenth-century Hegelian–American political science, but Nock repositions the absolute, totalizing state as a great evil, and takes government as a mere, limited mechanism of local self-rule. The state-concept becomes a critical tool, whose Hegelian content withers under Nock’s surgery. From within Nock’s radicalism, we see the need to understand the system as a whole, where the test of any public measure is, “What effect has this upon the sum-total of State power?” This sets a critical standard of sorts, to say the least.

In the end, our interest lies not merely in the task Nock undertook, but in what we could learn by following his lead.

Additional Bibliography

• Charles A. Beard, The Economic Basis of Politics and Related Essays (1957 [1922]), 192–193.
• George W. Carey, “America’s Founding and Limited Government,” Intercollegiate Review, Fall 2003/Spring 2004.
• William T. Cavanaugh, “Killing for the Phone Company: Why the Nation-State Is Not the Keeper of the Common Good,” Modern Theology, April 2004.
• Edward S. Corwin, Total War and the Constitution (1947), 78–84.
• Raymond Crotty, When Histories Collide: The Development and Impact of Individualist Capitalism (2001).
• Frank van Dun, “Political Liberalism and the Formal Rechtsstaat,” http://tinyurl.com/66vytd.
• Bruce P. Frohnen, “Individual and Group, Natural and Acquired Rights: On the Need for Unclear Distinctions,” Ave Maria Law Review (2005).
• George Gale, “John Locke on Territoriality,” Political Theory, November 1973.
• David Gross, “Temporality and the Modern State,” Theory and Society (1985).
• Jonathan R. T. Hughes, The Governmental Habit: Economic Controls from Colonial Times to the Present (1977), and American Economic History (1983).
• Walter Karp, Indispensable Enemies: The Politics of Misrule in America (1974).
• Karl Marx, Capital, I (1967 [1887]), Ch. 33.
• José Ortega y Gasset, The Revolt of the Masses (1957 [1932]).
• Thomas Paine, Selected Writings of Thomas Paine, ed. R. E. Roberts, (1945), 10–12 (English constitution).
• Michael Perelman, Classical Political Economy (1984); Railroading Economics: The Creation of the Free Market Mythology (2006).
• Murray N. Rothbard, Power and Market (1970).
• Percy Bysshe Shelley, Political Writings, ed. R. A. Duerksen (1970), 43–45 (English constitution).
• Joseph A. Tainter, The Collapse of Complex Societies (1988).

Comprising just 16 names on September 11, 2001, this modern blacklist now functions as a catchall and cover for federal intelligence agencies. Since no one wants to be accused of overlooking a terrorist, bureaucrats have added names willy-nilly over the last seven years, to the tune of 20,000 a month. The ACLU maintains a website with a counter (http://tinyurl.com/2sz52g): it has now hit the magic million.

If you’re the unlucky millionaire, you’ll find yourself among the rich and famous. Senator Ted Kennedy (D–Mass.) and Representative John Lewis (D–Ga.) both made the roster at one point, as they discovered when they were denied boarding at airports. This must have come as a surprise since neither man realized he was an enemy of the United States until he tried to fly commercially. In fact, that’s how most victims learn they’ve been promoted from American citizen to terrorist so dangerous they can’t board planes. Some, like Kennedy, work to prove their innocence so that the government will admit it erred and remove them from its blacklist. You might think this would be fairly easy for politicians, given their pull. But it actually took Kennedy’s staff three weeks of calls to the Transportation Security Administration (TSA) and a chat with Tom Ridge, then the secretary of homeland security, to smooth his travels. It took Lewis even longer—“months,” according to the Washington Post. Imagine what the ordinary “terrorist” endures as he tries to re-establish his air-worthiness.

Many Americans don’t take well to the news that they’re on the list. Edward Allen of Houston broke into tears. The four-year-old boy whimpered, “I don’t want to be on the list. I want to fly and see my grandma.” Screeners stopped another child, this one all of five years old, at Seattle’s airport last January. They searched him as though he were al Qaeda’s newest recruit while forbidding his mother to comfort him with a hug. No inanity is too heartless when national security is at stake.

Inclusion on the list does more than keep you off flights. Companies that check your financial history, such as car dealerships and mortgage brokers, may refuse to deal with you since the credit report will mention that the Office of Foreign Asset Control is monitoring you—along with other alleged terrorists and drug dealers. A place on the list can even earn you a beating. Akif Rahman is a computer consultant who was born in Springfield, Illinois. He says he was trying to return home from Canada a few months ago when “he was held for five hours, shackled to a chair and kicked by a Customs Service agent. . . . ‘I was fearful for my own safety and that of my family,’ said Rahman. . . . ‘I simply could not believe that I, a born U.S. citizen, was going through this experience simply re-entering my own country.’ ”

Top Secret Process

How is the list compiled? Who’s on it? What did they do to land there? No one knows because the list and all procedures relating to it are top secret. We wouldn’t want Osama bin Laden to know we’re onto him, now, would we?

It’s also virtually impossible to get off the list regardless of how thoroughly you prove you aren’t scheming to blow up jets. John Lewis finally outsmarted the TSA by adding his middle initial to his name when he buys airline tickets. But this doesn’t always work, as any “Robert Johnson” can tell you. “60 Minutes” assembled a dozen men with that name in its studios last year and taped their horror stories—everything from strip searches at airports to interrogations that humiliate and delay them so long they miss their flights. Even the original “Robert Johnson,” the one who’s actually supposed to be on the list, seems unworthy of such effort: CBS reported that he’s “a 62-year-old black man who was convicted of plotting to bomb a Hindu temple and a movie theatre in Toronto. After serving 12 years, he was deported to Trinidad.”

A catalog of “individuals known to pose, or suspected of posing, a risk of air piracy or terrorism or a threat to airline or passenger safety” has been around since 1990. But it did nothing to stop the 9/11 hijackers. It’s done nothing since then, either, but harass innocent Americans: it hasn’t enabled the Feds to capture a single terrorist.

Which doesn’t keep the government from praising this anti-American abomination. “The list is very effective,” says FBI spokesman Chad Kolton. “In fact it’s one of the most effective counterterrorism tools that our country has.” And here you thought “counterterrorism tools” didn’t get any “more effective” than forcing passengers to pad barefoot through airport checkpoints. To quell such cynicism, Kolton cited a report from the Government Accountability Office (GAO) that found “general agreement within the federal government that the watch list had helped to combat terrorism.” It’s a good bet the GAO would find general agreement among foxes that henhouses need four-legged guards, too.

Targeting Innocent Americans

Like the rest of the domestic War on Terror, the “Terrorism Watch List” supposedly targets terrorists while actually preying on innocent Americans. It penalizes people for an attribute they can’t help: their names. Then it excuses the government for treating these folks as if they are guilty of terrorism without ever having proved those suspicions in a court of law. A hallmark of a free society is living your life without impediment unless the state shows at an open trial, according to fair and established procedures, that you have committed a crime heinous enough to justify depriving you of your rights. When we allow the government to abandon this standard—when it can hassle hundreds of thousands of people because their names resemble a suspected terrorist’s—we empower a police state.

And that’s far more dangerous than any terrorist.

Features

* A Million Terrorists? by Becky Akers
* Albert Jay Nock and Alternative History by Joseph R. Stromberg
* Freedom Works: The Case of Hong Kong by Andrew P. Morriss
* Gas Prices: The Latest Excuse to Reengineer Society by Steven Greenhut
* U.S. Agricultural Programs: Who Pays? by E. C. Pasour, Jr.
* Why on Earth Do We Have a Student Loan Crisis? by George C. Leef

Columns

* Give Me a Break! ~ Bless the Speculators by John Stossel
* Ideas and Consequences ~ Why “Inflation” Is Back by Lawrence W. Reed
* Our Economic Past ~ Historical Reputations by Stephen Davies
* The Pursuit of Happiness ~ Are You Being Served? by David R. Henderson
* Thoughts on Freedom ~ The Ideas of Liberty and FEE by Donald J. Boudreaux

Departments

* Book Reviews
* Capital Letters
* Government Education Is Broken? It Just Ain’t So! by Alan Schaeffer and Marshall Fritz
* Perspective ~ Paternalist Nudges by Sheldon Richman

The Economist labeled the recently enacted 2008 farm bill “A Harvest of Disgrace” (May 24, 2008). The five-year $307 billion bill, through a complicated system of government programs, lavishes cash on upper-income farm households. The major beneficiaries of U.S. agricultural programs, commercial farmers, will have an average income of some $230,000 in 2008, according to the U.S. Department of Agriculture (USDA). The main restriction on these subsidies is a means test that applies to couples making more than $1.5 million per year.

A host of “emergency programs” was enacted as part of President Franklin Roosevelt’s New Deal during the Great Depression of the 1930s. Despite huge changes over time in the particulars, the programs affecting the growing and marketing of farm crops remain largely intact.

The focus here is on who bears the cost of farm programs. In addition to a network of programs that affect commodity prices and make direct payments to farmers, there are subsidies for agricultural credit, soil and water conservation, research and education, crop insurance, exports of farm products, and nutrition programs. Consideration of the way the programs work shows that generalizations about the effects of farm subsidies often are wrong.

It is sometimes said that agricultural subsidies benefit those with above-average incomes at the expense of taxpayers and “everyone who eats.” Although agricultural subsidies always hit taxpayers, this generalization about the effect of farm programs on food prices is incorrect. Some agricultural programs, and the associated subsidies, lead to increased output and lower food prices, while some lead to decreased output and higher prices.

Commodity Programs

Field Crops. The early New Deal farm-commodity programs relied mainly on product price supports coupled with production controls in the form of restrictions on land use (acreage controls). Although consumers of products using wheat, cotton, and feed grains bore the major cost of these programs, taxpayers picked up the tab for administering the programs and for funding purchases of surpluses that occurred as farmers responded to higher prices.

For several decades after the programs began, farmers were reluctant to receive government subsidies through direct government payments. They preferred a less-obvious handout in the form of higher product prices achieved through government-imposed restrictions on output!

All this changed in the early 1970s with the “target-price” method of price supports. In this approach farmers received government-determined support prices (above free-market levels) for their crops. Farmers could either sell products on the open market or place them in a government-managed storage program. In the simplest case a farmer sold the product (the amount produced at the support price) at the market-clearing price. The government then paid the difference per unit between what the farmer received in the market and the higher support price—a so-called “deficiency payment.” The target-price approach led to an increase in output and lower consumer prices—with taxpayers footing the bill.

These deficiency payments remained important until passage of the misnamed Freedom to Farm bill in 1996. Under this law price supports were terminated and farmers who participated in farm programs were guaranteed “transition payments” for seven years—after which farm-commodity programs supposedly were to be terminated. Alas, such was not to be. The 1996 farm bill was followed by successive farm bills in 2002 and 2008, which have shown no decrease in government largess.

Moreover, a new wrinkle for farm-commodity subsidies was added in the 1996 law and continued in the 2002 and 2008 farm bills. Most farm-commodity subsidies have been “decoupled” from current production. That is, the amount of payment a farmer receives is determined by the farmer’s historical production—not his current production. Indeed, an eligible farmer can receive the payment even if no longer producing commodities! In 2007 these commodity-based direct payments totaled $6.2 billion. In short, since these payments do not restrict output or raise prices, commodity subsidies for major farm crops, including wheat, feed grains, and cotton, now are borne by taxpayers—not consumers of products using these commodities.

However, in two major commodity programs—sugar and milk—the programs and associated subsidies impose a burden on both taxpayers and consumers.

Sugar. The U.S. sugar cartel raises the domestic price of sugar in the United States above the world price—quite often twice as high. Domestic producers of sugar cane and sugar beets thus profit through import quotas on Brazil and other countries that can produce more cheaply than the United States.

The cost of the sugar program is borne largely by U.S. consumers and manufacturers of sugar products, who must pay much higher prices than if there were no program. The subsidy, in the form of higher retail sugar prices, will force consumers to pay an extra $2 billion per year, The Economist reports. It will also drain $1.3 billion over ten years from U.S. taxpayers. As the sugar price increases, so does the demand for, and price of, high-fructose corn syrup and other sugar substitutes. In short, U.S. citizens pay for the sugar program both as taxpayers and as consumers of products using sugar and sugar substitutes.

Dairy. The complexity of the dairy cartel is of Rube Goldberg proportions, involving both federal marketing orders and price supports. A federal marketing order is an institutional arrangement that allows producers in a geographical region to use the police power of government to enforce compliance with restrictions on competition. The system is used to classify and set minimum prices according to the products in which milk is used—fluid milk, cream, cheese, and so on. Under this system, higher prices are charged for milk used for fluid consumption than for manufacturing purposes. And with restrictions on geographical shipments of milk, milk prices vary by region.

In addition to marketing orders, the price of milk is supported through government purchases of butter, cheese, and nonfat dry milk. These products are then disposed of outside conventional market channels: school lunches, military and veterans’ hospitals, and other food-subsidy programs.

Cartels typically restrict sales and increase profits—at least in the short run. In most dairy marketing orders, however, there is no limit on the volume of milk a farmer can market or on the entry of new dairy farms. Therefore, as output expands and costs increase, cartel profits tend to be transformed into increased prices (and costs) of specialized resources, including dairy cows, dairy equipment, land, and managerial skills required to produce milk.

The dairy program imposes costs on both consumers and taxpayers. While the program significantly increases the price of milk sold for fluid use, taxpayer cost also is formidable. Payments to dairy farmers, over and above administration costs for the complex system of marketing orders and price supports, have drained some $2.5 billion from federal coffers since 2002.

Subsidies That Affect Supply of Farm Products

Input Subsidies. Some agricultural programs—including subsidized farm credit, subsidized crop insurance, and subsidized agricultural research and education programs—increase the supply of wheat, corn, and other farm products. An increase in supply places downward pressure on consumer prices for food products. The USDA estimates the taxpayer outlay for these input subsidies in 2008 at $7.5 billion. Since input subsidies reduce product prices, domestic taxpayers—not consumers—bear the cost.

Water subsidies, though funded through the Department of Interior rather than the USDA, are no less important to farmers than other input subsidies. Water subsidies in the west—especially in California—are critical to the success of agriculture in that region.

Irrigation districts use artificially low-priced electricity. The electricity is produced by federally funded dams to pump water. These water subsidies increase production of farm products and are quite substantial. It has been estimated that the capitalized value of water subsidies for a 160-acre California farm may exceed $100,000. Without some $2 billion in annual agricultural water subsidies, the huge impact of the West on the production of farm products would be greatly diminished—including the growing of cotton in the Arizona desert, according to a Cato Institute study (“Six Reasons to Kill Farm Subsidies and Trade Barriers,” February 1, 2006). The costs are borne by taxpayers, not consumers of farm products—and by other users of water, urban and recreational.

Diversion of Cropland. The stated purpose of the Conservation Reserve Program (CRP) is to protect highly erodible cropland and other environmentally sensitive land. Initiated in the 1980s, the CRP induces farmers to take land out of production through annual rental payments for ten to 15 years. High prices for farm commodities this year have brought some 2.5 million acres from the CRP back into production. This program reduces supply and increases prices of farm commodities. The CRP is budgeted at $2.0 billion in 2008—with the cost borne by consumers and taxpayers.

Subsidies That Increase Demand for U.S. Farm Products

Nutrition Programs. The largest subsidy in the farm bill is the outlay for subsidized nutrition programs, including food stamps, and school lunches and breakfasts. Subsidized food programs—with an outlay of some $60 billion in 2008—account for about three-fifths of total USDA spending.

The original purpose of these programs, when begun in the 1930s, was to facilitate the operation of price-support programs for farm commodities. The U.S. government had acquired large stocks of butter, cheese, and other products in operating price supports for farm products, and these products initially were used in food distribution programs to low-income consumers. The subsidized food programs provided a politically acceptable way to dispose of costly surpluses.

Food stamps grew out of dissatisfaction with earlier food-distribution programs, which reduced regular market food purchases (a concern to farmers) and afforded no choice to recipients regarding commodities received. The food-stamp program is now the major subsidized food program, accounting for about two-thirds of all food subsidies.

Food-stamp users largely substitute food stamps for money. In fact the program increases food expenditures less than 2 percent. It is taxpayers rather than grocery shoppers who bear the brunt of the cost.

It should not be surprising that the major constituency for subsidized food programs is no longer commercial agriculture. Instead, it is urban interests benefiting from and advocating “poverty programs.” In congressional negotiations on the 2008 farm bill, legislators from farm districts were able to maintain conventional farm-commodity programs and related subsidies in the face of record-high farm product prices by forming an alliance with legislators from urban districts who sought and obtained increased food subsidies.

Export Subsidies. The federal government also subsidizes exports of U.S. farm products, as it has done for more than 50 years. Estimated taxpayer cost of agricultural export subsidies for 2008 is $2.2 billion. These subsidies include export credit guarantees, market-development programs, and foreign food assistance. Export subsidies increase the demand and price of affected commodities—hitting both domestic consumers and taxpayers.

The best-known export-subsidy program, Public Law 480, was first enacted in 1954. Again, the program was begun to reduce stocks of food that the government acquired through agricultural price-support programs. Some current export subsidies also are in-kind—donations of food products in response to devastation caused by floods, earthquakes, famine, and so on.

Other agricultural export subsidies—export credit guarantees and market-development funds—go to private companies and to state and regional trade groups to promote sales of U.S. farm products in foreign countries.

U.S. export subsidies lower food prices to consumers in recipient countries—at least in the short run. But subsidies work against the interests of farmers in those countries—many of whom have very low incomes. Moreover, the ostensible benevolent effect of government-sponsored food aid is undercut by the rule that requires the U.S. government to buy all

foreign food aid from U.S. farmers and transport it on U.S. ships.

In short, agricultural export subsidies help to insulate U.S. farmers from world market prices and are inconsistent with free trade. Moreover, these subsidies foster retaliation and increased protectionism by producer interests in recipient countries.

Ethanol Program. Although not funded through the USDA budget, the current ethanol program is having an impact on U.S. consumers and taxpayers no less important than traditional farm programs. President Bush signed an energy bill in December 2007, which mandates an increase in ethanol use from 4.7 billion gallons in 2007 to 36 billion gallons by 2022.

Ethanol production is dependent on government mandates and subsidies. A 10 percent ethanol content mandate for every gallon of gas produced and ethanol blending subsidies—$5 billion in 2007—now divert one-third of the U.S. corn crop to ethanol. The taxpayer-financed subsidy is strengthened by a 54-cent-per-gallon tariff on ethanol from Brazil to prevent imports of ethanol from undermining the U.S. ethanol program!

U.S. corn prices increased threefold from early 2006 to May 2008, with ethanol production being an important contributing factor. Consumers are now reaping the results—increased prices for bread, milk, beef, chicken, and other food products. In short, the government-mandated ethanol program is imposing huge costs on taxpayers and consumers.

Agricultural subsidies transfer wealth from taxpayers, and in some cases consumers, to farmers, suppliers of farm inputs—including machinery, fertilizer, seed, and pesticides—and other businesses involved in the production and marketing of farm commodities. They obviously have no place in a free economy.

As someone who commutes 16 miles each way to work in a gas-guzzling sports car along the LA-area freeways, I’ve been less-than-amused by the nearly $5 a gallon I must pay for the premium fuel that keeps my mid-life-crisis-mobile running. Yet despite the misery of high prices, I’ve taken a certain joy in watching the market at work.

Certainly, gas prices are high for various reasons, not the least of them being ridiculous government regulatory, environmental, and monetary policies. Nevertheless, consumers and businesses respond rapidly to changing conditions and rising prices. A few months ago, I was surrounded on the freeways by large SUVs, minivans, and those mega-pickup trucks that look like they’ve been plucked from a monster-truck event at Anaheim Stadium. Of course, the roads still have their share of bigger vehicles, but these days the roads are abuzz with Focuses, Priuses, and Civics. Traffic is noticeably down, as drivers have cut back on trips or have chosen carpooling, mass transit, and other alternatives, such as telecommuting.

As the Los Angeles Times recently reported, Americans seem to have lost their “faith” in free markets in the wake of higher gas prices, the housing bust, and bank troubles. But whether or not individuals trust the market is not as important as this reality: they live by the market. They make changes—sometimes lifestyle changes—based on their own budgets, and price signals are more effective (and more in keeping with a free society) than government rules at spurring such change.

So those of us who understand a few things about free markets aren’t too worried (beyond our normal pocketbook considerations) when we see the trends. As long as the government doesn’t place too many barriers in the way, increasing gas prices will make it economically feasible for oil companies to find new sources of oil or more efficiently tap existing wells. Oil alternatives will spring up. It doesn’t matter if my car is powered by gasoline or chicken droppings. People might be encouraged to adjust their lifestyles somewhat, but I would be shocked if the energy situation causes widespread changes in most Americans’ daily lives.

Doomsayers Versus the Market

Every “crisis,” however, gives voice to those who believe that current lifestyles are “unsustainable” and must be changed—for the sake of the planet! The telling point: these doomsayers never are content allowing the natural market process to cause these changes. Nope. They always are pushing for government policies to mandate the changes.

James Howard Kunstler is the author of World Made by Hand, described as “a novel about America’s post-oil future.” He is closely associated with the New Urbanist and Smart Growth movements, which seek to use government regulation to promote high-density urban living and restrict the development of traditional suburbs. In a June 8 column in the Dallas Morning News, Kunstler seemed almost gleeful about the high energy prices that have been annoying car-driving Americans.

“Everywhere I go these days, talking about the global energy predicament on the college lecture circuit or at environmental conferences, I hear an increasingly shrill cry for ‘solutions,’ ” Kunstler wrote. “This is just another symptom of the delusional thinking that now grips the nation. . . . I say this because I detect in this strident plea the desperate wish to keep our ‘Happy Motoring’ utopia running by means other than oil and its byproducts. But the truth is that no combination of solar, wind and nuclear power, ethanol, biodiesel, tar sands and used French fry oil will allow us to power Wal-Mart, Disney World and the Interstate Highway System—or even a fraction of these things—in the future. We have to make other arrangements.”

In Kunstler’s view, our modern economic system doesn’t create vibrant economies, healthy diets, and wonderful health care. Instead, our oil-based “utopia” is about keeping running those things most disdained by Kunstler and other environmental elites—theme parks, discount stores, highways.

Kunstler, who is a fairly typical voice among environmental/urban-planning doomsayers, sees no possibility for additional oil exploration or for meaningful alternatives. Once “global demand for oil exceeds the global supply,” that’s it. Our “complex systems of daily life” will be shaken to the core. Everything will change. He lists these things: food production, commerce and trade, our means of travel, urban development, our acquisition of capital, governance, health care, education, and more. “These problems are all interrelated. They all face a crisis.”

Are We in Denial?

The nation is, in his view, engaged in a massive fantasy or is in a deep state of denial. Most of us are too dimwitted to understand what Kunstler sees:

So what are intelligent responses to our predicament? First, we’ll have to dramatically reorganize the everyday activities of American life. We’ll have to grow our food closer to home, in a manner that will require more human attention. In fact, agriculture needs to return to the center of economic life. We’ll have to restore local economic networks—the very networks that the big-box stores systematically destroyed—made of fine-grained layers of wholesalers, middlemen and retailers. We’ll also have to occupy the landscape differently, in traditional towns, villages and small cities. Our giant metroplexes are not going to make it, and the successful places will be ones that encourage local farming.

Kunstler sees an end to regular airline travel, but believes that “fixing the U.S. passenger railroad system is probably the one project we could undertake right away that would have the greatest impact on the country’s oil consumption.” But don’t worry, he explains, “We don’t have to be crybabies about this.” Americans simply need to understand that we can’t keep “getting something for nothing” and we need to be “honest about the way the universe really works.”

These are shocking suggestions, of course, and when Kunstler says “we,” one can only surmise that he means “the government.” Most Americans tend to be unwilling to dramatically reorganize their everyday lives just because some academics don’t like their suburban, car-oriented lifestyles. But Kunstler does remind us, albeit accidentally, about one way the world works: ideologues try to gain power for their world-saving visions, and if they do, the rest of us better watch out. Kunstler’s ideas seem more closely related to Pol Pot’s urban-clearing experiment than anything envisioned by our founders.

There’s so much silliness here to debunk. How exactly could farmers grow sufficient amounts of food close to home here in the sprawling 17-million-population, quasi-desert Los Angeles basin? If anyone tried this, wouldn’t industrial techniques be needed to produce the highest possible yield on the least amount of land if it were to succeed? Yet Kunstler wants this food to have “more human attention.” He wants agriculture to return to the center of our economic life. I suppose the government can tear up the existing network of freeways and plant corn and alfalfa there instead, but I can’t quite see why this is such a necessity. I don’t have any great desire to spend my days either harvesting food or working as a cog in one of those “fine-grained layers of wholesalers, middlemen and retailers.” Then again, personal desire has no place in this dystopia. (As urban author Jane Jacobs wrote, “As in all utopias, the right to have plans of any significance belonged only to the planners in charge.”) Kunstler is saying that we should give up our professions as writers, academics, doctors, entrepreneurs, and builders and instead trade foodstuffs or sell things in giant farmers’ markets. No thank you. Now you see why a little force might be necessary to implement this vision.

As a prominent New Urbanist/Smart Growther, Kunstler predictably prefers living in small, traditional towns. Most New Urbanists I know are content building Yuppie malls that pretend to be old townes (you’ve got to have the “e” at the end if you want to target the right demographic), railing against suburbia, and lobbying city councils to stop proposed new housing tracts. But how exactly would those of us living in suburbia come to occupy the landscape differently? I know Kunstler’s proposal is post-apocalyptic. He sees the oil crisis as a shock to the current system. But, still, we can’t just abandon the equity (such as it is in this declining market!) in our four-bedroom “McMansions” (the derogatory elitist term for newer suburban homes), push our $30,000 cars over the cliffs at Malibu, and try to find some village in the Sierras to move into.

Yet it’s Kunstler who suggests that the rest of us are living in a fantasy world.

Not everyone in the environmental and planning “communities” is looking to such radical solutions, but there’s lots of gloating about high gas prices by anti-suburban scolds.

In an article titled “Gas Prices Changing the Face of America,” the website “Smart Growth America” argues: “Though struggling with near-term implications, many are starting to wonder how a future of costly energy will reshape their lives and landscape. You can already see it in the housing market, where people are unable to unload McMansions in partly finished, distant subdivisions for the same reason they can’t sell their large SUVs: Potential buyers don’t want the high gas bills. Americans are beginning to ask themselves the big questions: ‘How did we get to a situation where the only option we have is to drive? Why can’t I take a train to work? Why can’t my kids walk to school like I did?’”

Of course, it’s perfectly reasonable for people to seek out such options when gas prices go up (although as a former East Coast transit rider, I can’t understand the love affair with dirty buses and crammed subway cars). Farther-out suburbs are suffering the most as gas prices soar, for the obvious reason that it becomes more costly to commute from such neighborhoods. It would be nice for Smart Growthers to call for fewer building regulations rather than more of them, which would enable more Americans to live closer to their jobs. But that’s expecting a bit much from activists who believe that Americans should live packed together in condos and apartments.

Increased Government Control

The Smart Growth folks have a series of proposals also detailed on the website. They almost all involve more government control over land use and other decisions. The philosophy is best summarized by this proposal: “By directing growth to communities where people already live and work, smart growth limits the amount of farmland and open space that is developed, makes existing communities more attractive—with a mix of housing, restaurants, parks, cafes, and jobs, and minimizes the need for new water, sewer and road infrastructure that increase taxpayer burdens.”

This is all about coercion. All growth will be directed into existing communities. Farmland and open space will be “protected” from growth. This Smart Growth agenda would obliterate America’s system of property rights. If cities are bad, and the countryside must be protected, then where will 300 million Americans live? Wouldn’t the creation of a new village-based society cause the massive sprawl that these urban planners are so worried about? Ironically, some of Kunstler’s ideas have support among paleoconservatives, who are trying to create a Norman Rockwell-esque America. Don’t any of these folks have any concern about the ideas of freedom or individualism? Ignore the last question; we already know the answer.

Ideas generated by folks such as Kunstler, who was celebrated at a Congress for the New Urbanism conference I attended a couple of years ago, create the philosophical base for these Smart Growth organizations, which have successfully influenced planning groups and government organizations—so much so that we can see their footprint in every new subdivision built. One proposed near my house is typical. The city approved 16 homes on 30 acres, but all the homes must be crammed together on tiny lots, with the bulk of the land set aside as open space. That’s a New Urbanist concept. I’ve written about local cities that subsidize downtown development and promote condo construction and “live/work lofts” even as they use regulatory takings to deprive property owners of the right to build on open space. These are the real-world outgrowths of the Kunstler philosophy. It’s easy to laugh at the absurdity of what he proposes, but these doom-and-gloom scenarios lead to specific regulatory agendas. In California, state officials are using global-warming rules and water access as specific means to shut down suburban growth. At the federal level a California Democratic congresswoman and a Republican senator are pushing for a return to that old Nixon- and Carter-era “gas-saving” standby—the 55 mph national speed limit. Never mind that most Americans drive at the natural speed limit of any given road and that few savings would result. There’s no end to coercive proposals by those who are hostile to freedom and the market or believe that government’s role is to prod and improve individuals to help them make the “right” decisions.

The Survival of Suburbia

Media coverage certainly enhances the urgency of these proposals. A recent CNN.com news story was headlined, “Is America’s Suburban Dream Collapsing into a Nightmare?” The article was about the subprime mess, which has certainly been nightmarish for some individuals. But suburbia, I suspect, will survive. If anything, the subprime-driven housing crisis is a needed self-correction of a government-driven problem. But that’s a difficult argument to make in the face of Armageddon! Here’s Kunstler again (he’s so quotable) from a speech he gave in 2005 to the PetroCollapse New York Conference:

We’ve become a nation of overfed clowns and crybabies, afraid of the truth, indifferent to the common good, hardly even a common culture, selfish, belligerent, narcissistic whiners seeking every means possible to live outside a reality-based community. These are the consequences of a value system that puts comfort, convenience, and leisure above all other considerations. . . . We’ve signed off on all other values since the end of World War II. . . . Consumers have no duties, obligations or responsibilities to anything besides their own desire to eat more Cheez Doodles and drink more beer.

Apparently, Kunstler’s issues go deeper than concern about the loss of an important energy source. Keep these quotations in mind, though, given that they offer a window in the thinking of those who will use this and every other “crisis” to push for what they have always really wanted: massive, government reorganization of society.

Mr. Herbert’s rant hits hard on the facts of educational failure: “An American kid drops out of high school every 26 seconds. That’s more than a million every year, a sign of big trouble for these largely clueless youngsters.”

More: “A recent survey of teenagers found that a quarter could not identify Adolf Hitler, a third did not know that the Bill of Rights guaranteed freedom of speech and religion, and fewer than half knew that the Civil War took place between 1850 and 1900.” And so on.

He quotes Microsoft’s Bill Gates saying, “By obsolete, I don’t just mean that they [the high schools] are broken, flawed or underfunded, though a case could be made for every one of those points. By obsolete, I mean our high schools—even when they’re working as designed—cannot teach all our students what they need to know today.”

Finally, Herbert cites the Educational Testing Service’s report, “America’s Perfect Storm,” which warns of a triad of “powerful forces” threatening our children’s future: wide disparity of literacy and math skills, “seismic changes” in the economy, and sweeping demographic changes. He concludes that “we” are not equipping our children to meet these challenges and seems to imply that beating other countries on standardized tests will save us from this Malthusian triad.

Somehow, reading Herbert’s article reminded me (Alan) of a story my father used to tell about the old trains on the New Haven line, on which he commuted into New York City each day. Occasionally, these rolling sardine cans would break down or lose power. All of a sudden, some red-faced passenger—an executive about to have a blood-pressure incident—would explode, “Somebody do something!!!”

Inappropriate Reaction

Like the pressured executive on the train, Herbert is right to be alarmed. But like the executive, his reaction is inappropriate for the crisis at hand. In fairness, it’s not all Herbert’s fault. He doesn’t know how the machine actually works. His frustration stems from placing his faith in (and addressing his demands to) the wrong entity.

Herbert is working from two fallacies: that the government school system is a failure and that the government can fix it. You could almost miss the fallacies behind his powerful litany of failures. Everyone, especially the present audience, will nod his head to this litany and think of even more failures to add to the list.

The problem is, it just ain’t so! It’s a fallacy to think government schools have failed. In fact, the problems Herbert lists are not a result of the school system’s failure, but of its success. To understand this point, we must stop and consider the true purpose of government schooling.

The following passage from John Taylor Gatto just scratches the surface. I hope you will read the rest of this article, “Against School” (Harper’s, September 2003):

The reason given for this enormous upheaval of family life and cultural traditions was, roughly speaking, threefold:

1. To make good people.
2. To make good citizens.
3. To make each person his or her personal best.

These goals are still trotted out today on a regular basis, and most of us accept them in one form or another as a decent definition of public education’s mission, however short schools actually fall in achieving them. But we are dead wrong. Compounding our error is the fact that the national literature holds numerous and surprisingly consistent statements of compulsory schooling’s true purpose.

Gatto then quotes H.L. Mencken, who wrote in The American Mercury (April 1924) that “the aim of public education is not to fill the young of the species with knowledge and awaken their intelligence. . . . Nothing could be further from the truth. The aim . . . is simply to reduce as many individuals as possible to the same safe level, to breed and train a standardized citizenry, to put down dissent and originality. That is its aim in the United States . . . and that is its aim everywhere else.”

Producing Standardized Citizens

What we observe as the failures of our system of compulsory schooling are actually the inevitable fruits of its true purpose: standardized citizenry. If we are to truly understand what has given rise to Bob Herbert’s litany (which is actually modest compared with the full story), we must acknowledge that the government school system actually works too well. The lack of

“will to engage” that Herbert laments is a product of this system, a system designed to “put down dissent and originality.”

The second fallacy is almost as easily missed. Speaking of presidential candidates in terms of whiskey or bowling is merely a rhetorical device. But although drinking and bowling may be within the right and power of those aspiring to the highest office in the land, fixing education is not.

It’s quite simple: the federal government’s powers are strictly outlined in the Constitution. All other powers “not enumerated” are forbidden. Education is not enumerated. Ergo, it’s not the feds’ job.

Boston Globe columnist Jeff Jacoby in his column of October 17, 2007, puts it succinctly: “[W]e should be concerned. Not just because the quality of government schooling is so often poor or its costs so high. . . .

“In a society founded on political and economic liberty, government schools have no place. Free men and women do not entrust to the state the molding of their children’s minds and character.”

Once exposed, the two fallacies point to one historically stubborn dynamic: Government involvement in schooling is the real “perfect storm.” Therefore, to hope that candidates will talk about fixing education—or to think that the federal government should have any say in how we as free people educate our children—is to give the fox the keys to the hen house for another four-year term.

Instead, let’s be practical. As parents, let’s do everything in our power to take back our children for their protection and prosperity, and for freedom itself. That will make us an example of freedom to our own children and to others. It will open children’s lives to the creative thinking and wisdom that will enable them to rise above the challenges they will face. Gatto again: “Children need to know that the ultimate form of private property is full possession of one’s own mind and volition.” Withholding consent will also further indict the system.

Let’s possess freedom and not wait for the ruling powers to hand it to us. Meanwhile, candidates and presidents may talk about education. Let them. But let’s not give them our children.