Listen to Lawrence Reed’s interview on The Mike Slater Show.

Reed served as the president of the Mackinac Center for Public Policy for twenty years and founded the “Champions of Freedom” award fifteen years ago. He has been president of the Foundation for Economic Education since leaving the Mackinac Center in 2008.

The Mackinac Center issued a Press Release which, in part, reads:

The award was conferred unanimously by the Center’s Board of Directors. It reads in part, “Lawrence W. Reed has championed the virtuous circle of self-help and civil society, maintaining, as he once wrote concerning the dozens of oppressed nations he had risked visiting: ‘We need to take time to assist our brothers and sisters who are laboring in the same vineyards, on behalf of the same causes. When we strengthen others, we all grow stronger.’”

Mackinac Center President Joseph G. Lehman introduced Reed, saying, “Larry Reed is a good man, but he’s also a great man. He’s been my friend and professional mentor for 17 years. His resume is stuffed with great achievements that you don’t hear him blowing his own horn about.”

Read the Mackinac Center for Public Policy’s Press Release about the award here and watch the ceremony here.

Additional reading: Articles about the Great Depression.

This radio interview is based on Mr. Reed’s commentary “The deficit Americans should think about most: personal character,” which appeared in The Christian Science Monitor on February 3, 2011.

More of Mr. Reed’s thoughts on liberty and moral character from his February participation in the Idea Room at The FreemanOnline.org here.

Lawrence Reed, of the Foundation for Economic Education, explains [spontaneous order] this way:

“Spontaneous order is what happens when you leave people alone — when entrepreneurs … see the desires of people … and then provide for them.

“They respond to market signals, to prices. Prices tell them what’s needed and how urgently and where. And it’s infinitely better and more productive than relying on a handful of elites in some distant bureaucracy.”

The column continues with a discussion of FEE founder Leonard E. Read’s “I, Pencil.”

Another way to understand spontaneous order is to think about the simple pencil. Leonard Read, who established the Foundation for Economic Education, wrote an essay titled, “I, Pencil,” which began, “[N]o single person on the face of this earth knows how to make [a pencil].

Read the column here.

To watch the video segment with Mr. Reed on Stossel’s Show click here.

[.]… the deficit that matters most is not denominated in dollars at all. Its currency is of the heart and mind. It’s a manifestation of the values with which we circumscribe our actions, our purposes, and our values. I speak of a deficit of character, which arguably is the root of all of our major economic and social troubles today.

Describing it as a very different kind of deficit, Mr. Reed focuses on the key ingredients of strong character: “honesty, humility, responsibility, self-discipline, courage, self-reliance, and long-term thinking” and how a free society is impossible without having these traits in widespread practice.

The full commentary in The Christian Science Monitor here.

More of Mr. Reed’s thoughts on liberty and moral character from his recent participation in the Idea Room here.

To watch the webinar click here.

Set as an hour-long online lecture, “The Great Myths of the Great Depression” generated a lot of interest from the participants. Time limit didn’t allow for answers to all questions. Below are Mr. Reed’s answers to questions he did not have time to address during the webinar.

1. From Nikola: “Seeing as the 2008 crisis is Keynesian in nature, can it be solved by laissez faire/Austrian policy (non-interventionism), or should we paradoxically, seek Keynesian remedies?”

Answer: If you drink poison and it hurts you, you don’t drink another gallon of it to get better. I see nothing in the Keynesian formula of politicians squandering other people’s money and burdening future generations with unconscionable debt and tax burdens that could possibly fix the problem. We must unequivocally junk Keynesianism wholesale as bunk from its very inception. Henry Hazlitt’s classic, “The Failure of the New Economics” should have settled the question decades ago but Keynesianism remains popular with economists who don’t do their homework or think they can reduce human action to equations that some over-paid charlatan central planner flunkies can manipulate. It’s also popular with those politicians who seek a veneer of plausibility to gloss over their irresponsibility. When we learned that the sun didn’t revolve around the earth and the earth wasn’t flat, we set those failed theories aside. So it’s long past time to take the junk science that Keynesian represents and toss it on the compost pile.

2. From Abel: “If there were competition in money, what monetary policies would your money of choice follow?”

Answer: Competition in money. This is indeed the ideal we should seek. Money is an invention of the marketplace of exchange in the first place, not the invention of kings, queens, parliaments and presidents. The essential task of monetary reform today should be to take money out of the realm of politics and place it squarely in the realm of market forces, supply and demand, consumer choice and sound, unsubsidized banking. This is not so radical as it may sound. I would recommend precisely the same solution if we were talking about any other commodity or service. For example, if governments had produced our shoes for us, I would argue that the market should be in charge, that politicians have neither the knowledge nor the proper incentives to produce shoes that people want at prices they can afford. Some might say that money is different and too important. I believe money is too important to trust to politicians! Their track record really ought to speak for itself.

So to those who still cling to the voodoo of government monopoly money, I urge you to get over it. Look at the record. Question your misplaced, mystical faith. Trust the market. Wake up. And if your teachers in high school told you government must be in charge of money and never acquainted you with any other side of the debate, please consider filing an educational malpractice lawsuit.

This question also raises others about how do we get to where we ought to be with regard to money, what does the transition look like, what do we do with the money that government has already created and foisted on us, and how and when do we rid ourselves of those harmful government institutions like the Federal Reserve System and endless other bureaucracies and regulations that play God with our money? All good questions which I and others have addressed in many other venues, but beyond the scope of the question I am answering here or the time I have to answer. As an Austrian economist, let me say that I shy away from all attempts at central planning so I am not going to say that this or that should be our money.

I am very friendly to gold because it has passed the market test of reliability as a superb media of exchange through the centuries, but I also believe that no commodity should be granted any special privileges (legal tender laws, for example) that would bias its choice as money in the marketplace. I think there are strong and good reasons to assume that in a free and competitive market, gold would once again emerge as a dominant media of exchange but I would favor that only if the market were truly free and competitive so as to not prevent the emergence of other forms of money that market participants may choose.

3. From Scott: “As the money supply grows and malinvestments gather in the economy, what is the straw that breaks the camel’s back and causes the bust? As in, why do all the malinvestments collapse at one time?”

Answer: Let’s assume from the start that what you are referring to, Scott, is a growth in the money supply that occurs because of government policy, not natural forces in a free, healthy, responsive and competitive money market. I think that indeed is what you are implying because it is precisely that scenario that produces the subsequent “malinvestments” you are referring to.

Keep in mind that many different, usually unpredictable “straws” can break the camel’s back, so to speak, and cause a bust or downtown to begin. Monetary policy that is artificially inflationary and driven by government authorities certainly sets us up for that day to eventually happen, but the unsustainable directions that bad policy puts into place creates an inherent instability that can reverse because of any number of shocks that could take place, such as panics in other markets, wars, additional bad government regulatory policy, etc. But generally speaking, the bust commences after a period when monetary policy has reversed, that is, became less expansionary or even contractionary. The earlier, temporarily “stimulative” effect (especially in capital goods) of the expansionary policy wears off and dissipates throughout the economy, interest rates begin to rise, projects that seemed affordable but now become increasingly costly to continue to finance, and investors grow less confident of the future. The smart money sees these changes first and begin to sell and disinvest. Later, a stampede can begin as the masses of people sense change in the air.

In hindsight, the malinvestments seem to have occurred at about the same time period, as you suggest. This very fact is evidence of a systemic problem, not a particular economic sector problem—which is to say, it’s evidence that unwise monetary policy (which affects everything) is the culprit, not cycles peculiar to particular industries (there’s a natural boom and bust in tomatoes, for instance—lots of activity at planting time, a little less during growth, lots of activity again during harvest time, then nothing until the winter’s over, but that doesn’t produce economy-wide swings). Malinvestments are fostered in the first place by the false signals sent by inflationary monetary policy that suggest—falsely through low interest rates—that people’s time preferences have changed when they may really haven’t, that it will pay to borrow money now at artificially low interest rates to finance long-term, capital-intensive projects that will yield sufficient happy, paying customers down the road. But that’s a short-term phenomenon. It sends business in directions they wouldn’t have gone without the falsification of interest rates and relative prices caused by the monetary policy. When that policy changes, or wears off, or is reversed, it knocks the bottom out from the house of cards and many business plunge at about the same time.

This seeming failure of a primary entrepreneurial function—anticipating future market conditions—cannot be explained by casually asserting that a lot of business people at about the same time suddenly became bad planners. At any given time in even the freest and healthiest economies, some entrepreneurs will get it wrong or be overtaken by events or smarter competition or surprisingly reluctant customers, and they will go bust. That’s healthy. But when great numbers of them at about the same time fail, that’s evidence of something exogenous, namely the falsification of interest rates and relative prices caused by the systemic, economy-wide manipulation of money and credit.

4. From Alejandro: “How did the Wagner Act affect the rights of individual workers during the 1930s and how does it affect workers rights as of now?”

Answer: The Wagner Act took labor disputes out of the ordinary courts of law and put them under jurisdiction of a national, presidentially-appointed board called the National Labor Relations Board. That in itself was revolutionary. It has meant that the settlement of labor disputes now are far more subject to the whims of a handful of political cronies and much less predictable than a true rule-of-law approach (a fair field and no favors with the rules spelled out clearly in advance and just for all parties’ rights). The Wagner Act also empowered organized labor, under certain conditions, to possess exclusive rights for organized labor to represent workers collectively at a work site, even if large numbers of those workers might not want a union’s representation or actually be harmed by it. It replaced individual bargaining with collective bargaining when those conditions are present (such as 50% +1 voting for the union and then being able to impose it on the remaining, reluctant work force). It has resulted in less freedom in the worker marketplace, less freedom for managers to manage, higher costs of labor and therefore fewer jobs offered in those industries.

It must be understood that ultimately, productivity is what determines wages (wages can only be paid out of what is produced) and most of the time, unions empowered by the Wagner Act are not involved in boosting productivity; through strikes, threats and work rules, they can force some wages up but it means lower wages elsewhere, and fewer workers employed in those very unionized industries than would otherwise be the case. Fortunately, later additions to the law, such as Taft-Hartley, gave state governments the right to enact “right-to-work” laws which mean that in those states (22 of the 50 at the moment), no worker can be compelled to join or pay dues to a labor union as a condition of employment. In right-to-work states, wages have been rising faster, jobs have been growing faster, costs of living have risen more slowly, and employers have opened more work sites than has been the case in typically rust-belt non-right-to-work, high cost union states like Michigan, New York and California. Businesses and job creators are moving far more decisively to right-to-work states than they are to the compulsory-union states.

5. From Efrem: “How did the economy recover after World War II with the high income tax rates, which were maintained until the 1960s, still in place?”

Answer: Personal income tax rates did indeed remain high for a while after the war. Eisenhower cut the top rate a mere 1% from 92% to 91% in the 1950s. But by 1960, John Kennedy, a Democrat, campaigned on a platform calling for more robust growth. He rightly asserted that the economy of the 1950s was more sluggish than it needed to be and part of his solution to it was to bring that top rate down to 70%. Later, under Reagan, who rightly argued that 70% was way too high and a massive disincentive, cut the top rate down to 50% and then down to just 28%, a big reason for the sustained economic boom and remarkable innovations and entrepreneurship of the 1980s.

But the economy after the war did benefit from some major, positive things that allowed for a post-war boom: a) in 1945, the top corporate income tax rate was lowered massively, from 90% to just 38%; b) we had the greatest reduction in federal spending in U.S. history (largely because of war demobilization), which meant that resources tied up by government were now released to be deployed more efficiently for consumers (we started making refrigerators and cars instead of tanks and guns); c) war-time price controls and rationing were abolished; d) the “regime uncertainty” as Prof. Robert Higgs would put it, was substantially relieved when FDR checked in at the pearly gates for whatever reward awaited him and there was much less “attack business” demagoguery spewing forth from incompetents in Washington.

6. From Andrew: “How did they get away with the gold seizures?”

Answer: The “state of emergency” during the several depressed economy provided an atmosphere wherein such unwarranted and totalitarian measures could be imposed with little public opposition. Moreover, as a sad commentary on judicial independence, wisdom and constitutional fealty, no court ever reversed the action and ruled that seizing our gold was unconstitutional. It was finally undone by Congress and private gold ownership was once again permitted in 1974.

7. From Hilmar: “The European Union intends to regulate speculation of agricultural goods in order to decrease prices now. What do you think of that?”

Answer: Not much. Speculation has long been a bogeyman to ignorant and demagogic politicians. They fail to understand that speculators perform valuable functions in a free market. For instance: If there’s good reason to expect that future supplies of something will be more or less plentiful relative to demand than is the case now, the action of speculators tends to smooth out price swings. If it looks like a freeze in Florida might cut the orange crop in a few days, for instance, speculators push up prices right now. Some say, “That’s awful because it doesn’t reflect current supply demand. The speculators are profiting off of the future misfortune of others!” But by boosting prices today for today’s supply, it tends to curtail today’s demand and push some of today’s abundant supply into the future when it will keep prices lower than would be the case if the freeze does happen. And of course, speculators are assuming risk here than many of us are not willing to take, and if the speculator’s speculations prove wrong, they will suffer the losses.

Beyond that, I have utterly no confidence in the silly central planners of the European Union. They are pretentious politicians who respond to political pressures, charlatans who fall for fallacies that keep themselves busy and holding jobs while others labor to overcome their stupid policies. Many of them, like our own politicians, might even be unemployable in the absence of a government sinecure. They should be fired and the market should be allowed to work.

8. From Constantin: “What are some of the primary causes of the upcoming depression? What can be done to avoid it”

Answer: If another Great Depression comes, it will be once again because we have allowed politicians and their appointees to possess a commanding height of the economy, namely, control of our money and credit supply. Secondarily, another Great Depression could also come, or be exacerbated by, extraordinary uncertainty and high costs (taxes, regulations, tariffs) imposed by politicians and the rapacious, largely unaccountable bureaucracies they create. There may be no way to completely avoid a serious downturn in the future even if we pursued the proper policies of ending the Federal Reserve System and massively cutting the spending and intrusions of government, unleashing the entrepreneur and reviving civil society and personal character. You can’t get drunk without a hangover, but at least you can stop imbibing the intoxicants, dry out, and get a new, sound, and sustainable foundation for growth, sound money and honest living.

Commentators on the present financial crisis have noted some interesting parallels to the Great Depression of the 1930s. Even if we survive Washington’s spending spree, Congress and the Obama administration could still tip us into catastrophe if they sharply raise taxes or tariffs as Congress did in 1930 and ’32. But more ominous parallels to an earlier age should not escape our notice.

Monumental sums for bailouts. Staggering increases in public debt. Concentration of power in the central government. A mad scramble by interest groups with endless claims on the treasury. Demagogic class warfare appeals. These things ring familiar in the ninth year of 21st century America just as surely as they dominated the ill-fated Roman welfare state of two millennia ago.

In the waning years of the Roman republic, a rogue named Clodius ran for the office of tribune. He bribed the electorate with promises of free grain at taxpayer expense and won. Thereafter, Romans in growing numbers embraced the notion that voting for a living could be more lucrative than working for one. This set into motion Kershner’s First Law, named for the late economist Howard E. Kershner: “When a self-governing people confer upon their government the power to take from some and give to others, the process will not stop until the last bone of the last taxpayer is picked bare.”

Candidates for Roman office spent huge sums to win public favor, then plundered the population afterwards to make good on their promises to the rent-seekers that elected them. As the republic gave way to dictatorship, a succession of emperors built their power on the huge handouts they controlled. Nearly a third of the city of Rome itself received public relief payments by the time of the birth of Christ.

In response to a severe money and credit crisis in 33 A.D., the central government extended credit at zero interest on a massive scale. Government spending in the wake of the crisis soared. 

In 91 A.D., the government became deeply involved in agriculture. Emperor Domitian, to reduce the production and raise the price of wine, ordered the destruction of half the provincial vineyards.

Following the lead of Rome, many cities within the empire spent themselves deeply into debt. Beginning with Emperor Hadrian early in the Second Century, municipalities in financial difficulty received aid from Rome and lost a substantial measure of their political independence in the bargain.

The central government also assumed the responsibility of providing the people with entertainment. Elaborate circuses and gladiator duels were staged to keep the people happy. The equivalent of a hundred million dollars per year in the city of Rome alone is one modern historian’s estimate of what was poured out on the games.

Under Emperor Antoninus Pius, who ruled from 138 to 161 A.D., the Roman bureaucracy reached mammoth proportions. Eventually, according to the historian Albert Trever, “the relentless system of taxation, requisition, and compulsory labor was administered by an army of military bureaucrats. . . .Everywhere were the ubiquitous personal agents of the emperors” employed to crush tax evaders.

There were plenty of taxes to evade. Emperor Nero is said by Roman historian Gaius Suetonius in De Vitae Caesarum to have once rubbed his hands together and declared, “Let us tax and tax again! Let us see to it that no one owns anything!” Taxation ultimately destroyed the wealthy first, followed by the middle and lower classes. “What the soldiers or the barbarians spared, the emperors took in taxes,” according to historian W. G. Hardy. 

Late in the Third Century, Emperor Aurelian declared government relief payments to be a hereditary right. He provided recipients government-baked bread (instead of the old practice of giving them wheat and letting them bake their own bread) and added free salt, pork, and olive oil. 

Rome suffered from the bane of all welfare states, inflation. The massive demands on the government to spend and subsidize created pressures for the multiplication of money. Roman coinage was debased by one emperor after another to pay for expensive programs. Once almost pure silver, the denarius by the year 300 was little more than a piece of junk containing less than five percent silver. 

Prices skyrocketed and savings vanished. Businessmen were vilified even as government continued its spendthrift ways. Price controls further ravaged a battered and shrinking private economy. By 476 A.D. when barbarians wiped the empire from the map, Rome had committed moral and economic suicide.

Another Great Depression should indeed concern us. The one that followed the Roman welfare state is known as the Dark Ages and it lasted for several hundred years.

On September 1, 2008, Lawrence W. (Larry) Reed assumed the presidency of the Foundation for Economic Education, headquartered in Irvington, New York. In this article, FEE: A Lighthouse for Freedom, FEE’s history and importance were highlighted by Reed.

After serving as President of the Mackinac Center for Public Policy for its first two decades, Reed became president emeritus of the Center upon assuming his duties as president of FEE.

Reed holds a B.A. degree in Economics from Grove City College (1975) and an M.A. degree in History from Slippery Rock State University (1978), both in Pennsylvania. He taught economics at Midland’s Northwood University from 1977 to 1984 and chaired the Department of Economics from 1982 to 1984. He designed the university’s unique dual major in Economics and Business Management and founded its annual, highly-acclaimed “Freedom Seminar.” In 1982, he was a major party candidate in the general election for the U. S. House of Representatives from Michigan’s 4th district. He moved to Boise, Idaho in 1984 to direct a policy institute there before moving back to Michigan to head up the Mackinac Center in December 1987.

Under his leadership, the Mackinac Center emerged as the largest and one of the most effective and prolific of over 40 state-based “free market” think tanks in the country. He served a term as president and 15 years as a member of the board of directors of the State Policy Network, a national organization whose membership consists of those state-based groups.

In 1994, Reed was invited to give the Commencement address to the graduating class of the Colleges of Education, Health, and Human Services and Extended Learning at Central Michigan University (CMU) before an audience of 6,000. CMU conferred upon him the honorary degree of Doctor of Public Administration. In 1998, Grove City College (his undergraduate alma mater) bestowed upon him its “Distinguished Alumni Award.”

In the past twenty years, he has authored over 1,000 newspaper columns and articles, 200 radio commentaries, dozens of articles in magazines and journals in the U. S. and abroad, as well as five books. His articles have appeared in The Wall Street Journal, Christian Science Monitor, USA Today, Baltimore Sun, Detroit News and Detroit Free Press, among many others. Reed’s most recent book is Striking the Root: Essays on Liberty. Since 1978, he has delivered more than 1,000 speeches in 40 states and 15 foreign countries, including one at People’s University in Beijing, China.

Reed’s interests in political and economic affairs have taken him as a freelance journalist to 69 countries on six continents since 1985, including five visits to Russia, five to China, four to Nicaragua, three to Poland, five to Kenya, and others to such places as Cambodia, East Germany, Mozambique, Haiti, Japan, Bolivia, Brazil, Ecuador, Honduras, Greece, Italy, Australia, Slovenia, Croatia, Peru, Chile, Argentina, Singapore, Israel, Egypt, Malaysia, Vietnam, Iceland and New Zealand.

From firsthand experience, he has reported on hyperinflation in South America, voodoo in Haiti, black markets behind the Iron Curtain, reforms and repression in China and Cambodia, the recent stunning developments in Eastern Europe, and civil war inside Nicaragua and Mozambique. Among many foreign adventures, Reed visited the ravaged nation of Cambodia in 1989 with his late friend, Academy Award winner Dr. Haing S. Ngor; recorded an authentic native voodoo ceremony in a remote region of Haiti in 1987; traveled with the Polish anti-communist underground for which he was arrested and detained by border police in 1986; interviewed presidents and cabinet officials in half a dozen nations; spent time with the contra rebels during the Nicaraguan civil war; and lived for two weeks with the rebels of Mozambique at their bush headquarters in 1991, at the height of that country’s devastating civil war.

Reed was first elected in 1994 to the Board of Trustees of the Foundation for Economic Education (FEE) in Irvington, New York—one of the oldest and most respected economics institutes in America and publisher of the journal, The Freeman, for which he writes a column entitled “Ideas and Consequences.” In 1998, he was elected chairman of FEE’s board of Trustees and reelected chairman in 1999 and 2000.

His spare-time interests include reading, travel, fly-fishing, hiking, skydiving, and animals of just about any kind.