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YALE BROZEN, The Revival of Traditional Liberalism - Ralph Raico, New Individualist Review [1961]

Edition used:

New Individualist Review, editor-in-chief Ralph Raico, introduction by Milton Friedman (Indianapolis: Liberty Fund, 1981).

About Liberty Fund:

Liberty Fund, Inc. is a private, educational foundation established to encourage the study of the ideal of a society of free and responsible individuals.


The Revival of Traditional Liberalism*

YALE BROZEN*

A druggist’s assistant who, after listening to the description of pains which he mistakes for those of colic, but which are really caused by inflammation of the caecum, prescribes a sharp purgative and kills the patient, is found guilty of manslaughter. He is not allowed to excuse himself on the ground that he did not intend harm but hoped for good . . . .

We measure the responsibilities of legislators for mischiefs they may do, in a much more lenient fashion. In most cases, so far from thinking of them as deserving punishment for causing disasters by laws ignorantly enacted, we scarcely think of them as deserving reprobation. It is held that common experience should have taught the druggist’s assistant, untrained as he is, not to interfere; but it is not held that common experience should have taught the legislator not to interfere till he has trained himself. Though multitudinous facts are before him in the recorded legislation of our own country and of other countries, which should impress on him the immense evils caused by wrong treatment, he is not condemned for disregarding these warnings against rash meddling . . . .

—Herbert Spencer1

A DISCUSSION OF the revival of liberalism should begin with a description of what it is—particularly since our latter-day reactionaries have stolen the name. They have stolen the label for a good reason: it stands for the opposite of what they propose. These reactionaries are attempting to disguise their desire to apply the interventionist policies of seventeenth-century mercantilism to twentieth-century society.

Literally, liberalism meant to liberalize or liberate—to make free—to permit men to do or say whatever they wished. Of course, there was a constraint implied in this. No man could do anything which affected the liberty of others. To permit some men to intervene in the lives of others would be the opposite of making men free. This would make some men unfree—subject some men to tyranny by others. The classical liberal was and is opposed to all forms of tyranny.

This constraint on the individual, to preclude what has been called license, implies equality in the right to be free. Opposition to all tyranny is equalitarian. Unfortunately, some economists imbued with the equalitarianism in liberty implied by opposition to tyranny came to confuse liberalism with another position—equalitarianism in the distribution of income. They began to scrutinize every public policy for its effects on the distribution of income.

“A growing number of economists, indeed, implicitly argue that no other injustice equals in enormity that of large differences in income.”2 From this position began the rationalization of intervention to make those lower on the income scale better off by methods other than removing the barriers to self-improvement or to charitable actions by private persons. At first it was argued that the state should be used to transfer income from those higher on the income scale. From this it was an easy step to forcing people low on the income scale (and others) to do what the interventionist felt would be good for them, even though these people did not wish to do these things. The new tyranny was born—or rather the old tyranny was re-born.

Historically, the rise of liberalism was in opposition to tyranny from two sources. One source was the tyranny of private persons or associations such as monopolies and guilds (usually through a grant of power from the sovereign). Monopolies and guilds could and did prevent men from consuming things which otherwise would have been available. They could and did prevent men from seeking and obtaining jobs otherwise available to them. While tyranny in this form may seem to be a small thing, it was odious not only because some men had the power to dictate economic conditions to others, but also because such dictation could be used to bend men to accept the political dictates of those possessing the power.

The second source of tyranny was the state—those who manned the political apparatus. The possessors of political power could grant or withhold favors and could thus bend men to their will. Not only could they withold favors, but they also could take punitive action, even going so far as to take the lives of those who would not obey them. As one writer has said, “Government is in the last resort the employment of armed men, of policemen, gendarmes, soldiers, prison guards, and hangmen. The essential feature of government is the enforcement of its decrees by beating, killing and imprisonment.”3 The spectacle of some men forcing others to crawl, or possessing such power, was shocking to those bred in traditions of liberty.

NEVERTHELESS, DESPITE a long tradition in the United States of constant battle to reduce the amount of power by some private agents—such as businesses—we have permitted much coercion by other private agents, notably trade unions; at the same time we have allowed enlarged powers to be assumed by the state, opening up new possibilities for unwanted coercion. Trade unions in the city of Chicago, for example, prevent anyone from becoming a plumber or a plastering contractor unless his father or his uncle was a member of the plumbers’ union or the Plasterers’ Institute. Political dissenters find building inspectors invading their homes and hauling them into court for presumed violations of the building code. Those in the restaurant and grocery business who disagree with the men in power find their establishments do not measure up to the standards of health inspectors. Property assessments have a suspiciously uniform tendency to rise for those property owners who do not go along, while they tend to decrease for those who “play ball.” The Federal administration’s Bureau of Internal Revenue has harassed newspapermen and steel executives who do not agree with the Administration’s views.

The power of the government has grown as it has, in part, because native Americans have had little experience with tyrannical governments. There has been a naive trust in the good will, the beneficence, and even the omnipotence of government. Many Americans have felt that whenever the government does something, it must be in their interest and that their government will not take advantage of them.4 The modern “liberal,” the reactionary in disguise, suspects every businessman of an intent to bilk him. On the other hand, he trusts every bureaucrat and trade union officer to look out for his interest. I, on the contrary, suspect everybody of looking out for his own interests, be he businessman, bureaucrat, union officer, consumer, Congressman, workman, or the ordinary citizen. I am somewhat willing to trust a businessman to serve me well since any attempt to bilk his customers will mean that he will lose business to competitors. This, at least, means that it is to his self-interest to serve me well.

The average politician I trust a great deal less since he is quite willing to serve my interest badly if the support he gains at my expense is crucial to his election. Besides, he can confuse the issue by offering a few items in his platform which have some appeal to offset the other things which are distasteful. In every election, I have had to choose either the grab bag of proposals offered by one party, 95 per cent of which are distasteful, or the grab bag offered by the other party, 97 per cent of which are distasteful. That is hardly a choice. At least, when I buy a General Motors automobile, I do not have to buy GM gasoline, GM schools for my children, GM garbage collection service, GM old age annuities, or GM anything else. In a free market, I can separate my decisions on what automobile I buy from my choice of what gasoline I consume, which service station I patronize, which mechanic I go to for repairs, or which company insures my car or administers the funds I save for my retirement income.

In a political market, choosing the party which offers the best school program means I may also have to take a poor street repair program, inferior garbage collection services, and indifferent operation of the water works. For that reason, I prefer that the government do less rather than more. I can make more of each of my decisions separately from other decisions. Thomas Jefferson expressed this very pointedly when he said, “That government is best which governs least.”

I think another reason that Americans have allowed their government to take on an uncontrollably large number of functions is because we have improved so many things and solved so many problems (by private action, in most instances) that we think all problems can be solved—and we are an impatient people who believe it is better to take care of our problems today instead of next year.

As one of my colleagues has put the matter:

Our faith in the power of the state is a matter of desire rather than demonstration. When the state undertakes to achieve a goal, and fails, we cannot bring ourselves to abandon the goal, nor do we seek alternative means of achieving it, for who is more powerful than a sovereign state? We demand, then, increased efforts of the state, tacitly assuming that where there is a will, there is a governmental way.

Yet we know very well that the sovereign state is not omnipotent. The inability of the state to perform certain economic tasks could be documented from some notorious failures. Our cotton program, for example, was intended to enrich poor cotton farmers, increase the efficiency of production, foster foreign markets, and stabilize domestic consumption. It is an open question whether twenty-eight years of our farm program have done as much for poor cotton farmers as the trucking industry and mail-order houses.5

Now that we have lived so long with government intervention in our economy, a few professional economists have begun to examine the results of that intervention. Some findings from these examinations are beginning to appear and affect, at least, the attitudes of an increasing number of scholars. If any resurgence of liberalism is occurring, this is the primary place where it is apparent to me. However, I am extremely poorly informed on the attitudes of undertakers, bricklayers, Republicans and Democrats.

Four years ago, an opinion study showed that 73 per cent of the college economists of this country were definitely in favor of additional government intervention in the economy. Sixteen per cent were opposed. The rest expressed no leaning either way.6 An opinion study done last year showed that the group opposed to additional government intervention had grown to 35 per cent and the group still in favor of more intervention had shrunk to about 50 per cent.7

WHAT ARE THE studies leading to this change in attitude? First, I should mention a group of studies examining the effects of regulation of the transportation industries by the Interstate Commerce Commission, Civil Aeronautics Board, and the Federal Maritime Commission. One study done a few years ago points to several features of transportation regulation which produce undesirable results.8 Let me cite one instance of the way in which railroad-trucking regulation has worked. The railroads petitioned the ICC for permission to reduce freight rates on cigarettes in the early 1950’s. They had lost most of the cigarette transportation business to trucks since the rail rate on cigarettes was higher than the truck rate. The railroads examined their cost of transporting cigarettes and found they could make money at much lower rates than they had been charging. After extended hearings, during which the reduction was not allowed to go into effect, the ICC finally decided that the railroads had an inherent advantage over trucks in moving cigarettes and, therefore, should have the business. In their wisdom, the ICC commissioners decided to divert business to the railroads, not by acceding to the railroad request for permission to reduce rates, but by raising truck rates.9

If this were an isolated and exceptional act of the Commission, it would produce little reaction. However, a recent study of the behavior of the Commission in its founding days, 1888-1890, indicates that raising rates is an old Commission tradition.10 Before the ICC was formed by the Interstate Commerce Act of 1887, railroads between Chicago and New York entered into agreements with each other to maintain prices at specified levels on Chicago-New York shipments of corn and grain. These agreements were seldom successful. Railroads secretly sold transportation services at less than the agreed-upon price, and frequently at much less. In practice, the cartel of railroads rarely found it possible to maintain the agreed-upon price.

After 1887, the ICC was empowered to prevent the setting of long distance rates below the level of short haul rates. Since cutting the long haul rate between Chicago and New York made it necessary to also cut short haul rates, the net result was that railroads stopped competing for long haul business by cutting rates. After 1888, Chicago-New York rates were not kept low by competition between railroads. Rates tended to stay at the levels railroads had attempted to set by agreement before they had the ICC to run their cartel for them.

We also suffered the usual consequences of cartel operation. High prices induced over-investment in the railroad industry, draining capital from other uses where we needed tools and equipment, creating over-capacity (from which the railroads are still suffering) and causing under-utilization of the available plant because the business available was restricted by high prices. Incidentally, the ICC is now asking for additional legislation from Congress to strengthen its power to operate as a cartel authority.

Still another study in the transportation industry, this time the effect of regulation of the price of transportation of processed foods, has produced shocking findings. This category of transportation was formerly exempt from regulation under the general exemption of agricultural commodities. The exemption was narrowed by the 1958 Transportation Act to exclude processed agricultural commodities. After this phase of transportation came under regulation by the ICC, transportation charges promptly jumped by 20 per cent.11

IT IS NOT ONLY the ICC which behaves this way in the transportation industry. The CAB withdrew certification from North American Airlines and drove them out of business after they pioneered air coach transportation. North American carried passengers for 30 per cent lower fares than other airlines, despite the subsidies received by these other airlines, with never an accident during the time they carried 6,000,000 passengers.12 An intra-state airline (which is exempt from CAB regulation because it flies intra-state) flying today in California from Los Angeles to San Francisco, carries passengers at lower fares than those which prevail on any regulated airline segment of comparable length and traffic density (and makes just as much money on its investment).13

The Federal Maritime Board forces all subsidized ship lines to join the ocean conferences which cartelize ocean transportation. Conference-set rates are higher than those charged by ship owners and operators who are not members of the conference. Not only does the Board force higher rates on American shippers, but also follows policies in its construction and operating subsidy program which result in the inefficient design and operation of American ships. American ships carry bigger crews and are more expensive to operate than foreign ships. Since American seamen’s wage rates are higher than those of foreign seamen, you would expect labor-saving features to be built into American ships that would not be found on foreign ships. Instead, the reverse is true. Because the operating subsidy provided by the federal government is based on the excess of the American crew costs over foreign crew costs, no subsidized ship operator finds it to any advantage to pay the extra cost of labor-saving equipment.14

So much for some of the material developed in a few of the recent studies of the transportation industry. These data are not the sort to make economists feel that the heavy hand of government is beneficent or produces results preferable to those that will occur in a free market.

RECENT STUDIES of public utility regulation do not make this bit of intervention any more appealing, although this is the one area that more economists have agreed upon as being a proper sphere for government intervention than any other. A study of the Federal Power Commission regulation of the natural gas industry has shown that regulated field prices of natural gas sold to interstate pipe line companies are about seven per cent higher than they would be in the absence of regulation of field prices.15

A study of the regulation of prices for electric energy reaches the conclusion “that it is very doubtful whether consumers have been saved as much by public regulation of the electrical utilities as they have had to pay, directly and indirectly, for regulation.”16 Another study shows the prices for electricity and gas are higher in those states where commissions severely restrict the rate of return on investment (to less than 6½ per cent) than in those which do not. In those jurisdictions where electric companies are allowed to earn more than 6½ per cent return, the average price for 500 KWH to a residential consumer was $9.82. In those jurisdictions where the rate of return was restricted to less than 6½ per cent, the average cost to a residential consumer for 500 KWH per month was $10.14.

A study of gas utilities reached a similar finding. The companies allowed to earn more than 6½ per cent charged $8.62 for 100 therms of residential gas service. Those restricted to less than 6½ per cent charged $10.58 (about 20 per cent more).

Here is a paradox that non-economists find hard to believe, much less understand. How can a company make more by charging less? The answer lies in the fact that those companies allowed to earn more than 6½ per cent can attract the capital which can be used to install cost-saving equipment; allowing them to earn more thus benefits the consumer. Profits in the American economy are, by and large, not made at the expense of the consumer. They are made by doing a better job in production or design of product—by benefitting consumers.

Some sacred cows of those economists who believed most profits are made by monopolizing were slaughtered by this study. Even more, it casts grave doubts on the usefulness of government intervention in the one area which most economists have agreed required regulation to prevent monopolistic exploitation of consumers.

CONCERNING AGRICULTURE, farmers themselves seem to be reaching the conclusion that they are worse off with government intervention than without it—or at least wheat farmers seem to have reached this conclusion, judging by the latest wheat referendum. Farmers have found they received higher prices for wheat with government intervention, but they also endure higher costs as a consequence of acreage restrictions on their operations. The Agricultural Program conveys little benefit to most farmers at great expense to every taxpayer. Since farmers have begun to discover this, economists, too, are gradually becoming aware of it.

Some recent studies by agricultural economists have demonstrated that many of the programs supposedly designed to benefit the farmers have been hurting them. It seems obvious that subsidizing the use of fertilizer and machinery would help farmers by reducing their costs of production. What has seemed to be so obviously true turns out to be completely false. The increased output with subsidies has driven prices down with the result that farmers are not any better off. Those who are tenants and obtain their return from their labor are worse off because labor values are decreased by the substitution of fertilizer and equipment.17 Those who are owner-operators are worse off not only because the return earned by their labor is reduced, but also because that earned by their land is decreased. Fertilizer and equipment are substitutes for land and subsidizing their use reduces the return to land compared to what it otherwise would be.18

The farm programs of the federal government have not only failed to benefit the farmer, but they have also been mutually off-setting with their only net result being a higher tax burden and a waste of resources. The spectacle of multi-billion dollar reclamation programs putting more land under cultivation occurring side-by-side with a soil bank program taking land out of cultivation does not appear to be a more rational management of the economy than that resulting from the operation of free markets. Yet, the main argument of interventionists has been that the government can plan rationally. They have argued that the free market is at best non-rational but usually irrational. In the face of this evidence, it appears that government planning is far more irrational than even the severest critics of free markets could ever impute to the operation of the market.

ANOTHER GREAT disillusionment being suffered by the interventionists is the result of the examination of the programs presumably designed to benefit the poor and the disadvantaged. Urban renewal programs were launched with a great fanfare of propaganda concerning what they would do to improve the housing of the poor. The net result of our urban renewal programs has been increased cost of housing for the poor and the destruction of the livelihoods of hundreds of small businessmen. A typical urban renewal project is one in Chicago which had these results: 4,632 dwellings used by the lowest income groups in Chicago were destroyed. These were replaced by 2,040 apartments now used by middle income families.

In effect, 4,600 low income families were forced out of their homes and told to go find other housing. With the reduced supply of low-rent units, they typically had to pay higher rents in bidding for the remaining supply. A Chicago Housing Authority study of relocation in 1952-1954 showed that the average rent paid by the dispossessed before destruction of their homes was $37 per month. The average rent this group paid after being dispossessed went to $67 per month.19 It hardly helps the poor to take their homes away and force them to rent more costly residences.

ANOTHER MEASURE which interventionists thought would help the poor was the passage of minimum wage legislation. They believed Sidney and Beatrice Webb, who argued that “higgling in the market” would reduce all wages to bare subsistence (or below). They believed that employers have the power to exploit their employees. All that had to be done to improve the lot of the poor was to pass a law which would stop the exploitation of labor by employers.

As it turned out, it has become evident that employers were paying people what they were worth. As the minimum wage rate has been raised, more and more people have been laid off who were not worth the higher wage rate20 or have failed to find jobs which would otherwise have been available.21 They were not being exploited. They were receiving low wage rates because they were not worth any more. The people laid off have been forced to take jobs not covered by the minimum wage law where they received even lower wage rates than in the jobs they lost22 or they have remained unemployed. Unemployment among teenagers, for example, has gone from 595,000 in 1949, when the minimum wage rate was $0.40 per hour (and large unemployment might have been expected because this was a depression year), to 979,000 in 1963, a prosperous year, a year in which the minimum wage rate was raised to $1.25 per hour. To the extent that teenagers are inexperienced, unskilled workers, they are the ones who have been priced out of the market by the rise in the minimum wage. Even my interventionist friends are beginning to believe that all teenagers should be exempted from the application of minimum wage laws. Perhaps they will soon learn that we should simply repeal all minimum wage laws.

One more point should, I think, be made in connection with teen-age unemployment. A leading interventionist, Willard Wirtz, Secretary of Labor, believes that the solution to this problem lies in extending compulsory education by another two years. It is typical of the interventionists that they suggest simple answers based on the treatment of all people as if they were identical, homogeneous units. It is typical that they will force people to do what they regard as being good for these people, whether or not those whose freedom is being infringed regard this as desirable. As a matter of fact, the proportion of fourteen to seventeen-year olds in school has increased from 83.3 per cent fifteen years ago to 90.3 per cent today.23 This is in response to the fact that wage incomes of those with more years of schooling have gone up more than the wage incomes of those less educated.

Of those who are not in school, I would venture the guess that most of them were not finding the schooling available to them useful or rewarding. Forcing them to remain in school would be more likely to reduce the efficiency of the educational process than to improve the skills and make employable these unwilling drinkers at the fountain of knowledge.

FINALLY, LET ME turn to the most telling charge which has been made against free markets. The primary weapon of the socialists in their attack on free enterprise is the business cycle and the suffering caused by cyclical unemployment. If classical liberalism and the laissez faire for which it stands is vulnerable to attack, cyclical unemployment is the Achilles heel.

On this score, recent studies of the causes of the business cycle have disclosed that the primary cause is a change in the rate of growth of the stock of money.24 A turn in the rate of increase in the stock of money is followed by a turn in business and employment. A downturn in the rate of increase in the stock of money is followed by a downturn in employment about six months later, on the average.

Let me describe a few instances: Sharp rises in Federal Reserve rediscount rates and imposition of penalty rates on borrowers occurred in late 1919 and in the first half of 1920. This caused a decline in the stock of money. The reduction in the stock of money was followed by an increase in unemployment from 1.5 million in 1920 to over 5 million persons in 1921.25

The contraction of Federal Reserve credit in late 1928 and early 1929 caused a decrease in the stock of money which started unemployment rising.26 It jumped from 1.6 million in 1929 to over 5 million in 1930. The decline in money stock was intensified after September 1931 by deflationary actions on the part of the Federal Reserve when it panicked over the loss of gold. The result was a horrifying rise in unemployment to over 12 million persons in 1932.

The increases in required reserve ratio by the Federal Reserve Board in August 1936, and again in March 1937, and once again in May 1937, turned the stock of money down and sent unemployment soaring.27 From approximately 6 million in mid-1937, unemployment rose to over 11 million in 1938.

Turning to the post-war period, fluctuations in unemployment were considerably milder. Nevertheless, we find the same relationship holding between governmental manipulation of the stock of money and unemployment. The rise in the required reserve ratio in February, June and September of 1948, along with other Federal Reserve actions in the government bond market, began a decrease in the stock of money which sent unemployment in 1949 to almost 4 million from the 2 million level of 1948.28

Again, in 1952, the Federal Reserve Board reduced the rate of increase in the stock of money.29 At mid-1953, unemployment started to climb, doubling to about 3.5 million in 1954.

Still again, the Federal Reserve Board reduced the rate of increase in the money supply in 1956.30 Recession began in mid-1957 and the unemployment level rose to over 5 million in 1958.

In 1959, the Board began limiting the reserves available to banks and started a downturn in the stock of money.31 Recession began in early 1960 with unemployment again rising to over 5 million in 1961.

I have gone into some detail to show that the primary cause of cyclical unemployment does not lie in the unregulated behavior of free men in free markets. Those who have argued for greater governmental intervention on the grounds that a free enterprise system is unstable have chosen the wrong target for their criticism and the wrong means to cure the problem which worries them. The source of instability has been the government. The cure for instability is less government—not more. We would have less instability if the Federal Reserve Board stopped toying with the supply of money.

The study of the causes of cyclical unemployment has had a great unsettling effect on those economists who have thought we needed more government activity in the economy.32 Most have not yet accepted the conclusions of the study. They are resisting the recognition that they have been wrong and they have attempted to refute the study. The attempts to date have failed; the data are too overwhelming. Opinion in the profession is starting to swing, even though old ideas do not die easily, especially since repetition seems to be regarded as a more cogent proof of a proposition than any evidence a scholar can offer.33

I WOULD LIKE to close by quoting an observation of a nineteenth-century German immigrant to America:

Here in America you can see how slightly a people needs to be governed. . . . Here are governments, but no rulers—governors, but they are clerks. All the great educational establishments, the churches, the great means of transportation, etc., that are being organized here—almost all of these things owe their existence not to official authority, but to the spontaneous cooperation of private individuals. It is only here that you realize how superfluous governments are in many affairs in which, in Europe, they are considered entirely indispensable, and how the opportunity of doing something inspires a desire to do it.34

The most telling and effective recent evidence casting doubt on the beneficence of government and the presumed inability of free markets to serve the common good, and such social goals as improving the lot of the average man, is provided by the “miracle” of West Germany35 and Japan, and the failure of the socialized governments in the Iron Curtain countries. We might put this in the words of a recent cartoon showing two Russian officials chatting with each other. One is saying, “When all the world is Communist, where will we get wheat?”

Reprints of this article are available from New Individualist Review. Single copy, 15 cents. Ten or more copies, 10 cents each.

[* ] Reprints of this article are available from New Individualist Review. Single copy, 15 cents. Ten or more copies, 10 cents each.

[* ] Yale Brozen is Professor of Business Economics at the University of Chicago and an Editorial Advisor to New Individualist Review. He has contributed numerous articles to professional journals.

[1 ] Herbert Spencer, The Man Versus the State (New York: Appleton, 1897), pp. 338-39.

[2 ] G. J. Stigler, Five Lectures on Economic Problems (London: Longmans, 1948), p. 1.

[3 ] L. von Mises, Human Action (New Haven: Yale University Press, 1949), p. 715.

[4 ] A letter received by the author is typical: “The only theoretical treatments of the minimum wage laws I have seen suggest that they are unfavorable to the economy as a whole. But somehow I find it hard to believe that the law could be passed and extended and the level raised several times if it is supported by nothing more than wishful thinking.” October 26, 1964.

[5 ] G. J. Stigler, “The Government of the Economy,” G. J. Stigler and P. A. Samuelson, A Dialogue on the Proper Economic Role of the State (Chicago: University of Chicago Graduate School of Business, Selected Papers no. 7, 1963), pp. 3-4.

[6 ] National Opinion Research Center, A Personal Interview Survey of College Economics Teachers (mimeographed).

[7 ] Chase Manhattan Bank. “321 Economists Comment on Key Public Issues,” Business in Brief, Nov.-Dec., 1963.

[8 ] J. R. Meyer, M. J. Peck, J. Stenason and C. Zwick, The Economics of Competition in the Transportation Industries (Cambridge: Harvard University Press, 1959).

[9 ] James C. Nelson, Railroad Transportation and Public Policy (Washington: The Brookings Institution, 1959).

[10 ] P. W. MacAvoy, Trunk Line Railroad Cartels and the Interstate Commerce Commission 1870-1900: A Case Study of the Effects of Regulation on Price (multilithed).

[11 ] Reported by Dr. George Hilton at the Conference on Regulated Utilities, June 15, 1963, at the Center for Continuing Education, University of Chicago.

[12 ] For a concise discussion of the CAB see S. Peltzman, “CAB: Freedom from Competition,” New Individualist Review, Spring 1963, pp. 16-23.

[13 ] M. R. Colberg, D. R. Forbush, and G. R. Whitaker, Business Economics (Homewood, Ill.: Irwin, 1964), pp. 130-31.

[14 ] A. R. Ferguson, E. M. Lerner, J. S. McGee, W. O. Oi, L. A. Rapping, and S. P. Sabotka, The Economic Value of the United States Merchant Marine (Evanston: Northwestern University Press, 1961).

[15 ] R. W. Gerwig, “Natural Gas Production: A Study of the Costs of Regulation,” Journal of Law and Economics, V (1962), 69-92.

[16 ] G. J. Stigler, “The Government of the Economy,” in Stigler and Samuelson, op. cit., p. 6. See also: G. J. Stigler and C. Friedland, “What Can Regulators Regulate? The Case of Electricity.” The Journal of Law and Economics, V (Oct. 1962), 1-16.

[17 ] D. G. Johnson, “Labor Mobility and Agricultural Adjustment,” in E. O. Heady, H. G. Diesslin, H. R. Jensen, and G. L. Johnson ed., Agricultural Adjustment Problems (Ames, Iowa: Iowa State College Press, 1958), pp. 163-72.

[18 ] D. G. Johnson, “Output and Income Effects of Reducing the Farm Labor Force,” Journal of Farm Economics XLII (Nov. 1960), 779-96.

[19 ] Cited by Professor Joel Segall in a paper presented at Rockford College, December 2, 1962, from Chicago Housing Authority sources. A published study by The Chicago Housing Authority (Rehousing Residents Displaced from Public Housing Clearance Sites in Chicago, 1957-58) showed that the median rent paid by 161 families occupying housing destroyed by the Authority in 1957 was $51/month in the destroyed housing. After relocation, these families paid a median rent of $77—an increase of 51 per cent.

[20 ] J. M. Peterson, “Employment Effects of Minimum Wages, 1938-50,” Journal of Political Economy, LXV (Oct. 1957), 412-30.

[21 ] D. E. Kaun, Economics of the Minimum Wage: The Effects of the Fair Labor Standards Act, (Ph.D. Dissertation, Stanford University, 1964).

[22 ] Y. Brozen, “Minimum Wage Rates and Household Workers,” Journal of Law and Economics, V (Oct. 1962), 103-9.

[23 ] U. S. Bureau of the Census, Statistical Abstract of the United States: 1964 (Washington: U. S. Government Printing Office, 1964), p. 109. For information on the relation of education to income, see Ibid., p. 115.

[24 ] M. Friedman, “The Demand for Money; Some Theoretical and Empirical Results,” Journal of Political Economy, LXVII (Aug. 1959), 327-351; M. Friedman and D. Meiselman, “The Relative Stability of Monetary Velocity and the Investment Multiplier in the United States, 1897-1959,” in Commission on Money and Credit, Stabilization Policies (Englewood Cliffs, N. J.: Prentice-Hall, 1963), pp. 165-268. M. Friedman. “The Monetary Studies of the National Bureau,” The National Bureau Enters Its Forty-Fifth Year (New York: National Bureau of Economic Research, 1964), pp. 7-25. Annual Report. M. Friedman and A. J. Schwartz, A Monetary History of the United States (Princeton: Princeton University Press, 1963).

[25 ] R. F. Wallace, “The Use of the Progressive Discount Rate by the Federal Reserve System,” Journal of Political Economy, LXIV (Feb. 1956), 59-68.

[26 ] L. Currie, “The Failure of Monetary Policy to Prevent the Depression of 1929-32,” Journal of Political Economy, XLII (April 1934), 145-77.

[27 ] M. Friedman and A. J. Schwartz, A Monetary History of the United States, 1867-1980 (Princeton: Princeton University Press, 1963), pp. 543-45.

[28 ]Ibid., pp. 604-610.

[29 ] “Bank Reserves, Bank Credit and the Money Supply: 1951-1963,” Federal Reserve Bank of St. Louis Review, XLV (Oct. 1963).

[30 ]Ibid., pp. 4-5.

[31 ]Federal Reserve Bank of of St. Louis Review, Loc. Cit.

[32 ] George J. Staller, “Fluctuations in Economic Activity: Planned and Free Market Economies, 1950-1960,” American Economic Review, LIV (June 1964), 385-95, shows that the eight planned economies of the European Communist Bloc were more unstable than the free market countries composing the Organization for Economic Cooperation and Development in the period of the fifies.

[33 ] For example, J. A. Schumpeter, History of Economic Analysis (New York: Oxford University Press, 1954), has referred to the reluctance of economists to recognize that bank loans create deposits. He remarks, “This is a most interesting illustration of the inhibitions with which analytical advance has to contend and in particular of the fact that people may be perfectly familiar with a phenomenon for ages and even discuss it frequently without realixing its true significance and without admitting it into their general scheme of thought.”

[34 ] Carl Schurz, in one of his writings.

[35 ] See E. Sohmen, “Competition and Growth: The Lesson of West Germany,” American Economic Review, XLIX (Dec. 1959), 936-1003. J. Hennessy, V. Lutz, and G. Scimone, Economic “Miracles” (London: Andre Deutsch, 1964).