Excuse Me, Professor: Challenging the Myths of Progressivism

by Lawrence Reed

In fiction, the children of nature may dwell in an earthly paradise; but in the real life of all primitive societies, the men and women and all the children struggle constantly against the threat of starvation. Such agrarian economies support all the people they can, but with high infant mortality and short life spans for all survivors.

  When savings can be accumulated, then tools can be made and life’s struggle somewhat eased as industrialization begins. And with the growth of savings and tools and production and trade, the population may increase. As incomes rise and medical practices improve, children stand a better chance of survival, and men and women may live longer with less effort. Not that savings are accumulated rapidly or that industrialization occurs overnight; it is a long, slow process. And in its early stages, the surviving women and children are likely to be found improving their chances as best they can by working in factories and so-called sweatshops. To pass a law prohibiting such effort at that stage of development of the society would simply be to condemn to death a portion of the expanding population. To prohibit child labor in Third World countries today would be to condemn millions to starvation.

  Once a people have developed habits of industry and thrift, learned to respect life and property, discovered how to invest their savings in creative and productive and profitable enterprise, found the mainspring of human progress—then, and only then, after the fact of industrialization and a prosperous expanding economy, is it possible to enact child labor laws without thereby passing a death sentence.

  A wise and honest humanitarian will know that poverty (and worse) lurks behind every minimum wage law that sets a wage higher than some individual is capable of earning; behind every compulsory 40-hour week rule that catches a man with a family he can’t support except through more than 40 hours of effort; behind every legislated condition of employment that forces some marginal employer into bankruptcy, thus destroying the job opportunities he otherwise afforded; behind every legal action that virtually compels retirement at age 65.

  Men will take their children and women out of sweatshops as fast as they can afford it—as fast as better job opportunities develop—as fast as the supply of capital available per worker increases. The only laws necessary for that purpose are those which protect life and private property and thus encourage personal saving and investment.

  To believe that labor laws are the cause of improved living and working conditions, rather than an after-thought, leads to harmful laws that burden wealth creation, sap the incentive of the energetic, and close the doors of opportunity to those least able to afford it. And the ultimate effect is not a boon to mankind but a major push back toward barbarism.

  (Editor’s Note: This essay is slightly edited from the original, published in The Freeman in 1963 under the title “To Abolish Sweatshops.”)

  SUMMARY

  •Sweatshops and child labor were commonplace in pre-industrial, pre-capitalist days because production and productivity were so low, not because people disliked their wives and children more than they do today

  •Savings, investment and economic growth improve working and economic conditions faster and more assuredly than well-intentioned but misguided laws that simply close doors of opportunity

  #22

  “VOLUNTARY, MARKET-BASED ARRANGEMENTS ‘USE’ PEOPLE”

  BY GARY M. GALLES

  AMONG THE MOST WELL-WORN MORAL CRITICISMS OF VOLUNTARY ARRANGEMENTS is that they treat people as things or commodities, rather than as individuals. In other words, market arrangements are indicted because participants “use” people in the process. As the late economist Paul Heyne described it, “such a system seems somehow to violate our profound moral conviction that nothing is more valuable than individual persons, and that each person ought to be treated as a unique end, never as a means to some further end.”

  The irony is that those who understand and respect market arrangements do so precisely because “nothing is more valuable than individual persons.” I echo FEE’s founder Leonard Read’s understanding that “An individualist . . . looks upon society as the upshot, outcome, effect, recapitulation incidental to what is valued above all else, namely, each distinctive individual human being.” But why have such anti-individual criticisms persisted so long, despite the contradiction? In part, due to a rhetorical bait-and-switch that changes the meaning of “use” in the middle of the argument.

  There is widespread moral condemnation of “using” people. However, use has different meanings. Use can mean utilize or employ, with no implication of harm to others. That is what we mean when we say someone uses a hammer. It is also what happens when people voluntarily provide their services to advance others’ purposes in markets. In contrast, use can also mean abuse or harm, particularly as a result of force or fraud. That is what we mean when we say “you pretended to care about me, but you were just using me.”

  The first meaning is consistent with either imposing no harm on others or benefitting them (as in mutually acceptable market arrangements, which individuals would not otherwise enter into); the second meaning requires that others are harmed. And changing the meaning from the first to the second in midstream allows a logical cheat.

  Some people may be fooled by saying, “You use others in markets; using people harms them.” But that is far less likely if you clarify which “use” you mean. “You utilized others’ willingly supplied services, therefore you harmed them” will convince far fewer. So language misuse, abetted by sloppy thinking, can transform the reality of mutual benefits from uncoerced market exchanges into the fiction of exploitation theory.

  There is another logical problem that arises from saying we should treat people as ends in themselves and never as means. It is not a choice between the two, because they are not mutually exclusive. People are both ends in themselves and the means by which others advance their ends.

  What others offer us in all mutually agreed-to exchanges are means to better advance our ends. But to treat people’s actions or services as means to our ends does not demean them as individuals; it is simply inherent in mutual benefit. And to miss that distinction, condemning such arrangements as the unethical use of others, comes very close to the self-contradictory assertion that nothing mutually beneficial is allowable. Instead, we should laud rather than lambaste a system that can dovetail the often incompatible plans and purposes of multitudes of different individuals to expand what can actually be achieved.

  Further, when people freely choose their arrangements, each respects others as important ends in themselves in an important way that is absent when others dictate what is allowable. It allows them their freedom, based in self-ownership, to choose how best to use the means they have at their disposal.

  Mutually voluntary arrangements are those the participants believe best advance their ability to achieve their ends, without violating others’ similar ability. Nothing is detracted from the ability to pursue the ends we each choose; possibilities for both are expanded. How can we better advance others’ ends than letting them choose how to use their current means most productively as they see it? As Philip Wicksteed wrote over a century ago in The Common Sense of Political Economy, voluntary economic relations ease “the limitations . . . of their own direct resources . . . by the very act that brings a corresponding liberation to those with whom they deal . . . [leaving] no room to bring against it the charge of being intrinsically sordid and degrading.”

  The hypothetical ideal of always treating people as objects of benevolence rather than utilizing their services through mutually beneficial exchanges is also unattainable. As Philip Wicksteed put it, “The limitation of our powers would prevent our taking an equally active interest in everyone’s affairs.” In any society larger than an immediate family, we simply cannot know enough to organize relationships based on benevolence.

  Consider the sheer number of transactions and transactors involved in our economic arrangements. As Leonard Read’s famous “I, Pencil” essay demonstrated, vast numbers are involved for
even the simplest products, much less more complex products, such as automobiles. In such circumstances, the alternatives are not coordinating relationships via exchange (another name for persuasion) or via charity, but between coordinating relationships via exchange or coordinating them far less well, if at all, because it exceeds our knowledge and capabilities.

  Paul Heyne summarized it well:

  When money prices, rather than concern for each other as persons, coordinate social transactions, social cooperation becomes possible on a more extensive scale. Those who would like to force all social transactions into the personal mode do not realize how much of what they now take for granted would become wholly impossible in the world of their ideals . . . They are ignoring the incredible complexity of the system of social cooperation by means of which we are fed, clothed, housed, warned, healed, transported, comforted, entertained, challenged, inspired, educated and generally served.

  Claims that market arrangements involve the unethical “using” of others are of lengthy pedigree. But they are also of questionable merit. They rhetorically transform the utilization of other individuals’ services in ways that benefit all parties involved into “using” others to their imagined detriment. They treat the issue as a choice between treating others as means or as ends, when honoring others as ends in themselves, and so according them the dignity of choosing how best to accomplish their purposes, leads them to voluntarily provide the means to advance others’ ends. The employ a standard of always treating people as objects of benevolence rather than utilizing their services through mutually beneficial exchanges, assuming other things equal, when trying to do so would destroy many of the forms of social cooperation that voluntary arrangements have produced so dependably that we rely on them daily.

  However, careful thinking, not cowed or manipulated by misleading arguments, leads to diametrically opposed conclusions. If we accept the premise that individuals and their development are our ultimate ends, the voluntary arrangements they evolve are, as Friedrich Hayek pointed out, among society’s greatest creations, not its nemesis.

  SUMMARY

  •Advocates of free markets have long been accused of supporting arrangements that “use” people. It’s ironic because free markets are the one economic arrangement that most respects and empowers individuals!

  •Markets, because they are rooted in the free choice of individuals, self-ownership, voluntary and contractual relationships and customer satisfaction, are far less likely to “use” people (in the pejorative sense) than arrangements that are coerced, centrally planned or bureaucratic

  •People should not be treated as objects of benevolence, but rather, as sovereign individuals with whom we deal voluntarily, peacefully and for the mutual benefit that occurs through freedom of choice

  #23

  “THE BALANCE OF TRADE DEFICIT REQUIRES GOVERNMENT ACTION”

  BY LAWRENCE W. REED

  I HAVE A DIRTY LITTLE SECRET. IT’S ABOUT A NAGGING PROBLEM I HAVE HAD FOR a long time. It just never seems to go away. Heretofore, I have not wanted to admit to this problem in public because the newspaper headlines remind me monthly that this sort of thing is bad and embarrassing. But I’m going to come clean, hoping that maybe someone out there can help me.

  My problem is this: I have a trade deficit with J.C. Penney. That’s right. Year after year, I buy more from J.C. Penney than J.C. Penney buys from me.

  In fact, J.C. Penney has never yet bought anything at all from me. It’s been a one-way street right from the day I got my credit card in the mail. And I don’t expect that this is going to change any time soon because the retail chain shows no interest in buying my chief export, which is columns like this one. It just doesn’t seem fair.

  I’ve actually considered several options. Each one would probably reduce or eliminate my trade deficit with J.C. Penney, but some wise guy always points out new problems that each of these scenarios might create:

  1.I could get Congress to force the company to buy enough of my articles to offset what I spend in its stores. But the more J.C. Penney buys from me, the less it will be able to buy from others, which will only increase their trade deficits.

  2.I could get Congress to force J.C. Penney to cut its prices so that I won’t have to spend as much to get what I want. I thought that might at least reduce my deficit, but at lower prices I might actually be tempted to buy more. Or J.C. Penney might come under fire from the antitrust people for dumping its goods below cost.

  3.I could simply quit buying from J.C. Penney. That would really teach them a lesson. But then, doggone it, I like what I’ve been buying from them. If I boycott them, wouldn’t that be like cutting off my nose to spite my face?

  Of course, I don’t really mean any of this. As an economist, I know that there’s a fourth option here and it’s the only one that makes any sense: I should ignore this “problem” and never pay any attention again to whatever the trade situation is between J.C. Penney and me, except to pay my bills on time. America as a whole should do essentially the same thing. If we fired the people in Washington, D.C. who compile the balance of trade numbers, the so-called problem will go away.

  Every month, the U.S. Commerce Department releases the official “balance of trade” figures showing the difference between the value of merchandise that enters the country and the value of merchandise that leaves the country. If imports exceed exports, America has a trade deficit, which sets off alarm bells in Washington. If exports are greater than imports, we’re all supposed to celebrate because that’s a trade surplus.

  By this logic, draining the country of all goods and accepting none from abroad would be the best possible trade news. We wouldn’t be able to celebrate, however, because we’d all starve. But at least the government’s books would register one heck of a trade surplus.

  The balance of trade numbers, by the way, represent a very incomplete picture of trade. They attempt to measure merchandise only, but traders exchange many other things too. If a Canadian businessman sells Americans lumber, he earns dollars but he doesn’t have to buy merchandise with them. He might instead invest in real estate, purchase securities (government or private), or contract for certain services. Those things don’t get counted in the “balance of trade.”

  Progressives aren’t the only ones who get hung up on this trade-deficit thing and then favor pseudo-solutions to a non-problem. It’s a throwback to the less enlightened times of sixteenth-century mercantilists. They argued that a nation must never buy more from foreigners than it sells to them because that would produce an “unfavorable balance of trade” that would have to be settled by an outflow of gold or silver. The mercantilists wrongly assumed that gold and silver were the real wealth of a nation, not goods and services. They were also wrong to render value judgments about other people’s trading activities. The fact is that there can be nothing “unfavorable” about voluntary trade from the point of view of the individuals actually doing the trading, otherwise they would not have engaged in it in the first place.

  The principle that both sides benefit from trade is readily visible when it involves two parties within a country; it somehow becomes confused when an invisible political barrier separates the parties. Neither the mercantilists of yesteryear nor those who fuss about the trade deficit today have ever satisfactorily answered this fundamental question: Since each and every trade is “favorable” to the individual traders, how is it possible that these transactions can be totaled up to produce something “unfavorable”?

  Scottish economist Adam Smith was among the first to attack the notion that exports are good and imports are bad. He postulated a “harmony of interests” in trade, by which both parties to an exchange benefit. With the exception of obvious fraudulent practices, which are minimal in number and a responsibility of the courts, there can be nothing “unfavorable” about voluntary trade from the point of view of the individuals doing the trading, otherwise those individuals would not have engaged in it.

  To return t
o my initial example, I benefit when I buy from J.C. Penney or I wouldn’t keep doing it. The folks at J.C. Penney benefit as well because they would rather have my money than the stuff they sell me. We’re both better off because we have a trade relationship, which is why neither party ever complains about it. This would be no less true if J.C. Penney happened to be a company from Japan or Uganda.

  Ultimately, the dollars that go abroad to pay for imports will come back to buy American exports. But even if they didn’t—in other words, even if goods come here and dollars go there to simply stuff foreign mattresses—Americans with their supposedly harmful trade deficit would have the better end of the deal. We would get goods like electronics and automobiles, and foreigners would be stuck with slips of paper decorated with pictures of dead American politicians.

  Forget the trade deficit. We should occupy ourselves with more important things, like the next sale at J.C. Penney’s.

  (Editor’s Note:. An earlier version of this essay was published in The Freeman in December 1998.)

  SUMMARY

  •Each of us as individuals have a “balance of trade” with other individuals but none of us care about the numbers; we care about the goods and services we’re trading for

  •Balance of trade figures count only merchandise. They leave out a huge chunk of world trade involving other things, from real estate to securities to services

  •No trades are deemed as anything but “favorable” by those engaged in the trading so how can anyone add all those trades up and arrive at something “unfavorable”?

  #24

  “AMERICANS SQUANDER THEIR INCOMES ON THEMSELVES WHILE PUBLIC NEEDS ARE NEGLECTED”

  BY EDMUND A. OPITZ

  OUR SOCIETY IS AFFLUENT, WE ARE TOLD—BUT ONLY AFFLUENT IN THE PRIVATE sector, alas! The public sector—meaning the political structure on which our society spends a third of its energy to maintain—starves. Mr. and Mrs. America bounce along in their fancy, expensive cars over bumpy highways—the best road their government can build with the limited resources permitted it. They queue up to pay scalper’s prices for tickets to ball games with nary a thought that this indulgence contributes to the non-building of a political housing project in an already overcrowded city. That evening they dine at a ritzy restaurant, and government, as a result, lacks the means to supply water for a dam it has just constructed in a drought area. Americans, in short, go in big for private indulgence at the very time when the State needs their money.