Home Run

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When Abraham Lincoln issued the Emancipation Proclamation in 1863 and Congress adopted the 13th Amendment in 1865, slavery and involuntary servitude were officially ended in the United States. But racism and segregation were far from over. In fact, relations between blacks and whites remained so tense that during the ensuing century the US sanctioned a number of "Jim Crow" laws mandating segregation under the "separate but equal" interpretation.

Laws can mandate actions, but they cannot mandate public opinion. It took the free market, in the form of "America's favorite pastime," to start ending Jim Crow.

Baseball was America's most popular sport during most of the 20th century. Whites played it. Blacks played it. Women played it. But they didn't play it together. Early segregation was a form of protectionism. African-American players, such as Bud Fowler and Moses "Fleetwood" Walker, played on integrated teams in the 1880s, but they were so good that white players began to feel threatened that they would lose their positions and their jobs. "Whites Only" signs began to appear in locker rooms.

Soon two different leagues were formed. African American fans would often attend MLB games (sitting in the "Colored" section, of course) but with very few exceptions, whites would not attend NLB games. Consequently they seldom saw such baseball greats as Satchel Paige, Jackie Robinson, and Hank Aaron, and Willie Mays, who played in the Negro League.

They might have stayed there, too, unnoticed by the mainstream history books, if it weren't for Wesley Branch Rickey and the free market. Rickey was owner and general manager of the Brooklyn Dodgers. He wanted to win the World Series, and that meant hiring the best players in baseball. He also wanted to fill the seats at Ebbets Field, and that meant expanding the appeal for African-American fans. Rickey decided it was time to integrate Major League Baseball, and he was just the man to do it: a thick-skinned, cigar-smoking Methodist named after John Wesley himself.

The story of how Branch Rickey integrated major league sports is told in an outstanding new film called 42, Jackie Robinson's number for the Brooklyn Dodgers, and the only number that has been permanently retired by all of baseball in honor of his courage and grit. With strong actors in both supporting and leading roles and a quotable script that tells the story with honesty and unfeigned respect, it is a film that should not be missed.

Rickey (Harrison Ford) is the quintessential libertarian hero. He wants to right a wrong he committed as a coach at Wesleyan University when he "didn't do enough for a fine black pitcher." But most of all, Rickey is motivated by profit and success. He wants to sell tickets, and he wants a World Series pennant. "Dollars aren't black or white," he says to his critics; "they're green." To accomplish both the win and the ticket sales, he hires the first African-American Major League baseball player. Rickey knows it won't be easy. By wooing black audiences, he may lose the existing white fans. One of his advisors warns, "There's no law against hiring a Negro player, but there's a code. Break that code, and you'll pay for it." But Rickey believes he can persuade people to change their opinions simply by giving them a great show. And public opinion would change laws.

Choosing the right player was essential to the success of his plan. He couldn't have a hothead. In their initial meeting, Robinson (Chadwick Boseman) asks Rickey, "You want a player who doesn't have the guts to fight back?" and Rickey responds, "I want a player who has the guts not to fight back." Robinson would have to endure namecalling, physical threats, beanballs, bad calls, and more. His teammates would have to try to overcome their own prejudices, some without success.

Robinson was no pushover. Before becoming a Dodger he refused to acquiesce to Jim Crow laws. He played in UCLA's integrated team. As a member of the US military he was court-martialed for refusing to sit in the back of the bus. In the film, when he is not allowed to use a gas station's toilet while his Negro league baseball team stops for gas, he says to the attendant, "Then take that hose out of the tank and we'll get our 99 gallons of gas somewhere else." The attendant lets them use the toilet, and they buy the gas. Dollars aren't black or white; they're green.

Rickey was taking a big risk, because public opinion could just as easily have turned against him and the Dodgers. But he knew the power of the free market.

It isn't easy for Robinson to hold his tongue and his temper. He has to endure degradation from all sides. One of the worst offenders is Phillies’ coach Ben Chapman, who shouts racial slurs whenever Robinson comes up to bat. Chapman defends his actions by saying, "Hey, it ain't nothing. We call DiMaggio a wop. We call Hank Greenberg a kike," as though that makes it right. Rickey encourages Robinson to remain strong. "You can't meet the enemy on his own low ground," he says when the desire to fight back is almost overwhelming.

But there are moments to make one proud as well. After a cop forces Robinson off a southern baseball field for mixing with whites, saying, "That's our law here, and I'm going to enforce it," a local man approaches Robinson looking like nothing so much as a redneck racist. But he smiles shyly and says, "If a man's got the goods, he deserves a chance. I'm pulling for you. A lot of us are." Watching the tide of public opinion slowly turn produces a profound cathartic effect throughout the film.

The physical and emotional struggle Robinson endures is mitigated not only by Rickey, who stands by him like a father, but also by his wife, Rachel (Nicole Beharie), who soothes and uplifts him throughout the film.42 is as much a love story as it is a sports story.

Some of the best moments in the film occur simply when Robinson plays baseball. He had a loose, bouncing way of moving on the field. His arms seemed to stretch an extra foot when he dove for a ball, and he danced between the bases as he threatened to steal. His smile was magical. Relative newcomer Chadwick Boseman slips into that role with an ease as natural as the ballplayer he portrays. Waiting about a mile off base while the pitcher prepares for his windup, his fingers twinkle and dance and he bounces low in his knees, just daring the pitcher to throw him out. His relaxed smile is charming and disarming, confirming Rickey's decision that Robinson was the right man for the right time. As Mordecai said of Esther, who risked her life for the lives of the Jewish people, "Who knows but that you were born for such a time as this?" Robinson seems to have been born for his time.

Branch Rickey was born for such a time as well. He knew that laws can control actions, but they can't force people to overcome their prejudices. (Hell, it was laws and political activism that created segregation in the first place!) But he knew the power of the free market. Rickey was taking a big risk, because public opinion could just as easily have turned against him and the Dodgers. But he was certain that once he proved black players would make baseball better, other teams would have to follow. To some extent the worries of those early baseball players who rejected Bud Fowler and Moses Walker were warranted. Major league sports are dominated by minority players today. But the game is enriched because of it. And America is richer too.


Editor's Note: Review of "42," directed by Brian Helgeland. Warner Brothers, 2013, 128 minutes.



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Capitalism 2013

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Capitalism, once lauded as the proud foundation of America's success, has had a bad rap lately. Free-market capitalism has been blamed for everything from the collapse of real estate and the stock market to the widening gap between haves and have-nots and even the onslaught of terrorism. Capitalists are the bad guys in nearly every movie, every classroom, and at least half the political speeches — or so it seems.

But there is nothing free about American markets today. Government intervention has led to a Bizarro world of crony capitalism that mimics free enterprise while tying its hands. John Mackey calls it "the intellectual hijacking of capitalism." Regulations intended to protect the consumer and the employer create unintended imbalances that limit competition and inadvertently encourage unfair practices. Capitalism gets the black eye, while government goes in for the sucker punch. But it's the consumer and the employee who end up on the canvas, knocked out.

Mackey, founder of Whole Foods Markets, and Raj Sisodia have written a book, due to come out on January 12, to counter this false impression of the business person. With the subtitle "Liberating the Heroic Spirit of Business," Conscious Capitalism is a handbook of great business practices told through the anecdotes of highly successful and highly conscientious business people. Mackey and Sisodia demonstrate that business owners can be compassionate and successful. In fact, the "conscious capitalist" will be more successful by following the leadership advice outlined in this book.

What is a conscious capitalist? One who is fully aware. Conscious capitalists make deliberate decisions based on the longterm consequences of their actions. They are aware of the impact their actions have on customers, suppliers, shareholders, the community, and the environment. They recognize that when they consider the needs of others and act fairly, others will probably do the same, and everyone will benefit.

Government intervention has led to a Bizarro world of crony capitalism that mimics free enterprise while tying its hands.

Mackey is the ideal person to write a book like this, because he has himself embarked on a philosophical journey that allows him to see the problems from one perspective and the solutions from another, uniting philosophies in what he sees as a "win-win" relationship. He describes the "progressive political philosophy" he espoused in young adulthood, when he saw problems in the world and believed that "both business and capitalism were fundamentally based on greed, selfishness, and exploitation." His personal life is grounded in the kinds of causes usually embraced by anti-capitalists, including his vegan diet, his Eastern meditation techniques, and his deep concern for animals and the planet. He is a gentle man in every way. But he has also become a fierce defender of free market capitalism. Through his experience as an entrepreneur he discovered "that business isn't based on exploitation or coercion at all. Instead . . . business is based on cooperation and voluntary exchange . . . for mutual gain." Bringing the spirit of cooperation and caring to the forefront of business management is the purpose of this book.

Throughout the book, Mackey and Sisodia return to the theme that "business is not a zero-sum game with a winner and a loser. It is a win-win-win game." They demonstrate how the conscious capitalist creates a symbiotic relationship among several stakeholders, including the business owner, the workers (or "team members," as Mackey prefers to call them), the consumers, the shareholders, the suppliers, and the community. Working together for their own betterment, they make each other's lives richer as well.

One of my favorite sections of the book focuses on worker motivation. The authors identify three main principles of motivation: job, career, and calling. A "job" is a transaction: if you put in a certain number of hours, you go home with a certain amount of money. A "career" can be more satisfying: it requires a certain amount of training and skill, and it brings a greater sense of responsibility, as well as respect and money. A "calling," on the other hand, "offers value and satisfaction beyond the paycheck." Work that feels like a calling may be time-consuming and even exhausting, but there is seldom a distinction between being "at home" and being "at work," because it is simply who we are. Many people devote their lives to a calling and earn no money for it at all.

Since, on a normal day, most people spend more waking hours at their place of employment than they do at home, a sense of purpose is essential for satisfaction and happiness. One way to instill the sense of calling, according to this book, is to broaden that sense of purpose for the people who earn a paycheck. A team member at Whole Foods, for example, is not just a grocery clerk; as Mackey sees her,she is part of a team that provides nutritious and delicious food to people who live in the community. She is proud of the charitable work provided by Whole Planet (a charitable organization sponsored by Whole Foods) and enjoys the employee benefits that she herself participated in selecting, including a health plan that should be a model for the nation. She also enjoys the trust that management exhibits toward her; Whole Foods has a policy of encouraging team members to "use their best judgment" when something unusual occurs or a particular rule or practice seems not to fit a particular incident.

Conscious capitalists exhibit this attitude of partnership and respect toward the suppliers of their companies. Negotiations with suppliers can often turn into adversarial relationships whereby one side ends up with a disproportionate amount of the benefit, and the other with a disproportionate amount of resentment. Mackey and Sisodia recommend treating suppliers as one would treat consumers. Treat them fairly, pay them on time, understand their needs, and recognize that they have to make a profit while doing business with you. In so doing, you will create an atmosphere of loyalty and favored status that could be very important when supplies are limited. And it's good karma, too.

Conscious Capitalism is full of anecdotes not only about Whole Foods but also about such successful companies as The Container Store, Southwest Airlines, Walmart, POSCO (formerly Pohang Iron and Steel Company), 3M, UPS, and many others. A lot of them adhere to one or more of the four "categories of great purpose" described in the book. The great purposes include:

  • The Good: services to others that include improving health, education, communication, and quality of life
  • The True: discovery and furthering human knowledge
  • The Beautiful: excellence and the creation of beauty
  • The Heroic: courage to do what is right to change and improve the world

These stories about modern businesses that are providing goods and services that are good, true, beautiful, or heroic in a conscientious manner bring the book to life and give the reader a buoyancy of spirit. Capitalism is good. Entrepreneurship is honorable. Businesses do contribute to the overall good. Managers do not have to demean or mistrust those whom they supervise. In fact, everyone benefits when workers are trained and trusted to "use their best judgment." Conscious Capitalism is a book you will want to share with every business owner, manager, and worker you know.


Editor's Note: Review of "Conscious Capitalism: Liberating the Heroic Spirit of Business," by John Mackey and Raj Sisodia. Harvard Business Review Press, 2013, 322 pages.



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Main St. vs. Wall St.

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The defeat of Romney and the victory of Obama in a disastrous economy which should have crushed the incumbent shows that most people still associate themselves with "Main Street" and view "Wall Street" as the enemy. Only an ideological movement to shift this perception can save the GOP — and such a shift could also help to empower the Libertarian Party.

So let me debunk the myth right now. A look at the Forbes annual list of the richest American and international people shows that many billionaires are not "old money." Many of them are "new money": either self-made rich or the immediate heirs (wives, children, grandchildren) of the self-made rich. Also, many billionaires are women or members of non-white ethnic groups — e.g. the Mexican billionaire Carlos Helu and the women billionaires such as Steve Jobs' widow, Laurene Powell Jobs, and the self-made billionaire Sara Blakely. Thus it is clear that the rich are not an "aristocracy" ruling over the poor and middle class, as leftists and Marxists assert. The rich are merely those people whose merit — hard work, intelligence, and good choices — earned them vast fortunes.

Let me also explain that trickle-down economics is not voodoo; in other words, why the rich being rich helps the poor and middle class. It helps because the rich do not spend all their money on yachts and mansions and caviar (although even their expenditures on luxury create jobs for other people). They need to make their wealth keep pace with inflation, which forces them to invest most of their money. Who do we want to make business decisions about investing in small businesses and entrepreneurs, to decide who receives society's investment capital: people who know finance and economics and take personal responsibility for their decisions, or government officials lost in a mess of bureaucracy and red tape, who experience no personal accountability from gains, losses, and the profit motive?

Capitalism is merely a system in which capital is invested by private people, as opposed to the state. "Wall Street," that much-maligned entity, is the process followed by rich people — and the financial managers who invest money for them — as they make decisions that fund the talented and hard-working middle class. Small businesses are carefully chosen by Wall Street’s investors because they have the capacity to succeed and expand, thus creating more jobs for the poor.

Wall Street is Main Street's best friend, even though most people don't see the complicated economic relationships that form the substructure of a trip to buy a loaf of bread at the local grocery store. Someone made a decision about which grocery stores to invest in, and which bakers to invest in, and the success of those decisions helps determine whether you pay $1.50 for bread, as we can today, or $15.00, as we might in the socialist nightmare of tomorrow. The socialist-leftist-modern liberal dogmas that the rich are a few crusty old white men locked away in the towers of distant mansions, counting gold coins like Scrooge, and that the corporations have enslaved us and the only practical thing is for “working people” to rebel, is totally contrary to the way the world works.

Shatter the leftist myth, and the people won't view another Republican nominee with envy, hatred, and malice, as they viewed the GOP candidate in 2012. It is too late to save the Romney campaign, but the Rand Paul 2016 campaign could benefit from the argument presented above.




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Prostitution and Coercion

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I was recently thinking about why prostitution is illegal. As a libertarian I think that it should be legal, as an extension of people’s absolute right to own their own bodies. But many Americans disagree. If there is a rational, persuasive argument against the legalization of prostitutes (or “sex workers,” as they should be called) it is that a need for money would coerce poor women into becoming sex workers and selling their bodies. Poor women who need money to buy food and pay bills would feel economic pressure to become sex workers, this argument goes, so we need to protect them from coercion by denying them the opportunity to sell their bodies.

Some version of the coercion argument underscores a great deal of anti-libertarian sentiment: poor people will be coerced into selling their organs and body parts, which justifies denying them the right to do so. Poor people are coerced into accepting dangerous, low-paying jobs such as coal mining, or are coerced into working long hours for wages that are lower than what they want. They are coerced into buying cheap high-fat fast food, or are coerced into buying cheap meat, packed at rat-infested plants, and so on. The coercion argument is a thorn in the side of laissez-faire politics, because socialists argue that poor people aren’t really free in a capitalist system where they face economic coercion.

An example of the grave seriousness of the coercion myth is legal scholar Robert Lee Hale’s famous law review article “Coercion and Distribution in a Supposedly Non-Coercive State” (1923). Hale brainwashed generations of law students with his argument that capitalist employers exert coercion upon workers, and socialism would not produce more coercion or less freedom than capitalism. The coercion argument goes far beyond the issue of prostitution; it is crucial for the integrity of libertarian theory that we have a definitive refutation to offer the public. This essay presents two strategies for refuting the coercion argument. I will focus on sex work to develop my ideas, but my arguments extend by analogy to every application of the coercion myth.

Assume that there is a poor woman (or man) who cannot pay utility bills and grocery bills and healthcare bills, and does not want to sell her body, but if she becomes a sex worker will earn enough money to pay the bills. Is this coercion? There are two approaches to arguing that it is not. The first approach is to argue, as a matter of deductive logic, that economic pressure can never amount to coercion, and therefore this scenario does not satisfy the definition of “coercion.” The second approach is to argue that economic pressure can be coercion but that capitalism is better than socialism at preventing the situation in which a poor woman has to do work she hates in order to have enough money. This involves showing why libertarian economic policy will create an abundance of economic opportunity for American working-class women.

In the remainder of this essay I will offer my thoughts on how to use each approach, focusing on the analytical approach first and the empirical approach second. I will argue that economic pressure is not and can never be coercion, because economic pressure does not fit the definition of “coercion.”

What is coercion? My 1998 Oxford Dictionary of Current English identifies it as the noun form of the verb “coerce,” which it defines as “persuade or restrain by force.” Dictionary.com defines “coercion” as “the act of coercing; use of force or intimidation to obtain compliance.” A serious question is whether coercion requires, by definition, physical force or the threat of it. I don’t feel it’s necessary to answer that question. I think a good common-sense definition of coercion is “threats of physical force or psychological intimidation that pressure someone into doing something he doesn’t want to do.”

The coercion argument is a thorn in the side of laissez-faire politics, because socialists argue that poor people aren’t really free in a capitalist system where they face economic coercion.

To make my point, permit me to present what academic philosophers call a “thought experiment.” Imagine an English sailor in the late 1700s who is marooned on a desert island after his ship was blasted apart by cannon fire from a pirate attack. This person washes ashore, explores the island, and finds that he is the only human there. There are some animals and plants and trees, and some land that he thinks could be farmed. This sailor faces a choice. Either he hunts for animals or farms vegetables and perhaps gets enough food to support his life, or he starves and dies. He could choose to seek food, which would require doing a lot of sweaty labor, or he could choose to be lazy and sit around and wait and eventually die. Work or death is the choice that he faces.

Few people would say he was coerced into working the job of hunter or farmer. Why? Because the thing that forces him to work is the nature of reality and the circumstances of the desert island. Coercion is typically regarded as an action, as something that one person does to another person to force the latter to conform to the former’s wishes. Where there is only one person there can be no coercion. Reality can be such that you must do something or face an unpleasant punishment, such as hard work, but reality has no mind capable of intentions and therefore has no intent to pressure you to obey some sort of scheme or plan.

It seems counterintuitive to say that reality coerces you, or that the aspect of reality called a desert island coerced you. It is the nature of reality, of humanity in the state of nature, that you work or die. If the sailor resents being forced to work by the human need for food, in a situation where it is obviously reality itself that poses this requirement, then he is rebelling against reality and the nature of human life. The demands of reality are not coercion; they are merely human existence.

This sheds light on the phenomenon that I call “worker’s rage,” a rage that most people feel sometimes and some people feel most of the time — a fear-fueled hatred of the fact that material success requires hard work and entails the risk of failure. I think that many socialists are motivated at a deep psychological level by the feeling that a strong socialist government could somehow create a magical utopia where there is no risk of failure or any need to do work in order to enjoy material comforts. Money and capitalism have come to symbolize the need to do work in order to survive. But as the desert island thought experiment suggests, the “work or die” condition of human existence is the result of humanity in the state of nature. It cannot be the result of capitalism if it exists someplace where there is no economic system. Thus “work or die” is perfectly natural; it is the condition of humans in the state of nature. The actual cause of worker’s rage is reality and not capitalism.

But now let us change the scenario slightly. Suppose that two sailors are shipwrecked on an otherwise desert island. One sailor, let’s call him John, finds a plot of land and sows some fast-growing fruit seeds and produces an orchard (or, for simplicity's sake, let's say a crop) of edible fruit. This sailor also builds a fence around his land, topped with sharp spikes. This fence cannot be scaled without serious risk of death. The second sailor, James, just sits on the beach, doing nothing but watching the waves.

Now James faces the same situation that the sailor in the first thought experiment faced: either he works or he dies of starvation. The new wrinkle is that if John were to give some of his fruit to James, then James would have a third option, to eat John’s fruit, not work, and not starve to death. Let us assume that James asks John to give him some fruit, and John says “no” and refuses to open the gate to his fence to let James in. Has John coerced James?

Here, for reasons similar to those of the first hypothetical, it's difficult to say that John has done anything to James that constitutes “coercion.” In the first place, there isn’t anything that John wants James to do. Therefore there is no intent or plan of John for James to conform to. We can hardly say that John coerced James into doing something when there is nothing that John wanted James to do.

The demands of reality are not coercion; they are merely human existence.

In the second place, if James dies from starvation, it will not have been John who killed him. Everything bad that could happen to James (such as starvation), will have been caused by the island, by the circumstances of not having an abundance of free food waiting to be taken, and by James’ own decision not to work. There is no threat from John directed at James, and any harm that befalls James will not have been caused by John. James’ death by starvation will have been caused by his own decision, combined with the nature of reality and of human beings, and the laws of physics and biology. Of course, John can prevent James’ death by giving him free fruit, but if he doesn't, he has still not taken any direct action toward him, so it can’t truly be said that John caused anything that happened to James.

“Ah, but John built that fence, and in so doing he murdered James!” the hardened socialist will say. If you don’t believe that anyone would seriously claim that the protection of private property constitutes coercion against the poor, let me inform you that the Robert Hale essay used precisely that argument.

My reply is that, in the first place, coercion requires the use of force or threats, at the very least to reduce freedom of choice. James’ freedom of choice has not been reduced. He is free to hunt, farm, sit on the beach, or do anything else he wants to do. John has done nothing to interfere with James’ freedom. Coercion is what would happen if John aimed a gun at James’ head and said, “Sing and dance or I will shoot you in the head.” That is what the government does when it gives orders to be enforced by the police and the army. John's staying behind his fence, farming and minding his own business, while James does whatever he wants on the other side of the fence looks nothing like coercion. John is not doing anything at all to James, and therefore is not “coercing” him.

The only thing that John prevents James from doing is invading his land and stealing his fruit — actions that are not properly within James’ scope of freedom. It strains credulity to think that protecting property that you have the right to own is coercion against people who try to steal it from you. If James were to steal John’s fruit, then James would be feeding off John as a parasite, and John would become James’ slave. James would be using force to steal from John. John’s attempt to prevent him from doing so, by building a fence, is not the aggressive initiation of force; it is merely self-defense. Self-defense protects the defender’s own freedom of action; it in no way pressures or controls the attacker. As can be seen from this example, James’ freedom of action and his ability to survive are in no way impeded. The only thing the fence does is prevent James from stealing from John. Even if John had fruit to spare, which he could give to James without missing it, the fact remains that John has done nothing to control or pressure James. If James cuts a hole in the fence and steals fruit from John, then one might say that James used violent force to coerce John into growing fruit for James to eat, and that James is trying to force John to stand between James and reality so that James can escape from the fact of having to work or starve. But it is reality and the desert island that punish James for his lazy choices.

John faced a risky situation. If he had chosen to reap his crop too late in the summer, a tropical storm might have wiped it out and condemned him to death. James wants to avoid the risks of having to make such choices. He wants to steal the bounty of John’s good choices, acting on the ground that John does not need all the fruit, but he himself does. This is robbery. For John to build a wall to prevent James from robbing him does not force James to make any of the choices available to him. The fence merely prevents James from exploiting John’s choices. Thus, John’s fence cannot reasonably be interpreted as a form of coercion.

Coercion is what would happen if John aimed a gun at James’ head and said, “Sing and dance or I will shoot you in the head.”

Now consider a third thought experiment. Assume that John and James are both stranded on the island, and that John has grown crops and built a fence, while James lies on the beach and enjoys the cool breeze in his hair. James asks John to give him some fruit, and John says "no." But now, with this third and final fact pattern, let us assume that John tells James that he would be willing to give him some of his fruit if in exchange for it James would be willing to do something for him. Here at last we have some elements that suggest the possibility of coercion: John has some purpose or intent that he wants James to fulfill, and James can avoid death by starvation, at least for a few days, if John gives him that fruit. The socialist would say that John has the power to coerce James with the threat of not giving him the fruit, and therefore John can pressure James into doing what James does not want to do. This is the heart of the coercion argument.

But let us look more closely. John does not want James to obey him blindly. John is proposing a trade whereby James does something for John (some sort of sex work, let us assume), and in exchange John gives something of value to James. This would be a free trade of value for value. John does not really want James to “obey.” He wants James to make a rational economic decision in which he gives John something of value to John, in exchange for something of value to James. When a baker gives twenty pizzas to a mechanic and receives a bicycle repair in return, both sides receive something that they wanted or needed more than the things that they traded away, so both sides end up happy. In a free trade both sides are always better off, at least in the sense that they always get what they want or what they choose, because if you don’t think you will be better off from making a trade you simply walk away from it.

But the socialist says that James cannot simply walk away. He says that James has no other choice than to make this deal, because John is the only farmer on the island and so owns all the fruit, and James might die if he refused John’s terms. But if we look at the scenario carefully, we see that nothing has fundamentally changed from the first and second scenarios. What will kill James is the desert island and starvation, not John; there is no aggressive physical force used by John against James. James is free to go off to another part of the island and build his own farm, and John is not restricting any of James’ abilities, with the single exception of his ability to steal. John owes nothing of his fruit to James. He would therefore be fully justified in not giving any of it to him.

Having established that James has no right to John’s fruit, we can see that it is good for James that John offers to trade some fruit in exchange for some work. Unless John chooses to give some of his fruit to James, there is no reason why James should be entitled to any of John’s fruit, so it is perfectly right and ethical for James to have to come up with some value he can give to John in order to make John freely and voluntarily give some of his fruit to James. It simply isn’t true that John is threatening James or trying to intimidate James, because James’ danger of starvation is caused by the island and not by John, and John is not doing anything to prevent James from going off and doing anything he wants, including starting his own farm.

Capitalist freedom is the only kind that lets you make your own decisions rather than having someone else run your life.

Whether or not there is “unequal bargaining power,” as socialist lawyers like to say, is irrelevant. The fact remains that John has every right to make a proposal that James is free to accept or reject. John is free to accept or reject James’ request, and James is free to accept John’s offer or reject it and face the consequences of the dangers of life on planet Earth.

James’ freedom to choose is real and substantial. The socialists say in a capitalist system a poor person’s freedom illusory. Actually, however, capitalist freedom is the only kind that lets you make your own decisions rather than having someone else run your life. This freedom benefits everyone, rich and poor alike. When the socialists say that James’ alternative to accepting John’s offer is death, what they mean is that they don’t want James to have to do the work and take the risk of starting his own farm. They want to use their guns to tear down John’s fence and let James steal from John so that James won’t have to face risk and make choices, as is proper for a human being trying to cope with the harsh problems of life on earth.

My inquiry thus far has been about whether John is coercing James, not whether John should give James charity voluntarily and out of compassion. Obviously he should; in most cases it is a sin to let other people die, especially if you can help them without putting yourself in danger and they have not committed any morally repugnant crimes. And in a real market economy there is always competition, so no businessman can ever have the kind of monopoly on trade that John does. But I stand by the arguments presented above, which show that John’s offer of money for sex is not coercion. Leftists equate the mugger’s “your money or your life” with the employer’s “work for me on my terms or I won’t pay you, in which case you might starve.” The difference is that the former is a threat of murder, whereas the latter is merely the expression of “work or die,” a reiteration of the natural condition of human life. To say that in practical terms the cases are identical is to ignore every word I wrote in this essay. And where there is no threat there can be no “coercion.”

I will now shift gears and present the second approach to refuting the coercion myth, which is the empirical factual approach. This approach allows that economic pressure might be coercion, but libertarianism would actually produce less economic pressure than statism and would therefore be preferable.

The first step is to frame the question properly, in this way: assuming that economic pressure is coercion, which is the economic system that produces the least economic coercion and the most economic freedom? Is it the capitalist libertarian system, which would legalize prostitution, or is it the socialist, protectionist, statist system, which criminalizes prostitution and uses either central planning or a welfare state? Also, assuming that neither capitalism nor socialism has the ability to erase all poverty (poverty being, after all, a relative term), the question is not which system will eliminate coercion; the question is which system will minimize coercion, because that is the achievable goal.

The logic of this argument must begin with a key observation. Even if prostitution is illegal, poverty will still put pressure on poor women to become sex workers. Criminalization makes prostitution more dangerous and therefore a less attractive choice, but it does not completely prevent poverty from coercing women into becoming sex workers. The widespread existence of sex workers in America proves just how ineffective the ban is. Therefore, whether or not prostitution is illegal doesn’t factor heavily into this analysis; the crucially important question is whether capitalism or socialism is more efficient at creating jobs for poor women.

So long as poverty exists and sex work is a way to make money, there will be economic pressure for women to become sex workers, so one might think that legalization of prostitution would necessarily increase coercion. But libertarianism is not the reason why sex work is repulsive to some women — or why it frequently pays well. That has its roots in human nature and the nature of sexuality. Assuming that the availability of other jobs is the best way to decrease economic pressure, it is perfectly reasonable to examine libertarianism and statism to try to determine which one would be better at providing more choices for women. We can say that a system in which most poor women are not forced to become sex workers is one that is not generally coercive.

The question is not whether it is capitalism or socialism which will eliminate coercion; the question is which system will minimize coercion, because that is the achievable goal.

The explanation for why, under laissez-faire capitalism, there will be more opportunities for the poor than under socialism is that in a capitalist system the entrepreneurs and business owners depend on the skill, talent, intelligence, and hard work of their employees in order to compete. The manager can’t do everything, so if the employees do a bad job, the business fails. Thus, management must always be searching for people who will do a good job, and seeking them wherever they may be found. An employee who is smart and works very hard is valuable. Employers will hunt for and abundantly reward productive employees. If a poor woman chooses to work hard and be a good employee, under capitalism she is likely to find a non-sex-work employer who will hire her. The public education system traps the poor in poverty by giving bad educations to children who can’t afford private schools; but privatization of education, using a voucher system, can solve this problem, and we can assume this as a feature of the libertarian system we are considering. We can also assume that wealthy people would support banks willing to give student loans to well-qualified poor people in order to develop the workforce necessary to compete with rivals.

More wealth in an economy and a higher average standard of living create more opportunities and career choices for everyone, including poor women. Capitalism is simply more efficient at producing wealth than statism, because it is better at providing the incentives that motivate people to be productive. Because free-market capitalism will create more career choices for poor women than statism, they will actually feel less economic pressure in a libertarian society than they would under socialism. Banning prostitution, on the other hand, simply eliminates a way to make money. A ban does nothing to solve the problem of poverty or to reduce the pressure to take unpleasant jobs.

One variation of the coercion argument is that a woman might choose to become a sex worker, but she would not want to if she had a choice (or, to be more precise, if she had money), and therefore the government should make her choice for her. This argument claims that protectionism actually increases freedom by giving people the situations that they would have chosen if they had been free to choose. But no one's choices can be predicted; the human mind is too complex for that. The only way to know what choice someone would make is to give her the freedom to choose, then see what choice she ends up making.

Outlawing prostitution does not magically solve the problem of poverty or help poor women pay their bills.

If a woman (or, again, a man) is horrified by the idea of becoming a sex worker, in a libertarian society she would be free to seek another job and persuade some employer that she would be a good worker and should be hired. F.A. Hayek's famous argument in The Road To Serfdom is that when people face a difficult choice (such as whether to become a sex worker or else have money trouble), they often want the state to eliminate this choice; but if the state destroys their freedom to choose, it has not eliminated the problem of a difficult choice. It has merely made that choice for the people instead of letting each person choose for herself. The poor woman who does not want to become a sex worker but who faces money problems must sometimes make a difficult choice, but outlawing prostitution does not magically solve the problem of poverty or help poor women pay their bills. It merely deprives women of the possibility of becoming sex workers if they wish.

There would probably be a sharp increase in sex work if prostitution were legalized. But there is no reason to assume that such an increase would be caused by coercion, not by the freedom accorded to women who would view sex work as comparatively easy money. There are some human beings who view sex as a physical act devoid of emotional or spiritual significance and who would view sex work and washing dishes as comparable. The idea that no woman could possibly want to become a sex worker is rooted in a very conservative, old-fashioned religious ideology. The state has no right to take the religious views of some people and force them upon others, particularly in light of the First Amendment's separation of church and state.

Looking beyond prostitution to broader issues of coercion, it is also worth remembering Hayek’s classic argument that when government makes people’s choices for them, there is but one authority that everyone must depend on, whereas in free-market competition there are hundreds of thousands of employers and millions of sales and deals happening constantly. The government has the power to coerce you by using its guns to force you to obey, but no capitalist can own every business or control every job. A worker under capitalism always has options and choices. If a woman faces poverty and hates the prospect of becoming a sex worker she is free to seek another job, and if one employer refuses to hire her then she can apply for positions with fifty others. The number of employers it is feasible for any one person to seek employment from, and the costs and sacrifices that any person must make in order to find a job, are real factors, real, empirical questions that vary for each individual. Some people may need to move to find a job, or to make other adjustments in their lives, just as they often do when seeking a spouse, getting an education, and so forth. Generally, however, in competitive capitalism there will be many more choices than in a socialist system.

To conclude: economic pressure is not coercion, but even if it were, libertarianism would produce less coercion than statism. Opposing arguments are common in American culture, especially among leftist or Marxist intellectuals and people influenced by them. The coercion argument is the foundation of many socialist illusions. It is the justification for laws that attempt to protect people from the tough choices that they would feel pressured to make in a free market. The truth is, however, that when the government tries to protect us by eliminating our freedom, that action is coercion. Libertarian capitalism, in which people can make whatever choice they want, is freedom, and freedom is a good thing. I hope that this essay’s framework — a double-barreled shotgun approach to refuting the coercion myth, with one barrel comprised of analytical deduction and another barrel coming from empirical fact — is a step in the right direction on the path toward replacing the state’s coercion with the people’s freedom.




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Defending Capitalism against Ayn Rand

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The titles that Ayn Rand assigned to the three parts of Atlas Shrugged proclaim her insistence that logical contradictions cannot exist in reality. By contrast, the title of the magnum opus of the ultimate charlatan in Atlas Shrugged, Simon Pritchett, is The Metaphysical Contradictions of the Universe. Francisco d’Anconia and Hugh Akston explain to Dagny Taggart that whenever someone thinks he has encountered a contradiction, he must check his premises, and he will find that one of them is wrong (I.9, 7, 10).1

In this essay, I will follow d’Anconia’s and Akston’s advice. I will show that a fundamental contradiction pervades Atlas Shrugged because Rand failed to check her premises. She thought that the heroes she created were exemplars of pure, uncorrupted capitalism. In fact, the heroes she created in Atlas Shrugged came from her sense of life, which was not only un-capitalist but anti-capitalist. I will also show that this contradiction is extremely fortunate because it illuminates why capitalism is the most efficient and humane economic system ever implemented.

Rand often emphasized the importance of a person’s “sense of life” and of art as its expression (e.g., Rand 1975: 31, 33, 44). She defined her sense of life and its artistic expression most clearly in an essay she wrote on Victor Hugo (1975: 153–61). In it she said, “Victor Hugo is the greatest novelist in world literature” because his characters are “a race of giants,” who are not concerned with “penny ante.” “‘Grandeur’ is the one word that names the leitmotif . . . of all of Hugo’s novels — and of his sense of life.”

The heroes Rand created in Atlas Shrugged came from her sense of life, which was not only un-capitalist but anti-capitalist.

In Atlas Shrugged, Rand created heroes who embodied her sense of life and described how such heroes would fulfill their heroic natures if they engaged in economic activities. She thought that the sum of their economic activities and interactions provides a template of what laissez-faire capitalism would be like. She was wrong. When the heroes who embody her sense of life engage in economic activities, they function like Communist administrators, not capitalist businessmen.2

To paraphrase Rand, “Grandeur is the one word that names” the sense of life of Communist economies. They had no concern with anything “penny ante.” In the 1980s, when the economy of the Soviet Union was disintegrating, it was producing between 1.5 and two times more steel and cement than the United States and generating more electricity; it also had 2.5 times more machine tools. However, buttons, clothespins, babies’ pacifiers, and thermometers were always extremely difficult to find in the Soviet Union (Shmelev and Popov 1989: 82, 132, 144). Toilet paper and toilet seats were such rare and precious commodities that when McDonald’s opened a restaurant in Moscow, in 1990, its employees had to guard its restrooms to prevent customers stealing toilet paper and toilet seats (Goldman 1991: 166). The Soviet Union’s heroic economy also did not provide contraceptives or a single practical guide to contraception. As a result, Soviet women averaged at least four legal abortions during their lives; and the average was higher in the non-Muslim regions of the Soviet Union. In addition, large numbers of illegal abortions were performed. Anesthetics could be obtained only by a large bribe (Feshbach and Friendly 1992: 208–9).

In Rand’s novel The Fountainhead, the villain, Ellsworth Toohey, completely destroys Catherine Halsey’s soul, and the visible sign of her corruption is that her mouth has adapted to giving orders, “not big orders or cruel orders; just mean little ones — about plumbing and disinfectants” (IV.10). Toohey has turned her into the opposite of a Communist. The Communists gave big, cruel orders and had no concern with mean little considerations. The heroes of Atlas Shrugged are heroic because, like Communist bureaucrats, they produce or maintain impressive products, not mean little ones. It would be unimaginable for a Rand hero to be a manufacturer of “penny ante” products, such as disposable baby diapers, menstrual tampons, or dependable contraceptives. But these distinctively 20th-century inventions improved the quality of life immeasurably by freeing people from preoccupation with brute, animal existence.

Most services would be included among “mean little” occupations. The Communists’ heroic obsession with production caused them to ignore services, which, with a few exceptions, they did not even include in their gross domestic product statistics. In fact, Marxists always used the term “the means of production” as a synonym for “the economy.” In modern capitalist countries, most businesspeople provide services. With one exception that I will discuss below, the only service that a hero in Atlas Shrugged provides is running railroads. This is clearly not a “mean little” occupation, and it was one of the few services that the Soviet Union included in its gross domestic product statistics (weight of freight times kilometers carried).

Moreover, Rand ignored all services in her representation of history (1963: 10–57) as a battle between Attila and the Witch Doctor and their antithesis, the Producer. Indeed, her practice of using “industrialist” as a synonym for businessperson excludes businesspeople who produce “penny ante” products, along with those who provide services. In his long speech in Atlas Shrugged, John Galt (i.e., Ayn Rand) says, “Productiveness is your acceptance of morality . . . productive work is the process by which man’s consciousness controls his existence, a constant process of . . .  shaping matter to fit one’s purpose, of translating an idea into physical form, of remaking the earth in the image of one’s values;” and, “the industrialists, the conquerors of matter” “have produced all the wonders of humanity’s brief summer” (III.7).

It would be unimaginable for a Rand hero to be a manufacturer of disposable diapers, tampons, or dependable contraceptives.

It is true that the great philosopher Hugh Akston owns a diner and cooks its food, which he does with extraordinary skill, making “the best-cooked food she [Dagny] had ever tasted” (I.10). However, Rand does not let this fact affect her conceptualization of productive work when Galt tells Dagny, “We take nothing but the lowliest jobs and we produce by the effort of our muscles” (III.1).3

In her short story “The Simplest Thing in the World” (1975: 173-85), Rand depicts a writer of fiction who cannot make a living because he has the same sense of life as Rand. The writer decides he has to create the type of story that will sell: “a simple, human story,” which consists of “lousy bromides.” “It mustn’t have any meaning,” and its characters must be petty because “[s]mall people are safe.” However, he is incapable of writing such a story. Every time he tries, his sense of life thwarts his conscious efforts, and he starts composing a story about heroes. The reason, as Rand explains in her introduction, is that his “sense of life directs . . . and controls his creative imagination.” To exemplify this fact, he begins to write “a story about a middle-aged millionaire who tries to seduce a poor young working girl.” He is “a big tycoon who owns a whole slew of five-and tens [i.e., discount stores].” But the author cannot write this story. As he develops the story in his mind, his sense of life makes him forget about the girl and transform the villain into a hero. As part of the transformation, he says to himself, “to hell with the five-and-ten!” The hero now builds ships because he is driven by “a great devotion to a goal.” He is motivated by “a great driving energy . . . the principle of creation itself. It’s what makes everything in the world. Dams and skyscrapers and transatlantic cables.” “[H]e wants to work — not to make money, just to work, just to fight” (emphasis added). So, an author with Ayn Rand’s sense of life could not make the hero of his works a retailer, no matter how successful he might be; not even Sam Walton, who founded Walmart and built it into the company with the greatest revenue of any company in the world.

Because the Soviets had the same sense of life as the author in this short story (i.e., the same as Rand), they were extremely proud of the enormous hydroelectric dams they built, and their retailing was horribly inefficient. In the Soviet Union, people had to wait in long lines for any purchase. If someone had time to spare, he would wait in a line to buy something he did not need, in order to barter it with someone who had waited in another line to buy something else. When McDonald’s opened its first restaurant in Moscow, it set all records for number of customers: 40,000 to 50,000 a day, even though its food cost twice as much as the food in state-run cafeterias. It had twenty-seven cash registers. In Communist countries, the length of a line of customers showed how valuable the merchandise was at the end of that line. So, McDonald’s had to have ushers to tell customers not to go to the longest line (Goldman 1991: 166–7; Blackman 1990).

The opening of this first McDonald’s — an event that, as much as any other, marked the end of Communism — illustrates another serious defect in Communist-Objectivist ideals. A small notice in a Soviet newspaper drew 27,000 applicants for jobs as counter clerks, even though the anticipated salary was only average by Soviet standards. Those who were chosen had to be trained to smile at customers and speak politely to them. Their training was so successful that customers could not believe that the clerks were Soviet-raised Russians (Blackman 1990; Goldman 1991: 166–7).

An author with Ayn Rand’s sense of life could not make the hero of his works a retailer, no matter how successful he might be.

Rand used “grocery clerk” to symbolize the antithesis of her ideal (1964: viii; 1975: 84). In her first novel, We the Living, when the heroine, Kira, sees her future lover Leo for the first time,she observes that “[h]is mouth . . . was that of an ancient chieftain who could order men to die, and his eyes were such as could watch it.” However, Leo says to Kira, with bitter humor, “I’m nothing like what you think I am. I’ve always wanted to be a Soviet clerk who sells soap and smiles at customers” (I.4). Again, Rand reversed Communism and capitalism. Men who could order others to die and watch their death calmly characterized Communism. Smiling clerks, who sell unimpressive products, characterize capitalism.

When Nathaniel Branden was the official Objectivist expert on psychology, he wrote, “[P]roductive work is the process through which a man achieves that sense of control over his life which is the precondition of his being able fully to enjoy the other values possible to him … [P]roductive . . . achievements lead to pride” (“Self-Esteem: Part IV,”The Objectivist, June 1967). Branden, as he himself later realized, was exaggerating. But he was exaggerating a truth. A feeling of control over one’s life and pride in productive achievements are certainly wonderful feelings. They can derive directly from the type of work done by Communist administrators and the heroes of Rand’s novels, especially if, like Howard Roark, they have an uncapitalist indifference to money and accept only those projects that appeal to them. However, a feeling of control over one’s life and pride in achievements do not follow directly from the type of work that most people in a capitalist society do: salesmen, accountants, insurance brokers, bank clerks, and manufacturers of “penny ante” products, like clothespins and underpants.

Nearly all readers of Rand’s novels, even those who disagree with her philosophy, recognize that she was a brilliant novelist. But not even her brilliance as a novelist could have made a gripping, inspirational novel about the work that is done in distinctively capitalist occupations, occupations that do not exist in Communist countries, such as advertising or being a real estate agent. In fact, the first jobs of the odious Wesley Mouch were in advertising (Atlas II.6).

Let us consider briefly the novelist whom Rand (1975: 119) regarded as the best of the naturalists, Sinclair Lewis. When Lewis wanted to write novels about admirable protagonists, he made them a dedicated research scientist (Martin Arrowsmith) and the president of a car company (Sam Dodsworth), who began his career as assistant manager of production. When Lewis wanted a pathetic protagonist, he made him a real estate agent (George Babbitt). Babbitt, like Dodsworth, is successful at his work. But Lewis says in the first chapter that Babbitt “made nothing in particular, neither butter nor shoes nor poetry;” and he “detested the grind of the real estate business, and disliked his family, and disliked himself for disliking them.”

The discussion so far illuminates a crucial benefit of the love of money. It entices people into occupations that they may not find interesting or inspiring, but are socially necessary; and it exerts constant pressure on business owners to provide what the public wants, not what they enjoy doing.

In all of Rand’s novels, only one business owner completely embodies the capitalist ethos. That is the press tycoon Gail Wynand, in The Fountainhead, who becomes fabulously rich through selfless service to the public, by providing it with what it wants: a lowbrow, sentimental, lurid newspaper. As he says (IV.11), he has led a life of “[s]elflessness in the absolute sense.” He “erased [his] ego out of existence” by following the principle, “Give the greatest pleasure to the greatest number.” However, according to Rand, Wynand is guilty of the most horrible sin in her moral universe: betraying himself.

Men who could order others to die and watch their death calmly characterized Communism. Smiling clerks, who sell unimpressive products, characterize capitalism.

Wynand’s opposite is Nathaniel Taggart, in Atlas Shrugged, who is supposed to be the archetypal capitalist. As Dagny recalls (I.8), “He said that he envied only one of his competitors, the one who said, ‘The public be damned!’” Nothing could be more antithetical to the motivation of a successful business owner in a capitalist society. This is the ethos of the head of a production unit in a Communist economy, who derives exhilaration and pride from productive achievement without regard to providing the public with what it wants.

Rand’s story “The Simplest Thing in the World” is an excellent illustration of this point. It assumes that an author with Rand’s sense of life is compelled to create a protagonist who does not work for money and therefore chooses to build ships instead of discount stores. This contrast is factually accurate. Someone motivated by money would not consider shipbuilding as a business career since, in economically advanced countries, shipbuilders can stay in business only by means of tariff protection or government subsidies or both. But he would certainly consider the business of discount stores, since they have proved to be the most profitable (i.e., socially useful) branch of retailing.

The economic role of money in constantly driving economic participants to provide the public with what it wants is related to an admirable moral attribute of the free market. It is completely democratic and non-coercive; no one can interfere with other people spending their money on what they want. In her essay “What Is Capitalism?” (1967: 17, 20) Rand showed that she was fully aware of this fundamental attribute of capitalism (the italics are Rand’s):

[T]he works of Victor Hugo are objectively of immeasurably greater value than true-confession magazines. But if a given man’s intellectual potential can barely manage to enjoy true confessions, there is no reason why his meager earnings, the product of his effort, should be spent on books he cannot read.

The tribal mentalities attack this principle . . . by a question such as: “Why should Elvis Presley make more money than Einstein?” The answer is: Because men work in order to support and enjoy their own lives — and if many men find value in Elvis Presley, they are entitled to spend their money on their own pleasure.

It is the Gail Wynands who provide true-confessions magazines and Elvis Presley CDs.

At this point, many readers will object that Ayn Rand appreciated the value of money. She ended Atlas Shrugged with its hero tracing the sign of the dollar in space, made a gold dollar sign Atlantis’ “coat of arms, its trademark, its beacon” (III.1), and herself often wore a gold dollar sign pinned to her dress.

Yet in The Fountainhead, Toohey asks Peter Keating about Roark (II. 4), “Does he like money;” and Keating replies No. But long before that, the reader has learned that Roark’s abnormal indifference to money is one of the essential characteristics that make him the hero of this novel. Indeed, in “The Simplest Thing in the World,” Rand assumed that an author with her sense of life must write only about heroes who do not care about money.

Rand assumed that an author with her sense of life must write only about heroes who do not care about money.

In Atlas Shrugged, Rand sometimes has her heroes claim that their goal is to make money. At the opening of the John Galt Line, which is by far the greatest achievement of both Dagny and Hank Rearden (I.8), a reporter asks Dagny her “motive in building that Line.” She answers, “the profit which I expect to make.” Another reporter cautions her, “That’s the wrong thing to say.” But she repeats it. Yet before her trip begins, she looks at the crowd that has gathered and notices that they are there, not because these people expect to make a profit, but “because the sight of an achievement was the greatest gift a human being could offer to others.” The description of the ride on the John Galt Line is the most exhilarating fiction writing I can recall reading; and I have read a great deal of narrative fiction, in ancient Greek, Latin, English, and French. For Dagny, “It was the greatest sensation of existence; not to trust, but to know.” “She felt the sweep of an emotion which she could not contain, as of something bursting upward.” And what about the engine drivers? Every one of them who was available volunteered to drive the train despite persistent warnings of danger. Surely, they were not motivated by money.

At least in their economic interactions, money should be the primary consideration of the heroes of a novel that ends with the dollar sign traced in the air. In Part I, Chapter 1, Dagny’s parasitical brother James says to her, “I don’t like Hank Rearden.” Dagny replies, “I do. But what does that matter, one way or another? We need rails and he is the only one who can give them to us.” James Taggart, typically of him, replies, “You have no sense of the human element at all.” This conversation crystallizes capitalist and uncapitalist mentalities.

Nevertheless, the economic decisions of the heroes of Atlas Shrugged are constantly motivated by the human element. That is true even of the one major character in Atlas Shrugged who is a pure capitalist, Midas Mulligan. He says he joined the strike because of a vision, in which he “saw the bright face and the eyes of young Rearden . . . lying at the foot of an altar . . . and what stood on that altar was Lee Hunsacker, with the mucus-filled eyes” (III.1). In Part II, Chapter 3, Francisco asks Rearden: did you want the rail you made for the John Galt Line used by your equals, like Ellis Wyatt, and by men such as Eddie Willers, who do not match your ability but who “equal your moral integrity” and “riding on your rail — give a moment’s silent thanks”? Rearden answers Yes. Francisco then asks, “Did you want to see it used by whining rotters?” Rearden answers, “I’d blast that rail first.” Francisco then explains that by "whining rotter" he means “any man who proclaims his right to a single penny of another man’s effort.” But no economy, whether socialist or capitalist, could function for one day if producers acted in this way. In Part II, Chapter 10, Dagny says that Nathaniel Taggart, supposedly the archetypical capitalist, “couldn’t have worked with people like these passengers. He couldn’t have run trains for them.” But no one running a train line, even in a socialist economy, could possibly consider the moral worth of its passengers, or any consideration besides their paying for the ride.

No one running a train line, even in a socialist economy, could possibly consider the moral worth of its passengers, or any consideration besides their paying for the ride.

I will conclude with the most frequently quoted explanation of why the market is the most effective means of providing people with what they want. It is by Adam Smith, in Book I, Chapter II of The Wealth of Nations: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard for their own interest. We address ourselves . . . to their self-love.” Butchers, brewers, and bakers had a very low priority in Communist countries. When McDonald’s opened its first restaurant in Moscow, it had to train its own butchers (Goldman 1991: 166). It is also unimaginable for an Ayn Rand hero to be a butcher, brewer, or baker. The self-interest and self-love that induces people to become butchers, brewers, and bakers and to perform those jobs well is totally different from the heroic self-love of Rand’s heroes. It is an unheroic desire to support themselves and their families in comfort and security.

In her essay “What Is Capitalism?” Ayn Rand showed that she understood as well as Smith why love of money is wonderfully socially beneficial. In her fiction, however, her anti-capitalist sense of life obliterated that knowledge.

***

Footnotes
1. I cite passages in Rand’s novels by the part of the novel in which they occur and the chapter in that part. I do not cite page numbers because there are many editions, and each has different pagination from the others.
2. I write “Communist” with a capital “C” to indicate a member of a Marxist-Leninist Communist Party. Many people have championed a communist society (with a small “c”), beginning with the first two extant projections of an ideal society: Plato’s Republic and Aristophanes’ Ecclesiazusae, both from the 4th century BC.
3. Several of the heroes provide services while they are in Galt’s Gulch. But these jobs are merely stopgaps until they return to the world and use their talents again in their real work.

Bibliography
Blackman, Ann 1990: “Moscow’s Big Mak Attack.” Time (February 5).
Feshbach, Murray and Friendly, Alfred Jr. 1992: Ecocide in the USSR: Health and Nature under Siege. London: Aurum Press.
Goldman, Marshall 1991: What Went Wrong with Perestroika. New York: W.W. Norton & Company.
Rand, Ayn 1963: For the New Intellectual. New York: Signet.
Rand, Ayn 1964: The Virtue of Selfishness. New York: Signet.
Rand, Ayn 1967: Capitalism: The Unknown Ideal. New York: Signet.
Rand, Ayn 1975: The Romantic Manifesto, revised edition. New York: Signet.
Shmelev, Nikolai and Popov, Vladimir 1989: The Turning Point: Revitalizing the Soviet Economy, translated by Michele A. Berdy. New York: Doubleday.


Editor's Note: This article is part of a much longer monograph with the same title. It can be obtained from the author at stevenfarron@gmail.com.



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Memo to Obama: Here’s How the Market Works

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President Obama is running a political campaign as predictable as it is despicable. It is based on attacking capitalism. “Markets never work, government always does” appears to be his meshuggeneh mantra. As it happens, two recent Wall Street Journal stories illustrate the free market (disparagingly called “capitalism” by its opponents) in action. Obama might want to reflect on them, though it is doubtful that he often reflects on anything — he seems to be the epitome of a reflexive instead of a reflective person.

The articles, appearing on the same day and the same page, report on the impact of the fracking revolution in natural gas production, a revolution that has dramatically decreased the price of natural gas — by nearly half in the last year alone.

The first article reports some good news about the rock-bottom prices for natural gas. The price is inducing companies with trucking fleets to switch from diesel to natural gas (NG) — either compressed (CNG) or liquefied (LNG).

For example, Waste Management is now buying NG trucks. It plans to make 80% of the new trucks it buys over the next 5 years NG trucks. The NG trucks cost about $30,000 more than ordinary diesel trucks, but save more than $27,000 a year in fuel expenses. Ryder Systems, a truck leasing company, is making the same move, with one of its vice presidents saying, “The economics favoring NG are overwhelming.”

Other corporations shifting their truck fleets to NG include such huge players as UPS and AT&T.

The article notes the standard problems facing fleets looking to convert to NG, such as the need for bigger tanks, and especially the lack of CNG or LNG fueling stations nationwide. But as the fracking gas revolution continues apace, it is likely that the price of natural gas will remain extremely low compared to diesel, so will tempt more and more gas stations to offer NG fueling pumps. And the article doesn’t note how much cleaner NG is than diesel, which means that as air pollution laws continue to tighten, the cost of diesel trucks will go up. Nor does the article note that as more fleets convert to NG, the price of NG trucks will start to fall as production of them cranks up.

On the bad news side, the companion piece reports that natural gas “giant” Chesapeake Energy has been beaten up by the low price of its product and is now investing heavily in unconventional drilling for shale oil. Specifically, Chesapeake is focusing on the huge Utica shale formation lying under the state of Ohio, betting billions to buy leases for drilling rights to about 5% of the state’s land.

This is either ballsy or balmy, depending on your tolerance for risk. The Utica field is estimated to contain between 1.3 and 5.5 billion barrels of oil, but the company has drilled only 59 wells, and of the nine about which it has released data, the information shows that oil is but a third of what is provided — the rest being mainly that damned cheap natural gas!

All this simply illustrates the view of pricing that Hayek and Kirzner enunciated: that pricing is an information transmission mechanism — more simply, a language. The price of a product tells both producers and consumers how to alter their behavior and plans for the future. When the price of natural gas went up not so long ago, it told producers to produce more, and they did — in spades! Now that it has plummeted while the price of oil has remained relatively high, it tells consumers to switch to it, and it tells producers of natural gas and oil to shift capital from producing the former to producing the latter.

All this would be illuminating to Obama, were he a man capable of illumination. But he isn’t, so it won’t.




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Who Axed the Lorax?

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It’s no secret that Theodor Geisel (Dr. Seuss) leaned a little to the Left. His delightful, whimsical books often had an underlying tone that was anti-war, anti-tyrant, and anti-pollution. Or, to spin it more favorably, he wanted peace, freedom, and cleanliness.

Seuss' The Lorax (1971) made a strong case for cleaning up the environment. It tells the story of a zealous young businessman, the Once-ler, who comes across a pristine forest of “Truffula Trees” and immediately begins chopping them down to use their silky leaves to make “thneeds” (the Seussian equivalent of an all-purpose Widget). His irresponsible use of natural resources damages crops, dirties the air, and mucks up the water, causing the original inhabitants — the bear-like Barbaloots, birds, and fish — to move away in search of cleaner climes.

There is nothing subversive or socialistic about this charming little story. Libertarians, in fact, should welcome a story that privileges property rights (the critters, after all, were there first) and individual responsibility (the book ends with “unless someone like you / cares a whole awful lot, / nothing is going to get better. / It’s not.”) Basically Dr. Seuss is saying, “Play nice. If you make a mess, clean it up. If someone was there first, wait your turn. Be responsible for your actions.”

Now Disney Studios has turned this gentle story about personal responsibility into a diatribe against individuality, free markets, and the entire capitalist system, with its animated version of the tale. They call it Dr. Seuss's The Lorax, but that's a misnomer. This is Hollywood's The Lorax, through and through. And it's an insidious shadow of the original story. The only thing missing from this indoctrination piece is a Five Year Plan.

In this movie, private ownership is bad. Very bad. Even if you provide a comfortable standard of living.

The film version begins 50 years after the books ends, in the community of Thneedville, which is run by a crony capitalist named O’Hare (Rob Riggle). The new story is reminiscent of The Truman Show (1998); the residents of Thneedville live inside a bubble city, oblivious to the desolation and pollution that exist just outside their city walls and ceiling. Inside, "everything was plastic and fake and they liked it that way." Somehow, they manage to enjoy a happy middle class standard of living, despite the fact that no vegetation exists and no one seems to work or produce anything. This is probably the most puzzling part of the film: if life is so bad, why does it seem so good? Apparently, ignorance really is bliss.

O’Hare controls the town, although he doesn’t seem to be an elected official. (We can’t have a government figure as a bad guy in the new Disney universe!) Apparently O’Hare simply owns the town, as well as everyone and everything in it. In this movie, private ownership is bad. Very bad. Even if you provide a comfortable standard of living.

When a pretty young girl named Audrey (Taylor Swift) yearns to see a real tree, a lovestruck young boy named Ted (Zac Efron) determines to find one for her. That means going outside the town's bubble to the desolate place where trees used to grow. There he meets the Once-ler (Ed Helms), who tells Ted the sad story of how capitalism, greed, and materialism led to environmental destruction.

What follows should be a textbook example of how the free market works to provide jobs, goods, and higher standards of living. Fifty years earlier, the Once-ler had an idea for a versatile invention: a "Thneed" made from the renewable leaves of the Truffula tree. At first no one is interested in Once-ler's invention, but when they see one on the head of a stylish young beauty, everyone has to have one. This is Say's Law in action: supply creates its own demand. Consider the fact that no one demanded a handheld device that could store 5,000 songs until Apple invented the iPod. Then everyone had to have one. Similarly, Once-ler's Thneed creates its own demand. To keep up with production he enlists his family members and pays the Barbaloots to harvest the Truffula leaves, using marshmallows as money.

But in this bizarro world, the free market becomes a tool of destruction. The product Once-ler has invented is clearly an unnecessary accessory (in the eyes of the filmmakers), and as we all know from studying Chairman Mao, if it isn't fundamentally functional, no one should have it. The "money" Once-ler pays the critters (marshmallows) become a seductive drug that saps their will and good sense. He doesn't pay them for doing an honest day's work; he bribes them to stay out of his way. Once-ler's family members turn out to be vile, redneck imbeciles who treat everyone with contempt — including Once-ler. Impatient to reach the treetops, Once-ler speeds up the harvesting process by cutting down the trees, cutting off his supply as well.

The film completely ignores the principle of property rights. The trees and the land on which they grow belong to the critters and the Lorax. Without their permission, Once-ler has no right to take the tree silk, to build a factory on their land, or to cut down their trees. But in a film whose point is that everyone (and thus no one) owns the land, this would sidetrack the communal message.

The fact is that people take care of property that belongs to them, and they tend not to take care of property that belongs to someone else. When loggers were awarded grants to cut trees on national land, they chopped indiscriminate swathes through forest after forest. But when they were allowed to own the land, they became tree growers as well as tree cutters. In fact, most of the deforestation in the United States took place nearly 200 years ago. Since then, forest cover has increased steadily, partly because national forests are protected, but also because companies replant what they harvest.

Perhaps the most insidious scene of the movie is the lively, jivey, upbeat song, "How bad can I be?" Dressed in a money-green suit, the Once-ler sings joyfully and mischievously, "How bad can I be? I'm just doing what comes naturally / How bad can I be? I'm just following my destiny / . . . All the customers are buying . . . And the money's multiplying . . . And the PR people are lying . . . And the lawyers are denying. . . . Who cares if a few trees are dying? How bad can I be? / A portion of proceeds go to charity." The song is bouncy and catchy and chillingly fun. The message is clear: humans are naturally bad, and their badness has to be governed. Even when they do something good, such as giving to charity, they must have a devious, ulterior motive.

As we all know from studying Chairman Mao, if a product isn't fundamentally functional, no one should have it.

Ironically, the film ends on what really does come naturally: operating the invisible hand of the free market. After telling Ted his story, the now repentant Once-ler assigns him the task of taking the final Truffula seed and planting it in the center of town where all will see it and want a tree of their own. Again, if that isn't Say's Law in action, I don't know what is: supply creates its own demand.

Seuss' book ends here, with a gentle reminder to be responsible for your own little piece of the earth. Disney keeps going, however. O'Hare and his henchmen follow Ted on a frolicking chase through town. Why must they stop the tree planting? Because trees will produce oxygen, and oxygen will clean up the air, and clean air will destroy O'Hare's bottled air business. As always, the greedy capitalist destroys the planet for his own gain.

What has happened to a country — and a movie studio — that once praised the virtue of lemonade stands and paper routes? Hollywood — center of one of the nation’s largest capitalist businesses — has long been disdainful toward business and capitalism. But with the G-rated Dr. Seuss's The Lorax, even Hollywood has hit new lows. The Loraxis a pleasant, entertaining movie with a vile message. When I asked my 8-year-old grandson whether he liked it, he smiled brightly and nodded his head. He loves Dr. Seuss! Then he added, "But it's all propaganda!" A smart cookie, that grandson of mine. His parents have taught him well. But he's just as attracted to fluff as those critters were attracted to marshmallows.

Since this is a movie about the bottom line, here is the bottom line from this movie: money is bad. Homes, food, and entertainment are good. But where do homes, food, and entertainment come from if we don't earn money? The government, of course. And how do we get people to work and produce without money? Mandatory volunteerism, I guess. Hmmmm. Hard work. No money. Food and shelter provided. . . .Wasn't that called communism in the last century? And slavery in the century before that?

Unless someone like you cares a whole awful lot, nothing is going to get better. It’s not.


Editor's Note: Review of "Dr. Seuss's The Lorax," directed by Chris Renaud. Disney Studios, 2012, 86 minutes.



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The Metamorphosis

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When the Cuban people awoke last April 2011, they did not find themselves transformed into giant insects. That change had already occurred. Over the course of the previous 50 years, Fidel Castro had transformed the island into one giant beehive or ant colony laboring single-mindedly for his vision of a Caribbean utopia. What they did wake up to find was something entirely novel: a vibrant options market in 1950s vintage Detroit automotive classics.

In “Cuba: Change We Can Count On?” (Liberty, December 2010), I reported the passage of enabling legislation by the Cuban government to guide the Congress of the Communist Party in implementing far-reaching reforms to the economy. Though the fine print of implementation had yet to be worked out, a big change was decreed. It included the legalization of self-employment in ”dozens” of areas, the privatization of many small state-owned businesses as cooperatives, and the establishment of limited property rights in real estate and some bits of movable property such as cars, boats, and appliances, many of which can now be bought and sold.

The impetus for all this hope and change was money. Cuba’s economic and fiscal health was dire. The reforms hoped to eliminate one-fifth of the government work force (thereby cutting expenditures); incentivize former government employees into joining taxable petit-capitalist enterprises (thereby raising revenue); and — along with liberalized foreign investment reforms — stimulate the economy and improve Cuba’s fiscal prospects.

In April 2011 the details of the new legislation were announced. In a recent paper entitled “Economic Impact of New Employment, Tax and Financial Policies in Cuba,” presented at the XXI Annual Meeting of the Association for the Study of the Cuban Economy (Miami, August 2011), Luis R. Luis, former director, Latin America Department, of the Institute of International Finance and chief economist at the Organization of American States (OAS) in Washington, applied macroeconomic analysis and a crystal ball to predict the effects of the reforms.

To a populace that has never paid taxes, much less dealt with the fine points of business expense deductions and tax accounting protocols, the entireexperience must have been far from “liberalizing.”

Given the market sophistication of the Congress of the Cuban Communist Party — akin to that of the Creation Science Institute, sequencing the malaria genome — the reforms are still a work in progress. They aim primarily at improving state finances, but the use of price controls, size limits on firms, confiscatory tax rates, complicated monthly payment requirements, and petty regulatory activity “could result,” as Luis drily observes, “in even larger evasion than is usual in developing countries by single proprietorships and the self-employed, [and] will also result in many activities taking place wholly or partially underground, limiting tax revenue and fostering operation of undersized and inefficient activities.”

The very first modifications to the April bill were made a scant few weeks later, following a strike by cocheros (horse cart drivers) in Bayamo, Granma Province (née Oriente Province). The provincial capital is immortalized in Cuba’s national anthem as the birthplace of independence. It is a place redolent with symbolism, and a situation best handled with care. Bayamo cocheros, members of one of the newly privatized occupations, discovered that when they added their new tax liability to their clients’ bill, demand plummeted. So they went on strike.

The new self-employment taxes consist of four categories: social security tax, personal income tax, sales tax, and payroll tax. Let’s look at each.

1. The social security tax is levied at 25% of the tax base (in the US, it’s about 13% — with half paid by the employer). So far, so progressive.

2. The personal income tax gives a whole new meaning to “taxing the rich.” Marginal rates rise to 50% for annual incomes of $208! When combined with the social security levies, the personal tax nears 60%. Mindful of the reader’s attention span, I will skip all the qualifying fine print, ceilings, and permutations that complicate the base tax rate — except for business expenditures, aka deductions. These are limited to 20% or 40%, depending on the enterprise.

As Luis notes: “These rates discriminate against enterprises whose cost of inputs exceed[s] 40%, which will lead to curtailment of activity, firm creation, and widespread tax evasion.” Cocheros, for some unknown reason,were limited to a 20% business expenditures deduction.

To a populace that has never paid taxes, much less dealt with the fine points of business expense deductions and tax accounting protocols, the entireexperience must have been far from “liberalizing.” It was reminiscent of a farcical zarzuela, the Spanish version of a Gilbert and Sullivan operetta, with a dose of Monty Python thrown in for gravitas. The Congress responded by raising cocheros’ allowable deductions from 20% to 40%.

3. Sales taxes for all products are levied at 10%, except for farm products, which are taxed at 5%. Simple enough.

4. The new payroll taxes are not only complex; they (along with the other taxes) actually, as Luis observes, “pose a formidable constraint on employment.” The following summary — through no fault of Luis — is beyond this author’s ability to make intelligible, much less fun:

A new 25% payroll tax is instituted. The base of the tax is the overall wage bill except that there is a minimum taxable amount equal to a multiple of the average wage for specific workers calculated by the appropriate local labor office. The base is made progressive as the minimum taxable amount increases with the size of the payroll. Thus for firms with 1 to 9 workers, the minimum equals 1.5 times, rising to 2 times for those between 10 and 15 workers and to 3 times for those firms that have more than 15 employees.

So much for the new taxes. Will Cuba’s vision of self-employment provide the fiscal salvation the government so desperately needs, or is it just a tempest in a teapot?

If the government succeeds in shifting 250,000 government workers into self-employment, and they pay all their taxes, Luis estimates a $40 million revenue windfall for the government (not to mention all the supplies and material that would not be pilfered or stolen from state companies and offices, as supplements for employees’ meager salaries — a point important enough that Luis footnotes it in his report). But so far, no more than 50,000 state employees have taken the bait.

The eminent French art critic and father of surrealism, André Breton, visiting Cuba in the late 1920s, observed that, “Truly, Cuba is too surrealistic a country to be livable.”

Furthermore, it’s impossible to predict the tax compliance rate, which, worldwide, is low for the self-employed. “However,” Luis observes, “it is expected that the fiscal authorities will enforce the tax code with some vigor. Undoubtedly, the high tax rates will act as an incentive to evasion and to a reversion of business to the underground economy. Sizeable underreporting of revenues is to be anticipated.”

In 2011, Cuba’s population was 11 million. As of mid-May 2011, about 300,000 people were self-employed (excluding farmers); or (with slightly different numbers), never more than 3.5% of the labor force. Though the passage of the new legislation doubled the number of self-employed, a large percentage of them were people who came out of the black market closet and hope to become legal.

Luis’ analysis bears some contextual elaboration because, as Miguel Bretos, author of Matanzas: The Cuba Nobody Knows, has stated, “Those seeking to understand Cuban history in conventional ways are doomed to frustration.” He was referring to the eminent French art critic and father of surrealism, André Breton, who, visiting Cuba in the late 1920s, observed that, “Truly, Cuba is too surrealistic a country to be livable.”

What makes the details of the reforms so surreal is their schizophrenic set of objectives. When first proposed, the reforms were compared to the Chinese model: an infusion of capitalism to build wealth, with the Communist Party retaining absolute power. But, as the Chinese are discovering, when laissez faire markets infect a regime of total power, the liberty virus proves hard to cure.

The Chinese are a practical people with few Maoist ideologues left among them. No one, from the highest party apparatchik to the lowliest peasant, objects to becoming richer. Meanwhile, power is being incrementally ceded through a phenomenon usually foreign to absolutist regimes: limited but sensitive responses to popular dissatisfaction with corruption, judicial arbitrariness, environmental degradation, out-of-control eminent domain, and even — very slightly — the transfer of some political power. (For example, provincial officials in Wukan, Guangdong Province, are allowing local elections to take place.) Moreover, the Chinese are rather comfortable with duality; witness the Taoist concept of yin and yang.

It’s not quite so simple for Cubans.

The competing objectives of raising capital through economic liberalization while retaining absolute power are — in Cuba — complicated by a third factor that tips the reforms from the bipolar into the surreal: an anti-capitalist idealism so fervent that it equates private employment with involuntary servitude, profit with depravity, and self-employment with crimes against society. These attitudes not only saturate the nomenklatura — with their source and apogee in the moralist-in-chief, Fidel — but also pervade the majority of the Cuban population. Cubans are poor and unhappy; they sense that something is wrong with the system; they are starving for change. Yet they idolize St. Fidel’s idealism and venerate him as the conscience of the Revolution.

As the Chinese are discovering, when laissez faire markets infect a regime of total power, the liberty virus proves hard to cure.

National character, along with its kinfolk — ethnic, religious, cultural, and racial character — has fallen into disrepute as a way of defining a population. Whatever validity it might once have possessed has evaporated. It has been dismissed for its oversimplification, unscientific methodology, racist undertones, and complete absence of political correctness. But it retains a great deal of insight and literary utility, when considered informally. Hedrick Smith was definitely onto something when he described the Russian character as a cross between German and Mexican temperaments.

Cuba was ruled by Spain for over 400 years — longer than any of its other colonies. During the Latin American wars of independence in the 1820’s, Cuba remained staunchly Spanish. By the time it won its independence in 1902, it was considered an integral part of Spain. That date is so recent that in 1966 the last surviving Afro-Cuban general of the War for Independence, Generoso Campos Marquetti (by then living in the US, in exile from Castro’s revolution), was asked to testify before the US Congress during hearings investigating the nature of the Castro Revolution. It’s as if Nathanael Greene or Henry Knox had still been alive within our living memories, to comment on US current affairs.

The Cuban character is a diversely spiced mélange. Settled by immigrants from Galicia, Asturias, Catalonia, and the Basque Provinces in northern Spain, Cuba was infused with a strain of rigid, dour, doctrinaire, and humorless temperament. Fidel Castro is a second-generation Galician — he can’t dance, carry a tune, or tell a joke. Though he would reject the comparison (in spite of his early flirtations with Falangism and Fascism) Castro has much in common with the long-lived and long-ruling Francisco Franco and his Minister of Propaganda, José Millán-Astray — both Galicians.

General Millán-Astray was a serious parody of himself. Founder of the Spanish Foreign Legion and a decorated war hero who’d lost an arm and an eye, he personified Spanish fascism. He was obstinate and ruthless, yet impulsive; flamboyant, reckless, and self-aggrandizing. At rallies he resembled the mad Dr. Strangelove. Wearing one white glove and a black eye patch, he would exaggeratedly throw out his one arm in the Nationalist salute, while shouting his telltale mottoes, “Viva la muerte!” ("long live death") and “Death to intelligence!” ("death to the intelligentsia").

Cubans are poor and unhappy; they sense that something is wrong with the system; they are starving for change. Yet they idolize St. Fidel.

Ladino and Canary Islands immigrants added cunning, perspicacity, and some levity to the Cuban national character; Andalucians, Valencian gypsies, and West African slaves tempered the whole with rhythm and a wry sense of humor. Provincial and (in the case of the West Africans) tribal clubs, mutual aid societies, and other ethnic affiliations lasted well into the 1960s.

The Spanish component of the Cuban character alone suffices to explain the paradoxes inherent in holding multiple contradictory perspectives. Pepe Azcarraga, a 91-year-old Spaniard from a small village in Aragon (but now a retired college professor living in the US), personifies this Weltanschauung. He recounts that once, as a teenager, he accompanied a friend to the dry goods almacén to buy towels. On the way back, he helped her carry the goods, stacked on his doubled arms. As he passed by his own house, his mother, perched on the second-floor balcony, spotted him on the cobbled street below supporting the pile of towels in front of him as if they were the Blessed Sacrament and he was leading an Easter procession. She beckoned to him angrily. Puzzled, he detoured into his house.

Once inside, she asked him what the diablo he thought he was doing carrying a pile of towels for all the world to see. Before he could answer, she walloped the fear of propriety into him, moaning that “the whole town will think the Azcarraga family needs towels!”

Pepe tells the story without a hint of irony, as if his failure to anticipate the finer etiquette of towel buying in a gossipy small town were an obvious sign of his stupidity. At different times, depending on the context of the conversation, he’ll call himself a socialist, a capitalist, a libertarian, or simply a man of the left. He and his immediate family sided with Franco during the Civil War — for the sake of order and stability. Yet as members of the local militia guarding the frontier against infiltration from Republican guerrillas holding out in the French Pyrenees after the war, Pepe and his friends, when off-duty, would cross over and (avoiding politics) socialize with the enemy, many of whom were friends, family, and acquaintances. They shared snacks, smokes, stories, and beer. A devout Catholic who attends Mass every Sunday, he is nonetheless skeptical of the existence of an afterlife — and he harbors a sense of unworthiness that keeps him from communion.

Pepe stands on the shoulders of giant, original, way-outside-the-box thinkers: surrealist artist Salvador Dalí, whose melting clocks epitomize the persistence of memory; philosopher Miguel de Unamuno, who introduced doubt to faith, and found that they got along just fine; writer Miguel de Cervantes, whose Don Quixote — the patron saint of hopeless causes — made tilting at windmills not only intelligible but honorable; and Grand Inquisitor Tomás de Torquemada (literally, twist and burn), whose auto da fés melted heretics in order to save them. To an Anglo-Saxon who can only shake his head in perplexity, like a mental centrifuge spinning to separate the conflicting strains, little of this intellectual anarchy makes sense.

Fidel Castro, the Cuban Communist Party, and their recent economic reforms embody this cognitive dissonance. Luis’ assessment is not sanguine: “It is evident from the multiple constraints, prohibitions, regulations and high taxes involved in the new measures the authorities are striving to maintain tight control over the liberalization process. These controls will dampen or even fully contain the output and consumption gains from market opening.”

And the controls are extensive. One-hundred-and-seventy-eight self-employment occupations have been legalized (up from 157); most require little or no capital (animal caretaker, hairdresser, locksmith, plumber, mason, mattress repairman). A few others, such as room renting (though not to foreigners, and no subletting) and transportation services (truck and taxi driving) imply greater use of property or equipment. Restaurants are now allowed 50 tables, up from 20. Capital investment is capped at $800.

Even the most touted reform, the buying and selling of real estate, is less than meets the eye. Ownership is limited to domiciles — one residence and one vacation home — and possession is limited to citizens or foreigners permanently residing in Cuba.

Additionally, the domestic portion of the reforms requires that all transactions take place in nonconvertible pesos. (Cuba has dual currencies: convertible and non-convertible pesos — one for tourists, the other for Cubans — both highly controlled.) Foreign investment in the newly allowed enterprises is forbidden; as are family and personal remittances (also subject to taxes), which must only be used for personal consumption. Wholesale activities, inter-provincial trades, and most intermediation among firms are also forbidden.

“Intermediation” — a fancy word to describe the place that banks (among other entities) hold between savers and investors: they take deposits, then lend them out to entrepreneurs. Cuba’s (official) private savings rate for the last six years is about 2% of income — not an important source of financing for new enterprises, though probably understated because of non-bank and in-kind savings. As Luis again drily notes, “Most bank loans are made to state enterprises. A vibrant self-employment sector would be helped greatly by access to credit from the banking system. This would require building-up a credit system, with an important role for micro-credits by local branches of banks with appropriate credit expertise . . . [as in] Asia.”

Fidel Castro is a second-generation Galician — he can’t dance, carry a tune, or tell a joke.

Any reforms along those lines are unlikely, because they would undermine the institutionalized apartheid system that attempts to minimize economic fraternization between Cubans and foreigners. Very few of the newly approved occupations affect the export or tourist sector, and the government monopoly on labor for joint venture and foreign enterprises has not been affected. It is surprising that the new employment and tax measures do not address Cuba’s external accounts, even though more foreign investment — under the pre-existing framework — is being attracted.

Luis boldly sums up his report with an estimate of the impact of the reforms on Cuba’s GDP. He admits he’s on shaky ground — with disclaimers, caveats, weasel words, and the assumption that many more black-market enterprises will come into the open. Despite the effects of government controls, he broadly predicts a 2% GDP increase as a low estimate, with a 6.4% GDP increase if all the hoped-for 250,000 state employees become successful entrepreneurs, make lots of money, and pay all their taxes.

The Cuban reforms are a tug-of-war among various conflicting objectives: on the practical level, increasing state revenue while maintaining total state power; on the philosophical level, allowing enough “human action” (in the Misesian sense) without diluting the “social justice” objectives of the Revolution by introducing greed, ambition, and a subversive focus on individuality.

On that last point — to paraphrase Charles Darwin, who, at the conclusion of The Origin of Species, foretold that “light will be thrown on the origin of man” — the Cuban reforms will shed much light on how far the capitalist goose that lays the eggs of prosperity can be starved, strangled, and robbed, without killing it.




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Blue-Suited Vultures and Childlike Demands

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Margin Call is another offering in the growing list of movie dramas and documentaries that attempt to explain the economic meltdown of 2007–08. This one gives an insider's view of a giant financial institution — perhaps a Lehman Brothers, although that company is never identified — as its analysts suddenly realize that it can no longer sustain its high levels of margin-driven debt against its falling asset values.

The film opens with a cadre of blue-suited vultures — most of them women — storming the office to let employees go. At the end of the day, nearly half of them have been fired, including middle manager Eric Dale (Stanley Tucci). Dale has been working out a logarithm that seems to be predicting financial catastrophe, but no one will listen as they usher him out the door. This scene is perhaps the most intense of the whole movie. Women literally tap men on the shoulder and signal for them to follow, an action reminiscent of the Rapture that will herald the beginning of Armageddon. It is hard to say which is better — to be summoned away, or to be left behind to face destruction.

As a parting gesture, Dale tosses a flash drive to his protegé, Peter Sullivan (Zachary Quinto) and warns him to be careful. Sullivan opens the file, and after adding a few mathematical computations of his own, discovers that the company's net worth is less than the debts it owes. Considerably less. And with the multiplier effect caused by buying on margin, the gap will widen exponentially in a matter of days, unless the markets as a whole turn around. An emergency meeting is called, with all the corporate bigwigs arriving in the middle of the night.

Here the film becomes heavy with pointed dialogue intended to explain the problem to those of us in the popcorn gallery. It is not unreasonable to assume that every one of these high-powered business people in this high-powered room is a genius at math and finance. Yet CEO John Guld (Jeremy Irons), sinister in his impeccable gray suit, his impeccable British accent, and his frighteningly sharp face, threatens Sullivan, "Speak to me as you would a child, or a golden retriever." This childlike demand is designed for the audience's benefit, of course, but it is almost laughable in the circumstances and reveals J.C. Chandor's inexperience as a writer and director. He doesn't yet know how to set up exposition believably.

The explanation that Sullivan then delivers is so abstract and obtuse that only someone who already understands it would be able to fill in the missing specifics and render it understandable to others. We know that the company has borrowed too much against assets that are diminishing in value, but we don't gain any further light from having seen this movie, and we certainly don't learn anything about how to prevent a similar meltdown.

Films such as "Margin Call" continue to garner glowing praise while vilifying an economic system that allowed America to become the wealthiest, most powerful, and most generous country in the world.

More interesting are the ethical conversations that follow. After Guld reminds the Board of his motto of success: "Be first, be smarter, or cheat," he adds, "I don't cheat, and we aren't any smarter, so we will have to be first." This means that his brokers will have to sell all their assets within hours of the market opening in the morning, before buyers realize that the asset values are dropping.

Sam Rogers (Kevin Spacey), a 34-year veteran of the firm, offers the free-market answer to government regulation when he argues, "But you'll be selling something you know is worthless. They will never buy anything from you again." He's right, of course. The greedy businessperson looks for the quick profit that comes from offering inferior quality at an inflated price, then hurriedly moves on. But the wise businessperson offers good quality at a fair price, knowing that satisfied customers will provide steady gains from repeat sales for a lifetime. Cynically Guld gives the opposite view of the free market: "We'll be selling at the 'fair market value.' It's not our fault if the fair market keeps falling." Acknowledging Sam's point about repeat customers, he continues, "This is the big one. We have to get out all at once."

To entice brokers to destroy their own careers by ruining all their customer rapport and good will, the company leaders offer them huge incentive packages for unloading the majority of the company's assets by the end of the day. The brokers may not be able to get a job for a while, but with this kind of compensation, they won't have to. Integrity can't be bought, but it can be sold.

Karl Marx argued that those who deal in money deal in nothing. They don't produce anything of value, and they don't consume anything of value. They just provide a medium of exchange. Thus, in a Marxist view, being a salesman or stock broker is the lowest form of labor. This point comes through in the film when Dale laments, "I used to be an engineer. I built a bridge once." He then recounts how much time and energy he has saved for all the people who have used his bridge every day for years. The implication is clear: as an employee of this financial institution, his life has been meaningless.

Sam Rogers responds in a similar fashion when Guld says derisively, "You could have been a ditchdigger" instead of a wealthy financial analyst. "Yes," Sam agrees, "but then at least there would be some holes in the ground." Guld continues in Darwinian style, "It's just money; it's made up. Pieces of paper with pictures on it so we don't have to kill each other just to get something to eat. It's not wrong. And it's certainly no different today than it's ever been. . . . You and I can't control it, or stop it, or even slow it. . . .We just react. And we make a lot of money if we get it right. And we get left by the side of the side of the road if we get it wrong."

This cynical attitude about the role of financial institutions is continuing to drag down our economy as surely as investing on margin did. It willfully ignores the fact that financial institutions provide capital for funding those bridges and ditch-digging projects. And it encourages viewers of films like this to ignore that fact. These films continue to garner glowing praise while vilifying an economic system that allowed America to become the wealthiest, most powerful, and most generous country in the world.

For a relative newcomer (this is his first full-length feature film) Chandor managed to do several things right. He secured major funding and assembled an all-star cast that includes not only Tucci, Spacey, and Irons but also Paul Bettany, Demi Moore, Simon Baker, Mary McDonnell, and many others. He has garnered accolades from the mainstream critics. He has written a script that, despite its schoolboy reliance on potty language (thus its R rating), has "gravitas." But while it may seem "important," it isn't very entertaining, or very thrilling. Interesting is about as high as my praise will go. His direction is often affected and heavy handed, especially with his actresses. Wait for Margin Call to be available on Netflix.

quot;


Editor's Note: Review of "Margin Call," directed by J.C. Chandor. Before the Door Pictures, 2011, 107 minutes.



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The Return of Coxey’s Army

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In 1894, Coxey’s Army, a legion of purportedly needy people, came to Washington to demand radical reform of the capitalist system. It was supposed to be a “march,” but some of Coxey’s soldiers tried to make their trip to the capital by hijacking railroad trains. The depredations of the Army were widely feared, especially by communities that lay on its route, but by the time it reached Washington its numbers had dwindled. It ended when its leaders were arrested for walking on the capitol grass. That took care of Coxey’s Army.

During the past few weeks, downtowns across the country have been the unwilling hosts of tribes of ignorant savages shouting about the wickedness of, guess what, the capitalist system.  They maintain that they represent the 99% of Americans whose lives are controlled by the remaining 1%, who supposedly own 99% of property in this country. Ironies abound: people who have nothing better to do than hang out in a park and empty their bladders in a McDonalds restroom are lauded and supported by labor unions; people who want to abolish wealth are bankrolled by “liberal” billionaires; and people who never vote are courted by the highest official representatives of the Democratic Party. Friendly media note with relief that the Occupy mobs are (usually) “peaceful.” I suppose that if you come over to my condo complex, pitch a tent, and refuse to leave, denouncing me day and night and threatening my neighbors with the risk of epidemic disease, you are being “peaceful.”

It’s a safe bet that not one Occupier, or mainstream commentator on the Occupiers, has ever heard of Coxey’s Army. So such people haven’t fully realized what the lowest level of police power can do to wipe up a “movement.” On October 13, all around the country, local mayors and cops started moving against the demonstrators, evicting them from their zones of occupation for reasons of health. Their tent cities were fouling the environment.

Of course, that’s another irony that should be savored.  One of the Occupiers’ great complaints is that capitalism is ruining the environment. Well, just look at what the Occupiers did to New York’s Zuccotti Park (which by the way is privately owned, despite Mayor Bloomberg’s apparent assumption that he owns it and can let protestors in and out whenever he wants). It’s hard to imagine a more degraded environment.  For this reason, the protestors were nearly kicked out of the park on October 14, a mere four weeks after they started to degrade it. On that day and the day after, they were kicked out of parks and other civic spaces in many other cities. On October 16, they were prevented from starting a camp in Chicago’s Grant Park.

A few more run-ins with local government, and the movement will probably go the way of Coxey and Friends. This is yet another irony, because what the protestors, “anarchist” or not, are really screaming for is more government, government that will run everyone’s life in the minutest detail. That’s the only way in which their multitudinous demands — for equal incomes, free money, vast solar energy projects, whatever — could ever be satisfied.

But there’s one nice, nonironic touch.  For once, one of the Occupiers said something correct. According to a CNN report on October 13, Occupy Wall Street spokesman Tyler Combelic promised resistance to any attempt to move the protest out of its usurped location, observing. "It's not an occupation if you can't occupy the park."  How true, how true.




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