Category Archives: Economics

29th April 2010 | Interesting Random Blogs

America’s Debt to Income Ratio as Compared with Other Countries

Seven of the top ten debtor nations are included in the world’s top ten economies. Not surprising. This is largely a result of widespread availability of affordable credit, and relatively large middle classes in these countries, and consequently a large ratio of home/property owners. Most popular rhetoric on the topic would claim that wealthy countries have grown accustomed to being wealthy and they are enthralled by consumerism – it could be argued that this high level of debt could be a result of a culture that is used to and willing to buy now, and pay later…even if it means with interest.

Roubini: “In A Few Days Time, There Might Not Be A Eurozone For us To Discuss”

Companies relying on fair use generate $4.7 trillion in revenue to the US economy every year. The report claims that fair use — an exception to the copyright law that allows limited use of copyrighted materials — is crucial to innovation. It adds that employment in fair use industries grew from 16.9 million in 2002 to 17.5 million in 2007 and one out of eight US workers is employed by a company benefiting from protections provided by fair use.

Guide to Repair and Maintenance of Buildings

More than 10% of the buildings worldwide are approaching their end life. Structural elements in buildings are made of materials like concrete, steel and wood, which get weaker with time. Fatigue and other external elements might cause those structural elements to crack. So, it is important to protect these buildings by maintenance and repair.

On May 18th, Japan’s Aerospace Exploration Agency (JAXA) will launch Ikaros, a fuel-free spacecraft that relies completely on solar power. The spacecraft’s 46-foot-wide sails are thinner than a human hair and lined with thin-film solar panels. After a rocket brings the craft to space, mission controllers on the ground will steer Ikaros by adjusting the sails’ angles, ensuring optimal radiation is hitting the solar cells. If the mission proves successful, the $16M spacecraft will be the first solar sail-powered craft to enter deep space.

Israel, a New Decade

I turn on the television just before dinner. Prime-time. An Israeli series: “The Pilots’ Wives” (“Meet the Women behind Our Heroes”, said the promo), interrupted occasionally by a commercial depicting a soldier missing his mother’s soup (“disclaimer: the actor is not a soldier”). After the series, a short public service broadcast showing a group of young men, each in turn boasting his military service, until they notice one of them – a violent zoom-in – keeps quiet; the message is clear. Then the news, with at least one public relations item pushed by the military: “teen-age girls eager to become fighters”, “a remote-control watch-and-shoot system on the Gaza fence”, “a unique glimpse into a top-secret air-force base” or the like. Not to mention the real news, be it about the Palestinian territories, Lebanon, Iran, or even the billions of terrorists disguised as miserable African refugees allegedly waiting on the Egyptian border to inundate Israel: all these issues, and many more, are predominantly managed and framed by the military.

The Costs of Complexity

Despite cheerleading and doctored statistics from within the Beltway, the US economy is in deep and deepening trouble; foreclosures continue to climb, commercial real estate and second mortgages are shaping up to be the next big shocks, and the rolling collapse of state and local government finances shows no sign of slowing down. The Goldman Sachs flacks who moved into power with the Obama administration promised to fix things; they have pretty clearly failed; and as the neoconservatives learned not long ago, intolerance for failure is very nearly the only thing on which the squabbling factions of the American political class can agree.

Reason Magazine: Peak Everything?

When you really need something, it’s natural to worry about running out of it. Peak oil has been a global preoccupation since the 1970s, and the warnings get louder with each passing year. Environmentalists emphasize the importance of placing limits on consumption of fossil fuels, but haven’t been successful in encouraging people to consume less energy—even with the force of law at their backs.

But maybe they’re going about it all wrong, looking for solutions in the wrong places. Economists Lucas Bretschger and Sjak Smulders argue that the decisive question isn’t to focus directly on preserving the resources we already have. Instead, they ask: “Is it realistic to predict that knowledge accumulation is so powerful as to outweigh the physical limits of physical capital services and the limited substitution possibilities for natural resources?” In other words, can increasing scientific knowledge and technological innovation overcome any limitations to economic growth posed by the depletion of non-renewable resources?

RC Aircraft (Remote Controlled UAV) – LAVI/ J10 Fighter Plane (Youtube)

This is a Full 3D flight. This exact aircraft is the Israeli LAVI, which was later copied by the Chinese and called the JC-10. It has thrust vectoring. The R/C LAVI you see here is manufactured by JD Enterprises and the pilot modified the intake and added a red star to make it look like a J-10.

Pakistan is in the throes of an energy crisis, with Pakistanis now enduring about 12 hours of power cuts a day, a grueling schedule that is melting ice, stopping fans and enraging an already exhausted populace just as the blast furnace of summer gets started.

27th April 2010 | Interesting Random Blogs

Why then are there no slogans saying “No blood for opium!”? Afghanistan’s major product is opium and opium production has increased remarkably during the present war. The current NATO action around Marjah is clearly motivated by opium. It is reported to be Afghanistan’s main opium-producing area. Why then won’t people consider that the real agenda of the Afghan war has been control of the opium trade?
WASHINGTON — On the 40th anniversary of Earth Day, Richard Canny, CEO of pioneering electric car company THINK, is setting the record straight on electric vehicles. Here are Canny’s top 10 EV myths, busted.
Buried within the New Start treaty, which saw the decommissioning of nuclear warheads, was an interesting provision as a result of Russian demands: the US must ‘decommission one nuclear missile for every one’ of a new type of weapon called Prompt Global Strike ‘fielded by the Pentagon.
‘ The warhead, which is ‘mounted on a long-range missile to start its journey,’ would be ‘capable of reaching any corner of the earth from the United States in under an hour. … It would travel through the atmosphere at several times the speed of sound, generating so much heat that it would have to be shielded with special materials to avoid melting. … But since the vehicle would remain within the atmosphere rather than going into space, it would be far more maneuverable than a ballistic missile, capable of avoiding the airspace of neutral countries, for example, or steering clear of hostile territory. Its designers note that it could fly straight up the middle of the Persian Gulf before making a sharp turn toward a target.’

We’re all in agreement that Social Media is a valuable tool – one of many – and certinley not “THE answer”. We all preach that it’s extremely important to take things offline and that face to face interaction is still paramount. But, my question to you is, do you actually believe that and put it into practice? Do you see us getting away more and more from the old school? Will coffee shops eventually be obsolete once we’re all meeting via Skype?

The City of Arts and Sciences, Valencia (Spain)

The construction of the City of Art and Science began in 1991, and was completed by 2004. It consists of a Science Museum, Planetarium, an Opera House and Promenade. It was designed by the famous Architect Santiago Calatrava.

Doctors Who Prey? Medical Profession or Predatory Syndicate?

I am a patient of Dr. XXXXX’s, who came in for a first visit two months ago and was fitted for an Aircast that day. Your billing system was down, so I did not see the invoice until my next visit a month later.

At that time I realized your office charged me $480 for the Aircast. This struck me as odd, since I had broken the same bone in my other foot a year earlier and a different doctor charged me about $100 for an aircast for my other foot.

I mentioned to the woman processing my payment that it was available elsewhere and online for $80-$100 and she told me the those prices were not for the model I was given. When I returned home, I researched the specific model I was provided by your office (Aircast FP Walker 01F-L) and found that very same model was indeed being sold all over the internet for between $75 and $100.

The Magnificient Victoria Tower, Stockholm, Sweden

Sweden is one of the most prosperous of Scandinavian nations in Europe. It has a long history of traditions and cultural heritage.  Sweden is famous for its amazing Swedish Cheese. Stockholm is a beautiful city, and its latest jewel would be the new Victoria Tower. It would be the second highest building in Stockholm after the Kaknästornet.

A 13-minute film of a cable car/trolley ride down Market Street in 1905 San Francisco reveals much about energy consumption.

A Thesis on the Nature of Religion

Human beings have created the psychological construct of religion essentially as a defence mechanism to enable them to cope with the realization of their own mortality. (This is a basic hypothesis of this theory).

The essence of this coping mechanism is the hope that death is not the end of an individual human’s existence but merely the end of this particular phase of existence. Death is a readily apparent phenomenon. The hope of life after death is therefore an extension of the survival instinct.

Concern over the welfare of loved ones is also a universal phenomenon. The loss of a loved one is a traumatic and threatening psychological experience for any who experience it. It is therefore universally sensible and attractive to believe that a departed loved one is not gone but merely residing in another place. This is a psychological defence mechanism to assuage one’s sense of loss. As such it is a natural part of the grieving process.

Fighting against food waste

Each year people in the UK throw away 8.3 million tonnes of edible food. If that food wasn’t wasted the carbon emissions saved would be the equivalent of taking one in four cars off the road. As well as household food waste, retailers and commercial operations bin a huge amount of food that is past its sell by date – but still perfectly edible.

Orlov’s 5 Stages of Collapse

Stage 1: Financial collapse. Faith in “business as usual” is lost. The future is no longer assumed resemble the past in any way that allows risk to be assessed and financial assets to be guaranteed. Financial institutions become insolvent; savings are wiped out, and access to capital is lost.

Stage 2: Commercial collapse. Faith that “the market shall provide” is lost. Money is devalued and/or becomes scarce, commodities are hoarded, import and retail chains break down, and widespread shortages of survival necessities become the norm.

26th April 2010 | Interesting Random Blogs

Is there any point in fighting to stave off industrial apocalypse?

The collapse of civilisation will bring us a saner world, says Paul Kingsnorth. No, counters George Monbiot – we can’t let billions perish

How to Kill the Joint Strike Fighter

Air Force Chief of Staff Gen. Norton Schwartz acknowledged on 18 February, the JSF program is breaching its Nunn-McCurdy spending limit. Moreover, it’s now not just hugely over budget, but another thirteen months behind schedule. As Defense News reported, the plane’s system design and development will now run through at least 2015, two years after the US Air Force had planned to begin operating its F-35As.

Lotus Temple, Delhi | Innovation in Architecture

The Bahai House of Worship in Delhi, India, popularly known as the Lotus Temple due to its flowerlike shape, is a Bahai House of Worship and also a prominent attraction in Delhi. It was completed in 1986 and serves as the Mother Temple of the Indian subcontinent

The temple gives the impression of a half-open lotus flower, afloat, surrounded by its leaves. Each component of the temple is repeated nine times. The temple is open to people of all faiths, languages and cultures. It is a symbol of a United India.

How Josh Timonen fucked up the Richard Dawkins Atheist Community Forum

One of the moderators expressed his discontent at the rudeness of the dismissal, at which point the site admin, Josh Timonen, deleted his entire account, including all of his posting history. This consisted of some 12,000 posts, most of it high-quality dissemination of hard science, debunking reality-denial, and the presentation of important breakthroughs in science. 5 more prolific posters quickly followed into oblivion, representing an estimated 40,000+ posts, and including another 2 of the moderating staff.

Layoff Notices Sent to Thousands of US Teachers

Hundreds of thousands of public school teachers across the United States are facing possible layoffs this coming academic year.

Confronting massive budget deficits, school districts throughout the country have been sending out notices (“pink slips”) to employees this spring, warning them that they are unlikely to have a job in the fall. The bloodletting is worst in California, Illinois, New York, Michigan, and New Jersey, but nearly every region in the country is affected.

China opens missile plant in Iran

China inaugurated a missile plant in Iran last month, even as the United States and its allies were pressing Beijing to support a new round of tough economic sanctions on the Islamic Republic over its nuclear program, Jane’s Defense Weekly reports.

It’s a military relationship that goes back two decades and, in light of Russia’s reluctance to provide the Iranians with advanced air-defense missile system to counter possible U.S. or Israeli airstrikes, is set to expand.

Robert Hewson, editor of Jane’s Air-Launched Weapons, reported that the factory for assembling and producing Iran’s Nasr-1 — Victory 1 — anti-ship missile was opened March 7.

Collateral Murder | WarCrimes in Iraq

WikiLeaks has released a classified US military video depicting the indiscriminate slaying of over a dozen people in the Iraqi suburb of New Baghdad — including two Reuters news staff.

Reuters has been trying to obtain the video through the Freedom of Information Act, without success since the time of the attack. The video, shot from an Apache helicopter gun-sight, clearly shows the unprovoked slaying of a wounded Reuters employee and his rescuers. Two young children involved in the rescue were also seriously wounded.

Women Can’t Drive

The Alien Menace! By Justin Raimondo

A new documentary series created by Stephen Hawking posits the mathematical certainty of extraterrestrial life – but the brilliant theoretical scientist recommends against trying to establish contact. “To my mathematical brain, the numbers [of planets] alone make thinking about aliens perfectly rational,” Hawking says. “The real challenge is to work out what aliens might actually be like.” That’s where the sense of caution sets in, because if they’re anything like us – rapacious warlike predators – then perhaps keeping a certain amount of distance is the better part of valor.

More cause and effect in the War against Terrorists

The extreme paradox of our actions in the Muslim world is now well-documented: namely, the very policies justified in the name of fighting Terrorism (invasions, occupations, bombings, lawless detentions, etc.) are the precise ones that most inflame and exacerbate that threat.  With the news this morning that “American troops raked a large passenger bus with gunfire near the southern [Afghan] city of Kandahar on Monday morning, killing as many as five civilians and wounding 18” — a report which unsurprisingly “infuriated Kandahar leaders” and triggered anti-American demonstrations — there’s one small though revealing vignette from last week I wanted to highlight.

Scott Horton Interviews Daniel Luban – Antiwar Radio

Daniel Luban, writer for the foreign policy blog Lobelog, discusses Israel’s postwar history, the lack of a serious peace process since Camp David, Obama’s sometimes-encouraging rhetoric on a peaceful two-state settlement, common ground between the anti-occupation Left and foreign policy/military realists worried about disruption of US regional goals, why Palestinians will have a powerful appeal for one person one vote democracy should a two-state solution fail and why parsing the public statements of Israeli officials is like reading tea leaves.

Well Mr. Big Brother IRS man… take my pound of flesh and sleep well – Andrew Joseph Stack

Andrew Joseph Stack crashed a small plane into the IRS building in Austin, Texas to avenge the mental anguish and torture meted out to him by the IRS. Here is what he wrote in his blog post…

If you’re reading this, you’re no doubt asking yourself, “Why did this have to happen?” The simple truth is that it is complicated and has been coming for a long time. The writing process, started many months ago, was intended to be therapy in the face of the looming realization that there isn’t enough therapy in the world that can fix what is really broken. Needless to say. this rant could fill volumes with example after example if I would let it. I find the process of writing it frustrating, tedious, and probably pointless… especially given my gross inability to gracefully articulate my thoughts in light of the storm raging in my head. Exactly what is therapeutic about that I’m not sure, but desperate times call for desperate measures.

We are all taught as children that without laws there would be no society, only anarchy. Sadly, starting at early ages we in this country have been brainwashed to believe that, in return for our dedication and service, our government stands for justice for all. We are further brainwashed to believe that there is freedom in this place, and that we should be ready to lay our lives down for the noble principals represented by its founding fathers. Remember? One of these was “no taxation without representation”. I have spent the total years of my adulthood unlearning that crap from only a few years of my childhood. These days anyone who really stands up for that principal is promptly labeled a “crackpot”, traitor and worse.

While very few working people would say they haven’t had their fair share of taxes (as can I), in my lifetime I can say with a great degree of certainty that there has never been a politician cast a vote on any matter with the likes of me or my interests in mind. Nor, for that matter, are they the least bit interested in me or anything I have to say.

Why is it that a handful of thugs and plunderers can commit unthinkable atrocities (and in the case of the GM executives, for scores of years) and when it’s time for their gravy train to crash under the weight of their gluttony and overwhelming stupidity, the force of the full federal government has no difficulty coming to their aid within days if not hours? Yet at the same time, the joke we call the American medical system, including the drug and insurance companies, are murdering tens of thousands of people a year and stealing from the corpses and victims they cripple, and this country’s leaders don’t see this as important as bailing out a few of their vile, rich cronies. Yet, the political “representatives” (thieves, liars, and self-serving scumbags is far more accurate) have endless time to sit around for year after year and debate the state of the “terrible health care problem”. It’s clear they see no crisis as long as the dead people don’t get in the way of their corporate profits rolling in.

And justice? You’ve got to be kidding!

How can any rational individual explain that white elephant conundrum in the middle of our tax system and, indeed, our entire legal system? Here we have a system that is, by far, too complicated for the brightest of the master scholars to understand. Yet, it mercilessly “holds accountable” its victims, claiming that

they’re responsible for fully complying with laws not even the experts understand. The law “requires” a signature on the bottom of a tax filing; yet no one can say truthfully that they understand what they are signing; if that’s not “duress” than what is. If this is not the measure of a totalitarian regime, nothing is.

How did I get here?

My introduction to the real American nightmare starts back in the early ’80s. Unfortunately after more than 16 years of school, somewhere along the line I picked up the absurd, pompous notion that I could read and understand plain English. Some friends introduced me to a group of people who were having ‘tax code’ readings and discussions. In particular, zeroed in on a section relating to the wonderful “exemptions” that make institutions like the vulgar, corrupt Catholic Church so incredibly wealthy. We carefully studied the law (with the help of some of the “best”, high-paid, experienced tax lawyers in the business), and then began to do exactly what the “big boys” were doing (except that we weren’t steeling from our congregation or lying to the government about our massive profits in the name of God). We took a great deal of care to make it all visible, following all of the rules, exactly the way the law said it was to be done.

The intent of this exercise and our efforts was to bring about a much-needed re-evaluation of the laws that allow the monsters of organized religion to make such a mockery of people who earn an honest living. However, this is where I learned thatthere are two “interpretations” for every law; one for the very rich, and one for the rest of us… Oh, and the monsters are the very ones making and enforcing the laws; the inquisition is still alive and well today in this country.

That little lesson in patriotism cost me $40,000+. 10 years of my life, and set my retirement plans back to 0. It made me realize for the first time that I live in a country with an ideology that is based on a total and complete lie. It also made me realize, not only how naive I had been, but also the incredible stupidity of the American public; that they buy, hook, line, and sinker, the crap about their “freedom”… and that they continue to do so with eyes closed in the face of overwhelming evidence and all that keeps happening in front of them.

Before even having to make a shaky recovery from the sting of the first lesson on what justice really means in this country (around 1984 after making my way through engineering school and still another five years of “paying my dues”), I felt I finally had to take a chance of launching my dream of becoming an independent engineer.

On the subjects of engineers and dreams of independence, I should digress somewhat to say that I’m sure that I inherited the fascination for creative problem solving from my father. I realized this at a very young age.

The significance of independence, however, came much later during my early years of college; at the age of 18 or 19 when I was living on my own as student in an apartment in Harrisburg, Pennsylvania. My neighbor was an elderly retired woman (80+ seemed ancient to me at that age) who was the widowed wife of a retired steel worker. Her husband had worked all his life in the steel mills of

central Pennsylvania with promises from big business and the union that, for his 30 years of service, he would have a pension and medical care to look forward to in his retirement. Instead he was one of the thousands who got nothing because the incompetent mill management and corrupt union (not to mention the government) raided their pension funds and stole their retirement. All she had was social security to live on.

In retrospect, the situation was laughable because here I was living on peanut butter and bread (or Ritz crackers when I could afford to splurge) for months at a time. When I got to know this poor figure and heard her story I felt worse for her plight than for my own (I, after all, I thought I had everything to in front of me). I was genuinely appalled at one point, as we exchanged stories and commiserated with each other over our situations, when she in her grandmotherly fashion tried to convince me that I would be “healthier” eating cat food (like her) rather than trying to get all my substance from peanut butter and bread. I couldn’t quite go there, but the impression was made. I decided that I didn’t trust big business to take care of me, and that I would take responsibility for my own future and myself.

Return to the early ’80s, and here I was off to a terrifying start as a ‘wet-behind-the-ears’ contract software engineer… and two years later, thanks to the fine backroom, midnight effort by the sleazy executives of Arthur Andersen (the very same folks who later brought us Enron and other such calamities) and an equally sleazy New York Senator (Patrick Moynihan), we saw the passage of 1986 tax reform act with its section 1706.

For you who are unfamiliar, here is the core text of the IRS Section 1706, defining the treatment of workers (such as contract engineers) for tax purposes. Visit this link for a conference committee report ( /1706.shtml#ConferenceCommitteeReport) regarding the intended interpretation of Section 1706 and the relevant parts of Section 530, as amended. For information on how these laws affect technical services workers and their clients, read our discussion here (


(a) IN GENERAL – Section 530 of the Revenue Act of 1978 is amended by
adding at the end thereof the following new subsection:

(d) EXCEPTION. – This section shall not apply in the case of an individual who pursuant to an arrangement between the taxpayer and another person, provides services for such other person as an engineer, designer, drafter, computerprogrammer, systems analyst, or other similarly skilled worker engaged in a similar line of work.

(b) EFFECTIVE DATE. – The amendment made by this section shall apply to
remuneration paid and services rendered after December 31, 1986.


■ “another person” is the client in the traditional job-shop relationship.

  • “taxpayer” is the recruiter, broker, agency, or job shop.
  • “individual”, “employee”, or “worker” is you.

Admittedly, you need to read the treatment to understand what it is saying but it’s not very complicated. The bottom line is that they may as well have put my name right in the text of section (d). Moreover, they could only have been more blunt if they would have came out and directly declared me a criminal and non-citizen slave. Twenty years later, I still can’t believe my eyes.

During 1987, I spent close to $5000 of my ‘pocket change’, and at least 1000 hours of my time writing, printing, and mailing to any senator, congressman, governor, or slug that might listen; none did, and they universally treated me as if I was wasting their time. I spent countless hours on the LA. freeways driving to meetings and any and all of the disorganized professional groups who were attempting to mount a campaign against this atrocity. This, only to discover that our efforts were being easily derailed by a few moles from the brokers who were just beginning to enjoy the windfall from the new declaration of their “freedom”. Oh, and don’t forget, for all of the time I was spending on this, I was loosing income that I couldn’t bill clients.

After months of struggling it had clearly gotten to be a futile exercise. The best we could get for all of our trouble is a pronouncement from an IRS mouthpiece that they weren’t going to enforce that provision (read harass engineers and scientists). This immediately proved to be a lie, and the mere existence of the regulation began to have its impact on my bottom line; this, of course, was the intended effect.

Again, rewind my retirement plans back to 0 and shift them into idle. If I had any sense, I clearly should have left abandoned engineering and never looked back.

Instead I got busy working 100-hour workweeks. Then came the L.A. depression of the early 1990s. Our leaders decided that they didn’t need the all of those extra Air Force bases they had in Southern California, so they were closed; just like that. The result was economic devastation in the region that rivaled the widely publicized Texas S&L fiasco. However, because the government caused it, no one gave a shit about all of the young families who lost their homes or street after street of boarded up houses abandoned to the wealthy loan companies who received government funds to “shore up” their windfall. Again. I lost my retirement.

Years later, after weathering a divorce and the constant struggle trying to build some momentum with my business, I find myself once again beginning to finally pick up some speed. Then came the .COM bust and the 911 nightmare. Our leaders decided that all aircraft were grounded for what seemed like an eternity; and long after that, ‘special’ facilities like San Francisco were on security alert for months. This made access to my customers prohibitively expensive. Ironically, after what they had done the Government came to the aid of the airlines with

billions of our tax dollars … as usual they left me to rot and die while they bailed out their rich, incompetent cronies WITH MY MONEY! After these events, there went my business but not quite yet all of my retirement and savings.

By this time, I’m thinking that it might be good for a change. Bye to California, I’ll try Austin for a while. So I moved, only to find out that this is a place with a highly inflated sense of self-importance and where damn little real engineering work is done. I’ve never experienced such a hard time finding work. The rates are 1/3 of what I was earning before the crash, because pay rates here are fixed by the three or four large companies in the area who are in collusion to drive down prices and wages… and this happens because the justice department is all on the take and doesn’t give a fuck about serving anyone or anything but themselves and their rich buddies.

To survive, I was forced to cannibalize my savings and retirement, the last of which was a small IRA. This came in a year with mammoth expenses and not a single dollar of income. I filed no return that year thinking that because I didn’t have any income there was no need. The sleazy government decided that they disagreed. But they didn’t notify me in time for me to launch a legal objection so when I attempted to get a protest filed with the court I was told I was no longer entitled to due process because the time to file ran out. Bend over for another $10,000 helping of justice.

So now we come to the present. After my experience with the CPA world, following the business crash I swore that I’d never enter another accountant’s office again. But here I am with a new marriage and a boatload of undocumented income, not to mention an expensive new business asset, a piano, which I had no idea how to handle. After considerable thought I decided that it would be irresponsible NOT to get professional help; a very big mistake.

When we received the forms back I was very optimistic that they were in order. I had taken all of the years information to Bill Ross, and he came back with results very similar to what I was expecting. Except that he had neglected to include the contents of Sheryl’s unreported income; $12,700 worth of it. To make matters worse, Ross knew all along this was missing and I didn’t have a clue until he pointed it out in the middle of the audit. By that time it had become brutally evident that he was representing himself and not me.

This left me stuck in the middle of this disaster trying to defend transactions that

have no relationship to anything tax-related (at least the tax-related transactions were poorly documented). Things I never knew anything about and things my wife had no clue would ever matter to anyone. The end result is… well, just look around.

I remember reading about the stock market crash before the “great” depression and how there were wealthy bankers and businessmen jumping out of windows when they realized they screwed up and lost everything. Isn’t it ironic how far we’ve come in 60 years in this country that they now know how to fix that little economic problem; they just steal from the middle class (who doesn’t have any

say in it, elections are a joke) to cover their asses and it’s “business-as-usual”. Now when the wealthy fuck up, the poor get to die for the mistakes… isn’t that a clever, tidy solution.

As government agencies go, the FAA is often justifiably referred to as a tombstone agency, though they are hardly alone. The recent presidential puppet GW Bush and his cronies in their eight years certainly reinforced for all of us that this criticism rings equally true for all of the government. Nothing changes unless there is a body count (unless it is in the interest of the wealthy sows at the government trough). In a government full of hypocrites from top to bottom, life is as cheap as their lies and their self-serving laws.

I know I’m hardly the first one to decide I have had all I can stand. It has always been a myth that people have stopped dying for their freedom in this country, and it isn’t limited to the blacks, and poor immigrants. I know there have been countless before me and there are sure to be as many after. But I also know that by not adding my body to the count, I insure nothing will change. I choose to not keep looking over my shoulder at “big brother” while he strips my carcass. I choose not to ignore what is going on all around me, I choose not to pretend that business as usual won’t continue; I have just had enough.

I can only hope that the numbers quickly get too big to be white washed and ignored that the American zombies wake up and revolt; it will take nothing less. I would only hope that by striking a nerve that stimulates the inevitable double standard, knee-jerk government reaction that results in more stupid draconian restrictions people wake up and begin to see the pompous political thugs and their mindless minions for what they are. Sadly, though I spent my entire life trying to believe it wasn’t so, but violence not only is the answer, it is the only answer. The cruel joke is that the really big chunks of shit at the top have known this all along and have been laughing, at and using this awareness against, fools like me all along.

I saw it written once that the definition of insanity is repeating the same process over and over and expecting the outcome to suddenly be different. I am finally ready to stopthis insanity. Well, Mr Big Brother IRS man, let’s try something different; take my pound of flesh and sleep well.

The communist creed: From each according to his ability, to each according to his need.

The capitalist creed: From each according to his gullibility, to each according to his greed.

Joe Stack (1956-2010) 02/18/2010

Clamor For Protectionism


We have seen the cross of fixed exchange rates in fiat money. A few years back, Indian exporters were taking a hit as the Reserve Bank of India (RBI) didn’t allow Indian Rupee to freely fluctuate against other currencies. The Rupee, which was overvalued, appreciated considerably against the Dollar. This happened not just in India. As Henry Hazlitt noted in “Will Dollars Save the World?”, this was the policy followed by most European countries. Mostly Governments overvalued their currency, which led to a surplus of the overvalued currency and a shortage of the undervalued currency. This is an illustrations of the often misunderstood “Gresham’s Law”. Gresham’s law states that “artificially overvalued money drives out of circulation artificially undervalued money”.(The definition that bad money drives out good is misleading, to say the least) The end result is commonly known as a “Dollar shortage”, accompanied with cries for dollar aid and rationing of imports. This policy has changed in course of time. Some countries follow the exact opposite policy-undervaluing their currency.

Paul Krugman, in his New York Times column, has pointed our attention towards China, which has pegged its currency at about 6.8 Yuan to the Dollar. China has a currency peg for a long time. This, Krugman says, is predatory leaving the Chinese manufacturers with a large cost advantage over its rivals, leading to huge trade surpluses. Krugman calls for protectionism to deal with the Chinese policy. The Yuan is undervalued, which makes price of exports low in terms of dollar. Foreigners find imports less expensive and exports more expensive. The Yuan, however, floats against other currencies.

It is important to see why it happens. Imagine that a good sells at 35 Yuan in China. Let’s assume that the free market rate for Yuan is 3.5 Yuan. On a free market, that good would cost 10 Dollars. But, as a result of controls, one has to pay only 5 dollars. This makes exports from China cheaper for American consumers. The price is lowered by nearly 50%. So, it should be obvious that the Americans would want to import more from China in such a situation. In the same way, a good that costs $10 in the United States has a free market price of 35 Yuan. But, as a result of controls, the Chinese will have to pay 68 Dollars. That’s an increase of nearly 100%. As a result the Chinese would want to import less from the United States. It is almost as if in China, an import duty of around 100% is levied on American products. Who would want to buy American products at such a high price? This helps the exporting community in China at the expense of Chinese consumers and certain American producers.

Sounds economics tells us that if the Chinese government allows Yuan to appreciate, it would put a break on the inflationary boom. It would contain domestic inflation in China. It would also bring down the pressure on the US government to erect protectionist barriers. It is in the self interest of China, not of the Unites States, to change its policies for good. Contrary to what Krugman wrote, China’s policies don’t pose a threat to the world. China is not “stealing” other people’s jobs. This is not to say that China’s currency policy is good. It unfairly punishes Chinese consumers, to whom the prices of American products appear high. Probably, things will change in the near future. Some economists, including Surjit Bhalla, has predicted that China’s exchange rate will appreciate significantly starting 2010. Bhalla expects a first year appreciation to about 6 Yuan per dollar from the present 6.8 level.

Krugman is of the opinion that China doesn’t act like other major economies in its currency policy. This is a half truth. It is true that most major currencies float against each other. But, most countries peg their currency against some major currencies. Moreover, Yuan floats against many other currencies, which has caused both appreciation and depreciation in the recent past. It should also be said that Yuan is stronger against the dollar than when China put a rein on its appreciation. Is Krugman justified in his claim that Chinese policy causes unemployment in the United States? It is true that some people in the US will lose jobs as of a slackening in exports, but a reduction in overall employment will be brought about only by coercive labor policy. Some producers might make losses, but it will be largely offset by the gains of consumers, which they will save or spend.

Donald Boudreaux has written a wonderful piece on “Freeman”, attacking the protectionist position. Protectionists, he says, abhor the fact that Americans are importing more from China. The policies of foreign countries make them uncomfortable. He rightly points out that the low priced Yuan will make Chinese products cheaper to American consumers. This doesn’t help the Chinese and harm Americans. Quite the contrary, in fact! It harms the Chinese economy, and helps the United States and other countries which trade with China. Protectionism would only prevent goods from being produced in a cost-effective manner. The theory of comparative advantage tells us that free trade would lead to resources being used in the most efficient way. Boudreaux illustrates the principle with a simple example. His elementary school used to sell tickets in a fund raising fair. These tickets could be exchanged for various items students want to purchase. What if the school had undervalued the tickets? Would it help the school? Obviously not! It would have helped the students at the expense of the school. Students would be able to buy more items at a lower price. So, things should be obvious by now.

Krugman doesn’t see anything necessarily wrong with the policy other than that the Chinese Government has fixed an unreasonably rate. He is wrong there too. The issue has become too contentious that there are more than two sides to it. One side believes in Government’s supreme wisdom to set the exchange rate. The other sides, mostly monetarists call for a free market in exchange rates. “Why should the Government fix the price of gold?” they ask. While freely fluctuating currencies are better than fixed exchange rates in fiat money, to call for a free market as a final solution is absurd. Advocates of a gold standard rightly understand that gold lies in the vault of the central bank, and to denationalize it, the Government should set a value so that it is possible to exchange it, one for one, for the currency claims on gold.

Exchange rates are, ideally, not to be arbitrarily set by the government, or to be left to the market to decide. Each currency should be strictly defined in terms of gold, and fixed permanently that it is interchangeable and redeemable at that weight. When done so, each and every currency would be anchored to each other at a fixed exchange rate, that seasonal fluctuations wouldn’t wreak havoc on the export or import communities. The maintenance of fluctuating exchange rates and protectionism would only reduce the incentives to innovate and hence impede it.

Herbert Hoover and the Myth of LAISSEZ-FAIRE

by Murray Rothbard (1926-1995)

The conventional wisdom, of historian and layman alike, pictures Herbert Hoover as the last stubborn guardian of laissez-faire in America. The laissez-faire economy, so this wisdom runs, produced the Great Depression in 1929, and Hoover’s traditional, do-nothing policies could not stem the tide. Hence, Hoover and his hidebound policies were swept away, and Franklin Roosevelt entered to bring to America a New Deal, a new progressive economy of state regulation and intervention fit for the modern age.

The major theme of this paper is that this conventional historical view is pure mythology and that the facts are virtually the reverse: that Herbert Hoover, far from being an advocate of laissez-faire, was in every way the precursor of Roosevelt and the New Deal, that, in short, he was one of the major leaders of the twentieth-century shift from relatively laissez-faire capitalism to the modern corporate state. In the terminology of William A. Williams and the New Left, Hoover was a preeminent “corporate liberal.”

When Herbert Hoover returned to the United States in late 1919, fresh from his post as Relief Administrator in Europe, he came armed with a suggested “Reconstruction Program” for America. The program sketched the outlines of a corporate state; there was to be national planning through “voluntary” cooperation among businesses and groups under “central direction.”(1) The Federal Reserve System was to allocate capital to essential industries and thereby eliminate the industrial “waste” of free markets. Hoover’s plan also included the creation of public dams, the improvement of waterways, a federal home-loan banking system, the promotion of unions and collective bargaining, and governmental regulation of the stock market to eliminate “vicious speculation.”(2) It is no wonder that Progressive Republicans as well as such Progressive Democrats as Louis Brandeis, Herbert Croly, and others on the New Republic, Edward A. Filene, Colonel Edward M. House, and Franklin D. Roosevelt, boomed Hoover for the presidency during the 1920 campaign.

Hoover was appointed Secretary of Commerce by President Harding under pressure by the Progressive wing of the party, and accepted under the condition that he would be consulted on all the economic activities of the federal government. He thereupon set out deliberately to “reconstruct America.”(3)

Hoover was only thwarted from breaking the firm American tradition of laissez-faire during a depression by the fact that the severe but short-lived depression of 1920-21 was over soon after he took office. He also faced some reluctance on the part of Harding and the Cabinet. As it was, however, Hoover organized a federal committee on unemployment, which supplied unemployment relief through branches and subbranches to every state, and in numerous cities and local communities. Furthermore, Hoover organized the various federal, state, and municipal governments to increase public works, and persuaded the biggest business firms, such as Standard Oil of New Jersey and United States Steel, to increase their expenditure on repairs and construction. He also persuaded employers to spread unemployment by cutting hours for all workers instead of discharging the marginal workers – an action he was to repeat in the 1929 Depression.(4)

Hoover called for these interventionist measures with an analogy from the institutions of wartime planning and collaboration, urging that Americans develop “the same spirit of spontaneous cooperation in every community for reconstruction that we had in war.”(5)

An important harbinger for Hoover’s later Depression policies was the President’s Conference on Unemployment, a gathering of eminent leaders of industry, banking, and labor called by President Harding in the fall of 1921 at the instigation of Hoover. In contrast to Harding’s address affirming laissez-faire as the proper method of dealing with depressions, Hoover’s opening address to the Conference called for active intervention.(6) Furthermore, the Conference’s major recommendation – for coordinated federal state expansion of public works to remedy depressions – was prepared by Hoover and his staff in advance of the conference.(7) Of particular importance was the provision that public works and public relief were to be supplied only at the usual wage rate – a method of trying to maintain the high wage rates of the preceding boom during a depression.

Although these interventions did not have time to take hold in the 1921 depression, a precedent for federal intervention in an economic depression had now been set, as one of Hoover’s admiring biographers writes, “rather to the horror of conservatives.”(8)

The President’s Conference established three permanent research committees, headed overall by Hoover, which continued during the 1920s to publish studies advocating public-works stabilization during depressions. One such book, Seasonal Operations in the Construction Industry (Washington, D.C.: Conference on Unemployment, 1921), the foreword to which was written by Hoover, urged seasonal stabilization of construction. This study was in part the result of a period of propaganda emitted by the American Construction Council, a trade association for the construction industry, which of course was enthusiastic about large-scale programs of government contracts for the construction industry. This Council was founded jointly by Herbert Hoover and Franklin D. Roosevelt in the summer of 1922, with the aim of stabilizing and cartelizing the industry, and of planning the entire construction industry through the imposition of various codes of “ethics” and of “fair practice.” The codes were the particular idea of Herbert Hoover. Following the path of all would-be cartelists who are hostile to no one more than the individualistic competitor, Franklin D. Roosevelt, President of the American Construction Council, took repeated opportunity to denounce rugged individualism and profit-seeking by individuals.(9)

Throughout the 1920s Hoover supported numerous bills in Congress for public-works programs during depressions. He was backed in these endeavors by the American Federation of Labor [AF of L], the United States Chamber of Commerce, and the American Engineering Council, of which Hoover was for a time president. It was clear that the engineering profession would also benefit greatly from government subsidization of the construction industry. By the middle twenties, President Coolidge, Secretary Mellon, and the National Democratic Party had been converted to the scheme, but Congress was not yet convinced.

After he was elected President, but before taking office, Hoover allowed his public-works plan (the “Hoover Plan”) to be presented to the Conference of Governors in late 1928 by Governor Ralph Owen Brewster of Maine. Brewster called the plan the “Road to Plenty,” a name that Hoover had taken from Foster and Catchings,(10) the popular co-authors of a plan for massive inflation and public works as the way to end depressions. Although seven or eight governors were enthusiastic about the plan, the Governors’ Conference tabled the scheme. A large part of the press hailed the plan extravagantly as a “pact to outlaw depression.” Leading the applause was William Green, head of the AF of L, who hailed the plan as the most important announcement on wages and employment in a decade, and John P. Frey of the AF of L who announced that Hoover had accepted the AF of L theory that depressions are caused by low wages. The press reported that “labor is jubilant” because the new President’s remedy for unemployment is “identical with that of labor.”

The close connection between Hoover and the labor leadership was no isolated phenomenon. Hoover had long agitated for industry to encourage and incorporate labor unionism within the framework of the emerging industrial order. Moreover, he played a crucial role in converting the labor leaders themselves to the idea of a corporate state with unions as junior partners in the system, a state that would organize and harmonize labor and capital.

Hoover’s pro-union views first achieved prominence when, as chairman of President Wilson’s Second Industrial Conference (1919/20), he guided this conference of corporate-liberal industrialists and labor leaders to criticize “company unionism” and to urge the expansion of collective bargaining, government arbitration boards for labor disputes, and a program of national health and old-age insurance. Soon afterward Hoover arranged a meeting of leading industrialists with “advanced views,” in an unsuccessful attempt to persuade them to “establish liaison” with the AF of L. In January, 1921, the AF of L journal published a significant address by Hoover, which called for the “definite organization of great national associations” of economic groups and their mutual cooperation. This cooperation would serve to promote efficiency, and mitigate labor-management conflict. Above all, workers would be protected from “the unfair competition of the sweatshop.” Still more did this mean “protection” of the lower-cost large employers from the competition of their smaller “sweatshop” rivals – a typical instance of monopolizers using humanitarian rhetoric to gain public support for the restriction and suppression of competition. Hoover went so far in this address as to support the closed shop, provided that the closure was to be for the sake of unity of purpose in aiding the employer to increase production and to mold a cooperative labor force. In conclusion, Hoover called for a new economic system, what was in effect a corporate state, that would provide an alternative to old-fashioned laissez-faire capitalism on the one hand and Marxian socialism on the other.(11)

In an authoritative study, William English Walling, an intimate of Samuel Gompers, wrote of the crucial influence of Hoover’s theories upon Gompers and the AF of L, especially from 1920 on. This influence was particularly strong in persuading the labor leaders to endorse the idea of organizing all the large occupation groups and then effecting their mutual harmony and cooperation under the aegis and control of the federal government. Capital and labor in each industry, organized in collaboration, were to have the role of government of that particular industry.(12) It was indeed appropriate for the French politician Edouard Herriot to praise Hoover in 1920 for his idea of fusing the “economic trinity” of labor, capital, and government into one system, thus putting an end to the class struggle.(13)

Another reason for Hoover’s pro-union attitude was that he had adopted the increasingly popular thesis that high wage rates were a major cause of prosperity. It then followed that wage rates must not be lowered during depressions. In contrast to all prior depressions, including 1920-21, when wage rates were cut sharply, wage-cutting was considered by Hoover to be impermissible and as leading to a failure in purchasing power and the perpetuation of depression. These views were to prove a fateful harbinger of the policies used during the Great Depression.

One of Hoover’s most important labor interventions during the 1920s came in the steel industry. He persuaded Harding to hold a conference of steel manufacturers in May, 1922, after which he and Harding called upon the steel magnates to bow to the workers’ demand to shift from a twelve-hour to an eight-hour day. In doing so, Hoover was siding with the liberal wing of the steel industry, led by Charles R. Hook and Alexander Legge, whose plants had already instituted the shorter workday, and who of course were anxious to impose higher costs on their lagging competitors. When Judge Gary of United States Steel and other leading steelmen refused to go along, Hoover acted to mobilize public opinion against them. Thus, he induced the national engineering societies to endorse the eight-hour day, and himself wrote the introduction to the endorsement. Finally, Hoover wrote a stern letter of rebuke for President Harding, which Harding sent to Gary on June 18, 1923, forcing Gary to capitulate.

Herbert Hoover also played a leading role in collectivizing labor relations in the railroad industry, thereby cartelizing that industry still further than before and incorporating railway unions within the cartel framework. After repeated and largely unsuccessful interventions to try to gain pro-union concessions during the railroad strike of 1922, Hoover became a major author – along with union lawyers Donald Richberg and David E. Lilienthal – of the Railway Labor Act of 1926, by which the railway unions got themselves established in the industry. The ancestor of the New Deal’s Wagner Act, the Railway Labor Act, imposed collective bargaining upon the industry; in return, the unions agreed to give up the strike weapon. The great majority of the railroads warmly supported this new departure in American labor relations.(14)

“Herbert Hoover’s entire program of activities as Secretary of Commerce was designed to advance the subsidization of industry and the interpenetration of government and business.”

In a major address before the United States Chamber of Commerce, on May 7, 1924, Hoover spelled out his corporatist views in some detail. He called for the self-regulation of industry by way of trade associations, farm groups, and unions. In a vein strongly reminiscent of English Guild Socialism, Hoover harked back to the Middle Ages for his model: the guilds, he asserted, obtained “more stability through collective action.” The job of the associations was to strengthen “ethical standards” in industry by eliminating “waste” and “destructive competition.” In short, Hoover was calling for the national cartelization of industry under the aegis of government.(15) Samuel Gompers hailed the address and considered this “new economic policy” to be the same as the newly forged position of the AF of L.(16)

Herbert Hoover’s entire program of activities as Secretary of Commerce was designed to advance the subsidization of industry and the interpenetration of government and business. As Hoover’s admirer and former head of the United States Chamber of Commerce put it, Hoover had advanced the “teamplay of government with the leaders of character in the various industries.”(17) Thus, Hoover expanded the Bureau of Foreign and Domestic Commerce fivefold, opening numerous offices at home and abroad. His trade commissioners and attachés aided American exports in numerous ways. He also reorganized the Bureau along commodity lines, with each commodity division headed by someone chosen by the particular trade or industry, from the trade “he knows and represents.”(18) Furthermore, Hoover promoted the cartelization of each industry by inducing each trade to create a committee to cooperate with the Department of Commerce, and to select the industry’s choice for head of the commodity division. Officials in the Department were systematically recruited from business, to stay in the Department for a few years, and then to return to private business at higher-paying jobs.

One favorite method of Hoover’s for subsidizing as well as cartelizing exports was to foster the creation of export-trade associations. Thus, in 1926, Hoover repeatedly urged the coffee trade to band together and create a National Coffee Council, so that all American coffee buyers could join together to lower buying prices. Hoover and his aides craftily suggested to the coffee trade that one union leader and one woman consumer be named to the proposed Coffee Council as a public-relations device to relieve public fears of a cartel.(19)

The difficulties of forming a coffee cartel proved insurmountable; but Hoover had more luck with the rubber industry, organizing it to fight British cartel restrictions on Asian rubber production that had been imposed in 1922. Hoover led the rubber industry in a drive to induce Americans to buy less rubber and hence to lower the price, as well as to promote American-owned sources of supply, by such means as government subsidies to new United States-owned rubber plantations in the Philippines.(20) An American rubber-buying pool was established in 1926, and lasted until the end of British restrictions two years later.(21)

As soon as he assumed office, Hoover induced President Harding to pressure investment bankers to require that the proceeds of their loans abroad be used to purchase American exports. When little came of this pressure, Hoover began to threaten congressional action if the banks did not agree. For Hoover, the aim of subsidizing exports was so important that even unsound foreign loans that could serve this purpose were considered worthwhile.(22)

Hoover’s opposition to foreign “monopoly” did not of course prevent him from supporting a protective tariff in the United States, thus providing privilege to American domestic as well as export firms. During the 1920s, Hoover was also active in promoting the cartelization of the domestic oil industry. As an active member of President Coolidge’s Federal Oil Conservation Board since its inception in 1924, Hoover worked in collaboration with a growing majority of the oil industry in behalf of restrictions on oil production in the name of “conservation.” This was a “conservation,” by the way, that was urged regardless of whether American oil resources seemed to be scarce or superabundant. Hoover was particularly interested in removing antitrust limitations on industrial cooperation in such restrictive measures.(23)

In the field of coal, Hoover sponsored repeated attempts at cartelization. The first attempt was a bill in 1921 to establish a federal coal commission to gather and publish statistics of the coal industry, so as to publicize price data and thereby facilitate industry-wide price-fixing. Failing a commission, the Department of Commerce was eager to take on the task. However, this and a later scheme by Hoover to encourage marketing cooperatives in coal by exemption from antitrust laws, were defeated by the opposition of competitive low-cost Southern coal operators. Undaunted, Hoover, in 1922, prepared a full-fledged cartelizing plan. The idea was to establish unemployment insurance in the coal industry, so designed as to penalize in the cost of the plan the part-time and seasonal coal mines, and thereby to drive these higher-cost mines out of business. The coal industry would then form cooperatives, which would fix and allocate quotas on production, putting more mines out of operation, the owners to be compensated out of the increased cartel profits made by the rest of the industry. The district coal cooperatives were to market all the coal and then divide the revenues proportionately. But once again Hoover could not command the needed support from the coal industry and the public.(24)

Hoover played a similar role in cartelizing the cotton textile industry. Favoring the “open-price” plan for stimulating price agreements, Hoover used his Department of Commerce to provide the price publicity that might be illegal for a trade association. Hoover also played a role in forcing the cotton textile industry to establish a nationwide rather than a regional trade association, to the delight of the bulk of the industry. Hoover repeatedly urged the many reluctant firms to join this Cotton Textile Institute, which gave promise of stabilizing the industry and eliminating “waste” in production. Hoover went so far as to endorse, in 1927, the CTFs plan to urge each of the member firms to cut production by a certain definite amount.(25)

One of the clearest indications of how far removed Hoover was from laissez-faire was his leading role in nationalizing the airwaves of the fledgling radio industry. Hoover put through the nationalizing Radio Act in 1927 as a substitute for the courts’ increasing application of the common law, granting private ownership of the airwaves to the first radio stations that put them into use.(26)

One of the most pervasive and least studied methods by which Hoover helped to monopolize industry during the 1920s was to impose standardization and “simplification” of materials and products. In this way, Hoover managed to eliminate the “least necessary” varieties of a myriad of products, greatly reducing the number of competitive sizes, for example, of automobile wheels and tires, and threads for nuts and bolts. All in all, about three thousand articles were thus “simplified.” The recommendations for simplification were worked out by the Department of Commerce with the aid of the eager committees representing each trade.(27)

Hoover’s approach to the farm question was consistent: a repeated emphasis on the cartelization of agriculture.(28) At first, the favored means was the subsidizing by government of farm cooperatives. Hoover helped write the act of August, 1921, which expanded the funds allotted to the War Finance Corporation and permitted it to lend directly to the farm co-ops. He also supported the farm-bloc bill for an extensive system of Federal Intermediate Credit Banks and a Federal Farm Loan Board, which were to lend federal funds to farm co-ops. In the Department of Commerce, he was able to help farm co-ops with marketing programs, and with aid in finding export markets.

Hoover soon enlarged his ideas of farm intervention; he was one of the earliest proponents of a Federal Farm Board, designed to raise and support farm prices by creating federal stabilization corporations that were to purchase farm products and to lend money to farm co-ops for such purchases. And to this end, in 1924, Hoover helped write the unsuccessful Capper-Williams Bill. As a presidential candidate in 1928 he promised the farm bloc that he would promptly institute a farm price-support program.(29) It was a promise that he hastened to keep, for as soon as he became President, Hoover drove through the Agricultural Marketing Act of 1929. This Act created a Federal Farm Board with a revolving fund of $500 million to raise and support farm prices and to aid farm co-ops; the Board was to conduct its price-raising operations through stabilization corporations for the various commodities, with the corporations also serving as marketing agencies for the coops. Furthermore, Hoover appointed to the Board representatives of the various agricultural and farm co-op interests: a cartelization operated by the cartelists themselves.(30)

Mobilizer and economic planner of World War I; persistent advocate of cartelization and government-business partnership in stabilizing industry; pioneer in promoting a pro-union outlook in industry as a method of insuring the cooperation of labor; booster of high wages as a sustainer of purchasing power and business prosperity; ardent proponent of massive public-works schemes during depressions; advocate of government programs to boost farm prices and farm co-ops; no one could have been as ideally suited as Herbert Clark Hoover to be President at the onset of a Great Depression and to react with a radical program of statism to be trumpeted as a “New Deal.” And that is precisely what Herbert Hoover did. It is one of the great ironies of historiography that the founder of every single one of the features of Franklin Roosevelt’s New Deal was to become enshrined among historians and the general public as the last stalwart defender of laissez-faire.

Let us consider the New Deal – a rapid intensification of government intervention that began in response to a severe depression, and featured: cartelization of industry through government-and-business planning; bolstering of prices and wage rates; expansion of credit; massive unemployment relief and public-works programs; support of farm prices; propping up of weak and unsound business positions. Every one of these features was founded, and consciously so, by President Hoover. Hoover consciously and deliberately broke sharply and rapidly with the whole American tradition of a laissez-faire response to depression. As Hoover himself proclaimed during his presidential campaign of 1932:

. . . we might have done nothing. That would have been utter ruin. Instead we met the situation with proposals to private business and to Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic. We put it into action. . . . No government in Washington has hitherto considered that it held so broad a responsibility for leadership in such times. . . . For the first time in the history of depressions, dividends, profits and the cost of living, have been reduced before wages have suffered. . . . They were maintained until the cost of living had decreased and the profits had practically vanished. They are now the highest real wages in the world.(31)

Hoover began his “gigantic” program as soon as the stock market crashed on October 24, 1929. His most fateful act was to call a series of White House Conferences with the nation’s leading financiers and industrialists, and induce them to pledge that wage rates would not be lowered and that they would expand their investments. Hoover explained the general aim of these conferences to be the coordination of business and government agencies in concerted action. Industrial group after group pledged that wage rates would be maintained. Hoover insisted that, contrary to previous depressions when wage rates fell promptly and rapidly (and, we might add, the depression was then soon over), wage rates must now be the last to fall, in order to prop up mass purchasing power. The entire burden of the recession, then, must fall upon business profits. The most important of these conferences occurred on November 21, when such great industrial leaders as Henry Ford, Julius Rosenwald, Walter Teagle, Owen D. Young, Alfred P. Sloan, Jr., and Pierre du Pont pledged their cooperation to the Hoover program. These agreements were made public, and Hoover hailed them at a White House conference on December 5, as an “advance in the whole conception of the relationship of business to public welfare . . . a far cry from the arbitrary and dog-eat-dog attitude of . . . the business world of some thirty or forty years ago.” The A F of L lauded this new development; never before, it proclaimed, have the industrial leaders “been called upon to act together . . .”(32) By the following March the AF of L was reporting that the big corporations were indeed keeping their agreement to maintain wage rates.(33)

In September, 1930, Hoover took another step to relieve unemployment and, by the way, to prop up wage rates. By administrative decree, Hoover in effect barred almost all further immigration into the country. In keeping with this policy of curing unemployment by forcing people out of the labor force, he deliberately accelerated the deportation of “undesirable” aliens, the deportation level reaching 20,000 per year.

The wage agreement held firm in the midst of a cataclysmic Depression and unprecedented and prolonged mass unemployment.(34) In fact, since prices were falling rapidly, this meant that the real wage rates of those lucky enough to remain employed were increasing sharply. The economist Leo Wolman noted at the time that it “is indeed impossible to recall any past depression of similar intensity and duration in which the wages of prosperity were maintained as long as they have been in the depression of 1930-31.”(35) It was a record hailed by liberals from the AF of L to John Maynard Keynes. It was only by 1932, after several years of severe depression and catastrophic unemployment, that businesses could keep up wage rates no longer. When, in the fall of 1931, the United States Steel Corporation finally summoned up the courage to cut wage rates, it did so over the opposition of its own president and to the accusation of William Green that its 1929 pledge to the White House was being violated.(36) The large firms were particularly slow to break the agreement, and even then many of the cuts were made in executive salaries where the unemployment problem was at a minimum. Even with the cuts in wages, wage rates fell by only twenty-three percent from 1929 to 1933 – less than the decline of prices. Thus, real wage rates actually rose over the period, by over eight percent in the leading manufacturing industries. The drop in wage rates had been far more prompt and extensive in the far milder 1921 depression. In the face of this record of wage maintenance, the unemployment rate rose to twenty-five percent of the labor force by 1933, and to a phenomenal forty-six percent in the leading manufacturing industries. There were, unfortunately, only a few observers and economists who understood the causal connection between these events: that maintenance of wage rates was precisely the major factor in deepening and prolonging mass unemployment and the Depression.(37)

Hoover did his best, furthermore, to engineer a massive inflation of money and credit. In the crucial figure of government securities owned by the Federal Reserve Banks, Federal Reserve holdings rose from $300 million in September, 1929, to $1,840 million in March, 1933 – a sixfold increase. Ordinarily this would have led to a sixfold expansion of bank reserves and an enormous inflation of the money supply. But the Hoover drive for inflation was thwarted by the forces of the economy. Federal Reserve rediscounts fell by half a billion due to sluggish business demand, despite a sharp drop in the Federal Reserve’s discount rate; cash in circulation increased by one and a half billion due to the public’s growing distrust of the shaky and inflated banking system; and the banks began to pile up excess reserves because of their fear of making investments amidst the sea of business failures. The Hoover Administration grew livid with the banks, and Hoover denounced the “lack of cooperation of the commercial banks . . . in the credit expansion drive.” Atlee Pomerene, head of the Reconstruction Finance Corporation, went so far as to declare that any bank that is liquid and doesn’t extend its loans is a “parasite on the country.”(38) Hoover told Secretary of the Treasury Ogden Mills to form a committee of leading industrialists and bankers to pressure the banks into extending their credit.(39) By the end of his term and the abject failure of his inflationist program, Hoover was proposing what are surely typical New Deal measures: bank holidays, and at least temporary federal “insurance” of bank deposits.

In fact, Hoover seriously considered invoking a forgotten wartime law making the “hoarding” of gold (that is, redemption of dollars into gold) a criminal offense.(40) Although he did not go that far, he did try his best to hamper the workings of the gold standard by condemning and blackening the names of people who lawfully redeemed their dollars in gold or their bank deposits into cash. In February, 1932, Hoover established the Citizens’ Reconstruction Organization under Colonel Frank Knox of Chicago, dedicated to condemning “hoarders” and unpatriotic “traitors.” Leading industrialists and labor leaders joined the CRO. Hoover also secretly tried to stop the American press from printing the full truth about the banking crisis and about the rising public criticism of his Administration.(41)

Neither was Hoover lax in increasing the expenditures of the federal government. Federal expenditures rose from $3.3 billion in fiscal 1929 to $4.6 billion in fiscal 1932 and 1933, a rise of forty percent. Meanwhile, federal budget receipts fell in half, from $4 billion to less than $2 billion, demonstrating that Hoover was so much of a proto-Keynesian that he was willing to incur a deficit of nearly sixty percent of the budget. This was, to that moment, the largest peacetime federal deficit in American history.

Part of this massive rise of federal expenditures went, as one might expect, into public works. So promptly did Hoover act to expand public works (proposing a $600 million increase by December, 1929) that by the end of 1929 the economist J. M. Clark was already hailing Hoover’s “great experiment in constructive industrial statesmanship.”(42) In February, 1931, Hoover’s Emergency Committee for Employment was instrumental in pushing through Congress Senator Wagner’s (D., N.Y.) Employment Stabilization Act, which established an Employment Stabilization Board to expand public works in a depression, and a fund of $150 million to put the plan into effect. In happily signing the measure, Hoover gave a large amount of credit to the veteran public-works agitator, Otto Tod Mallery.(43) In his memoirs, Hoover recalled with pride that his Administration had constructed more public works than had the federal government over the previous thirty years, and that he personally had induced state and local governments to expand their public-works programs by $1.5 billion. He also launched the Boulder, Grand Coulee, and California Central Valley dams, and, after agitating for the project since 1921, Hoover signed a treaty with Canada to build a St. Lawrence Seaway, a treaty rejected by the Senate.(44) Furthermore, the Boulder project was the first example of large-scale, federal, multipurpose river basin planning.(45)

It must be noted, however, that in the last year of his term, Hoover, the veteran pioneer of public-works stabilization, began to find the accelerating movement toward ever greater public works going beyond him. As writers, economists, politicians, businessmen, and the construction industry called loudly for many billions in public works, Hoover began to draw back. He began to see public works as costly, and as bringing relief to a selected group only. He came to favor a relatively greater emphasis on federal grants-in-aid and on public works that would be self-liquidating. As a result, federal public-works spending increased only slightly during 1932. As we shall see, Hoover’s growing doubts on public works were symptomatic of a more general process of being left behind by the accelerating onrush toward collectivist thinking that developed during his final year as President.(46)

Another massive dose of government intervention was President Hoover’s Home Loan Bank System, established in the Federal Home Loan Act of July, 1932. Supported enthusiastically by the building and loan associations, the act paralleled the Federal Reserve Act in relation to these associations. Twelve district banks were established under a Federal Home Loan Bank Board, with a $25 million capital supplied by the Treasury, as a compulsory, central mortgage-discount bank for the building and loan industry. Hoover had originally proposed a grandiose national mortgage-discount system that would also include savings banks and insurance companies, but the latter refused to agree to the scheme. As it was, Hoover complained that Congress had placed excessively rigorous limits on the amount of discounting that could be made by the Board; but he did his best to spur use of the new system.

One of Mr. Hoover’s clearest harbingers of the New Deal was his creation in January, 1932, of the Reconstruction Finance Corporation. The RFC was clearly inspired by and modelled after the old wartime War Finance Corporation, which had extended emergency loans to business. One of the leading originators of the RFC was Eugene Meyer, Jr., Governor of the Federal Reserve Board, and former Managing Director of the WFC; most of the old WFC staff were employed by the new organization.(47)

The RFC began in the fall of 1931 as the National Credit Corporation, through which leading banks were persuaded, at a secret conference with Hoover and his aides, to extend credit to shaky banks, with Federal Reserve assistance. When the banks balked at this scheme, Hoover threatened legislation to compel their cooperation; in return for their agreement to the NCC, the Administration agreed that it would be strictly temporary, to be replaced soon by an RFC.

The RFC bill was passed hurriedly by Congress in January, 1932. The Treasury furnished it with half a billion dollars, and it was empowered to issue debentures up to $1.5 billion. Meyer was chosen to be chairman of the new organization. In the first half of 1932, the RFC extended, in the deepest secrecy, $1 billion of loans, largely to banks and railroads.(48) The railroads received nearly $50 million simply to repay debts to the large banks, notably J. P. Morgan & Co. and Kuhn, Loeb and Co. One of the important enthusiasts for this policy was Eugene Meyer, Jr., on the grounds of “promoting recovery” and frankly, of “putting more money into the banks.” Meyer’s enthusiasm might well have been bolstered by the fact that his brother-in-law, George Blumenthal, was an officer of J. P. Morgan & Co., and that he himself had served as an officer of the Morgan bank.

But Hoover wasn’t satisfied with the massiveness of the RFC program. He insisted that RFC be able to lend more widely to industry and to agriculture, and that it be able to make capital loans. This amendment – the Emergency Relief and Construction Act – passed Congress in July, 1932; the Act nearly doubled total RFC capital from $2 billion to $3.8 billion, and greatly widened the scope of RFC lending.(49) During 1932, the RFC extended loans totalling $2.3 billion.

Herbert Hoover’s enthusiasm for government aid to industry and banking was not matched in the area of Depression relief to the poor; here his instincts were much more voluntarist. Hoover steadfastly maintained his voluntary relief position until mid-1932. As early as 1930/31, he had been pressured on behalf of federal relief by Colonel Arthur Woods, the Chairman of Hoover’s Emergency Committee for Employment, who had previously been a member of Rockefeller’s General Education Board. But in mid-1932 a group of leading Chicago industrialists was instrumental in persuading Hoover to change his mind and establish a federal relief program. In addition to widening the powers of the RFC loans to industry, Hoover’s Emergency Relief and Construction Act was the nation’s first federal relief legislation. The RFC was authorized to lend $300 million to the states for poor relief.(50)

Throughout the Depression, Herbert Hoover gave vent to his long-standing dislike of speculation and the stock market. In the fall of 1930, Hoover threatened federal regulation of the New York Stock Exchange, hitherto thought to be constitutionally subject only to state regulation. Hoover forced the Exchange to agree “voluntarily” to withhold loans for purposes of short selling. Hoover returned to the attack during 1932, threatening federal action against short selling. He also induced the Senate to investigate “sinister . . . bear raids” on the Exchange. Hoover seemed to find it sinful and vaguely traitorous for the stock market to judge stock values on the basis of current (low) earnings. Hoover went on to propose what later came to pass as the New Deal’s SEC, a regulation that Hoover openly applauded.

Hoover’s Federal Farm Board was ready to move when the Depression arrived and the FFB proceeded on its proto-New Deal farm policy of attempting to raise and support farm prices.

The FFB’s first big operation was in wheat. The Board advised the receptive wheat farmers to act like cartelists, in short to hold wheat off the market and wait for higher prices. Soon it began to lend $100 million to wheat co-ops to withhold wheat stocks, and thereby raise prices; and it established a central grain corporation to centralize and coordinate the wheat cooperatives. When the loans to coops failed to stem the tide of falling wheat prices, the grain corporation began to buy wheat on its own. The FFB loans and purchases managed to sustain wheat prices for a time; but by the spring of 1930 this had only aggravated the wheat surplus by inducing farmers to expand their production, and the only result was further declines in price.

It became clear to the Hoover Administration that the cartelizing and price-raising policy could not work unless wheat production was reduced. A typical Hooverian round of attempted voluntary persuasion ensued, led by the Secretary of Agriculture and the FFB; a group of economists was sent from Washington to urge the marginal Northwestern wheat farmers – the original agitators for wheat price supports – to shift from wheat into some other crop. Secretary of Agriculture Arthur M. Hyde and the FFB’s Alexander Legge toured the Middle West, urging farmers to lower their wheat acreage. But, as could have been foreseen, none of this moral exhortation was effective, and wheat surpluses continued to pile up and prices to fall. By November, the government’s Grain Stabilization Corporation had purchased over 65 million bushels of wheat to hold off the market, but to no avail. Then, in November, 1930, Hoover authorized the GSC to purchase as much wheat as might be necessary to stop any further fall in wheat prices. But economic forces could not be defeated so easily, and wheat prices continued to fall. Finally, the FFB conceded defeat and dumped its accumulated wheat stocks, further intensifying the fall in wheat prices.

“Herbert Hoover’s enthusiasm for government aid to industry and banking was not matched in the area of Depression relief to the poor; here his instincts were much more voluntarist.”

Similar price-support programs were tried in cotton, but with similar disastrous results. Chairman James C. Stone of the Federal Farm Board even tried to mobilize the state governors to plow under every third row of cotton, but still to no avail. Similar calamitous attempts at cartelization occurred in wool, butter, grapes, and tobacco.

It was becoming clear that the cartelizing program could not work unless there were compulsory restrictions on production; there were simply too many farmers for voluntary exhortations to have any effect. President Hoover began to move down that road, recommending at least that productive land be withdrawn from cultivation, that crops be plowed under, and that immature farm animals be slaughtered – all to reduce the very surpluses that Hoover’s price supports had accumulated.(51)

Meanwhile, President Hoover pursued cartelization in other fields with more success. In May, 1931, he ordered the cessation of new leases in the federal forests for purposes of lumbering. He also withdrew over two million acres of forest land from production and into “national forests,” and increased the area of national parks by forty percent.(52)

Hoover put through the McNary-Watres Act of April, 1930, which deliberately used postal air-mail subsidies and regulation to bring commercial airlines under federal organization and control. Hoover’s admiring biographers wrote that, as a result of this law: “The routes were consolidated into a carefully planned national system of commercial airways . . . The Nation was saved from a hodgepodge of airways similar to the tangle that had grown up in rail transportation. “(53)

Hoover also urged upon Congress what would have been the first federal regulation of electric power companies. Hoover’s original proposal was to give the Federal Power Commission the power to set interstate power rates in collaboration with state power commissions. But Congress refused to go that far, and the FPC, although expanded, continued to exercise power only over water power in rivers.

In the coal industry, Hoover sympathized with the Appalachian Coal combine, which marketed three-quarters of Appalachian bituminous coal, in an attempt to raise coal prices and allocate production quotas to the various coal mines. Hoover also called for the reduction of “destructive competition” reigning in the coal industry.(54)

Hoover was more specific in helping to cartelize the oil industry. Hoover and his Secretary of the Interior Ray Lyman Wilbur stimulated such states as Texas and Oklahoma to pass oil proration laws in the name of “conservation,” to curtail crude oil production and thereby raise prices, and to establish an interstate compact to collaborate in the proration program. Hoover also aided these laws by suspending all further oil leases on public lands and by pressuring oil operators near the public domain to agree to restrict oil production.

In sponsoring and encouraging proration laws particularly, Hoover was taking his stand with the large oil companies. Hoover’s and Wilbur’s suggestion of general Sunday shutdowns of oil production was approved by the large companies, but defeated by the opposition of the smaller producers. The smaller firms particularly urged a protective tariff on imported crude and petroleum products, which Hoover finally agreed to in 1932. The tariff served to make the domestic cartel and proration laws more generally effective. In its restriction of imports, the tariff demonstrated that the drive for proration laws had little to do with simply conserving domestic oil reserves, but was rather aimed at cutting the supply of oil available to the domestic market.

Despite these services by Hoover, the oil industry was still restive; the industry wanted more, it wanted federal legislation in outright support of restricting production and raising prices. Here, too, President Hoover was beginning to lose the leadership of the accelerating cartelization movement in American industry.(55)

In the cotton textile industry, the trade association, the Cotton Textile Institute, which had long been close to Hoover, cunningly decided to press for monopolistic curtailment of production under the guise of “humanitarianism.” The device was to call for the abolition of night work for women and children; such a drive was neatly calculated to appeal both to Hoover’s (and to the industry’s) monopoloid convictions, as well as to his humanitarian rhetoric. CTI’s campaign of 1930/31 to pressure the various mills to abolish night work for women and children was substantially aided by Hoover and his Department of Commerce, who actively “helped to whip the non-cooperators into line.” Hoover publicized his firm support, and Secretary of Commerce Lamont sent personal letters to cotton textile operators, urging their adherence to the plan.(56) Intense Administration pressure continued throughout 1931 and 1932. Lamont called a special conference to which he brought several leading bankers and the endorsement of Hoover to pressure the holdouts into line.

But this cartel scheme also failed, for cotton textile prices continued to fall. As a result, compliance with the curtailment of production began to crack. The cartel failed for reasons similar to the failure of the FFB: despite the intense Administration pressure, the production cuts remained only voluntary. So long as there was no outright governmental compulsion on the textile firms to obey the production quotas, prices could not be raised. By 1932, the cotton textile industry, too, was becoming impatient with its old friend Hoover; the industry was rapidly beginning to agitate for governmental coercion to make cartelization work.(57)

This attitude of the cotton textile, petroleum, and agricultural industries spread rapidly throughout American industry during 1931 and 1932: an impatience with the pace of America’s movement toward the corporate state. Under the impact of the Great Depression, American industry, along with the nation’s intellectuals and labor leaders, began to clamor for the outright collectivism of a corporate state; for federal organization of trade associations into compulsory cartels for restricting production and raising prices. In short, a general clamor arose for an economy of fascism.

The most important call for the compulsory cartelization of a corporate state was sounded by Gerard Swope, the veteran corporate liberal who headed General Electric. Swope delivered his famous “Swope Plan” before the National Electrical Manufacturers Association in the fall of 1931, and it was endorsed by the United States Chamber of Commerce in December.(58) Particularly enthusiastic was Henry I. Harriman, president of the Chamber, who declared that any dissenting businessmen would be “treated like any maverick . . . They’ll be roped and branded, and made to run with the herd.”(59) Charles F. Abbott of the American Institute of Steel Construction hailed the Swope Plan as “a measure of public safety” to crack down on “the blustering individual who claims the right to do as he pleases.”(60) The AF of L endorsed a similar program, with a slightly greater share to go to the unions in overall control; particularly enthusiastic were John L. Lewis and Sidney Hillman, later to form the New Deal-oriented CIO.(61)

Dr. Virgil Jordan, economist for the National Industrial Conference Board, summed up the state of business opinion when he concluded, approvingly, that businessmen were ready for an “economic Mussolini.”(62)

In the light of Herbert Hoover’s lengthy corporatist career, the business leaders naturally expected him to agree wholeheartedly with the new drive toward business collectivism.(63) Hence they were greatly surprised and chagrined to find Hoover sharply drawing back from the abyss, from pursuing the very logic toward which his entire career had been leading.

It is not unusual for revolutions to devour their fathers and pioneers. As a revolutionary process accelerates, the early leaders begin to draw back from the implicit logic of their own life work and to leap off the accelerating bandwagon that they themselves had helped to launch. So it was with Herbert Hoover. All his life he had been a dedicated corporatist; but all his life he had also liked to cloak his corporate-state coercion in cloudy voluntarist generalities. All his life he had sought and employed the mailed fist of coercion inside the velvet glove of traditional voluntarist rhetoric. But now his old friends and associates – men like his longtime aide and Chamber of Commerce leader Julius Barnes, railroad magnate Daniel Willard, and industrialist Gerard Swope – were in effect urging him to throw off the voluntarist cloak and to adopt the naked economy of fascism. This Herbert Hoover could not do; and as he saw the new trend he began to fight it, without at all abandoning any of his previous positions. Herbert Hoover was being polarized completely out of the accelerating drive toward statism; by merely advancing at a far slower pace, the former “progressive” corporatist was now becoming a timid moderate in relation to the swift rush of the ideological current. The former leader and molder of opinion was becoming passé.(64)

Hoover began to fight back, and to insist that a certain proportion of individualism, a certain degree of the old “American system,” must be preserved. The Swope and similar plans, he charged, would result in a complete monopolization of industry, would establish a vast governmental bureaucracy, and would regiment society. In short, as Hoover told Henry Harriman in exasperation, the Swope-Chamber of Commerce Plan was, simply, “fascism.”(65) Herbert Hoover had finally seen the abyss of fascism and was having none of it.

Franklin Roosevelt was to have no such scruples. Hoover’s decision had vital political consequences: for Harriman told him bluntly at the start of the 1932 campaign that Franklin Roosevelt had accepted the Swope Plan – as he was to prove amply with the NRA and AAA. If Hoover persisted in being stubborn, Harriman warned, the business world, and especially big business, would back Roosevelt. Hoover’s brusque dismissal led to big business carrying out its threat. It was Herbert Hoover’s finest hour.(66) America’s legion of corporate liberals, who found their Holy Grail with the advent of Franklin Roosevelt’s New Deal, never forgave or forgot Herbert Hoover’s hanging back from America’s entry into the Promised Land. To the angry liberals, Hoover’s caution looked very much like old-fashioned laissez-faire. Hence Herbert Hoover’s pervasive entry into the public mind as a doughty champion of laissez-faire individualism.(67) It was an ironic ending to the career of one of the great pioneers of American state corporatism.


1. Hoover’s earlier career confirms this appraisal of his views; there is no space here, however, to analyze his earlier ideas and activities.
2. See Joseph Dorfman, The Economic Mind in American Civilization (New York: Viking Press, 1959), Vol. IV, pp. 26-28; Herbert Hoover, Memoirs (New York: Macmillan, 1952), Vol. II, pp. 27 ff; and Murray N. Rothbard, America’s Great Depression (Princeton: D. Van Nostrand, 1963), p. 170 and Part III.
3. Hoover to Professor Wesley C. Mitchell, July 29, 1921. Lucy Sprague Mitchell, Two Lives (New York: Simon and Schuster, 1953), P-364.
4. Hoover, Memoirs, Vol. II, p. 46; and Joseph H. McMullen, “The President’s Unemployment Conference of 1921 and Its Results” (Master’s thesis, Columbia University, 1922), p. 33.
5. On the lasting significance of government economic planning and “war collectivism” during World War I, see William E. Leuchtenburg, “The New Deal and the Analogue of War,” in J. Braeman, R. H. Bremner, and E. Walters, eds., Change and Continuity in Twentieth-Century America (New York: Harper and Row, 1967), pp. 81-143.
6. See E. Jay Howenstine, Jr., “Public Works Policy in the Twenties,” Social Research (December, 1946), pp. 479-500.
7. Playing a crucial role on this staff was Otto Tod Mallery, the nation’s leading advocate of public works as a remedy for depressions. Mallery had inspired the nation’s first such stabilization program, in Pennsylvania in 1917, and had been a leading official on public works in the Wilson Administration. He was also a leader in the American Association for Labor Legislation, an influential group of eminent citizens, businessmen, and economists devoted to government intervention in the fields of labor, employment, and welfare. The AALL, endorsing the Conference, boasted that the Conference’s proposals followed the pattern of its own recommendations, which had been formulated as far back as 1915. Apart from Mallery, the Conference employed the services of nine economists who were also officials of the AALL. The AALL singled out for particular praise Joseph H. Defrees, of the U.S. Chamber of Commerce, who appealed to business organizations to cooperate with the Conference’s program, and to accept “business responsibility” for the unemployment problem. See Dorfman, op. cit., pp. 7-8; McMullen, op. cit., p. 16; and John B. Andrews, “The President’s Unemployment Conference – Success or Failure?” American Labor Legislation Review (December, 1921), pp. 307-310.
8. Eugene Lyons, Our Unknown Ex-President (New York: Doubleday and Co., 1948), p. 230.
9 See Daniel Fusfeld, The Economic Thought of Franklin D. Roosevelt and the Origins of the New Deal (New York: Columbia University Press, 1956), pp. 102 ff.
10. Waddill Catchings was a prominent investment banker who founded the Pollak Foundation for Economic Research, with Dr. William T. Foster as director, Foster was Brewster’s technical advisor at the Governor’s Conference. Foster and Catchings had called for a $3 billion public-works program to iron out the business cycle and stabilize the price level. William T. Foster and Waddill Catchings, The Road to Plenty (Boston: Houghton Mifflin & Co., 1928), p. 187. Brewster’s presentation can be found in Ralph Owen Brewster, “Footprints on the Road to Plenty – A Three Billion Dollar Fund to Stabilize Business,” Commercial and Financial Chronicle (November 28, 1928), p. 2,527. Foster and Catchings reciprocated by praising the “Hoover Plan” a few months later. The Plan, they exulted, would iron out prices and the business cycle; “it is business guided by measurement instead of hunches. It is economics for an age of science – economics worthy of the new President.” William T. Foster and Waddill Catchings, “Mr. Hoover’s Plan: What It Is and What It Is Not – the New Attack on Poverty,” Review of Reviews (April, 1929), pp. 77-78.
11. Herbert Hoover, “A Plea for Cooperation,” The American Federationist (January, 1921). Also see the important work by Ronald Radosh, “The Development of the Corporate Ideology of American Labor Leaders, 1914-1933″‘ (Doctoral dissertation in history, University of Wisconsin, 1967), pp. 82 ff.
12 William English Walling, American Labor and American Democracy (New York: Harper & Bros., 1926), Vol. II: Labor and Government, cited in Radosh, op. cit., pp. 85 ff. Addressing the International Association of Technical Engineers, Architects and Draftsmen in May, 1921, Gompers spoke enthusiastically of the close “entente” that had developed between engineering groups and the AF of L. It was Gompers, furthermore, who persuaded Hoover to accept the presidency of the American Engineering Council.
13 Radosh, op. cit., p. 88n.
14 For a pro-union account of the affair by a leading participant, see Donald R. Richberg, Labor Union Monopoly (Chicago: Henry Regnery, 1957), pp. 3-28.
15. In his book American Individualism, Hoover had hailed the growing “cooperation” and “associational activities” of American industry and the consequent reduction of “great wastes of over-reckless competition.” Hoover, American Individualism (New York: Doubleday, 1922).
16. Samuel Gompers, “The Road to Industrial Democracy,” American Federationist (June, 1921). Also see Ronald Radosh, “The Corporate Ideology of American Labor Leaders from Gompers to Hillman,” Studies on the Left (November – December, 1966), p. 70. After Gompers’ death in 1924, his successor, William Green, continued the close AF of L collaboration with Hoover. See Radosh, The Development of Corporate Ideology, pp. 201 ff.
17. Julius H. Barnes, “Herbert Hoover’s Priceless Work in Washington,” Industrial Management (April, 1926), pp. 196-197. Also see Joseph Brandes, Herbert Hoover and Economic Diplomacy (Pittsburgh: University of Pittsburgh Press, 1962), p. 3.
18. Brandes, op. cit., p. 5.
19. Ibid., pp. 17-18, 132-139.
20. On Hoover’s repeated urging of American oil companies to join in the development of petroleum in Mesopotamia, see Gerald D. Nash, United States Oil Policy, 1890-1964 (Pittsburgh: Pittsburgh University Press, 1968), pp. 56-57.
21. Harvey Firestone was the most enthusiastic rubber user backing the Hoover program, and also in organizing Americanowned rubber plantations in Liberia. The mighty U.S. Rubber Co., on the other hand, already owned large rubber plantations in the Dutch East Indies, which were not subject to British restrictions. U.S. Rubber was therefore the rubber user least enthusiastic about the buying pool. Brandes, op. cit., pp. 84-128. On Firestone’s acquisition of Liberian land, see Frank Chalk, “The Anatomy of an Investment: Firestone’s 1927 Loan to Liberia,” Canadian Journal of African Studies (March, 1967), pp. 12-32.
22. See Jacob Viner, “Political Aspects of International Finance, Part II,” Journal of Business (July, 1928), p. 339; Hoover, Memoirs, Vol. II, p. 90. Also see Brandes, op. cit., pp. 170-191. Hoover also clashed with banks that made foreign loans to Germany, since he was worried about the loans building up competitors to American firms, especially chemical manufacturers. Ibid., pp. 192-195.
23. Nash, op. cit., pp. 81-97.
24. See Ellis W. Hawley, “Secretary Hoover and the Bituminous Coal Problem, 1921-1928,” Business History Review (Autumn, 1968), pp. 247-270. Also see Hoover, Memoirs, Vol. II, p. 70. During the coal strike in the spring of 1922, Hoover organized an emergency system of rationing and price controls. Harking back to his wartime experience, he established a network of district committees to hold down coal prices. After the typically Hooverian “voluntary” controls failed to work, Hoover called for governmental price-fixing, and by late September, Congress had passed a law appointing a Federal Fuel Distributor to enforce “fair prices.”
25. Louis Galambos, Competition and Cooperation (Baltimore: Johns Hopkins Press, 1966), pp. 78-83, 102-103, 108, 114-115, 123, 128-129. The cotton textile industry urged Secretary Hoover to become the first president of their new Institute; as it was, the president was a man recommended by Hoover.
26. See in particular Ronald H. Coase, “The Federal Communications Commission,” Journal of Law and Economics (October, 1959), pp. 30ff. Also see Hoover, Memoirs, Vol. II, pp. 139-142.
27. Hoover, Memoirs, Vol. II, pp. 66-68.
28. In the case of salmon fishing, Hoover called for federal regulations from 1922 on. In that year he induced Harding to create salmon reservations in Alaska, thus cutting salmon production and raising prices. See Donald C. Swain, Federal Conservation Policy, 1921-1933 (Berkeley: University of California Press, 1963), PP. 25 ff.
29. It was not only the farm bloc that wanted a nationally cartelized agriculture. Two of the fathers of the agitation for farm price support were George N. Peek and General Hugh S. Johnson, heads of the Moline Plow Company, one of the largest farm-equipment manufacturers. As such they were directly interested in the subsidizing of farmers. Big business in general was also enthusiastic, the farm price-support plan being warmly supported by the Business Men’s Commission on Agriculture, established jointly by the U.S. Chamber of Commerce and the National Industrial Conference Board. See Dorfman, op. cit., Vol. IV, pp. 79-80.
30. Chairman of the eight-man FFB was Alexander Legge, president of International Harvester Co., one of the major farmmachinery manufacturers, and like Peek and Johnson, a protege of financier Bernard M. Baruch since the days of the economic planning of World War I. Others represented on the Board were the tobacco co-ops, the livestock co-ops, the Midwest grain interests, and the fruit growers. See Theodore Saloutos and John D. Hicks, Agricultural Discontent in the Middle West (Madison, Wis.: University of Wisconsin Press, 1951), pp.407-412.
31. Rothbard, America’s Great Depression, pp. 169-186. One of the first observers who saw that the radical break with the past came with Hoover and not with F. D.R. was Walter Lippmann, who wrote in 1935 that the “policy initiated by President Hoover in the autumn of 1929 was something utterly unprecedented in American history. The national government undertook to make the whole economic order operate prosperously. . . . The state attempted to direct by the public wisdom a recovery in the business cycle which had hitherto been left with as little interference as possible to individual exertion.” Walter Lippmann, “The Permanent New Deal,” reprinted in R.M. Abrams and L.W. Levine, eds., The Shaping of Twentieth-Century America (Boston: Little, Brown & Co., 1965), p. 430. Similarly, the perceptive term “Hoover New Deal” was coined by the contemporary observer and economist Benjamin M. Anderson. See “The Road Back to Full Employment,” in P. Homan and F. Machlup, eds., Financing American Prosperity (New York: Twentieth Century Fund, 1945), pp. 9-70; and Anderson, Economics and the Public Welfare: Financial and Economic History of the U.S., 1914-46 (Princeton: D. Van Nostrand, 1949).
32. The American Federationist (January, 1930). On the White House Conferences, see Robert P. Lamont, “The White House Conferences,” The Journal of Business (July, 1930), p. 269.
33. The American Federationist (March, 1930), p. 344.

34. Particularly active in keeping industry in line was the President’s Emergency Committee for Employment; see E. P. Hayes, Activities of the President’s Emergency Committee for Employment, October 17, 1930 – August 19, 1931 (Printed by the author, 1936).
35. Leo Wolman, Wages in Relation to Economic Recovery (Chicago: University of Chicago Press, 1931).
36. See Fred R. Fairchild, “Government Saves Us from Depression,” Yale Review (Summer, 1932), pp. 667 ff; and Dorfman, op. cit., Vol. V, p. 620.
37. See the unfortunately neglected study by Sol Shaviro, “Wages and Payroll in the Depression, 1929-1933” (Master’s essay, Columbia University, 1947). Also see Rothbard, America’s Great Depression, pp. 236-239, 290-294; C. A. Phillips, T. F. McManus, and R. W. Nelson, Banking and the Business Cycle (New York: Macmillan, 1937), pp. 231-232; National Industrial Conference Board, Salary and Wage Policy in the Depression (New York: Conference Board, 1933), pp. 31-38; and Dale Yoder and George R. Davies, Depression and Recovery (New York: McGraw-Hill, 1934), p. 89.
38. The New York Times, May 20, 1932.
39. Chairman of the committee was Owen D. Young of General Electric. Included in the committee were Walter S. Gifford of AT&T, Charles E. Mitchell of National City Bank, and Walter C. Teagle of Standard Oil of New Jersey. For more on Hoover’s, threats against the banks, see Herbert Stein, “Pre-Revolutionary Fiscal Policy: The Regime of Herbert Hoover,” Journal of Law and Economics (October, 1966), p. 197n.
40. Jesse H. Jones and Edward Angly, Fifty Billion Dollars (New York: Macmillan, 1951), p. 18. Also see H. Parker Willis and John M. Chapman, The Banking Situation (New York: Columbia University Press, 1934), pp. 9 ff. Furthermore, Hoover’s Secretary and Undersecretary of the Treasury had decided, by the end of their terms, that the gold standard should be abolished. New York Herald Tribune, May 5, 1958, p. 18.
41. Kent Cooper, Kent Cooper and the Associated Press (New York: Random House, 1959), p. 157.
42. John Maurice Clark, “Public Works and Unemployment,” American Economic Review, Papers and Proceedings (May, 1930), pp. 15 ff.
43. See Irving Bernstein, The Lean Years (Boston: Houghton Mifflin, i960), p. 272; Dorfman, op. cit., Vol. V, p. jn.
44. It is instructive to note the attitude of private electrical companies toward the government-built Boulder Dam. They looked forward to purchasing cheap, subsidized governmental power, which they would then resell to their customers. The private-power companies also saw Boulder Dam as a risky, submarginal project, the costs of which they were happy to see shouldered by the taxpayers. See Harris Gaylord Warren, Herbert Hoover and the Great Depression (New York: Oxford University Press, 1959), p. 64.
45. See Swain, Federal Conservation Policy, pp. 25 ff, 161 ff.
46. See Vladimir D. Kazakevich, “Inflation and Public Works,” in H. Parker Willis and John M. Chapman, eds., The Economics of Inflation (New York: Columbia University Press, 1935), pp. 344-349.
47 Leuchtenburg, “The New Deal and the Analogue of War,” pp. 98-100. Also see Gerald D. Nash, “Herbert Hoover and the Origins of the Reconstruction Finance Corporation,” Mississippi Valley Historical Review (December, 1959), pp. 455-468.
48. Many large loans were made by the RFC to banks that were in the ambit of RFC directors themselves, or of others high up in the Hoover Administration. Thus, shortly after General Charles Dawes resigned as President of the RFC, the bank that he headed, the Central Republic Bank and Trust Co., received a large RFC loan. See John T. Flynn, “Inside the RFC,” Harpers’ Magazine (1933), pp. 161-169.
49. See J. Franklin Ebersole, “One Year of the Reconstruction Finance Corporation,” Quarterly Journal of Economics (May, 1933), PP. 464-487.
50. Bernstein, The Lean Years, p. 467.
51. It was left for the conservative Senator Arthur H. Vandenberg (R., Mich.) to propose the final link in the chain that was to form the New Deal’s AAA: compelling farmers to cut production. Gilbert N. Fite, “Farmer Opinion and the Agricultural Adjustment Act, 1933,” Mississippi Valley Historical Review (March, 1962), p. 663.
52. Warren, Herbert Hoover and the Great Depression, p. 65. Hoover also endorsed the privately financed Timber Conservation Board, formed to encourage cooperation in the lumber industry. Ellis W. Hawley, “Herbert Hoover and the Economic Planners, 1931-32” (Unpublished manuscript, 1968), p. 9. In a prefigurement of the New Deal’s CCC, Hoover’s Forestry Service put through a large-scale program of work relief for the unemployed in public-works construction in the national forests. Swain, Federal Conservation Policy, p. 25.
53. William Starr Myers and Walter H. Newton, The Hoover Administration (New York: Charles Scribners, 1936), p. 430.
54. Myers and Newton, The Hoover Administration, p. 50; Waldo E. Fisher and Charles M. James, Minimum Price Fixing in the Bituminous Coal Industry (Princeton: Princeton University Press, 1955), PP. 21-27.
55. See George W. Stocking, “Stabilization of the Oil Industry: Its Economic and Legal Aspects,” American Economic Review, Papers and Proceedings (May, 1933), pp. 59-70.
56. Galambos, op. cit., pp. 153-157, 165-169.
57. Ibid., pp. 176-184.
58. The text of the Swope address can be found in Monthly Labor Review, Vol. 32 (1931), pp. 834 ff. Also see David Loth, Swope of GE (New York: Simon and Schuster, 1958), pp. 202 ff.
59. Quoted in Arthur M. Schlesinger, Jr., The Crisis of the Old Order, 1919-1933 (Boston: Houghton Mifflin Co., 1957), pp. 182-183.
60. J. George Frederick, Readings in Economic Planning (New York: The Business Course, 1932), pp. 333-334-
61. See Rothbard, America’s Great Depression, pp. 245-249; Rothbard, “The Hoover Myth: Review of Albert U. Romasco, The Poverty of Abundance,” in James Weinstein and David W. Eakins, eds., For a New America (New York: Random House, 1970), pp. 162-179; and Hawley, “Herbert Hoover and the Economic Planners,” pp. 4 ff.
62. Schlesinger, op. cit., p. 268.
63. Hawley, op. cit., pp. 4-11.
64. Hoover had done his best to further corporatism in more moderate and gradual ways. In addition to the measures described above, Hoover sponsored the highly protectionist Smoot-Hawley Tariff in 1929/30, and he signed the Norris-LaGuardia Act of 1932, which sponsored labor unionism by outlawing contractual agreements not to join unions and greatly curtailing the use of injunctions in labor disputes.
65. Hoover also resisted corporate-collectivist pressure from within his own Administration, notably from such men as Frederick Feiker, head of the Bureau of Foreign and Domestic Commerce, and his old friend Secretary of the Interior Ray Lyman Wilbur. Hawley, op. cit., p. 2in.
66. Hoover, Memoirs, Vol. Ill, pp. 334-335. Also see Loth, op. cit., pp. 208-210; Eugene Lyons, Herbert Hoover (Garden City, N.Y.: Doubleday & Co., 1964), pp. 293-294; Myers and Newton, op. cit., pp. 245-256, 488-489.
67. For a penetrating exception to this common view, see William Appleman Williams, The Contours of American History (Cleveland: World Publishing Co., 1961), pp. 385, 415, 425-438.

A Pencil explains Free Markets & Anarcho-Capitalism

I, Pencil

By Leonard E. Read

Leonard E. Read (1898-1983) founded FEE in 1946 and served as its president until his death.

“I, Pencil,” his most famous essay, was first published in the December 1958 issue of The Freeman.

I am a lead pencil—the ordinary wooden pencil familiar to all boys and girls and adults who can read and write.*

*       My official name is “Mongol 482.” My many ingredients are assembled, fabricated, and finished by Eberhard Faber Pencil Company.

Writing is both my vocation and my avocation; that’s all I do.

You may wonder why I should write a genealogy. Well, to begin with, my story is interesting. And, next, I am a mystery— more so than a tree or a sunset or even a flash of lightning. But, sadly, I am taken for granted by those who use me, as if I were a mere incident and without background. This supercilious attitude relegates me to the level of the commonplace. This is a species of the grievous error in which mankind cannot too long persist without peril. For, the wise G. K. Chesterton observed, “We are perishing for want of wonder, not for want of wonders.”

I, Pencil, simple though I appear to be, merit your wonder and awe, a claim I shall attempt to prove. In fact, if you can understand me—no, that’s too much to ask of anyone—if you can become aware of the miraculousness which I symbolize, you can help save the freedom mankind is so unhappily losing. I have a profound lesson to teach. And I can teach this lesson better than can an automobile or an airplane or a mechanical dishwasher because—well, because I am seemingly so simple.

Simple? Yet, not a single person on the face of this earth knows how to make me. This sounds fantastic, doesn’t it? Especially when it is realized that there are about one and one-half billion of my kind produced in the U.S.A. each year.

Pick me up and look me over. What do you see? Not much meets the eye—there’s some wood, lacquer, the printed labeling, graphite lead, a bit of metal, and an eraser.

Innumerable Antecedents

Just as you cannot trace your family tree back very far, so is it impossible for me to name and explain all my antecedents. But I would like to suggest enough of them to impress upon you the richness and complexity of my background.

My family tree begins with what in fact is a tree, a cedar of straight grain that grows in Northern California and Oregon. Now contemplate all the saws and trucks and rope and the countless other gear used in harvesting and carting the cedar logs to the railroad siding. Think of all the persons and the numberless skills that went into their fabrication: the mining of ore, the making of steel and its refinement into saws, axes, motors; the growing of hemp and bringing it through all the stages to heavy and strong rope; the logging camps with their beds and mess halls, the cookery and the raising of all the foods. Why, untold thousands of persons had a hand in every cup of coffee the loggers drink!

The logs are shipped to a mill in San Leandro, California. Can you imagine the individuals who make flat cars and rails and railroad engines and who construct and install the communication systems incidental thereto? These legions are among my antecedents.

Consider the millwork in San Leandro. The cedar logs are cut into small, pencil-length slats less than one-fourth of an inch in thickness. These are kiln dried and then tinted for the same reason women put rouge on their faces. People prefer that I look pretty, not a pallid white. The slats are waxed and kiln dried again. How many skills went into the making of the tint and the kilns, into supplying the heat, the light and power, the belts, motors, and all the other things a mill requires? Sweepers in the mill among my ancestors? Yes, and included are the men who poured the concrete for the dam of a Pacific Gas & Electric Company hydroplant which supplies the mill’s power!

Don’t overlook the ancestors present and distant who have a hand in transporting sixty carloads of slats across the nation.

Once in the pencil factory—$4,000,000 in machinery and building, all capital accumulated by thrifty and saving parents of mine—each slat is given eight grooves by a complex machine, after which another machine lays leads in every other slat, applies glue, and places another slat atop—a lead sandwich, so to speak. Seven brothers and I are mechanically carved from this “wood-clinched” sandwich.

My “lead” itself—it contains no lead at all—is complex. The graphite is mined in Ceylon. Consider these miners and those who make their many tools and the makers of the paper sacks in which the graphite is shipped and those who make the string that ties the sacks and those who put them aboard ships and those who make the ships. Even the lighthouse keepers along the way assisted in my birth—and the harbor pilots.

The graphite is mixed with clay from Mississippi in which ammonium hydroxide is used in the refining process. Then wetting agents are added such as sulfonated tallow—animal fats chemically reacted with sulfuric acid. After passing through numerous machines, the mixture finally appears as endless extrusions—as from a sausage grinder—cut to size, dried, and baked for several hours at 1,850 degrees Fahrenheit. To increase their strength and smoothness the leads are then treated with a hot mixture which includes candelilla wax from Mexico, paraffin wax, and hydrogenated natural fats.

My cedar receives six coats of lacquer. Do you know all the ingredients of lacquer? Who would think that the growers of castor beans and the refiners of castor oil are a part of it? They are. Why, even the processes by which the lacquer is made a beautiful yellow involves the skills of more persons than one can enumerate!

Observe the labeling. That’s a film formed by applying heat to carbon black mixed with resins. How do you make resins and what, pray, is carbon black?

My bit of metal—the ferrule—is brass. Think of all the persons who mine zinc and copper and those who have the skills to make shiny sheet brass from these products of nature. Those black rings on my ferrule are black nickel. What is black nickel and how is it applied? The complete story of why the center of my ferrule has no black nickel on it would take pages to explain.

Then there’s my crowning glory, inelegantly referred to in the trade as “the plug,” the part man uses to erase the errors he makes with me. An ingredient called “factice” is what does the erasing. It is a rubber-like product made by reacting rape- seed oil from the Dutch East Indies with sulfur chloride. Rubber, contrary to the common notion, is only for binding purposes. Then, too, there are numerous vulcanizing and accelerating agents. The pumice comes from Italy; and the pigment which gives “the plug” its color is cadmium sulfide.

No One Knows

Does anyone wish to challenge my earlier assertion that no single person on the face of this earth knows how to make me?

Actually, millions of human beings have had a hand in my creation, no one of whom even knows more than a very few of the others. Now, you may say that I go too far in relating the picker of a coffee berry in far off Brazil and food growers elsewhere to my creation; that this is an extreme position. I shall stand by my claim. There isn’t a single person in all these millions, including the president of the pencil company, who contributes more than a tiny, infinitesimal bit of know-how. From the standpoint of know-how the only difference between the miner of graphite in Ceylon and the logger in Oregon is in the type of know-how. Neither the miner nor the logger can be dispensed with, any more than can the chemist at the factory or the worker in the oil field—paraffin being a by-product of petroleum.

Here is an astounding fact: Neither the worker in the oil field nor the chemist nor the digger of graphite or clay nor any who mans or makes the ships or trains or trucks nor the one who runs the machine that does the knurling on my bit of metal nor the president of the company performs his singular task because he wants me. Each one wants me less, perhaps, than does a child in the first grade. Indeed, there are some among this vast multitude who never saw a pencil nor would they know how to use one. Their motivation is other than me. Perhaps it is something like this: Each of these millions sees that he can thus exchange his tiny know-how for the goods and services he needs or wants. I may or may not be among these items.

No Master Mind

There is a fact still more astounding: The absence of a master mind, of anyone dictating or forcibly directing these countless actions which bring me into being. No trace of such a person can be found. Instead, we find the Invisible Hand at work. This is the mystery to which I earlier referred.

It has been said that “only God can make a tree.” Why do we agree with this? Isn’t it because we realize that we ourselves could not make one? Indeed, can we even describe a tree? We cannot, except in superficial terms. We can say, for instance, that a certain molecular configuration manifests itself as a tree. But what mind is there among men that could even record, let alone direct, the constant changes in molecules that transpire in the life span of a tree? Such a feat is utterly unthinkable!

I, Pencil, am a complex combination of miracles: a tree, zinc, copper, graphite, and so on. But to these miracles which manifest themselves in Nature an even more extraordinary miracle has been added: the configuration of creative human energies—millions of tiny know-hows configurating naturally and spontaneously in response to human necessity and desire and in the absence of any human master-minding! Since only God can make a tree, I insist that only God could make me. Man can no more direct these millions of know-hows to bring me into being than he can put molecules together to create a tree.

The above is what I meant when writing, “If you can become aware of the miraculousness which I symbolize, you can help save the freedom mankind is so unhappily losing.” For, if one is aware that these know-hows will naturally, yes, automatically, arrange themselves into creative and productive patterns in response to human necessity and demand—that is, in the absence of governmental or any other coercive master-minding—then one will possess an absolutely essential ingredient for freedom: a faith in free people. Freedom is impossible without this faith.

Once government has had a monopoly of a creative activity such, for instance, as the delivery of the mails, most individuals will believe that the mails could not be efficiently delivered by men acting freely. And here is the reason: Each one acknowledges that he himself doesn’t know how to do all the things incident to mail delivery. He also recognizes that no other individual could do it. These assumptions are correct. No individual possesses enough know-how to perform a nation’s mail delivery any more than any individual possesses enough know-how to make a pencil. Now, in the absence of faith in free people—in the unawareness that millions of tiny know-hows would naturally and miraculously form and cooperate to satisfy this necessity—the individual cannot help but reach the erroneous conclusion that mail can be delivered only by governmental “master-minding.”

Testimony Galore

If I, Pencil, were the only item that could offer testimony on what men and women can accomplish when free to try, then those with little faith would have a fair case. However, there is testimony galore; it’s all about us and on every hand. Mail delivery is exceedingly simple when compared, for instance, to the making of an automobile or a calculating machine or a grain combine or a milling machine or to tens of thousands of other things. Delivery? Why, in this area where men have been left free to try, they deliver the human voice around the world in less than one second; they deliver an event visually and in motion to any person’s home when it is happening; they deliver 150 passengers from Seattle to Baltimore in less than four hours; they deliver gas from Texas to one’s range or furnace in New York at unbelievably low rates and without subsidy; they deliver each four pounds of oil from the Persian Gulf to our Eastern Seaboard—halfway around the world—for less money than the government charges for delivering a one-ounce letter across the street!

The lesson I have to teach is this: Leave all creative energies uninhibited. Merely organize society to act in harmony with this lesson. Let society’s legal apparatus remove all obstacles the best it can. Permit these creative know-hows freely to flow. Have faith that free men and women will respond to the Invisible Hand. This faith will be confirmed. I, Pencil, seemingly simple though I am, offer the miracle of my creation as testimony that this is a practical faith, as practical as the sun, the rain, a cedar tree, the good earth.

Leonard Read’s delightful story, “I, Pencil,” has become a classic, and deservedly so. I know of no other piece of literature that so succinctly, persuasively, and effectively illustrates the meaning of both Adam Smith’s invisible hand—the possibility of cooperation without coercion—and Friedrich Hayek’s emphasis on the importance of dispersed knowledge and the role of the price system in communicating information that “will make the individuals do the desirable things without anyone having to tell them what to do.”

We used Leonard’s story in our television show, “Free to Choose,” and in the accompanying book of the same title to illustrate “the power of the market” (the title of both the first segment of the TV show and of chapter one of the book). We summarized the story and then went on to say:

“None of the thousands of persons involved in producing the pencil performed his task because he wanted a pencil. Some among them never saw a pencil and would not know what it is for. Each saw his work as a way to get the goods and services he wanted—goods and services we produced in order to get the pencil we wanted. Every time we go to the store and buy a pencil, we are exchanging a little bit of our services for the infinitesimal amount of services that each of the thousands contributed toward producing the pencil.

“It is even more astounding that the pencil was ever produced. No one sitting in a central office gave orders to these thousands of people. No military police enforced the orders that were not given. These people live in many lands, speak different languages, practice different religions, may even hate one another—yet none of these differences prevented them from cooperating to produce a pencil. How did it happen? Adam Smith gave us the answer two hundred years ago.”

“I, Pencil” is a typical Leonard Read product: imaginative, simple yet subtle, breathing the love of freedom that imbued everything Leonard wrote or did. As in the rest of his work, he was not trying to tell people what to do or how to conduct themselves. He was simply trying to enhance individuals’ understanding of themselves and of the system they live in.

That was his basic credo and one that he stuck to consistently during his long period of service to the public—not public service in the sense of government service. Whatever the pressure, he stuck to his guns, refusing to compromise his principles. That was why he was so effective in keeping alive, in the early days, and then spreading the basic idea that human freedom required private property, free competition, and severely limited government.

It is a tribute to his foresight, persistence, and sound understanding of the basis for a free society, that FEE, the institution he established and on which he lavished such loving care, is able to celebrate its fiftieth anniversary.

Milton Friedman

Senior Research Fellow, Hoover Institution