Tag 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.

Clamor For Protectionism

Source: http://memorymaniac.blogspot.com/2010/01/clamor-for-protectionism.html

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.

Israeli Apartheid is not Fiction!

Open letter to the organizers and attendees of Sci-Fi-London International Festival 2009

Israeli Apartheid is not Fiction!

Cancel the special tribute to Israel in the London Sci-Fi Festival!

Open letter to the organizers and attendees of Sci-Fi-London International Festival 2009

Ramallah, 29 April 2009

The Palestinian Campaign for the Academic and Cultural Boycott of Israel (PACBI) is writing to the organizers of the Sci-Fi-London International Festival of Science Fiction and Fantasy Film to urge you to cancel the special “Focus on: Israel” in your festival in London from 29 April – 4 May. We also urge the attendees of this festival, if its organizers insist on the special tribute to Israel, to protest the inclusion of this session and to boycott the focus on Israel. Honoring Israel in any field right after its massacre in Gaza shows either apathetic disregard for the lives and rights of the Palestinian people or, worse, complicity in Israel’s grave violations of international law and human rights principles.

We understand that the focus on Israel is organized in cooperation with the British Council of Arts in Israel as part of the British Israeli Arts Training Scheme, BI-ARTS, which is funded by Israel’s Ministry of Science, Culture and Sports and Ministry of Foreign Affairs. The latter, it is worth noting, is currently headed by the ultra-right racist Israeli politician, Avigdor Lieberman, who in response to the struggle of Palestinian citizens of Israel for equality and full citizenship rights has continuously advocated their ethnic cleansing, notoriously stating that “minorities are the biggest problem in the world.” By organizing this session celebrating Israel’s contributions to the field, you will be effectively welcoming into your highly esteemed international forum a state that maintains the world’s longest regime of occupation and colonization as well as the only surviving apartheid.

On the festival’s website it states that the focus on Israel aims to examine the sci-fi “what if’s” being explored in other countries. Yet, we wonder if you are aware of Israel’s over 60-year old colonial history of brutally subjugating the Palestinian people. Israel’s recent war on Gaza is the latest chapter in this history of colonial oppression. In this brutal military campaign, Israel killed over 1,440 Palestinians, of whom 431 were children, and injured another 5380 [1]. Israel subjected the besieged population of Gaza to three weeks of unrelenting state terror. Israeli warplanes targeted and bombed densely populated civilian areas, using illegal munitions, such as white phosphorous, and reduced whole neighbourhoods and vital civilian infrastructure to rubble, not to mention its wilful mass destruction of agricultural land. In addition to this, Israel also partially destroyed Gaza’s leading university and scores of schools, including several run by the UN and used as civilian shelters during the war of aggression. The UN Special Rapporteur for Human Rights in the occupied Palestinian territory has described the Israeli attack on Gaza as “a war crime of the gravest magnitude under international law.”

Israel’s war on Gaza was not an anomaly but an integral part of the systematic policies of ethnic cleansing and colonial oppression that Israel has carried out against the Palestinian people. The state of Israel was established in 1948 by forcibly expelling the overwhelming majority of Palestine’s indigenous Arab population. For 60 years now, Israel has continued to deny the millions of displaced Palestinian refugees their UN-sanctioned rights to return to their homes of origin. For the last 41 years, Israel has maintained a repressive military occupation over the West Bank, including East Jerusalem, and Gaza, violating Palestinians’ most fundamental human rights with impunity. Israel extra-judicially kills Palestinian activists and leaders; subjects Palestinians to daily military violence; routinely demolishes Palestinian homes and illegally confiscates Palestinian land. Israeli continues to expand illegal Jewish colonies on occupied Palestinian land, linking them to an apartheid system of Jewish-only roads, and the Wall that was declared illegal by the International Court of Justice in 2004. Israel’s policies of repression systematically target all aspects of Palestinian life and are designed to crush the Palestinian will, creativity and human spirit. Since the early 1970’s Israel has targeted and routinely closed Palestinian universities and cultural centres in the West Bank and Gaza, and imposed a repressive system of censorship, banning scores of books – effectively imposing a stranglehold designed to prevent Palestinian cultural expression. From 1979 to 1992, Birzeit University was closed 60% of the time by Israeli military orders [2].

The injustice and the violent suppression of the Palestinian struggle for freedom have lasted too long. To bring an end to this oppression, Palestinian civil society has called on people of conscience throughout the world to take a stand and support our struggle for freedom by adopting boycott, divestments and sanctions, BDS, against Israel until it fully complies with international law and recognizes our inalienable rights [3]. This BDS call has received resounding international support, and has been endorsed by a number of prominent international cultural figures and Israeli artists, including Aharon Shabtai, John Berger, Ken Loach, Arundhati Roy, Roger Waters, John Williams and others. Other high profile artists have also heeded our call by cancelling gigs in Israel; these included Bono, Bjork, Snoop Dogg and Jean Luc Goddard.

In calling on artists to support the cultural boycott of Israel, John Berger urged artists to adopt the boycott as a mechanism of protest and a means to end the silence surrounding the impunity with which Israel violates international law and denies Palestinian their basic human rights [4]. In endorsing the boycott, the prominent Israeli poet, Aharon Shabtai, said:

“A State which maintains an occupation and commits daily crimes against civilians does not deserve to be invited to whichever cultural week. We cannot accept to be part of that. Israel is not a democratic State but an apartheid State. We cannot support that State at all” [5].

To claim the cultural field is “neutral” in the face of systematic and persistent injustice is to effectively side with the oppressor. International solidarity and support for the boycott of South African played a pivotal role in helping bring down the apartheid regime. Similarly, we sincerely hope you will take a moral stand and cancel your tribute to Israel, until it meets its obligations under international law and recognizes the Palestinian people’s right to live in freedom and equality in their homeland.

Yours truly,

The Palestinian Campaign for the Academic and Cultural Boycott of Israel (PACBI)

[1] http://www.ochaopt.org/gazacrisis/index.php?section=3
[2] http://www.mediamonitors.net/parry1.html
[3] http://www.pacbi.org/campaign_statement.htm
[4] http://www.pacbi.org/etemplate.php?id=415
[5] http://www.countercurrents.org/cattori260208.htm

F.A. Hayek warned us: Carl Schramm Buys Himself A George Eastman Medal (for academy/economy-killing Schrammenomics) from the University of Rochester While Dumbing Down The Universe With Schrammenomics

by entrepreneurshipeconomist

F.A. Hayek warned us about the Orwellian Carl Schramms of the world–the “Mastermind” statists who would rise to oppose entrepreneurs in the name of entrepreneurship and kill innovation while pretending to embrace it, as they bought themselves medals, honors, and awards while building a cult-of-personaility regimes around themelves; transforming a noble foundation (the Kauffman Foundation) into a personal vanity press, compound, and ATM machine.

“Even more significant of the inherent weakness of the collectivist theories is the extraordinary paradox that from the assertion that society is in some sense more than merely the aggregate of all individuals their adherents regularly pass by a sort of intellectual somersault to the thesis that in order that the coherence of this larger entity be safeguarded it must be subjected to conscious control, that is, to the control of what in the last resort must be an individual mind (SCHRAMMENOMICS! ONLY ONE MAN CANRECEIVE EASTMAN MEDLAS AND WRITE THE BOOKS!).

It thus comes about that in practice it is regularly the theoretical collectivist who extols individual reason (CARL SCHRAMM PRETENDS TO SALUTE ENTRPENEURSHIP AND INNOVATORS) and demands that all forces of society be made subject to the direction of a single mastermind (SCHRAMM SECRETLY SEEKS TO DESTROY HIS SUPERIOR COMPETITORS, USING THE KAUFMAN FUNDS TO PUNISH SUCCESS AND INNOVATION AND FUND SYCOPHANTIC GROUPTHINK SUPPORTERS), while it is the individualist who recognizes the limitations of the powers of individual reason and consequently advocates freedom as a means for the fullest development of the powers of the interindividual process.”

Just like the firefighters in Farenheight 411, Schramm’s chief aim is not to save the Mises and Hayek books, but to burn metaphorically them, as he ignored F.A. Hayek and Ludwig Von Mises in his dumbed-down, insipid, and dense GOOD CAPITALISM, BAD CAPITALSIM.

Is it any wonder Schramm is trying to erase F.A. Hayek and L.V. Mises from discussions on capitalsim, while he grows his dumbed-down, “growthology-MBA-buzzword” regime and funnels millions of Kauffman dollars into his own pocket?

After seven years of dictatorial, dumbed-down Schrammenomics and Carl Schramm redefining exalted entrepreneurship in his own maniacal, egostistical, dumbed-down, carboard bureaucratic, shapeshifting image, the economy is in shambles (schrammbles).

Because of a massive ego which dwarfs his meager intellectual talents, over the past seven years Schramm has defunded true economists who are smarter than him (or who mention Hayek and Mises whom Schramm completely ignored in his indecipherable, dumbed-down book GOOD CAPITALISM (SHCRAMMENOMICS): BAD CAPITALISM (HAYEK: MISES) while hijacking the Kauffman Foundation’s resources, funneling millions into his own pockets, and devoting the rest to funding dog and pony shows and wiring millions to university administrators, who most naturally oppose true innovation, honorable scholarship, and the true entreprnuership which would rescue our ailing economy, while embracing Schrammenomics.

Carl Schramm Buys Himself A George Eastman (for economy-killing Schrammenomics) Medal from the University of Rochester While Dumbing Down The Universe With Schrammenomics

Wikipedia reports: Schramm received the George Eastman Medal from the University of Rochester in …

The Kauffman website reports: “The University of Rochester, an inaugural Kauffman Campus, submitted a proposal to make entrepreneurship a comprehensive and defining institutional goal.” Kauffman wired millions to Rochester.

Conflict of interest? Should foundation heads receive medals with entrepreneur’s and innovator’s names on them after hijacking foundations bequeathed by other entrepreneurs? Especially when the foundation heads have done far more harm than good in dumbing down the academy and killing the eocnomy over their seven year anti-entrepreneurship, pro-Statist crusade and reign with an iron fist?

So it is that Carl Schramm uses the Kauffman Foundations funds to buy himself medals, while simultaneously dumbing down the academy and killing the ecomony with Schrammenomics.

Carl Schramm has redefined entrepreneurship as 1) hijacking a foundation and transforming it into a vanity press for one’s own unscholarly works (and armies of MBAs/Jds chanting growthology, growthology, growthology) which neglect to mention Nobel Laureate economists and intellectual giants such as F.A. Hayek and Ludwig Von Mises. He then handpicks a cadre of useful idiots/Dane Stanglers to attempt to backdate Kauffman research to make Schramm the Statist look like an Austrian eocnomist, while Schramm bases the Kauffman Foundation’s grants on which student-debt growing college administrators give him the most prestigious medals–not for his non-existent, insipid, dumbed-down scholarship, but for his ability to wire another man’s (Kauffman) and noble Foundation’s money.

Schramm is not Kauffman, and when he steps down, a thousand flowers will bloom as capital is allocated towards entreprneuers, students, professors, and innovators; and not towards the schrammenomics dog-and-pony show, medal-buying, Nobel prize campaigning cartel.

“I sit on a man’s back, choking him, and making him carry me, and yet assure myself and others that I am very sorry for him and wish to ease his lot by any means possible, except getting off his back.” –Tolstoy Writings on Civil Disobedience and Nonviolence (1886)

F.A. Hayek/Mises warned us about Carl Schramm et al.’s Temporal Tyranny and Postoffice, where he hires thug deputies such as Dane Stangler to backdate research and make it look like Schrammenomics embraces the Austrains, when, in fact, he compeletly ignores them in word, deed, spirit, and action–in his books and medal acquisitions alike.

Because Schramm has hijacked the $2.5 billion Kauffman foundation, he runs it as a top-down dictarorial CEO would, with every action motivated by self-preservation as the Nobel in economics slips further and further beyond his intellectually-inept reach. Sycophantic lockstepping lawyers such as Dane Stangler will never call Schramm out, as their salary depends on supporting Statist Schrammenomics above truth, beauty, classical economics, deep scholarship, and reason, and they will go so far as to backdate Kauffman research to serve their corrupt medal-buying master.

Carl Schramm did not build Kauffman, and it is time for Carl to step down.
Carl Schramm is not Kauffman, and it is time for Carl to step down.
Carl Schramm does not own Kauffman, and it is time for Carl to step down.
Kauffman did not will for his vast welath to become a Schrammenomics vanity press, and it is time for Schramm to step down.
Nowhere did Kauffman will for Carl Schramm to use a $2.5 billion warchest to purchase medals form Rochester, pen and promote insipid, self-serving books lauding Schrammenomics via a Kauffman-funded vanity press/growthology MBA-buzzword blogging cartel, while completely ignoring intellectual diants such as L.V. Mises and F.A. Hayek, and it is time for Carl Schramm to setp down.
Nowhere in the foundation’s charter did it stipulate that Carl Schramm was to lord over the Kauffman Foundation for all of entirety as the economy withered, crashed, and died; as millions of entrepeneurs, works, and common folk lost their homes, savings, pensions, businesses, and jobs to Schrammenomics’ self-serving socilaism; and the entrpreneurial spirit was replaced with Schrammenomics

The most important elements in entrepreneurship are character and integrity. The most important elements for Statists/Schrammeconomist are the lack of character and integrity and the ability to use words to mislead and deceive while laying claim to a dead entrepreneur’s estate. While Hayek and Mises used words for truth, Schramm uses words for mere personal profit and purchasing medals and promoting lackluster, anti-intellectual, dumbed-down books, and then when his lackluster, anti-intellectual, unscholarly works fall short, he has to try and put all better economists out of business by leveraging his $2.5 billion warchest. Imagine if Hayek and Mises had used a $2.5 billion warchest to put their competitors out of business and buy medals. They would never do this. For they had character and integrity, which Schramm the self-serving tyrant/Statist completely lacks.

Whenever those with a fundamentally socialist, central-planning, bureaucratic mindset approach entrepreneurship, they generally end up creating a groupthink tyranny which kills the spirit of entrepreneurship, while simultaneouly profiting off the fruits of entrepreneurship and free markets, even as such exalted entities wither and die under the Schrammeconomists’ reign of corporate terror, whence a Foundation’s resources are leveraged to put competitors out of business so that the Schrammeconomist’s inferior work might prevail in the dumbed-down market, thusly exlating Schramm as teh eocnomy and academia decline. The study and teaching of entrepreneurship requires a great character and intellect, and an even greater humility. Over the past seven years Carl Schramm has demonstrated that he lacks character, intellect, and humility; and the economy and academy have suffered immensely under is reign.

1) Carl Schramm lacks character: Schramm has beocme famous for syaing one thing while doing another and making promises he never keeps. This has been pointed out elsewhere on the internet, and it is also manifested in that he runs the Kauffman Foundation like a tyrant, pocketing millions of dollars for his inspidid treatises on Capitalism which compeletly ignore the towering giants of the field including Ludwig Von Mises and F.A. Hayek. Not referencing the Greats who have walked before you is a serious sign of unscholarly egomania, ineptitude, and a withered character. Rather than funding true economists and entrepreurs, Schramm actually uses the Kauffman foundation’s funds to oppose them while campaigning for the Nobel in economics, wiring hundreds of millions to Statists and intellectually-indifferent University administrators. Schramm runs the Kauffman Foundation not as a charitable foundation, but as a corrupt corporation which enriches Schramm in a massive manner with millions, while also allowing him to try and put his competitors out of business, funding groupthink growthology bloggers to dumb down the internet.

Should a foundation be run by those with lackluster, unscholarly books to promote and a track record for academic irresponsibility? Will they not by and by use the foundation’s resources to try and put their superior competitors out of business in cloaked, obfuscating, unmanly manners, all the while preaching fair markets and free markets? Because Schramm lacks character, integrity, and intellect, he profits not by serving entrepreneurship’s ideals, but by saying one thing while doing another and hiring Dane Stangler to backdate research trying to claim that Schramm was the first to discover/rediscover Austrian economics. Actually the Austrian economists discovered Austrian economics. And Schramm destests them because they call his failed Statist bluff with every word.


Posted by John Bunch, Ph.D., May 03, 2007 8:50AM

It is interesting that Dealbreaker references Carl Shram of the Kauffman Foundation as an authority on ethics. Those of us who live in the Kansas City region know that Carl Schram and been a controversial figure since he was appointed to his post a number of years ago. Board members have resigned in protest of his leadership style and strategic choices. His controversial leadership led to the Missouri Attorney General reviewing the Kauffman Foundation for not staying true to the intent of Ewing Kauffman. The purpose of this review was stated as:

“In light of the public allegations of a departure from Mr. Kauffman’s intent, lack of appropriate oversight by the Board of Directors, and certain instances of conflicts of interest. ” (http://www.ago.mo.gov/newsreleases/2004/kauffmanreport030404.htm#conclusion)

See also this editorial from the Kansas City Business Journal (http://www.bizjournals.com/kansascity/stories/2003/09/15/editorial1.html)

Ewing Kauffman was famous as an ethical leader. Carl Schramm is not.

2. Carl Schramm lacks Intellect: Suppose you were to write a treatise on philosophy and leave out Aristotle, Plato, and Socrates. Suppose you were to write a treatise on physics and leave out Einstein and Newton. Schramm wrote a treatise on kapitalism and he left out Nobel Laureate F.A. Hayek and his teacher Ludwig Von Mises.


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Now Schramm has hired Dane Stangler to backdate Kauffman research to show that really Schramm was thinking about the Austrians all along; and again this ties into Schramm’s complete lack of character and corrupt nature.

3) Carl Schramm Lacks Humility: When one has no achievements other than commandeering a foundation for one’s own personal profit and intellectually-indifferent, vapid, Statist vanity press, one has nothing to be humble about. If Schramm had any humility he would apoligize for what he and his Statist, doublespeaking philosophies have done to academia and the economy, and he would step down.

Hayek reminds us that economics is about values, ethics, and character–not about doublespeaking Schrammenomics:

“I have arrived at the conviction that the neglect by economists to discuss seriously what is really the crucial problem of our time is due to a certain timidity about soiling their hands by going from purely scientific questions into value questions. This is a belief deliberately maintained by the other side because if they admitted that the issue is not a scientific question, they would have to admit that their science is antiquated and that, in academic circles, it occupies the position of astrology and not one that has any justification for serious consideration in scientific discussion. It seems to me that socialists today can preserve their position in academic economics merely by the pretense that the differences are entirely moral questions about which science cannot decide.
Conversation at the American Enterprise Institute for Public Policy Research, Washington, D.C. (9 February 1978); published in A Conversation with Friedrich A. Von Hayek: Science and Socialism (1979) –Hayek

“If man is not to do more harm than good in his efforts to improve the social order, he will have to learn that in this, as in all other fields where essential complexity of an organized kind prevails, he cannot acquire the full knowledge which would make mastery of the events possible. He will therefore have to use what knowledge he can achieve, not to shape the results as the craftsman shapes his handiwork, but rather to cultivate a growth by providing the appropriate environment, in the manner in which the gardener does this for his plants.” Schramm has done more harm than good by placing his campaign for the Nobel Economics and hiring/funding growthology groupthink bloggers, over supporting entrepreneurs, innovators, and entrepreneurship.

After seven years of Schrammenomics, look at the economy where millions ar elosing their jobs an dhomes. Look at the academy and the skyrocketing tuitions at the Kauffman campuses which place studnets in massive, unprecedented debt, with Kauffman campuses such as Oberlin and Keynon oft leading the way.


How many more years of Schramenomics will the Kauffman board allow? When Schramm steps down, a thousand flowers will bloom, and the greats such as Ludwig Von Mises and F.A. Hayek will be given theior rightful place in the academy, as opposed to Schramm’s MBA/lawyer groupthink thugs who Schramm handpicked to serve the Schrammenomics tyranny over truth and reason.

In the recent Wall Street Journal article, Carl Schramm took great, smirking pride in the fact that nobody really knows what it is that the Kauffman Foundation is or does. Well, if you were out buying medals, building a cabal of lockstepping growthology MBA-buzzword bloggers to further your campaign for a Nobel Prize with unscholarly, unhorable, anti-intellectual books, while you let the eocnomy die while keeping Kauffman’s funds from reaching the students, innovators, schoalrs, and entrpreneurs, you would probably not want anyone to know what the Kauffman foundation is or does either.

This is simply tragic.

Kauffman was a great, definitive man with character, direction, and exalted leadership.

Schramm is a cowering, quivering doublespeaker and politician who is way out of his league in intellectual matters, which is why he must deny the bright sunlight of Hayek and Von Mises, so as to keep the Kauffman Foundation in darkness during his reign of terror and anti-intellectualism, anti-free marketplace of ideas. The tragic result is that instead of leading–instead of using Kauffman’s funds to exalt and educate and further innovation and entrepreneurship, Schramm is using them to purchase medals, line his private pockets, promote his vanity press, and bring others down; leveraging a $2.5 billion endowment to kill the free marketplace of ideas and spam the internet with links and trackbacks to his “growthology” PR campaign.

And after seven years of Schrammenomics, is the eocnomy better off? Are you better off? Probably only if you are Dane Stangler or one of Schrammenomics’ Kauffman-funded disciples.

“[Socialists] promise the blessings of the Garden of Eden, but they plan to transform the world into a gigantic post office.”” –Ludwig Von Mises predicting what the Kauffman Foundation would become after seven years of tryannical, corporate-CEO, personal-profiteering, anti-intellectual, anti-entrepreneurial Schrammenomics.

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