There is much hand wringing and hair pulling right now over the fallout of the subprime lending crisis. How far will the rot in financial markets go? Which mortgage lenders will go under? Will the U.S. fall into a recession or even worse?

The mainstream economic press is foursquare behind the Federal Reserve Bank’s policy of pumping up the money supply. The lead editorial in Friday’s Wall Street Journal said of the Fed’s infusion of $62 billion into the banking system in the last two days that “Serving as lender of last resort in these conditions is the proper function of central banks.” In a longer companion essay ominously titled “Market Flaws Surface” three Wall Street Journal economic reporters cite perceived “market glitches” that can “transmit problems broadly” as justification for Fed intervention to drive back up (and therefore drive down the interest rate cost) the price of commercial paper. They report that “Commercial paper market rates have risen as far and as fast as they did after the September 11, 2001 attacks.” So here is America’s and probably the world’s leading financial newspaper putting its editorial reputation fully behind more central bank intervention. Too bad that it is wrong.

The concept of the proper role of central banks has taken only a hundred years or so to develop. The Bank of England was the modern world’s first central bank, devised as a scheme for the crown to spend money it did not have and did not dare tax or borrow from the British people. The American Federal Reserve Bank came into existence in 1913 and has gradually debased the American dollar, that had APPRECIATED at roughly four percent a year since the Civil War, to one twentieth of its 1913 value today. In the same time period medical science has made tremendous leaps. Medical science? What has that got to do with the current financial markets?

We can all be glad that the government has not yet completely taken over healthcare. Because if that were the case, here is what the government would prescribe for your fever—take the thermometer out of your mouth and place it in a glass of ice water until it shows that your temperature has fallen to the normal range. Now you are cured. That is the medical analogy to the Fed’s insistence that it control financial market interest rates. If interest rates start to rise above a level desired by the Fed, then inject money into the economy until they fall back to the desired level. Now the market is cured. But the market is no more cured of its financial problems that would be your fever by placing the thermometer in a glass of ice water.

What we are witnessing, and not for the first time, is the result of the politicization of the monetary system. It is the natural consequence of entrusting government with an absolute monopoly over the supply of fiat money. Governments treat fiat money, not as representing a medium of exchange in order to facilitate the proper allocation of scarce resources, but as a method for unlimited credit expansion. The very nature of fiat money is that it ignores the absolutely fundamental fact that resources are in scarce supply and must be used for the purposes most desired by people. A privately owned, commodity based money supply fulfills this vital societal function, because the commodity upon which the money is based is a scarce resource itself. But a fiat money is not a scarce resource so it cannot represent scarce resources. A fiat money commits the fundamental error of attempting to allocate scarce resources with a non-scarce financial medium. To compound the problem, the government uses its police power to outlaw any medium of exchange other than its own. This gives government the absolute power to confiscate our real resources for its political ends.

After the 9-11 attacks the Federal Reserve Bank drove interest rates down to almost zero, sending a false signal to the market that has resulted in the subprime lending bubble. To put it bluntly, the Fed encouraged lenders to grant loans to people to purchase assets that they could not afford. In its own words the Fed now is “providing liquidity to facilitate the orderly functioning of the financial markets.” Nonsense. It is bailing out the banks and attempting to prevent the necessary liquidation of malinvestment that the Fed itself caused. The more the Fed intervenes the longer this necessary market correction will take before equilibrium is restored to the financial markets.

This boom and bust cycle will continue until we return to a commodity based monetary system that prevents systematic malinvestment on the order of our present crisis, a crisis that need not have happened and would not have happened under a sound monetary system

For over thirty years Professor Richard Epstein of the University of Chicago has been an outspoken opponent of statism and all its trappings. Not only is statism anti-liberal, Professor Epstein has shown in previous books that it is antithetical to the very precepts it attempts to foster, namely opportunity and prosperity for all. In How Progressives Rewrote the Constitution (Cato Institute 2006), Professor Epstein traces the court cases that have produced this plague upon the land—the legal facet of the Progressive Movement that sought to destroy the clear meaning of our Constitution as one of limiting the federal government and replace it with an activist and more powerful and intrusive state. Little did the Progressives realize that they were the American version of Prince Otto von Bismarck’s socialist policies that bore fruit in National Socialist Germany and Marx/Engels Communism that rationalized the enslavement of continents and the murder of tens of millions.

The Progressives became the bridge between what Epstein calls the classical liberal philosophy of the “Old Court” and today’s “Living Constitution”. But first they had to surmount a century of Constitutional precedent that greatly restricted, although it did not prohibit, the federal government from meddling in the private economic and social affairs of Americans.

Why is this so important? Well, as Dr. Walter E. Williams recently told Philadelphia area audiences at lectures sponsored by the Intercollegiate Studies Institute in Greenville, Delaware, and earlier in the year by one hosted by The Wynnewood Institute, Wynnewood, PA, having a “Living Constitution” means we have no constitution at all. All Americans should be concerned about this development, because when one’s rights and liberties are not founded upon a written document which is intelligible to all, those rights and liberties are at risk of being interpreted away by a political elite. An example is the recent Kelo decision that reinterpreted the takings clause to encompass a public “purpose” and not the narrower public “use” doctrine that defined eminent domain since the founding of our country. (A public “purpose” can justify condemnation proceedings to force someone to sell his land to a private developer who will generate more tax revenue, whereas a public “use” can justify condemnation to take land for widening a highway, installing a sewer system, etc.)

In a better world, in a fairer world, Professor Epstein would be Chief Justice of the U. S. Supreme Court. He would strike down the Progressive-inspired precedents of the New Deal by showing that they were based upon faulty logic and a misreading of our Founders’ intentions and their very well documented explanations of the role of our federal government. (Earlier this year Professor Epstein delivered a well-received lecture for The Wynnewood Institute in which he explained how little high court office means to him. Early in his career at a large eastern university debate he challenged a popular new law that gave the government the power to intrude into our personal affairs. He was warned that by doing so he was spoiling his chances for a seat on a federal bench. He related how liberating was this knowledge, for now he did not have to weigh his every utterance for its political effect!) Here Professor Epstein shows that the legal framework that protected our persons and our property in the “Old Court” was much more nuanced and more deeply rooted in the human psyche than the shallow and inconsistent statist policies that followed the Progressive revolution in thought.

Professor Epstein explains that our Founders and the early Old Court struck down most state laws that attempted to regulate commerce not so much because they were adherents of Adam Smith’s “invisible hand” (most had not read The Wealth of Nations, which was published the year of our Declaration of Independence) but because they defended the federal government’s prerogative to regulate trade. It was still the common belief that it was advantageous for nations to engage in economic competition by subsidizing home industries and restricting the importation of foreign goods. Laissez Faire economics slowly demonstrated the fallacy of this Mercantilist theory in the nineteenth century. Nevertheless, the Old Court’s decisions to defend the federal government’s powers over foreign trade acted to promote free trade to a very large extent, although the Old Court followed no hard libertarian line.

Curiously, Professor Epstein attempts to distinguish classical liberalism from libertarianism. Early in the book (Chapter 2, Subchapter A titled “First Principles”) he states that private voluntary contracts are positive-sum games. But he then goes on to state that “whatever harm ordinary contracts of sale and hire wreak upon competitors (and it is real harm, no doubt) is more than offset by gains to the parties and consumers.” Having recently read Dr. Patrick Burke’s No Harm: Ethical Principles for a Free Market, I was convinced that no such harm followed from free exchange and was prepared to have Dr. Burke’s views, to which I fully subscribe, challenged by one of the world’s most respected political philosophers. But no explanation followed! I can only surmise that Professor Epstein’s definition of harm is somewhat different than Dr. Burke’s. In my opinion, Dr. Burke’s No Harm principle provides as solid a foundation as any society needs for denying any governmental infringement upon free exchange.

After FDR’s failure to pack the Supreme Court with his lackeys, a chastised and frightened 1937 Court suddenly began to read between the lines of the Constitution and find no inconsistency with New Deal programs that usurped State and Local power, much less the economic rights routed in Adam Smith and laissez faire theory which had liberated our nation of immigrants to build unprecedented and widely enjoyed wealth.

So the question Professor Epstein attempts to answer is how this happened. How did the Progressives kidnap the Constitution?

For those looking for an explanation of the social factors that bred Progressivism, the early leaders and organizers of the movement, and their very persuasive arguments over many decades, this book will not suffice. Professor Epstein is first and foremost a legal scholar, so this small book is a history of the main court cases that enshrined Progressivism in American law. I must confess that I was disappointed in this regard, but the book does deliver what its title implies. Furthermore, Professor Epstein makes many excellent points about the failures of the Progressive prescription for curing the many perceived ills of society.

For example, the Progressive program created “anti-social political ends” which called for correction but not elimination. But rather than correct previous errors, the intended correction created new problems. Agricultural price-fixing legislation attempted to help farmers but hurt workers. So pro-union legislation attempted to correct the injury to workers but only hurt farmers. Professor Epstein says, “Neither error cancels out the other. Rather, the two errors compound each other.”

Another interesting observation is that all government attempts to “protect” some interest merely shift undue market risk onto some other and less politically powerful group. Progressive-inspired labor legislation was aimed at helping the working man earn a higher wage. But gains for powerful unions, achieved through the coercive power of the state, came at the cost of higher unemployment and lower pay for non-union workers.

In conclusion, although this book is written as a legal review of case and, to a lesser extent, statute law, Professor Epstein clearly explains how the Progressive prescription for curing society’s shortcomings has caused untold harm to our polity. We live with their legal legacy today, which hamstrings the economy, intrudes unnecessarily into our private affairs, and makes ours the most litigious on earth.

Today even few Frenchmen display open admiration for Charles de Gaulle. On a recent trip to Paris I searched in vain for a bust or statue of the general and former French president, the first and longest tenured of the Fifth Republic. Here was a man who saved French honor in World War II, prevented a communist takeover after the war, wrote the constitution of the Fifth Republic in his own image, and survived numerous assassination attempts by French army officers when he ended colonial rule of Algeria. Yet few seek his advice today.

Americans are especially disdainful of his insistence on an independent French foreign policy and have accepted the myth that de Gaulle “kicked us out of France”. (Not true. He refused to agree that America should be free to launch nuclear weapons from French soil without French approval and called our bluff when we threatened to leave. This was a mistake that Eisenhower, who knew de Gaulle well, would never have made.)

Along with Dwight Eisenhower and George C. Marshall, Charles de Gaulle was the epitome of the soldier-statesman. But whereas both Ike and Marshall entered politics only reluctantly and never published their theories of leadership, de Gaulle was a prolific writer about these themes while a low ranking officer in the brief peace between the two world wars. He deserves to be read and studied, because his insights are applicable to all time.

De Gaulle wrote five short essays before World War II, which outlined his thoughts regarding war, leadership, and statesmanship. They were later published as The Edge of the Sword. It is a relatively short book—only 130 pages—but every sentence deserves careful reading. There are quotable sentences throughout. Here is one of my favorites, from the essay “Of Doctrine”, which is chillingly appropriate to the situation in which we find ourselves today:

“A general with an excellent army most carefully deployed for battle will yet be defeated if he is insufficiently informed about the enemy. A statesman may be determined and tenacious, may have the backing of all the resources of a great country and a solid system of alliance but, if he does not understand the character of his time, he will fail.” Page 80

De Gaulle certainly understood the character of his time only too well. He was most concerned that France was deluding itself that the Great War truly was the “War to end all wars”. In his essay “The Conduct of War” de Gaulle made the matter-of-fact observation that peace does not produce good war leaders. The French were determined that the loss to Germany in the Franco-German War of 1870 should not be repeated and, thusly, attracted men of competence to the military arts. Here is de Gaulle in his essay “Of Character”:

“Misfortune had a clarifying effect on public opinion. Determination to endure all necessary sacrifices in order to avoid yet another defeat was, from then on, the dominant feeling of Frenchmen everywhere.” Page 39

But the great French victory in World War I had the opposite effect. Society, rightfully sickened by the bloodbath of the 1914-18 War, deluded itself that another such war was unthinkable. The army was reduced to a very low level. Few men of substance were willing to tolerate the lack of opportunity that military preparedness offered. So the military attracted men of second rate, who were willing to accept low status and who were reluctant to lobby forcefully for higher military preparedness.

This sounds very much like the feeling in the West after the fall of the Soviet Union. Francis Fukuyama proclaimed the “end of history.” Freedom, democracy, and capitalism had won for all time. There were no further enemies worthy of the name. So America elected as our highest military leader a president who was openly hostile to the very institution he was bound by the Constitution to command. Even his shockingly bad personal behavior was not enough to deny him an easy reelection victory over a man who undoubtedly will be America’s last World War II veteran nominated by a major party for the presidency. De Gaulle would have understood the mood completely and would have warned against the risks of placing so much power in the hands of a man of such poor character.

Much of de Gaulle’s five essays are internally reflective. Churchill, de Gaulle’s most important champion during World War II, wrote openly that he prepared his entire life to assume command of the British Empire in a time of crisis. De Gaulle was more circumspect. He valued the quiet, competent man who was self-assured and would assert his authority during a crisis and inspire confidence in subordinates. In one of my favorite passages, taken from the essay “Of Prestige”, he warns would-be leaders against saying too much:

“Nothing more enhances authority than silence. It is the crowning virtue of the strong, the refuge of the weak, the modesty of the proud, and the pride of the humble, the prudence of the wise, and the sense of fools.” Page 59

Modern leaders are expected to pontificate on everything that attracts the attention of a fickle electorate. We are constantly hearing what the president thinks about things that have nothing to do with his office. And usually, half the electorate opposes his answers.

By contrast de Gaulle advises leaders to remain aloof, avoid minutia, and set broad goals for subordinates to carry out. He warns that such a man will have few friends and will lead a solitary life, but this is as it should be. The leader cannot be emotionally tied to any faction. He must set goals that are embraced by the whole populace, and there are few such goals that will pass this difficult test.

Although de Gaulle made the transition from soldier to statesman, he thoroughly understood the different worlds which shape their different attitudes. In his final essay, titled “Of Politics and the Soldier”, de Gaulle explained that in peace there is a natural friction between the political leader and the military leader. The political leader naturally wants to cut the military budget in order to reduce the burden on the people. But the soldier demands more expenditure for a conflict that he knows he will be forced to fight with the resources accumulated during the peace. Despite the fact that he was a soldier at the time he wrote this essay, de Gaulle felt that this friction actually produced balance and that the statesman and the soldier should understand the other and work together toward a common goal. This is hardly the voice of a zealot.

One gains from these five essays the importance that de Gaulle placed on knowing the temper of the times, the nature of man, and the importance placed on flexibility of action in the face of new contingencies. In “Of Doctrine” he warns against blindly accepting a narrow although comfortable world view, and repeatedly advises both statesmen and soldiers to understand and adapt to circumstances. In a poignant note he praises General Petain, the French hero of the Great War, for abandoning the disastrous doctrine of the “continuous offensive”, which had accomplished nothing despite massive slaughter of the flower of French manhood. Instead, Petain focused on attaining supremacy over a limited portion of the battlefield then taking the defensive.

After World War II, de Gaulle’s tribunals sentence Petain to death for heading the collaborationist Vichy government. De Gaulle stayed his sentence due to age and senility. This action made him few friends, but by that time de Gaulle had been following his own advice for many years. He remained aloof and said little—the man of action who takes his own counsel.

Jim Neville’s School Reform Commission (SRC) is pondering several options to, well, reform the schools. Over the last few days, The Bulletin’s Jim McCaffrey has covered the tragic story of the complete disintegration of Philadelphia’s public school system. Business leaders like Jim Neville and even politicians such as Mayor Street must be credited with at least trying to do something. I give credit to Mayor Street for continuing to support funding of the Safe and Sound Report Card, which tells it like it is, and it isn’t pretty. And now the real pain begins—recommending action that is sure to disappoint many powerful constituents. How did we arrive at this sorry state of affairs and, more importantly, what can we do about it?

One thing we can do is stop using children as props. I sincerely doubt that six-year old Katharine McDowell spontaneously and out of her vast understanding of the issues involved decided to make a sign and join a political rally outside City Hall, as her picture on page one of Thursday’s Bulletin would infer. Michael Nutter made sure that more little girls surrounded him for his picture on page three. OK, guys, we know this is “all about the children”, but please stop the blatant propagandistic spectacle of dragging little children as pathetic backdrops for demagoguing issues that only adults can understand.

The Safe and Sound 2007 Report Card says it all. Philadelphia is not educating its children. The public schools have failed. Even a takeover by the Commonwealth and turning some schools over to private management groups has not corrected this disaster. Mayor Street is right when he says “If we don’t do something about some of this, then we are going to find ourselves with more overcrowded prisons.” You mean even more overcrowded than now, Mayor Street? Here’s my not too courageous prediction: no matter what reforms are enacted by the SRC, Philadelphia’s schools will continue to fail. Oh, there may be some small blip in next year’s Safe and Sound Report Card, but the public schools cannot be reformed—they can only be abolished.

Public schools have become the honey jar of every rent-seeking special interest group and every crackpot social-change theory-of-the-month pressure group. Society’s cultural wars are fought on the battlefield of the public school system, with billions of dollars and millions of impressionable young minds at stake. Parents are helpless in this milieu. The police stand ready to throw them in jail should they object to having their children indoctrinated with sex education, origin-of-life theories, revisionist history that denigrates Lincoln and celebrates unknown and unimportant poets, discredited whole-word reading and new math theory, environmentalism…the list goes on and on. And I haven’t even touched upon the vast share of school taxes that go to elitist sports programs. How did we get to this sorry state? A brief history lesson is necessary.

Public schools were the first salvo of the national socialist agenda and probably will be the last of that movement’s poisonous programs to go. Prince Otto von Bismarck authored many national socialist programs in Germany in the latter half of the nineteenth century in order to make the German population entirely dependent upon and loyal to the all-powerful Prussian State. Remember the Germans? A highly advanced nation, both economically and culturally, which started two world wars? Bismarck laid the seeds of the German disease. Universal public education was a cornerstone of his program whereby he would instill xenophobic national socialist values in every school child. This poisonous idea spread like wildfire around the developed world and manifested itself as the Progressive Movement in America. Only the state could set the school curriculum, and it could force parents to send their children to government schools. The entire population, not just those with children, were taxed at the threat of confiscation of their property and/or imprisonment.

The labor movement joined forces with the Progressives to enact child labor laws, which forbade the employment of children in jobs coveted by the unions. Oh, the Progressives and the unions didn’t want to forbid all child labor. Ask any farm kid even today if he “labors” on the farm. He may so no; he just has lots of chores to do each day. Even your intrepid author labored as a child, as I’m sure did many of you. My brother and I couldn’t get a job at the local car wash or lawn service company, but that didn’t stop us from washing and waxing cars, mowing lawns, and shoveling snow to earn money for the small luxuries that our folks couldn’t afford.

The only answer to this debacle is the elephant in the living room that no one wants to talk about—scrapping the entire public school system. No more mandatory requirement that children attend any specific school. No more school taxes. “Impossible,” you say. We must force children to attend school, because their no-good parents will not send them otherwise. Plus, there are too many poor people who cannot afford to send their children to private schools. OK, then what is your alternative—continue to throw money down the rat hole of the current failed public school system? Or would you rather return billions of dollars in wasted school taxes to the taxpayers and the parents to spend as they see fit?

Without high school taxes, everyone has more money to spend, including renters whose taxes are imbedded in the cost of their rent. Competition will insure that landlords lower their rents to reflect this decrease in costs. As for the poor being unable to afford private schooling, studies have proven that even the poorest people in the poorest countries manage to send their children to private schools. Where there is a will there is a way. (Read Cato Institute scholar James Tooley’s “Private Schools in the Poorest Countries” at: www.cato.org/research/articles/tooley-050901.html) Without all the mandatory curriculum requirements, schools can decrease costs and get back to the basics. Private charity covers the hardest poverty cases.

Without mandatory curriculums, children would attend the type of schools that they and their parents value. We would expect more trade-type schools, which would better prepare students for the real world than our current one-size-fits-all curriculum. My friend’s early teenage daughter just attended a week’s long sewing and fashion design school. She loved to go each day and made a very pretty outfit during the week. This school was not housed in some fancy building—the teacher held it for about a half dozen young ladies right in her home in the neighborhood. Scrapping mandatory curriculum requirements would free years of wasted school children’s time.

Public schools have no real competition and, as a result, are run with all the efficiency of the post office and dedication to customer satisfaction as the IRS. You may say that many private schools flourish and you would be right. But those parents who send their children to private schools still pay public school taxes, ensuring that only the very well-to-do enjoy this luxury.

We must cut the Gordian Knot and abolish public schools altogether. It is the parents’ responsibility to educate their children, just as it their responsibility to feed, clothe, and house them. Billions of taxpayer dollars are wasted on public schools that do not educate or otherwise prepare their captive audience for the challenges of life. Freedom, liberty, and personal responsibility should not end at the schoolhouse

Oil is Iraq’s greatest resource but also the source of great animosity. The Iraqi cabinet, minus one of its key Sunni members, recently passed what it hoped would be a draft bill to apportion FUTURE oil revenue among the three major religious/political factions—the Sunnis, the Shiites, and the Kurds. But immediately a powerful Sunni organization, the Association of Muslim scholars, issued a religious fatwa, prohibiting its members from recognizing the bill.

Government ownership of natural resources is a curse to its constituents. Rather than seek peaceful cooperation in rebuilding the nation, the promise of living a life of ease off future oil revenue has divided Iraq as each ethnic group attempts to claim ownership of the oil fields themselves. In the meantime Iraqi oil production suffers.

Iraq is no different than other countries whose governments make the completely lawless claim to ownership of all the oil within the nation. President Chavez of Venezuela uses his nation’s oil as his personal policy instrument, bribing low income Americans with low cost oil that he stole from those who developed his country’s oil fields. His incompetent lackeys have taken physical control of the fields and the oil-pumping infrastructure, and—surprise, surprise!–production is down.

As long as the government of Iraq claims final ownership of the nation’s vast oil reserves and deteriorating oil infrastructure, it will forever be roiled in divisions over oil field ownership, and little oil will be pumped. No one will benefit–not the Iraqi people or the people of the world who are willing to pay a high price for the oil, if the Iraqis can ever get it to market.

There is only one way out of this predicament—privatize the land and all the mineral rights, including oil, that go with it. Allow the free market to assess the true capitalized value of the land and allow owners to take whatever steps are necessary to protect and exploit their property. (The capitalized value is the present discounted value of the expected future stream of income to be derived from the land.) One can see how such an action would quickly demonstrate how free markets encourage cooperation, whereas public ownership breeds discontent. Instead of fighting over something that may never be—i.e.,future oil royalties–, the contending factions in Iraq would have a powerful incentive to reach an agreement in order to get the proceeds of the sale NOW. Also they would quickly see that they would get a better price if they could guarantee the security of the oil fields to prospective buyers, thus inferring that the flow of oil and resultant flow of income would be greater.

Since the capitalized value—that is, the likely sale value—of the land is simply a reflection of the expected net revenue to be derived from exploiting the land’s resources, any action by the Iraqis to guarantee higher revenue would increase the sale value. Almost all going-concerns are valued in this manner. A higher expected stream of net revenue means that a potential owner will pay a higher price.

So if the Iraqis expect to sell their land to private owners, they must reassure them that they will not renege on the agreement or otherwise increase costs that may lower expected future returns. If potential owners think that their property rights are insecure or that they will be forced to pay higher royalties in the future than originally agreed upon, they will calculate that their expected net revenue stream will be less and, therefore, they will lower their bids. One may ask why anyone would transfer large amounts of capital to gain private control of a resource in a lawless country, but potential bidders can protect their investment in many ways. I would expect that potential bidders would insist that the Iraqi government escrow their purchase money with a third party, such as a Swiss bank. That third party would release funds over time only as it is clear that the Iraqis have lived up to their side of the agreement to leave the owners unmolested in their property rights and do all they can to protect those rights from lawless elements in Iraq.

Private owners have a vested interest in maintaining the capital value of the land. No owner would exploit his resource to the point of exhaustion because to do so would destroy its capitalized value. A conscience owner will increase oil production as prices rise, bringing increased supply to a demanding market, and will lower production when prices are low, preferring to leave his valuable resource in the ground rather than add to an already oversupplied market. One of the reasons the world has had such massive swings in the price of crude oil in the past several decades is that so much production is based upon political policy of state-run oil concerns rather than market decisions of private owners. Private owners are always looking to the future, whereas state-run businesses are always reacting to short run political pressures. The public thinks that the opposite is true, but it is not. No private company would have increased production, as did the Saudis in the late nineties, when the price of oil was already low, and simply added to over-production. Likewise, no private company would keep Alaska’s vast North Slope fields undeveloped during the current high prices or use taxpayer money to take Florida’s proven off shore fields off the market, as did the state of Florida recently in reaction to environmental and aesthetic pressures.

Iraqi oil must be removed from the political arena, where animosity and envy rule, to the private arena, where cooperation and enterprise rule. This is the free market’s greatest gift—peace and prosperity—whereas government control of resources breeds poverty and war.

By Patrick Barron

The economic embargo is a well-known and oft-used weapon of war. Great Britain established the Continental Blockade during the Napoleonic Wars, denying France the ability to either receive or send goods oversees. The greatest sea battle of that era occurred when the French attempted to break the blockade at Trafalgar. In our own Civil War, Union warships blockaded Southern ports, denying the Confederacy the ability to trade with Britain, its chief trading partner. Britain again blockaded continental Europe in the First World War. Germany’s attempt to break the blockade failed off Jutland, the greatest sea battle of that era. Between the wars the U.S. Navy prepared for a naval battle against the Japanese Navy. All of its war games ended with the Japanese Navy destroyed and all Japanese ports blockaded. The Navy assumed, correctly, that no invasion would be necessary, since Japan had only two choices after losing control of the seas—surrender or starve. After achieving its great air victory in the Battle of Britain in the fall of 1940, Britain no longer feared German invasion. Nevertheless, Churchill knew that Britain would starve unless she could win the Battle of the North Atlantic, which pitted the Royal Navy against German U-boats. It was a close thing. My father was in the army in England during the war, then in France and finally Germany. His most vivid recollection of life in England prior to the invasion was that he and his comrades in arms were always hungry.

The purpose of these embargoes was to deny the enemy the fruits of international trade. No nation can sustain a large population and a modern civil society without access to foreign markets. This is even truer today than two hundred years ago during the Napoleonic Wars. Currently the U.N. has passed progressively stronger resolutions to isolate Iran economically. Iran has issued dire threats that it considers these resolutions to be acts of war. This is one area in which I agree with Iran—it is an act of war.

The purpose and effects of protectionism are the same as an enemy economic embargo. It attempts to deny citizens access to goods and services outside a nation’s borders. The nation’s citizens must lower their standard of living, because goods produced more cheaply or of better quality elsewhere in the world are denied them through the coercive force of the state. Tales of thwarting would-be smugglers may make exciting reading for adolescents, but the premise that a nation may deny its own citizens access to foreign goods is an act of war by one’s own government upon its citizens. If economic isolation were a good thing, no nation would care if its ports were blockaded. If, as Joe Murray proclaims (Free Trade’s Dance With The Devil, July 6, 2007), high tariffs were a key component that “turned a colony into a superpower”, all these wartime economic embargoes were counterproductive. Rather than starve the enemy or deny him the ability to maintain his war expenditures, the enemy should have prospered. Britain should not have cared one way or the other whether it won the Battle of the North Atlantic. Today Iran should scoff at the UN’s progressively stricter embargoes and grow stronger through economic nationalism.

Of course we know this is not the case. International trade sustains our high standard of living, bringing peace and prosperity to all who embrace it. The economic principles of specialization and comparative advantage insure that all participants win. Trade is not a “fixed game with predetermined winners”, as Murray claims. Specialization insures that resources are used for their most productive purposes, whether locally or internationally. The larger the area in which specialization is allowed to operate, the greater are the gains through increased production. Of course the largest area possible is the entire world. All parties benefit, even those with lower productivity in ALL areas, because the most productive nations will specialize in those areas of the highest expected returns on investment, allowing other nations to provide it with goods with lower returns on capital.

Murray completely misunderstands how increases in productivity benefit everyone. He views higher levels of manufacturing productivity—more goods with fewer workers–as a bad thing, as if featherbedding and maintaining old fashioned manufacturing practices will benefit the working man by keeping him employed doing busy work. If this were the case, why are we not continuing to produce all our goods in our own self-sufficient homes? For if restricting trade with foreigners is beneficial, then restricting trade with citizens of other states, other counties, other townships, and even other households is beneficial. We will all be employed from sun up to sun down securing our sustenance, churning our own butter and weaving our own clothes.

Murray claims that the U.S. auto industry is a victim of globalization. No, the U.S. auto industry is a victim of militant trade unions supported by government imposed mandatory unionism. Since the 1930s militant unions have used the strike to extort higher than market wages and to retard manufacturing innovation. Over the decades U.S. cars became more expensive and more shoddy compared to foreign autos, especially Japanese models, which are better and cheaper than U.S. makes by almost every measurement available.

The only way to improve our standard of living is to produce more goods and services, not fewer, and the only way to gain the maximum quantity of goods and services is to allow the miracle of specialization to work throughout the world. We grow stronger, not weaker, by expanding the free flow of trade beyond our borders. I end with this quote from Ludwig von Mises in Human Action: “The philosophy of protectionism is the philosophy of war.”