Andrei Shleifer, Professor of Economics, Harvard University

Recently, I was asked by the organisers of the IIASA conference1 to mark the 20th anniversary of the beginning of economic reforms in Eastern Europe and former Soviet Union to comment on the lessons of transition. The assignment presumably refers to the things that I learned – as an economist – that are different from what I believed initially. Such a recollection free from hindsight bias is challenging, but I tried. This list might be useful to future reformers, although there are not so many communist countries left. Some of the issues are however relevant not just for communist countries; the problems of heavily statist economies are similar. So here is my top-seven list.

First, in all countries in Eastern Europe and the former Soviet Union, economic activity shrunk at the beginning of transition, in some very sharply. In many countries, economic decline started earlier, but still continued. In Russia, the steepness and the length of the decline (almost a decade) was a big surprise. Countries with the biggest trade shocks (such as Poland and Czechoslovakia) experienced the mildest declines. To be sure, the true declines were considerably milder than what was officially recorded – unofficial economies expanded, communist countries exaggerated their GDPs, defence cuts, and so on – but this does not take away from the basic fact that declines occurred and were surprising. These declines contradicted at least the simple economic theory that a move to free prices should immediately improve resource allocation. The main lesson of this experience is for reformers not to count on an immediate return to growth. Economic transformation takes time.

Second, the decline was not permanent. Following these declines, recovery and rapid growth occurred nearly everywhere. Over 20 years, living standards in most transition countries have increased substantially for most people, although the official GDP numbers show much milder improvements and are inconsistent with just about any direct measure of the quality of life (again raising questions about communist GDP calculations). As predicted, capitalism worked and living standards improved enormously. One must say, however, that for a time things looked glum. So lesson learned: have faith – capitalism really does work.

Third, the declines in output nowhere led to populist revolts – as many economists had feared. Surely reform governments were thrown out in some countries, but not by populists. Instead of populism, politics in many countries came to be dominated by new economic elites, the so-called oligarchs, who combined wealth with substantial political influence. From the perspective of 1992, this came as a huge surprise. Ironically, in some countries in Eastern Europe populism appeared 20 years after transition started, after huge improvements in living standards were absolutely obvious. Indeed, people in all transition countries were unhappy with transition: they were unhappy even in countries with rapidly improving quality of life (and this itself is another surprise and major puzzle – something for future reformers to keep in mind). But the lesson is clear: a reformer should fear not populism but capture of politics by the new elites.

Fourth, economists and reformers overstated both their ability to sequence reforms, and the importance of particular tactical choices, eg, in privatisation. In retrospect, many of the theories that animated the discussion of reform – whether institutions should be built first, whether companies should be prepared for privatisation by the government, whether voucher privatisation or mutual fund privatisation is better, whether case by case privatisations might work – look quaint. Reformers nearly everywhere, including in Russia, had a vastly overstated sense of control. Politics and competence frequently intervened and dictated to a large extent most of the tactical choices. Still, most countries, despite different choices, ended up with largely similar outcomes (notable and sad exceptions are Belarus, Uzbekistan, and Turkmenistan). In various forms, all had privatisation and macroeconomic stabilisation as well as legal and institutional reform to support a market economy. Lesson learned: do not over-plan the move to markets, but, more importantly, do not delay in the hope of having a tidier reform later.

Fifth, economists have greatly exaggerated the benefits of incentives by themselves, without changes in people. Economic theory of socialism has put way too much weight on incentives, and way too little on human capital. Winners in the communist system turned out not to be so good in a market economy. Transition to markets is accomplished by new people, not by old people with better incentives. I realised this and wrote about it in the mid-1990s, but the lesson both in firms and in politics in profound: you cannot teach an old dog new tricks, even with incentives.

Sixth, it is important not to overestimate the long-run consequences of macroeconomic crises and even debt defaults. Russia experienced a major crisis in 1997–98, which some extremely knowledgeable observers said would set it back by 20 years, yet it began growing rapidly in 1999–2000. Similar stories apply elsewhere, from East Asia to Argentina. Debt restructurings do not necessarily make permanent scars. This experience bears a profound lesson for reformers, who are always intimidated by the international financial community: do not panic about crises; they blow over fast.

Seventh, it is much easier to forecast economic than political evolution. Although nearly all transition countries have eventually converged to some form of capitalism, there has been a broader range of political experiences, from full democracies, to primitive dictatorships, to just about everything in between. There appears a strong geographic pattern in this, with countries further West, especially those involved with the European Union, becoming clearly democratic, and countries further East remaining generally more authoritarian. For countries in the middle, including Russia and Ukraine, the political paths over the 20 years have wiggled around. Lesson learned: middle-income countries eventually slouch toward democracy, but not nearly in as direct or consistent a way as they move toward capitalism.

1 The International Institute for Applied Systems Analysis, based in Austria.

Professor Steven Horwitz

Krugman claims that the Republican argument for the importance of job creation relies too heavily on the “heroic entrepreneur,” rather than recognizing that “successful companies — or, at any rate, companies that make a large contribution to a nation’s economy — don’t exist in isolation.” For Krugman this means there’s plenty of help from government. Although I can’t speak for all Republican politicians, I can say that Krugman’s view of the argument for free markets is utterly mistaken.

The argument for the market is based precisely on the fact that the entrepreneur exists in a social context that helps to determine how effective her actions will be. The most heroic entrepreneur imaginable cannot be very productive if she is shackled by government regulations or is trying to operate in a society with ill-defined or poorly enforced property rights. As Ludwig von Mises recognized as far back as 1920, this is the same reason that successful entrepreneurs fail miserably when they try to run government agencies like businesses: What gives the entrepreneur the ability to succeed are market signals, which are necessary to determine what people might want and how well it was provided. Even the smartest person can’t learn if a teacher uses black chalk on a blackboard in a dark room. No entrepreneur can succeed in isolation.

The Hard Task

More important, though, is that both Krugman and politicians from both parties are much too concerned about job creation when they should be concerned about value creation. Creating jobs is easy; it’s creating value that’s hard. We could create millions of jobs quite easily by destroying every piece of machinery on U.S. farms. The question is whether we are actually better off by creating those jobs — and the answer is a definite no. We want labor-saving, job-destroying technology because it creates value by enabling us to produce things at lower cost and thereby free up labor for more urgent uses.

A century ago 40 percent of Americans worked in agriculture; today it’s less than 2 percent. The former farm workers didn’t all go unemployed. The wealth created by higher farm productivity and lower prices enabled us to demand all kinds of new products that in turn created many more jobs than were lost in agriculture. This is the story of innovation everywhere.

So rather than talking about job creation, let’s focus on value creation. The case for freeing markets is that such freedom best enables individuals to find ways to use their knowledge and skills to create value for others and thereby create wealth for themselves. The more wealth that value creators can keep, the more likely they are to continue to create it. Even if a value-creating innovation destroys jobs in the short run, the increased wealth will bring a great deal of job creation in its wake.

Ancillary Jobs

Krugman tries to criticize Apple by pointing out that the “heroic” Steve Jobs has only created about 43,000 Apple jobs in the United States (though around 700,000 overseas). But this misses the point: The real job-creation number that matters here are all the ancillary jobs created through the invention of the Mac, iPod, iPhone, and iPad. Those inventions, along with every other technological innovation, have created tens of millions of jobs in programming, web design, app design, hardware maintenance, and more.

Krugman also takes a swipe at fans of Ayn Rand by referring to “the John Galt, I mean Steve Jobs-type ‘job creator.’” But Krugman is blind to the error of his own joke: John Galt’s innovative motor took static electricity out of the air and turned it into useful energy, which would have been a huge job destroyer! Again, the triumph of entrepreneurial innovation is not in creating jobs, but in creating value. Galt’s motor would have freed up a lot of labor to be devoted to new wants made possible by the cheap source of energy. Krugman can’t even see that his own example undermines his argument.

The next time anyone starts talking about job creation, stop listening. Jobs come into existence when entrepreneurs are free to create value. Aiming directly at job creation is a recipe for waste and poverty. Set people free to use their talents to create value for others and the jobs will follow.

Article printed from The Freeman Online: http://www.thefreemanonline.org

Hailed as “the Oxford English Dictionary of American constitutional history,” the print edition of The Founders’ Constitution has proved since its publication in 1986 to be an invaluable aid to all those seeking a deeper understanding of one of our nation’s most important legal documents.

In this unique anthology, Philip B. Kurland and Ralph Lerner draw on the writings of a wide array of people engaged in the problem of making popular government safe, steady, and accountable. The documents included range from the early seventeenth century to the 1830s, from the reflections of philosophers to popular pamphlets, from public debates in ratifying conventions to the private correspondence of the leading political actors of the day.

These rich and varied materials are arranged, first, according to broad themes or problems to which the Constitution of 1787 has made a significant and lasting contribution. Then they are arranged by article, section, and clause of the U.S. Constitution, from the Preamble through Article Seven and continuing through the first twelve Amendments. Those seeking additional information and guidance should consult “A Reader’s Advisory” and the “Introduction”.

The Founders’ Constitution was first published in 1986 in five oversized volumes with more than 3,200 double-column pages. Both this clothbound edition and a new CD-ROM edition are available from the University of Chicago Press. A new paperbound edition of the set is now available from the Liberty Fund, whose collaboration has made both this Web site and the CD-ROM edition possible.

About the Editors

Philip B. Kurland was the William R. Kenan, Jr., Distinguished Service professor in the College and professor in the University of Chicago Law School.

Ralph Lerner is the Benjamin Franklin Professor in the College and professor in the Committee on Social Thought at the University of Chicago.

Burt Folsom, Hillsdal College Professor

The Progressive Movement started in the early 1900s, and my Hillsdale colleague R. J. Pestritto observes that progressives, then and now, want “a thorough transformation in America’s principles of government, from a government permanently dedicated to securing individual liberty to one whose ends and scope would change to take on any and all social and economic ills.”

In other words, where our nation’s Founders would urge churches and local charities to help people in distress—on a case by case basis—the progressives would use state power to tax the citizens and create programs to give money to certain groups in society. Over time, those programs become entitlements.

Our first two progressive presidents were Theodore Roosevelt and Woodrow Wilson. On Roosevelt, President Obama recently likened himself to Teddy because of their mutual desire to use the state to redistribute wealth. In 1910, Teddy Roosevelt gave a famous speech in Kansas in which he said, “The really big fortune, the swollen fortune, by the mere fact of its size acquires qualities which differentiate it in kind as well as in degree from what is possessed by men of relatively small means. Therefore, I believe in a graduated income tax on big fortunes. . . .” In other words, someone who has a large fortune, “by the mere fact of its size,” needs to be taxed and treated differently from someone with less money. The assumption is that the large tax on this “swollen fortune” will be used wisely by the government to improve the lives of needy people.

The Founders did not believe such a strategy would work. They believed, as James Madison said, that government could not “control itself”—that when power is concentrated, it is abused. Put another way, the Founders believed that if government leaders had large amounts of money, they would use it first to solidify their power, and then use it to redistribute to groups who would support the party in power. Poor people might get some money, especially if they were willing to support those politicians anxious to redistribute funds.

Therefore, the Founders advocated equal protection of the law for all citizens, which in the 1800s led to the end of slavery and to rights for women. Those reforms became the inevitable result of the talk of freedom, natural rights, and the use of government not to redistribute wealth, but to protect people’s rights to make free choices as to what to do with their wealth and their lives.

President Woodrow Wilson argued that such talk of “equal protection of the law to all citizens” may have been good for the 1700s and 1800s, but by the 1900s we had more educated leaders (like himself) who could be trusted with greater power. Wilson supported a progressive income tax, and in his presidency that income tax increased from being 7 percent on top incomes to 77 percent. Wilson believed the government needed more revenue to fight World War I and to enact good programs for targeted groups in society. Later progressive presidents, like FDR, raised the income tax on top incomes to more than 90 percent.

When Barack Obama today argues for more taxes on the rich, he is square in the middle of the progressive tradition of taking from one group to redistribute to another group “for the good of society.” We also find that many of the recipients of President Obama’s subsidies include companies like Solyndra and groups such as the public sector unions—all of which support his presidency with some of the money they receive from the government.

We would do well to remember the words of James Madison: “If men were angels, no government would be necessary. . . . In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself.” If not soon controlled, the progressive government will bankrupt our nation, and devastate the liberty of all citizens.

Burt Folsom is a professor of history at Hillsdale College. His is also a columnist and the historian-in-residence at the Foundation for Economic Education in Irvington, New York. You can visit his blog at burtfolsom.com.

Dr. Folsom has written several books. One of the most popular ones is The Myth of the Robber Barons in which he discusses the differences between political entrepreneurs and market entrepreneurs. In New Deal or Raw Deal: How FDR’s Economic Legacy Has Damaged America (Simon & Schuster, 2008), Folsom examines the disastrous effects of massive federal spending under Franklin Roosevelt during the New Deal years of the 1930s. The sequel to his work on the New Deal is his latest book, co-authored with his wife, Anita Folsom: FDR Goes to War: How Expanded Executive Power, Spiraling National Debt, and Restricted Civil Liberties Shaped Wartime America (Simon & Schuster, 2011).

Burt Folsom, Hillsdale College Professor

Franklin Roosevelt was the first politician to practice class warfare on a large scale. He blamed the rich for the Great Depression, even though the high tariff, the bailouts, the tax hikes, and the rising Fed rates all played strong parts in creating a Great Depression. All of those steps involve government missteps, not those of private enterprise, but that didn’t stop FDR. In 1936, he sought re-election by more class warfare. He had just hiked the income tax to 79 percent at the top level, and he used his major speech of the 1936 campaign–his Madison Square Garden speech–to attack the rich and promise further assaults on them should he be re-elected. Senator Hiram Johnson of California, who voted for FDR that year, conceded that FDR “starts with probably 8 million votes bought. The other side has to buy them one by one, and they cannot hope to match his money.”

During the last four years, President Obama has tried to “buy” even more than “FDR’s 8 million votes” through Obamacare, Stimulus One, Stimulus Two, Cash for Clunkers, bailouts, and more.

But the other side has something important going for it. Not programs to redistribute wealth, but promises of tax cuts and cuts to federal spending. The FDR-Obama tactics of redistribution have never created jobs or pulled the nation out of a recession or depression. Never. But tax cuts and trimming federal spending has yanked the nation out of double-digit, or near double digit, unemployment (and high inflation) in the 1920s and 1980s. It could do so again.

With the $15,000,000,000,000 national debt, our country can’t afford more costly experiments with redistribution and the piling on of debt. The issue of 2011 has been class warfare. It may also become the issue of 2012. And if the redistributionists win at the ballot box, then the issue of 2013 may be how to administer the permanent decline in the U.S. economy.

Burt Folsom is a professor of history at Hillsdale College. His is also a columnist and the historian-in-residence at the Foundation for Economic Education in Irvington, New York. You can visit his blog at burtfolsom.com.

Dr. Folsom has written several books. One of the most popular ones is The Myth of the Robber Barons in which he discusses the differences between political entrepreneurs and market entrepreneurs. In New Deal or Raw Deal: How FDR’s Economic Legacy Has Damaged America (Simon & Schuster, 2008), Folsom examines the disastrous effects of massive federal spending under Franklin Roosevelt during the New Deal years of the 1930s. The sequel to his work on the New Deal is his latest book, co-authored with his wife, Anita Folsom: FDR Goes to War: How Expanded Executive Power, Spiraling National Debt, and Restricted Civil Liberties Shaped Wartime America (Simon & Schuster, 2011).

Larry P. Arnn, Hillsdale College

Peter Robinson: On to pillar three: “To accomplish its primary duty of protecting individual liberty, the government must uphold national security.” That seems perfectly straightforward. You also write: “Promotion of democracy and defense of innocents abroad should be undertaken only in keeping with the national interest.”

Where do you place your views on the spectrum between Ron Paul and George W. Bush?

Larry P. Arnn: I side with Thomas Jefferson when he said, “We are the friends of liberty everywhere, custodians only of our own.” Foreign affairs are prudential matters, and prudential matters are not subject to narrow rules laid out in advance. But that practical statement by Jefferson is a brilliant guide.

Also, we have to remember that it is a very dangerous world. Churchill believed that one of the effects of technology is to make us both wealthier and more powerful. And both wealth and power can turn to destruction. The great wars of modernity have been much larger in scale than ancient wars, and equal in intensity. Churchill believed that liberal society contains in this respect and others seeds of its own destruction. It is the work of statesmen to find the cheapest possible way to defend their countries without consuming all the resources of those countries.

I pray that Iraq is going to be a free country, and I think there is a chance of it, and I give George W. Bush credit for that. But I have been skeptical, and it is a more complicated question than many seem to understand. A senior person in the White House said to me one time, “Don’t you think the Iraqis want to be free?” And I said: “Sure they do. But have you read The Federalist Papers? Do you divine from its arguments that wanting to be free is sufficient?” As it turns out, it is hard to obtain civil and religious liberty, and it is hard to maintain it.

But do I think we did a good thing imposing a new constitution on Japan after World War II? Sure I do. Japan did a terrible thing to us, we conquered it, and there was an opportunity in that. It would have been a false economy not to seize that opportunity. Does that mean that in every country where there is a threat to us, we won’t be perfectly safe until they are democratic? Maybe. But even so, is trying to make them democratic practicable and the most practical way to serve our security? Probably not. Again, these are matters of prudence.

PR: Pillar four: “The restoration of a high standard of public morality is essential to the revival of constitutionalism.” What is your distinction between public morality and morality per se?

LPA: Public morality means laws about morality. Murder is a moral harm, and we have laws against it. Public morality also includes laws supporting the family. Human beings were made for the family, and we should uphold that. It is hard to raise kids right, and it takes a long time. Laws should support that effort, not undermine it. This extends to reducing the size of government so that it does not become a burden on families. The Gross Domestic Product of the United States is about $15 trillion, and state, local and federal spending is about $6.7 trillion. So we are $800 billion away from taking half of GDP out of the private sector, and the new health care bureaucracy is coming. Once it comes, if it does, government will be larger than society.

The principles of our country stem from the laws of nature and nature’s God. This word “nature” is full of rich meaning. It comes from the Latin word for birth, so of course the nature of man, and natural rights, must be understood to include the process of begetting and growth by which human beings come to be. This process takes longer, and is more demanding and expensive, than for any or nearly any other creatures. If families do not raise children, then the government will. What then becomes of limited government?

PR: And as a constitutional point, do things that undermine public morality and degrade people include the garbage language in some pop songs, or the proliferation of pornography on the Internet?

LPA: Yes. At this college, students are supposed to be civil, and we don’t have many problems because they subscribe to that before they come. Having an honor code makes for good order and operation. Teachers, students, and staff come together and make a common effort. A well-functioning college is a microcosm of constitutional rule, and shows what can be achieved in a country when everyone is governing himself.

It is important for all of us to understand that free people are not governed by rules. Here at Hillsdale we are governed by goals, and then the rules are very broad. Tell the truth, be straight, do not cheat, do not be foul, take care of other people. Those are rules. But the federal rules pertaining to colleges number now more than 500 pages. We at Hillsdale do not live under these rules because we do not take federal money. But I asked our lawyer once to send me the list to read anyway, and he said I wouldn’t be able to read it. I replied that even though I am not a lawyer, I am a pretty smart guy, maybe I can. No, even he can’t read it, he replied, it is incomprehensible.

Ask yourself, who gets powerful under a system like that? The answer is, whoever has the power to interpret the rules. They can do whatever they want.

This is the point I hope every American will come to understand—that in our country, we are supposed to have a very powerful government in order for it to do what it must, but also a government of a far different character than the kind we have today. The distinction between constitutional government and bureaucratic government is fundamental.

PR: How can we get there from here? I am quoting you once again: “There is only one way to return to living under the principles of the Declaration of Independence and the institutions of the Constitution. We must come to love these things again.” How?

LPA: First, you have to know about them. I am like the hammer who looks at everything as if it were a nail. Everything is a teaching opportunity. Teaching is, of course, what we do here at Hillsdale. But the great presidents are teachers as well. It is a generous and fine thing to do, to labor to make important things clear to people—which of course you cannot do unless you are able to make them clearer than if you are just talking to yourself. That is why Abraham Lincoln’s speeches are beautiful. You cannot read many of them unless you read them carefully. An example is Lincoln’s Peoria address on the history of slavery. He labored for months putting it together, and Americans could learn how slavery moved in our country because he laid it out. And then at the end of the speech he combined that history with a lovely explanation of why the principles of our country are capable of reaching and protecting every human being, and ennobling them, because they get to participate in rule. To know that about the principles of our country is to love them. I see that happen all the time in the classroom. So what we need is for people to know and understand our country’s principles. Love will follow.

Larry P. Arnn, the twelfth president of Hillsdale College, received his B.A. from Arkansas State University and his M.A. and Ph.D. in government from the Claremont Graduate School. From 1977 to 1980, he also studied at the London School of Economics and at Worcester College, Oxford University, where he served as director of research for Martin Gilbert, the official biographer of Winston Churchill. From 1985 until his appointment as president of Hillsdale College in 2000, he was president of the Claremont Institute for the Study of Statesmanship and Political Philosophy. In 1996, he was the founding chairman of the California Civil Rights Initiative, the voter-approved ballot initiative that prohibited racial preferences in state employment, education, and contracting. He is the author of Liberty and Learning: The Evolution of American Education and The Founders’ Key: The Divine and Natural Connection Between the Declaration and the Constitution and What We Risk By Losing It (forthcoming February 2012)

Larry P. Arnn, President Hillsdale College

Peter Robinson: I quote you again: “Woodrow Wilson and the founders of modern liberalism call these doctrines of limited government that appear in the Declaration and the Constitution obsolete. They argue that we now live in the age of progress and that government must be an engine of that progress.”

Wilson was dealing with conditions that the Founders could scarcely have imagined: industrialization, dense urban populations, enormous waves of immigration. So what did he get wrong?

Larry P. Arnn: The first thing he got wrong was looking back on earlier America as a simple age. There was nothing simple about it. The Founders had to fight a war against the largest force on earth. They had to figure out how to found a government based on a set of principles that had never formed the basis of a government. The original Congress was called the Continental Congress, although no one would understand the extent of the continent until Lewis and Clark reported to President Jefferson in 1806. They had to figure out a way for the first free government in history to grow across that continent. These things took vast acts of imagination. And this is not even to mention the crisis of slavery and the Civil War. So the idea that the complications of the late 19th century were something new, or were greater by some order of magnitude, is bunkum.

The second mistake Wilson makes is fundamental, and goes to the core of the American idea. Wilson is opposed to the structure imposed on the government by the Constitution—for instance, the separation of powers—because it impedes what he calls progress. But what idea was behind that structure? James Madison writes in Federalist 51:

[W]hat is government itself but the greatest of all reflections on human nature? If men were angels, no angels were to govern men, neither external nor internal controls on government would be necessary.

In other words, human nature is such that human beings need to be governed. We need government if we are not to descend into anarchy. But since human beings will make up the government, government itself must be limited or it will become tyrannical. Just as we outside the government require to be governed, those inside the government require to be governed. And that has to be strictly arranged because those inside the government need, and they will have, a lot of power.

Against this way of thinking, Wilson argued that progress and evolution had brought human beings to a place and time where we didn’t have to worry about limited government. He rejected what the Founders identified as a fixed or unchanging human nature, and thought we should be governed by an elite class of people who are not subject to political forces or constitutional checks and balances — a class of people such as we find in our modern bureaucracy. This form of government would operate above politics, acting impartially in accordance with reason.

Now, it’s pretty easy for us today to judge whether Wilson or the Founders were right about this. Look at our government today. Is the bureaucracy politically impartial? Is it efficient and rational, as if staffed by angels? Or is it politically motivated and massively self-interested?

PR: You’ve spoken about restoring a rounded and rigorous sense of constitutional government, and you have put forward, in a tentative way, four ideas or “pillars” to suggest how to begin doing that. The first pillar is this: “Protecting the equal and inalienable rights of individuals is government’s primary responsibility.”

Here’s a problem though: Something like 47 percent of Americans now pay no federal income tax, and we hear a great deal about the tipping point—the point at which more people become dependent on the federal government than pay into it. What is it within the Constitution, or within a revived constitutional government, that prevents this majority from simply voting itself the property of the minority?

LPA: Well, the first thing is the majority’s larger self-interest rightly understood. Is that practice working out in Greece right now? As Margaret Thatcher used to say, pretty soon you run out of other people’s money.

I myself am not particularly gloomy about the tipping point you mention. I do understand that there will come a time, if we do not repair our problems, when we will not be able to repair them. But given that so many people today clearly think the government is out of hand and does not represent them anymore, I think we won’t pass that tipping point. I’ve had the privilege of studying Winston Churchill for a long time, and his great belief—and I think this should be the model for us today—was to make the great political questions clearer to the people and then to have faith in them. I am optimistic partly because the explanations of the great political questions given to Americans have not been very good or very clear since Reagan. What if we were to get better in explaining them? That is our hope, I think.

PR: Okay, pillar two, still quoting you: “Economic liberty is inversely proportional to government intrusion in the lives of citizens. We must liberate the American people to work, to save, and to invest.” But here’s a constitutional question that Milton Friedman noticed and that James Buchanan won a Nobel Prize for writing about: The benefits of federal spending accrue to small groups who have incentives to organize and agitate for more and more spending, whereas the costs of federal spending are diffused across the whole population, so that no one has a counterbalancing incentive to organize and agitate against spending. Therefore, you get this ratchet that always leads in the direction of greater spending. Did the Constitution not foresee this problem?

LPA: Two points. The first is that we should not blame the Constitution. It is the longest surviving and greatest constitution in human history, and the effort by Progressives to overturn it is now more than 100 years old. It is not a failure of the Constitution, but the success of the political rebellion against it—which has been systematic and going on for a very long time—that brings us to where we are today.

Second, public choice theory as you describe it is a true and sufficient explanation of things as far as it goes. But is there not more to it today? Milton Friedman used to say that subsidies to farmers are going to grow and subsidies to old people are going to decline. Why? Because there are so many old people that for us to give them $100 will cost us $175, whereas there are so few farmers that for us to give them $100,000 will cost us only $10. That is public choice theory in a nutshell. But isn’t the fact now that a growing number of people know we are broke? And that they are going to have to pay more and more to sustain the voracious appetite of the bureaucratic state?

I believe there is an abiding or overarching sense of fairness that touches a majority of the American people. If there is, constitutionalism will look more attractive than it used to look. I think that if Americans are provided a good and clear explanation of the choices before them, they will be willing to begin moving back toward constitutional government.

Larry P. Arnn, the twelfth president of Hillsdale College, received his B.A. from Arkansas State University and his M.A. and Ph.D. in government from the Claremont Graduate School. From 1977 to 1980, he also studied at the London School of Economics and at Worcester College, Oxford University, where he served as director of research for Martin Gilbert, the official biographer of Winston Churchill. From 1985 until his appointment as president of Hillsdale College in 2000, he was president of the Claremont Institute for the Study of Statesmanship and Political Philosophy. In 1996, he was the founding chairman of the California Civil Rights Initiative, the voter-approved ballot initiative that prohibited racial preferences in state employment, education, and contracting. He is the author of Liberty and Learning: The Evolution of American Education and The Founders’ Key: The Divine and Natural Connection Between the Declaration and the Constitution and What We Risk By Losing It (forthcoming February 2012)

Larry P. Arnn, President Hillsdale College

The following is adapted from an interview by Peter Robinson of the Hoover Institution for his show “Uncommon Knowledge.” The interview took place on October 3, 2011, at Hillsdale College, and it can be viewed in full at hoover.org/multimedia/uncommon-knowledge/96901.

Peter Robinson: Larry, I am quoting from you: “You can read the Declaration of Independence and the Constitution in a few minutes. They are simple. They are beautiful. They can be understood and retained.” Place the documents in their historical context. Why did they matter?

Larry P. Arnn: There are three incredible things to keep in mind about the Declaration. First, there had never been anything like it in history. It was believed widely that the only way to have political stability was to have some family appointed to rule. King George III went by the title “Majesty.” He was a nice and humble man compared to other kings; but still, when his son wanted to marry a noble of lower station, he was told he mustn’t do that, no matter what his heart said. That was the known world at the time of the American Founding.

Second, look at the end of the Declaration. Its signers were being hunted by British troops. General Gage had an order to find and detain them as traitors. And here they were putting their names on a revolutionary document and sending it to the King. Its last sentence reads: “And for the support of
this Declaration, with a firm reliance on the protection of divine Providence, we mutually pledge to each other our Lives, our Fortunes and our sacred Honor.” That is how people talk on a battlefield
when they are ready to die for each other.

The third thing about the Declaration is even more extraordinary in light of the first two: It opens by speaking of universal principles. It does not portray the Founding era as unique—“When in the Course of human events” means any time—or portray the Founding generation as special or grand—“it becomes necessary for one people to dissolve the political bands which have connected them with another” means any people. The Declaration is thus an act of obedience—an act of obedience to a law that persists beyond the English law and beyond any law that the Founders themselves might make. It is an act of obedience to the “Laws of Nature and of Nature’s God,” and to certain self-evident principles—above all the principle “that all men are created equal” with “certain unalienable Rights.”

For the signers to be placing their lives at risk, and to be doing so while overturning a way of
organizing society that had dominated for two thousand years, and yet for them to begin the Declaration in such a humble way, is very grand.

As for the Constitution, first, it is important to realize that some of the most influential modern historians suggest that it represents a break with the Declaration—that it represents a sort of second founding. If this were true, it would mean that the Founders changed their minds about the principles in the Declaration, and that in following their example we could change our minds as well. But in fact it is not true that the Constitution broke with the Declaration. It is false on its face.

The Constitution contains three fundamental arrangements: representation, which is the direct or indirect basis of the three branches of government described in the first three articles of the Constitution; separation of powers, as embodied in those three branches; and limited government, which is obvious in the Constitution’s doctrine of enumerated powers—there is a list of things that Congress can do in Article I, Section 8, of the Constitution, and the things that are not listed it may not do. And all three of these fundamental arrangements, far from representing a break with the Declaration, are commanded by it.

Look at the lengthy middle section of the Declaration, made up of the list of charges against the King. The King has attempted to force the people to “relinquish the right of Representation in the Legislature, a right inestimable to them and formidable to tyrants only.” He has “dissolved Representative Houses repeatedly, for opposing with manly firmness his invasions on the rights of the people.” He has “refused his Assent to Laws, the most wholesome and necessary for the public good.” So he has violated the idea and arrangement of representation.

What about separation of powers? As seen in the charges above, and in the charge that he would call together legislatures “at places unusual, uncomfortable, and distant…for the sole purpose of fatiguing
them into compliance with his measures,” the King was violating the separation of the executive and legislative powers. And in “[making] judges dependent on his Will alone, for the tenure of their offices, and the amount and payment of their salaries,” he was violating the separation between the executive and judicial powers.

Similarly, he violated the idea of limited government by sending “swarms of Officers to harrass [the] people, and eat out their substance,” by importing “large Armies of foreign Mercenaries,” by “imposing Taxes on [the people] without [their] Consent,” and in several other ways listed.

By violating these arrangement s— which would become the three key elements of the Constitution — the King was violating the principles of the Declaration. This is what justified the American Revolution. And the point of this for our time is that in thinking about the American Founding, we should think about the Declaration and the Constitution together. If the principles and argument of the Declaration are true, the arrangements and argument of the Constitution are true, and vice versa.

Larry P. Arnn, the twelfth president of Hillsdale College, received his B.A. from Arkansas State University and his M.A. and Ph.D. in government from the Claremont Graduate School. From 1977 to 1980, he also studied at the London School of Economics and at Worcester College, Oxford University, where he served as director of research for Martin Gilbert, the official biographer of Winston Churchill. From 1985 until his appointment as president of Hillsdale College in 2000, he was president of the Claremont Institute for the Study of Statesmanship and Political Philosophy. In 1996, he was the founding chairman of the California Civil Rights Initiative, the voter-approved ballot initiative that prohibited racial preferences in state employment, education, and contracting. He is the author of Liberty and Learning: The Evolution of American Education and The Founders’ Key: The Divine and Natural Connection Between the Declaration and the Constitution and What We Risk By Losing It (forthcoming February 2012).

Pericles

Further, Locke would argue that never can consent abolish certain primary natural rights – life, liberty, and property; these cannot be relinquished by reasonable men, as noted above, these rights preceded law and thus were not granted by the law (see posts on Bastiat for further discussion of some of these concepts).

With that in mind listen to and reflect on the following quote by Pericles and ask yourself this question, “Why are we trying so desperately to throw away these precious freedoms and embrace government control of our freedoms?”

What was the road by which we reached our position, what the form of government under which our greatness grew, what the national habits out of which it sprang?…If we look to the laws, they afford equal justice to all in their private differences;…The freedom which we enjoy in our government extends also to our ordinary life….But all this ease in our private relations does not make us lawless as citizens. Against this fear is our chief safeguard, teaching us to obey the magistrates and the laws, particularly such as regard the protection of the injured, whether they are actually on the statute book, or belong to that code which, although unwritten, yet cannot be broken without acknowledged disgrace.

[Pericles - quoted in “The Constitution of Liberty," Introduction, pg. 1, F. A Hayek, (The University of Chicago Press, 1961)]

Sheldon Richman

Take MSNBC’s Rachel Maddow. Maddow is intelligent, serious, and well-meaning – which makes her vision all the more unsettling: It has ominous implications not only for individual liberty, but also for its concomitant: authentic spontaneous social cooperation.

Maddow might say that if she had her way, the bureaucracy would reflect the people’s interests, perhaps even consult them from time to time. But the naiveté of that vision is apparent from even a brief reading of political-economic history. When has bureaucracy actually represented – or cared about – plain people rather than being a tool of the power elite she claims to abhor (at least when Republicans hold some branch of government)?

Small Things

Her commercials on MSNBC (said to be shot by Spike Lee) well articulate her bureaucracy-first vision. I’ve taken the liberty of transcribing her words:

When people tell us, “No, no, no. We’re not going to build it. No, No, No. America doesn’t have any greatness in its future. America has small things in its future. Other countries have great things in their future. China can afford it. We can’t” — you’re wrong! And it doesn’t feel right and it doesn’t sound right to us because that’s not what America is.

Note the nationalistic “we” and the equation of national greatness with big government projects. (Neoconservative empire-builders have no monopoly on this.) The things unencumbered people would build in a freed market are too small and insignificant for Maddow. The State bureaucracy knows better. (Why are Progressives enamored with China?)

She amplifies the point in another spot:

Not every idea that’s good for the country is a profit-making idea for some company somewhere. It’s never going to be a profitable venture for some company to come up with this idea [pointing to a railroad bridge] and build it on spec. That’s not gonna happen! It needs some government leadership frankly to get something done in common that’s gonna benefit the country as a whole.

The Social Problem

In disparaging profit as impotent to produce big things for the general good (with no evidence proffered), she moves bureaucracy — by nature self-serving, inflexible, conservative – center stage. She shows her unfamiliarity with how competition and entrepreneurship would function in a freed market (as opposed to the corporatist economy she conflates it with). Entrepreneurial profit, as both a motive and a reward, helps human beings cope with pervasive ignorance about how best to use scarce resources in addressing our endless wants. Rhapsodizing about the wisdom and efficiency of bureaucracy shows an obliviousness to the most basic social problem: How can a multitude of people with different values, preferences, and tastes, as well as diverse and incomplete information about the world around them, coordinate their activities for maximum mutual benefit?

Two basic approaches to the problem are available: 1) Let individuals, guided by the price system, strive for what they want by cooperating freely (no privileges, no restraints on peaceful action) under rules that respect all persons as equals, or 2) let bureaucracy – that is, the coercive State — decide for them, perhaps periodically administering the opium of democracy to lessen the pain of their essential powerlessness. Big things must crowd out small things. The latter approach assumes (or pretends) that politicians and bureaucrats possess the knowledge and commitment to the public weal to make the optimal tradeoffs. The freed market would provide a check on waste while respecting free choice. Bureaucracy does neither.

Maddow doesn’t simply favor stopgap Keynesian spending to restore economic vitality. She disturbingly equates pervasive bureaucracy with national greatness:

This . . . whole fight about whether or not the government should be doing anything right now . . . that’s a fundamental fight about what kind of country we’re going to be and whether or not we take recovery from this economic disaster seriously. You have to build your way out of it. You have to be a stronger country when you come out the other side of this recession than when you went in. You have to or you will be left behind.

“You” equals bureaucracy. If the State does great things, the country will be great. The people must be shown the way.

Sound Familiar?

That has an eerily familiar ring.

[Our] conception of life stresses the importance of the State and accepts the individual only in so far as his interests coincide with those of the State. . . . It is opposed to classical liberalism which arose as a reaction to absolutism and exhausted its historical function when the State became the expression of the conscience and will of the people. Liberalism denied the State in the name of the individual; [we reassert] the rights of the State as expressing the real essence of the individual. And if liberty is to be the attribute of living men and not of abstract dummies invented by individualistic liberalism, then [our conception] stands for liberty, and for the only liberty worth having, the liberty of the State and of the individual within the State. . . .

The State . . . is a spiritual and ethical entity for securing the political, juridical, and economic organization of the nation, an organization which in its origin and growth is a manifestation of the spirit.

That’s Benito Mussolini.

I was reluctant to invoke the F-word because some will take it as mere sensationalism. I do so only to make an analytical point. Despite their many differences, Maddow and friends want one thing that Mussolini wanted: national glory and prosperity through State-chosen and State-coordinated grand projects. Bureaucracy first. Individual freedom is to be tolerated only so long as private preferences don’t interfere. (Let’s not forget that before World War II, respectable world leaders saw fascism as a promising third way between the extremes of Marxism and liberalism.)

Of course Maddow thinks liberal values — such as free speech and dissent — can be preserved. Mussolini knew better. What would happen to an Occupy Wall Street-style protest against some big State project initiated by Barack Obama?

Bureaucratic dominance does not merely lower material living standards or reduce profit opportunities. It crushes lives and dreams. Government’s grand projects – the interstate highway system and urban renewal, for instance – steal homes, shops, and communities through eminent domain and other interventions, while well-connected corporate interests reap benefits. They also harm people by damaging the environment and fostering big “private” firms over those of human-scale.

Maddow might say that in her vision, bureaucracy would be different. It would not. Exploitation by a ruling elite is inherent in its nature.