Knowledge and Decisions

KNOWLEDGE
AND
DECISIONS

Thomas Sowell

A Member of The Perseus Books Group

Copyright © 1980 by Basic Books, Inc. Preface copyright © 1996 by

Thomas Sowell. Published by BasicBooks, A Member of The Perseus
Books Group All rights reserved. Printed in the United States of America.
No part of this hook may he used or reproduced in any manner whatsoever
without written permission except in the case of brief quotations embodied
in critical articles and reviews. For information address BasicBooks. 10
East 53rd Street, New York, NY 10022-5299.

First BasicBooks edition published 1980, reissued 1996. Designed by

Vincent Torre The Library of Congress Cataloging-in-Publication Data
Sowell, Thomas, 1930- Knowlege and decisions. Includes bibliographical
references and index. 1. Decision-making. 2. Reality. 3. Knowlege, Theory
of. 4. Civilization, modern. I. Title. FIM 73.S69 301'54 79-7347 ISBN 0-
465-03738-3 030201 EB 111098

Man is no Aristotelian god contemplating all existence at one glance.

-Walter Lippmann
 CONTENTS
Preface to the 1996 Edition ix

Acknowledgments XXv

Part I

SOCIAL INSTITUTIONS

Chapter 1: The Role of Knowledge 3

Chapter 2: Decision-Making Process 21

Chapter 3: Economic Trade-Offs 45

Chapter 4: Social Trade-Offs 81

Chapter 5: Political Trade-Offs 114

Chapter 6: An Overview 150

Part II

TRENDS AND ISSUES

Chapter 7: Historical Trends 163

Chapter 8: Trends in Economics 167

Chapter 9: Trends in Law 229

Chapter 10: Trends in Politics 305

Notes 384

Index 412
 PREFACE TO THE
1996 EDITION
As of the time when it was first published in 1980, Knowledge and
Decisions was by far my most important and most comprehensive
book. None of my subsequent writings has surpassed it, though it has
been joined by work of comparable scope in A Conflict of Visions in
1987 and Race and Culture in 1994. The re-publication of Knowledge
and Decisions now, sixteen years after its initial debut, reflects the
continuing importance of the issues raised in it, and offers an
opportunity to update some conclusions while re-affirming others.

The social vision underlying the analysis in Knowledge and

Decisions is the opposite of what I have elsewhere called The Vision
of the Anointed. I There the focus was on a set of people and their
perception of their role in a world whose problems they saw as caused
by the inadequacies of others. Here the focus is not on particular
people or their beliefs, but on social processes and the constraints
within which those processes operate. The analysis begins with one of
the most severe constraints facing human beings in all societies and
throughout historyinadequate knowledge for making all the decisions
that each individual and every organization nevertheless has to make,
in order to perform the tasks that go with living and achieve the goals
that go with being human.

How a variety of social institutions and processes coordinate

innumerable scattered fragments of knowledge, enabling a complex
society to function, is the central theme of the first half of Knowledge
and Decisions. This approach focuses on the advantages and
disadvantages of particular institutions and processes in mobilizing the
knowledge needed for making particular kinds of decisions. Families,
markets, armies, churches, corporations, and sports teams are just
some of the wide spectrum of formal and informal social mechanisms
for mobilizing and coordinating the knowledge and experience of
many to guide or influence individual decisions by others.
 Perhaps the most important feature of the first half of Knowledge
and Decisions is simply its analysis of decision-making processes and
institutions in terms of the characteristics and consequences of those
processes themselves-irrespective of their goals. As noted in Chapter
6, this approach rejects the common practice of "characterizing
processes by their hoped-for results rather than their actual
mechanics." "Profit-making" businesses, "public interest" law firms,
and "drug prevention" programs are just some of the many things
commonly defined by their hoped-for results, rather than by the
characteristics of the decisionmaking processes involved and the
incentives created by those processes. Socalled "profit-making"
businesses, for example, often fail to make a profit and most of them
become extinct within a decade after being founded. In Knowledge
and Decisions the owners of such businesses are defined not as
profitmakers but as residual claimants to the firm's income-that is, to
what is left over after employees, suppliers, and others have been paid.
Put this way, it is clear from the outset that what is left over may be
positive, negative, or zero. There is no more reason to expect "drug
prevention" programs to prevent drug usage or "public interest" law
firms to serve the public interest than to expect that most "profit-
making" enterprises will in fact make profits. Whether any of these
organizations do or do not live tip to their expectations or claims is a
question of empirical evidence. Pending the presentation of such
evidence, such organizations can be analyzed in terms of what they
actually do, not what they hope or claim to achieve. In Germany a
1933 "Law for Removing the Distress of People and Reich" gave the
chancellor dictatorial powers,2 which in turn allowed Adolf Hitler to
start wars that brought unprecedented distress-indeed, devastationto
the German people and nation.

The point here is not simply that laws, policies, and programs can
have counterproductive results. The point is that, when social
processes are described in terms of their hoped-for results, this
obscures the more fundamental question as to just what they actually
do-and circumvents questions as to whether doing such things is likely
to lead to the results expected or proclaimed. More specifically, we
need to know what incentives and constraints are created by these
social processes. Therefore socialism, for example, is defined in this
book not in terms of such goals as equality, security, economic
planning, or "social justice," but as a system in which property rights
in agriculture, commerce, and industry may be assigned and re-
assigned only by political authorities, rather than through transactions
in the marketplace.

To the socialist, of course, government ownership of the means of

production is but a means to the various social ends being sought, but
such results that are hoped for tell us nothing about the institutional
processes set in motion or the incentives inherent in those processes,
much less their actual consequences. Indeed, lofty goals have long
distracted attention from actual consequences, most notably in many
Western intellectuals' determined resistance to acknowledging the
devastating consequences of communism in the Soviet Union, which
the Communists themselves eventually acknowledged during the era
of glasnost under Gorbachev. The lofty goals of communism-always
receding before them like the horizon-kept many Soviet sympathizers
in the West mesmerized for decades, while more millions were
slaughtered under Stalin than in Hitler's death camps.

Insurgent movements in general-whether religious, political, or

academiclook very different when viewed in terms of their respective
goals than they do when viewed in terms of their incentives and
constraints. Whether the goal of an insurgency has been to establish
the Christian religion in the days of the Roman Empire, to create an
Interstate Commerce Commission in nineteenthcentury America or to
promote civil rights for minorities in the twentieth century, what a
successful insurgency does in institutional or process terms is to
change the incentives and constraints facing others, as well as the
incentives and constraints facing themselves and their successors.
Against this background, it is not surprising that there should be
certain patterns common to insurgent movements, whether those
movements have been promoting religion, political ideology, minority
interests, or innumerable other causes.
 One of these patterns in the history of many insurgent movements
has been a disappointment in the direction that the movement has
taken after victory, including claims that the revolution has been
"betrayed" and that the later leaders and followers have failed to live
up to the high standards set by their predecessors in the insurgency.
None of this is surprising when such movements are examined in
terms of their processes, including the incentives and constraints at
work.

First of all, the kinds of people attracted to the original insurgency,

under the initial set of incentives and constraints, tend to he very
different from the kinds of people who gravitate to it after it has
become successful and achieved a major part of its goals. By
definition, an insurgent movement forms under a set of incentives and
constraints very different from those which it seeks to create. Often the
members face a certain amount of hostility, or even persecution, from
those around them or from an elite currently benefitting from the status
quo. These original insurgents may even face dangers to their careers
or to their lives. These are not conditions which tend to attract timid
careerists or there opportunists, unless the opportunists foresee a high
probability that the insurgency will succeed within a period of time
that is relevant to their personal ambitions.

After the success of the insurgency, however, radically different

incentives and constraints are created by that very success. Many
Christians in the Roman Empire, for example, went from being a poor
and persecuted minority to being among the powerful agents of a state
religion, able to enrich themselves and to persecute others. A similar
pattern marked the history of the Communists in Russia many
centuries later. On a smaller scale, the life cycle of regulatory agencies
in the United States has often been seen to follow a pattern leading to
control by very different kinds of people and policies from those
behind the movement which led to creation of the agency in the first
place.3 Cries of the betrayal of the original ideals of the American civil
rights movements have also been widely heard in recent years, along
with lamentations about the caliber of the later individual and
organizational leadership of that movement.
 None of this should be surprising. A successful insurgency not only
presents different incentives and constraints to its successors, that
success itself can winnow out its original supporters in a non-random
way. Opportunists within the insurgency are among those most likely
to remain after the spoils of success become available, while those
most activated by the original ideals that have now been largely
achieved may he among those more likely to drift away, either to
private life or to other crusades on other issues that remain unresolved
in the society. Outside opportunists and careerists are also likely to be
attracted in growing numbers over the years. Degeneracy and betrayal
are hardly surprising under such circumstances.

The point here is not to single out insurgent movements for

criticisms that might be equally (or more) applicable to supporters of
the status quo. Indeed, much of the current status quo is the result of
prior insurgencies. The more general and more important point is to
distinguish between (1) examining issues and institutions in terms of
their process characteristics versus (2) examining them in terms of
their proclaimed goals or ideals.

Among the ways in which various decision-making processes differ

is in the extent to which they are institutionally capable of making
incremental trade-offs, rather than attempting categorical "solutions."
Consumers continually make incremental trade-offs when deciding
what to buy in supermarkets or in automobile dealerships, but
appellate courts may have only a stark choice to make between
declaring a statute constitutional or unconstitutional. This is one of the
central points explored in the first half of Knowledge and Decisions
and remains as relevant today as when the book was written. The
importance of incremental trade-offs-whether in economic, social, or
personal decisions-is emphasized here, in part because it is so often
lost in the shuffle of more emotionally appealing categorical priorities
that are its antithesis. The distinction between incremental trade-offs
and categorical "solutions" has been highlighted by recent trends in
laws, policies, and judicial decisions creating such categorical goals as
protecting endangered species, eliminating the last "vestiges" of
segregation, creating innumerable "rights," and promoting "safety" of
many sorts-all this not explicitly at all costs, but often in practice
treating costs as somehow unworthy considerations to be almost
always over-ridden.

Diminishing returns alone can make categorical decision-making

counterproductive in its impact, when the point is reached where trivial
amounts of one thing are being gained at the cost of devastating losses
of another. But, even aside from diminishing returns, categorical
decision-making means that the very hen- efit being sought in one
form may be sacrificed in another form. One particular kind of safety,
for example, may be achieved by creating vastly greater dangers of
another kind, as when pesticides are banned to eliminate their residual
dangers in the environment, at the cost of a thousand-fold increase in
the incidence of deadly, insect-borne diseases, such as malaria.

The second half of Knowledge and Decisions looks at how different

kinds of decision-making processes have been evolving and how
particular decisions once made in one kind of place are increasingly
being made in other kinds of placesin the schools, rather than in the
home, in the courts rather than in the marketplace, and so on. More
important, the implications of such changes in the locations of
decisions are examined, not only in terms of the accuracy and scope of
the knowledge conveyed to different decision makers, but also in terms
of what it all means for human freedom.

The analysis in the first half of this book stands as I wrote it more
than fifteen years ago. More examples could be added now, but are not
needed. However, the trends discussed in the second half have, of
course, continued to evolve and so will have to be updated here. The
central theme of the second half of Knowledge and Decisions is
contained in two sentences in Chapter 7:

Even within democratic nations, the locus of decision making has

drifted away from the individual, the family, and voluntary
associations of various sorts, and toward government. And within
government, it has moved away from elected officials subject to voter
feedback, and toward more insulated governmental institutions, such
as bureaucracies and the appointed judiciary.
 In many areas, these trends have clearly continued, but in some
especially in the economic area during the 1980s- there was some
movement toward reversing such trends. From a global perspective,
the collapse of communism in Eastern Europe and of apartheid in
South Africa in the 1990s both represent trends towards greater
individual freedom. What history will make of these mixed trends of
the past fifteen years is of course a question which only the fixture can
answer. What can be done today is to examine these developments in
more detail in social, economic, and political terms.

SOCIAL TRENDS

In one sense, it might seem that there has been a growing trend in the
United States, and in Western civilization generally, toward greater
individual freedom from both government control and social control.
Words that could not have been used in public just a generation or so
ago are now broadcast through the mass media. Both still and motion
pictures that would have been banned then are today not only widely
available but are even being shown to children in the public schools.
Flouting convention haws become almost a convention itself and, for
critics of existing society, indignation has become a way of life. As
with so many other seemingly revolutionary developments in history,
however, the question must be raised whether there has been a net
diminution of taboos or a substitution of new taboos and repressions
for old. From the standpoint of a study of the social coordination of
knowledge and the role of decision-making processes, further
questions must be raised as to whether these new social trends
represent better or worse ways of coping with the inherent
inadequacies of human knowledge when making decisions.

One of the central themes of Knowledge and Decisions is that

feedback mechanisms are crucial in a world where no given individual
or manageably-sized group is likely to have sufficient knowledge to be
consistently right the first time in their decisions. These feedback
mechanisms must convey not only information but also incentives to
act on that information, whether these incentives are provided by
prices, love, fear, moral codes, or other factors which cause people to
act in the interest of other people. Moreover, not all information is new
information. History is a vast storehouse of experience from
generations and centuries past. So are traditions which distill the
experiences of millions of other human beings over millennia of time.
How are all these things affected by the new social trends?

Whether in the media, the arts, or educational institutions from the

kindergarten to the university, old taboos have been replaced by new
ones. Well-known entertainer Anita Bryant vanished from the media
and became a nonperson almost immediately after voicing criticisms
of homosexuality. Criticism of any aspect of the values or way of life
of any racial or ethnic minority would threaten a similar social
extinction to the career of any television commentator, university
professor, or newspaper editorial writer so bold as to challenge the new
taboos. Merely a failure to use the ever-growing list of "politically
correct" terms for all sorts of things can have serious repercussions.
Moreover, more than a passive imposition of taboos is involved. Very
often, these taboos are accompanied by militant promotions of new
social visions throughout educational, religious, and other institutions.
The instruments of intimidation include vaguely-worded speech codes
under which students may be punished or expelled from many
colleges, insulting harangues by "diversity consultants" employed by
corporations, colleges, and other institutions, and threats to the careers
of military officers, civilian officials, and corporate executives who do
not march in step with the new orthodoxies.

The specifics of these visions can be left to be explored elsewhere,

as they have been.4 What is important in the present context is the
question as to how they affect the coordination of knowledge and the
functioning of feedback mechanisms that govern decision-making
processes.

Many representatives of the new orthodoxies question the very

existence of the knowledge which is crucial to decision making. To
them, tested knowledge is nothing more than "socially constructed"
beliefs-which can be readily replaced by other beliefs which they will
construct. The many social verification processes which weed out
failing notions and preserve validated knowledge thus disappear from
the discourse, as if by sleight of hand, when ideas and practices are
seen as merely "constructed" and thus capable of being
"deconstructed," whether in literature, law, or other fields.

The apparent sophistication of this approach can be scrutinized with

a physical example, in order to avoid the distractions of ideological
presuppositions. Eyesight is, in some sense "constructed," because it is
not merely a matter of light entering the eye and travelling to the optic
nerve. From these light patterns the brain must construct a world and
project it outward as something that we see. For example, it is not
these light patterns themselves but our presuppositions about
perspective which enable us to decide that the chair next to us, which
looms much larger in our field of vision than the automobile across the
street, is nevertheless not as big as the automobile. We know that dogs
do not see the same world we do because they are color-blind and that
other creatures with different kinds of eyes, and creatures with
sonarlike perception systems, such as bats, must construct their picture
of the world from different raw materials of the senses. But does any
of this mean that what we see is merely a set of conventions, no more
valid than an abstract painting or a vision to be conjured up by the
words of articulate writers or orators, or by psychedelic drugs?

Would anyone walk into a lion's cage because both the lion and the
cage, as we see them, are ultimately things constructed in our brains?
More important, why not? Only because the verification processes so
deftly made to disappear in theory could become very quickly, very
brutally, and very agonizingly apparent. That is also the very reason
why dogs do not run into a roaring flame and why bats swerve to avoid
colliding with a stone wall. All these differently constructed worlds are
subjected to verification processes. All these creatures' worlds, like our
own, are indeed "perceptions" but they are not just perceptions. The
position of the observer is indeed an integral part of the data, but it is
not the only part of the data.
 The whole approach of Knowledge and Decisions is the antithesis of
that of deconstructionism, for here the prevailing theme is that there is
an independent reality which each individual perceives only
imperfectly, but which can be understood more fully with feedback
that can validate or invalidate what was initially believed. This is
applied not only to physical reality but also to social realities, whose
many ramifications may not all be understood by any given individual,
but whose feedback nevertheless forces the decision maker to change
course in spite of whatever predilections that decision maker may
have. To take a trivial and non-controversial example, the initial
decision of the Coca- Cola company to change the flavor of their drink
to what they thought the public would prefer was rescinded with
embarrassing haste when the market response belied the company's
expectations. Stock markets are likewise an ongoing economic
referendum on what goods and services people do and don't want,
often disappointing-and punishing-those who guessed wrong, even
with the best professional advice available.

Given the crucial importance of feedback in using knowledge to

make decisions, the transfer of decisions from one kind of institution
to another raises serious and even grave questions as to which
institution is inherently more open to feedback and which more
thoroughly insulated from it. The nature of the feedback process is also
important: Is it mere articulation, in which some may have great
talents without a corresponding depth of understanding, and in which
others may choose to listen to or ignore, or is it inarticulate but
powerful mechanisms ranging from money to love?

Plain and commonsensical as this approach may seem, it goes

directly counter to the way many of the issues of the day are discussed.
Much of the literature on racial or sexual prejudices and their
discriminatory economic effects, for example, proceeds in utter
disregard of knowledge-validation processes, such as competition in
the marketplace. It has often been asserted that women receive only
about two thirds of what men receive for doing the same work. While
this assertion is open to very serious challenge on empirical grounds,'
the more relevant analytical point here is that it treats employers'
perceptions as if they were independent of the validation processes of
economic competition. For women to be paid only two thirds of what
men are paid for doing the same work with the same productivity
would mean that an employer's labor costs would be 50 percent higher
than necessary with an all-male labor force. If all that was involved
was blind prejudice, that might seem to be a viable situation. But even
a cursory consideration of the economic implications of trying to
compete and survive in the marketplace with labor costs 50 percent
higher than they need be must at the very least raise serious questions.
Similarly, the owner of a professional basketball team might read Mein
Kampf and become a convinced racist but, if he were then to refuse to
hire black basketball players, would there be no economic
repercussions-or would he be more likely to disappear as a basketball
club owner via the bankruptcy courts?

Note that what is involved here is not enlightened self-interest on

the part of individual economic decision makers but the systemic
effects of competitive processes which winnow out those whose
decisions diverge most from reality. Under special circumstances, such
as those of a government-regulated monopoly or cartel, the costs of
arbitrary discrimination can be reduced or eliminated, thereby allowing
discrimination to continue indefinitely because of insulation from
market feedback. The point here is not that discrimination is
impossible, nor even an attempt to assess how much discrimination
there is. The point is precisely that we must look at the actual
characteristics of decision-making processes-their incentives and
constraints-if we want to gauge the likely outcomes of particular
decisions in particular circumstances. Put differently, sweeping
assertions about the consequences of perceptions alone-even racist or
sexist perceptions-ignore inherent circumstantial constraints, such as
those affecting dogs, bats, and people. Much, if not most, of what is
said about many of the great issues of the day pays little or no attention
to these kinds of concerns, which predominate in the first half of
Knowledge and Decisions.

The growing prevalence of words like "perceptions," "stereotypes,"

and "socially constructed" serves ultimately to mute or eradicate the
distinction between ideas and realities. Yet it is precisely the role of
feedback through decisionmaking processes to sharpen that distinction.
The disparagement of facts in history, or of original meanings of words
and phrases in the Constitution, is part of the more general tendency to
treat reality as plastic and the fashions of the times as equal to, or
better than, the evolved understandings produced by experience and
validated by the assent of successive generations. When works of
literature which have gained the respect of generation after generation
of readers are called "privileged" writings, not only is a validation
process made to disappear into thin air but the very concept of
achievement ex post is equated with a privilege ex ante.

Economic achievement, for example, is often seen as mere

"privilege" and failure as "disadvantage," again obliterating the
distinction between the ex ante and the ex post, to the detriment of any
empirical study of the foundations of achievement and failure, since
the very distinction itself vanishes by verbal magic.

ECONOMIC TRENDS

Knowledge and Decisions was published some months before Ronald

Reagan was elected president of the United States. His eight years in
office were marked by both by changing economic conditions in the
United States and by changes in economic decision-making
institutions and processes-the "Reagan revolu- tion"-that were imitated
by many other countries around the world. Whether that revolution
marked an enduring change in economic and social institutions, or just
another passing blip on the great screen of history, is the large,
unanswered question of our time.

The most striking aspect of the decade of the 1980s in the United
States was that it marked the longest peacetime economic expansion in
history.6 Despite various attempts to rewrite this history,' standards of
living rose in the country at large and government tax receipts rose by
hundreds of billions of dollars, even as tax rates were reduced. The
enduring significance of this economic boom was that it inspired other
governments, of both the political left and right, to make similar
institutional changes, such as privatizing government-run enterprises
and reducing the degree of government regulation in general. As far
away as New Zealand, "Reaganomics" inspired "Rogernomics,"
named for finance minister Roger Douglas of the Labour Party, who
instituted similar policies there. Many third-world countries which
emerged into independence during the 1960s and took socialism as
axiomatically both the most efficient and the most humane form of
economy were nevertheless later forced, either by their own bitter
experience or by the demands of outside lending agencies, to privatize
and deregulate their economies.

All this represented a break with the trends discussed in Chapter 8

of this book, toward a movement of economic decisions into
governmental institutions. One symptom of the change in the United
States was that the steady growth in the size of the Federal Register,
which records government regulations, was not only stopped but
reversed during the Reagan years. However, the growth in the size of
this compendium resumed immediately tinder Reagan's successor and
political heir, George Bush. Neither the trends set in motion under the
Reagan administration nor the opposite pre-Reagan and post-Reagan
trends can be simply extrapolated. What is clear is that the trends in
the evolution of economic decision-making processes, discussed in
Chapter 8, remain as unsettled as they are crucial to the economic
well-being of peoples around the world.

TRENDS IN THE LAW

Long-standing legal trends, like long-standing trends in economic

decision making, began to be seriously challenged for the first time in
the 1980s, often by Reagan administration appointees to the federal
bench. However, there were also serious intellectual challenges as well
from academic supporters of property rights,' from the "law and
economics" school of thought, located in various uni versities, and
from critics of trends in criminal justice, most notably Professor James
Q. Wilson.' However, legal developments since 1980 have not been a
simple counter-trend by any means, for new leftward movements also
developed during this period, including "critical legal studies" and
"feminist legal criticism" in academia and further extensions of
judicial activism in the courtrooms. Moreover, even conservative
judges and Supreme Court justices went along with some of the
continuations of the leftward movement in the law, both before and
after 1980.

From the standpoint of our concern here with decision-making

processes, what is crucial is not whether particular Supreme Court
decisions, or even the whole trend of them. has been toward policies
favored by the left or the right. What is crucial is how these decisions
have changed the locus of decision-making and what that implies. In
the case of Griggs v. Duke Power Co., for example, the U. S. Supreme
Court in effect transferred the decision as to whether to use mental
tests in hiring decisions from employers to the federal courts in general
and, ultimately, to itself in particular. The basis for this sweeping
transfer of decisionmaking authority from thousands of highly
disparate and complex settings across the country to nine individuals
in Washington was the simple plausibility of the idea that the validity
of a test depended on its having a "manifest relationship to the
employment in question" which could be demonstrated conclusively to
third parties. Reasonable as this might seem at first, it presupposes far
more knowledge than anyone possesses.

Most decisions in most aspects of life cannot be demonstrated

conclusively to third parties-particularly not to third parties lacking the
experience, the training, or the personal stake of those involved. More
fundamentally, the validity of a test, or any other criterion, is an
empirical question, not a question of plausibility to observers.
Empirically, general tests of intelligence have had far higher
correlations with subsequent job performance-however measured-than
such alternatives as tests of particular skills used in particular jobs,
individual biographical or career information, job interviews, or
references. 10 There is no reason for judges to have known this, nor
can "expert" testimony necessarily fill in the gaps for them, since
nothing is more certain than the testimony of opposing experts, while
the ability to weigh conflicting testimony may require as sophisticated
an understanding of an alien field as deciding the initial question itself.
The Griggs decision, written by conservative Chief Justice Warren
Burger, effected a major centralization of decision making, making
bureaucracies and courts the determiners of employment fitness, and
transforming a once-voluntary agreement into an officially prescribed
action, controlled by people who pay no consequences for being
mistaken.

Although Griggs was a landmark decision, in another sense it was

not a new trend but an extension of an existing legal trend toward the
concentration of decision-making power in government in general and
in the nonelected organs of government in particular. What was new,
beginning in the 1980s, was a developing resistance to such trends,
reflected often in cutbacks in the scope of earlier activist decisions or,
in some cases, in reversals of these earlier decisions of the post-New
Deal era, including the Warren Court years. A landmark in this new
trend was the 1995 case of United States v. Lopez, in which blanket
extensions of Congressional legislative power under the commerce
clause of the Constitution were called to a halt for the first time in
more than half a century.

The specific issue in the Lopez case was whether Congress had the
authority to forbid the carrying of guns in the vicinity of schools.
There was nothing in the Constitution authorizing Congress to pass
such legislation and, moreover, the Tenth Amendment forbad the
exercise of federal powers not specifically authorized." Yet, for
decades, adventurous extensions of federal power had been justified
and validated by the courts, using Congress's authority to regulate
"interstate commerce" as an escape hatch from the constraints of the
Tenth Amendment. Even a farmer who grew wheat on his own land for
his own consumption was held to be engaged in interstate commerce,
and was thus subject to federal edicts.12 With such an elastic
definition of interstate commerce, the floodgates were open-and
remained open for decades. Therefore the simple, common sense
conclusion that someone carrying a concealed weapon near a school is
not engaged in interstate commerce came as a thunderbolt more than
half a century later-and squeaked by the court with only a five-to-four
major- ity.13 The narrowness of the vote suggests again that
developments since 1980 in the law, like social and economic
developments, represent no clearly decisive changes, though they have
the potential to become such.

One measure of how far the general public's sense of the law has
changed over the years is that much editorial discussion of the Lopez
decision focused on whether it was a good idea to ban guns near
schools. Such bans have in fact been enacted by many state
governments, which have every constitutional right to do so. The real
issue was the scope of federal power under the Constitution, but this
issue-on which freedom itself ultimately depends-was often lost in the
shuffle, not simply because media journalists did not go into deeper
legal issues, but also because courts themselves, especially during and
since the Warren Court era, looked upon many cases as policy-making
exercises based on moral philosophy rather than being based on a
Constitutional legal system. Strong negative reactions from the media
and from the law schools to the recent trimming back or reversal of
judicial activist decisions of the post-New Deal decades have included
denunciations of the very idea of overturning precedents-often made
by people who applauded the Warren Court's overturning of precedents
of older vintage. This too makes a clear-cut change in trends difficult
to see or predict.

POLITICAL TRENDS

In general, the political trends discussed in Chapter 10 remain a matter

of "embattled freedom," as described in the last section of that chapter
and of the book. The political role of intellectuals in particular remains
very much what it was in 1980, including "the totalitarian thrust of the
intellectual vision," while "the rampaging presumptions" mentioned
there have continued unabated. Perhaps the most striking example of
these presumptions was the 1993 attempt to have the government in
Washington take over the entire medical sector of the countryan
attempt spearheaded by people with neither medical training, hospital
management experience, nor expertise in pharmaceutical research or
even in the running of a drugstore. That this attempt ultimately failed
does not negate the fact that it looked very much as if it would succeed
for quite a while. Moreover, the political methods which brought this
attempt so close to success may well prevail in other issues, where a
sufficiently strong counterattack does not develop as quickly or as
effectively.

The strongly pessimistic tone of the last chapter of Knowledge and

Decisions in 1980 can now be moderated by subsequent experience-a
feedback mechanism very appropriate to this study of feedback
mechanisms. While political plans and schemes for overriding the
decisions of people with knowledge and experience by government
officials with power and articulation continue to be formulated in the
political arena or imposed by federal courts loosely "interpreting" the
Constitution or the statutes, opposition to such trends has also grown
over the past fifteen years, so that the ultimate outcome is at least in
greater doubt than it seemed to be in 1980. On the international scene,
the "remote hopes" of changing totalitarian governments referred to in
the last chapter have already been realized in Eastern Europe. There
are few developments on which it is so gratifying to be proved wrong.

Nevertheless, the political forces described in Knowledge and

Decisions have by no means been vanquished, even if they have been
dealt a setback, and they may yet be resurgent, either at home or
abroad. The political situation today is much like the military situation
described by British Prime Minister Winston Churchill in 1942, after a
British army finally won a battle against a German army: "We have a
new experience. We have victory-a remarkable and definite victory."
But he cautioned:

Now this is not the end. It is not even the beginning of the end. But it
is, perhaps, the end of the beginning.'4

What has happened politically since 1980 is perhaps the end of the
beginning of a worldwide drive toward ever more sweeping
government control of individuals and institutions-a drive which, in
the 1930s, caused many even in the democratic world to speak of
totalitarianism as "the wave of the future." World War II put an end to
one kind of totalitarianism but it was nearly half a century later before
the surviving totalitarianism of the Communist world suffered its first
major defeat with the collapse of the Soviet Union and the freeing of
its Eastern European satellite nations. If this turns out to be no more
than the end of the beginning, it is still a verywelcome end to a very
ominous beginning that included an unbroken series of massive
territorial expansions for the Communist bloc around the world.

If nothing more, a new century can begin without the dark cloud that
hung over most of the twentieth century.

SUMMARY AND CONCLUSIONS

The unifying theme of Knowledge and Decisions is that the specific

mechanics of decision-making processes and institutions determine
what kinds of knowledge can be brought to bear and with what
effectiveness. In a world where people are preoccupied with arguing
about what decision should be made on a sweeping range of issues,
this book argues that the most fundamental question is not what
decision to make but who is to make it-through what processes and
under what incentives and constraints, and with what feedback
mechanisms to correct the decision if it proves to be wrong.

Those convinced that they have "the answer" on whatever

economic, legal, social, or other issues are the preoccupation of the
moment are of course impatient with questions about institutional
processes and their respective advantages and disadvantages for
making different kinds of decisions. That is all the more reason for
others to look beyond the goals, ideals, and "crises" that are
incessantly being proclaimed, in order to scrutinize the mechanisms
being proposed in terms of the incentives they generate, the constraints
they impose, and the likely outcomes of such incentives and
constraints. Where these mechanisms insulate the decision makers
from the forces of feedback, the dangers are especially great, not only
in terms of counterproductive consequences but also in terms of a
steady erosion of freedom.

The intellectual debt I acknowledged to Professor Friedrich Hayek

in the first edition of Knowledge and Decisions must be repeated here.
He was one of those people who fit justice Oliver Wendell Holmes'
definition of a great thinker with great impact on the world. The
hallmark of such a thinker is not personal notoriety but the fact that "a
hundred years after he is dead and forgotten, men who never heard of
him will be moving to the measure of his thought. 1115 Hayek's
thought, though little known to the general public even within his own
lifetime (the Nobel Prize committee being an exception, however), has
inspired numerous other scholars, writers, activists, and organizations
around the world. I am proud to say that he inspired Knowledge and
Decisions and especially proud that his book review gave it high
praise.'

Others whose help was acknowledged with the original publication

of this book include my editor and friend, Midge Decter, whose advice
also caused me to reshape my later book, The Vision of the Anointed,
even though she was no longer an editor by then. Finally, a special
acknowledgment must be made to a lady whose critiques of the
manuscript and whose "friendship and encouragement" were
mentioned in the original acknowledgment and who is now my wife.
For me, that is the most dramatic and most positive change since this
book first appeared.

THOMAS SOWELL

Hoover Institution

Fehniarv 4, 1996
 ACKNOWLEDGMENTS
The debts to be acknowledged in the writing of this book are so
numerous and varied that any listing must be partial, and accompanied
by apologies to those not mentioned.

Intellectually, this book is a product of an odyssey of the mind that

goes back more than three decades. Those from whom I gleaned
particular insights have ranged across the philosophic spectrum, from
Karl Marx to Milton Friedman, and the fields have ranged from
biology to law. If one writing contributed more than any other to the
framework within which this work developed, it would be an essay
entitled "The Use of Knowledge in Society," published in the
American Economic Review of September 1945, and written by F. A.
Hayek, later to become a Nobel Laureate in economics. In this plain
and apparently simple essay was a deeply penetrating insight into the
way societies function and malfunction, and clues as to why they are
so often and so profoundly misunderstood.

The immediate environment within which the research for this book
began was the Center for Advanced Study in the Behavioral Sciences,
in Stanford, California, where I was a fellow in 1976-77. Preparatory
planning for this work was begun during 1974-76, when generous
grants from the American Enterprise Institute in Washington, D. C.,
and the Hoover Institution at Stanford University permitted me the
time needed for reflections and reconsiderations. Several months in
residence as a Senior Fellow at the Hoover Institution in 1977 enabled
me to complete the research begun at the Center for Advanced Study
and to proceed with the writing.

The person with whom I discussed this book most during its writing
was Mary M. Ash, an attorney in Palo Alto, California. Her legal mind
was helpful in her critiques not only of the discussions of law but also
of material throughout the book. Her friendship and encouragement
sustained my efforts and my spirits.
 A two-day conference in 1978 at the Center for Law and Economics
at the University of Miami was organized around a paper of mine on
legal issues, and provided an invaluable experience in confronting
leading scholars in law, economics, and political science with the ideas
that form the foundation of this book. The generous support of the
Liberty Fund in Indianapolis, Indiana, made possible this gathering of
distinguished scholars from all parts of the country, and the generous
permission of Professor Henry G. Manne, Director of the Center for
Law and Economics, has made possible the incorporation of that paper
into this book. Other discussions of the book's evolving themes were
held at the University of California at Berkeley, Wesleyan University
in Connecticut, the University of Maryland, and San Jose State
University in California. I learned something from all of them.

The support, enthusiasm, tact, helpfulness, and wisdom of my

editor, Midge Decter, have been of inestimable value during what
seemed like interminable years of writing, and in smoothing what can
be a rocky road between the manuscript and the finished book. All the
good things I had heard about her proved to be true, and I am pleased
to hereby amend my longstanding belief that the only good editor is a
dead editor. (A couple of other possible exceptions also come to mind.)

These contributors are only the tip of the iceberg. Many librarians,
colleagues, secretaries-and especially the marvelous staff at the Center
for Advanced Study-have helped me along the way.

In the end, however, after all the influences, aiders and abettors,
responsibility for all conclusions and errors is mine.

THOMAS SOWELL

University of California, Los Angeles

May 9, 1979
 Part I

SOCIAL
INSTITUTIONS
Chapter i
 The Role of Knowledge

Ideas are everywhere, but knowledge is rare. Even a so-called

"knowledgeable" person usually has solid knowledge only within some
special area, representing a tiny fraction of the whole spectrum of
human concerns. Humorist Will Rogers said, "Everybody is ignorant,
only on different subjects."

How does an ignorant world perform intricate functions requiring

enormous knowledge? These intricate functions include not only such
scientific feats as air travel and space exploration, but also the complex
economic processes which bring a slice of bread and a piece of butter
to your plate at breakfast. Anyone who has studied the actual process
by which everyday food items are planned, produced, and distributed
knows that the complexity staggers the mind. Many highly intelligent
and highly trained people spend a lifetime studying it, and learning
more all the time. Among those who speculate financially in such
commodities, economic disaster is commonplace, even after they have
spent years studying the market. In short, individually we know so
pathetically little, and yet socially we use a range and complexity of
knowledge that would confound a computer. The question is not only
how given institutions (including whole societies) manage to do this,
but how various institutions (and societies) differ in the manner and
effectiveness with which they do it-and what do the historic and
continuing changes in the way they function portend for the future?

We shall begin with the production of knowledge-with the process

by which ideas are filtered and transformed into recognized
knowledge, having the force to guide decisions. Then we shall
consider the application of knowledge in economic, legal, social, and
political institutions. And finally, we shall consider the evolution of
institutions, attitudes, and beliefs, and the way all these affect our
ability to produce and apply knowledge in the future.
 IDEAS

Physicists have determined that even the most solid and heavy mass of
matter we see is mostly empty space. But at the submicroscopic level,
specks of matter scattered through a vast emptiness have such
incredible density and weight, and are linked to one another by such
powerful forces, that together they produce all the properties of
concrete, cast iron and solid rock. In much the same way, specks of
knowledge are scattered through a vast emptiness of ignorance, and
everything depends upon how solid the individual specks of
knowledge are, and on how powerfully linked and coordinated they are
with one another. The vast spaces of ignorance do not prevent the
specks of knowledge from forming a solid structure, though sufficient
misunderstanding can disintegrate it in much the same way that
radioactive atomic structures can disintegrate (uranium into lead) or
even explode.

Ideas, as the raw material from which knowledge is produced, exist

in superabundance, but that makes the production of knowledge more
difficult rather than easier. Many ideas-probably most-will have to be
discarded somewhere in the process of producing authenticated
knowledge. Authentication is as important as the raw information
itself, and the manner and speed of the authentication process can be
crucial: the surprise attack on Pearl Harbor succeeded despite the fact
that knowledge of the impending attack had reached the War
Department in Washington hours before it occurred. Still the bombing
caught Pearl Harbor by surprise because the information had not yet
passed through the authentication process established by the military
institutions. Whatever the merits or demerits of those institutions as
they existed on December 7, 1941, it is clear that any military
organization must have some authentication process, or else any
unverified idea that enters the system has the potential to set off a war.
More recently, a flock of Canadian geese set off the American warning
system to detect incoming nuclear missiles, and only subsequent
authentication procedures prevented a "retaliatory" nuclear strike
which could have ended in World War III.
 Various kinds of ideas can be classified by their relationship to the
authentication process. There are ideas systematically prepared for
authentication ("theories"), ideas not derived from any systematic
process ("visions"), ideas which could not survive any reasonable
authentication process ("illusions"), ideas which exempt themselves
from any authentication process ("myths"), ideas which have already
passed authentication processes ("facts"), as well as ideas known to
have failed-or certain to fail-such processes ("false- hoods"-both
mistakes and lies).

While these various kinds of ideas are conceptually different, in

reality a given notion may evolve or metamorphose through several of
these states. For example, we may start with a general impression of
how and why certain things happen the way they do, without having
any real evidence or any logically structured argument about it. But
after we begin with such a vision, we may proceed to systematically
determine that if this vision is correct, then certain empirical
consequences will be observable under the proper conditions. The
"vision" has led to a "theory." The proper conditions may be created in
a laboratory or observed in history or otherwise constructed or
discovered, and the validity and certainty of the results may be more or
less open to criticism. The important point here is simply to distinguish
such systematic authentication procedures from decisions based on
consensus, emotions, or traditions.

On the continuum of human thinking, at one end is pure science; at

the other end pure myth. One is sustained entirely by systematic
logical procedures, the other by consensual verification by
contemporaries, by their predecessors represented through prevailing
traditions, or by posterity for those who expect historic vindication.
The crucial distinction is one of procedures, not of end results. Science
is no more certain to be correct than is myth. Many scientific theories
have been proven wrong by scientific methods, while the great
enduring beliefs which have achieved the status of myths usually
contain some important-if partial-truth.
 Both systematic authentication and consensual approval can be
further broken down. Systematic authentication involves a testing of
the logical structure of a theory for internal consistency and a testing
of the theory's results for external consistency with the observable
facts of the real world.

Consensual approval may mean the approval of the general public

as of a given time, or the approval of some special reference group-a
social class, a religious sect, an ideological movement, etc.-in the past,
present, or future. Ideas which lack logical, empirical, or general
consensual support may still sustain themselves as acceptable to a
consensus of those who regard themselves as special guardians of a
particular truth-i.e., as the consensual reference group that really
matters. Sometimes the elitism implicit in such a position can be
tempered by depicting the idea in question (religious salvation,
political reconstitution, etc.) as beneficial to a broad sweep of mankind
outside the group, so that the group is only a temporary surrogate for a
larger constituency which will ultimately approve the idea. But, of
course, this proposition is itself still another idea lacking either
empirical verification or general consensual approval.

There are many variations on the two basic ways of verifying ideas,
and many combinations of these variations are used-often involving
combinations from both systematic and consensual methods of
verification in the same argument. For example, a scientific
presentation may avoid-indeed, must avoid-unlimited verification of
every incidental aspect of its arguments by saying, in effect,
"everybody knows" this or that, and getting on with proving the things
that need proving.' Similarly, beliefs resting essentially on consensual
approval-religious beliefs, for example-may also employ logical and
empirical techniques, such as the scientific "proofs" of the existence of
God, which were common in the eighteenth century and in the early
nineteenth century, before Darwin. These more or less open
combinations present no special problems. A problem does arise,
however, when one method masquerades as another-for example,
when the results of essentially consensual processes choose to present
themselves as scientific, as in the case of much so-called "social
science."

This brief and general sketch of the production of authenticated

knowledge from raw, unsubstantiated ideas must be elaborated more
specifically in later discussions of economic, legal, and political
organizations. At this point, it is necessary to consider-in equally brief
and general terms-the amount and kinds of knowledge produced, and
the manner in which it is used.

THE QUANTITY OF KNOWLEDGE

It is widely believed that modern society has a larger quantity of

knowledge than more primitive societies, that this quantity of
knowledge is growing, and that the knowledge "required" for the
average citizen to live in a modern society is also growing. Certainly
the complex apparatus of modern life is beyond the grasp of most non-
modern peoples, past or present. What is not so obvious, but true
nonetheless, is that most modern peoples would find it equally-or
more-difficult to survive individually in a "primitive" or nonmodern
world. In short, it is not clear or demonstrable that the total quantity of
knowledge differs as between "savage" and "civilized" man. What is
more readily established is that the kinds of knowledge possessed by
the average inhabitant of the primitive and the modern world are very
different, and that each would be at considerable hazard in the world of
the other.

Consider a modern civilized man suddenly stranded in a primitive

jungle, cut off from modern technology, and unaided by such primitive
peoples as might exist in that environment. Although the civilized man
might be a well educated individual, working in a complex profession
such as accounting or electronics, it is doubtful whether his knowledge
would be sufficient to merely sustain his life in an environment where
primitive peoples have lived for untold generations. The civilized man
might often have a choice of going hungry or eating wild vegetation
which could prove either nutritious or poisonous. Finding a safe place
to sleep at night would require more knowledge of the habits and
capabilities of wild animals than he possessed. Avoiding snake bites,
infected water, and predatory beasts would be among his other
problems, and ordinary illnesses easily cured in a civilized community
could be far more dangerous away from scientific medical knowledge
and without the herbal and other folk remedies available to primitive
man. In the same environment, the savage could not merely survive,
but thrive, producing housing, clothing, and other amenities. But of
course the primitive man's chances of survival if suddenly dropped
down in the midst of New York or Los Angeles might also be bleak.

What then is the intellectual advantage of civilization over primitive

savagery? It is not necessarily that each civilized man has more
knowledge but that he requires far less. A primitive savage must be
able to produce a wide variety of goods and services for himself, and a
primitive community must repeatedly duplicate his knowledge and
experience in innumerable contemporaries. By contrast, the civilized
accountant or electronics expert, etc., need know little beyond his
accounting or electronics. Food reaches his local supermarket through
processes of which he is probably ignorant, if not misinformed. He
lives in a home constructed by an involved process whose technical,
economic, and political intricacies are barely suspected, much less
known to him. His home is likely to be stocked with many devices
working on mechanical and electrical principles which he neither
understands theoretically nor can cope with as a practical matter. The
chronic complaints and scandals about appliance, automobile, and
other repair services testify to the civilized man's utter lack of
knowledge of the everyday apparatus on which he depends. A
primitive savage could never survive knowing so little about the
production and use of spears, grass huts, or with such utter naivete
about which berries are poisonous, which snakes dangerous, or the
ways and means of coexistence in the same jungle with lions, tigers,
and gorillas.

Civilization is an enormous device for economizing on knowledge.

The time and effort (including costly mistakes) necessary to acquire
knowledge are minimized through specialization, which is to say
through drastic limitations on the amount of duplication of knowledge
among the members of so ciety. A relative handful of civilized people
know how to produce food, a different handful how to produce
clothing, medicine, electronics, houses, etc. The huge costs saved by
not having to duplicate given knowledge and experience widely
through the population makes possible the higher development of that
knowledge among the various subsets of people in the respective
specialties.

THE MEANING OF "KNOWING"

Although the phrase "ignorant savage" may be virtually self-

contradictory, it is a common conception, and one with a certain basis.
The savage is wholly lacking in a narrowly specific kind of
knowledge: abstract, systematized, knowledge of the sort generally
taught in schools. Considering the enormous range of human
knowledge, from intimate personal knowledge of specific individuals
to the complexities of organizations and the subtleties of feelings, it is
remarkable that one speck in this firmament should be the sole
determinant of whether someone is considered knowledgeable or
ignorant in general. Yet it is a fact of life that an unlettered peasant is
considered ignorant, however much he may know about nature and
man, and a Ph.D. is never considered ignorant, however barren his
mind might be outside his narrow specialty and however little he
grasps about human feelings or social complexities. We do sometimes
refer to a "learned fool," but the notion of a "fool" implies deficiencies
in the reasoning process (so that one is easily deceived or fooled),
whereas it may actually be knowledge that is lacking, so that the
"learned" person has simply not learned enough outside a certain sliver
of human experience.

The point here is not simply to deplore the use of certain words. The
point is to avoid having our own discussion of knowledge drastically
shrunk, arbitrarily, and virtually without our realizing what is
happening. We need to consider the full breadth of knowledge and its
depth as well. That is, we need to consider not only how much we
know, but how well we know it.

We start with an idea. It may be a sense impression of some sort-

something that happened to catch our eye and intrigue our curiosity. Or
it may be a speculation in our mind-a daydream or a theory, for
example. As the idea or theory passes through the authentication
process, it may be verified, refuted, or transformed to accommodate
additional and discordant evidence. But if the authentication process is
doing its job, whatever conclusion it is reaching about the idea is
becoming progressively more certain (even if that means that the
original idea itself is becoming progressively more dubious).
Therefore, at some point in the authentication process, the probability
of a mistaken conclusion is reduced to the point where we can say that
we "know" this or that. Where that point is varies from person to
person, so that what is "knowledge" to one is merely a plausible belief
to another and only a theory to someone else. Each of us has some
point-some probability levelbeyond which we will say that we "know"
something. But all things fall short of absolute certainty: life itself
might be a dream and logic a delusion. Still, because we act, we must
decide, and how decisively we can act depends on how well we know
the consequences.

How much knowledge there is depends on where we draw the line

on the spectrum of probabilities. Within a given probability
requirement for "knowing," how much is known varies enormously
from one area of human life to another, and from one historical era to
another, and of course from one person to another. Because the arena
of decision making almost always exceeds the arena of knowledge,
there must be belief-or at least hope-to fill in the gaps where there is
no knowledge. This means that the ratio of knowledge to belief may
also vary enormously from one aspect of life to another. The specific
nature of the respective authentication processes available in various
aspects of human life then become crucial.

To say that a farm boy knows how to milk a cow is to say that we
can send him out to the barn with an empty pail and expect him to
return with milk. To say that a criminologist understands crime is not
to say that we can send him out with a grant or a law and expect him to
return with a lower crime rate. He is more likely to return with a report
on why he has not succeeded yet, and including the inevitable need for
more money, a larger staff, more sweeping powers, etc. In short, the
degree of authentication of knowledge may be lower in the "higher"
intellectual levels and much higher in those areas which intellectuals
choose to regard as "lower." A business which produces a product that
the public will not buy in a sufficient quantity, or at a high enough
price to cover production costs, will have its ideas validated-in this
case invalidated-in a swift and painful process which must be heeded
quickly before bankruptcy sets in. The results cannot be talked away.
But in many intellectual areas, notably so-called "social science," there
is neither a swift nor a certain authentication process for ideas, and the
only ultimate validation is whether the ideas sound plausible to enough
people, or to the right people. The stricter standards and independent,
often conclusive, evidence in the physical sciences cannot be
generalized to intellectual activity as a whole, even though the aura of
scientific processes and results is often appropriated by other
intellectuals.

Because what is meant by "knowing" varies enormously, according

to the respective authentication processes available, it is by no means
clear that there is more knowledge in civilized countries than in
primitive countries or among intellectuals as compared to the less
educated members of the same society. It is very possible that, as more
people cease being farmers with little or no education, and increasingly
acquire more schooling, that their standards for "knowing" decline
while the area of their secondhand and tenuous knowledge expands.
As a poet said, "we knew a million things we could hardly
understand."' There may be not only a qualitative decline in
knowledge, but-more important-an erosion of the very meaning of
"knowing": for example, a young man might be said to know how to
milk a cow if he could write an essay on that subject, and we would no
longer demand that he take the pail out to the barn and come back with
milk.
 It is not necessary, at this point, to insist that the average amount of
personal knowledge has declined over time. It is sufficient that we
realize that conflicting trends are at work, and that the net result is an
open question, rather than the foregone conclusion often assumed by
those who depict an ever more knowledgeable society needing ever
more years of schooling for its citizens. The march of science and
technology does not imply growing intellectual complexity in the lives
of most people. It often means the opposite. Matthew Brady required
far more knowledge of photoghraphic processes to take pictures with
his cumbersome equipment during the Civil War than a modern
photographer requires to operate his automated cameras. Science and
technology lead to far more complexity in producing cameras and film
today, but that growing complexity among a handful of technicians
permits far more simplicity (and ignorance) in the acutal use of
modern photographic equipment and materials by a mass of people.
Similar trends are discernible in a wide variety of fields. Automobiles
are much more complex to build, but far simpler to operate, than in the
days before automatic ignition, automatic transmissions, automatic
chokes, self-sealing tires, etc. The technology available in the modern
home reduces not only the time but the knowledge required by a
modern homemaker. Even a mere man can now perform some chores
for which girls and young women were once trained for years.

The growing complexity of science, technology, and organization

does not imply either a growing knowledge or a growing need for
knowledge in the general population. On the contrary, the increasingly
complex processes tend to lead to increasingly simple and easily
understood products. The genius of mass production is precisely in its
making more products more accessible, both economically and
intellectually to more people. Electronic calculators enable
mathematical illiterates to perform operations which only highly
trained people could perform with ease in earlier times. The printing
press performs daily communications miracles beyond the ability of an
army of the most highly trained and dedicated scribes of the Middle
Ages. Organizational progress parallels that in science and technology,
permitting ultimate simplicity through intermediate complexity. An
ordinary individual can easily arrange travel across thousands of miles
through cities he has never seen by tapping the knowledge of travel
agents and/or the American Automobile Association. Or he can weigh
the relative merits of commercial products whose individual
mechanisms are wholly unknown to him, by reading the (simple)
results of highly complex tests conducted by general consumer
magazines or by publications specializing in particular items such as
audio equipment or motorcycles.

DECISION-MAKING UNITS

Knowledge may be enjoyed as a speculative diversion, but it is needed

for decision making. The genesis of ideas and the authentication of
knowledge are part of a continuous process which ultimately brings
knowledge to bear on decisions-when the system is working ideally. In
real life, the process may, of course, fail to bring knowledge to bear,
when accurate knowledge is available somewhere in the system. What
matters, then, is the knowledge actually used at the decision-making
point, not the knowledge in process of development or authentication,
nor even the knowledge clearly apparent to particular individuals or
organizations somewhere in the society. And while decisions may be
thought of as made by specific individuals at specific points in space
and time, the decision-making process is more usually structured so
that various combinations of individuals repeatedly and habitually
make certain classes of decisions, so that they form continuously
functioning decisionmaking units, which may range from a married
couple to a police department to a national government. A single
individual may also form a decisionmaking unit for some purposes, or-
more likely-he may be part of several decision-making units
simultaneously, and the set of such institutions may change over time.

The emphasis on specific decision-making units is especially

necessary in an era given to metaphors about an amorphous "society"
deciding to do this or that: "Society" doesn't keep its air or water clean;
"society" is punitive, permissive, frivolous, uptight, generous,
uncaring, etc. While metaphors may sometimes be useful shortcuts,
like other shortcuts they can also take us further away from our
destination and delay or even prevent our arrival there.

Metaphors which suggest that "society" is a decision-making unit

can be very misleading, by ignoring situations in which decisions are
what they are precisely because the actual decision-making units face a
particular kind of incentive structure. To ignore the specific nature of
the decision-making units is to expect improvement by trying to
substitute "the good guys" for "the bad guys," or by waiting for the
Messiah or for the general triumph of human reason, whichever seems
less improbable or less remote in time. Sometimes the metaphor of
"society" is used more tendentiously, to quietly shift the locus of
decision making from smaller and more numerous units to a single
nationwide decision-making unit. The merits or demerits of such a
change in any specific case are simply bypassed by metaphors which
proceed as if "society" is doing this now and ought to do that instead-
when in fact one set of decision-making units is operating under one
structure of incentives now and the advantages and disadvantages of
an alternative decision-making unit and the alternative set of incentives
is precisely what needs to be explicitly analyzed, not covered up by
metaphors about "society."

There is no one named "society" who decides anything. Even in the

most democratic nations few issues are ever decided by a specific
nationwide referendum. And even if they were, who could say that a
bare majority as of a given instant constitutes the judgment of an
organic society subsisting over the generations? Unless national laws
are to vary literally from moment to moment, some decision-making
units must make decisions which are binding on other units which
either disagree or were not consulted. Posterity is of course never
consulted.

One of the peculiarities of the American Revolution was that its

leaders pinned their hopes on the organization of decision-making
units, the structuring of their incentives, and the counterbalancing of
the units against one another, rather than on the more usual (and more
exciting) principle of substituting "the good guys" for "the bad guys"-
i.e., substituting "the people" for "the oppressors," the faithful for the
heathens, the Jews for the gentiles, the gentiles for the Jews, and other
such substitutions based on differences of history, physiognomy, or
mannerisms.

The domain of decision-making units need not be discrete or

mutually exclusive. Indeed they cannot be either, or there would be no
such social phenomenon as would cause us to refer even
metaphorically to "society." Decision-making units seldom have
complete control, even of a given segment of a society, and no
decision-making unit controls the whole society, except very
approximately under a totalitarian regime. Decision-making units
overlap one another to some degree, and even where such units are
subordinated to others in a hierarchy, the subordination is never perfect
in practice. Even in the extreme case of slavery, the subordinate units
took actions contrary to the general desires or specific orders of the
higher units-ranging from passive or active sabotage to murdering
overseers and slave owners.' The practical limitations of sheer
subordination were repeatedly demonstrated by the various economic
incentives which had to be resorted to under slavery, especially for
getting higher quality work performed.'

In general, the ability of subordinate decision-making units to act

independently of, and contrary to, the policies and orders of the higher
units is based on differences in knowledge. The powers of the higher
units may encompass all the powers of the subordinate units, but they
almost never encompass all the knowledge. Because the powers of the
higher decision-making units include the power to require transmission
of knowledge, the persistence of knowledge advantages by the
subordinate units implies either an impossibility or a prohibitive cost
to the higher unit of independently acquiring the same knowledge as a
check against the accuracy of the knowledge transmitted by the
subordinate unit. In short, there are differences in their respective costs
of acquiring knowledge. More specifically, there are cost differences
between higher and lower decision-making units which vary according
to the kind of knowledge in question.
 General knowledge-expertise, statistics, etc.-is usually more
economically used by the higher decision-making units. For example,
a decisionmaking unit which encompasses five subordinate units can
acquire a given expertise and statistical data which it applies to all five
units, whereas if each unit had independently acquired the same
expertise or statistical data it would have cost five times as much
altogether. For this kind of knowledge, the cost advantage tends to be
on the side of the larger and higher decisionmaking unit. But for highly
specific knowledge-the local life style, the reliability of particular
suppliers, the level of skill of a given executive, etc.-the subordinate
units immediately in daily contact with the relevant facts can much
more easily and more cheaply synthesize the knowledge and draw
inferences.

It is unnecessary to attempt any general rule as to where the overall

balance lies in comparing the respective costs of knowledge in larger
and smaller decision-making units. What is important is to understand
that (1) the respective cost advantages of the large and small units
differ according to the kind of knowledge involved (general versus
specific), that (2) most decisions involve mixtures of the two kinds of
knowledge, so that the net advantages of the larger and smaller units
vary with the kind of decision, and (3) the effectiveness of hierarchical
subordination varies with the extent to which the subordinate unit has
knowledge advantages over the higher unit. In those cases where the
subordinate unit has better information, then in terms of the whole
decision-making process the knowledge is one place and the power is
another; the quality of decisions suffers as a result. Moreover,
subordination itself becomes illusory to the extent that the lower level
unit can use its knowledge advantages to evade, counteract, or redirect
the thrust of orders from its nominal superiors.

Some examples from various institutions and various societies may

illustrate these crucial points. Agriculture has its general principles and
statistics, but agricultural production involves much highly specific
knowledge about the characteristics and contours of particular plots of
land, and about the freshness, flavor and keeping qualities of specific
batches of fruits, vegetables and dairy products-all of which are
changing by the hour. No expert can say from 100 miles away, and
sight unseen, that this year's grape crop is good, or even that last
week's good grapes are still good this week. By contrast, an expert on
the manufacture of steel can specify the exact quality of steel that will
be produced by given combinations of iron ore and coal at given
temperatures. For these reasons, steel production has been successfully
centrally planned and controlled in various countries, whereas
agricultural production has had such chronic problems and periodic
disasters in centrally planned economic systems that even the most
centralized communist governments have had to make major
exceptions in agriculture, allowing decentralized decision-making of
various sorts.

For similar reasons, in capitalist countries it is common to have

chains of grocery and department stores selling standardized items, but
there are no large chains of high quality restaurants of a sort which
depend upon atmosphere and finely prepared food. Such restaurants
require constant attention to the demeanor of the staff and the delicacy
of the chef, and those cannot be effectively controlled by distant
experts. Usually the owner and manager of a successful restaurant of
this sort is right on the premises, often from the moment it opens each
day to the moment it closes at night. By contrast, the top executives of
Sears or Safeway cannot and need not be present at their hundreds of
stores across the country, for much of the knowledge they need can be
gained from statistics, experts, and accounting data.

THE STRUCTURE OF INCENTIVES

While decisions are constrained by the kinds of organizations and the

kinds of knowledge involved, the impetus for decisions comes from
the internal preferences and external incentives facing those who
actually make the decisions. The incentives may be positive or
negative-that is, rewards or penal ties. Typically, these incentives are
structured in some way, so that there are gradations of rewards (or
penalties) corresponding to different kinds of results. It is not just a
question of being rewarded or not, but of how much reward or penalty
is likely to follow from various decisions. Simple as this seems, it is a
radical departure from the practice of explaining decisions in terms of
"society's" choices or in terms of the official or ostensible "purpose" of
an organization. An organization may make decisions which fail to
achieve its assigned purpose or fail to serve society's interest, without
any "failure" of understanding or ability, simply because it is
responding to the actual structure of incentives confronting it rather
than to the rhetoric or hopes of others.

Much criticism of "incompetent bureaucrats" implicitly assumes that

those in the bureaucracy are pursuing the assigned goal but failing to
achieve it due to lack of ability. In fact, they may be responding very
rationally and ably to the set of incentives facing them. For example,
government regulatory agencies are often very ineffective in
controlling the industry or sector which they have a legal mandate to
regulate. But it is a common pattern in such agencies for those in
decision-making positions to (1) earn far less money than comparable
individuals earn in the regulated sector, and (2) after a few years'
experience to move on to jobs in the regulated sector. In short, they are
regulating their future employers. Under such a set of incentives, it is
hardly surprising that decision makers in regulatory agencies approach
those whom they are assigned to regulate with an attitude that is
sympathetic, cooperative, and even protective. The only protection of
the public interest built into the incentive structure are the penalties for
blatantly illegal conduct, such as taking bribes to make a particular
decision for a particular company. But explicit bribes are seldom
necessary in order to get the regulatory agency to adopt the general
viewpoint of the regulated sector, in which many regulatory officials
expect to make a more lasting and more lucrative career than is open to
them in government. Morally, it is possible to deplore individual
weakness or selfishness, but rationally there is little reason to expect a
different outcome from a normal sample of people facing the same
structure of incentives. Reform by "throwing the rascals out" seems
less promising than reform by changing the structure of incentives
facing whoever occupies decision-making positions.
 The regulatory agency example is a case where the institutional
incentive structure has to compete with an outside incentive structure
that is more attractive financially. Incentive structures can have
problems in themselves, aside from outside competition. The mere
process of formalizing what is to be rewarded presents many
complexities and pitfalls. Most problems, decisions, and performances
are multidimensional, but somehow the results have to be reduced to a
few key indicators which are to be institutionally rewarded or
penalized: attendance records, test scores, output per unit of time,
seniority, etc. The need to reduce the indicators to a manageable few is
based not only on the need to conserve the time (and sanity) of those
who assign rewards and penalties, but also to provide those subject to
these incentives with some objective indication of what their
performance is expected to be and how it will be judged. But, almost
by definition, key indicators can never tell the whole story. This affects
not merely the justice or injustice of the reward, but also the very
nature of the behavior that occurs within the given structure of
incentives. For example, one index of military success is the number of
enemy killed. Clearly, it is not the only indicator, for if a major
military objective can be taken while capturing the enemy, or
confronting him with sufficient force to make him retreat, or bluffing
him into withdrawal or surrender, this is even better than having to
actually take the objective by storm, with a large loss of life on both
sides. However, once the incentive structure clearly rewards the "body
count" of enemy dead, it provides an incentive to more carnage than is
absolutely necessary, and since enemy casualties can seldom be
increased without increasing one's own casualties, it provides an
incentive to needless bloodshed and loss of life among one's own
troops. Again, moral condemnation without reform of the incentive
structure means little. For example, continual criticism of the "search
and destroy" missions of the American army in Vietnam did little to
change this approach in a war where "body count" was a key indicator,
used by the military high command in rewarding and publicizing its
units' efforts.
 TIME

Key indicators require some specified time span during which they are
to be tabulated for purposes of reward or penalty. The time span can
vary enormously according to the process and the indicator. It can be
output per hour, the annual rate of inflation, weekly television program
ratings, or a bicentennial assessment of a nation. But whatever the span
chosen, it must involve some simplification, or even
oversimplification, of reality. Time is continuous, and breaking it up
into discrete units for purposes of assessment and reward opens the
possibility that behavior will be tailored to the time period in question,
without regard to its longer range implications. Desperate efforts just
before a deadline may be an inefficient expedient which reduces the
longer run effectiveness of men, machines and organizations. The
Soviets coined the term "storming" to describe such behavior, which
has long been common in Soviet factories trying to achieve their
monthly quotas. Similar behavior occurred on an annual basis in
Soviet farms trying to maximize the current year's harvest, even at the
cost of neglecting the maintenance of equipment and structures, and at
the cost of depleting soil by not allowing it to lie fallow to recover its
long run fertility. Slave overseers in the antebellum South similarly
overworked both men and the soil in the interest of current crops at the
expense of reduced production years later-when the overseer would
probably be working somewhere else. In short, similar structures of
incentives produced similar results, even in socioeconomic systems
with widely differing histories, ideologies, and rhetoric.

IMPLICATIONS

The broad sweep of knowledge needed for decision making is brought

to bear through various systems of coordination of the scattered
fragmentary information possessed by individuals and organizations.
This very general sketch of the principles, mechanisms, and pitfalls
involved is a prelude to a fuller consideration of the use of knowledge
in decision-making processes in the economic, legal, and political
spheres, each having its own authentication processes and its own
feedback mechanisms to modify decisions already made. Much
discussion of the pros and cons of various "issues" overlooks the
crucial fact that the most basic decision is who makes the decision,
under what constraints, and subject to what feedback mechanisms.
This is fundamentally different from the approach which seeks better
decisions by replacing "the bad guys" with "the good guys"-that is, by
relying on differential rectitude and differential ingenuity rather than
on a structure of incentives geared to the normal range of human
propensities.

The discussion thus far has emphasized premeditatedly-formed and

hierarchically-structured decision-making units. These are not the only,
nor necessarily the best, decision-making units, nor even the most
pervasive kind of decision-making units at a given time and place.
Some alternative decisionmaking units and processes include (1) trial
by combat, which is seldom sanctioned today for individual decision
making, but is still the ultimate decisionmaking mechanism between
sovereign nations, (2) various arrangements spontaneously evolved by
the participants, such as competitive bidding in economic markets or
mutual benevolence in groups bound together by religious, artistic,
tribal, or other affinities, and (3) premeditated arrangements in which
those subordinated to the power of others in one sense are, in another
sense, the ultimate arbiters of the fate of their hierarchical superiorsas
with democratically elected governments, or with governments
operating in the shadows of their own military forces which are both
willing and able to depose them. None of these decision-making
processes are mutually exclusive. A typical American, for example,
lives in a family unit whose internal decisions are based on personal
feelings, works in a hierarchically-structured organization whose use
of inputs and volume of output are determined in a spontaneously
evolved market, is subject to laws established by a government whose
members are chosen and removable by the electorate and which
conducts its relations with other governments in an atmosphere
dominated by their respective capacities for armed combat or mutual
annihilation.
 The interaction of various decision-making processes makes it all
the more necessary to understand the respective principles of the
different individual processes. The continual evolution of decision-
making units and decisionmaking processes likewise makes it all the
more necessary to understand the effects of different kinds of
processes, so as to know where we are headed if current trends
continue.

just as decision-making units and processes vary enormously, so too

do the various kinds of decisions. For example, some decisions are
binary decisions-yes or no, war or peace, guilty or innocent-while
other decisions are continuously variable incremental decisions: using
more or less gasoline, paying higher or lower wages, living a more
relaxed or more hectic life. Some decisions are once-and-for-all
decisions-suicide, loss of virginity, burning a Rembrandt painting-
while others are readily reversible decisions: turning off a television
program that is not interesting, cancelling a subscription, ceasing to
purchase a given brand of consumer goods or ceasing to use certain
cliches, etc. Decisions may also be made individually or as "package
deals." One can buy onions, bread, and canned goods in the same store
or in different stores, but in choosing between political candidates, one
must choose one candidate's whole package-his fiscal policy,
environmental position, foreign policy, civil liberties views, etc.-as
against the whole package of his opponent's positions on the same
subjects.

The kind of decision is not tied to the particular subject matter (i.e.,
shoes, food, or education) so much as to the particular decision-
making process: economic processes, legal processes, political
processes, etc. What this means is that as certain kinds of decisions are
moved from one kind of decisionmaking unit to another, it is not
merely a case of a different group of people or processes making the
decision; the nature of the decision itself can change. That is, what was
once a continuously variable decision may become a binary decision.
Prior to public schooling and compulsory attendance laws, for
example, the decision a family made was how much schooling to
purchase for their children; afterwards, the only decision was whether
or not to obey the compulsory attendance laws. Before it became a
federal crime to carry a letter in competition with the post office, the
individual letter-writer could choose among various possible carriers,
but afterwards the only decision was whether to communicate in the
form of a letter or in some other form.

Decisions also differ with respect to whether they are instantaneous

or sequential. An instantaneous decision occurs completely at a given
point in time, even if a long period of consideration preceded it, while
a sequential decision occurs at various points in time as reactions to
previous parts of the decision entail additional adjustments,
improvisations, or reinforcements. The basic difference between them
is that one decision is made completely on one occasion, while the
other decision occurs piecemeal over a period of time. With sequential
decision making, all the knowledge which is finally available to the
decision maker is not initially available when the sequence of
decisions begins, and the course of action followed may be wholly
different from what it would have been if all the knowledge had been
available at the outset, or if any decision could have been postponed
until after all the facts were in.

Many early supporters of the Vietnam war came ultimately to the

position that it was not worth the cost, after the full cost had been
revealed by time, and that early official estimates of prospective
casualties and prospective outcomes were either grossly mistaken or
deliberately misleading. Another contemporary example of sequential
decision making in a very different area is the progression from the
Supreme Court's Brown decision in 1954 that the state cannot classify
students by race for differential treatment to its controversial "busing"
position in which that is what it requires states to do. Years of
opposition to desegregation of the public schools led to progressively
tighter judicial control, designed to overcome the various strategies of
opposition, delay, and evasion-ultimately arriving at a point the
opposite of the court's original premise or intention. In an earlier era,
British Prime Minister Neville Chamberlain conducted a foreign
policy designed to avoid war with Hitler through relatively small
concessions, but the ultimate result of an unanticipated series of crises
and concessions was to so shift the balance of power in Hitler's favor
as to make war inevitable.

None of these sequential decisions was the result of a "society" that

was stupid in the light of information now available in retrospect, but
rather of piecemeal decisions which acquired a momentum of their
own, and of the individual decision makers who were unequal to the
unfolding complexities inherent in sequential decision making. Praise
or blame is not the point. What is important is to understand (1) when
a situation facing us is part of a sequential decision making process,
and what that implies, and (2) to understand when our own institutions
set up sequential decision-making processes when there is an
alternative decision-making process available. For example, Chapter 9
will analyze the criminal justice system as a series of sequential
decisions presented to the young criminal in such a way as to lead
more people to persist in a life of crime than would do so if all the
knowledge of prospects and penalties were made fully available to
them at the outset.

In addition to considering decision-making processes, we need to

consider decision-making costs. These costs are not simply the salaries
of decisionmaking officials during the time when they are pondering
what to do. Clearly the cost of evaluating intelligence reports on
Japanese intentions to bomb Pearl Harbor was not simply the pay of
the military functionaries who handled these reports. The cost of those
processes included one of the largest military catastrophes in American
history, and the loss of life and material not only at Pearl Harbor but in
a series of major military defeats in the months that followed, in the
wake of the crippling and near-annihilation of the American Pacific
Fleet on December 7, 1941. The point here is not to condemn, or even
to evaluate, the decision-making process as it existed in the military at
that time. The point here is to emphasize that the cost of any decision-
making process must be assessed in terms of the full consequences
entailed by alternative decision-making processes. Such processes
cannot be judged by narrowly conceived economic or financial
criteria. As we shall see in Chapter 3, even economic decision making
cannot be evaluated narrowly in money terms alone.
 The chapters that follow will consider the use of knowledge in
economic, legal, and political institutions, the nature of the intellectual
process and the role of intellectuals as a social class in influencing
trends in modern society. Some disturbing implications of those trends
will then be weighed.
Chapter 2
 Decision -Making
processes

Despite the fashionable practice of personifying "society" as a decider

and actor, decision making in the real world can be understood only in
the context of the actual decision-making units that exist, and the
specific, respective sets of constraints and incentives within which
each operates. These various decision-making units and processes are
highly diverse, and have equally diverse implications. The persistence
through the centuries of very different decision-making relationships,
institutionally coexisting within even the most monolithic societies,
suggests that there may be substantial advantages and disadvantages to
each form of human organization, and that these vary with respect to
different activities and decisions. Constitutionalism and pluralism in
effect acknowledge and underscore this conclusion.

One of the basic distinctions among human relationships is between

informal voluntary relationships, terminable at no cost beyond the loss
of the relationship itself, and relationships enforced by designated
institutions which can impose substantial penalties, which may range
from breach-of-contract suits by a private business to execution for
military desertion in wartime. The difference here is not in the
seriousness or severity of the loss due to termination of a relationship.
The distinction is in whether the loss is a contrived penalty to enforce
the terms of the relationship, rather than a loss inherent in the loss of
the relationship itself. Lovers are perhaps a classic example of an
informal voluntary relationship-the loss of which may be far more
devastat ing than, say, breaking a landlord-tenant lease agreement. Yet
the landlordtenant lease agreement is no longer a voluntary
arrangement after it has been signed, just as the relationship between
lovers is no longer wholly voluntary once they are married.

Informal relationships need not be so direct as that between lovers.

Language is a whole set of intricate relationships, evolved rather than
designed, and its "rules" are obeyed without the necessity of any
organizational entity capable of imposing penalties for disobedience.
For students there may be grade penalties for improper use of the
language, and social disapproval might be another penalty for others,
but these are mild, incidental, and perhaps ineffective deterrents-
certainly as compared to the staggering costs of substantially
disregarding the rules of language. Anyone who was either incapable
of understanding those rules, or perversely oblivious to them, would
find himself in a two-way incomprehensibility with virtually everyone.
Again, what is involved is a voluntary relationship, terminable at no
cost beyond the loss of the benefits of the relationship itself, though
that loss may be very large.

By contrast, organized institutional relationships carry contrived

rewards and penalties as compensations for following or not following
the terms of the relationship and the desires of the people involved in
it. Economic organizations provide goods or services in exchange for
money, political organizations provide their services in exchange for
votes, and administrative organizations (government bureaucracies,
private "non-profit" organizations, etc.) carry out their functions in
exchange for such organizational rewards as prestige and such
individual rewards as pay, power, and perquisites. It is not that these
incentive mechanisms define what is economic, political, or
administrative. Rather, they define what is organizational rather than
informal or spontaneous. Within the category of organizations, there
are then economic, political, and other subdivisions. Moreover, there
are also informal (nonorganizational economic, political, etc.)
activities, though these will not be a major focus here.

None of these categories is hermetically sealed or represents a

mutually exclusive entity in any rigorous sense. All that is necessary
here is to recognize a spectrum of human relationships, ranging from
the most voluntary and informal (lovers) to the most organizationally
structured and determined (a military draftee in combat). Different
regions of this spectrum can then be discussed under different names,
implicitly recognizing that these discontinuous designations apply in
the real world to continuously varying complexes of characteristics.
For example, a family may be regarded as an informal, voluntary
relationship, because its cohesion and functioning are due primarily to
incentives intrinsic to the relationship itself rather than organizational
ly contrived, though these contrived incentives also enter, as in family
law. The family also underscores the point that "informal" or
"voluntary" does not necessarily imply weaker incentives. Family
incentives are in fact so powerful as to cause defiance of severe legal
penalties, and the law itself tacitly recognizes this-as, for example, in
not attempting to force spouses to testify against one another. Other
organizational entities likewise recognize that their formal incentives
are weaker than informal family incentives. Anti-nepotism hiring rules
are a common form of this recognition.

Comparisons of different kinds of human decision-making

relationships and processes are to some extent comparisons of different
kinds of decisions as well. If this ex post fact implied an ex ante
unique relationship between kinds of decisions and kinds of decision-
making processes, it would be both logically impossible and socially
pointless to try to compare various relationships or institutions as
decision-making mechanisms. The discussion that follows not only
postulates in a theoretical sense, but assumes as a matter of fact, that
given decisions can be made by any of a number of institutions. In this
context, the empirical fact that families do not usually make decisions
about fighting a war, and bureaucratic organizations typically do not
decide matters of love, are merely things to be explained in terms of
institutions' respective decision-making advantages. Under some
circumstances, families have in fact made decisions about wars
(vendettas, dynastic wars) and computer organizations have at least
claimed to be able to make love matches. In short, the discussion
proceeds on the premise that the institutional locus of particular
decisions is not a constant but a variable, and concludes that it is a
crucial variable from the standpoint of the well-being of society.

INFORMAL RELATIONSHIPS
Among the advantages of informal relationships as decision-making
entities is their low cost of decision making in terms of the time
required for deciding, the cost of the requisite knowledge, and the
ability to "fine tune" the decision to the problem or prospect at hand.

By the cost of a decision is meant the cost of the process of

deciding, rather than the costs entailed by the decision itself. For inter-
institutional cost comparisons of decision making to be meaningful,
such comparisons must be made holding constant the "quality"
(however defined) of the decision. This neither postulates as a matter
of theory nor assumes as a matter of fact that institutions are equally
good at deciding the same things. It merely says that inter-institutional
differences in decision-making effectiveness may be equally well
expressed as cost differences in producing given quality decisions or as
quality differences at given costs. By expressing inter-institutional
differences in terms of the cost of a given quality of decisions, the
discussion avoids getting bogged clown in the complexities of
weighing the respective advantages and disadvantages of different
decisions themselves, and can focus on the cost of the process of
achieving a given probability of satisfying a given set of values to a
given extent.

Because informal decision making is not subject to such

organizational requirements as written justifications, varying protocol
observances vis-a-vis superiors, peers, and subordinates or the more
stringent "due process" requirements found in legal organizations, the
process of deciding tends to be less costly. A distinguished economist
once observed that Lindbergh's flying across the Atlantic alone was
less of a feat than if he had flown across the Atlantic with a
committee.' Much of the cost of formal decision making is not a
current outlay (in either financial or psychic terms) for the current
decision, but rather an investment (again, in either financial or psychic
terms) in "insurance" to protect oneself from future costs in terms of
personal or business relationships with the other parties to the decision.
Avoiding abrasiveness of manner, verbal misunderstandings,
rnispercept ions of intentions, status threats, and the like, are costly.
They are obviously costly in time and tension to the individual. They
are costly in more directly tangible financial terms to an organization,
which must screen its potential decision makers for their ability to
meet these requirements, in addition to the intellectual qualifications
for achieving a given quality of decisions. Obviously, as the list of
requirements lengthens, the suitably qualified supply of people
declines, and the pay required to hire them in competition with other
organizations increases. These financial phenomena of institutions are
essentially outward manifestations of the underlying psychic costs to
individuals.

Informal decision making avoids much (though not all) of these

"insurance" costs because less "insurance" is needed. In the extreme
case, an individual makes a wholly private decision recognized by all
to be legitimately within his arbitrary discretion (an individual
watching television alone, a bachelor buying food for himself, etc.),
and so he need not take any additional action to insure against adverse
reactions from others. More commonly, the other parties to the
informal decision-making process are already sufficiently familiar with
one another, and have formed sufficiently settled opinions of one
another, that "insurance" actions and processes are both less necessary
and less effective.

In a sense, this conclusion merely pushes the question back in time

rather than answers it. It says that informal relationships may involve
lower current costs because of past investments in mutual
familiarization. This in itself says nothing about total costs over the
relevant time span. These total costs tend to be lower in informal
relationships because the voluntary interactions that lead to familiarity
are often pleasurable on net balance, or the interaction would not be
chosen and sustained. For friends, kin, or lovers to acquire a given
level of familiarity, sufficient to reduce mutual "insurance" costs by a
given amount, is likely to cost less than for a detective agency, a credit
bureau or an investigative reporter to acquire an equal amount of
personal information. The simple fact that the latter groups must be
paid salaries to ferret out information suggests that the pleasure of
familiarizing themselves with the subject is insufficient to compensate
the effort.
 The lower information cost of informal relationships can be
illustrated by the financing of small, single-proprietor businesses.
Here, the crucial variable in determining the prospects of success of a
given business of this sort is the character, ability, perseverance, and
other personal attributes of the wouldbe owner-operator. Banks seldom
finance the establishment of such businesses, which are typically
financed by the individual himself, and/or his friends, family or
neighbors-i.e., all people with lower costs of acquiring the necessary
information. It is not literally impossible for a bank or other
organization to acquire equivalent information, but the cost of doing so
would be far higher. A financial institution could not simply ask those
familiar with the prospective owner-operator for an assessment of him,
for they would have insufficient personal stake in the accuracy of the
assessment to make it reliable, and their probable bias in his favor
would not be offset by a bias in favor of safeguarding their own
money. More effective methods of acquiring retrospective personal
information about investment applicants-or information in advance
about the pool of people from whom prospective investment applicants
are likely to come-would involve methods (such as electronic listening
devices) whose illegality would greatly increase their cost. The
acquisition of the same information through informal relationships is
of course not illegal, and is therefore less costly for this reason as well
as because of the lower psychic costs of interaction among self-
selected people.

Some organizations are able to tap information produced by

informal relationships. Employers who hire new employees by word-
of-mouth referrals from existing employees get around the problem
confronting banks-namely, that those with the most relevant
information have insufficient stake in the accurate communication of
that knowledge. Employees who value their own future relationship
with the employer will not want to recommend someone else who is
likely to be a substandard employee. Reliance on such information,
even by employers with personnel departments and the supposedly
"scientific" selection procedures at their disposal, implies at least some
areas in which the organization implicitly recognizes its cost
disadvantages vis-a-vis informal relationships.
 "Old boy" networks among professional colleagues with stakes in
good future relationships with one another are likewise informal
sources of knowledge that would be prohibitively expensive for an
organization to acquire through purely organizational methods,
especially in professions where the relevant characteristics are highly
personal-temperament, drive, imagination, intellectual discipline-and
therefore cannot be objectively specified or definitively measured by
such formal devices as university degrees. Recurrent complaints of
"chaotic" referral and hiring methods in such professions ignore this
cost advantage of informal relationships. That this advantage can be of
major proportions is attested to by (1) the persistence of such referral
methods despite repeated attempts at internal reform' or even
externally imposed legal requirements, as under "affirmative action,"3
(2) the dissatisfaction reported by both employers and employees using
alternative and more "objective" or "rational" procedures,' and (3) the
willingness of employing organizations to pay the price of constricting
their own options by limiting their employee choices to those other
organizations in which they have sufficiently good informal
information sources, thereby balkanizing a market that might easily be
many times larger.'

Observers' intellectual disdain and/or moral condemnation for

practices which utilize the cost advantages of informal relationships
often proceed on the implicit assumption that knowledge is either
economically free or theoretically "given" in some cohesive block
equally accessible to all. In reality, knowledge can be enormously
costly, and is often widely scattered in uneven fragments, too small to
be individually usable in decision making. The communication and
coordination of these scattered fragments of knowledge is one of the
basic problems-perhaps the basic problem-of any society, as well as of
its constituent institutions and relationships.'

Informal relationships are not only able to acquire much knowledge

at lower cost than formal organizations in some cases, but are
generally able to apply it in a more specific or "fine tuned" fashion in
making decisions. Among the reasons are that informal decision
making is more likely than formal procedures to be incremental rather
than categorical, individualized rather than "package deals," and
episodic rather than precedential.

Because informal relationships are, by definition, relatively freer of

rules than are formal organizations, the former can more readily
determine to what extent to do something-whether consumption of a
good, work at an occupation, or involvement with another person-
rather than simply whether to do it or not. Thus, for example, personal
relationships have many subtle gradations from formality to intimacy,
as compared to official relationships among members of an
organizational hierarchy-relationships which tend to have fewer
gradations and fewer nuances in the relationships between any two
official positions (except insofar as these are modified by informal
relationships among incumbents). A "foolish consistency" is less often
necessary in informal relationships. The youngest child in a family
may be a privileged character with respect to one set of rules
(decorum, errors) and yet more strongly controlled than his older
siblings with respect to others (safety, money). Even in cultures
normally thought of as male-dominated, there are substantial areas of
family decision making where a husband would seldom dream of
questioning his wife's decisions, even though such decisions may
include budgeting the bulk of his income.' The specialization benefits
of such reciprocal or interchangeable subordination are sacrificed in a
neatly hierarchical organization, where a vice-president outranks a
janitor for all purposes-again, except insofar as incumbents may
choose to behave otherwise so as to appropriate some of the
advantages of informal relationships in a formal organization.

The lengths to which this can be carried in practice may be

illustrated by the fact that even under the extreme hierarchic
subordination of slavery, there were often skilled, experienced or
trusted slaves whose judgments on major economic decisions were
relied on by slaveowners to a greater extent than the judgments of the
white overseer8-so much so that a disaffected coalition of such slaves
could cost on overseer his job.9 The slaveowner's overriding interest in
the economic efficiency of his enterprise was thus sufficient to cause
him to violate both the principle of hierarchical subordination and the
prevailing racial ideology, in order to appropriate the gains arising
from the advantages of informal relationships.

Decisions made through informal relationships can be more readily

individualized than in an organization bound by its own rules. A child
who is ill, grieving or otherwise temporarily impaired in whatever
way, can be given special attention and exemptions from normal
requirements incrementallyto precisely the extent, for just so long, and
for only those activities to which his special needs require, in the
judgments of his parents or siblings. He can be "special" for some
purposes but not for others, for to be too special would impair his own
personal relationships with others, as well as the general life of the
family. Formal organizations have parallel attempts to allow for illness
or injury, for example, but its benefits are generally available to people
who fall within categories verbally described in advance, rather than
according to an ex post judgment of the overall nature and severity of
their individual disability. Thus, for example, a worker suffering a
minor injury of a sort described in the rules may receive a windfall
gain, while another worker psychologically devastated by the ending
of a love affair is expected to continue carrying out all duties as if
nothing had happened. Here it is not a question of a misjudgment by
management-which would be paralleled by similar parental
misjudgments-but of the inherent anomalies of hierarchical
organizations. Again, in some instances incumbent officials may
choose to somehow modify organizational rules in order to obtain the
gains of informal relationships but this modification is not inherent in
hierarchical organization, is in fact in conflict with it, and consequently
its scope is likely to be more severely limited the more hierarchical the
organization. Soldiers in combat are not given time off after receiving
"Dear John" letters.

Informal decision making thus allows a fungibility of highly

disparate factors in terms of their net effects, viewed retrospectively.
The proverbial "advantage of hindsight" can be utilized by informal
processes. But formal organizational decision making tends toward a
prospective categorical specification of factors to be taken into account
in specific, programmed ways. Each has its advantages and
disadvantages. The advantages of informal relationships tend to be
greatest in decisions which turn on individual personal or
circumstantial differences of a sort which cannot be explicitly or
exhaustively specified in advance, which may result from too wide and
varied an assortment of influences to list in advance, or even to convey
in any logically compelling way after the fact, and which require a
large amount of highly individual information at low cost.

Informal relationships permit decisions to be individualized in

another sense as well. Each decision can be considered in relative
isolation rather than as part of a take-it-or-leave-it "package deal." A
series of love affairs can be varied as to personality types, duration,
intimacy, or intensity, but at the other end of this spectrum marriage in
a no-divorce system with powerful sanctions against extra marital
affairs-it is a "package deal" with respect to time and with respect to
the whole set of personal characteristics of the partner. If one has had
enough-temporarily or permanently-of the sensitive introspective type,
or the flighty madcap type, one can look for other qualities in
subsequent partners, but if one relationship is going to be permanent,
an entirely different set of characteristics may be preferable within that
constraint. The same principle applies to less personal decisions.
Driving a car between two cities is a continuously reviewable, variable
or even can- cellable decision. Taking an airplane between the same
two cities is a "package deal." Once the plane is airborne, the
passenger's second thoughts about alternative destinations, side trips,
companions who would add to the pleasure of the journey, optimal
arrival time, or whether the trip was a bad idea in the first place, have
no effect on the flight, unless he is prepared to incur the cost of
hijacking the aircraft. No small part of the appeal of the automobile,
which social critics are quick to attribute to irrational drives, derives
from its incremental and continuously reviewable decision-making
potential-which is curtailed to varying degrees by alternative
transportation modes.

In economic transactions, package deals are often vulnerable. The

Ford Motor Company's loss of its early supremacy in the automobile
industry to General Motors turned on its insistence on offering the
famous Model T as a "package deal," involving not only a given
mechanism but also an unchanging body style and a single color
(black), whereas General Motors supplied cars in a variety of annually
changing models and in virtually every color of the rainbow. For a
producer to offer a package deal is to gamble that he is correct
simultaneously in his assessment of the acceptability to the consumer
of all of the elements in the package. Even a small "package" presents
serious problems in this regard. If the producer's chances of being right
on each of three variables is 75 percent for each variable, his chances
of being right on the whole package are less than half (27 out of 64).10
The variety of models of many products is one response to the hazards
of trying to guess what specific combination of characteristics will
appeal to the consumer. The inability of the producer to know
precisely what the consumer wants is a basic fact of life under any
economic system. Different varieties of the same basic product are one
way of dealing with this inescapable fact, and not an arbitrarily
imposed "waste" as sometimes claimed. The consumer can be
presented with a single take-it-or-leave-it "package" only under some
form of monopoly, private or governmental.

Informal decision-making processes permit individualized decisions

in another sense as well. Decisions are not as likely to become
precedents constraining future decisions. Choosing cereal for breakfast
today does not prejudice one's option to choose eggs tomorrow or to
skip breakfast entirely the next day. The variability and reversibility of
informal decisions not only allows corrections of past judgments and
adaptations to current desire for variety; it allows future planning to
take place at lower cost. The more adaptability exists for a given kind
of decision, the less risky it is to make plans for the future, and
therefore the more likely it is that more people will make more plans in
such areas. Dates are more likely to be made in cultures where this
implies little beyond a short-run commitment to be at a certain place at
a certain time, than in cultures where overt expressions of interest in an
indi vidual of the opposite sex, or subsequent displays of affection
toward such individuals imply matrimonial intentions-and where
failure to follow through brings social ostracism or even risk to life
and limb. Foreign investments are more likely to be made in a country
where the proceeds can be withdrawn at will in convertible currency
than in a country where legal barriers make this impossible or political
barriers make it costly. Similarly, the existence of such instruments of
future decision variability and reversibility (i.e., nonprece- dence) as
brakes and steering wheels is all that makes most people willing to ride
in automobiles at highway speeds. Liquidity of assets and the existence
of options markets serve similar functions in the economic sphere.

The prices paid for things which modify or nullify the precedential
element of decision making is a tangible indicator of the value of
nonpreceden- tial processes. The extra costs involved in options
markets, and the foregone earnings on more liquid assets are fairly
obvious costs. In the case of an automobile, the unwillingness to be
bound by past decisions as to direction and velocity is reflected in the
cost of brake systems and steering systems. A less tangible but no less
real cost is paid by those who forego or curtail social interaction with
the opposite sex in cultures where this becomes precedential. Another
way of looking at all these things is that the huge costs paid to get out
of precedents implies an even higher cost of being bound by these
precedents.

Informal relationships are not mere minor interstitial supplements to

the major institutions of society. These informal relationships not only
include important decision-making processes, such as the family, but
also produce much of the background social capital without which the
other major institutions of society could not function nearly as
effectively as they do. Language has already been mentioned as an
informally produced system. Morality is another major item of
background social capital, without which the cost of operating
everything from credit cards to courts of law would be far more
expensive-perhaps prohibitively so. The same could be said for
hygiene, civility, and other informally transmitted characteristics
without which many (or all) formal organizations would incur huge
costs of operation, if they could operate at all.

Informal relationships or decision-making processes are not

categorically superior to more formal relationships or processes.
Lovers do get married. People not only rent, but lease and buy.
Astronauts go up in rockets with neither brakes nor steering wheels.
Clearly there must be some offsetting benefits in more structured
relationships and precedential decisions-or rather, benefits peculiar to
such relationships, which may in any given instance be greater than,
equal to, or less than, the benefits of informal decision-making
processes.

STRUCTURED ORGANIZATIONS

Among the many variables impinging on one's happiness and well-

being, some require relatively frequent adjustments while others do
not, and some derive much of their value precisely from their
constancy. Obviously, formal organizations would not exist if informal
relationships met all human needs.

The apportionment of decision making as between informal and

formal processes involves a trade-off of flexibility for security. A's
flexibility is B's uncertainty as to what A will do. The cost to B of this
uncertainty cannot be measured in terms of A's most likely prospective
action nor in terms of A's retrospectively observed action. The cost of
uncertainty to B is the cost of preparing for a range of possibilities of
A's behavior. Depending upon the cost of these precautions to B and
the value of flexibility to A, it may be possible for both sides to
become better off by signing a contract awarding money to A for
agreeing in advance to follow a given course (or restricted range of
courses) of conduct. In short, a more rigidified process may be made
preferable to both sides. Total risk can be reduced in some cases by
rigidity, just as it is reduced in other cases by flexibility.

In many cases a much broader kind of rigid agreement may be in

order. Society itself may need to guarantee that certain relationships
will remain rigid and inviolate in all but the most extraordinary
circumstances. Much socially beneficial prospective action will not
take place, or will not take place to the same extent, without rigid
guarantees. The heavy investment of emotion, time, and resources
necessary to raise a child would be less likely in a society where the
child might at any moment, for any capricious reason, be taken away
and never seen again. Such behavior is rejected not only for its
retrospective injustice but also for its prospective effect on parental
behavior. Not only will the state forebear from such behavior; it will
use severe sanctions against private individuals who do such things
(kidnappers). This rigid legal framework of parent-child relationships
provides the protective setting within which the most flexible kinds of
parent-child social relationships may develop. Formal and informal
processes are not mutually exclusive but mutually supporting.

Similar considerations apply across a spectrum of other social

arrangements, particularly those involving long and large individual
investments of efforts for prospective personal and social benefits.
Property rights introduce rigidities into the use of vast amounts of
many resources-by excluding all but the legal owner(s) from a serious
voice in most of the decisions made about the disposition of the
resources-on the assumption that such losses as are occasioned by this
rigidity are more than offset by the gains in prospective behavior by
people acting under these guarantees.

Someone who is going to work for many years to have his own
home wants some fairly rigid assurance that the house will in fact
belong to him-that he cannot be dispossessed by someone who is
physically stronger, better armed, or more ruthless, or who is deemed
more "worthy" by political authorities. Rigid assurances are needed
that changing fashions, mores, and power relationships will not
suddenly deprive him of his property, his children, or his life. Informal
relationships which flourish in a society do so within the protection of
formal laws on property ownership, kidnapping, murder, and other
basic matters on which people want rigidity rather than continuously
negotiable or modifiable relationships.

Formalized and rigidified decision-making processes (or

frameworks for processes) are not only social investments in certain
behavior patterns; they are direct consumer goods as well. Peace of
mind and a sense of independence and dignity are immediate psychic
dividends from operating under known rules, applicable to all, rather
than being personally assessed and controlled by other individuals.
Informal decision-making processes flourish only where such
assessment and control are in the hands of those biased in favor of the
individual concerned-e.g., family, friends, and lovers. Similar informal
processes in the hands of strangers might be intolerable. In short, the
comparison is not solely between two different kinds of institutional
processes-formal vs. informal-but between two different kinds of
processes engaged in by two different kinds of people.

ECONOMIC INSTITUTIONS

Economic decisions may be made through informal processes or

through structured organizations. If the lawn needs mowing, the
homeowner may do it himself, tell his son to do it, pay his son to do it,
pay another individual to do it, or contract with a lawn-care firm to do
it. Similarly he may grow his own vegetables, buy them from a local
farmer, or from a store, or buy them already prepared at a restaurant.
The theoretical spectrum, ranging from the most informal to the most
formal decision-making processes, is far greater than is likely to be
encountered in the real world. Why this is so is worth analyzing in
order to understand the peculiar advantages and disadvantages of more
formal and less formal economic processes.

Theoretically, the various components which typically make up a

product could all be bought separately and assembled either by the
consumer or by other persons hired by him to perform that service on a
one-time basis as needed-the way he hires a plumber or electrician
when he needs their services. There is no inherent need for a firm to
exist to sell him a finished product. By the same token, there is no
need for workers to be employed by such a firm. Theoretically, they
could sell their services directly to those who want them, as plumbers,
doctors, and shoe shine boys ordinarily do.

For some products and to some extent, there is much consumer

assembly of finished products. Stereo systems often contain amplifiers,
speakers, turntables and tape decks, each made by a different
manufacturer and assembled with knowledge purchased from the
publisher of a do-it-yourself book. A whole pre-assembled stereo
system may also be purchased at most department stores. A similar
range exists among cameras. The view camera used by professional
photographers is usually sold as a camera body with no lens or shutter,
and with nothing to hold the film. All these essential components are
typically available in a wide variety of types and brands, all of which
are to be assembled by the photographer into a functioning camera. At
the other end of the spectrum is the "Instamatic" camera with all these
components preselected, preassembled, and preset for a specific
focusing distance, lens opening and shutter speed selected by the
manufacturer, who is in effect selling a "package" that includes not
only physical items but also the application of elementary knowledge
of picture taking settings.

From this it is clear that one reason for the existence of a business
firm is to economize on the production or application of knowledge.
Any user of an "Instamatic" camera could acquire as much knowledge
as is used in presetting the lens and shutter by purchasing an
elementary book on photography and investing a few hours in reading
it. Since the consumer sees people all around him with adjustable
cameras, he knows that it is neither impossible nor probably very
difficult to acquire such knowledge. His is therefore an informed
choice to purchase the knowledge from the camera manufacturer,
rather than produce this knowledge himself from a book. This is a
perfectly rational choice where the camera firm can produce the
quantity of knowledge needed (for casual snapshots) at a lower cost
than the consumer. From the point of view of society at large, fewer
resources are used to produce a given product or to achieve a given
end result.

One of the reasons the firm has lower costs than the consumer
would have is that it engages in fewer transactions in proportion to its
volume of output. A consumer who wished to hire a photographic
expert to tell him at what distance to focus his lens would have to
determine the likely sources of such experts and the means of
determining their expertise, as well as not buying more expertise than
he needed, and other such problems. The cost of hiring the expert,
spread over one or two cameras would be much higher per camera (or
per picture) than when a camera manufacturer hires experts to guide its
decisions on thousands of cameras. Similar considerations apply to the
hiring of many kinds of workers (including management) and to the
hire or purchase of specialized equipment.

In the theoretical extreme, each worker could hire various fractions

of his time to various employers, as some workers do in practice to
some extent. But theoretically the worker would be ready to sell the
tiniest fraction of his time to different employers or to change
employers at any given instant of the working day when the
fluctuations of the labor market might offer a marginally higher wage
rate somewhere else. Such behavior would, of course, involve very
high transactions costs to the worker-and to the employer, who would
have to be constantly prepared to fill vacancies at a moment's notice.
Contractual and semicontractual arrangements, including "adequate
notice" customs, reduce these transactions costs, at the cost of reduced
institutional flexibility in the quantity and quality of labor employed,
and in the quantity and quality of work obtainable from given workers
in a situation where "instant firing" is often not a feasible option. That
many firms voluntarily chose to accept such costs of institutional
rigidity implied in having "regular employees"-even before union or
legal pressures for job security-suggests that transactions costs would
be substantial otherwise. That other firms had to wait for such outside
pressures suggests that the relative weights of those costs and benefits
vary from situation to situation.

As in the general question of the relative advantages of formal

versus informal procedures, the point here is not to determine which is
better categorically. On the contrary, the point is to suggest why there
is a trade-off. The particular terms of that trade-off, and the way those
terms vary incrementally, is likely to be far better known to those
directly involved than to others operating on general principles.

Even after acquiring the formal institutional structures implied

where firms sell to consumers, economic processes still retain
substantial elements of incremental rather than categorical decision
making. The consumer, by choosing among firms to patronize,
implicitly weighs the effectiveness of different sets of workers and
managers, rewarding some with fuller, more sustained employment,
and forcing others to work less or not at all-despite any institutional
guarantees-for lack of consumer demand can force the institution itself
out of business. Even where the consumer chooses to buy prepackaged
products, his range of choice among such products and retailers of
products usually prevents his being forced into the kind of take-it-or-
leave-it "package deal" choices common in such fields as politics,
where he must vote for one candidate's whole "package" of positions
on foreign policy, civil liberties, ecology, race relations, monetary
policy, etc. The almost continuous revision of most economic
decisions adds a temporal flexibility not found in political systems
with fixed terms of office, where recall and impeachment are costly
options.

Because economic transactions often involve repeated satisfaction

of the same desires, there is continual feedback from those most
knowledgeable about the extent to which a given product or service is
satisfactory-namely, the consumers. Moreover, this is not merely
abstract knowledge but knowledge conveyed in a monetary form,
conveying persuasion as well as information.

Economic transactions, whether through formal or informal

processes, have as a serious disadvantage the possible disregard of
affected interests not party to the transactions. A sale of coal to an
electric generating plant may represent a mutually advantageous
transaction from the point of view of the coal company and the electric
company, and yet create millions of dollars worth of costs in dirt and
lung disease which are not represented in the decisions as to the kind
of coal to use, the location of the plant, or the presence or absence of
devices to reduce harmful emissions. Theoretically, with a perfectly
functioning and costless legal system, all these costs would be felt in
the form of damage liabilities, which would be foreseen at the time of
the economic transaction-leading to the same kinds of decisions as if
the excluded third parties had in fact been included." The external
costs in some economic processes, and the high transactions costs of
organizing thousands of scattered individuals, create special problems
for affected third parties. Viewed as a social process, the problem with
such economic processes is that the transacting parties are not
coextensive with the affected parties.

Another problem with an economic system is that different people

have varying amounts of money with which to convey their consumer
preferences to producers. For many social critics, this invalidates any
hope of an optimal use of resources via market processes. However,
this may be a more formidable problem in theory than in practice.
When groups of consumers compete for the same products, each of the
competing groups usually includes a wide range of income levels, so
that a rich-versus-poor competition need not be involved. Moreover,
even where such a competition is involved, lower income consumers
often bid goods and resources away from the affluent, through sheer
numbers, even if not to the theoretically optimal extent. Much of the
outcry against middlemen ("developers," "commercial interests," etc.)
who would redirect resources from a "higher" to a "lower" use is
implicitly a protest against large numbers of lower-income people
whose collective wealth is bidding shoreline, forest, and lakeside
property away from a use favored by higher-income people to uses
more consonant with the tastes and individual resources of lower-
income people: typically higher density use, substituting apartment
buildings for individual houses, hotels for rustic cabins, automobile
access roads for backpack trails, etc. The middlemen, as such, typical
ly have no bias toward any particular use, but only toward making
moneya charge bitterly made by critics, despite the inconsistency of
that charge with blaming the middlemen for a particular end result.

POLITICAL INSTITUTIONS

Political and legal institutions provide the rigidities-"rights"-people

want in some vital areas of their life, where they reject both the
transactions costs and the indignity of having to submit to, or negotiate
with, those who might challenge or threaten their possession of their
home, their children, or their life. Constitutional systems attempt to
sharply demarcate these areas of basic rights from other areas in which
the discretion and flexibility of individual choice and interpersonal
negotiation may achieve whatever arrangements are deemed mutually
satisfactory by the individuals concerned. In short, Constitutional
political and legal systems attempt to limit their own scope to areas in
which they have a relative advantage as decision-making processes,
leaving other areas to other decision-making processes, whose
advantages may be either in the quality of the decisions or in the
personal dig'nity implied by free choice.

Political systems provide some feedback via the electoral process,

so that laws can be amended, repealed, or given varying amounts of
financial support. This feedback is neither as fast nor as universal, nor
as immediately coercive as in economic market processes. The
growing area of administrative decision making is even more insulated
from electoral feedback, and legal institutions at the higher, appellate
court levels have been made virtually election-proof, except for the
confirmation process. As compared to economic institutions, the
virtues of political, administrative, and judicial institutions are not so
much responsiveness as reliability. Their decisions are not separate and
episodic but precedential: political, legislative, and administrative
rulings are in effect until explicitly repealed or declared
unconstitutional, and changes in court rulings are self-restricted by
deliberate reluctance to needlessly upset precedents. The basic
framework of political, administrative, and judicial rulings is
categorical-legal or illegal, guilty or innocent-though much ingenuity
may go into introducing elements of flexibility and incremental
decision making into these institutional processes. Still, these flexible
and incremental features are not as integral to such processes as to
economic institutions.

Political systems allow affected third parties to influence economic

transactions from which their interests are excluded. Political decision
making can lower transactions costs by allowing a relatively few
surrogates to make and implement decisions reflecting the will of
millions who have insufficient individual stake (or resources) to incur
the huge costs of devising and transacting some of the decisions they
believe in.

Social transactions may generate not only costs external to the

transacting parties but also benefits external to those parties. Economic
institutions do not bring such benefits to bear on the decision makers.
Theoretically, the beneficiaries might bring such considerations to bear
through offers of reward to the transacting parties to shape their
decisions so as to optimize third party benefits, but in practice the
number and dispersion of the beneficiaries, and the corresponding cost
of identifying and welding these diffuse interests into a coherent
bargaining agent typically prevent this."

A special case of external benefits is "social overhead capital"-

invest- ments whose benefits accrue to a wide variety of individuals
and institutions which do not themselves incur the cost of making the
investment. For example, a sewage system reduces the incidence of
disease and debilitation, enabling workers to work more days and earn
more pay, and enabling employers to have a more reliable workforce
and correspondingly higher profits. Raising children to be honest is an
investment made by parents, but among the beneficiaries are credit
card companies, self-service stores, and the Internal Revenue Service.
The fact that those who incur the costs of the investment are not the
same as those who reap the dividends makes it more difficult for
economic institutions to achieve the level of investment justified by
the returns, and thereby creates a role for political surrogates.

The time horizon of the constituent may he his lifetime, and perhaps
that of his children, or even the longer range interest of the whole
society as an on-going enterprise. The inherent incentive structure
facing a political surrogate emphasizes the time remaining between a
given decision and the next election. The opportunity for policies with
immediate benefits and longer run negative consequences are obvious,
not only in theory but in practice. Similarly, differences in information
and transactions costs per unit of benefit between the citizen and
organized interest groups, as well as between the citizen and his
political surrogate, create inherent incentives for policies with
concentrated benefits and diffused costs-even though the costs may be
several times the benefits, whether measured financially or otherwise.

Another problem inherent in political processes is that the degree of

reliability or rigidity desired in a governmental framework, within
which individual planning and action can take place, is jeopardized by
political incentives to continually adjust this framework for the real or
alleged benefit of particular groups of constituents. This is a special
case of the concentration of benefits and the diffusion of costs.
Everyone with an objective interest in a known and predictable set of
laws and policies pays the cost of innovative political activities. This
means virtually everyone in the society, including those who benefit
from particular subsets of changes. It is not merely socalled "liberals"
who innovate: so-called "conservatives" may be equally creative with
"tax breaks" or monopolistic concessions for a variety of constituent
groups as their political opponents are with expenditure programs and
government controls for a variety of their constituents. The point is
that political surrogates, for whatever constituent coalition they serve,
have an incentive to continually adjust the legal framework-whatever it
may be at a given moment and regardless of its merits or demerits-
because of specific concentrated benefits and the diffused general costs
of reduced predictability.

This is neither a moral comment on individuals nor an exhortation

for more citizen knowledge of specific governmental policy. On the
contrary, it is an attempt to explain the causes of these phenomena in
terms of differentials in the cost of information, differentials in
transactions costs, and inherent conflicts of interest built into political
decision-making processes. To exhort the individual citizen to make
investments in knowledge comparable to those of lobbyists and
political crusaders (both of whom have much lower costs per unit of
personal benefit) is to urge him to behavior that is irrational, if not
physically impossible in a twenty-four hour day. What might be
possible, at lower cost, is an awareness of this problem inherent in
political decision making, when choosing among modes of decision
making.
 The competition of political opponents tends to mitigate these
problems somewhat, but the terms of this competition are quite
different from the terms of economic competition. Political knowledge
is conveyed by articulation, and its accurate transmission through
political competition depends upon the preexisting stock of knowledge
and understanding of the receiving citizen. Economic knowledge need
not be articulated to the consumer, but is conveyed-summarized-in the
prices and qualities of goods. The consumer may have no idea at all-or
even a wrong idea-as to why one product costs less and serves his
purposes better; all he needs is that end-result itself. Someone must of
course have the specific knowledge of how to achieve that result. What
is crucial to economic competition is that better and more accurate
knowledge on the part of the producer is a decisive competitive
advantage, regardless of whether the consumer shares any part of that
knowledge. In political competition, accurate knowledge has no such
decisive competitive advantage, because what is being "sold" is not an
end-result but a plausible belief about a complex process.

Because of differences in the cost of judging processes versus the

cost of judging end results, it is even more important in political than
in economic processes to have feedback from the diffused individuals
who receive the consequences to the few who made the decisions that
produced the consequences.

Where political decision making is broadly defined to include

judicial decision making, feedback from those affected is even less
effective. Moreover, the cost of a court's monitoring the consequences
of its own decisions could easily be prohibitive, and especially where
the consequences include effects on people not party to the legal
action, but whose whole constellation of expectations have been
changed. However difficult it may be to directly know what is going
on in someone else's mind-such as changing expectations-it has
concrete consequences which take place long before the future events
contemplated. Restrictions on the future use of property is a reduction
in its present value, since one component of its present value is its
future saleability. In short, a reduction in property rights is a partial
confiscation of property; to take away 10 percent of the value of land
is economically no different from taking away 10 percent of the land
itself.

Similar reasoning applies to other restrictions on other values not

expressed in money terms. Changing expectations of future social
relationships of school children bring forth varying present reactions of
parents. In some cases, these present reactions may be more vehement
than after the future event actually arrives-as claimed by some
supporters of "busing," for example-but this merely illustrates the
correspondence between economic and noneconomic translation (or
inherent equivalence) of future expectations into present costs or
benefits.

JUDICIAL PROCESSES

Judicial decision making is made necessary by the insufficiencies of

language, even if everyone were willing to obey the law as he
understood it. Political leaders cannot exhaustively specify the
application of the principles they legislate. Moreover, the people may
choose to bind themselves and their political surrogates in advance,
during presumably more sober periods, against actions they might take
in rash moments. This simply means that, beyond some point,
flexibility of decision making is deemed harmful and the rigidities of
Constitutional limitations are preferred within that range of decisions.
This parallels the economic law of diminishing returns, under which a
given input has varying effects on output over different ranges,
including-beyond some point-a negative effect. If flexibility is
considered as an input in decision-making processes, then it too,
clearly, has a range within which it is enormously valuable, another
range within which it is more moderately valuable, and another range
within which it is positively harmful. Otherwise we would leave
ourselves unlimited flexibility to take the most sweeping and drastic
actions on the basis of the most transient 51 percent majority. Instead
special rigidities--"rights"-are deliberately built into the system to
apply to such things as life, liberty, and property, where our primary
interest is in security rather than in fine tuning the social mechanism to
capture fleeting advantages.
 Even as compared to formal economic or political processes,
judicial decision making tends to be more categorical, rather than
incremental. Not only do criminal cases tend to be dichotomized into
guilty or innocent, and appellate decisions into constitutional or
unconstitutional, the legal precedents apply to all similarly
circumstanced individuals-where the similarity is in those articulated
characteristics documentable to third parties, whether or not these are
the characteristics most behaviorally determinative or philosophically
crucial. By contrast, informal social processes can adjust the time,
scope, and degree of specialness of treatment of the salient
characteristics of each individual person and each episode, as
determined by closer knowledge, unrestricted by the inherent
limitations of articulation or of secondhand data filtered through legal
rules of evidence.

No such close weighing of incremental costs and incremental

benefits can be expected in judicial processes whose social benefits
take the rigid form of "rights" applicable to categories, and costs take
the form of correspondingly rigid obligations. In short, judicial
decision making especially at the appellate level, consists of "package
deals," in which the package is quite extensive in time as well as
space, and has contents which are homogeneous only with respect to
articulated, documentable variables-and may be quite heterogeneous
with respect to all other behavioral or philosophical considerations.

SUMMARY AND IMPLICATIONS

The most basic of all decisions is who shall decide. This is easily lost
sight of in discussions that proceed directly to the merits of particular
issues, as if they could be judged from a unitary, or God's eye,
viewpoint. A more human perspective must recognize the respective
advantages and disadvantages of different decision-making processes,
including their widely varying costs of knowledge, which is a central
consideration often overlooked in analyses which proceed as if
knowledge were either complete, costless, or of a "given" quantity.
Decision-making processes differ not only in the quantity, quality, and
cost of knowledge brought to bear initially, but also and perhaps still
more so, in the feedback of knowledge and its effectiveness in
modifying the initial decision. This feedback is not only additional
knowledge, but knowledge of a different kind. It is direct knowledge
of particulars of time and place, as distinguished from the secondhand
generalities known as "expertise." The high personal cost of acquiring
expertise, and the opportunities it presents for displaying individual
talent or genius, make it a more dramatic form of knowledge, but riot
necessarily a more important form of knowledge from a decision-
making point of view. Certainly expertise is not sufficient in itself
without the additional direct knowledge of results obtainable closer at
hand, and at lower cost, by great numbers of individuals who acquire
no personal distinction from possession of that kind of knowledge.

"Society" is not the only figure of speech that confuses the actual
decisionmaking units and conceals the determining incentives and
constraints. "The market" is another such misleading figure of speech.
Both the friends and foes of economic decision-making processes refer
to "the market" as if it were an institution parallel with, and alternative
to, the government as an institution. The government is indeed an
institution, but "the market" is nothing more than an option for each
individual to chose among numerous existing institutions, or to fashion
new arrangements suited to his own situation and taste.

The government establishes an army or a post office as the answer

to a given problem. "The market" is simply the freedom to choose
among many existing or still-to-be-created possibilities. The need for
housing can be met through "the market" in a thousand different ways
chosen by each personanything from living in a commune to buying a
house, renting rooms, moving in with relatives, living in quarters
provided by an employer, etc., etc. The need for food can be met by
buying groceries, eating at a restaurant, growing a garden, or letting
someone else provide meals in exchange for work, property, or sex.
"The market" is no particular set of institutions. Its advantages and
disadvantages are due precisely to this fact. Any comparison of market
processes and governmental processes for making a particular set of
decisions is a comparison between given institutions, prescribed in
advance, and an option to select or create institutions ad hoc. There are
of course particular institutions existing in the market as of a given
time. But there can be no definitive comparison of market institutions-
such as the corporation-and a governmental institution, such as a
federal bureaucracy. The corporation may be the predominant
institutional way of doing certain things during a particular era, but it
will never be the only market mechanism even during that given era,
and certainly not for all eras. Partnerships, cooperatives, episodic
individual transactions, and long-run contractual agreements all exist
as alternatives. The advantages of market institutions over government
institutions are not so much in their particular characteristics as
institutions but in the fact that people can usually make a better choice
out of numerous options than by following a single prescribed process.

The diversity of personal tastes insures that no given institution will

become the answer to a human problem in the market. The need for
food, housing, or other desiderata can be met in a sweeping range of
ways. Some of the methods most preferred by some will be the most
abhorred by others. Responsiveness to individual diversity means that
market processes necessarily produce "chaotic" results from the point
of view of any single given scale of values. No matter which particular
way you think people should be housed or fed (or their other needs
met) the market will not do it just that way, because the market is not a
particular set of institutions. People who are convinced that their
values are best-not only for themselves but for others-must necessarily
be offended by many things that happen in a market economy, whether
those people's values are religious, communistic, white supremacist, or
racially integrationist. The diversity of tastes satisfied by a market may
be its greatest economic achievement, but it is also its greatest political
vulnerability.

Decision making through any kind of process involves costs created

by the decision-making process itself, quite aside from those costs
created by the particular decisions reached. Achieving agreement or
resolution of opposing views is never free. Nor should these
"transactions costs," as economists call them, be thought of as minor
incidental expenses. The transactions costs of choosing a new emperor
of the Roman Empire often included tens of thousands of lives and the
destruction of whole cities and surrounding countrysides in battles
among contenders. The devotion of many rational and publicspirited
men of later times to the principle of royal succession, which might
seem at first to be only an irrational special privilege, is more easily
understood against an historical background of astronomical
transactions costs in choosing national leaders. Even one who felt that
a given king (or kings in general) had only average intelligence, or
even somewhat below average intelligence, might still reasonably
choose to bear with royal succession if he felt that the likely
differences in leadership were not worth the carnage involved in
alternative political processes available at the time.

The rise of modern conditions-notably literacy and mass

communications-made democratic and constitutional methods of
changing national leadership possible. It does not make agreement on
issues a free good, however. Again, the tendency to proceed directly to
the "solution" of "problems" from some given viewpoint or given set
of values overlooks the crucial point that the diversity of viewpoints
and values means that costs of concurrence and the amount of
concurrence made necessary by different policies can vary
enormously. The net difference between policy x and policy y may be
far less than the cost of choosing, or one policy may require far more
consensus than the other. The Godlike approach to social policy
ignores both the diversity of values and the cost of agreement among
human beings. The political and/or economic systems which involve
less control from higher authorities reduce the costs of concurrence-
which can range all the way up to concentration camps and genocide.
To those who feel that their values are the values, the less controlled
systems necessarily present a spectacle of "chaos," simply because
such systems respond to a diversity of values. The more successfully
such systems respond to diversity, the more "chaos" there will be, by
definition, according to the standards of any specific set of valuesother
than diversity or freedom as values. Looked at another way, the more
self-righteous observers there are, the more chaos (and "waste") will
be seen.
 Ringing calls for a national consensus on this or that are often
preposterous in the literal sense of putting in front what comes behind.
It is true thatviewed in retrospect-those national consensuses that have
in fact been achieved have often been both practically fruitful and
emotionally satisfying. This is because, given the enormous cost of
consensus, it is unlikely to be achieved, except on something of
overwhelming urgency to an overwhelming majority of people. Unity
in wartime, when national survival is threatened, is an obvious
example. In short, it is the high value involved in the result-survival, in
this case-that makes us willing to pay the high cost of consensus. It is
not the cost that creates the value, however. Nor can we make other
things valuable by incurring large costs for them, such as by trying for
a national consensus about them. On the contrary, we satisfy our
desires at least cost-which is to say, we can satisfy more of our desires-
by minimizing the amount of consensus that is necessary. We easily
provide ourselves with food and clothing precisely because there is no
consensus needed as to what is the best food or the best clothing. If we
had to reach a consensus first, we might destroy ourselves in the
process of trying to meet simple basic needs. Man's equally pervasive
spiritual needs-whether met in religious or ideological ways-have often
led to such mutual destruction, ranging from persecution to wholesale
slaughter, when particular religious or political creeds required
consensus as part of their tenets. Individualism and pluralism in social,
political and economic processes reduce the need for consensus-at the
cost of presenting an untidy spectacle of "chaos" to those eager for a
consensus in support of their own particular subjective values. The
Constitution of the United States implicitly recognizes the very high
cost of consensus in some areas by flatly forbidding the government
from even attempting to reach a consensus in religious matters. Yet the
cost of consensus is implicitly treated as negligible in naive complaints
that "the American sys tem seems less well adapted to the mobilization
of a positive energetic will."" That failing is sometimes known as
freedom.

One of the problems involved in understanding decision making

through any kind of institutional process is that the cause of a decision
must be distinguished from the mechanism that transmits it. The
ancient practice of killing the messenger who brought bad news
suggests that this separation of causal factors from transmitting
mechanisms is especially difficult in emotion-laden areas. Institutions
frequently transmit unwelcome news-such as the unacceptability of
one's performance in school or on the job, or the reduced availability
of a desired commodity or the unlikelihood of one's political ideals
being realized. The question then is whether the institution was itself
responsible for this outcome, or was simply a messenger bringing bad
news. Attempts to prevent institutions from conveying bad news-e.g.,
nofail grading, "job security," price controls, etc.-raise the cost of
transmitting knowledge and retard the adjustment to that knowledge.

Before attempting to determine the effect of institutions, it is

necessary to consider the inherent circumstances, constraints, and
impelling forces at work in the environment within which the
institutional mechanisms function. The analysis of these impulsions
and constraints-i.e., social "theory"must at least supplement the
consideration of institutional mechanics. Decision making depends not
only on the kinds of processes through which decisions are made, but
on the nature of the trade-offs involved. Perhaps the easiest kinds of
trade-offs to visualize are economic trade-offs, which can be quantified
in money terms, but broader social trade-offs may be even more
important, even if expressed in less tangible terms. Economic, social,
and political trade-offs will be considered in the next three chapters.
Chapter 3
 Economic TradeOffs

An economic system is a system for the production and distribution of

goods and services. But what is crucial for understanding the way it
functions is that it is a system for rationing goods and services that are
inadequate to supply all that people want. This is true of any economic
system, whether it is called capitalism, socialism, feudalism, or by any
other name. The Garden of Eden was not an economic system, even
though it produced and distributed goods and services, because it
produced them in such abundance that rationing was unnecessary. A
utopia would not be an economic system, for the same reason. In short,
while economic systems of various sorts boast of their achievements in
bringing goods and services to people, what makes them all economic
systems is that they have systematic procedures for preventing people
from getting goods and services, denying them access to natural
resources, tools or equipment for production, and limiting their ability
to work at the tasks they would prefer. Capitalist systems use capitalist
methods of denial, socialist systems use socialist methods of denial,
but all economic systems must use some method of denial.

Looked at another way, there are inherent constraints, given the

limitations of nature and the unlimited desires of man, and economic
systems are simply artificial schemes for administering the inherent
scarcities. The scarcities themselves exist independently of the
particular economic systems, and would exist if there were no
economic system at all and people simply fought over everything they
wanted. Economic institutions exist to introduce elements of
rationality or effeciency into the use of inputs and outputs.

The classic definition of economics is that it is the study of the

allocation of scarce resources which have alternative uses. If
resources-the ingredients of production-were not scarce, there would
be no economics. We would be in an Eden or a utopia. Similarly, if
each resource had only one possible use, we would simply use as much
of each resource as was available to produce as much of its unique
output as we could, and the only economic problem would be deciding
which particular individual should produce it or consume it. But
economics is much more complicated than that because, in the real
world, the same resource can be used to produce a wide variety of
products. Coal, for example, can produce dyes, electric power, heat,
nylon, or liquid automotive fuel, and milk can produce ice cream,
yogurt, and innumerable kinds of cheeses, as well as providing an
ingredient in a virtually limitless variety of cooked foods. An
economic system must determine how much of each resource shall go
to each of its various uses, under the inherent constraint that all of the
desires for all of the users cannot possibly be satisfied simultaneously.

While economic systems may become very complex, the economic

situation or predicament is quite simple: there just is not enough to go
around. Like so many simple and important realities, it often gets lost
sight of, or is completely ignored, in the midst of complicated
reasoning or emotionally powerful rhetoric. For example, some social
commentators point to the existence of "unmet needs" in society as
evidence of the "failure" of the economic system. But, in fact, because
economic systems are essentially systems of rationing, any
successfully functioning economic system would have "unmet needs"
everywhere. The alternative would be to completely satisfy all of some
category of needs-the most urgent, the moderately important, and the
trivially marginal-thereby leaving still more unsatisfied (and more
urgent) needs unmet elsewhere in the economy. We could, for
example, completely solve the downtown parking problem in every
city in the country, so that anyone could easily find a convenient
parking space at any hour of the day or night-but the resources needed
to do this would mean severe cutbacks in municipal hospitals, schools,
and water supply. The mundane fact of insufficiency must be insisted
upon and reiterated because so many discussions of "unmet needs"
proceed as if "better" policies, practices, or attitudes would "solve" the
problem at hand without creating deficiencies elsewhere. Typical

of this attitude is the comment that, "If we can send a man to the
moon, why can't we-" followed by whatever project the speaker favors.
The fact that we sent a man to the moon is part of the reason why
many other things could not be done.

KNOWLEDGE IN THE ECONOMY

When economics is mentioned, many people think of money, and in

fact the word "resources" is often used simply as a genteel synonym
for money. But in reality, a nation's economic success is far more
likely to depend upon its real resources-land, machinery, work skills,
etc.-rather than on the number or denomination of the pieces of green
paper printed by the government. For an individual, the amount of
money at his disposal determines his wealth, but for a nation as a
whole, its wealth is its food, housing, transportation, medical care,
etc.-not the green paper used to transfer this wealth around within its
population. A nation is wealthier, its standard of living is higher, when
it has more of these real things, not when bigger numbers are printed
on its currency.

Since an economy functions with scarce resources which have

alternative uses, there must be some method of coordinating the
rationing process and getting the most output from the available input.
There are as many different ways of doing this as there are different
economic systems. All of these involve the use of knowledge, and how
effectively that knowledge is used is crucial. After all, the cavemen
had the same natural resources at their disposal as we have today, and
the difference between their standard of living and ours is a difference
between the knowledge they could bring to bear on those resources
and the knowledge used today. Although we speak loosely of
"production," man neither creates nor destroys matter, but only
transforms itand the knowledge of how to make these transformations
is a key economic factor. Even among contemporary nations,
differences in their economic conditions are often far more related to
differences in their technological and organizational knowledge than to
their respective endowments in natural resources. Japan, for example,
has achieved a relatively high level of prosperity while importing
many of its inputs and exporting much of its output. What they are
essentially doing is selling their knowledge and skills to the rest of the
world. Although it is physical material that consumers are buying, this
material could have been shipped directly from the supplying country
to the consuming country, without passing through Japan-except that
the Japanese can transform it from inputs to outputs more efficiently
than the consuming nation could.

More pervasively than is generally appreciated, economic

transactions are purchases and sales of knowledge. Even the hiring of
an "unskilled" worker to pump gas involves the purchase of a
knowledge of the importance of dependability, punctuality, and an
ability to get along with customers and co-workers, quite aside from
the modest technological knowledge required to operate the gasoline
pump. This is sometimes dramatically brought home when American
corporations attempt to set up businesses in less developed countries,
and find that they cannot adequately fill their "unskilled" jobs, even
though the country may be full of people who are both poor and
unemployed.

Even within an economically advanced nation, where certain skills

are so taken for granted that those with them are labeled "unskilled,"
there are still such differences in the degree of mastery of these forms
of knowledge that some employees are preferred to others, and some
have to be fired for failure to apply the necessary knowledge. For
example, a gas station attendant who does not show up promptly and
dependably to help with rush hour business can cause some drivers to
take their cars to another gas station, where they can get filled up
without waiting in such a long line. By the same token, another gas
station attendant who is especially efficient, attentive or pleasant to the
customers can add to the volume of business. The gas station owner is
therefore in a position to make significant distinctions among
employees who are lumped together as "unskilled" workers by distant
"experts."

Of course, everyone "knows" the importance of punctuality,

dependability, etc., in the abstract or intellectual sense of knowing-just
as we "know" in a general sense how to milk a cow, though most of us
could not actually go out to the barn with an empty pail and come back
with milk. But in an economy, it is not the superficial possession of
knowledge in the abstract that counts, but the effective application of
it. As in the case of Pearl Harbor, the abstract existence of knowledge
means nothing unless it is applied at the point of decision and action.

More complex operations obviously involve more complex

knowledge-often far more complex than any given individual can
master. The person who can successfully man a gas pump or even
manage a filling station probably knows little or nothing about the
molecular chemistry of petroleum, and a molecular chemist is
probably equally uninformed or misinformed as to the problems of
finance, product mix, location, and other factors which determine the
success or failure of a filling station, and both the manager and the
chemist probably know virtually nothing about the geological
principles which determine the best way and best places to explore for
oil-or about the financial complexities of the speculative investments
which pay for this costly and uncertain process. It has been said that no
one knows how to make even a simple lead pencil. That is, there is no
single person who knows how to mine the graphite, grow the wood,
produce the rubber, process the metal, and handle all the financial
complications of running a successful business. In short, we are all in
the business of selling and buying knowledge from one another,
because we are each so profoundly ignorant of what it takes to
complete the whole process of which we are a part.

COSTS AND INCREMENTAL SUBSTITUTION

Given the inherent factor of scarcity, any kind of economy tries to

maximize the output from its given inputs-or, in other words, to get the
most value for its costs. Because resources have alternative uses, and
because alternative products produce consumer satisfaction,
substitution is a crucial factor of economic life, both in production and
in consumption. We have already noted how the same ingredient can
go into many different products. It should also be recognized that
many different products can be ingredients in a consumer's sense of
well-being. We normally think of physically similar things as
substitutes: Plymouths and Chevrolets, rye bread and whole wheat,
vodka and gin, etc. But in fact people may choose between spending
their disposable cash on adding another room to the house or on taking
a vacation abroad, between stocking their wine cellar and buying a
season's pass to the baseball games, or between retiring early and
sending a child to college. The particular nature of the satisfactions
need not be the same.

Substitution does not imply perfect substitutions. There are all

degrees of substitutability: most people would consider two pints of
milk as a perfect substitute for a quart of milk, but would consider a
cold shower a very poor substitute for sex. How well one thing
substitutes for another cannot be determined by how similar they are in
physical characteristics, or indeed, by any purely objective criteria.
Economists define substitutability in terms of people's subjective
preferences as revealed by their overt behavior. If a rise in the price of
coffee causes people to buy more tea, then economically speaking, we
can say that they are substitutes without having to investigate the
chemical or physical characteristics of either. Similarly, if an increase
in the price of stereo equipment causes people to buy more clothes
instead, then economically these two goods are substitutes, without
regard to their material disparities or even the implausibility of the
connection.

Substitution takes place in production as well as consumption.

Electric wires can be made of copper, steel, or aluminum, and the
proportions of the three vary according to the relationship of their
respective costs. Again, substitutes need not be perfect substitutes; the
weight advantage of aluminum is more important for some purposes,
while for other purposes any price differential will cause the
immediate substitution of steel or copper. Through substitution, an
ecomony can-in effect-transform one product into another by shifting
some of their common inputs. For example, the economy can easily
accomplish the old alchemists' dream of transforming lead into gold by
simply shifting the labor, machinery, and managerial skills used to
make lead into the production of gold instead. From an economic point
of view, it does not matter that this is not "really" transforming one
metal physically into an other. What matters is that a reduction in the
output of one leads to an increase in the output of the other. In World
War II, we transformed our automobiles and refrigerators into tanks
and airplanes by this very process of redirecting resource inputs into
other product outputs.

Neither in production nor consumption does substitution imply total

substitution. More likely, it means an incremental substitution,
accepting somewhat less of one thing in order to get somewhat more
of another. We almost never have to attempt anything as difficult as
deciding categorical priorities-whether vegetables are more important
than shoes, or vacations more important than music. Moreover,
because we usually decide to have some of each option, even the
relative importance of each possible choice changes as the respective
quantities that we already have change. For example, if we had a
dozen oranges and a bushel of apples, we would probably be less
interested in another bag of apples than in another bag of oranges, and
we might give up either for one pineapple or a pound of grapes, even
though we might have the opposite preferences if we started from a
position in which we had no fruit at all, or in which we had a bushel of
oranges and ten pounds of grapes. In other words, substitution ratios
are incrementally variable rather than categorically fixed.

Simple as all this is, it goes completely counter to rhetoric that is

often heard, and sometimes heeded, about the urgent need to "establish
priorities" either nationally or in a business or other organization. At
the instant that such rhetoric is uttered, there may indeed be an urgent
need for more of one thing at the expense of something else, but it is
only a matter of time before the changing proportions of the two things
change the relative urgency of adding more of each. Categorical
priorities ignore this fact, unless they are very flexible and reversible-
in which case they are not really "priorities." But because sober
analysis seldom has the appeal of ringing rhetoric, priorities often do
get established, and outlive the necessities that gave rise to them. One
of the major problems of public policy is to determine what kinds of
social institutions lead to flexible and reversible transformations,
which permit continuous adjustment to changing circumstances, and
which kinds of institutions lead to enduring categorical priorities,
which can become as counterproductive under new circumstances as
they may have been necessary under the old.

COSTS AND VALUES

Once it is clear that an economy-any kind of economy-is basically a

system of rationing inadequate supplies, and a system of incremental
substi tutions, the concept of "cost" assumes a new significance. The
cost of any good is the cost of its ingredients, and their cost, in turn, is
whatever alternative good had to he foregone in order to use them
where they are used. For example, the real cost of a piece of cheese is
the ice cream or powdered milk that could have been produced with
the same original resource. Indeed, if more cows had been slaughtered
instead of being kept alive for their milk, there would have been more
steaks, baseball gloves, and other cowhide products, so that the real
cost of yogurt includes catchers' mitts.

This is not merely a philosophical way of looking at things. It is the

way economies operate in the real world. If the demand for yogurt
increased many times, yogurt production would absorb milk that
would otherwise have gone into ice cream, cheese, and other dairy
products. This would cause more cows to be used to increase total milk
production and fewer to be slaughtered-and this in turn would mean
less cowhide and higher prices for catchers' mitts. In an economy not
coordinated by prices but by government directives, the same end
result could occur through an issuing of orders by a central economic
planning board, and the more stringent rationing of catchers' mitts
would be accomplished by waiting lines or waiting lists instead of by
higher prices. The physical dissimilarities between dairy products and
cowhide products has nothing to do with their substitutability in the
production process. How much, and in which direction, the
incremental substitution takes place depends upon their respective
values. These values are wholly subjective. To say that people want
more yogurt is to say that yogurt has become more valuable to them.
Either statement conveys exactly the same information. There is no
"objective" value of yogurt which could be determined in a chemical
laboratory or under a microscope, nor would any political or
philosophical process determine what it is "really" worth.

Value being ultimately subjective, it varies not only from person to

person but from time to time with the same person, and varies also
according to how much of the given good he already has. Obviously a
man in the desert dying of thirst would sacrifice much more for a glass
of water than he would in his home, with water available from his
faucet. In short, even for the same individual, the value of water can
vary from virtually everything he has down to zero-or even below
zero, since he would pay to have water taken away if his basement
were flooded.

The cost of a given good can be determined in purely physical

terms. If so many gallons of milk are required to produce ten pounds
of yogurt, and if we know how much ice cream could have been
produced with that same amount of milk, then we know the physical
rate at which ice cream can be "transformed" into yogurt through
incremental substitutions in the produc tion process. However, this
statement of physical possibilities says nothing about how much
yogurt will in fact be produced relative to ice cream. That depends also
on the relative values of these goods to their respective consumers.
The knowledge of these changing values may be transmitted by price
fluctuations in a market economy, or by voting changes in a
politically-controlled ("planned") economy, or by direct orders in a
nondemocratic, politically-controlled economy (communism, fascism,
etc.).

In other words, while an individual or an economy may appear at

first to be weighing the subjective value of a good against its objective
cost, ultimately what is being weighed is the subjective value of one
good against the subjective value of another good. Faced with identical
technology and resources setting the limits of what is possible at a
given time, different combinations of goods may be produced,
according to the subjective preferences of the decision makers,
whether those decision makers are consumers, central planners, or
royalty. None of these differing assortments of goods-and therefore
different resource uses-need be more "efficient" than any other.
Efficiency in turning inputs into outputs can be measured only after
specifying the subjective values involved. Even in the apparently
objective physical sciences this is also the case. The objective
"efficiency" of an automobile engine can be determined only after
specifying the subjectively determined goal as the forward movement
of the automobile. Otherwise, every engine is 100 percent efficient in
the sense that all the energy input is used, either in the forward motion
of the car, overcoming the internal friction of engine parts, or in
random shaking of the automobile.

Although neither value nor efficiency is wholly objective, the idea

that they are dies hard. Denunciations of "inefficiency" and "waste" are
often nothing more than statements of a different set of preferences.
Schemes to turn particular decisions or processes over to "experts"
who will promote scientifically neutral "efficiency" are often simply
ways of allowing one group of people to impose their subjective
preferences on others. For example, proposals for a city-manager form
of government to take municipal decisions "out of politics" are in
reality proposals to make local decision making responsive to a
different set of interests other than the general electorate. The merits of
such a change can be debated from various viewpoints in particular
cases, but the point here is the inaccuracy of the usual description of
what is going on, and the misconceptions (or dishonesty) behind such
descriptions. As a mechanism for the utilization of knowledge in
society the city manager arrangement screens out some of the
knowledge (from the electorate), allowing more weight to the
knowledge of others who have greater access to, or implicit control
over, the administration.'

AVERAGE VERSUS INCREMENTAL COSTS

When people casually speak of "the" cost of producing something,

they usually mean the average cost-that is, the total cost of running the
enterprise divided by the number of units of output it produces. But for
actual decision-making purposes at any given time, the incremental
cost is more crucial. The total cost of running an airline obviously
includes the cost of airplanes, but in deciding whether or not to make a
particular flight, what matters at that point is whether the incremental
cost of that flight will be covered by its incremental value to the
passengers, as revealed by what they are willing to pay for it. This
question has to be faced whether the airline is a private company in an
unregulated economy, a government-owned enterprise in a socialist
state, or any other combination of economic and political institutions.
The mechanisms by which the decision is made will be different, and
of course the actual decision may be influenced or even determined by
the nature of the institutional mechanism, but the point here is that the
problem itself is independent of institutions, and institutions can be
assessed in terms of how well they resolve the problem.

An airplane which would otherwise remain idle on the ground

during a particular time has a very low cost in the economic sense of
cost as a foregone alternative. If a plane that would otherwise remain
in a hangar overnight is instead brought out at midnight to fly a party
of vacationers to a nearby resort, the cost of this short flight that does
not interfere with its other schedule of flights is much less than the
"average" cost of an airplane flight. In this case, the incremental cost
of the flight is little more than the cost of fuel and a flight crew, since
the plane itself is there for another purpose anyway. In a price-
coordinated economy, the amount of payment by the passengers
required to induce the airline to fly under these conditions will tend to
be much lower than the amount required to induce the same airline to
set aside planes to fly the same distance on a regular schedule. For the
latter decision, the passengers would have to pay an amount sufficient
to cover not only the fuel and flight crew but to cover also the cost of
the plane itself and the airline's various "overhead" expenses. In an
economy coordinated by government decisions, the same economic
resolution would be efficient, though it would have to be reached
institutionally through a political or administrative process. Whether
the same resolution would be reached in fact would depend upon the
extent to which the particular institutional arrangements convey the
same knowledge of consumer preferences (incremental trade-offs) and
production costs (incremental trade-offs), and whether that knowledge
was conveyed in a form that was "effective" in the sense of
constituting a personal incentive to the decision maker.

It often costs much more to make a commitment in advance to

produce a given good or service than it does to produce the same good
or service with equipment already provided for other purposes. In
some substitutions incremental costs are less than average costs-
sometimes only a tiny fraction of average costs. By the same token, if
the existing equipment is already being used at its normal capacity, the
additional use may cost even more than the normal use, as in the case
of additional demand for electricity at a time when the generators are
already straining. The difference between average cost and incremental
cost is crucial not only in economic institutions in various economic
systems but it is also crucial in political, legal, and other systems as
well. The incremental cost of a telephone's ringing may be quite low to
a resting and slightly bored housewife, but may he maddeningly high
to a housewife who is already simultaneously coping with a crying
baby, a pot boiling over on the stove, and a fight among her other
children. The incremental cost of making certain precedent-setting
judicial decisions is not simply the cost in that individual case but the
cost of committing legal institutions to settling similar future cases on
a similar basis. This cost may be hundreds or thousands of times as
large as the individual decision in itself. Looked at another way, where
certain decisions may be made in any of a number of different
institutions within a given social system, the institutional location of
that decision-making process may raise or lower the costs entailed by
large multiples of what is involved in the individual decision as such.

DIMINISHING RETURNS

Instead of looking at the efficiency of an economy in terms of how

much input is required per unit of output-that is, the cost of
production-we can look at how much output can be obtained from a
given input. In both ways we can see that there is no fixed relationship
between input and output but some general patterns that need to be
kept in mind in discussions of economic systems-or even legal,
political, and social systems. Generally, the pattern has been that
increasing one input while other inputs remain constant, usually
increases output-at first faster than the one input is increased, then in
proportion, then slower, and finally there is an absolute reduction of
output when the one input is added in unlimited quantities. The
question is, why this pattern exists.

A lone man farming a vast expanse of land has a limited number of

options as to how he will work this land. He may spread his labor
thinly all over the whole land area, spending a substantial part of his
workday walking over this area instead of actually tilling the soil, or he
may decide that he will get more total output by cultivating only half
of the land, putting more intensive labor there and cutting back on the
amount of his walking from place to place, letting more of his energy
go into the actual cultivation. Which of the two approaches he will use
will depend on how the various considerations balance out in the
individual case. The point here is merely to illustrate the kinds of
options he has as a lone farmer (input), which can be compared to the
options when there are two units of the same input-that is, two farmers
on the same land.

While one farmer could either cultivate the whole land area as one
unit or cultivate half the area and leave the other half uncultivated, two
farmers have the option of cultivating all the area as a unit or
cultivating both halves as separate units. That is, two farmers can
either do what one farmer would have done or can, in addition, do
things which one farmer could not have done. This is true also in the
details of the work. For example, in transporting small objects into an
area out in the field, two farmers may choose either to carry them or to
throw them to one another. A single farmer has only the first option. In
carrying heavy and/or awkward loads, one farmer is limited to getting
grips in two places no further apart than the span of his arms; two
farmers working together can get two sets of grips with each set being
much further away than one person's arm span. In short, within a range
of work activities, two farmers have all the options available to one
farmer, plus some other options as well. How often they will choose to
work separately and how often as a team depends upon what the
advantages are in practice. The crucial point however is that more
options generally mean better results, where the larger number of
options includes all the smaller number of options. This principle has
wide applications within economics and beyond economics, as will be
seen in later discussions.

In the case of two farmers on a large tract of land, they can each do
whatever one farmer could do and together they can do things that
neither could do alone. In the absence of offsetting problems, we
would therefore expect two farmers to produce more than twice the
output of one farmer on the same ample expanse of land. In short, we
may expect a rising output per unit of the input. For similar reasons,
we might expect three farmers to also increase output more than in
proportion to the increased input, since more elaborate organization of
the inputs is now possible. How long the output would increase more
than in proportion to the input would depend upon many specific facts,
but what is important here is why it could not continue increasing this
way forever. Beyond some point, the land would become crowded
with people, and their getting into each other's way and distracting one
another's attention would begin to offset the organizational advantages.

If the two farmers had been sharing the output as partners, they
wouldautomatically, and perhaps even without thinking about it-have
been moni toring each other's work, reducing the prospects of one's
taking it easy at the expense of the other. The ease of monitoring and
the certainty of being monitored would guard against the level of effort
falling below the two farmer's own best judgments of the balance
between ease and output. But when the number of farmers reached a
hundred, no single farmer could equally easily watch the other ninety-
nine, nor would each farmer be equally sure that his relaxations of
effort would be detected by the others.

Even if all one hundred farmers had identical notions of how much
output was worth how much effort, each farmer individually would
have an incentive to put forth less than this effort, since his own
individual shortcomings would have very little relationship to his own
individual share of the output. They might all "know" in an abstract
sort of way that the total effort was related to the total output, and so
all might desire to keep everyone's performance up to par, but there is
a great difference between this desire-even if universally shared-and an
organizational way of achieving it. At the very least, devising and
maintaining an organized system of monitoring cannot be free, and
whether it would repay its cost is an empirical question. Monitoring
costs (either the costs of monitoring or the loss of output if not
monitored) are an additional factor offsetting the possibilities of rising
output per unit of input.

The original assumption that larger numbers of people meant

additional options without an offsetting loss of other options is only
approximately true for small numbers of people. Crowding,
distraction, and monitoring costs offset the gains made possible by
cooperative organizational work. As more and more inputs are added,
beyond some point, the negative factors outweigh the positive
advantages, and there is a falling ratio of output to input. This is the
law of diminishing returns-a basic economic principle, with
implications that go far beyond economics.

The law of diminishing returns applies to inanimate inputs as well.

Although some amount of fertilizer on the land may have a small
incremental effect on the size of the crop, and twice as much may
cause the increment to be more than twice as great, beyond some point
more fertilizer no longer increases the crop in equal proportions, and it
is even possible to reduce the crop with excess fertilizer.

Economic decision making within the constraints of a price system

with profits and losses seldom leads to production in the region where
more input leads to absolutely diminishing output. There is obviously
no point spending hard cash for inputs whose incremental effect will
be negative. However, this is not to say that such results do not
happen, when the incentives in the particular decision-making process
make it rational for the individual deci sion maker, however
detrimental it may be to "society," which is not a decision-making unit.

Internal communication systems in large organizations are often

open to many individuals who may wish to send memoranda,
announcements, official documents, paychecks, survey questions, or
plain gossip. The number and frequency of such internal
communications influences how much attention the average recipient
pays to each item. Infrequent arrivals of internal mail are likely to
receive more attention per unit than a flood of material arriving every
few hours. In other words, the law of diminishing returns operates, so
that beyond some point there are diminishing increments of attention
as the quantity of mail increases. With a sufficient inundation, there
will be less total attention paid-less information effectively received-
than if fewer communications had been sent. The situation can reach
this level of absolutely diminishing returns only because there are
virtually no costs to the numerous individual decision makers who
decide whether to add more material to the internal communications
system. They may all know that the recipients' attention and patience
are already strained, but each individual sender also knows that his
action alone will have very little effect on that. As long as it is worth
the bother of typing or mimeographing, the sender has every incentive
to send, because part of the costs created by his decision will be
externalized to others, in the form of generally diminished attention.
When they all do it, they all lose-but this happens only because "all" is
not the decisionmaking unit.' A more serious social problem arises
when whole institutions have incentives to push their activities well
past the point of incrementally diminishing returns, into the region of
absolutely diminished returns.

TIME

Among the constraints affecting economic trade-offs are those which

depend on time. The choice between spending money on entertainment
today and using that money to buy seeds to plant apple trees is not
only a choice between two different sets of benefits; it is a choice
among benefits to be received at two very different times. Other things
being equal, the present is always preferred to the future, if only
because life itself is uncertain and the future may never come, for the
individual decision maker. Looked at another way, future benefits must
be greater than present benefits to make it worthwhile to wait.' There is
some level of difference that will make present and future benefits
equally valuable to a particular individual at a particular time. How
much difference and how much time are matters that vary from person
to person and vary incrementally with the same person. To someone
dying of thirst a gallon of water right now might be more valuable than
a swimming pool two years from now, even though the same person
under normal conditions would prefer to wait for the pool. In short,
with intertemporal substitutions, as with substitutions at a given time,
there is no such thing as "the" rate of substitution, either in production
or consumption. There is also no such thing as "the" value of a given
object, for the time when that object is to be received changes its
value. A swimming pool right now would be more valuable than a
gallon of water even to a man dying of thirst. Clearly, then, it is more
valuable than a swimming pool two years from now. More generally,
any given asset is of greater value, the sooner it is to be received. The
legal right to that asset can be sold for more in the market, the sooner it
will become available. Apple trees that are half grown will sell for
more than apple trees that were just planted, and apple trees that are
fully grown will sell for the highest price of all, even if the only
differences among these trees are the times when they were planted-
which is to say, the time left before they produce apples.

Like so many important economic principles, the discount for time

is so simple that it is readily forgotten in the rush of practical decisions
or at the sound of heady rhetoric. For example, state and municipal
governments in financial distress may unilaterally postpone payment
on their bonds, with the assurance that those bonds will later be paid
off "in full." But even if this promise is carried out to the letter in
money terms, the very fact that the bonds are paid off later means that
they are not paid off "in full." A hundred dollars three years from now
is worth nearly twenty-six dollars less than a hundred dollars today,
when the interest rate is 8 percent-and this does not even allow for
inflation. In other words, a three-year postponement is economically
the same as a confiscation of about one-fourth the value of the asset,
even if there is no inflation. With even mild inflation, it can easily
amount to a confiscation of, or default on, a third or more of the total
amount entrusted to the government by those who bought its bonds.
 Merely moving any asset backward and forward in time changes its
value substantially. This is demonstrable with economic assets
measured in money, but the principle applies far more broadly in social
institutions in general: "Justice delayed is justice denied" is an old
legal axiom-and "the law's delay" is an expression that goes back at
least as far as Shakespeare.' The dispatch or delay inherent in various
institutional processes can be equally (or more) important than the end
result conventionally expressed as if it were a constant value. The
popular habit of referring to a fixed dollar amount, or a given physical
thing, or a particular social outcome, as if these were also fixed values,
without regard to the time involved, means more than intellectual
confusion. It means opportunities for rule changes affecting "only"
time to make major arbitrary changes in people's fate. Merely by such
apparently innocuous decisions as changing the effective date of a law,
modifying the retirement age, or lengthening a waiting period, the
government can transfer billions of dollars around the economy,
including directing some of it towards itself. Merely by lending to
enterprises (including government-run enterprises) at an artificially
low interest rate, the cost of their whole operation can be grossly
misstated and a venture made to appear to be "paying its own way"-on
paper. The movement of assets through time is a two-way movement.
Not only may present benefits be postponed; future benefits may be
moved forward into the present-at a discount corresponding to the
interest premium paid (in market transactions) for postponement. An
agricultural society can eat up the seeds needed for the next crop,
increasing current food consumption at the expense of future food
consumption. A nation may reduce its ability to defend itself militarily,
thereby gaining additional consumer or governmental spending power
in the present, at the expense of either higher military expenditures or
forced capitulations in the future. The individual may gain in various
ways by betraying his pledges and obligations, at the expense of lower
future benefits from activities requiring credibility.

INVESTMENT AND DISINVESTMENT

Moving assets from the future to the present is never costless to the
recipient, just as moving assets from the present to the future is never
costless to the donor. The process of transforming current assets into
future assets is known in economics as "investment." However, the
process itself extends far beyond financial activities. When someone
carefully puts his things away, at home or at work, he is deliberately
sacrificing present time that could be used for other activities in order
to require less time to find his things again in the future. When
someone takes the trouble (and sometimes pain and embarrassment) to
make his feelings clear to someone else, it is a deliberate loss of
present psychic well-being in order to forestall a greater loss of future
psychic well-being through misunderstandings. The purpose is to have
a greater net psychic well-being over the relevant time span, just as the
purpose of financial investments is to have a greater net worth over
some relevant time span. The essential similarity between financial
and nonfinancial "investment" processes has been noted by such
economists as John Stuart Mill in the nineteenth century and Adam
Smith in the eighteenth century, but it has been only the past
generation of economists who have elaborated theories of "human
capital" in its various forms of education, health care, migration, and
other activities designed to enhance future well-being of either a
financial or a psychic nature, so the term "disinvestment" can also
apply to moving assets from the future into the present, without regard
to whether financial or psychic assets are involved. Such phrases as
"burning the candle at both ends," "a short life and a merry one,"
"eating up your capital," or "living off future generations" all refer to
similar processes although measured in different units. Most
expressions describing disinvestment have pejorative connotations, but
there is nothing intrinsically wrong with a ninety-year-old man's
selling some of his half-grown apple trees to pay for current
expenditures on things to promote his present health, comfort, and
happiness. To try to hold the trees until maturity might make less
sense.

Disinvestments made by a given decision maker for himself must be

distinguished from disinvestments made for him by others. The legal
system provides safeguards against private individuals' disinvesting
someone else's assets. However, there is no legal protection against the
government itself doing the same thing. For example, governments'
inflationary policies may disinvest part of any financial assets set aside
for one's old age, leaving less future real assets in the hands of the
individual who saved them and putting more present real assets in the
hands of the government that issues the inflated currency. The transfer
is no less real for having been implicit and therefore not subject to
constitutional limitations on confiscation of property "without due
process of law." Probably more assets have been confiscated this way
than by the exercise of government's right of "eminent domain" under
constitutional guarantees. Nor are those who have lost their savings
predominantly wealthy people with large bank accounts or stocks and
bonds. Much saving takes place in forms not usually thought of as
savings-life insurance and employee pension funds, for example.
Through pension funds, American workers own a higher percentage of
the total industrial assets of the United States than do workers in an
avowedly communist nation like Yugoslavia.' The confiscation of
employee pension fund assets through inflation is not so much a
redistribution from one income class to another as it is a redistribution
from the pensioners' future assets to the government's present assets.

RISK

The element of time introduces the element of risk. Perhaps the

most fundamental risk is that we may not live through the time
required to see a given economic activity concluded and remunerated.
Many other risks exist, of partial or total loss of whatever is invested,
or even losses extending beyond the initial investment to reach other
personal assets to cover damages or other liabilities incurred in the
process of unsuccessfully seeking gain.

Although risks may be calculated mathematically, as in the actuarial

tables of life insurance companies, the cost of a given risk is no more
objective than any other cost. Some people can sleep soundly with
their rent unpaid, and creditors threatening to repossess their car or
attach their salary. Other people worry about their money in a
government-insured bank account. In between are numerous
gradations of individual concern for a given risk, and therefore a
different psychic cost paid in carrying that risk, or different financial
costs paid to reduce the risk. For example, bondholders may accept a
lower rate of return than stockholders as the price they pay to reduce
the risk of losing their investment.

The godlike approach to analyzing "society" and its (metaphorical)

behavior often overlooks risk, the subjective nature of risk, and/or the
wide variation of its cost among individuals. In the area of risk, as in
some other areas, the diversity of individuals invalidates reasoning
based on figures of speech about a society acting as if it were a single
decision maker. With a given objective likelihood of various
undesirable events, the costs of these risks to society at large can vary
enormously, according to which particular members of the society are
carrying how much of these various risks. If risky activities like
drilling for oil wells (most wells have no oil) were financed by nervous
people, the cost would be much higher than if such activities were
financed by devil-may-care types who are happy to be able to dream of
striking it rich some day. For an optimal distribution of risks,
knowledge must somehow be communicated through the system as to
who is more willing and who is more reluctant to bear the various
levels of risk which are inherent in undertaking different economic (or
other) activities. This kind of knowledge is far too specific and
changing to be reduced to a science or to be mastered by "experts."

Each individual is of course an expert on his own degree of aversion

to risk, and knows how much he wants to put aside for a rainy day, and
roughly how he wants to distribute those savings as between cash in
his pockets, deposits in an insured bank account, payments into a
pension plan, investments in low-risk bonds, or speculation in oil or
commodity futures. (For most people, zero is the amount that they are
willing to risk on the last two activities.) On the other side of the
market are numerous people who are knowledgeable about the specific
techniques of producing specific thingsthat is, people who have the
most accurate knowledge of just how risky particular ventures happen
to be and what payoffs could be reasonably expected. In other words
they know how much they can afford to pay in return for the use of
resources needed to carry out their economic activities. They will try
to pay as little as possible, just as creditors or investors will try to get
as much as possible, but each knows how far he is prepared to go in a
given direction. Each is an expert in his own situation, however little
he may know about the other's situation, and the process of haggling
for a deal-either directly or through such intermediary institutions as
banks, insurance companies or mutual funds-is essentially a
communication of social knowledge, each fragment of which
originates with the individual who is in a position to know the most
that is known on his tiny part of the subject.

This knowledge is never perfect, nor can it be, regardless of the kind
of political or economic institutions in a particular country. From this
process emerges a sorting out of those activities involving the least
risk, being financed (at lowest costs) by those least willing to bear
risks and most willing to leave the big payoffs to those ready to take
big gambles. This need not involve direct individual investment in
specific economic enterprises, and usually does not. Incoming funds
(savings deposits, insurance premiums, etc.) are pooled by
intermediary institutions and the overall risks reduced further by
spreading the investments around in numerous, relatively safe,
ventures which pay modest amounts for the use of the money to buy
the resources they need. Although the transactions are usually between
impersonal organizations, the very personal aversion to risk of those
supplying the money is the controlling factor. A bank cannot bounce a
depositor's check for his rent because the bank itself has "insufficient
funds," due to risky investments that did not work out. An insurance
company cannot refuse to pay for a policyholder's operation or funeral
because the oil drilling it financed did not turn up any gushers. Any
such result in these kinds of institutions-patronized by people averse to
risk-would bring on the immediate destruction of the financial
institution itself, and probably criminal investigation of its officials.
On the other hand, nothing nearly as dire happens when a corporation
reduces (or skips) a dividend payment to its stockholders, whose risk
taking is understood by all to be part of the reason why they receive
dividends at all. And for people investing in wildcat oil drilling
operations, there may not be much likelihood of their getting anything
at all on any predictable date, and with only the hope of a magnificent
payoff now and then. In short, though these various financial
organizations have no feelings, their behavior is constrained by the
different feelings of those who supply their respective investment
funds.

No single individual, nor any collection of individuals, could have

in their heads all the complex technical information on production
processes and the nuances of personal feeling involved in matching
millions of investment sources and users. The most efficient and
imposing bank, corporation, or government bureau has only scratched
the surface. The astronomical amount of knowledge in the whole
system is sorted and coordinated in fragments by the simple process of
each transactor seeking the best deal from his own subjective
viewpoint and not necessarily (or even usually) by knowing why the
deal that suits him best emerged as it did from the millions of other
possibilities in the market.

While risk may be easy to understand by considering formal

organizations and transactions designed primarily to deal with risk, its
effects are pervasive far beyond such situations. Anyone who buys an
automobile knows (or discovers) that he is not really buying
transportation, but is in fact buying a given probability of
transportation on given occasions. If he keeps the car long enough,
there will be occasions when he has to walk or take the bus or get a
ride with a friend. He may do this voluntarily, as an investment, by
leaving his car in the shop for regular maintenance, or he may forego
that investment for the present benefits of constant use of the
automobile, and involuntarily walk, take a bus, etc., at a later time
when the car breaks down as a result of lack of maintenance. Cars
which are very similar in the quality of ride, convenience of operation,
or aesthetic considerations, may sell for very different prices if they
differ substantially in their respective probabilities of continuous
service-that is, if they differ in the frequency of breakdowns or the
amount of maintenance required. These may be differences in brands
of cars or differences in the same car purchased new and used. In
either case, cars' price differences need not reflect transportation
differences, but may reflect simply risk differences. As in the case of
other kinds of risks, however objective the probabilities may be, the
costs of risk are highly diverse with respect to individual situations and
subjective preferences. An auto mechanic or someone else who is
handy with tools may find the cheapness of a particular car more than
compensates its special troubles, while a heart surgeon with no
understanding of engines may find a car that won't start an intolerable
problem when he has to rush to treat someone in the intensive care
ward.

The fact that costs differ vastly with respect to individual knowledge
and preferences creates an opportunity for people who specialize in
bearing particular kinds of risks. A farmer may have considerable
knowledge of how to grow a particular crop, but little knowledge of
the economic data or complex principles which cause the prospective
price that he can expect for his harvest to vary by large amounts as of
planting time. Someone else who has specialized in studying the
economic facts and principles may have a much narrower range of
expectations of future prices for that crop, even if he could not actually
grow the crop himself if his life depended on it. Either individual could
directly acquire the knowledge that the other possesses by investing
the time needed for both the theoretical understanding and the practical
experience to apply it. A less costly alternative may be to transact with
one an other on the basis of their existing knowledge. The farmer can
reduce his risk at the cost of selling his crop during the planting season
for somewhat less than the average of his range of expectations of
prices at harvest time. If he thinks the price of his produce is going to
range somewhere between sixty cents apiece and a dollar apiece, he
might consider eighty cents apiece as his best guess, but accept
seventy-eight cents apiece as a guaranteed price in advance-in effect
paying someone else two cents apiece to take the risk off his hands.
The buyer may accept this if he has either a more optimistic estimate,
or reason to have much more confidence than the farmer in the same
estimate of eighty cents apiece, or merely stronger nerves.

Buying for a guaranteed price and selling at whatever price later

emerges in the market is a way of earning a residual claim to the
difference. This residual claim may be a positive amount or a negative
amount, as many a bankrupt speculator has learned. People who are
not pure speculators may nevertheless engage in economic speculation
as a part of their normal activities. A farmer who plants in the spring
without any guaranteed price for his harvest the following fall is
working as a speculator as well as a farmer, whether he thinks of it in
those terms or not. A student who chooses to study for a particular
profession is also speculating on the state of that profession in future
years, as well as on what his own values will be in future years, since
changing values may make him dissatisfied even if the profession
itself is exactly as he foresaw it. Perhaps the greatest speculation of all
is bringing a child into the world, where he may become the pride and
joy of your life or cloud or destroy whatever happiness you may find
from other sources.

RESIDUAL CLAIMS

The typical business enterprise buys or rents its inputs for a fixed
price, and sells the resulting output for whatever price emerges in the
market, earning a residual claim loosely referred to as "profit," though
often discovered to be a loss. Strict economists point out that much of
what is conventionally called "profit," especially in a small, owner-
operated business, is nothing more than wages received in a variable
form. Even a successful owner-operated business-and the bankruptcy
rate is high-often pays no more under the name "profits" than the
proprietor would have earned for the same amount of work for
someone else who paid him under the name of "wages." To determine
what the enterprise itself is earning, it would be necessary to deduct
the wages for the proprietor's work and the interest he could have
earned elsewhere on the money he has invested in the business. By this
economists' standard, many successful small businesses are making no
profit at all. In many cases the residual claim after such deductions
would be negative, so that the owner operator is in effect paying for
the privilege of being his own boss.

In a large corporate business, the executives are in fact paid salaries

under the name of salaries, and the residual claimants are the
stockholders. If the residual claim is positive, the tax collectors also
share in it, though if it is negative, they do not. ("Win and the
government wins with you; lose and you lose alone.") Both the friends
and critics of private business tend to refer to them as "profit-making"
enterprises. But this is the fallacy of defining a process by its hoped-
for results, rather than by its actual characteristics. A similar fallacy
occurs in discussions of the "cooling off" period under a labor
injunction, "public interest" law firms, "sensitivity training," and
"quality, integrated education." What the actual business process
involves is the payment of some people at fixed rates (employees,
executives, bondholders) and others in residual claims (stockholders
and sometimes tax collectors). Viewed in retrospect, the particular
method of payment means little. A given fixed amount can always be
made equivalent to some given variable amount, with appropriate
discount or premium for time and/or risk. Indeed, different methods of
payment can be mixed, as when employees have profit-sharing plans
and executives are paid partly in stocks, or when investors have some
mixture of stocks and bonds. It is only when viewed prospectively that
the method of payment has socially significant effects.

Residual claims set in motion different behavior patterns from fixed

claims. Whoever has the legal title to the residual claim has an
incentive to make that residual-the difference between production costs
and consumer value-as great as possible. The same thing, from a social
point of view, is that the residual claimant has an incentive to supply
what is desired by consumers at the least sacrifice of inputs used for
things desired by other consumers. To the residual claimant, these
social consequences of his behavior are secondary at best. But from
the point of view of the economy at large, this behavior pattern that
grows out of the attempt to maximize residual claims is crucial, and
whether the residual claim turns out in fact to be large or small, or
even positive or negative, is secondary.

The role of the residual claims method of payment is especially

important in situations where multiple inputs and numerous persons
are used, raising the cost of monitoring individual performances. It is
always possible to hire people to watch other people, but how
conscientiously they will watch and report is as problematical as the
original behavior that requires watching. Hiring more monitors to
monitor the first set of monitors merely raises the same question on a
new level rather than providing an answer. While the residual
claimants cannot monitor the process, they can easily monitor the
results. They know whether the residual claims of one organization are
greater or less than another-and this provides incentives for each
organization to monitor its own performances so as to keep costs low
and therefore the residual claims high. How they achieve this result is
of little interest to the residual claimant. In a broader social point of
view, it means that the need for knowledge in the system is minimized,
because the ultimate monitors can effectively monitor results without
needing to know the specific techniques or conscientiousness of those
who directly produce the results. The residual claims method of
payment creates a set of monitors who do not need to be monitored
themselves, because they have the incentive of self-interest to see that
residual claims are maximized.

If the management is doing well, but could do better, it is not even

necessary for the residual claimants to know that in order for
something to happen. If some alternative management knows it, the
prospective residual claims under that alternative management are
greater than existing claims under existing management. The
alternative management can afford to pay existing residual claimants
more than their claims are worth under existing conditions in order to
buy control of the corporation, improve its efficiency, and make larger
residual claims in the future. In other words, one corporation "takes
over" another by buying up the less efficient corporation's stock at
prices that represent more than its current value to stockholders,
because the more efficient management can earn more with the same
plant, equipment, and employees. Through competitive bidding for a
controlling share of stocks, knowledge is effectively applied by those
who have it-other managements-even though the initial owners might
have been insufficiently knowledgeable to realize that the executives
initially in charge were not getting the most out of the resources of the
firm. Looking at this from the point of view of the efficiency of the
economy as a whole, corporations are monitored not only by existing
residual claimants but by prospective residual claimants as well-each
with the incentive of self-interest, eliminating the need for additional
(and endless) layers of monitors.

Viewed in retrospect, residual claims are not very significant as a

percentage of national income (about 10 percent) or as a return on
investment (about 10 percent per annum). As a percentage of the
selling price of goods, residual claims can be quite trivial.
Supermarkets average about a penny profit on a dollar's worth of
groceries, and only the huge volume of business they do every day
makes this add up to a profitable operation. It is not as a retrospective
sum that residual claims have a major impact on the economy. It is as a
prospective incentive that it profoundly affects behavior and the ef
ficiency of production. If residual claimants were guaranteed in
advance the very same sums which they end up earning, the whole
economic system would function differently. With everyone in the
economic system essentially on guaranteed salaries, the monitoring
problems would be massive.

THE PHYSICAL FALLACY

From the discussion so far, it may be apparent that a given physical

object has a value that varies greatly according to the location of that
object in time and space, and according to the risks associated with it.
Otherwise people would not go to the trouble and expense of
transporting things, or insuring them, or buying them on credit with
interest charges. Indeed, no exchanges of goods (for other goods or for
money) would ever take place, unless the same physical things had
different values to different people. Yet the opposite view-that a given
physical object is always a given value-has had a profound effect on
human history. Over the centuries, highly diverse consequences have
followed from a belief in the invariable value of a physical object-a
belief that can be characterized as "the physical fallacy."

In medieval times, the physical fallacy led to the doctrine that an

object had a "just price" based upon objective costs incurred by the
producer and not upon the subjective valuation of the consumer. Any
other price was considered morally sinful and as something that should
be legally prohibited.' A special case of the "just price" was the
medieval prohibition on usury, which has not wholly disappeared, even
in the modern world. Because the "same" sum of money was returned
as borrowed, it was considered cheating to require additional payments
(interest). But the whole transaction was made precisely because the
same sum of money did not have the same value at different times. A
borrower who could save enough to repay a loan by a given time could
instead have waited until that same time and used those same savings
for whatever purpose for which the loan was used. That he preferred
having the loan immediately-that is, preferred money at one time over
the same sum at another time-was the whole point of borrowing. Both
the "just price" doctrine and the usury prohibition refused to recognize
differences in value due solely to location in time or space. Both were
among the earliest and most persistent forms of the physical fallacy.

An economist who was a prisoner of war during World War II found

many of the characteristics of a market economy spontaneously arising
in the prisoner-of-war camp, despite the absence of the established
institutions on which they are supposed to depend.' A large volume of
trade arose among prisoners who received identical rations and
identical Red Cross packages, indicating that (1) the same things had
different values to different people at a given time, and that (2) the
same things had different values when moved back and forth through
time, since those prisoners who saved various items to the end of a
ration period could lend them to others who had run out, collecting a
larger quantity of the same items in return after the new rations or Red
Cross packages were received. What is of wider social significance is
that those prisoners who performed these services were both widely
utilized and deeply resented. The physical fallacy arose as
spontaneously as the transactions which demonstrated its falsity.

Whether in medieval society, a prisoner-of-war camp, or a modern

market economy, the "middleman" essentially changes the location of
things in space and time. If the same physical thing is assumed to have
the same value without regard to space or time, then the middleman is
simply cheating people. How this situation could persist over time,
through repeated transactions, is unexplained. If A sells to B who sells
to C, and B is simply cheating, then both A and C can benefit by direct
transactions with each other-A charging somewhat more than he
normally charges B, and C paying somewhat less than he normally
pays B. Why would both then continue to deal with each other through
a middleman? Obviously they would not.

In reality, they deal through the middleman because he is changing

the value of things by relocating them, holding them to times that are
more convenient, assuming various risks by stocking inventories-and
doing so at less cost than either the producer or the consumer could.
Otherwise either the producer would sell at retail or the consumer
would buy wholesale, and either could perform these middleman
services for himself. But given the highly fragmented nature of
knowledge, those who have mastered the complexities of the
production process have seldom also mastered the very different
complexities of inventory management and numerous other services
performed by middlemen in the process of relocating things in time
and space. Consumers typically lack both the knowledge and the
economies of scale needed for low cost inventory storage. Storing
wholesale quantities of various goods in the home means having a
bigger home, and the higher cost of a bigger home will seldom be
covered by the "savings" from buying wholesale. In other words,
purchasing storage space in a residential neighborhood is almost
always more expensive than purchasing storage space in a warehouse
district. In short, middlemen can continue to exist only insofar as they
can perform certain functions more cheaply than either the producer or
the consumer. But no matter how varied and complex these functions
may be, they amount ultimately to relocating things in time and space,
and the physical fallacy which denies value to that operation
necessarily indicts middlemen as mere cheaters.

No small part of the historic anti-Semitism of Europe (and

corresponding anti-Chinese feeling in many Asian countries) is due to
the Jews' role as middlemen. Legally-that is, forcibly-denied access to
many occupations in the production of goods, Jews could survive in
Europe only by finding interstitial services not covered by the
sweeping discriminatory bans against them. They became middlemen
in the movement of goods and money over time and space-time
because the Catholic Church's moral prohibitions against charging
interest did not apply to them. The virtually universal dislike and
suspicion of middlemen focused on an ethnically-identifiable group of
people, separated by religion and customs from the rest of the
population, and therefore a perfect target. The economic success and
political vulnerability of the Jews over the centuries has been
paralleled by that of the Chinese middleman minority throughout Asia.
In both cases, general discrimination has been punctuated by sporadic
confiscations, mass expulsions and mob violence. The history of both
groups (and of other middlemen minorities in other parts of the world)
has wider implications for the political vulnerability of market
economies in general.

Perhaps the greatest achievement of market economies is in

economizing on the amount of knowledge needed to produce a given
economic result. That is also their greatest political vulnerability. The
public can get the economic benefits of such systems by judging
results without understanding processes. But in their political behavior,
the public must judge processes-including economic processes of
which they may be ignorant or misinformed. Public misunderstandings
can lead not only to misinterpretations of economic benefits as harm,
but to actual harm resulting from policies designed to "correct"
perceived problems. Once the process is underway, every perceived
problem-whatever its reality or origin-calls for political solution, and
these "solutions" tend to create a never-ending supply of new problems
to be "solved."

Lenin said that "Anti-Semitism is the socialism of fools." In other

words, Jews were being singled out for criticism on the basis of
arguments which would more logically apply as a general indictment
of the whole capitalist economy. That is the argument here as well-that
both have been criticized on the basis of the physical fallacy. Not only
Marxism or socialism in general, but a wide variety of other
revolutionary or reform movements incorporate a belief that those who
directly handle physical objects are "really" the producers of economic
benefits. Even Adam Smith said such things at times,8 though it was
inconsistent with the rest of his message. The physical fallacy has a
long and varied pedigree.

Since man does not create physical matter, those who handle
material objects in the production process are not producers in that
sense. Economic benefits result from the transformation of matter in
form, location, or availability (intellectually or temporally). It is these
transformations that create economic benefits valued by consumers,
and whoever arranges such transformations contributes to the value of
things, whether his hands actually come into contact with physical
objects or not.

The physical fallacy typically has temporal blinders as well. The

production process is arbitrarily conceived to begin at a point after
many prerequisites have already been assembled, and only those
people actively involved beyond that arbitrary point are conceived to
be involved at all (or "really") in causing the result desired by the
consumer. Those involved earlier, before the arbitrary point at which
the story was begun to be depicted, then appear at the end-as if for the
first time-as recipients of unearned proceeds. Aside from ethical
questions about using such a depiction, intellectually it is essentially a
linear picture of a circular process.

In the full circle, the consumers' desires as to physical characteristics

and location in time and space must be ascertained by someone who is
able to assemble the human and other resources necessary to produce
that combination of material and temporal results. Only after the
subjective intangibles of consumer evaluation and producers' costs in
risks and time preferences have been balanced and resolved
prospectively can the mechanical portions of the physical process
proceed. Once the process has gone full circle, it can continue and
repeat only insofar as the actual valuations of the end results by the
consumers prove sufficient, in retrospect, to cover costs incurred on
the basis of prospective estimates. It is a knowledge process, based on
estimation and feedback. The physical process is only an intermediary
consequence of these intangible estimates, and can continue only
insofar as the estimates of some are subsequently validated by the
subjective evaluations of others. The risky nature of this process is
evidenced not only by the vast numbers of business bankruptcies each
year, but by the fact that even such successful giant businesses as the
Chrysler Corporation or U.S. Steel have operated at millions of dollars'
losses in some years. But these risks are inherent in a situation where
some produce for others, rather than being artifacts of a particular set
of institutions. Other kinds of economic systems may resolve or
conceal these risks in various ways, but the risks and the costs they
entail will not go away.

Much of the Marxian tableau (and related social visions) depend, in

a crucial way, on analyzing in retrospect only surviving and successful
businesses. In this approach, the whole market process-risks,
estimates, consumer validation, etc.-all evaporates, while the analysis
concentrates on selected results in terms of theoretical examples of
survivors. Because firms can survive only insofar as prices cover costs,
this vision of survivors-only can proceed as if it is axiomatic that
prices are somehow automatically suspended above costs, with the gap
between them containing a profit to be siphoned off by those who
happen to hold the legal title to the means of production-this arbitrary
title being the economic cause as well as the institutional mechanism
behind their proceeds. To generalize about any group from the
experience of its successful survivors alone is often to miss the whole
point of the process in which the group as a whole is involved. Using
such an approach, one could, for example, prove that no one was killed
in World War II.

Where such a vision of the market economy proceeds empirically

rather than theoretically, it can appear plausible only for relatively
brief historical periods. The great successes of one era tend to
disappear into oblivion in subsequent eras-witness Life magazine, the
Graflex Corporation, and W. T. Grant, all of whom were once giants
dominating their respective fields. The disappearance of these once
dominant enterprises within the past generation is part of a longer
history of such disappearances. Virtually none of the top industrial
giants of a hundred years ago are still with us today. Such
disappearances are perfectly understandable in a vision of a risky
process of estimation and subsequent validation. They are hard to
explain in a vision of prices mysteriously suspended above costs for
the convenience of "capitalists."

A revealing episode in the early career of Walt Disney may illustrate

the physical fallacy on a smaller and more human scale. Back in the
1920s, when Disney first emerged as a cartoonist, his early successes
led him to found a studio and to employ other artists to draw the
thousands of pictures required for animated cartoon movies. Disney
Studios was particularly successful with an early cartoon character
called Oswald Rabbit, whose copyright was held by a movie
distributor rather than by Disney. This distributor decided to eliminate
the need to pay Disney by hiring away his cartoonists and both
producing and marketing the product. From the standpoint of the
physical fallacy, Disney was superfluous. He neither drew the cartoons
nor transported the films to theaters nor showed them to the public.
The distributor, with the Disney staff and the copyright on Disney's
character, expected to profit from his coup-but without Disney's ideas
the previously valuable character suddenly became worthless as a
money-maker at the box office. What had really been sold all along
were Disney's ideas and fantasies. The physical things-the drawings,
the film, and the theaters-were merely vehicles. It was only a matter of
time before another set of vehicles could be arranged and the ideas
incorporated in a new character-Mickey Mouse-which Disney
copyrighted in his own name.'

Many of the products which create a modern standard of living are

only the physical incorporations of ideas-not only the ideas of an
Edison or Ford but the ideas of innumerable anonymous people who
figure out the design of supermarkets, the location of gasoline stations,
and the million mundane things on which our material well-being
depends. It is those ideas that are crucial, not the physical act of
carrying them out. Societies which have more people carrying out
physical acts and fewer people supplying ideas do not have higher
standards of living. Quite the contrary. Yet the physical fallacy
continues on, undaunted by this or any other evidence.
 OPTIMALITY

Because each individual has his own set of preferences, there is no

single standard of values by which one economic system might be said
to be better or worse than another absolutely, or even to be better or
worse compared to its own performance at some other time. How
could an observer say whether more pineapples and less beer was
better than the reverse, or whether more growth was enough to balance
a reduction in employment? But because there is no absolute standard,
that does not mean that there is no standard at all. Although we cannot
reduce all the different sets of individual preferences to one set, we can
conceive of an optimal performance by an economy as representing
the satisfaction of the diverse sets of preferences to such an extent that
no one could be made any better off (by his own standards) without
making someone else worse off (by his own different standards).
Economists call this "Pareto optimality," after the Italian economist
who conceived it and analyzed its implications.

A theoretically perfect economy, operating with unlimited

knowledge, no external costs or benefits paid for outside the units that
created them, and no monopoly or government intervention, would
achieve an optimal allocation of resources under existing technological
constraints. With higher technological levels, there would be more
output and more satisfaction of tastes, but there is some optimum level
and mixture of output for each level of technological possibilities. The
existence of a market-that is, the possibility of uncontrolled exchange
at the option of the transactors-means that if A could be made better
off by changing his mixture of goods, services, leisure, assets, etc.,
without making B, C, or D, etc., any worse off, he and the other parties
who have what he wants could swap to their mutual advantage. If A
can be made better off by $2.00 worth, without making B any worse
off, then he can make it worth B's while to swap by offering him a
dollar extra and keeping a dollar for himself.

There has, of course, never been any such ideal economy under
capitalism, socialism, feudalism, or any other system. The concept
does, however, serve as a benchmark by which to (1) measure the
performance of one economy against another, and against its own
performance at other times, and (2) to pinpoint the reasons why
particular activities, institutions or policies do or do not lead toward
the theoretical optimum.

Government constraints on the terms which individual transactors

can choose among for themselves tend to reduce the number of
transactions desired and carried out. If there are various possible sets
of transactions terms which would be mutually acceptable to A and B,
there is likely to be a smaller set of terms simultaneously acceptable to
A, B, and C-where C is the government. As the government adds its
own set of prerequisites to those of the negotiating parties, the number
of negotiations that result in mutual agreement is almost certain to
decline. Various forms of government price control, minimum wage
laws, interest ceilings, etc., reduce the number of mutually desired
transactions-which are the only kinds of transactions actually carried
out in a voluntary, market economy. The government may determine
and decree a "living wage" under a minimum wage law, but unless the
worker actually finds an employer willing to pay him that much, he
will remain unemployed with a hypothetical right.

Similarly, either an individual monopoly or a collusion of buyers

and sellers acting in concert may set prices that are not mutually
acceptable to as large a number of potential transactors as under
competition. The real harm done by such monopolistic combinations is
not so much in setting their own terms for transacting, but in being
able to forcibly preclude other potential transactors from entering the
competition to offer more advantageous terms. Without the power to
exclude others, monopolistic negotiators would soon find themselves
with competitors and without the transactions they need for their own
economic well-being. Business must be able to keep out imports,
restrict the entry of competing firms, or make price-cutting illegal.
Labor unions must be able to blockade "scabs," boycott nonunion
output, or keep teenage potential competitors out of the labor market
with child labor regulations and compulsory school attendance laws. It
is not in setting their own transactions terms-which they could never
persist in, in the face of unlimited competition-but in forcibly
precluding others that monopolistic organizations (business or labor)
lead the economy away from its optimal performance.

Forcibly precluding competitors means either threatening violence

one's self (as in some labor disputes) or having the government
threaten violence by passing a law or issuing regulations. Government
edicts without a threat of violence are mere suggestions, and
suggestions by themselves ("jawboning") have a notorious record of
ineffectiveness in the economy. The fact that actual violence does not
usually occur in no way undermines the crucial importance of violence
in the outcome. Most armed robberies also do not lead to actual
violence: common sense usually causes the victim to turn over his
money without a fight and causes the robber to take the money and go.
Yet no one would deny that the prospect of violence is central to armed
robbery, even if in retrospect it turns out that there is seldom actual
violence in the commission of that crime. The government's threatened
violence is not direct corporal punishment for violating laws and
regulations. Rather it is a threat to take assets by force-either in money
("fines" or "damages") or in kind (legal rulings restricting the behavior,
including the continued existence, of the firm in question). It is
violence in the same sense in which armed robbery is violence. The
power of the government is so overwhelming to the private individual
or institution that it is seldom necessary to add that defiance of the
government rulings will cause policemen or soldiers to forcibly drag
the offender away to jail.

The role of prices as transmitters of knowledge is more readily seen

in a changing economy than in a static one. If the economy maintained
the same technological capabilities at all times, and tastes were
unchanging and population size stationary, one way or another most of
the essential knowledge about how things ought to be produced would
eventually percolate through the system. When all these (and other)
variables are changing constantly, however, the knowledge problems
become staggering-if viewed from the standpoint of a given individual
trying to understand it all. But if, for example, new deposits of iron ore
are discovered at a time when there is a growing demand for office
furniture and a declining supply of trees, all that the stores that sell
office furniture need to know is that the wholesale price of steel desks,
tables, and cabinets is falling relative to the wholesale price of the
same items made of wood. They may do no more than reflect these
relative price relationships in the retail prices they charge for steel and
wooden office furniture. Those consumers who absolutely swear by
either steel or wooden office furniture may just continue their
respective preferences, but others, who are either more flexible or
more pressed for cash, will tend to substitute the material that is
getting cheaper for the material that is growing more expensive. The
net result is that the economy as a whole incrementally substitutes the
material that is becoming more abundant for the material that is
becoming more scarce, without either the consumers, the retailers, or
even the wholesalers necessarily understanding why prices are
changing the way they are.

In short, nobody needs to know the whole story in order for the
economy to convey the relevant information through prices and secure
the same adjustments as if everyone had known. Someone somewhere
far back in the production process undoubtedly knows why iron ore is
becoming more abundant, but he may or may not know the relative
scarcity of wood, and it is doubtful if he has concerned himself with
anything as remote or as specialized as the market for office furniture.
Yet his knowledge is transmitted through prices to people with whom
he has no direct contact.

Economic optimality is not moral justification. This is especially so

in a changing economy, where rewarding "merit" may be incompatible
with reallocating resources in accordance with changing technology
and changing tastes. In a totally unchanging economy, it is conceivable
that the hardest working, most foresighted, imaginative, or skilled
individuals would end up with earnings reflecting these valuable
characteristics, so that economic efficiency and morally justified
rewards would both result. In an economy constantly changing in
technology and taste, however, rewarding "merit" and efficiently re-
allocating resources are often contradictory goals.
 When the automobile began to replace the horse and buggy, a
conscientious, hard-working and intelligent buggy-manufacturer could
not earn what someone with the same characteristics was earning in
the automobile industry. That is precisely why and how people and
capital were transferred out of the horse-and-buggy industry. It is why
and how they (or others) were transferred into the automobile industry.
The disparities in rewards for equal effort, risk, ability, etc., are
precisely the systemic means of voluntarily transferring human and
non-human resource inputs from one place to another in a changing
economy. If they are to be equally rewarded for "merit"-that is, for
their input-regardless of how this affects output, or the desirability of
that output to consumers, then either transfers must be involuntary
(based on orders from authorities) or else the transfers are unlikely to
take place at all, leaving the economy stagnant.

While some losses and gains from changing economic conditions

may reflect differences in foresight, many are windfall losses and
gains, based on things which neither the gainers nor the losers were
able to predict on the basis of their knowledge or understanding
beforehand. At one time, before uses were discovered for petroleum,
the presence of oil in a piece of land lowered its value, since this
unaesthetic ooze could find its way to the water supply or make a
nuisance of itself elsewhere. It was the kind of land that unscrupulous
operators would unload on the unsuspecting. Some people found
themselves owning land with oil on it through gullibility-but when
such land later became valuable, the owners became just as rich as if
they had wisely foreseen it all.

Since the total income from residual claims is only about 10 percent
of national income, the purely windfall portion of this 10 percent can
hardly be a major element of national income. In view of the very large
windfall gains and losses involved in life in general (economically and
otherwise), it is hard to explain, on purely rational grounds, the
enormous concern over this particular deviation from strict "merit"
reward. The country or the period of history of one's birth can easily
halve or double one's life expectancy and change one's income by
factors of ten or a hundred times, and the difference between being
born malformed, or mentally retarded, or to abusive parents-rather than
merely being "normal"-has consequences that dwarf other unmerited
inequalities that happen to be quantifiable.

The role of inherent risks, growing out of high costs of knowledge,

is ignored in analyses which proceed as if an omniscient observer is
describing predetermined events in an economic or social system. It is
precisely the lack of omniscience which is responsible for many
institutional features and many social and economic results. Windfall
gains and losses-whether in the sale price of land or in the difference
between wages in a growing versus a declining industry-are part of
these phenomena. Alternative institutions must be judged not by how
they would operate with implicitly given knowledge but how they
function in the face of uncertainty and risk. It is always possible to
institutionally prevent or confiscate "unmerited" gains or losses, at a
sufficiently high cost in enforcement efforts, reduction of freedom of
choice, or losses in allocational efficiency. But eliminating the social
phenomena growing out of uncertainty or risk in no way reduces the
uncertainty or risk themselves, but merely changes the way the system
as a whole can adjust to them.

To reward "merit" is to reward some subjective estimate of input as

judged by some unitary scale of values applied by some observer(s).
To reward output is to reward tangible results as assessed by those
actually using the output, in the light of their own respective, diverse
preferences. Only by the rarest coincidence would these different
procedures lead to the same result. The question, then, is what is to be
gained by substituting one set of surrogate preferences for diverse
individual preferences, and adding the costs of consensus about
values?

The issue of "merit" and reward is part of a more general set of

issues revolving around so-called "income distribution." The familiar
metaphor of "income distribution" conceals the crucial fact that most
income is not distributed, either in capitalist, socialist, feudal, or most
other economic sys tems. People are paid for services rendered, either
by themselves or by their property. Some varying amount of income is
also distributed from some central governmental funds, usually
without regard to services rendered. It is confusing at best and
disingenuous at worst to talk as if we simply have distribution A now,
and it is merely a question of having distribution B instead. We
currently do not distribute most income in any kind of modern
economy-and the case for a particular distribution is a case not only for
a changed result but for a revolutionary change in institutional
processes from what now exist either in socialist economies or
capitalist economies.

The moral question of how does one "justify" the existing

"distribution" also misstates the issue. What is called the existing
distribution of income is simply a set of retrospective data at a given
point in time. These data are generated by an ongoing process in which
buyers choose among alternative products available at varying prices,
and the sum total of those prices paid during some time span become
various people's incomes. The question is not what to decide, as to
whether specific retrospective data are justified, but rather who shall
decide which prospective transactions are justified on what terms in an
on-going process. More to the point, shall observers who experience
neither the benefits nor the cost use force (the government) to
supersede the judgments of those who do? The issue is not between
one particular set of statistical results and another. The issue is
between one kind of social process and another, and between one set of
decision-makers and another.

When large incomes growing out of residual claims are involved, no

one has decided that the total was either justified or unjustified, nor is
it clear .vho would possess the knowledge to do so. What each buyer
has decided, however, is whether what he himself received was worth
it to him-a subject on which he is much better informed. To call for a
justification of the overall totals is to call in fact for a re-justification
by nontransacting observers to supersede the individual decisions of
the transactors. Sometimes the moral issue is posed in more apparently
neutral terms as claiming that optimality is meaningful only if one
"accepts" the initial distribution of income. Pareto optimality is
meaningful only if one accepts the criterion of individual satisfaction
by varying individual preference standards. Once such a conception of
optimality is used, it is difficult to see how another unitary set of
preference standards can supersede this in the interest of "correcting"
the "income distribution."

The timeless nature of "income distribution" data misstates issues in

another way. Individuals typically have varying incomes over a
lifetime-usually smaller incomes at the beginning and larger incomes
after more experience, skill, etc., have been accumulated. Any set of
data as of any given point in time freezes millions of people at many
different phases of their respective life cy cle. Those in the lowest
fourth at any given time include many young people who will be in the
top fourth at some later point in time. It is misleading to say that an
intern is "poor" while a doctor is rich, when in fact intern is simply a
stage on the way to becoming a doctor. By "rich" and "poor" we think
of people who are, in some long-run sense, in high or low income
brackets. But an instantaneous statistical picture counts the genuinely
poor and those with transiently low income the same. Concern for
genuine poverty is a reasonable concern, but it is something else to be
exercised over the fact that young adults do not yet earn as much as
their parents or grandparents. The average income of families headed
by someone in the forty-five to fifty-four year old bracket is nearly
double the average income of families headed by someone twenty-four
years old or younger.'° This is greater than the ratio of white income to
black income. Of the top wealth-holders in the country (with assets of
$60,000 in 1974), almost twice as many were over fifty as under fifty."
These age phenomena permeate income statistics which are commonly
interpreted as if they were social class phenomena.

SUMMARY AND IMPLICATIONS

Economic trade-offs involve trying to produce the most value at the

least cost. An individual or an organization may think of costs in
money terms. But from the point of view of the economy as a whole,
costs are ultimately foregone opportunities to use the same resource
inputs for producing something else. In short, weighing prices against
costs is ultimately weighing one resource use against another.

The terms on which one use can be traded off for another use vary
incrementally. There are subjective differences in the values of goods
to a consumer, partly according to how much of each he already has.
There are objective differences in production costs, according to how
much of each is being produced. There are objective differences in
production costs, according to whether production takes place when
equipment is underutilized or when it is already straining at its
capacity. The law of diminishing returns applies in both production
and consumption, and insures that tradeoffs are incrementally variable
rather than categorically fixed in some rigid "priority" ranking. Price
fluctuations are one evidence of this incremental variability and a
means of transmitting knowledge of current trade-off rates through the
economy.

Trade-offs take place not only at a given time, but between one time
and another. The value of the same physical good (or sum of money)
varies with the time at which it becomes available. "Investment" is the
process of postponing the availability of benefits, and the terms of the
trade-off of present for future benefits are shown by the incremental
difference in value between the two times-the so-called "return on
investment." This is most easily visualized in a money economy, but
the principle is the same in an economy run by orders rather than
prices. The same principle can also be seen in noneconomic activities,
such as putting things away properly to facilitate finding them later, or
explaining oneself to others to avoid future misunderstandings.

Price changes convey the changing relative scarcities of different

resources, even to persons with no direct knowledge of any of the
resources. The results can and must be compared by people
unacquainted with the respective processes that produced these results.
Price movements economize on the knowledge needed for given
decisions. Where such prices are artificially maintained by force,
rather than through voluntary transactions, they convey
misinformation as to relative scarcities, and therefore lead the
economy away from the optimal use of resources. Accurate prices
resulting from voluntary exchange permit the economy to achieve
optimal performance in terms of satisfying each individual as much as
he can be satisfied, by his own standards, without sacrificing others by
their own respective standards. The results must, however, appear
"chaotic" to any observer judging by any given set of standards applied
to all. Third-party assessments of the individual terms of the
transactions-or of the "income distribution" totals arising from these
transactions-are equally unlikely to coincide with the varying
individual assessments of the trade-offs made. Neither in economic nor
in moral terms is it the question whether a given set of statistical
income results for a given time span is justified. The most basic
question is not whet is best but who shall decide what is best. The
general case for third-party overriding of individual transactors'
preferences is seldom made explicit, and so cannot itself be assessed.
Its many oblique versions rely heavily on insinuation, metaphor, and
the physical fallacy. Figures of speech about "society" as decision
maker ignore the diversity of individual preferences which are
responsible for many of the very phenomena in question-whether
economic, social, or political.

Perhaps the most widespread misunderstanding of economics is that

it applies solely to financial transactions. Frequently this leads to
statements that "there are noneconomic values" to consider. There are,
of course, noneconomic values. Indeed, there are only noneconomic
values. Economics is not a value itself but merely a method of trading
off one value against another. If statements about "noneconomic
values" (or, more specifically, "social values" or "human values") are
meant to deny the inherent reality of trade-offs, or to exempt some
particular value from the trade-off process, then such propositions need
to be made explicit and confronted. Dedication to high and selfless
ideals can be no more effectively demonstrated than by trading off
financial gains in the interest of such ideals. This is an economic trade-
off.

Prices are important not because money is considered paramount but

because prices are a fast and effective conveyor of information through
a vast society in which fragmented knowledge must be coordinated. To
say that we "cannot put a price" on this or that is to misconceive the
economic process. Things cost because other things could have been
produced with the same time, effort, and material. Everything
necessarily has a price in this sense, whether or not social institutions
cause money to be collected from individual consumers. Prices under
capitalism are not simply a mechanism for transferring wealth among
persons; they are a way of carrying out the rationing function inherent
in all economic systems. Someone must recognize a price on
everything, and the only real question is who, and under what
institutional incentives and constraints.
Chapter 4
 Social Trade-Offs

Trade-offs may be easier to visualize in economic terms, but they are

no less pervasive and no less important in social processes. Political
and judicial institutions, the family, and voluntary associations of
various sorts must also balance opposing effects under inherent
constraints-must seek an optimum rather than a maximum. The most
basic inherent constraint is that neither time nor wisdom are free goods
available in unlimited quantity. This means that in social processes, as
in economic processes, it is not only impossible to attain perfection but
irrational to seek perfection-or even to seek the "best possible" result
in each separate instance.

Courts which devote the time and effort required to reach the
highest possible standard of judicial decisions in minor cases can
develop a backlog of cases that means dangerous criminals are
walking the streets while awaiting trial. Lofty intellectual standards,
rigidly adhered to, may mean rejection of evidence and methods of
analysis which would give us valuable clues to complex social
phenomena-leaving us instead to make policy decisions in ignorance
or by guess or emotion. Unbending moral standards may dichotomize
the human race in such a way that virtually everyone is lumped
together as sinners, losing all moral distinction between honorable,
imperfect people and unprincipled perpetrators of moral horrors. In the
early days of the Civil War, some leading abolitionists condemned
Abraham Lincoln as being no better than a slaveholder, and no more a
defender of the Union than Jefferson Davis.' Their twentieth-century
counterparts have morally lumped together the wrongs in democratic
countries with mass murder and terror under totalitarianism.

Rejection of a social optimum cannot mean that something better

than this optimum will be achieved. It may mean that something far
worse will result from a failure to recognize the inherent limitations of
the situation-limitations of knowledge, resources, and human beings.
Had the whole society adopted the position of a few perfectionist
abolitionists and refused to support Lincoln and the war effort against
the Confederacy, the abolition of slavery would not have come sooner
but much later, if at all. Similar perfectionism among people of diverse
political persuasions led to concerted efforts to bring down the
troubled Weimar Republic. However morally satisfying it may have
been to believe that "nothing could be worse" than the Weimar
Republic, many of those who contributed to its downfall learned too
late in Nazi concentration camps just how much worse things could be.

Social trade-offs involve not simply an incremental substitution of

one consideration for another in specific decisions. These trade-offs
apply to the decision-making mechanisms themselves. Legal
procedures which do not meet the highest standards available may
deliberately be established to deal with jaywalking and parking
violations, precisely so that the system can devote more of its time and
talents to reducing the likelihood of a mistake in judging a murder
case.

A certain amount of foolish decision making and thoughtless

inefficiency may be tolerated-must be tolerated-in any large
organization, because there are only a limited number of wise,
experienced and thorough people available, and they need to be put in
a few key positions and their efforts concentrated on a few crucial
decisions. Anyone at the bottom of an organization can spot some
mistakes by his hierarchic superiors, and so can outsiders. The real
choice for the organization as a whole, however, is between existing
decision makers and their potential replacements for the whole range
of decisions each must take. Some improvements may be possible in
specific instances by having subordinates correct superiors' mistakes,
but this is not costless in terms of organizational discipline or in terms
of the time spent by subordinates and superiors discussing what is and
is not a mistake. In some cases-an extreme example being a combat
unit under enemy fire-the time spent discussing alternatives may be
more costly than either alternative itself. The closer decisions are to
that end of the spectrum, the more rational it is to have unquestioning
obedience, even if the superior makes no better decisions than the
subordinate.

At the other end of the spectrum-an appellate court reviewing a

murder conviction-full and free discussion may be appropriate, without
regard to which members of the reviewing court are hierarchically
senior. Whatever honorific or administrative prerogatives belong to the
Chief Justice of the U.S. Supreme Court, his is just one vote out of
nine in determining the substance of the law. It is not that one process
is necessarily more important than the other. Human life is at stake in
both cases. The difference is that the passage of a small amount of time
radically increases the risks to life in one decision-making situation,
while executions are automatically postponed for whatever time it
takes for an appellate court to make up its mind.

The trade-offs involved in social decision-making processes parallel

those in economic decision-making processes. Present costs and
benefits must be traded off against future costs and benefits in
interpersonal relationships ranging from child rearing to love affairs.
External costs are involved wherever people living near each other
have different values as regards noise or the appearance of the
neighborhood. In short, the principle of diminishing returns applies at
least as much to emotions as to economic processes. A mother who
would be devastated by the loss of her baby may nevertheless welcome
a few hours away from the infant at times, to renew her spirits. Indeed,
in virtually all personal relationships-even between the most ardent
lovers-there are times (however brief) when each feels the need to be
alone or at least to be with others.

It is not a mere coincidence that the trade-offs of economic

processes parallel those of other social processes. The economic
process is only a special case of human decision making in general, so
it is hardly surprising to find similar principles at work, even on very
different subject matter. However, the large difference in subject matter
not only obscures the underlying principles, but modifies their
application as well.
 Some of the social trade-offs worth special attention include (1) the
sorting and labeling of people, activities, and things, (2) the role of
time, and (3) trade-offs involving safety of one sort or another.

SORTING AND LABELING

One of the most basic and pervasive social processes is the sorting and
labeling of things, activities, and people. This includes everything
from the sex separation of bathrooms to municipal zoning ordinances,
air traffic control, and racial segregation. Even the changing moods
and circumstances of a given individual are sorted and labeled by those
who deal with him, in order not to talk to or interact with him in
particular ways "at the wrong time." Sorting and labeling processes
involve a trade-off of costs and benefits. In general, the more finely the
sorting is done, the greater the benefits-and the costs. Beyond some
point, making the sorting categories finer would not be worth the
additional cost-for the particular decision-making purpose. For
example, if we find boxes of explosives stored in an area where we
were planning to hold a picnic, that may be sufficient reason to locate
the picnic elsewhere, without inquiring further as to whether the
explosives are dynamite or nitroglycerin, though that distinction might
be important for other purposes at other times.

The general benefits of sorting and labeling must be distinguished

from the special benefits of qualitative selectivity. A basketball coach
can select a taller sample of boys from a given population, but the
average height of the whole population is unaffected by whether or not
they are sorted and labeled. From a social point of view, what matters
most are the benefits of sorting and labeling given things, activities,
and people in society as a whole.

There can be a substantial difference in value between a sorted and

an unsorted collection containing the same quantities of identical
items. If a flood sweeps through a supermarket, washing all labels off
the canned goods, the cans'will have to be sold at a fraction of their
original prices, if not thrown away. No customer will pay anywhere
near the full price for an unlabeled can which could turn out to contain
vegetables, fish, or coffee. The supermarket will then have to buy more
canned goods from wholesalers to restock their shelves, paying large
sums of money to replace the unlabeled canned goods with new
canned goods with the same identical contents as the old, but more
valuable solely because of having been sorted and labeled. In a similar
way, there may be a net social gain when people who like a quiet
contemplative life sort themselves out from those who enjoy rousing
parties and/or motorcycles-even though there are the same numbers of
each kind of person after the sorting as there were before. The demand
for retirement communities, for apartment developments catering to
young singles, and other specialized communities is one indication of
gains merely from sorting and labeling a given population.

Among the costs of sorting and labeling is a loss of diversity. That

cost differs from person to person, according to tastes and preferences.
It also varies incrementally with how much diversity an individual
already has. An elderly person who works among younger people and
has frequent visits with offspring and grandchildren may prefer the
day-to-day tranquility of living among contemporaries, without fear of
becoming wholly isolated in an unnaturally homogeneous
environment. More generally, the need for diversity is itself not
homogeneous, but varies from person to person and varies
incrementally with the circumstances of the same person. There is a
sorting and labeling of people by the extent to which they wish to be
sorted and labeled. The coexistence of both specialized and general
communities is one indication of this.

Sorting and labeling, whether of people or of things, is a sorting and

label ing of probabilities rather than certainties. We believe, with
varying degrees of confidence, that a certain person would like a
certain Christmas gift, or would be amused by a certain remark, or be
pleased with a certain action. We never really know and the very fact
that there are such words in the language as disappointment, regret,
etc., is testimony to the pervasiveness and persistence of this feature of
the human condition.
ORGANIZATIONS

Despite the elusiveness of certainty, the remarkable success of such

things as franchise operations is evidence of the value of merely
reducing the range of uncertainty. A "Holiday Inn" is not necessarily
better or worse than any other hotel. There are undoubtedly many
independent hotels that are better and worse (by whatever standard)
than the average Holiday Inn, or even better or worse than any Holiday
Inn. Moreover, Holiday Inns vary among themselves. Yet the fact that
thousands of hotel owners are willing to pay in various ways for the
privilege of using this franchise designation means that the economic
value of a given physical structure is greater with a Holiday Inn sign in
front of it than without it-and that in turn means that millions of
travelers are more likely to stop there for some reason. These travelers
are also aware that there are better and worse hotels; all that the sign
does is reduce the range of uncertainty as to quality and price. The
value of the franchise, and its spread internationally, is evidence that
this is no small consideration. The growth and prosperity of many
other franchising corporations in various fields suggests that this form
of sorting and labeling is of great value to customers, especially in a
highly mobile society where individual knowledge of individual
establishments is rare or more costly.

Many people are uneasy with the thought of making decisions on

the basis of merely probabilistic indications like franchise names, and
especially with the idea of sorting and labeling people by one or a few
characteristics. The only reason for doing so in either case is the cost
of alternative procedures, with finer categories, which might produce
incrementally more accurate predictions. Yet the large number of
people murdered by spouses each year suggests that even the most
intimate knowledge of other people will not produce certainty as to
their future behavior. The only question is-how much more knowledge
(risk reduction) is worth how much more cost? Obviously this varies
with the decision. No one wants to select a spouse on the basis of
crude rules of thumb, but then neither does anyone want to put the
same amount of thought into selecting a television program that he or
she puts into selecting a mate. The argument here is not in favor of
crude decision-making processes. The argument is simply that the
fineness of the sorting and label ing process is incrementally variable
with respect to both costs and benefits, so that it must stop somewhere
short of the quality of decision-making that is possible, and so must-
and should-make "avoidable" mistakes.

Looked at another way, "avoidable" mistakes are not necessarily a

condemnation of a decision-making process-if alternative processes
which would have avoided these particular mistakes in these instances
would also have cost so much in so many other instances (either in
money or in other mistakes) as to outweigh the costs of the "avoidable"
mistakes. Decision-making processes are often judged by standards
which ignore this simple fact. This is done not only by naive people
but even by experts. For example, an experienced traveler who has
been through a given area many times may be able to select local
hotels, restaurants, and auto rental agencies much more
advantageously than by relying on franchise names, and may be able
to factually demonstrate the superiority of his choices to the other
choices which he disdains. Yet if his disdain extends to the method of
choice (franchise names in this case) he is very mistaken. Experts who
loftily dismiss the public's method of choice in many areas often fail to
consider the cost of knowledge. By definition, the expert has already
paid these costs in the past, and the incremental cost to him of making
individual choices after that is virtually zero. Nothing is easier for an
expert than to show instances where things, activities, and people were
misjudged. What is misleading is to imply that therefore wrong
methods of sorting and labeling were used.

PEOPLE

There is a fatal charm about the idea of "judging each person as an

individual." Our sympathies immediately go out to the person who has
been "wrongly" denied a job, credit, college admission, or an
opportunity to participate in some activity because that person fails to
meet certain "arbitrary" requirements, but demonstrably should have
been acceptable because of other considerations. An onlooker may
find it silly that a department store clerk will not accept a personal
check from a Rockefeller but will accept a credit card from an
unemployed laborer. But the real question is whether credit policies
shall be made by specialists higher up in the organization and passed
down as rules restricting the discretion of lower level employees, or
whether the financial future of the organization shall be put in the
hands of store clerks and rest on their personal assessments of
customer credit worthiness.

The variation in the fineness of sorting categories, from one

organization to another in the same field, is sometimes cited as proof
of the irrationality or arbitrariness of the rules of the organization with
the coarser sorting procedure. But acceptance of a Rockefeller's
personal check by the owner-opera tor of a small retail shop is no
reason why a department store clerk should accept it-given that there
are very different knowledge costs when the immediate salesperson
and the financially responsible official are one and the same person,
compared to the situation where the two functions are performed by
different individuals widely separated in a large organization.
Similarly, a student with modest S.A.T. scores may be rejected by a
large and mediocre state university and yet be accepted by a higher-
quality small college which takes into account other evidences of his
intellectual ability. Neither institution's admissions procedure may be
defective. A state university admissions committee with over 100,000
applications to go through in a few weeks may have to immediately
reject all those below some cutoff score, in order to give any personal
attention at all to choosing among those remaining. However, a college
with a total enrollment of 500 students may be able to give all
applicants individual consideration from start to finish, at relatively
little cost. Neither process is inherently more efficient. What would be
more efficient would be for Rockefellers without credit cards to shop
in places where officials empowered to approve checks are near at
hand, and for talented youths with low scores to apply to colleges
where applications from such persons can be accurately assessed more
cheaply.

Most objections to sorting and labeling in general-and particularly to

the sorting and labeling of people-are based on ignoring the costs of
knowledge, or ignoring differences in the cost of knowledge between
one decisionmaking process and another. Even objections on purely
moral grounds to "discrimination" against various groups often turn
out to involve ignoring knowledge costs. When an individual from a
group with a certain behavior pattern has a very different behavior
pattern himself, judging him according to the group pattern, and
making decisions accordingly, may impose serious costs on that
individual. It also imposes costs (foregone opportunities) on the other
person who made the incorrect assessment-and therefore provides an
incentive for seeking alternative methods of assessment, if such are
available at a cost commensurate with the benefit. However, insofar as
the factual basis of the group assessment is accurate, the only cost paid
by the group as a whole are costs created by its own behavior.

Those group members who do not in fact create such costs may pay
a high price for being in the same category with others who do-and the
cost-creators in turn pay correspondingly less than the costs created by
their own behavior. It might be desirable from a moral or political
point of view that public policy diffuse those costs over the general
population rather than leave them concentrated on blameless
individuals in the same category. That is a question of policy which
depends on more variables than those being considered here. For the
present analysis, the point is that group discrimina tion-costs imposed
by group A as a whole on group B as a whole-is not proved by
showing (in retrospect) that individuals of identical relevant
characteristics are treated differently (in prospect) when they come
from group A rather than group B. The two individuals may have
identical probabilities of repaying credit, abstaining from violence,
being a considerate neighbor, and contributing intelligent ideas. But
only God can know that in advance free of charge. The cost of
knowledge of these individuals' characteristics may be very different
when the individual comes from Group A than from group B, if these
two groups as a whole differ in any of these characteristics.

Psychological and political "realities" often lead to rhetoric which

camouflages, or even boldly misstates, the causes of cost burdens, as
well as the nature of proposed remedies. For more than a century,
individuals fleeing ethnic ghettos have bitterly complained of
resistance to their movement into other neighborhoods as an
imposition of costs on the whole group from which they were fleeing
by those groups toward whom they were fleeing. This pattern has
occurred repeatedly, from the time of the Irish immigrants in the
middle of the nineteenth century to blacks, Hispanics, and others
today.

But no amount of impersonal phrasing about wanting to escape

"slums" or the "conditions" there can change the basic fact that what is
being attempted is to move away from people whose behavior is
regarded as offensive. For exactly the same reason, there is resistance
or flight by those in surrounding neighborhoods. Painful as this
situation is for all concerned, it is made even more difficult to resolve
when the rhetorical misstatement of it becomes a basis for insisting
that not only the cost-bearing victims among the excluded group but
also the cost-creating members of the same group be relocated.
Sometimes this goes beyond the "fair housing" approach of creating a
legal right to relocate anywhere on one's own initiative, to a
government policy of creating financial incentives to undo sorting and
labeling by deliberately locating subsidized housing in neighborhoods
different from those normally in- habitated by the tenants-or even more
directly, forcing excluded groups to relocate by demolition of their
dwellings by "urban renewal."

At some point in these political developments, those who believe the

rhetoric literally may be puzzled to find themselves opposed by those
excluded people who were initially their allies. Cost-bearing members
of excluded groups are often much clearer as to what they are doing in
trying to sort themselves out from cost-creating members of the same
group. The last thing they want to do is to import into their new
environment the same cost-creating people whom they have fled.
When the building of low-income housing projects in middle-class
neighborhoods has been bitterly opposed by blacks already living in
such neighborhoods, many white liberals have been shocked by the
apparent inconsistency of such behavior with the rhetoric which they
and middle-class blacks have shared in earlier struggles for "fair
housing" laws. The middle-class blacks are, however, behaviorally
consistent in continuing to sort and label by social characteristics
(other than race) even if this means opposing former white allies to
whom rhetorical consistency is more important.

In short, even the principal victims of that form of social sorting and
labeling known as racial segregation do not object to sorting and
labeling, as such, but object instead to racial segregation for preventing
them from sorting and labeling on other (nonracial) bases. Students of
black social history have long noted the difficulties of the small black
middle class in attempting to preserve and perpetuate its values and
behavior patterns while surrounded by people with very different
values and behavior patterns, whom they were forced to live among
because the larger society's sorting and labeling categories were coarse
enough not to go beyond race. Objection to sorting and labeling, as
such, is an entirely different phenomenon, supported by an entirely
different group of people, and taking many forms: objections to school
grades, occupational hierarchies, institutional authority, I.Q. tests, and
all forms of address, attire, residence or work place differentiation of
status or function. Even among individuals, organizations, and whole
societies which have cast away particular forms of sorting and
labeling, substitute forms reappear, even amidst the most ostentatious
egalitarianism. Everyone may be called "comrade," but some comrades
have the power of life and death over other comrades.

The advantages of sorting and labeling may sometimes be

mistakenly ascribed to other factors. For example, one of the important
things an education system does is to sort and label people, and they
may be more valuable to an employer because they have been sorted
and labeled, rather than simply because of the education as such. The
difference between a "dropout" and a graduate is not merely that one
has somewhat more information than the other, as a result of staying in
an educational institution longer. Dropouts as a group tend to differ
from graduates as a group in perseverance, regularity, and discipline-
qualities of value even in jobs where the difference in information
between the two groups is of little or no significance. Statistics on
income differences between dropouts and graduates often arbitrarily
attribute the higher income of the graduate to the value of the
education, especially when the statistics are quoted by educational
institutions seeking larger appropriations, grants, and public donations.

One of the functions of the "publish or perish" policy of many

universities is that it forces faculty members to sort and label
themselves by exhibiting their professional abilities before their peers.
It is not necessarily publication, as such, that is rewarded but rather
that the sorting and labeling of scholarly ability is facilitated by
publication. A string of mediocre publications may in fact be
damaging to the individual, though valuable to the profession in
sorting and labeling its members. Those who cannot meet even the
minimum standards to be published in any scholarly journal obviously
fall at the bottom of the sorting categories. In addition, there is a
hierarchy of standards among the many academic journals in any given
field, and some articles and books are judged more impressive than
others by their scholarly audience.

Those academics with substantial ability and little desire to publish

may be "underrated" by this system, but this reflects in part the high
cost which their reticence imposes on institutions which must sort and
label faculty members by some system for the apportionment of
rewards. If those with such reluctance to publish are willing to forego
the reward in order to avoid the bother, it may be a perfectly rational
result for both the institution and the individual. The question of the
relative weight of publication and other factors-teaching,
administrative responsibilities, etc.-is a different question. The
"publish or perish" policy implies only that scholarly ability is one
essential characteristic that must be sorted and labeled.

The general social benefits of sorting and labeling must be sharply

distinguished from the differential gains of those judged favorably or
those who interact with favorably judged individuals. Sorting and
labeling does not in itself change the characteristics of the people,
activities, or things that are sorted and labeled. The differential gains
of the "winners" are offset by the correspondng disadvantages of the
"losers." General social gains come from the greater ease of matching
individuals and circumstances, so as to maximize benefits and
minimize costs. Just as there is a greater demand for canned goods as a
whole when they are individually labeled than when the labels have
been washed off, so there is a greater demand for a labor force whose
individual characteristics are known to some degree than when every
employment decision has a wide penumbra of uncertainty about it.
Even the "losers" in a sorting process may end up better off than they
would have been without sorting. It is not a zero-sum process. Those
social classes or ethnic groups whose behavior patterns are offensive to
others may find a more sympathetic reception among neighbors who
share their values and priorities. For purposes of understanding the
value of sorting and labeling, it is unnecessary to agree with any
particular set of values as to what is a "better" or "higher" standard. It
is enough that there are different values, so that sorting people out can
improve everyone's position by their own respective values.

THE FINENESS OF SORTING

Finer sorting categories are not always preferable, even in those

cases where they are available at no additional cost. Contrast the
situation of "group punishment" for individual misconduct, as in small
military units, with group punishment in countries where family honor
is a paramount consideration. When a misdeed is committed by some
unknown member of a given platoon or squad, the military authorities
may choose to punish the whole platoon or squad, merely as a result of
the high cost of acquiring knowledge of the individual culprit-
especially in cases where the other members of the unit know who the
culprit is, and will punish or control him socially or otherwise, even
though they might not be willing to tell on him to the authorities.
However, in countries where family honor is sacred, the whole family
may be punished by shame, even though everyone knows the identity
of the particular individual who was guilty of the misdeed. In the latter
case, larger sorting categories (the family) are used even though finer
categories (the individual) are available at no additional cost. The
social purpose is not so much retrospective justice as prospective
control. Individuals' conduct can be controlled more effectively by
those most intimately familiar with them than by public institutions.
The cost of knowledge is far cheaper to family members than to either
policemen or to courts, who must filter documentable allegations
through rules of evidence, losing much knowledge in the process.
Moreover, the range of sanctions are far more finely graduated in the
family, and can be invoked in advance of any wrongdoing by raising
the child to feel guilt or pride in behavior that would reflect shame or
honor on the family.

Clearly, there is a loss of retrospective justice when individual B is

shamed (punished) for conduct by individual A, especially if B is a
contemporary rather than a parent, and still more so if B is a member
of a subsequent generation, and therefore lacked any control over the
past acts for which he is sharing the punishment. Offsetting this is the
gain in social control, which apparently is considerable. One indication
of the effectiveness of sorting and labeling by family rather than by
individual is the vast difference in juvenile delinquency between
American teenagers in general and teenagers of Oriental ancestry
living in the same society, subject to the same temptations and public
constraints. The virtually nonexistent delinquency among
JapaneseAmerican and Chinese-American youngsters has long been
noted by those studying these groups, despite high and rising
delinquency rates among American teenagers all around them.

Recent outbreaks of delinquency and violence among Chinatown

youth gangs only highlight the factor of family honor as a control.
These youth gangs have arisen since the arrival of large numbers of
Chinese refugees from Hong Kong, where they were "Westernized"
(i.e., atomized) before arriving in the United States. Neither Chinese
genes nor Chinese culture in general seem to be related to control of
delinquency, which seems to depend upon a whole social fabric
building on family honor-a fabric destroyed as refugees tore
themselves loose from their environments in China and converged on
Hong Kong, where they arrived as individuals or as isolated families,
and lived in a Westernized culture further undermining whatever
remained of their original social values. Chinese-American delinquents
and youth criminals are overwhelmingly of recent Hong Kong origin.
Similarly, among Japanese-Americans, studies indicate that the rare
young delinquents among them tend to come from outside the
Japanese-American community. The virtual nonexistence of juvenile
delinquency among those raised in the traditional Oriental community
in the United States is striking evidence of the social effectiveness of
sorting and labeling by larger units which are able to exert internal
control over the individual better than public institutions can.

Similar principles have been involved in the Americanization of

nineteenth century Jewish immigrants. When the massive immigration
of Eastern European Jews to America began in the 1880s, there was
already a small German-Jewish community in the United States, and
they were alarmed at being categorized with their co-religionists from
a wholly different cultural and socioeconomic background. Yet despite
their initial efforts to disassociate themselves from the Eastern
European Jews, the public at large tended to lump all Jews together,
and to become more anti-Semitic as a result of the new unassimilated
arrivals. Again, despite the retrospective injustice of such gross sorting
and labeling categories, this provided an incentive for the more
Americanized, cultured, and economically successful German Jews to
assume some responsibility for helping the Eastern European Jews
toward similar success and acceptability in their new culture. Similar
things have happened in other ethnic groups: the Urban League played
an acculturating role among blacks and the Catholic Church among the
Irish, for example. Partly this was philanthropic, but partly also it was
enlightened self-interest on the part of more fortunate members of a
group who realized that they were inevitably being categorized with
the rest of a group that was unacceptable to the larger society. Judging
each person "as an individual" would have removed this incentive. The
position here is not to claim that sorting and labeling categories should
be larger than the individual. The point is simply to bring out the social
trade-off that is involved between retrospective individual justice and
prospective social control.

Similar principles apply in the very different world of organized

crime. From the point of view of career criminals, there is some
optimal quantity of violence associated with economic crimes, such as
robbery. With zero violence and zero threat of violence, no one would
turn over his economic assets to the criminal. But beyond some point,
violence causes public outcries which bring more police power to bear
in a given sector, reducing crime opportunity for other criminals as
well as for the one who committed some "senseless" violence against
an economic crime victim. Where each criminal is a separate decision-
making unit, these external costs of his crime have no deterrent effect
on his conduct. When crime is organized into larger units, however,
these larger units have an incentive to minimize public outcry per unit
of economic crime, which usually means reducing the amount of
"senseless" violence against the victims. In short, with organized crime
as with Oriental families, internalizing the external costs created by
individuals means greater social control and greater responsiveness to
public reactions which might safely be ignored by an individual
malefactor whose identity was unknown to authorities or whose guilt
would be difficult to establish through formal legal processes. In both
cases, the source of this greater control is the lower cost of knowledge
by those with whom he is closely associated. The relative abandon
with which organized crime figures kill each other only reinforces the
point; there is little or no public outcry at the death of a mobster.

TIME

Time is perhaps the ultimate constraint. Few things can be done

instantaneously, and with unlimited billions of years virtually anything
is possible. Even complex human beings may evolve from an initially
lifeless planet. On a more mundane level, the cost of constructing a
house literally overnight would be many times the cost of constructing
the same house in the normal time or constructing it in whatever "free
time" was available sporadically over the next decade.

Time is, of course, never free. Its value is whatever alternative

opportunities must be foregone in order to use it for a particular
purpose. The value or cost of time is often overlooked, as among
bargain hunters who ignore the time spent searching for "bargains"
(not simply the time spent finding the things actually purchased, but
the time spent looking at the whole array of possibilities from which
the purchased items were selected), or waiting for service in low-
priced stores, or seeking frequent repairs for low-priced items with less
durability. The "same" merchandise generally sells for a higher price in
stores with a more varied stock (of brands or sizes), more (or better)
salespeople, and more numerous cash registers, with correspondingly
shorter lines at each-all of which save time. It is not really the same
merchandise because what is being purchased is not simply the
physical item but also the associated services required for its discovery
and use.

Another way of looking at this is that every item has both a money
price and a time price, and it is the combination of the two that is its
full cost. Since the value of time varies from person to person, in terms
of his foregone opportunities (whether earnings or other activities),
this invisible combined price may be equalized by competition while
the visible money price components remain disparate. Flea markets,
for example, incur virtually no costs of stocking a standard selection or
wide variety of given items, nor for various after-sales services, and
the consumer pays low money costs and high search costs to get what
he wants, or pays other intangible costs by not getting exactly what he
wants in the condition that he wants. At the other end of the spectrum
is the more elaborate kind of department store, with personnel trained
to explain and demonstrate the intricacies and nuances of the specific
kind of merchandise in their respective departments, a wide range of
brands, qualities, and sizes of each commodity stocked, and with
defective items sorted out for return to the manufacturer, whether
discovered by the store before display or returned by the customer for
a refund after the sale. Where on the spectrum between these two kinds
of sellers a particular buyer will go depends on his own incremental
trade-off between time and money, determined largely by his income
and impatience. In this context, persistent money price differences for
the "same" merchandise sold at different kinds of stores do not prove
the consumers "irrational," nor the merchants dishonest, nor the
economy noncompetitive.

In social as in economic processes, the value of anything varies with

the time at which it becomes available. This applies both to benefits
and to costs. Swift punishment for criminals has long been recognized
as a more effective deterrent than the same punishment applied after
much delay. By implication, a lesser punishment applied immediately-
the old fashioned "curbstone justice" once applied by the policeman on
the spot-may be as effective as a harsher punishment applied after
years of "due process." Due process may be preferred for its greater
accuracy, objectivity, or dignity, but the point here is that there is a
trade-off, based on the varying cost of punishment to the recipient
according to its location in time.

In economics, a financial increment or decrement accompanies

transfers of given physical or money units back and forth through time.
The absence of explicit interest payments in social trade-offs does not
mean that the same principle is not at work. Because imprisonment is
costly to the taxpayers as well as to the criminal, a shorter sentence
begun soon that is as effective as a longer sentence begun later means
money savings for a given deterrent. Alternatively, the law could retain
the same length of sentence and achieve more deterrence for a given
amount of money, if that was preferred. In other words, the implicit
"interest" received by the public for moving imprisonment forward in
time can be either in money or in kind. Conversely, losses incurred by
moving imprisonment backward in time by lengthening legal "due
process" may also be costly both in money and in kind, including
crimes committed by criminals free on bail, awaiting trial or appeal.

TIME HORIZONS

In social trade-offs in general, the diminishing value of deferred

benefits or costs is often referred to in terms of the time required for
such benefits or costs to reach the vanishing point as influences on
present decision making. This period is the individual's "time horizon."
Time horizons are subjective. They vary not only from individual to
individual, but from one socioeconomic class to another, among ethnic
groups, or among age brackets. Ironically, older individuals may have
longer time horizons than younger, more impetuous, individuals, even
though, objectively, younger people generally have more years of life
ahead of them. But older people's plans often extend well beyond their
own life span, as in decisions made for their children's well-being-the
preservation of an estate, or in extreme cases, suicide by parents who
consider themselves "burdens" to their children (once generalized
among Eskimos)-or the older person's time horizon often includes
concern for their own good name after death which serves as
motivation for decisions involving philanthropy, religious conversion,
or a place in history. For younger people the end of their own life is
often beyond their time horizon, and these post-death concerns still
more so. It may well be that the time horizon lengthens with the birth
of children and the assumption of a parental outlook, not only as
regards one's own children in particular but posterity in general.
Whatever the cause, a time horizon extending beyond the lifetime of
the individual becomes a spontaneous moral control on individual
action, analogous to moral constraints extending in space at a given
time.

Differences in time horizons among social groups change the

effectiveness of social policies involving either benefits or penalties,
especially when one social group, with a given time horizon,
predominates among the policy makers and another social group, with
a different time horizon, predominates among those to whom the
policy applies. For example, "job training" programs which require
present efforts to increase prospective employment and earnings
sometime in the future may prove relatively ineffective with age,
ethnic, or socioeconomic groups with short time horizons.
Participation in such programs may be based on such current
opportunities as these programs present, and maximizing benefits at
least cost may mean maximizing in the short run sense of doing as
little as possible to receive the financial or other immediate benefits
from the program-which is to say, preparing for future employment as
little as possible. The attempt to use such futureoriented programs as
means of luring present-oriented youngsters away from crime runs up
against the fact that "most crimes are committed opportunistically by
youths who want small amounts of money right away."2 A job training
program may well increase the youth's earnings ability by many times
what he can successfully steal, provided that both calculations are
made over a long enough time span, but if his time horizon is shorter
than the program, none of its future benefits may enter his calculation-
which may nevertheless be as rational within his time horizon as the
opposite result is for those with a longer time horizon. No one has an
unlimited time horizon, and there is no logically compelling objective
reason for preferring one time horizon to another.

jobs are a meaningful alternative to crime when the jobs have

similarly short time dimensions. The availability of casual, day-to-day
jobs is apparently inversely correlated with petty crime rates. Where
the opportunity for such pickup jobs is reduced-as by bad weather-
petty crimes tend to increase, since people who live from day to day
"have to eat" when the jobs stop and seldom have much money saved.'

One of the reasons why relatively simple precautions reduce the

incidence of crime is the short time horizon of many criminals. Almost
no feasible precaution can make it impossible to steal, break-in, or
victimize by violence. But merely by raising the immediate cost-in
time, effort, or risk-it discourages many whose aversion to
perseverance and postponed benefits is part of the reason for their
being criminals. Few homes are burglar-proof and few people mugger-
proof, but the incidence of burglary is much lower in New York than in
Los Angeles while the incidence of mugging is just the reverse,
because access to New York apartments is usually a little more
difficult than in Los Angeles (due to architectural style differences)
and access to people to mug is somewhat more difficult in Los Angeles
(due to fewer pedestrians in residential neighborhoods). Apparently
criminals are rational within their framework. One of the reasons for
the absence of simple precautions is the subsidization of losses:
insurance policies spread and thus minimize the impact of the cost of
theft; police property recovery costs paid for by the taxpayers likewise
reduce the connection between carelessness and consequences; "victim
compensation" policies by government extends this externalization of
costs still further. Insofar as individual precautions merely cause the
criminal to turn to someone else as an easier victim, the private
benefits exceed the social benefits. An argument might be made for
legal compulsion to reduce vulnerability in general-antitheft devices in
cars, better locks required by building codes, brighter lighted streets,
etc.-but since such requirements would be categorical rather than
incremental, they could easily go past the point where the benefits
balanced the costs.

THE ANIMISTIC FALLACY

From the point of view of the social utilization of knowledge, time

permits entirely different methods for the production and distribution
of knowledge from those usually conceived of, and does not depend
upon articulation, rationality, cognition, or any of the other formal
processes taught in academic institutions. With unlimited time, either
the processes of nature or the competition among men may lead to an
intricate pattern of results unplanned by anybody. The fitness or
accuracy of these systemic adaptations may be revealed primarily-or
even exclusively-in results rather than in articulated rationality. But
because man insists on some articulated explanation after the fact, an
explanation which overlooks the crucial role of time may emerge as a
wholly different-and wholly fallacious-depiction of what has
happened.

Perhaps the simplest and most psychologically satisfying

explanation of any observed phenomenon is that it happened that way
because someone wanted it to happen that way. This applies not only
to social phenomena but to natural phenomena as well. Primitive
peoples explained the movement of leaves on a tree by some spirit or
god who wanted the leaf to move, had the power to make it move, and
so it moved. The analogy of this to purposeful and deliberate human
activity is obvious. It is only at a much more developed state of
reasoning that the movement of leaves is explained by wind currents of
a nonpurposeful (but also nonrandom) nature, based on differences in
air pressure. The more primitive kind of explanation remains a more
spontaneous or "natural" kind of explanation-one that arises first in a
wide variety of areas, and is later abandoned only when forcibly
displaced by a demonstrable alternative. Some events are in fact the
result of purposeful activity toward the goal achieved, but the general
presumption that this must be the case can be classified as "the
animistic fallacy."
 The animistic fallacy has had many great, historic forms-in religion,
in biology, and in economics, for example. Time is a crucial ingredient
in the alternative, systemic or evolutionary, explanations of the same
phenomena. The religious "argument from design" for the existence of
God asserted that the observed nonrandom pairings of environments
and creatures, the male and female sexes, the cooperating organs of the
body, etc., all proved that a purposeful intelligence had designed the
universe to fit together. Even such philosophic skeptics as David Hume
and John Stuart Mill found these arguments weighty. After Darwin's
theory of evolution provided an alternative explanation of the same
natural phenomena, even religious believers no longer rested their
beliefs on the animistic "proof" of the existence of God. Darwin was a
landmark, not only in the history of biology, but in the history of
intellectual development in general. He showed how-with sufficient
time-nonpurposeful activity could lead to nonrandom results: he
divorced order from "design." Yet the animistic fallacy would say that
the absence of "planning" must lead to chaos-and the economic and
political consequences of that belief are still powerful today.

Animistic explanations require little or no time for the events they

postulate to take place-only six days for the creation of the world, in
one religious version, and in principle omnipotence could have made it
happen in an instant. Evolutionary explanations, on the other hand,
necessarily imply sufficient time for initially random events, behavior,
or individuals to be sorted out by environmental forces in such a way
as to leave a surviving population with nonrandom characteristics
adapted to the environment. Initial mutations may happen to range
from beneficial to fatal, but surviving mutations tend to represent
improved adaptations to the environment. After millions of years of
natural selection, what will be observed will be primarily surviving
mutations. One may choose to regard the process as a whole as
Providential without committing the animistic fallacy of asserting that
the observed order could only be a result of deliberate design.

SYSTEMIC ANALYSIS
 Social phenomena may also be explained either animistically, from
the intentions of the individuals involved, or in terms of the mutually
constraining complex of relationships whose results form a pattern not
necessarily similar to the intentions of any of the individuals involved.
The animistic fallacy is not the exclusive property of either the
political left or right. Conservative economists of an animistic bent
explain rational behavior in a timeless context, sometimes with the
moral conclusion that the wise are rewarded for their foresight and the
unwise penalized for their lack of it-that "supernormal brains" explain
large profits for example. On the left, social planners eager to save the
world from "chaos" engage in another form of the animistic fallacy.
Both approaches ignore time, for there is no selective adaptation
process to take place. However, the animistic fallacy is rejected
decisively by such ideologically disparate figures as Adam Smith and
Karl Marx, both of whom analyzed in systemic terms.

Smith had no faith whatever in the intentions of businessmen, whom

he characterized as mean and rapacious,' but argued that the
characteristics of a market economic system would lead to beneficial
results which were no part of the intention of those acting within the
system.' Karl Marx, of course, had a far less benign view of the results
of a capitalist system, but he-like Smith-analyzed the results in terms
of the presumed characteristics of the system, not the apparent
intentions of individual capitalists. In the preface to the first volume of
Capital, Marx dismissed any idea of explaining the capitalist system by
capitalists' intentions.' Engels sweepingly rejected that approach with
respect to social phenomena in general, "for what each individual wills
is obstructed by everyone else, and what emerges is something that no
one willed."'

Attempts to explain striking differences among social groups (class,

ethnic, regional) at a given point in time often lead to the animistic
fallacy. The relative success or failure of these groups-whether
measured in money or such social variables as family stability or crime
rates-is often attributed to some merit or demerit on their part or on the
part of some other group (including "society") in dealing with them.
"Ability" or "discrimination" are thus among the first explanations
seized upon, much as primitive man explained the rustling of leaves by
someone's deliberate moving of them. But once it is clear that results
observable at a given point in time may be part of a process that
stretches far back in time, it is no longer automatically necessary that
their current situations be a result of either meritorious or unworthy
actions by contemporaries-either group members or others. Differences
in cultural values, for example, have deep roots in centuries past and
profound impact on current behavior.

Groups from an agricultural background have classic patterns of

problems when transplanted to an urban, industrial and commercial
environment. A social history of the Irish peasants who immigrated to
American cities in the nineteenth century reads remarkably like a
preview of the history of blacks from the rural South in those same
cities in the twentieth century.' The many historical, genetic, and other
differences between the two groups only makes their parallel patterns
all the more remarkable. Conversely, it is virtually impossible to
explain the profound differences between contemporary Italian and
Jewish immigrants in their responses to schools, libraries, and
settlement houses' in terms of any contemporary differences in their
socioeconomic conditions in the nineteenth century immigrant
neighborhoods where they lived side by side. But even the most casual
acquaintance with the histories of Jews and southern Italian peasants in
earlier centuries shows how far back these cultural patterns go.'°

Many of the attitudes, beliefs, and emphases of agrarian peoples are

quite reasonable as adaptations to an agrarian environment, however
counterproductive these approaches may turn out to be in an urban
commercial setting. A fatalistic view of the future, for example, is
fully understandable in a culture where people's whole lives hinge on
the random variability of the weather. It is a challenge to try to find
any group which emerged from centuries of agrarian life and became a
success in an urban environment in one or two generations.
Conversely, the long-urbanized Jews, who became the most successful
of all American ethnic groups in the cities in which they concentrated,
had an almost unbroken record of failure in agrarian undertakings in
various parts of the United States." Generalized "ability" or
"discrimination" seem to offer little explanation of such social
phenomena, as compared to the explanation of evolutionary
adaptation. For other social phenomena, the results may be different.

The point here is not to deny any effect of intentional actions, or

even to claim that these are necessarily less than the effects of
evolutionary social processes. The point is to challenge the
presumptive priority of timeless, intentional explanations-i.e., the
animistic fallacy. It is plausible but false to say that "decisions made at
random, or without any relation to each other do not fall into any
pattern."12 Darwin demonstrated that falsity in biology, and such
disparate thinkers as Adam Smith and Karl Marx have rejected the
same fallacy in analyzing social processes.

CULTURE AND INDIVIDUALISM

Highly rational intellectual "models" of human behavior suffer from an

air of unreality whenever these hypothetical, computer-like
incremental adjustments by coolly calculating decision makers are
compared to the flesh-andblood reality of decision by inertia, whim,
panic, or rule of thumb. In reality, rational principles themselves
suggest a limit to how much rational calculation to engage in.
Deliberate decision making is not a free good; that is why there are
thermostats and payroll deductions. Decision making has costs,
including time, stress, fatigue, insomnia, and heart attacks. Clearly, it
is something that must be economized.

Culture is one way of economizing on deliberate decision making

and on the explicit marshalling of data and principles which it entails.
Culture provides a wide range of beliefs, attitudes, preferences, and
customs whose authentication has been historical (Darwinian) and
consensual rather than sci entific. Culture offers low cost inputs into
the decision-making process, and-when there is freedom-leaves to the
individual the choice whether prospective incremental improvements
in the quality of the particular decisions are worth the additional costs
of more rational calculation. For a wide range of decisions, many
people find it optimal to rely heavily on cultural values, and therefore
end up dressing, talking, eating, or housing themselves within a
general pattern that can be recognized as characteristic of the particular
culture. Thorstein Veblen argued that if decision making were in fact
as rationally individualistic as sometimes depicted, "the institutional
fabric would not last overnight,"" for there would be no set of shared
values which we call a culture. Edmund Burke observed: "We are
afraid to put men to live and trade each on his own private stock of
reason; because we suspect that this stock in each man is small, and
that the individuals would do better to avail themselves of the general
bank and capital of nations and of ages."" The cost advantages of
cultural norms are particularly great when lime is short. The cultural
norm "is of ready application in the emergency"" when the cost of a
"better" decision is likely to far exceed any gain from individually
recalculating the experience of centuries in dealing with the human
condition. A mother who sees her child about to fall springs instantly
into action without any Hamlet-like deliberation, just as soldiers in
battle obey the orders of a pre-appointed individual among them,
rather than pay the high cost of stopping to deliberately select either a
meritorious leader or a rational course of action. Conversely, the
cultural norms themselves recognize the relative advantages of
deliberation when time is ample-for example, in such sayings as "haste
makes waste" or "marry in haste and repent at leisure."

The relative advantages of cultural and rationalistic inputs into

decision making vary not only with the particular kind of decision and
the time available to make it, but also with each individual's subjective
evaluation of his own ability to distill more from his own particular
experience than the culture has distilled from the general or "average"
experience of generations. Partly this is a question of how closely the
general or average situation fits his own situation. There are, after all,
few "average" people-these being statistical constructs with fractional
children and other doubtful attributes. But, even aside from questions
of appropriateness or relevance to the individual case, cultural norms
may be rejected simply because of the confidence of some individuals
in the superiority of their own thinking, as buttressed by the
consensual approval of like-minded peers:
We entirely repudiated a personal liability on us to obey general rules.
We claimed the right to judge every individual case on its merits, and
the wisdom, experience, and self-control to do so successfully . . . we
recognized no moral obligation, no inner sanction, to conform or obey.
Before heaven we claimed to be our own judges in our own case.16

This was the economist John Maynard Keynes describing himself

and the clique to which he belonged. This viewpoint is, however, both
older and more widespread. Of the eighteenth-century rationalists in
France it was said: "They have no respect for the wisdom of others but
... a very full measure of confidence in their own."'T A somewhat more
modest version reposes faith in contemporary opinion among
"enlightened" (i.e., like-minded) people.

The trade-off between culturally determined decisions and

individually determined decisions involves a prior sorting and labeling
of decisions by their degree of importance and uniqueness. Within
some range neither cultural norms nor rational calculation will be
applied, but fancy and caprice will be allowed to choose-as between
blue or green bedspreads or automobile colors, however much rational
thought may have gone into the selection of furniture or of an
automobile.

Sometimes the choice between cultural and individual decision

making is a choice between "feelings" and articulated rationality.
Given the imperfections of language and the limitations of specific
evidence, it is by no means a foregone conclusion that the mere
formally logical articulation is in fact more rational, much less
empirically correct. When the choice between the two processes is not
within one individual but between one individual and another (or
between one group and another), it is even less likely that the more
articulate position is the more valid position. This is not an argument
for mysticism rather than logic. It is simply a recognition that the
weight of generalized but unrecorded experience-of the individual or
of the culture-may be greater than the weight of other experience
which happens to have been written down and spelled out. While
specificity and articulation are important, they are not categorically
preemptive: every small-sample study cannot overturn the common
sense of mankind or the experience of the ages.

Obvious as this may seem, it contradicts the philosophy of

rationalism, which accepts only what can "justify" itself to "reason"-
with reason being narrowly conceived to mean articulated specifics. If
rationalism had remained within the bounds of philosophy, where it
originated, it might be merely an intellectual curiosity. It is, however, a
powerful component in contemporary attitudes, and affects-or even
determines-much political and social policy. At its most extreme, it
exalts the most trivial or tendentious "study" by "experts"" into policy,
forcibly overriding the preferences and convictions of millions of
people. While rationalism at the individual level is a plea for more
personal autonomy from cultural norms, at the social level it is often a
claim-or arrogation-of power to stifle the autonomy of others, on the
basis of superior virtuosity with words.

Rationalism is at one end of a spectrum with evolutionism at the

other. The evolutionary process sees the determining rationality in a
process-unarticulated in whole (animals) or in part (humans)-not in the
individuals involved in the process. From this viewpoint, the
evolutionary process is no less powerful in its effects for being
undiscovered or unplanned. This applies not only to biological
evolution but to social processes as well. People have articulated
intentions, but history is not a record of those intentions being realized
so much as it is a record of entirely different things happening as a net
result of innumerable strivings toward mutually incompatible goals.
Hegel and Marx called this "the irony of history" and Adam Smith
called it "an invisible hand" determining the social result of an
individual's action-"a result which was no part of his intention.""
Darwin's biological generalization of the same principle made the
point even more vivid, since his evolutionary theory applied to animals
whose intentions (or "instincts") hardly included the evolution of their
species, and even to inanimate life such as trees and grasses with no
apparent intentions at all, but which develop elaborate ecological
patterns nevertheless. In short, intentions must, at the very least,
compete with powerful nonintentional forces.
 When culture is conceived of as an evolutionary product-an ecology
of human relations-it is by no means clear that any and all well-
articulated reasons for changing particular parts of this social ecology
must be valid. Even if plausible in the specific case, a policy's
unintended consequences throughout a complex system is a weighty
consideration. Articulated rationality can seldom predict very far or
very specifically, and much depends on the speed and accuracy of
social feedback mechanisms-and on whether the feedback includes
incentives to adjust or abandon counterproductive policies.

Given the virtually limitless complexity of evolutionary or

ecological processes-whether social or biological-and the limited scope
of even the most rational and well-informed mind, it is by no means
inevitable that the wisest, hardest working, or otherwise "best"
individuals will be the most rewarded at any given point in time.
Evolutionary processes may select the best results without selecting
the most meritorious individuals. Even in nature, the "best" fish (by
whatever standard) will die in a lake that dries up in a drought, while
weaker, less intelligent, poorer swimming fish will thrive in a body of
water with abundant nutrients and few dangers. In a price coordinated
economy, those individuals who happen to be holding resources which
suddenly acquire great value to others (oil lands when uses were
discovered for petroleum) grow rich in spite of themselves. The
relevant question is not whether the "best" individuals are selected in
this kind of process, but whether the best social result is obtained by
such processes for moving resources, or whether alternative schemes
would get what is wanted where it is wanted faster or better in some
other sense. The shortages, waiting lines, and production bottlenecks
which accompany more apparently "rational" methods of allocating
resources suggest that knowledge costs are a handicap that is more
readily overcome when each holder of a valuable resource has an
incentive to spread knowledge of its availability as quickly and widely
as possible in order to get the maximum rewards, however individually
undeserved. A similar principle is involved when an informer receives
a reward for revealing the location of a wanted criminal. The question
is not so much whether the person deserves the reward as whether it is
worth it to the rest of the people to have the criminal out of circulation.
In short, the Darwinian "natural selection" principle may mean a
natural selection of the "fittest" situation or process, not necessarily
individuals. The degree of rationality in the process is by no means
limited to the degree of rationality of the individuals, as is often
erroneously claimed.20 Rather, "mankind has achieved things which
have not been designed or understood by any individual,"" though
their value has been retrospectively authenticated by millions who
could judge the results without being able to judge-much less design-
the process.

Cultures reward with honor as well as with money. Often honors

impute morality and/or wisdom to the recipient, but honorific titles and
forms of address may be awarded immediately upon taking certain
offices (judge, legislator, etc.)-that is, before any such qualities could
manifest themselves in the incumbent. But this is consistent with the
general social use of rewards as prospective incentives for desired
conduct, whether or not they are in keeping with retrospective justice.

Cultures give patterns to human behavior not only by the options

they offer of predigested inputs into the decision-making process, and
of rewards for socially desired behavior, but also by their penalties for
behavior that is not desired. Although less quantifiable than either
economic or legal penalties, social penalties are not necessarily less
severe or less effective. One of their greatest advantages over formal
penalties is the extent to which they economize on the need for
knowledge. In extreme cases, no matter how well concealed the
transgression, the transgressor himself knows and inflicts punishments
of conscience on himself, reflecting the cultural values planted in him.
Such self-inflicted punishments have even led to suicide-a death
penalty chosen as preferable to continuing to suffer the internal
punishments for crimes successfully concealed from everyone else.
For the law, by contrast, a crime must not only be discovered but also
proven "beyond a reasonable doubt" under stringent legal
technicalities; the costs of effective knowledge (sufficient for legal
penalties) are far higher than with informal social penalties. Moreover,
informal controls can impose prior restraints which the criminal law
cannot. Many students of crime and punishment regard the formal,
legal penalties as only occasional backup to the informal controls that
suffice for keeping most people law abiding.

One measure of purely social or moral sanctions is that they have

effects even in circumstances where there is no formal power at all.
Among slaves, for example, the mores of the group affected individual
behavior. In the antebellum South, when a male and female slave were
caught out in violation of curfew, the mores of the slave community
called for him to volunteer to take her lashes in addition to his own.22
More generally, there was group solidarity which forbade betrayal to
slave owners,23 and encouraged actions to aid and shield one
another,24 and kept alive family ties,25 despite a total absence of legal
sanctions for the slave families and in the face of hostility toward slave
family ties by the white community.

Purely social controls are effective only to the extent that personal
emotional ties give value to the goodwill of others and credence to
their norms. If social possibilities, like economic possibilites, are
inherently constrained, then the question is only which particular
institutional mechanisms or processes best convey these constraints to
individuals. Even if the prospect of total individual freedom under
anarchy were institutionally permitted, it could not be substantively
realized, since the free acts of one would constrain the free acts of
another, leading to less freedom in general-in the same way that an
uncontrolled crowd pushing toward a fire exit has less chance of
achieving its goal than if they were evacuated in some orderly manner.

Given that some social processes must convey inherent constraints,

the choice is among various mixtures of persuasion, force, and cultural
inducements. The less of one, the more of the others. The degree of
freedom that is possible is therefore tied to the extent to which people
respond to persuasion or inducement. The "conformity" so lamented
among Britons and Americans may be related to the freedom which
has survived for centuries in both societies, while much of the world
has gone from one form of despotism to another. In any event, the
harder it is to persuade or induce, the more it is necessary to force,
given that people must mutually accommodate in some way if life is to
go on in an interdependent society. The celebration of unbounded
individualism means, beyond some point, the acceptance of forceeither
private (crime, riot, vigilanteism) or public (authoritarianism).
Terrorists or rioters who say that they want to force a democratic
government to "reveal" its "true" authoritarian or "fascist" nature are in
fact simply revealing one of the fundamental trade-offs in all forms of
society, however demo cratic or humane. It may even have been a
toleration or a romanticizing of runaway individualism that created the
terrorist mentality and environment in which it could flourish-up to
some inherent limit of toleration. Fascism, in fact, began in Italy in
response to unchecked public disorders.

Cultures contain many cues and inducements to dissuade the

individual from approaching ultimate limits, in much the same way
that a special warning strip of land around the edge of a baseball field
lets a player know that he is about to run into a concrete wall when he
is preoccupied with catching the ball. The wider that strip and the more
sensitive the player is to the changing composition of the ground under
his feet as he pursues the ball, the more effective the warning.
Romanticizing or lionizing as "individualistic" those people who
disregard social cues and inducements increases the danger of head-on
collisions with inherent social limits. Decrying various forms of social
disapproval is in effect narrowing the warning strip.

Cultural cues are more effective, either as warnings or as guides to

more positive relationships, when the individuals involved are part of
the same culture. While rationalism tends to investigate cultural
characteristics in terms of their specific minutiae-which may be quaint
or "irrational"-the real function of these cultural cues is to convey
information in a code readily understood by those using it, so that
consistency and dependability are more important than the particular
devices themselves. Someone who approaches a woman in a
deferential manner or addresses a man with, "Excuse me, sir ..." is
setting a particular framework of intentions as a sort of implicit
contract as to the relationship sought-a contract which can then be
monitored by the other party to determine how much of what follows
in fact fits within the framework of the implied declaration of
intentions. A breezy "Hi ya, babe" or "Hey, Mac" implies a different
set of intentions, and is also subject to subsequent monitoring within a
different framework, or to rejection at the outset. The specific meaning
or merits of the explicit words themselves are not at issue. It is the
given cultural context that conveys a particular constellation of
intentions, regardless of the explicit, grammatical meanings of the
words. Where different cultures or subcultures coexist side by side or
in an overlapping pattern, the same words or other cultural cues carry
different meanings to different people. This means both more
misunderstandings and higher levels of defenses or "insurance"
behavior to minimize the dangers of misunderstandings. Moreover, the
least careful or most bigoted members of the different cultures acquire
a disproportionate ability to create intergroup conflict, since one of the
cultural interpretation problems is determining to what extent a given
individual or set of individuals represent the general sentiments
(especially hostility) of another group.

The values of individualism are recognized not only in laws and the
Constitutional rights regarding privacy, freedom of conscience etc., but
in social doctrines of toleration, pluralism, and a general live-and-let-
live attitude, The limits of individualism cannot be sharply defined and
set in concrete for posterity. The nature and implications of the trade-
off need to be recognized, however. In particular, the demands of
unbounded individualism need to be weighed in the light of inherent
social constraints which can only change their form but cannot be
eliminated without eliminating civilization. Moreover, the claim for
individual toleration cannot extend to cancelling other people's right to
judge as they will what a given individual does. Much of the modern
demand for individualism-including John Stuart Mill's On Liberty-is a
plea for exemption from social feedback from those negatively judging
individual behavior. Such an exemption is especially inconsistent when
it emanates from those actively criticizing the rest of society. However
democratic the language in which it is phrased, it is not a demand for
'equal rights or a general freedom, but for a nonreciprocal special
privilege.
 Morality as an input into the social process is subject to diminishing
returns, and ultimately to negative returns. With no morality at all,
force would be more prevelant-a loss both to those subject to it and to
the efficiency of the social processes. A modicum of honesty and
decency greatly reduces the incessant and desperate efforts otherwise
necessary to protect life and belongings from every other human being.
Beyond some point, social morality becomes irksome to individual
autonomy. Finally, if each individual were to become absolutely
committed to moral behavior as he saw it, no society would be
possible among diverse individuals or groups. Both Karl Marx and
Adam Smith recognized that there were levels of morality whose
incompatabilities would destroy a society. Marx in fact looked for
these incompatabilities of morality-ideologies-to destroy capitalism.
For Marx, those ideologies were ultimately based on class self-interest,
but direct self-interest could be compromised and accommodated to
avoid mutual destruction, while ideologically reified self-interests
become moral imperatives which both sides follow to a fatal
showdown. This showdown is, of course, what Marx wanted for
capitalism, assuming that it would lead to a socialist victory and the
end of the conditions which gave rise to class-based rival ideologies.
Obviously, if he had thought that similar ideological confrontations
would survive under socialism, leading to the same self-destruction of
thatand subsequent-systems, then life would become one interminable
turmoil, and the relative merits of any given system would mean little.
For Marx, destructive morality was justified only by the prospect of a
rational and enduring order at the end of it all. He was merciless in his
criticism of those who simply pushed moral principles, without regard
to their destructive social costs.26

Smith recognized the same principle of destructive levels of

morality, but opposed those who "insist upon establishing, and upon
establishing all at once, and in spite of all opposition"" whatever their
moral position requires. He contrasted moral or ideological principles
in the abstract-what he called "a certain spirit of system"-with "the
love of humanity" and "real fellow feeling," which should moderate
"fanaticism" in which people become "dupes of their own
sophistry."2S In contrast to "the man of system," the man of "public
spirit" will "accommodate" others' aversions and even prejudices:

When he cannot establish the right, he will not disdain to ameliorate

the wrong; but, like Solon, when he cannot establish the best system of
laws, he will endeavor to establish the best that the people can bear.29

In very different ways, Smith and Marx both recognized that

morality, like other inputs into the social process, follows the law of
diminishing returns-meaning, ultimately, negative returns. People can
be too moral.

Morality can be incrementally counterproductive even where it has

not yet reached levels that are categorically destructive of the whole
society. Policies for "social justice" are often retrospective, while their
effects create current and prospective costs. Beyond some point, those
costs can exceed the costs of the initial inequity being corrected. If
some group suffers a given loss of X-whether measured in financial or
other terms-as a result of social events beyond their control or
foresight, they might be regarded as victims of a social injustice, which
should be corrected. But if the cost of correcting it (again, in either
financial or other terms) is some procedure costing 2X to the taxpayers
or to other third parties, then those who would have to bear these costs
are likewise victims of events beyond their control or foresight-and to
a greater extent. The injustice has merely been relocated in space or
timeand increased. For example, in order to prevent retrospective
injustice to people in the horse and buggy industry (who entered a
centuries-old occupation in good faith and with no way of knowing
that a Henry Ford was coming along), the government could have
somehow inhibited the introduction of the automobile, but millions of
other people living in isolated locations would have lost an opportunity
to expand their horizons in many ways-and that could amount to a
larger loss than the cost of changing occupations from the horse-and-
buggy industry to some other part of the economy.

A people sensitized to act against virtually any injustice is a people

engaged in a never-ending creation of costs, including artificially
escalating levels of new injustices. To confiscate a family fortune that
originated unjust ly in times past is to create uncertainty among
millions of home owners today who sacrificed for years to give their
families a place to live. The government may have no intention
whatsoever of confiscating the latter kind of private property, but once
the common guarantee of property rights has been violated,
uncertainty about all property rights increases-an immediate cost,
measurable in tangible money terms in declining market values,
regardless of whether the feared eventuality ever actually occurs. In
short, an immediate confiscation-or rather destruction-of part of the
value of other property would automatically take place as the result of
a retrospectively just act of confiscating an ill-gotten fortune-which
might well be only a tiny fraction of the value of all the losses suffered
by millions of other people, such as homeowners. Moreover, in
addition to the immediate costs arbitrarily imposed on third parties in
this way, retrospective justice causes prospective changes of behavior-
for example, in this case, a general shifting of assets from visible and
immobile forms like homes and factories to more concealable and
portable forms like gold. The incentives to work or to plan ahead
would be affected, as time horizons shrink with increased uncertainty,
reducing the level of job-creating investments in the country.
Unemployed workers with neither homes nor fortunes could be among
the chief current and future victims of this act of retrospective justice.

The point here is not to claim, as a categorical principle, that every

act of justice or every consideration of morality must be
counterproductive. Rather the point is to recognize, as an incremental
principle, that unbounded morality ultimately becomes
counterproductive even in terms of the same moral principles being
sought. The law of diminishing returns applies to morality, as to other
valuable social inputs.

In addition to the situation in which morality becomes

counterproductive with respect to its own set of values, it may also
become counterproductive by its effects on other values. For example,
preoccupation with the morality of individual privilege may lead to
ignoring important social considerations that are also involved. The
question may be asked, what has a particular individual ever done to
deserve the wealth, privilege, and power of being king-the answer
usually being "nothing"-when the more weighty social question may
be the costs and benefits of monarchy as compared to whatever
realistic political alternatives exist at a given time and place. In less
extreme cases, where the individual has made some contribution to his
own good fortune, the question may still be asked whether it was
enough to justify his advantages, when again the larger question may
be whether there are institutional alternatives which would produce as
good social results for others. The fortunate individual himself may
tend to answer within the same moral framework as the critic, and
depict himself as deserving-perhaps even regarding himself as a "self-
made man," to use an incredibly naive and arrogant expression. But
the social issue may be systemic rather than individual, and
preoccupation with morality can be a distraction from considering that
larger issue.

SUMMARY AND IMPLICATIONS

Social decision-making processes, whether formal or informal, face

the same basic problem of seeking to maximize well-being subject to
some inherent constraint-whether of time, wisdom, or economic
resources. Both the constraints and the maximization process are easier
to quantify or visualize in economic processes, but the principles
applied in economic processes are general social principles. Social
values in general are incrementally variable: neither safety, diversity,
rational articulation, nor morality is categorically a "good thing" to
have more of, without limits. All are subject to diminishing returns,
and ultimately negative returns.

While the crucial question for social decision-making processes is

the impact of those processes on society as a whole, attempts to answer
that question cannot automatically proceed as if society as a whole is
the decisionmaking unit. Rather, what must be considered are the
incentives and constraints facing the actual decision makers, in order
to determine if their decisions are likely to produce socially optimal
results. It is in large part a question of how effectively knowledge is
transmitted-not simply how wellinformed the initial decision was, but
how effectively feedback controls subsequent modifications,
regardless of whether or not the decision makers want to change.
Effective social knowledge is knowledge of social impact that forces
decision makers to adjust accordingly, both initially and subsequently,
just as effective economic knowledge forces a business to adjust to
consumer preferences under threat of bankruptcy. Insofar as
institutions are insulated from this forcibly effective knowledge, it is
purely optional on the part of the decision makers to what extent even
to acquire information about social consequences, much less act upon
it. Since such information has costs, and stifling one's own
predilections and self-interest, or admitting errors, involves perhaps
even higher costs, there is every institutional incentive to resist the
transmission of socially effective knowledge. The question of the
effectiveness of institutions for their social purposes (as distinguished
from the purposes of those who run them) is largely a question of the
conductivity of the incentive structure with respect to external
knowledge.

Money is obviously a sensitive conductor of knowledge where

individual or institutional solvency is at stake. The fungibility of
money facilitates incremental rather than categorical decisions and
permits the incremental weighing of highly disparate effects in one
medium of accounting. This is not creating an artificial equivalence
but recognizing an inherent trade-off. The options weighed are not
limited to simultaneous alternatives but extend across time as well as
space, since they involve savings and investments of varying degrees
of maturity, as well as current consumption and production decisions.
Despite the common contrast between financial considerations and
personal emotions, both share these characteristics as conductors of
social knowledge to individual decision makers across space and time.
A family decision on moving to a new home involves weighing such
disparate emotional considerations as the future need of a growing
infant for his own room, the disruption of the older children's current
neighborhood friendships, the effect of the new school on their future
college (and therefore career) prospects, the emotional strains on the
breadwinner(s) caused by the cost of the new home-and many more
such concerns, all weighed in the emotional currency of the family's
well-being. Even if one individual makes the decision, the emotional
ties between that individual and the other family members conduct
their needs to him as incentives and constraints which typically force a
decision quite different from what would be optimal from that
individual's own standpoint alone. A father may, for example, locate
his family far out in the suburbs for the sake of the children, giving
himself an exhausting daily commute to work, even though there are
apartments available within walking distance of his office and closer to
the entertainment centers that he and his wife enjoy. All these
considerations are fungible and incrementally variable where high
emotional conductivity transmits the present and future needs of others
to the decision maker as personally felt incentives and constraints. In
this way, there is created the social equivalent of the economic agent
who is a residual claimant and therefore can function with social
effectiveness as an "unmonitored monitor." By contrast, the rules of an
organization are often categorical, as when a municipal ordinance
requires that all city employees live within the city limits or postal
regulations require packages to be prepared to certain specifications.

The concept of an "unmonitored monitor" with a broad mandate

may seem dubious as a way of getting a job done. Articulated specifics
(job descriptions, organizational rules, etc.) enforced by tiers of
monitors are much more rationalistic. However, the ultimate question
is not plausibility but results. Unmonitored monitors are among the
most hard-working and dedicated people in the society. Mothers and
businessmen are classic examples. In their very different ways, these
two unmonitored monitors have become no torious for the intensity
and duration of their efforts, and are often admonished to "take it easy"
by those closest to them, even though the latter are often the
beneficiaries of their efforts. Similar levels of dedication are much
rarer among rank and file business employees or rank-and-file civil
servants-though both of the latter groups are under layers of
supervisors and controlled by numerous articulated rules. Admonitions
to rank and file civil servants to "take it easy" would raise suspicions
of sarcasm. Nor is it a matter of different groups of people performing
differently because of disparate values or psychology. The very same
individuals who perform in lackluster fashion as employees of
business or government may, as parents, drive themselves to do all that
they can for their children.

No one is a wholly unmonitored monitor. There are legal restrictions

on business management and laws on child neglect and abuse.
However, these laws seldom reach either the areas or the intensity of
efforts achieved in parental or business activities. The businessman
who works nights and weekends is usually going far beyond what is
necessary to avoid being fired or to prevent the business from being
sued or going bankrupt. Similarly, most parents could probably reduce
their efforts and expenditures on their children by half without
becoming legally liable for neglect or abuse. Indeed, some of the
largest expenditures on children arise when putting them through
college, at an age when there is no legal liability to do anything for
them. In short, even where there are formalized rules, the articulated
rationality of these rules does not begin to explain the efforts and
sacrifices of unmonitored monitors. It is the high conductivity of both
money and emotional ties which transmits knowledge of other's needs
with such dramatic effect.

High conductivity is an economizer of costly knowledge, in much

the same way as the transmission of electricity through copper wire
economizes on generating costs, even though it is physically possible
to transmit electricity through less conductive material. The
conductivity of the human nervous system also economizes on
knowledge. A baby pulls his hand back from a hot object without
having to know how heat destroys his tissues. The rare medical
phenomenon of people whose nervous systems do not transmit pain
also demonstrates how conductivity is an economizer of knowledge.
Such people must have very frequent complete medical checkups, for
they feel none of the painful symptoms which either alert the rest of us
to trouble intellectually or else incapacitate us from continuing the
harmful activity. As a substitute, they must seek vastly larger amounts
of costly, explicit, articulated medical knowledge. Some such people
have been rushed from a routine medical checkup to an emergency
operation for such conditions as acute appendicitis, from which they
had felt no pain. To the extent that social institutions are insulated from
the pain of feedback, they may either neglect dan gerous conditions or
else require inordinate costs of knowledge to preserve themselves or
the larger society. Sometimes the institutions deliberately seek to
insulate or anesthetize themselves to painful feedback, but sometimes
that happens as an unintended consequence of the way decision-
making units are set up-for example, a special subway authority
oblivious to the injuries and deaths its safety policies are causing
among bus or automobile passengers.

Effective social decision making need not depend on the

transmission of explicit feedback to decision makers, nor on the degree
of their rationality and insight in reaction to it. Where individuals,
institutions, or processes are competing for survival, the best adapted
survive, whether their adaptation is due to brainpower or luck, and the
social benefits are maximized either way. Individual merit is neither
necessary nor sufficient for optimal social decision making.
Chapter S
political Trade-Os

The government as a decision maker is often regarded as simply the

institutional personification of "society." But the diversities, conflicts,
and disparate incentives and constraints which make "society" a
meaningless abstraction as a decision-making unit also make
government a fragmentary aggregation of decision makers. An
experienced Washington insider refers to "the warring principalities
that are sometimes known as the Federal government."' This is not the
classic "separation of powers" into legislative, judicial, and executive
branches. These "warring principalities" are all part of the same
executive branch. Executive agencies of the U.S. government have not
only followed policies at cross purposes with one another; they have
even sued each other in court. Theoretically, they are all under the
control and the direction of the President, but the fact that these
internecine disputes can persist and be publicly aired not only in the
press but in the courts suggests that Presidents often find it politically
prudent to stay out of these power struggles. Moreover, the areas of
autonomous decision making within government can be even smaller
than a given agency or bureau. Supervisors may "have little control
over their nominal subordinates, who enjoy de facto tenure,"' even
when they are not civil servants, because of those subordinates' links to
particular Congressmen and their staffs or to the press or to outside
constituencies.'

Governmental decision-making units must be analyzed like other

social or economic units which choose courses of action designed to
maximize their own well-being, under the particular incentives and
constraints of their respective situations. This obvious point must be
emphasized because of a large literature which recognizes
nongovernmental activities as self-interested but arbitrarily treats any
governmental activity as axiomatic proof of an objec tive social need
for such activity.' Despite the existense of some self-sacrificing public
officials, to postulate that such officials generally control
governmental decision making seems less realistic than the opposite
view that "parties formulate policy in order to win elections, rather
than win elections in order to formulate policy."5 For nonelected
governments, the postulate that government activity is solely a
response to social needs seems even less reasonable as a basis for
analysis.

As noted earlier (Chapter 2), political surrogates are a way of

economizing on knowledge in government decision making, since
each citizen cannot become fully informed on every issue. However,
this arrangement also means a built-in advantage for political
surrogates over their constituents in the use of knowledge. No small
part of the political art consists of the exploitation of that advantage-
whether by misstating the costs and benefits of particular programs, by
ominously referring to the weighty considerations "known only to the
President" in his conduct of foreign policy, or the intricate rules of "the
bureaucratic maze," known only to insiders and therefore insulating
much governmental activity from outside scrutiny. All kinds of
political systems (democracy, monarchy, feudalism, etc.) put enormous
emphasis on the personal "loyalty" of subordinates-not loyalty to the
public, or even to the government, but to their immediate superiors-
thereby sealing off a source of leaks of knowledge to outsiders.

Although "society" is far from being a decision-making unit, even in

governmental decisions, it is of course the most important unit on
whom the impact of political decisions is to be considered. Therefore
the trade-offs to be considered here are those political trade-offs of
enduring social significance, rather than the "horse trading" that goes
on among politicians. Among the major political trade-offs to be
considered here for any political system are those involving (1)
freedom, (2) rights, and (3) time.

FREEDOM AND FORCE

One of the most important political trade-offs is between the amount of

freedom and the amount of other characteristics desired in a society.
The problem is made more difficult by intellectual ambiguities and
philosophical disagreements that have long surrounded the very
meaning of freedom: "We all declare for liberty; but in using the same
word, we do not mean the same thing."6 This is at least as true today
as when Abraham Lincoln said it.

Freedom here will refer to a social relationship among people-

namely, the absence of force as a prospective instrument of decision
making. Freedom is reduced whenever a decision is made under threat
of force, whether or not force actually materializes or is evident in
retrospect. This prospective definition of force is essential to avoid
such absurdities as concluding that armed robbery does not usually
involve force. Force here is not used metaphorically, however, to refer
to benefits so enticing as to make the decision a foregone conclusion.
A special wariness is necessary in discussions of freedom, not only
because of the inherent problems of the concept, but also because an
Orwellian Newspeak has made it fashionable to describe the tradeoff
of freedom for other things as an expansion of "new freedoms" or of
freedom in some "larger" sense. The incremental trade-off of freedom
for other things is accepted by everyone except a pure anarchist. But
the extent of this historic trade-off is too momentous an issue to be
concealed or confused by pretty words.

Force is the antithesis of freedom, but force must be used, if only to

defend against other force. Force used against murder, for example,
includes not only such force as may be used by police intervening to
prevent a murder, or to capture a murderer, but also force applied to
innocent third parties who may be detained or subpoenaed as witnesses
or forced by law to serve as jurors. It is not an absolute sacrifice of
freedom nor an absolute prevention of murder. But it is simply an
incremental trade-off at varying rates, and the question at any given
point is how much more freedom are we prepared to sacrifice for how
much prospect of reducing the murder rate-or how much more
freedom are we going to demand at the cost of how many more lives
of murder victims? Trade-offs involving freedom are often painful, if
only because only other urgent needs are considered worthy of
weighing and balancing with it.
 The government is the general repository of force-whether that
government be democratic, totalitarian, feudal, etc. Totalitarian
governments, by definition, have no significant trade-offs of freedom
left to consider, since freedom has already been sacrificed for some
alternative consideration, whether rhetorical or material. Democratic
governments are constantly weighing incremental trade-offs toward or
away from freedom. Indeed, democracy itself is a consideration that is
traded against freedom, and at one time this trade-off was both
recognized and feared.' Contemporary opinion often simply
incorporates freedom into the very definition of democracy, so that a
government that eliminates freedom is not "really" democratic. This
trade-off, too, is much too important to be dealt with by verbal sleight
of hand. To include freedom in the very definition of democracy is to
define a process not by its actual characteristics as a process but by its
hoped for re suits. This is not only intellectually invalid, it is, in
practical terms, blinding oneself in advance to some of the unwanted
consequences of the process.

A lynch mob may be a more accurate expression of the majority will

than a court of law-especially an appellate court of appointed judges-
and yet lynch mobs are condemned and "law and order" upheld
because certain freedoms are deemed more important than democracy.
Democratic institutions will be defined here to mean institutions which
carry out the popular will in its decisions-whether those decisions be
wise or foolish, generous or oppressive. When the undemocratic
governments of the Reconstruction era in the South were replaced by
governments more responsive to the majority, the minority suffered
oppression and terror on a scale seldom seen in modern civilization.
Such residual protection as the black minority retained came largely
from sources having little to do with political democracy-notably
markets,' morality,' and appellate courts.'°

When freedom is conceived of as a relationship among people,

trade-offs of freedom for material goods, scientific progress or military
power, for example, become quite explicit, instead of being subsumed
under a general expansion of "freedom" as sweepingly redefined. The
growth of the decision making powers of government may facilitate
various specific forms of material progress-even if at the expense of
material progress in general-while reducing freedom. That trade-off
needs to be made explicit. It is instead muddied over by those who
define freedom as options (freedom to)"-and who have many options
to promise in exchange for our freedom. The options approach asks,
"What freedom does a starving man have?" The answer is that
starvation is a tragic human condition-perhaps more tragic than loss of
freedom. That does not prevent these from being two different things.
No matter what ranking may be given to such disagreeable things as
indebtedness and constipation, a laxative will not get you out of debt
and a pay raise will not insure "regularity." Conversely on a list of
desirable things, gold may rank much higher than peanut butter, but
you cannot spread gold on a sandwich and eat it for nourishment. The
false issue of ranking things cannot be allowed to confuse questions of
distinguishing things.

The mere fact that something may outrank freedom does not make
that something become freedom. Moreover, in social trade-offs as in
economic trade-offs, all rankings or preferences are incremental at a
given point and changeable at other points. Nothing desirable at all is
categorically less desirable than something else. Food may be
incrementally preferable to any amount of freedom to a starving man,
but that does not mean that dessert after a banquet is incrementally
preferable to the freedom to go home at the end of the evening. The
great social desiderata are so frequently discussed in categorical
language that it is easy to forget their incremental nature-and to talk
nonsense with seeming profundity as a result. Both Adam Smith and
John Rawls made justice the primary virtue of a society,12 but their
meanings were not only different but nearly opposite, because one was
speaking incrementally and the other was speaking categorically. To
Smith some amount of justice was a prerequisite for any of the other
features of society to exist," but he was far from believing that all
increments of justice invariably outranked increments of other things,
and in fact he regarded such a belief as counterproductive and
doctrinaire." To Rawls, justice is categorically paramount in the sense
of not being incrementally inferior to any other consideration, so that
one consideration of justice may be sacrificed only to another
consideration of justice, but not to any other desired goal.15 According
to Rawls, a policy that benefitted all of the human race except one
person should not be adopted, no matter how much they were
benefitted, nor even if the one person were completely unharmed,
because that would be an "unjust" distribution of the benefits of the
policy. Perhaps not many people are likely to agree with Rawls'
conclusion, but many use the same arbitrarily categorical approach to
social analysis which led logically to such conclusions.

When two things have to be traded off against one another, it is

necessary to understand clearly (1) that they are in fact two different
things, and to consider (2) explicitly on what terms we are prepared to
incrementally trade the one for the other. Nothing is gained by
claiming-or insinuating-that both are the same thing, or that one is just
more of that thing than the other. At least nothing is gained from the
standpoint of rational decision making. In political reality, much is
gained by those who wish to take the decision making power of others
into their own hands. Much verbal sleight of hand is practiced with
such statements as "security is merely an aspect of freedom.""
Freedom has cost too much blood and agony to be relinquished at the
cheap price of rhetoric.

NONGOVERNMENTAL "POWER"

Not only is freedom confused with other things, so too is its

opposite, force. The widespread recognition of the need to use force to
counter other force is used to justify expanding governmental force to
counter things that are not force at all, but are called force
metaphorically for the sake of justifying coercive action against them.
Attacks on economic "power" are a common form of justification for
expanded government force.

Often the rhetoric is preserved by such devices as referring to a

firm's retrospective percentage of sales during a given period as a share
of the market they "control," as if in some prospective sense.
Metaphors and vague definitions are used to justify an expansion of
government power which is neither vague nor metaphorical but very
concrete. But with power as with freedom, a sufficiently wide or vague
definition brings in many examples. What is crucial in judging such an
example is distinguishing between (1) situations in which an
individual's options for dealing with alternative transactors are forcibly
reduced or eliminated, and (2) situations in which a given transactor
adds so much more to his options than anyone else that acceptance is a
foregone conclusion. A monopoly or cartel reduces the consumers'
options, while a successful competitor adds to those options. Reducing
consumers' options requires not simply raising one's own price-anyone
can do that-but forcibly keeping others from entering the competition
and undercutting that price. This usually requires either an exclusive
franchise from the government, or some law or regulation limiting
competition. These government created monopolies or cartels are the
beneficiaries of governmental force, not its target. The situation of the
transactor who offers better terms than others may seem to be a strange
candidate for a "power" menace to be combated by government,
though in reality many regulatory and antitrust activities do just that,
as will be seen in Chapter 8. The point here is simply that a tradeoff
involving more use of force in economic decision-making is denied by
depicting governmental force as merely an offset to existing private
force, with no net increase.

DEMOCRACY

Democracy has been defined here by its characteristics as a process,

not by its hoped for results, such as freedom, the dignity of the
individual, or other benefits expected or alleged. Whatever the merits
of democracy, it has its institutional limitations and operates within an
area of circumstantial constraints-like all other political, economic, and
other systems. The open en- dedness of hopes has sometimes led to the
view that a majority can or should have whatever it wants-a view
defined here as "the democratic fallacy." The democratic fallacy
implicitly presupposes unconstrained circumstantial options, so that if
a majority does not get what it wants, it can only be a result of some
denial of their democratic rights in some intentional sense. Choice
through the ballot box has often been equated with choice through the
market. But inherent constraints mean that democratic governments
have no wider array of options to offer than anyone else-regardless of
what options many may believe to exist-and that one crucial difference
between ballots and prices is that prices convey effective knowledge of
inherent constraints, while ballots do not. If I desire a Rolls Royce and
simultaneously a normal standard of living, the price tag on the
automobile immediately informs, convinces, and virtually coerces me
to the conclusion that these two things are inconsistent. But if I believe
simultaneously in a large military arsenal, low taxes, a balanced
budget, and massive social programs, there are no constraints on my
voting that way. Some time after a voting decision, it may become
apparent that what was asked or promised did not in fact materialize,
but this can easily be blamed on the dishonesty of political candidates,
with no greater public awareness that the set of options simultaneously
desired was inherently unrealizable from the outset. Instead of
feedback to the voters to reduce their desired set of options to what is
simultaneously realizable, the message may be to choose different
persons as leaders, or different ideologies, movements, etc., in order to
continue pursuing that same set of options. Indeed, when social
progress is viewed retrospectively, it is often regarded as axiomatically
attributable to such insistence on better things, rather than to
technological and organizational advances over time which created
wider arrays of options from which to choose. It is as if the historic
increase in the Gross National Product was incidental to a rising living
standard caused by political activity.

The question here is not whether voters have a right to choose

whatever they want. Voters can only choose process characteristics and
hope for results. Consumers buy results and leave the process to those
with specialized knowledge of such things. There is no argument here
for denying voters their democratic choices. The point is merely to
claim that the terms of the choice are readily misstated politically. The
prevalence of inflation among the most diverse kinds of governments
and across thousands of years of history, suggest that no small part of
the political art consists in misstating options and in trying to give the
appearance of simultaneously satisfying competing claims when they
cannot be satisfied in reality.
 A more extreme version of the democratic fallacy goes beyond the
idea that a majority can or should have whatever it votes for, to claim
the same right for particular minority subsets of the population. It is
regarded as a "failure" of a democratic system-or as showing that the
system is not "really" democratic-when determined, conscientious
people cannot get what they want through legitimate channels.
Justifications for law breaking (extending in principle all the way to
terrorism) by frustrated insurgents are based on this premise. In this
version of the democratic fallacy, the ignoring of inherent constraints
within which all decision-making processes function is simply
extended to ignoring all other people's desires as an obvious (and
valid) reason why a particular subset's desires were not achieved.

Sometimes the subset is presumed to know the majority's "real"

interests better than the majority itself, and so is acting democratically
in some "larg er" sense. This confuses the characteristics of a hoped-
for result with the characteristics of a decision-making process.
Numerous subsets' hoped-for results are preferable to the majority's
perception of things, in the view of those subsets. Democracy is simply
one decision-making process for resolving such conflicts among
disparate perceptions. To resolve the conflicts by other processes-
including violence-is to trade off democracy for something else. To
conceal that trade-off by calling that something else "democracy" too
is to ignore the fact that virtually all political systems or movements
are ostensibly for the benefit of the people. The hoped for results of
kings, emperors, military juntas, and various dictators would thus all
have to be called "democratic" in some "larger" sense.

Like other trade-offs, the trade-offs involving democracy are

frequently denied or misstated by including other things in a wider
ranging and more vague definition of democracy. "Participatory"
democracy has arisen in this way, as another concept defined by hoped
for results rather than by characteristics of the process itself. In
principle, participatory democracy is distinguished from, and
complementary with, representative democracy. In a representative
democracy when the voters choose surrogates who actually make the
decisions, the surrogates may either be or become part of a small set of
people with interests and perspectives different from those of the
public at large. The theory behind "participatory" democracy is that
more decisions should be made by the public itself directly rather than
through representatives. To this end, numerous local boards,
commissions, councils, or advisory participants of one sort or another
are to have "input" into the decision-making process. The implicit
assumption of the theory is that there will be not merely more
numerous decision makers but more representative ones. But, turning
from hopes to institutional mechanics, there is usually nothing to lead
institutionally toward that result, and much to lead in the opposite
direction. Those individuals who have the leisure, the education, and
the inclination to "participate" may be very unrepresentative of the
public. In practice, participatory democracy means that broadly elected
representatives are to share power with self-selected representatives of
narrow vocal constituencies. From the standpoint of the institutional
transmission and authentication of knowledge, it means that instead of
having insiders judge processes and outsiders judge results, some
outsiders are to judge and change processes on the basis of their part-
time experience on the inside and their unrepresentative interests on
the outside. It is essentially an incremental trade-off of the public's
right to decide by elected representatives for a self-selected
constituencies' opportunity to be insiders.

Whatever the substantive merits or demerits of particular trade-offs

involving freedom, force, or participation, the crucial point is to see
the trade offs as trade-offs, rather than as they are sometimes depicted,
as simply "more" freedom or democracy as conveniently redefined.

RIGHTS

Rights have already been noticed as rigidities (Chapter 2). They are
also boundaries limiting the exercise of governmental power and
carving out areas within which individual discretion is free to shape
decisions. In addition to these Constitutional rights of citizens in
general, there are special rights, such as the right of exclusive use of
specific things (property rights) or rights arising from specific
reciprocal commitments (contracts) and rights created by specific
legislation (employment rights, housing rights, etc.). By "rights" here
is meant legal entitlements, regardless of their moral merits. Rights in
this sense are simply factual statements about the availability of state
power to back up individual claims. They are simply options to use
governmental force at less than its cost of production-ideally at zero
cost. In reality, some cost of time and effort are required even to phone
the police, and to vindicate many rights a long and costly legal battle
up through the appellate courts may be necessary. Where a right worth
X (in money or otherwise) would cost 2X to vindicate, then for all
practical purposes such a right does not exist for the individual. Where
most of the cost falls on the government, the trade-off is between the
social costs involved in a particular violation of individual rights-i.e.,
the effect on other people of letting such violations go unpunished-
compared to the costs of enforcement.

Social trade-offs are involved in the creation of rights, the defining

of rights, and the assigning of rights to individuals. When a given kind
of activity is dealt with by the creation of rights rather than by
alternative decisionmaking processes, there is a loss of flexibility
(incremental adjustment) and reversibility. Something that is
incrementally preferable at a given point becomes categorically
imposed at all points by the force at the disposal of the government.
Insofar as the law of diminishing returns applies to social as well as
economic processes, this means that many benefits are pushed to the
point where they cease to be benefits and may even become
counterproductive.

PROPERTY RIGHTS

The creation of rights involves questions not only of whether to

create rights as a mode of dealing with a particular trade-off, but to
whom to assign such rights as are created. Property rights involve both
kinds of decisions. Many things are left unowned-wild animals or
birds, fish in the sea, human beings, air and sunshine-because the
enforcement of property rights is deemed either impracticable or
undesirable. Ideas cannot be copyrighted for both reasons, whereas a
given permutation of words can be copyrighted, both because it is
feasible to determine authorship and because it is deemed more
important to provide a prospective reward as an incentive for future
writing than to incrementally increase the circulation of existing
writings by eliminating royalty charges.

Property rights in general must be distinguished from the particular

form of property rights in so-called "capitalist" countries. A socialist
government also owns property. If socialism meant literally an
abolition of property rights, rather than their reassignment, then any
individual citizen would be free to build a house, ride a horse, or play
baseball on land that the government had set aside for growing food,
and life would become impossible in such a society. But, in reality,
whether under capitalism or socialism, property rights are basically
rights to exclude-meaning in operational terms, the availability of
governmental force to eject and/or punish others for using the same
property without permission. However, the right to exclude does not
mean that exclusion will result. Rights to exclude are negotiable in
market economies, and may be sold or rented, in whole or in part.
Property rights are also divisible among decision-making units. One
person or organization may own the right to farm a given field while
another decision-making unit owns the right to the minerals
underneath and still another owns the right to string electric wires
overhead. Almost never does one property owner own every
conceivable use of a given property. An owner of a mountain does not
own the right to fly over the mountain, nor does he own the right to
every stream that originates in his mountain, in the sense of being able
to dump anything that he wishes into those streams.

Whether in a socialist or a capitalist context, a property right is a

differential privilege17 of some to exclude others from decisions or
activities involving some physical or intangible object of value. This
differential privilege is not personal; the current owner can have last
week's owner jailed for trespassing. In a socialist or communist
society, a deposed official dare not presume to continue directing
enterprises formerly under his control. The basis for a property right is
therefore not an individual attribute or merit but social expediency.
The social question then is-what is to be gained or lost by defining a
property right, and on what basis should the right be assigned, and
shall it be transferable? The defining and assigning of property rights
goes on in all kinds of societies-in socialist societies the assignments
are based on political election or appointment, until further notice-
while transferability at the discretion of individual transactors is the
defining characteristic of capitalist processes."

To define a property right is to carve out and tie into a package

various possible activities associated with a given object of value. It is
essentially a judgement that certain decisions go together, in the sense
that different decisions about each of the activities separately are
unlikely to be as socially beneficial as decisions about the set of
activities collectively. If separate property rights to a living hog's head
are defined independently of property rights to his heart, stomach, or
hind legs, so that these rights can be held by different decision-making
units, it is unlikely that the hog will live an optimal length of time from
the viewpoint of the production of pork chops, ham, and chitterlings. If
the owner of the hog's heart removed his property, the value of all the
other property would be reduced. If these separate property rights are
transferable, it obviously would be to someone's self-interest to acquire
these separate, risk-ridden rights at values greater than they have to the
separate owners, and combine them into one, far less risky right to the
whole hog. In other words, the right to the whole hog is more valuable
than the sum of the rights to all his parts. The definition of a property
right is therefore an important step, especially in systems which forbid
subsequent transfer of these rights.

In feudalistic systems, where land is inherited as an indivisible

property required to remain with a given family (entails), the whole
society loses if those lands are in parcels so small or so situated that
they are far less productive than if they could be combined into larger
units or traded off to get contiguous parcels, or if land served by a
given stream were under the same de- c'_sion-making unit.
Conversely, a property may be too large to be effectively managed by
one decision-making unit, so that it would produce more output for the
society at large if it were under several decision-making units. These
problems are not unique to feudalism. Wherever the initial definition
of property rights is imperfect-which is to say, wherever it is done by
human beings-and subsequent transfers are prohibited or restricted,
similar problems arise. A socialist government may, for example,
"entail" a whole industry to one planning commission, leading to
avoidable "mistakes" in the industry which are not the result of
stupidity or perversity but merely due to the high cost of monitoring
the property as defined. Were the property transferable, it would be
more valuable in smaller units-more valuable not only to the buyers
but to society at large.

Leaving property rights wholly undefined is even more disastrous

than imperfectly defining them. Wild animals are often hunted to
extinction precisely because they do not belong to anyone. They can
by fiat or metaphor be said to belong to "the people," but unless it is
feasible to apply force to ex elude poachers, there is no property right
in reality. It is precisely those things which belong to "the people"
which have historically been despoiled-wild creatures, the air, and
waterways being notable examples. This goes to the heart of why
property rights are socially important in the first .place. Property rights
mean self-interested monitors. No owned creatures are in danger of
extinction. No owned forests are in danger of being leveled. No one
kills the goose that lays the golden eggs when it is his goose. Even
chickens who lay ordinary eggs are in no danger of being killed before
their replacements have been provided. No logging company is going
to let its own forest become a mass of stumps, though it may do that on
"public" land."

By creating monitors with a vested interest in the maximization of a

given set of values, property rights reduce the social cost of monitoring
efficiency. In systems of nontransferable property, the monitor's
incentives are to maximize those values realizable during his own
tenure, whether as inheritor of an entailed estate or as a member of a
modern planning commission with a fixed term. Where the property is
transferable at will, the present value of a property at any given time
includes future values realizable long after the time horizon (or even
lifetime) of the existing property holder, who therefore has no
incentive to restrict his maximization to the short run. In socialist
systems, property transfers take place through political decisions to
replace members of the planning bodies or to reorganize the planning
structure itself. The property itself never belongs to those individuals,
but they benefit both financially and psychically from managing it, and
visibly successful management may create a capital gain in the form of
increased likelihood of promotion to higher levels of pay or power. All
of this provides short-run incentives for short-run maximization of
politically visible values. Morality, ideology, or a sense of history must
then be relied upon as incentives for longer-run maximization policies.
That such incentives apply to only a limited number of individuals, or
to individuals in only a limited number of positions of historic
visibility, may be indicated by the fact that long-run investments in the
Soviet economy are directed by only a few people at a time. Under
short-run incentive structures, individual decision-making units tend to
avoid technological innovations with short-run costs and long-run
benefits "as the devil shies away from incense," to quote Soviet
Premier Brezhnev in a complaint about Soviet managers.20

Because property rights are essentially rights to exclude, with the

aid of force supplied by the government, the costs to be weighed in
this social trade-off are the costs paid not only by those excluded but
by the society at large. Indeed, when an economy is recognized as a
rationing scheme that must deny most things to most people (few
individuals could afford to buy one of every item produced in the
whole economy), this question reduces to the losses sustained by
society at large. Patent rights exclude alternative producers from
supplying the patented goods, reducing competition and the efficiency
which depends on it. Copyrights reduce the dissemination of
knowledge and entertainment, by pricing some potential users out of
the market with royalty requirements. With both patents and
copyrights, it is not the royalties actually paid that constitute the social
loss; these are only internal transfers. It is the transactions that do not
take place because of prospective royalty charges that constitute the
net social loss. The cost of policing property rights is also a social
consideration involved in a trade-off against the benefits. The whole
costly apparatus of title records, title search, civil court systems,
marshals for evictions, etc., are part of the cost of property rights in
general, and of highly fragmented property ownership in particular.
The costs may also include losses to those individuals intended to be
benefitted.

Rights in general may be conferred for individual as well as social

benefit. Property rights are intended to secure gains to society at large,
including numerous persons who own no significant property. This
point is insisted upon in socialist ideology, where the government
holds property rights "for the benefit of the people," but it is also
implicit in capitalist private property right law as well, where it is the
social expediency rather than the individual gain that is the controlling
rationale.21 However, there are many rights intended to benefit
primarily or exclusively those to whom the rights directly apply. Civil
rights laws, for example, are generally intended to benefit racial or
ethnic minorities, and minimum wage laws are generally intended to
benefit low-wage employees. The appropriate question here is the
trade-off of costs and benefits for those subsets of the population, as
well as for the population at large.

EQUAL RIGHTS VERSUS SPECIAL RIGHTS

While all forms of society require some set of dependable

expectations en- forcable by group pressure or force, in many nations
it is not enough that rights exist; they must, in principle, also be equal
rights. Equality as a legal or political principle does not depend upon a
belief in empirical equality of any sort. Quite the contrary. If it were
literally true that "all men are created equal," there would be no case
for equal protection of the law, or perhaps even for laws at all. If every
person had exactly the same intelligence, strength, aggressiveness,
organizing ability, etc., there would be no need for the law to protect
one from another, because one would never be in a position to
successfully take advantage of the other. Even though a coalition of
such equal individuals could overwhelm any isolated individual, they
would all be equally capable of foreseeing this and organizing counter
coalitions to offset that danger. It is precisely the inequalities of people
which makes the equal protection of the law so important-that there
must be an overwhelming organized force ready to be thrown into the
balance, so that a weak little old lady shall have as much right to live
as the most stalwart young man or that frauds that deceive the unwary
shall not be immune to retribution by officials who are more
knowledgeable.

There are, of course, few people who are equal in any empirical
sense. Most people who are considered equal are usually regarded as
such because they have offsetting inequalities-that is, neither of them
is superior in every aspect, nor are they equal in every aspect. In this
context, "equality" over all depends upon what weights are arbitrarily
assigned to the various traits in which one or the other predominates.
So too would any general notion of "superiority" or "inferiority." All
these attempts to sum up disparate characteristics ignore the diversity
of personal values which makes it impossible to have objectively
recognized, fungible units in which to add up totals. Most of us would
give a heavy weight to the fact that individual A is not a homicidal
maniac, while individual B is, and so prefer A even if B were
universally recognized to have more charm or beauty. But there are
few traits on which there is similar agreement, even as regards rank
ordering, much less relative weights.

Where a particular segment of the population has different rights

from the general population at large-either explicitly or in practice-the
costs of transacting with that segment will tend also to be different.
Anyone with a choice of transacting with illegal aliens, ordinary
citizens, or persons with diplomatic immunity, would face different
risks (costs) of legal liability against himself and different prospects of
seeking legal redress for any damages he might suffer from individuals
from each of these respective groups. If the individuals in these three
categories were otherwise identical, any prospective transactor-
whether as a prospective landlord, employer, or spouse-would face the
least risk of legal trouble from an illegal alien and the most from
someone with diplomatic immunity. The abuses suffered by the former
and inflicted on others by the latter are both notorious. What is
important here is not this retrospective experience of these two special
groups, but what that implies more broadly for prospective behavior in
society at large The more special rights are created for any particular
groups, the higher the transactions costs of dealing with that group and
the fewer transactions that group will be able to consummate. Special
health and safety legislation for youths or women make youths or
women less desirable employees than others and thereby reduces their
employability. This is not a phenomenon of private capitalist
employers only. Soviet managers have avoided hiring younger workers
whenever possible for the same reason.22 As rights of legal redress for
fired workers have grown, so have hiring requirements, to eliminate
many who would otherwise be employable if the employer did not
need a higher level of assurance before assuming the increased risks of
legal liability for firing.23 Relatives often have special rights on a job,
without any explicit agreement to that effect; antinepotism rules make
them less employable to avoid these costs.

Consumer rights raise the price paid for products and services, since
higher quality, or greater producer liability, both have costs. The
question is whether the amount by which the price is raised is more or
less than the increased value created by the rights. If the increased
quality or enlarged responsibility of the seller were worth it, there
would be profit incentives for the producer to raise his quality,
responsibility, and price together without consumer protection laws. It
has long been common for stores with easy return, money back
policies and free repair services to charge more than stores that sell "as
is." Some stores even sell service contracts separately, so that the same
physical item can be bought at two different prices from the same
dealer with two different levels of dealer responsibility. Those for
whom the price differential is sufficient incentive to speculate in
consumer appliances can buy without the service contract, and others
can substitute money for boldness incrementally. These subjective
differences in the costs of risks are ignored when laws in effect
prescribe categorically how much liability insurance must be sold with
each product. Assurances that the consumer must "really" be better off
this way can seldom be checked empirically. One large historical
instance of imposed product quality "improvement" occurred when the
British Parliament in the nineteenth century imposed higher health and
comfort standards on ships carrying Irish emigrants. In view of the
foul and disgusting state of the ships at that time, it might seem to be a
foregone conclusion that this was a net benefit. Yet the records show
that the Irish rushed to get on ships heading out before the law became
effective-and the outflow of emigrants slackened immediately
thereafter.21 The cost of the higher quality was apparently weighed
differently by the Irish themselves than by the British Parliament.

Perhaps the crucial problem involved in creating special "rights" is

that they typically involve reducing the set of options available to the
transactors, without any offsetting increase in other options. There is
no reason to believe that people will generally make a better set of
choices out of a smaller set of options, where the larger set includes all
the options in the smaller set. If the purpose is in fact to deny the
ostensible beneficiaries their choice and substitute someone else's
choice, that is another matter.

Because the negative impact of special legal rights on the recipients

is seldom recognized by the voting public, this cost seldom serves as a
restraint on political decision making. Indeed, the creation of rights is
less constrained than the creation of other ostensible benefits for
special constituencies. While political benefits can usually be expected
to increase voter support among the recipients, they lose voter support
among those who pay the costs-either the taxpayers in general or
others on whom the burdens are placed. Rights, however, cost the
taxpayer little more than the paper and ink needed for printing them.
From a politicians' viewpoint, rights are therefore a virtually ideal
benefit to confer on special constituencies. Where the rights' social
costs consist largely of a reduction in would-be transactions affected
by the rights, what matters politically is whether those tangibly
benefiting from the improved terms of the transactions (minimum
wage laws, rent control) can perceive their offsetting losses from
reductions in the number of transactions consummated
(unemployment, housing shortages), and whether the other transactor
can be publicly discredited ("exploiting" employers or "greedy"
landlords). Where the terms are more visible than the number of
transactions, and the other transactor is politically vulnerable, there is
little constraint on the proliferation of special rights for special groups.
 The trade-off between equal rights and special rights is often denied
by the same verbal methods used to obscure the trade-off between
freedom and other values. The two things being traded off are simply
put under one label, so that special rights for special groups are
described as simply equal rights in some "larger" or "truer" sense, and
instead of a trade-off there is-rhetorically, at least-simply an expansion
of the one benefit. This verbal sleight of hand avoids confronting the
costs of special rights both to society and to the supposed
beneficiaries.

GENERAL RIGHTS

Where certain general rights involve virtually universal desire-such

as the desire not to be murdered-incorporating it into specific law
eliminates the transactions costs of pointlessly litigating anew each
time the net harm of the individual act, in a common-law approach
without any explicit law against murder. Making price fixing illegal
per se similarly spares courts repeated reruns of introductory
economics in antitrust cases. It may seem like a strange and weak
justification for enacting basic rights into law that this will save a little
court time. Such laws, however, transmit virtually unanimous
knowledge-not only about the abhorrence of the crime but about the
determination to act against its perpetrators. No such information
either exists, or would need to be transmitted if it did, in cases
involving voluntary transactions. If it were somehow impossible to kill
anyone except with his own voluntary cooperation, the case for laws
against murder would be much weaker than it is, and there might be
something to be said for litigating each episode from scratch to
determine what harm had been done.

Even laws against murder are subject to diminishing returns, and

ultimately negative returns. A terminally ill patient who has
permanently lost consciousness may be kept organically "alive" for
months or years after his brain is dead, as insurance against a murder
or manslaughter charge against the doctor or hospital authorities. Other
terminally ill patients whose only consciousness is of overwhelming
pain may have their agony artificially prolonged for the same reason,
even though drugs are available to relieve this pain-with the side effect
of shortening their "life." The economic ruin of a patient's family or
the suffering of the patient himself are the implicit "premium" paid for
this "insurance" policy against homicide charges. It is an external cost
to the decision-making medical authorities, and so does not constrain
their behavior. Disproportionate as the costs and benefits might be in
any individual case-the costs to the patient and his family being so
much more than the benefits to the doctor-the larger social question is
how many people would take on the care of terminally ill patients (or
patients who might become terminally ill) if it meant facing daily
prospects of homicide charges from more humane medical procedures?

The tragedy is implicit in the categorical nature of laws in general,

and homicide laws in particular. The legal system is still wrestling with
the problem of trying to introduce some incrementalism into this area-
for example, with individual court orders to disconnect life saving
equipment from terminally comatose patients, essentially dead people
whose organs and medical bills are being prolonged. But the psychic
and legal costs of obtaining such court orders make them practically
unavailable to many people. The point here is not to "blame" anyone.
Quite the contrary. This situation is a tragedy in the classic sense of a
humanly unavoidable devastation. It may even be that there is no real
"solution" that would not open the way to the deliberate sacrifice of
other sick people for their estates, their organs, or to simply be rid of
an inconvenience.

The law against murder has been used as an illustration of the

diminishing returns to laws and policies in general, precisely because it
is one of the most universal of all laws, occurring in the most diverse
social and legal systems and enduring through the ages. There is no
distracting side issue of the desirability of the goal. Diminishing
returns and negative returns to such an essential law are a sobering
indication of the limits of any law or policy-and of the limits of
knowledge, on which decisions depend. Even if, at a given juncture, it
is obvious to the patient, his family, and the doctor that suffering
should not be artificially and pointlessly prolonged, the transmission of
that knowledge in categorically articulated terms documentable to
third parties is what determines whether the murder laws will apply.25
In general, diminishing returns and the limits (costs) of knowledge
inhibit the application of all laws and policies, however obvious or
desirable their goals might seem.

Where the basic general rights involved are rights against the
government-as in the Bill of Rights-saving transactions costs is no
small consideration, given the gross disproportion between the
resources of the government and those of a private individual. Putting
the burden of proof on the government likewise saves transactions
costs. Without such rights and with no burden of proof difference, each
person would have to litigate against general government arguments as
to his harmfulness until his money ran out and then plead no contest.
Saving transactions costs is saving the rights themselves from
meaninglessness.

TIME

Time is important in many ways in political decision making,

including the time horizons of decision makers and voters, the time
dimension of interest groups, and problems created by arbitrary
divisions of the time continuum for political assessment purposes.

Because politicians' own time horizons are so short, the voters'

longer time horizons are crucial for transmitting a more farsighted
perspective to government decision making. But time increases the
cost of political knowledge and the cost of effective feedback to
decision-making individuals or institutions. Consequences that take
much time to become visible are less likely to be understood by the
average voter in retrospect, and given the turnover of elected and
appointed officials, the prospect of long run negative consequences
may be little or no deterrent to an individual decision maker at the time
the political decision is made. Where there is an enduring political
party apparatus-a "machine"-concerned about its long-run office-
holding prospects, the external costs of individual decision making
may be internalized to some extent and enforce a somewhat longer
time horizon than otherwise. However, with the growth of
"independent" or individualized (perhaps "charismatic") politicians,
the political time horizon tends to shrink back to the individual's own
office-holding years. It may be significant, for example, that New York
City's financial crisis of the 1970s grew out of policies and prac tices
adopted during the administration of one of its most charismatic and
independent mayors during the 1960s, and that the contrasting
financial solvency of Chicago at the same time was maintained in one
of the last bastions of municipal machine politics.

Members of a political machine have a large investment in its future

election prospects, which correspond with their own individual
prospects of advancing up the seniority ladder to higher office. The
more independent the individual politician is, the less is his fate tied to
the long run consequences of his decisions in a particular unit of
government. Negative consequences after he has departed that unit can
even be used as evidence of his superiority to his successors. What
matters to the independent political decision maker is how his current
decisions in his current position promote his immediate prospects for
higher positions elsewhere. If a given set of policies enhance a mayor's
presidential prospects, the possible damage of those policies to the city
after he is in the White House is hardly a political deterrent.

The effect of a party apparatus, in contrast to a charismatic leader,

can be seen in nondemocratic states as well. The incumbent leader of
the Soviet Union at any given time could make himself more popular
by liberalizing government restrictions or by reducing military
spending and allowing the people's standard of living to rise
accordingly. The immediate dangers to his own regime during his own
term of office could be minimal, and yet the larger dangers to the
internal and external goals of the Communist party could well be
sufficiently serious to cause that party to depose the leader for even
trying to initiate such reforms. A party with a longer time horizon
requires more pervasive control than an individual with only his own
term of office to consider. Nonparty dictatorships in noncommunist
countries may be equally (or more) authoritarian, but they are seldom
as pervasively totalitarian, in the sense of intruding as far into private
lives, religious beliefs, or the indoctrination of children. Nonparty
dictatorships are therefore more subject to change, if only on the death
of the individual dictator, as in Spain or Portugal.

TEMPORAL BIAS

We tend to conceive of various interest groups-the steel industry,

agriculture, construction workers, doctors, ethnic minorities, etc.-as
integrally persisting through time, and of various special interest
legislation or policies as being for the benefit of such groups as
enduring entities. In reality, however, the constant turnover of
individuals and/or organizations in particular sectors makes possible
sharp divergences between the interests of the incumbents as of a
given time and the enduring interest group of which they are a
transient part. For example, laws making it difficult for employers to
fire anyone are an obvious benefit to existing employees. But such
laws create incentives for such employers to raise hiring standards and
to substitute capital for labor incrementally-both actions raising the
unemployment rates among workers subsequently entering the labor
force. The net result can be a reduction in employment opportunities
for "labor" over time, though an immediate gain in employment
opportunities for incumbent employees. It may be a perfectly rational
goal for incumbent employees to seek such laws protecting jobs and
for incumbent politicians to pass such legislation. Many of those
whose future job prospects are being traded off for present advantages
are too young to vote or have not yet been born. Similarly, state laws
often protect incumbent corporate managers from "takeover" efforts by
other corporations which might fire them after buying the business.
From a social point of view, it may make little sense to protect less
efficient executives from more efficient executives. However, it is
incumbent management which decides where to locate corporate
headquarters and installations, and those states which shield incumbent
management by obstructing "takeover" efforts have an advantage in
attracting taxpaying and job creating businesses. It is a perfectly
rational decision for states to do so, even when it is against the national
interest. In short, it is perfectly rational for incumbent labor and
incumbent business to seek goals which are antithetical to the
economic interests of labor and business as long run interest groups.
And it is equally rational for incumbent politicians to accommodate
them with laws that are in no one's long run interest.

It might seem as though, when the transient representatives of an

enduring group are replaced by a new generation, existing legislation
adapted to the previous generation would be repealed. But such
adjustment to later feedback is inhibited by differences in the cost of
knowledge to incumbents and nonincumbents. First of all, incumbents
know who they are individually, what they have in common, and what
they have at stake. People who might have become doctors if the
A.M.A. did not restrict entrance to medical schools, or who might have
created an entirely different kind of railroad if the Interstate Commerce
Commission did not control that industry, will never know that with
anywhere near the same certainty-that is, with anywhere near as low a
cost of knowledge. An incumbent need only be sane to know what his
occupation is, and only moderately intelligent to realize what he and
his cohorts could lose under alternative institutional arrangements. But
someone who finds that dishwashing is the best job he can get cannot
know that he could have become a construction foreman if the
construction union did not restrict entry. Even if he could know, he
could not locate all the other individuals who might have been his co-
workers or employers in the hypo thetical construction industry as it
would have existed without union restrictions, so that they might form
a counteracting special interest group. Similarly, all the potential
executives, investors, employees, and subcontractors of the kind of
railroad companies that could have come into existence without I.C.C.
regulations face incredible costs of knowledge in trying to locate one
another, even if each somehow knew that he was personally one of the
losers from I.C.C. policies.

This temporal bias as between existing and prospective members of

an interest group is sometimes further accentuated when a new set of
interested third parties is created by legislation establishing institutions
to regulate, promote, or otherwise interact with the interest group in
question-for example, the Civil Aeronautics Board, the Agriculture
Department, and similar governmental organizations linked to given
industries. They are linked not to the industry or interest group as it
might evolve on its own, with an ever changing mix of organizations,
people, and power relationships. They are linked to a large extent to
incumbent organizations and individuals in the industry or interest
group. Normal displacement of such organizations and individuals by
new competitors as time goes on is therefore often resisted by them
through political, governmental actions. Incumbent businesses may be
saved from bankruptcy by restricting the entry of rivals, forbidding or
inhibiting price reductions by other incumbents with lower costs, or
holding back technological innovations that threaten the continued
profitability or survival of incumbents with older technologies.

Much political discussion of competing interest groups overlooks

the competition among temporally separated segments of the "same"
interest group. Temporal bias affects not only the division of costs and
benefits within such an interest group, but the effect on the economy or
society at large of the later direction taken by such groups under
constraints established to benefit the first generation of incumbents
sufficiently well organized to achieve their political goals.

The bias of political decision making in favor of incumbent decision

makers in nonpolitical institutions is part of a more general temporal
bias of political decision making, whose time horizon tends to be
bounded by the next election. Insofar as the voters' time horizons
extend further, on particular issues, the political decision may reflect
long run considerations on those particular issues. However, for the
voters' time horizons to effectively control political decision making
requires that the voters be able to foresee the long run consequences of
current policies. For some policies this is more feasible than for others.
For many policies, including economic policies, the long run
consequences involve technicalities seldom understood outside the
circle of specialists. Moreover, empirical feedback can correct initial
understanding only to a limited extent, since individual decision
makers have often gone on to other (usually higher) positions on the
strength of what was once believed about their decisions, and if it was
difficult for voters to understand what was done when it was done, that
difficulty may be even greater when trying to recreate the initial
situation in voters' minds years later in order to reassess the options
chosen. This is not impossible, however, when the initial decision
involved corruption that was later exposed (Teapot dome) or a war
growing out of previous appeasement (Neville Chamberlain). The
point here is simply that the knowledge costs insulate long run
decisions from voter feedback to some degree, and that in the absence
of voter feedback, there is no institutional incentive for elected
officials to take a view that extends beyond the next election. Just how
short a time horizon this is may be indicated by the fact that the
average time remaining before the next election is one year for an
American congressman and three years for a U.S. Senator. Of course,
earlier in their terms they have more time remaining before the next
election, but later they have correspondingly less. Their term of office-
as of the day they take office, two years and six years respectively-
gives the maximum time horizon, but the average time horizon is only
half of that.

Time is especially important in economic decisions involving "fixed

costs"-that is, costs that do not vary in the short run. Bridges, bus lines,
and hospitals, for example, have large fixed costs for their basic
structure and equipment relative to the other kinds of costs-such as
labor costs-which vary with the use of the facility or service.
Municipal bus lines can continue to operate without adding to
taxpayer's burdens, as long as the fares cover the short run costs, such
as the cost of gasoline and the bus drivers' pay. For the longer run,
however, the fares would also need to cover the fixed costs of
replacing the buses as they wear out. At a given point in time, the need
to raise bus fares to cover both kinds of costs can be politically denied
without fear of feedback within the elected officials' time horizon. As
long as the existing fares continue to cover the cost of gasoline, bus
drivers' salaries, and similar short run costs, fare increases can be
postponed without any immediate reduction in the quantity or quality
of bus service or any increase in taxes-regardless of how inadequate
the fare may be for replacing the buses themselves when they wear
out. That is a problem for future bus riders, future taxpayers, and
future administrations. For the present, there are obvious political
gains to be made from a humane stance of protecting the public (or the
poor) from higher fares. When the buses age and begin breaking down,
leading to more overcrowding in the remaining buses, longer waits
between buses, and less comfortable buses, this affects not only the
transportation system but the whole social ecology of the city. Those
who find the municipal transit sytem intolerable have incentives to use
their own automobiles and/or move out to the suburbs. Seldom will the
voters who elected a champion of the bus riders' cause in a given year
connect that event with an accelerating exit to the suburbs and a
shrinking municipal tax base a decade later.

INHERENT CONTINUITY AND ARBITRARY DISCRETENESS

Time increases the cost of political knowledge in many other ways.

The inherent continuity of time must be arbitrarily broken up into
discrete units for political decision making and voter assessment
purposes. This means that what happens within those arbitrarily
discrete units of time assumes an importance in a given system of
incentives and constraints out of all proportion to its importance in the
longer, continuous stream of time. Other, nonpolitical institutions
suffer similar problems, but often also contain mechanisms for
bringing the weight of the excluded future to bear during the arbitrarily
selected current period. Corporate stockholders, for example, not only
consider the annual dividend but the current price of the stock itself,
which reflects future prospects of the company as evaluated in the
market. A mother not only considers the current fact that a piece of
candy will stop her child's crying; because she is going to be the child's
mother for the indefinite future (i.e., socially and emotionally
responsible for the same unit over time), she also has to consider the
longer run effect of giving him candy on his nutritional, dental, and
psychological future.

Among the social costs of an arbitrary discreteness of time in a

given system is an ease of misstatement (high costs of voter
knowledge) through choice of temporal units. These include not only
short-run maximization at long-run costs, but also highly variable
interpretation of long-run trends. For example, as of 1960, the growth
rate of the American economy could be anywhere from 2.0 percent per
annum to 4.7 percent per annum, depending upon one's arbitrary
choice of the base year from which to begin counting.26 The growth
rate of the American economy was a major political issue in that year's
presidential election campaign, and the high cost of voter knowledge
was therefore of major potential political impact. Since the "normal"
growth rate had been about 3 percent, economic growth under the
incumbent administration was either above or below normal,
depending on the year from which the counting began. Nor was this a
peculiarity of 1960: for the previous presidential election year (1956)
the corresponding range of growth rates would have been from 2.1
percent to 5.1 percent depending on the arbitrary choice of base year,
and for the election year before that (1952) the possible range was
from 1.3 percent to 5.3 percent.27 Any of these administrations could
have been either a great success or a great failure by this criterion,
depending upon the arbitrary choice of temporal units. Internationally,
the Soviet government has long impressed many people around the
world with Russian economic growth rates based on 1926 as a base
year, when the same statistics would have translated into far lower
growth rates if 1913 had been chosen instead. Considering the
enduring world-wide comparison of Soviet type systems with Western
and other alternative systems, the high cost of temporal knowledge can
have very weighty consequences for mankind.

CATEGORICAL VERSUS INCREMENTAL DECISIONS

Political, and especially legal, decision making tends toward

categorical rather than incremental decisions. Partly this is due to the
fears engendered by the overwhelming power of government, which is
allowed to function only under numerous safeguards-which is to say,
numerous limitations on the discretion of individual decision makers.
These fears come not only from the public subject to governmental
power in a democratic system, but also from leaders-democratic or
nondemocratic-who fear political repercussions from decisions made
by anonymous lower level officials too numerous to monitor, as to
their exercise of dicretion. Numerous and relatively inflexible rules
reduce the cost of monitoring, by reducing the basic question to
whether or not established procedures were followed. Individual
discretion may not be wholly banished as a consideration, but "a
government of laws and not of men" is in part a cost saving device.
Looked at another way, in a world of zero cost knowledge
(omniscience), there would be no need for any rules to guide either the
initial decision maker or any higher officials who might subsequently
review his decision. Both the initial decision and any subsequent
review of it could be in general terms of how intelligently some issue
could be resolved. But initial and reviewing officials and the general
public all accept some trade-off of discretionary flexibility for
institutional dependability and insurance against discriminatory use of
the vast powers of government. "Red tape" is an implicit premium paid
for this "insurance."

Governments can and do combine discretionary decision making

and dependable rules, but neither can go to its logical extreme without
destroying the other, and there are trade-offs at all points in between.
Traffic is usually regulated by wholly arbitrary priorities established
mechanically by traffic lights at intersections, without any regard to
whether the traffic in one direction has more personally or socially
justifiable reason to go first. Clearly there will be times when someone
who is due at an important meeting (to himself or society) will sit
waiting impatiently for the light to change while someone else who is
merely out for a joyride proceeds across the intersection. Traffic laws,
like all other arbitrary rules, imply such social "inefficiencies"-and
imply also a decision that the costs of eliminating the "inefficiencies"
too far exceed the benefits to even try. As a safety valve for extreme
cases, the traffic laws themselves incorporate exceptions for
emergency vehicles whose sirens convey the knowledge that an
exception is about to occur. Arbitrary, categorical or "bureaucratic"
rules in general cannot be criticized as wrong merely because some
individual consequences are sometimes nonsensical as compared to
what an intelligent and impartial person would have decided in the
light of all the facts of the particular case. Neither the facts, nor
intelligence, nor impartiality, are free goods. Categorical rules are a
recognition of this and an attempt to economize on the resources
available in the light of their costs. The case for incremental or
discretionary decision making is a case for accepting the risks of
discriminatory, unintelligent, or corrupt decision making. Such a case
can be made in specific instances. What is important is to understand
the trade-off.

POLITICAL MACHINES

Much of the history of municipal reform politics in the United States

is a history of a shifting trade-off between unresponsive, bureaucratic,
"good government" and corrupt political machines flexibly attuned to
the general priorities and personal urgencies of the citizens. Supporters
of reform movements have tended to be upper-class people with the
education, experience and influence to penetrate the bureaucratic
maze, while corrupt machines stayed in power by adjusting categorical
rules to the needs of desparately vulnerable people who could hardly
understand the language of official "good government," much less
cope with its complexities. Corrupt political machines play much the
same role in politics as middlemen in economics. They were corrupt
because the law sanctioned no such role, much less the personal
enrichment that went with it.

In democratic countries, political machines are, among many other

things, mechanisms for economizing on the cost of knowledge, and
especially its effective transmission. just as the least technically
knowledgeable consumers rationally sort by brand name (including
franchises), rather than attempt finer sorting by detailed product
characteristics which they are not qualified to judge before purchasing,
so those less politically knowledgeable vote for or against the political
machine according to their perception of its performance, rather than
rely on their knowledge of specific candidates and issues. This
provides an incentive for political "bosses," with greater knowledge of
individual office holders and specific issues, to monitor both in such a
way as to maximize the long run public acceptance of the machine,
just as name brand products manufacturers or franchising
organizations have an incentive to engage in quality control as
surrogates for consumers who lack their special knowledge.
 In none of these cases does quality control imply perfect quality, nor
is it clear that it would be socially optimal to seek maximum product
quality (or even minimum variation in quality) rather than optimum
product quality variation in view of costs. Political machines are
particularly liable to financial corruption, to varying degrees-especially
when representing constituencies to whom such corruption is less
shocking than it is to social critics or to classes who would not be
attracted to a machine in any case. Quality control is not according to
some abstract ideal, but according to those qualities actually valued by
the relevant constituency.

The particular era of machine politics domination, and the social

classes and ethnic groups to whom they appealed, all highlight the
high knowledge cost of its alternative-"rational" or bureaucratic "good
government." Political machines were at their peak from about the
middle of the nineteenth century to the middle of the twentieth
century-at a time when ethnic (including religious) divisiveness among
voters made public trust difficult, when few of the ethnic minorities
had the leisure, the education, or sometimes even the knowledge of
English to cope with the organs of government that vitally affected
their daily lives. Police protection, garbage collection, schooling for
their children, and many other governmental responsibilities were in
the hands of people and organizations that were incomprehensible,
uncontrollable, and often openly contemptous of the unwashed,
polyglot populations of many large cities. The cost of transmitting
these latter groups' knowledge of consequences effectively to decision-
making points through the formal political and bureaucratic maze was
far higher than the cost of centering attention and loyalty on some
political "boss" who could override, circumvent, or otherwise
"corrupt" the formal processes to get done what had to be done. Very
often these political bosses literally spoke their language, and made it
their business to understand intimately their constituents' lives, and the
things that were important and unimportant to them. By contrast,
reform or "good government" political leaders were usually distant,
aloof, prosperous Anglo-Saxons who knew little about the cultural
mosaic of the big city slums except that it was foreign and therefore
"wrong." In short, reform or "good government" politicians were
largely ineffective as conduits for the knowledge of governmental
impact on the lives of the kind of people who turned to political
machines. It was not simply that the masses were "ignorant" and
"misled" as the reformers tended to view it. Being ignorant and
therefore subject to misleading might imply much random political
behav ior, but not the overwhelming loyalty to one political machine
that characterized immigrant ghettos. The value of these political
machines to culturally bewildered and economically desparate people
is only underscored by the financial corruption of machine politicians,
who were re-elected by voters generally well aware of these
illegalities.

The social composition of the supporters and opponents of political

machines suggests another important trade-off: between the
comprehensiveness of the law and its comprehensibility to the public.
The more thoroughly and specifically law attempts to cover
contingencies, the more complex the law becomes and the less
understood it is. Since law is intended not merely to retrospectively
judge behavior but to prospectively guide it, it fails in this latter-and
larger-function to the extent that the public cannot figure out what the
law expects or requires of them.

The optimal mixture of comprehensiveness and comprehensibility

for the more affluent and more educated classes obviously involves
more complexity than the optimal mixture from the standpoint of those
with simpler financial arrangements and less training in verbal
complexities of the sort found in laws and legal documents. The trade-
off tends to be biased toward complexity, not only by the greater
influence of the affluent, but also by the rationalistic assumption that
more (or more precise) articulation is "a good thing"without regard to
diminishing and negative returns. But the failure of the law to
explicitly cover contingencies does not imply greater uncertainty,
chaos, or litigation. Those with more complex affairs can produce their
own contractural complexities within the framework of simple general
law. There is a social trade-off between legal complexities produced at
public expense and those produced at private expense.
BUREAUCRACIES

Political decision making tends toward the categorical in another

sense as well. Specific governmental organizations do not simply
administer to some generalized well-being of the public, as various
social or economic units are free to do. That is, nongovernmental units
are usually free to determine their own respective degrees of
specialization, and to change these over time as they see fit. Wells
Fargo used to run the "pony express," but now they have abandoned
this and conduct more or less conventional banking activities instead.
A baby food manufacturer may diversify its activities to include life
insurance, and a bowling equipment manufacturer can produce motor
vehicles as well. A typical mother changes her whole routine and role
several times as a child proceeds from infancy to adulthood. By
contrast, a governmental agency has a specific set of assigned
activities to pursue, rather than a general goal to maximize, such as
profit making or family well-being. Governmental agencies are
generally authorized to carry on processes rather than to achieve
results. If the postal officials were to become convinced that
communications could be vastly improved by a large-scale shift from
the use of letters to the use of telephones, telegraph, and various forms
of person-toperson radios, it would still have no authority to use the
money at its disposal to subsidize these latter activities instead of
carrying the mail. If there were a government baby food producing
agency, it could not decide on its own that a point had been reached at
which some of its money should be incrementally redirected toward
life insurance, as Gerbers has done; a government photographic
agency could not decide to produce raincoats, as Eastman Kodak has
done.

Given categorical mandates and the law of diminishing returns, it is

virtually inevitable that governmental agencies would eventually end
up doing things which seem irrational as isolated decisions. The
aggrandizement familiar in all kinds of human activities-from the
dressing of babies to the spread of multinational corporations-applies
as well to governmental agencies. But where other expansions are
constrained not only by budget limits but also by incremental returns
from other lines of activity, governmental agencies with mandated
activities have every incentive to push those particular activities as far
as politically possible-even into regions of negative returns to society.
This is especially apparent in preventive activities, designed to contain
various evils. As those evils are successively reduced, either by the
agency's own activity or by other technological or social
developments, the agency must then apply more activity per residual
unit of evil, just in order to maintain its current employment and
appropriations level. If the agency is supposed to fight discrimination
against minorities, it must successively expand its concept of what
constitutes "discrimination" and what constitutes a "minority." Urgent
tasks such a securing basic civil rights for blacks ultimately give way
to activities designed to get equal numbers of cheerleaders for girls'
high school athletic teams.28 A nongovernmental organization, such as
the March of Dimes, could-as it did, after conquering polio-turn its
attention to other serious diseases, but if it had a government mandate
strictly limited to polio, it would have little choice but to continue into
such activities as writing the history of polio, collecting old polio
posters, etc., while children were still dying from birth defects or other
maladies. The point here is not that the leaders of the March of Dimes
were either more intelligent or morally superior to the leaders of
government agencies. The point is that a non-governmental
organization subject to feedback from donors or customers has
incentives and constraints that lead to institutional decisions more
attuned to rational social trade-offs.

More diversified government agencies-such as the Department of

Health, Education, and Welfare-have opportunities to change the
internal mixture of its activities in response to changing social
priorities, but only to the extent that the HEW leadership is in a
position to impose agency-wide considerations on the "warring
principalities" under its nominal control. By the same token, private
organizations supported by a narrow constituencysuch as the NAACP
Legal Defense Fund supported by affluent white liberals-may pursue
certain activities well into the region of diminishing returns from the
viewpoint of its ostensible beneficiaries (blacks) or the society at large,
however important its historic mission may have been in the past. In
short, it is not the political versus the private control of organizations
which is crucial. It is the scope of the organization's mandate, and what
that implies about its likelihood of pursuing some activity past the
point of negative social returns. The safeguards required for the use of
massive government power and huge sums of government money
often confine the decision makers' discretion to a given line of activity
and contain numerous rules within that activity. Moreover, because
taxpayers cannot monitor numerous government agencies the way
donors, customers, or family members monitor fewer and closer
activities, the feedback to nongovernmental organizations is usually
faster and more effective in diverting their efforts into new areas as the
most urgent needs in the original area are met.

Bureaucracies, by definition, are controlled by administrative or

political decisions, not by incentives and constraints communicated
through market price fluctuations.9° While an ordinary business
enterprise is constrained to keep its costs of production below the
value of the output to the consumerand has incentives to keep it as far
below as possible-such incentives and constraints are not merely
absent in a bureaucracy but are replaced by other incentives and
constraints tending in the opposite directon. The rank and pay of a
bureaucrat is determined by his degree of "responsibility"-in categories
documentable to third parties judging a process rather than a result. He
is paid by how many people he manages and how much money he
administers. Overstaffing, "needless" paperwork, and "unnecessary"
delays may be such only relative to social purposes-not relative to the
incentives established. Every "needless" employee is a reason for his
superior to get a higher salary; so is every "wasted" expenditure, and
every "unnecessary" delay preserves someone's job. The more
"channels" the citizen has to go through, the more work is generated
for the organization. For a bureaucrat assigned a given task (result), the
incentive is to require as many people and as much money as possible
to achieve that result. What is politically possible depends upon how
visible his costs are, not their magnitude in relation to the value of the
result. Moreover, the bureaucracy can expand the demand for its
services by simply pricing them below cost. There is no such thing as
an objective quantifiable "need" for anything. When the price is lower,
a larger quantity is demanded. Profit-and-loss constraints mean that a
private business can expand its sales this way only as long as its price
covers its costs of production. A government bureaucracy, which can
dispense its goods or services below cost-including at zero price, in
some cases-can always demonstrate a large "need" for its output, and
therefore a "justification" for a large staff and budget.

It has been claimed that bureaucratization in general cannot proceed

to lengths that are counterproductive, either in terms of organizational
efficiency or their limitations on individual freedom, in a democratic
country. Otherwise, a "bureaucracy-wrecking" party could be elected,3'
with the support of "every citizen who believed he was paying more to
support wasteful bureaus than he was receiving from those minorities-
serving bureaus that benefitted him directly."32 This would be true if
knowledge were costless. But one cannot destroy "bureaucracy" in
general, but only specific and highly disparate bureaucracies. If
government is not a zero sum game, there may be substantial benefits
to avoiding anarchy, and these benefits shield specific inefficiency
from a broad axe attack on government bureaus. More narrowly, each
bureau's activities may produce some benefit, even if some bureaus as
a whole produce no net benefits. For a citizen attack on wasteful
bureaus to succeed requires knowledge of the point at which benefit
turns to waste or counterproductive activity. Even the most bitter critic
of the Food and Drug Administration's policies retarding the
introduction of lifesaving drugs may hesitate to destroy the whole
agency and allow all kinds of poisons to find their way into our food
and water supply. As long as bureaucratic waste or restriction stays
within broad limits, and shields itself from specific detection, it may
persist indefinitely despite its incremental costs exceeding its
incremental benefits-as the voters would judge these, if they knew. The
contrary view is a special case of the democratic fallacy, which equates
market decision making under explicit cost constraints expressed in
price tags with vote casting on the basis of plausibility and with high
knowledge costs per voter.

INSTITUTIONAL CHANGES
 The difference between incremental and categorical decision
making has implications not only for the location of given kinds of
decisions inside or outside government; it has implications for how
and where government decisions can most effectively be located.
Periodic campaigns to "reform" or "streamline" the government
bureaucracy under some "rational" plan to "end duplication" look very
different within this framework. Duplication, for example, means that
similar processes or results in a given field are obtainable through
different organizations, usually located within larger and more
diversified organizations with ostensibly differing purposes. The
Veteran's Administration and the Public Health Service both operate
hospitals, for example. Often this means that a given citizen has the
choice of where to go with the same problem, whether that problem be
consumer fraud, antitrust violations, or cases of racial discrimination.
When duplication means individual choice, a set of unpaid
"unmonitored monitors" has been created, able to effectively constrain
the behavior of each agency with the implicit threat of going to some
other agency if the same service is not provided as well. The
economies of scale that might (or might not) result from consolidating
the activity must be weighed against the higher costs or lower quality
that are apt to result when monitors become a captive audience for a
government monopoly instead. Moreover, the location of similar
activities within a variety of conglomerate government organizations
means that the phasing out of the activity becomes more feasible
within a decision making unit that has other activities which can
absorb the people and the appropriations. A more rationalistic plan of
gathering all like activities into an agency devoted solely to that
activity means in fact creating incentives to keep that activity alive as
long as possible and to pursue it as far as possible, with little or no
regard for social costs and benefits. The costs of duplication at a given
time must be weighed against these longer run costs of consolidation.

Political decision making tends to be categorical rather than

incremental in another sense as well. The programs of government
officials or political candidates tend to be expressed in categorical
rather than incremental terms. The lifeblood of politics is popular
emotion, and categorical declarations capture that emotion. No one is
going to man the barricades for a little more of A and a little less of B.
Nor are they even likely to ring door bells on cold election nights for
such incremental considerations. Therefore political activity-whatever
its substantive or ideological content-has built-in incentives for
categorical presentation of alternatives. The competition among
political groups does not therefore bring to bear more accurate
knowledge, as in economic competition, but promotes exaggerated
hopes and fears-and sometimes deeds. Nor is this a transient pre-
election phenomenon. Once such categorical exaggerations have been
set in motion, they become incentives and constraints on subsequent
policy making, in even the most totalitarian regimes. The press in a
free country is to some extent a constraint on the categorical rhetoric
of politics in government, but the selling of newspapers to subscribers
and news programs to advertisers also depends on maintaining a
certain level of public excitement which is also promoted by
categorical clashes. There is little incentive for any institution to
promote an incremental approach to political decision making.

The government tends to categorical decision making not only

because of the incentives it faces but also because of the incentives it
creates for those outside government. By conferring a valuable right on
some group at the expense of some other group(s), the government
provides an incentive for expensive, internecine struggles to be the
group that receives rather than gives. Naked group struggles, openly
recognized as such, would provide the basis for incremental
adjustments of competing claims. But in order to get more public
toleration for private interest, the dispute is verbally or ideologically
transformed into a clash of principles-which must then be resolved
categorically. All-or-nothing decisions raise the stakes, and the
resources devoted to being the winner, and lower the probability of a
socially optimal result from this socially disruptive process.

There is clearly some optimal level of change and of the

divisiveness that accompanies it. With everyone paralyzed by fear of
divisiveness, no change would ever have taken place-politically,
economically, or socially-and we would all be still living in the caves.
But if every change immediately set off new struggles to change that
change, the relative merits of each of the successive states might mean
less than the incessant turmoil. Whatever the optimal rate of change
for a given political entity as a whole, that optimal rate for a given
political practitioner or party is likely to be greater, since he can gain
as the ostensible champion of whatever group he selects or creates by
his divisiveness.

SUMMARY AND IMPLICATIONS

The government has been conceived of as a framework of rules within

which other decision making units can make decisions without the
high transactions costs of maintaining private force for the purpose of
protecting their physical safety or of protecting their belongings or of
maintaining threats to enforce the carrying out of agreed upon
contracts. As a framework, the government simply delineates the
boundaries within which other units determine substantive choices, the
government making its own forces available to defend the established
boundaries. But while the government sets the basic framework for
others-narrowly or broadly, depending upon the degree of freedom in
the country-it is also itself subject to incentives and constraints,
institutionally and individually. Government is not simply "society" or
"the public interest" personified. Indeed, in modern democratic
government-especially in the United States-it is often not a
consolidated decision making unit but an overlapping montage of
autonomous branches, agencies, and power cliques-each of these
responsive to different outside coalitions of interest groups or
ideologists.

The simple fact that governments are run by human beings with the
normal human desire for personal well-being and individual or
institutional aggrandisement must be insisted upon only because of a
long intellectual tradition of implicitly treating government as a special
exception to such incentives and constraints. This tradition stretches
from the impartial "philosopher king" of Plato to the exalted
"statesman" of the mercantilist literature of two to three centuries ago
to the public spirited government as conceived in modern tracts that
bill themselves as "empirical social science and not value statements""
In this modern literature, as in their historic predecessors,
governmental take overs of decisions from other institutions are treated
as themselves sufficient evidence-virtually proof-that such actions are
needed to "remedy deficiencies"34 of other decision making processes
which are "irrational" in some way.36 A mere enumeration of
government activity is evidence-often the sole evidence offered-of
"inadequate" nongovernmental institutions," whose "inability" to cope
with problems "obvi- ously"37 required state intervention.
Government is depicted as acting not in response to its own political
incentives and constraints but because it is compelled to do so by
concern for the public interest: it "cannot keep its hands off" when so
"much is at stake,"38 when emergency "compels" it to supersede other
decision making processes.39 Such a tableau simply ignores the
possibility that there are political incentives for the production and
distribution of "emergencies" to justify expansions of power as well as
to use episodic emergencies as a reason for creating enduring
government institutions.

This ignoring of political incentive structures extends to the effects

of government action as well as its causes, often "pretending that the
effect of a law and appropriation will be what their preamble says it
should be."'0 Much complaint about bureaucratic "inefficiency" or
"stupidity" presupposes that bureaucrats are pursuing the goals stated
in the preambles to the legislation authorizing their existence, rather
than responding to the incentives created in the "details" of that
legislation. Not even physical or engineering efficiency can be
calculated without first defining a goal. Where bureaucrats are
pursuing their own individual or organizational goals, they are hardly
being "inefficient"-much less "stupid"-in terms of other goals that
other people wish they were pursuing. This is not merely a matter of
verbal fastidiousness but of practical policy: replacing the allegedly
"inefficient" or "stupid" people with more intelligent people, or people
with a record of efficiency in private industry, could not be relied upon
to improve the implementation of the social policy described in
preambles, as long as the structure of incentives and constraints
remains the same.
 The importance of actual institutional characteristics as a guide as to
what to expect is obscured by the common practice of defining
political institutions by their hoped-for results: the Environmental
Protection Agency, the Equal Employment Opportunity Commission,
the Defense Department, etc. The change of the latter name from "War
Department," which describes what a military organization actually
does or prepares to do, to "Defense De- partment"-presumably
incapable of ever launching a military attack-was symptomatic of this
pious obfuscation.

Incentive structures are important in explaining political behavior,

not only in a static sense but in following dynamic changes of political
patterns. Incentives operate not only by guiding the actions of given
people, but by changing the mix of people drawn to particular
activities. Very different kinds of people may be attracted or
"selected"-in an impersonal Darwinian sense-by one set of incentives
than by another. Used car dealers tend to differ from Red Cross
volunteers. Movements for political change-that is, insurgents in
general, whether moderate reformers or violent revolutionariesare
essentially attempts to change incentive structures, however much they
may choose to describe themselves in terms of their hoped-for results.
But prior to the achievement of any success-whether reform or
revolutionpeople who man insurgent movements are "selected" in a
Darwinian sense under an entirely different pattern of incentive
structures from the incentive structures that they are advocating.
Insofar as the insurgency becomes successful, the new incentives tend
to select a different mix of persons. For example, socialists under
capitalism may differ from socialists under socialism.

A capitalist system, especially when it is actively defending itself,

may offer few direct personal benefits for being a socialist and may
impose various costs, ranging from social disapproval to jail,
depending upon the condition of civil liberties in the particular
country. Narrowly self-interested persons, or persons of weak will or
timid disposition, are unlikely to be attracted to socialist movements
under these conditions. But when socialism has become established,
especially if in the form of a totalitarian orthodoxy, it is being a
supporter of capitalism that now carries a high cost and being a
supporter of socialism that offers higher reward. The mixture of people
attracted to socialism should be expected to change accordingly.

It is not necessary to have the whole society change, as from

capitalism to socialism in this illustration, to have different kinds of
people emerge as supporters of particular institutions-thereby changing
the function of those institutions. Something similar has in fact been
observed to happen in a more limited way when regulatory agencies
are created and then pass through a familiar institutional
metamorphosis. Those who supported the creation of a particular
regulatory institution typically had few self-serving goals that justified
the costs and risks they incurred. Many were simply zealots for a
particular cause. Once the institution has been created, however, it
offers careers, power, prosperity, and visibility-attracting a new group
of participants and supporters. As time goes on, these latter tend to
replace the former, either because the careerists are more ruthless in
seeking the best jobs or because the zealots' ardor has cooled with time
or with the achievement of a significant portion of their goals, or from
the attraction of new crusades elsewhere. This transition of personnel
over time often turns the agency's policies completely around, to
accommodate the new priorities of a new class of people attracted by
the new structure of incentives and constraints. This "life cycle of
regulatory agencies" is a common place observation among political
scholars." Outcries of pain and anger from the supporters of the
institutional change are also common-as is the case after a successful
revolution, which is to say, institutional change on a larger scale. The
"betrayal" of ideals is a reiterated refrain in a wide variety of insurgent
movements, whether moderate or extreme. Seldom is there a
recognition that the institutional success of the insurgency has itself
created new incentives attracting new kinds of people and sometimes
reorienting some members of the original group. Another factor is that
a successful insurgency often puts leaders of the insurgents into closer
contact with knowledge that was either' unavailable or not so vivid
when the insurgents were outsiders, and thereby forces correction of
plausible beliefs that will not stand authentication.
 The alternative, non-systemic or intentional explanation-that people
"sold out" to opponents-has the serious difficulty that often the
behavior that is characterized as a "sell out" occurs at a time when it
would make the least sense to sell out. Bolsheviks who risked
imprisonment, torture, and death to oppose the Czars were later
discredited and executed by the Soviets for "selling out" the
revolution. Analagous things have happened on a smaller scale in
American civil rights movements, British Labor Party circles, and
various other successful insurgent movements. The systemic
explanation has the advantage of explaining not only why the general
changes occur in individuals, but why different kinds of individuals
selectively rise to the top after a given institutional change, as a
rational response to changed incentives, however bitterly disappointing
to those who failed to foresee the consequences of their own efforts. In
general, it is unlikely that two very different sets of incentive structures
will attract two mixes of people who are equally satisfied with any
given policy.

Whether incentive structures remain fixed under conservatives or

change under insurgents, they are as central to an explanation of
political behavior as they are to explanations of behavior in other
economic or social processes.
Chapter 6
 An Overview

The use of knowledge in decision-making processes affecting social

well-being depends not only on the supply of ideas-which are usually
abundantbut on some process of authentication to weed out and
reshape those ideas in the light of feedback from actual experience
resulting from their application. Whether or not the results are socially
rational depends on the proportion between the costs and the benefits,
as both change incrementally. Rationality in this sense means nothing
more than its basic root notion of making a ratioweighing one thing
against another in a trade-off.'

There are various authentication processes, ranging from consensual

approval to scientific proof, and a virtually limitless variety of
institutional processes for carrying out this authentication, or weeding-
out, process. The fragmentary nature of social knowledge means that
the authentication and feedback must involve numerous individuals,
and that they must be connected by some system of mutual incentives
and constraints. Feedback which can be safely ignored by decision
makers is not socially effective knowledge. Effective feedback does
not mean the mere articulation of information, but the implicit
transmission of others' knowledge in the explicit form of effective
incentives to the recipients. A corporation's profit and loss statement or
a baby's whimpers are such transmissions. Both galvanize people into
action in response to other people's feelings, even though one is
articulated and the other not. It is the effectiveness of the incentive
transmission, not the explicit articulation, that is crucial.

The degree of social rationality-how finely costs and benefits are

weighed-does not depend upon the degree of individual rationality.
What is individually rational within a given set of institutional
incentives and con straints may be socially wasteful in the sense that
more desires could be satisfied with the same resources under
alternative institutional processes. Conversely, individual rationality is
not a precondition for systemic rationality. That is easily seen in
biological evolution, where the adaptation of organisms to
environment does not presuppose planning for such a result, and
certainly not by the organisms themselves. Where intention does exist
among the individuals involved in a systemic process, that does not
mean that their intentions determine the outcome. The inherent
constraints of their situation-the limitations of resources in economics,
the diversity of views in a democracy, and the cost of knowledge in
social systems in general-as well as the nature of the particular
institutional process through which knowledge of these constraints is
conveyed to them as individual incentives, also shape the result.

Simple, general, and obvious as all this may seem, its implications
contradict much social theory. Implicit denials that the trade-offs exist
are commonplace, especially when what is being traded-off is
something momentous, such as freedom or human life. The things for
which freedom is incrementally (and sometimes categorically)
sacrificed are rhetorically included in some "larger" definition of
freedom, just as modifications of democracy (such as constitutions and
an appointed judiciary) are included in some "larger" definition of
democracy. The trade-off of human lives and suffering involved in
safety regulations or homicide laws is likewise seldom faced squarely,
even though every incremental change in the stringency of such laws
sacrifices some people to save some others, as well as trading-off life
for other considerations. Historically, the racism that arose with
slavery in America was one means of denying the momentous trade-
off involved between the high moral and political ideals of the country
and the material gains from violating other human beings' rights-a
denial made possible by depicting those other human beings as
somehow not "really" human beings in the full sense. In short, the
rhetorical denial or evasion of trade-offs has occurred across the social
or political spectrum, from the pro-slavery denials of U. B. Phillips to
the pro-Soviet denials of Sidney and Beatrice Webb.

Sometimes the denial of trade-offs takes the form of claiming that

an increase in the use of force in decision-making processes is not
"really" a net increase because governmental force is simply nullifying
or "countervailing" already existing private force. Thus, just as
disparate benefits can be subsumed under the same word to deny trade-
offs, so can disparate things regarded as negative. The postulated
"power" of private organizations frequently boils down to nothing
more than an ability to offer more options, or more preferred options,
than their competitors, thereby gaining more voluntary transactions.
But the merits or demerits of a particular expansion of government
power can be evaded by rhetorically depicting it as not "really" an
increase of decisions by force but only a displacement of private force,
however metaphorical the latter may turn out to be under scrutiny.

The constrained options which make trade-offs necessary are

likewise often implicitly or obliquely denied. This is obvious in
political statements to the effect that "if we can afford to do A, why
can't we afford to do B?" With constrained options, the very fact that
we did A reduces our ability to do B. Sometimes the implicit denial of
constrained options takes the form of attacking as undemocratic any
failure to achieve majority preferences-or perhaps even the preferences
of some minority subset which has earnestly pursued its goals through
legitimate channels. But constrained options are as inherent under
democratic government as under any other form of government;
perhaps more so, since each subset's desires must be balanced against
other people's desires. Another symptom of ignoring constrained
options is a quickness to condemn official "overreaction" to an
emergency in terms which suggest the existence of a wide spectrum of
smoothly blending options, when in fact the choices available at the
time may have been few, discrete, and all unpleasant.

The effectiveness with which knowledge is transmitted and

coordinated through social processes depends upon the actual
characteristics of those specific processes. But again, a basically
simple, general, and obvious proposition is beclouded by rhetoric-in
particular, by the practice of characterizing processes by their hoped-
for results rather than by their actual mechanics. Consider, for
example, the following proposition: once the legal authorities have
defined, combined, and assigned property rights, the subsequent
recombination or interchange of those rights at the discretion of
individuals shall be illegal. Would great numbers of men and women
voluntarily risk their livelihoods and their lives to create this
institutional arrangement? History says that they have, for that
institutional arrangement is socialism. The hoped-for results-variously
described as "social justice," "ending the exploitation of man," or more
generally, serving "the people"-have largely defined socialism for
those attracted to this movement. The same has been true of "civil
rights" movements, "public interest" law firms, or even "profit
making" businesses. But unless we believe in predestination, the
crucial question in all these cases is, what is there about the specific
institutional process that necessarily implies the hoped-for results? The
rate of bankruptcy among newly formed "profit-making" businesses
suggests that the question is as appropriate in narrowly economic
enterprises as it is in more idealistic social ventures.

Defining social processes by their characteristics as transmitters of

knowledge in incentive form not only reduces the opportunity for
rhetoric to evade hard questions; it helps reveal the reason for various
apparent social anoma lies. For example, the historic disappointments
and mutual recriminations among successful insurgents are easier to
understand once insurgency itself is defined as attempts to change
institutional incentive structures. By definition, the initial insurgents
began under a different set of incentives from those which they seek to
create. Once they achieve their goal, the new incentive structure tends
to attract and select successors with different characteristics, as well as
perhaps modifying the characteristics of some of the original
insurgents. This has been the history of Christianity, Marxism, the
contemporary civil rights movement, regulatory agencies, and
numerous other insurgencies highly disparate in terms of hoped-for
results and alike only in successfully changing incentive structures for
society-thereby changing the social process selectively attracting their
own subsequent membership and leadership. People who chose to be
Christians under the persecution of the Roman Empire were not the
same as people who chose to be Christians after Christianity had
become the state religion.
 Emphasis on the characteristics of social processes implies a
systemic analysis of social causation, in contrast to an individual or
intentional analysis of why things happen as they do. At the extreme of
the intentional approach is the animistic fallacy which explains the
phenomena of society or nature as the fruition of a deliberate plan by
leaders, God, conspiracies, or other intentional agents. In the animistic
approach, the rationality and morality of the agents involved is crucial
to the outcome. But in the systemic approach, the outcome does not
depend on the individual agents' subjectively pursuing the end result of
the system. Much futile controversy in the social sciences has resulted
from attempts to show that individual agents do not have either the
goal or the degree of rationality necessary to intentionally produce the
end results claimed by a systemic analysis.' Where the results are
systemically produced, it is no more necessary for the agent to share
that goal than it was for prehistoric trees or dinosaurs to know genetics
in order for evolution to take place.

The systemic approach is a methodological rather than a philosophic

or political position. Both Adam Smith and Karl Marx were systemic
social analysts. In Smith's classic, The Wealth of Nations, laissez-faire
capitalism was advocated-as a system-because of (beneficial) systemic
characteristics which were "no part" of the "intention" of capitalists,'
whom Smith excoriated as dishonest, oppressive, and ruthless,' and for
whom he had not a single good thing to say in a 900-page book. By the
same token, Karl Marx's Capital condemned capitalism for
(detrimental) systemic characteristics which Marx refused to attribute
to the individual moral failings of the capitalist, who remained
objectively the creature of circumstances, "however much he may
subjectively raise himself above them."5 Marx's criticism was of the
capitalist system, as such, and an argument based on charges of
immorality among capitalists would have been an argument for moral
reform rather than institutional revolution. Both Smith and Marx dealt
with the systemic logic of capitalism, and neither based his theory on
individual intentions, or on a hyper-rational man, which both have
been accused of.' Smith was not Samuel Smiles and Marx was not
Charles A. Beard.'
 The divergence between individual intention and systemic result
affects both causal and moral arguments. The political right and left
share a moral version of the animistic fallacy which attributes such
systemic results as statistical "income distribution" to personal
morality-wealth implying merit (the right) or guilt (the left). Morality
is intentional and therefore individual, while purely systemic results
are neither just nor unjust, though some results may be preferred to
others. War, slavery, or genocide can be morally condemned as
deliberately chosen policies, but the repeated ravages of bubonic
plague were simply tragic consequences of sociobiological systems in
a given state of knowledge. Systemic results can be improved, as by
the expansion of technological boundaries, but such social
improvement is morally neutral. The desire to judge systemic results
morally can be seen in the medieval practice of attributing plagues to
sins which had aroused the anger of God, or the modern practice of
attributing unhappy systemic results in general to the moral failings of
a personified "society."

The treacherous academic analogy of "solving" social "problems"

often goes counter to the concept of optimizing subject to inherent
constraints. Inherent constraints imply limitations not only to what can
be judged morally but also limitations on what can be achieved
rationally. There may not be any "solutions" analagous to academic
exercises with pre-arranged happy endings and no loose ends left
dangling. This has not only intellectual but social implications.
Whatever systemic results are possible in any particular economic or
social system must leave unsatisfied desires, and simultaneous political
and economic equilibrium requires that the political system accept
those unsatisfied desires rather than assume automatically that it can
"solve" such "problems." This point is no brief for any particular
system; the principle is general. As was said long ago: "It is no
inconsiderable part of wisdom, to know how much of an evil ought to
be tolerated ..."'

The systemic approach implies coping incrementally with tragic

dilemmas rather than proceeding categorically with moral imperatives.
This applies both to categorical defenses of the status quo and to
categorical revolutionary opposition to it, and to positions in between.
It was the great conservative thinker Edmund Burke who refused to
categorically defend the status quo, saying, "A state without the means
of some change is without the means of its conservation,"9 and "he
that supports every administration subverts all government."10 In the
British struggle with the American colonies, Burke warned his fellow
members of Parliament against categorically raising the question of
sovereignty "with too much logic and too little sense."" Unlike Hobbes
and Locke before him, Burke did not defend existing institutions with
categorical deduction. He said: "I do not enter into these metaphysical
distinctions; I hate the very sound of them."12 On the other end of the
political scale, even such revolutionaries as Marx and Engels were
unsparing in their criticism of other revolutionaries who categorically
opposed capitalism without regard to time, conditions, or the inherent
constraints of technology. From a Marxian systemic perspective,
socialism became preferable to capitalism only after capitalism had
created the economic prerequisites for socialism and after capitalism
had exhausted its own potentialities as a system." Even European
colonialism was approached in this way, as "historically justified"
during a particular era," much to the embarrassment of later Marxists
who tended to treat this as an ethnocentric aberration15 rather than
inherent in the systemic Marxian approach.

Once institutions are seen as implicit transmitters of knowledge in

the explicit form of incentives-whether financial or emotional
incentives-the question can then be faced as to how accurate and
effective the particular transmission is. To what extent do the desires,
caprices, or exigencies of the institution itself cause the incentives
presented to the recipients to differ from the desires of the individual
sender-that is, the public or the consumer? How quickly, accurately,
and effectively does feedback reach the decision makers, whether they
want it or not?

If individual incentives are not enough to overcome stubbornness,

systemic constraints will. For example, if an individual businessman
should happen to be uninterested in money, his suppliers, creditors,
and employees are, and it is only as long as he can earn enough money
to pay them that he can survive as a businessman. Conversely, those
businessmen who most closely supply what consumers want-whether
by foresight or sheer luck-will be systemically enabled to expand their
share of the total output of the product.

Insulation from feedback takes many forms. Perhaps the most

effective insulation is simply force. The pain felt by helpless victims
may be information available to the user of force-whether it be a
criminal or a governmentbut such information is not effective feedback
as far as behavior is concerned. Totalitarian regimes may in fact have
more information about their citizens than do governments
constitutionally limited in their use of secret police surveillance
methods. The Nazis were informed as to the sufferings of inmates in
their concentration camps, but this information was not feedback in
any effective sense. On the other hand, the mere suffering of
embarrassment may be sufficient to modify the behavior of those
decision makers causing the embarrassment, when they are dependent
on the dollars, the votes, or the personal goodwill of those offended.
Panic-stricken censorship, apologies, and/or denials of responsibility
by decision makers are evidences of effective feedback mechanisms.
Both the transmission of feedback and insulation from it have costs.
The effectiveness of social processes in communicating knowledge to
decision-making points depends in part on these costsabsolutely and
relative to one another. A bureaucracy which can envelope its
processes in intricate and unintelligible regulations and bury its
performance under mountains of tangential statistics has achieved the
security of insulation from feedback. Knowledge costs-whether
inherent or contrived-are institutional insulations.

Time also insulates, if only because it raises the cost of intellectually

connecting cause and effect, either in prospect or in retrospect. This
insulation is more effective in situations or processes where continuous
time can be broken up into discrete units and each unit judged
separately-as in a political term of office. Where time effects are
continuous, and are continuously experienced even within discrete
decision-making periods, as in economic decisions whose present
values reflect future prospects, insulation from feedback is much
harder to achieve. If a farm has been made unusually productive
during the current year by devoting all efforts to cultivation of the
current crops, to the neglect of care of the soil, fences, barns, animals,
etc., the future cost of that neglect will be reflected in the current sale
price of that property. In this situation, effects are quickly and cheaply
transmitted back and forth across continuous time. By contrast, an
overseer in charge of a farm for a discrete period of time is insulated
from time effects that fall beyond his tour of duty, if the owner is
absent-whether that absentee owner is private or governmental. This
too has been borne out by experience in such disparate settings as the
antebellum South and the Soviet Union.'s

The knowledge-transmitting capacity of social processes and

institutions must be judged not only by how much information is
conveyed but how effectively it is conveyed. A minimal amount of
information-the whimpering of a baby, for example-may be very
effective in setting off a parental search for the cause, perhaps
involving medical experts before it is over. On the other hand, a
lucidly atriculated set of complaints may be ignored by a dictator, and
even armed uprisings against his policies crushed without any
modification of those policies. The social use of knowledge is not
primarily an intellectual process, or a baby's whimpers could not be
more effective than a well-articulated political statement. Again,
simple and obvious as this may seem, it contradicts not only general
depictions of "society" as a decision maker but more specific demands
for intellectual input into specific decisions to make them socially
better. The key question is not the intellectual question of what to
decide but the institutional question of what social process shall
decide, in the light of the characteristics of that process and of the
problem at hand.

Some knowledge is so widespread, so widely applicable and so

certain that it is not worth the cost of repeatedly verifying it in each
specific instance: people do not want to be murdered, to have their
children kidnapped, to be defrauded, or to be jailed without trial. Laws
can incorporate such desires into enduring social institutions backed up
by governmental force. The high degree of consensus makes the
benefits large and the costs relatively low, since only those who ignore
the moral consensus need be dealt with by force. In areas where the
consensus is less certain, the benefits are smaller and the costs of
enforcement higher. Beyond some point, for some range of decisions,
it is socially more effective to allow each individual to use his own
discretion. His own discretion does not mean that he will decide every
case ad hoc, for the individual is free to structure new constraints for
himself and any agreeable others via contracts, club rules, association
bylaws, and rules of games and sports. The boundary of the law
merely defines the limits of private discretion-whether it is exercised
individually or in concert.

However elaborate, or even rigidified, these private arrangements

become, they can resemble governmental institutions only in outward
form. The government remains an organ of force while voluntary
organizations can achieve compliance only insofar as the benefits they
offer exceed the costs they impose on their members-whether in dues,
fines, or restrictions on their behavior. But if the government decides
to pursue a given policy, no such limitations on its costs apply, because
all taxpayers are financially liable, regardless of their individual
weighing of costs and benefits. Insofar as there are costs to finding out
costs (for a nonmarket activity), these knowledge costs insulate
government costs from general comparison with benefits by the voters
at large.

Those social processes which rely on emotional ties-the family,

friendship, churches, and various voluntary associations-facilitate
mutual accommodation among those directly involved and between
them and the larger society, without the use of force. The advantages
of this lie not only in avoiding the unpleasantness of force, but also
avoiding its inefficiencies as a social mechanism. Formal force through
government, especially constitutional government, requires explicitly
articulated rules (laws or regulations), which necessarily contain
loopholes, since language is not perfect. This means that some
transgressors against the spirit of the law are exempted from the
consequences, and other persons not actually transgressing the real
purpose of the law may nevertheless get punished for technical
violations of the words. Informal rules are often unarticulated, and so
are applied without regard to these rigidities of language. Flirtation
with someone's spouse does not have to be in a particular form spelled
out in advance in order to be detected and socially (or personally)
punished.

Because the scope and effectiveness of informal social controls

depends upon the strength of the emotional ties involved, specific laws
and policies affecting the emotional strength of these social processes
cannot be considered solely in terms of the immediate issues without
regard to how they affect the long-run effectiveness of families,
churches, philanthropy, etc. The number of decisions taken out of the
family by compulsory school attendance laws, child labor laws, and
other direct institution-to-child programs all reduce the degree of
responsibility of the family for its members, both objectively and-
ultimately-subjectively. Whatever the merits of such institutional
programs .in principle or in practice, the external costs of weakening
informal institutions must also be considered for a socially optimal
result. However, the tendency is for such programs to be discussed
seriatim in terms of their isolated merits. Complex informal social
trade-offs do not easily lend themselves to categorical political
decisions.

The effectiveness with which knowledge is transmitted and

coordinated depends not only on the institutional mechanisms at work
but also on the nature of the decisions involved-for example, the extent
to which the law of diminishing returns applies, whether the decision
is sequential or a once-andfor-all decision, whether its consequences
are restricted to one lifetime or spread well beyond the human life span
and so have muted feedback. Systems can be compared not only in
terms of how well they make current decisions with current impact,
but how well they bridge the barrier of time-especially time that
exceeds the human life span-through such devices as "present values"
reflecting future benefits or emotional ties to a family as an on-going
unit over the generations.
 The consideration of causation in systemic rather than intentional
terms does not wholly exclude the individual factor. However,
particular kinds of systems tend to offer certain kinds of individuals
more scope. If, for example, certain businesses or occupations (used-
car dealers, various repair services) offer unusual opportunities for
dishonest dealing, dishonest individuals will have a competitive
advantage in such fields. A discovery that this field has more than the
usual share of unscrupulous persons does not therefore imply that that
is why there is more dishonest behavior in that field. On the con trary,
especially if this is a long-run phenomenon, persisting through several
complete turnovers of people, the more likely explanation is in terms
of systemic incentives and constraints.

The general principles sketched here in Part I provide a background

for considering the changes under way in social, economic, and
political processes in the United States and internationally-and for
considering what their future consequences are likely to be.
 Part II

TRENDS AND
ISSUES
Chapter 7
 Historical Trends

Part I analyzed some more or less enduring features of various social

processes, and their implications for the coordination of fragmented
individual knowledge. Part II will analyze some of the historic changes
which have occurred, and are occurring, in such processes-and the
long-run implications of such changes. The next three chapters will
deal with historic trends in specific economic, legal, and political
processes. They will center on the American experience, for purposes
of keeping the discussion specific and manageable, but many of these
trends have been common in Western civilization and beyond, and
some have in fact gone further in various other countries than in the
United States. This chapter will briefly sketch a broader background
picture of trends in social institutions and processes over the past
century.

The twentieth century has brought so many changes across the face
of the earth-in science, culture, demography, living standards,
devastation-that it is difficult to disentangle purely institutional
changes from this tapestry of human events. Indeed, it is impossible to
fully do so, for at least one of the great world wars of this century grew
out of a particular brand of totalitarian institution and its drive to
conquer "today Germany, tomorrow the world." In addition to the
carnage of war, the twentieth century has seen the unprecedented
horror of deliberate slaughter of millions of unarmed human beings
because of their categorical classification: Jews, Kulaks, Ibos, etc.
These events too have been intertwined with institutional change.

In terms of general trends in the social application of knowledge,

there are a number of ways in which decision making has tended to
gravitate away from those most immediately affected and toward
institutions increasingly remote and insulated from feedback. The
variety of institutional changes, even in a given country, presents an
intricate, kaleidoscopic picture, which becomes still more complex
when extended to international scale and interwoven with the fast
changing historical events of the century. Still, on a spectrum
stretching from individual decision making at one end to totalitarian
dictatorship at the other, the general direction of the drift is discernible.
It is fairly obvious in the case of national changes from democratic to
nondemocratic governments (as in various Eastern European and
South American countries) or-among autocratic governments-from
loosely controlling and removable autocrats to enduring and pervasive
party totalitarianism (as in Russia and China). Even within democratic
nations, the locus of decision making has drifted away from the
individual, the family, and voluntary associations of various sorts, and
toward government. And within government, it has moved away from
elected officials subject to voter feedback, and toward more insulated
governmental institutions, such as bureaucracies and the appointed
judiciary. These trends have grave implications, not only for individual
freedom, but also for the social ways in which knowledge is used,
distorted, or made ineffective.

These institutional changes have been accompanied by social

changes. Perhaps the most far-reaching social change in the past
century-in the United States and elsewhere in the Western world-has
been that vast numbers of people have ceased being residual claimant
decision makers and become fixed claimant employees. When the bulk
of the population consisted of farmers (whether owners, tenants, or
sharecroppers), the options and constraints facing the economy as a
whole were transmitted more or less directly to those individuals, in
the form of varying rewards for their efforts, whether those rewards
were in money or in produce. The connection between efforts and
outcomes was clear, though not all-determining: the weather, blights,
and other menaces to crops and livestock made risk also a very
personally felt variable. The transformation of Western economies
from agriculture to industry brought with it a reduction in the
proportion of the population consisting of autonomous economic
decision makers. However much "consumer sovereignty" was retained,
as producers their role as fixed claimants to some extent insulated
them from the direct consequences of their own decisions, largely by
limiting the scope of their decision making itself. This was not
necessarily a net increase in security, either objectively or subjectively.
They might find their futures varying considerably from prosperity to
privationbut largely as a result of decisions made by others. The
immediate question here is not whether they were better or worse off
on net balance, but rather, what did this mean for their knowledge of
what was happening, and for the social consequences of that
knowledge?

Parallel with these economic developments, the political expansion

of the franchise meant that people with progressively less decision
making experience in the economy were acquiring progressively more
power to shape the economic sector through the political process. A
price-coordinated economy, as such, can function without being
understood by anyone. But insofar as it must function in a given legal
and ultimately political structure, the extent or manner in which these
latter structures allow it to function depends upon how others judge its
results-or whether they choose to judge or control its processes instead.

Another historic change in the past century has been the rise of
intellectuals to prominence, influence, and power. The expansion of
mass education has meant an increase in both the supply of
intellectuals and in the demand for their products. They have become a
new elite and, almost by definition, competitors with existing elites.
The very nature of their occupation makes them less inclined to
consider opaque "results" than to examine processes, quite aside from
such other incentives as may operate when publicly discussing their
elite competition. Intellectuals have spearheaded criticisms of
pricecoordinated decision making under individually transferrable
property rights-i.e., "capitalism." As far back as polls, surveys, or
detailed voting records have been kept, Western intellectuals have been
politically well to the political left of the general population.'

Another way of looking at all this is that there has been a political
isolation of residual claimants to variable incomes as a small special
class operating in response to incentives and constraints no longer
generally felt throughout the society. Knowledge of changing
economic options and constraints conveyed through price, investment,
and employment decisions by this class (capitalists) has all the
appearance of having originated with this class, and thus serving the
sole interests of this class. The extent to which this is true or false in
particular instances is not the central point here. The point is that this
appearance is necessarily pervasive-and politically important-
regardless of what the particular facts may be. It is only after the
conceptual separation of questions of causation from questions of
communication (the slain bearer of bad news problem) that the factual
issue can even be addressed.

Finally, no discussion of the trends of the past half century would be

complete without one of the great socially traumatic episodes of this
era, the Great Depression of the 1930s. Both in magnitude and
duration it outstripped all other depressions in history. The
unemployment rate reached 25 percent and corporate profits in the
United States as a whole were negative two years in a row. This
depression was unique not only in its magnitude and duration, but in
the degree of government intervention-episodic and enduring-
occasioned by it. Although questions might be raised as to whether
these three characteristics of the Depression were related, the popu lar
explanation has been that it was a failure of the market economy and
demonstrated the need for government economic activity. While this
thesis can be, and has been, challenged on the basis of scholarly
analysis,` the point here is merely that this central economic episode of
the past century reinforced other trends toward the political isolation of
residual claimant decision makers and price-coordinated economic
systems. To some extent, the Great Depression undermined political
support for traditional Western values in general, including freedom
and democracy-as shown by the rise of the Nazis in Germany, fascism
in Spain and parts of Latin America, and the post-World War II spread
of communism around the world.

The next three chapters deal in detail with specific developments in

social institutions, and their consequences-especially as regards the
crucial question of how any system coordinates its scattered and
fragmented knowledge for optimal social effectiveness, and the even
more momentous question of the implications for human freedom.
Chapter 8
 Trends in Economics

Economic systems have been seen as institutional processes for

weighing costs and benefits. Costs in turn are foregone alternative
benefits. Costs and benefits are ultimately subjective, but that does not
mean that they vary arbitrarily or that one way of weighing them is as
rational as the next. The physical and psychic costs of digging a ditch
are subjective to whoever digs one. However, the compensating
inducement necessary to get A to dig a ditch is objective data to B. If
B simply wants a ditch dug, and does not care who digs it, then the
lowest of the various subjective costs of ditch digging-among A, C, D,
E, etc.-becomes his necessary objective cost. Conversely, how much
someone wants a ditch dug is subjective to him, but is objective data to
anyone else considering doing such work.

Prices convey the experience and subjective feelings of some as

effective knowledge to others; it is implicit knowledge in the form of
an explicit inducement. Price fluctuations convey knowledge of
changing trade-offs among changing options as people weigh costs and
benefits differently over time, with changes in tastes or technology.
The totality of knowledge conveyed by the innumerable prices and
their widely varying rates of change vastly exceeds what any
individual can know or needs to know for his own purposes.

How accurately these prices convey knowledge depends on how

freely they fluctuate. The use of force to limit those fluctuations or to
change the relationship of one price to another means that knowledge
is distorted to represent not the terms of cooperation possible between
A and B, but the force exerted by C. Looked at another way, the array
of options people are willing to offer each other are reduced when
force is applied to limit the level or the fluctuation of prices, and the
array can shrink all the way to the vanishing point when the price is
specified by a third party, if his specification does not happen to
coincide with trade-offs mutually acceptable to entities contemplating
transactions. Price fixing as a process cannot be defined by its hoped
for results-"a decent wage," "reasonable farm prices," "affordable
housing." Price fixing does not represent simply windfall gains and
losses to particular groups according to whether the price happens to
be set higher or lower than it would be otherwise. It represents a net
loss to the economy as a whole to the extent that many transactions do
not take place at all, because the mutually acceptable possibilities have
been reduced. The set of options simultaneously acceptable to A and B
is almost inevitably greater than the set of options simultaneously
acceptable to A, B, and C-where C is the third party observer with
force, typically the government.

The form in which force is applied to constrain price

communication varies widely, including (1) establishing an upper limit
beyond which force will be applied (fines, jail, confiscation, etc.) to
anyone charging and/or paying such prices, (2) establishing a lower
limit, (3) indirectly raising some prices by taxing particular items
moreso than others, and indirectly lowering some prices by subsidizing
the product with assets forcibly transferred from the taxpayers rather
than having the product paid for only by assets voluntarily transferred
by consumers of that product.

Direct price controls are not the only method of superseding the
market. Other methods include forcibly controlling the characteristics
("quality") of the product, forcibly restricting competition in the
market, forcibly changing the structure of the market through antitrust
laws, and comprehensive economic "planning" backed by force.
Again, the use of force is emphasized here not simply because of the
incidental unpleasantness of force, but because the essential
communication of knowledge is distorted when what can be
communicated is circumscribed. All these ways of distorting the free
communication of knowledge (preferences and technological
constraints) have been growing, but each has its own distinct
characteristics.

CONTROLLING PRICES
FORCIBLY RAISING PRICES

Minimum wage laws and laws forbidding businesses from selling

goods "below cost" are typical of government's forcibly setting a lower
limit to price fluctuations. Although minimum wage laws may be more
extensive in their coverage, the laws against particular businesses'
selling "below cost" are more readily revealing as to the nature and
distortions of such processes.

It may seem strange-indeed, incomprehensible-that a business

enterprise set up for the explicit purpose of making a profit would have
to be forcibly prevented from selling at a loss, quite aside from the
larger social question of whether such a prohibition benefits the
economy as a whole. Yet much government regulation-of airlines,
railroads, various agricultural markets, and of imported goods in
general-limits how low prices will be allowed to go, whether in the
explicit language of forbidding sales "below cost" or of preventing
"ruinous competition," "dumping," "predatory pricing," or more
positively of "stabilizing the industry" or creating "orderly markets" or
other euphonious synonyms for price fixing.

In addition to these direct prohibitions on lower prices, the

administration and judicial interpretation of antitrust laws makes sales
"below cost" damning evidence against a business. Moreover, the
government's required permission to enter various regulated industries
or professions-transportation, broadcasting, medicine, etc.-is often
denied or restricted to keep competition from forcing prices "too low"
or "ruining" incumbents-often erroneously described as "the industry."

The government is not behaving irrationally from a political

standpoint. Neither are businesses behaving irrationally from an
economic standpoint when they seem to be selling "below cost." The
costs of an industry are difficult-if not impossible-for third parties to
determine. As we saw in Chapter 3, costs are foregone options-and
options are always prospective. The past is irrevocably fixed, so all
options are present or future. The objective data available to third
parties refer to past actions taken in response to the prospective options
subjectively foreseen as of that time. Those subjective forecasts
themselves exist neither in the objective data of the past actions nor in
the objective record of subsequent events, which may or may not have
conformed to the forecasts. Apparently the foreseen costs were less
than the foreseen benefits when Napoleon invaded Russia, or when the
the Ford Motor Company produced the Edsel.

Government regulation can never be based on these fleeting and

subjective appraisals of alternatives which actually guide business
decision makers. Even if businessmen could remember everything
exactly and describe it precisely, the government would have no way
of verifying it. Government regulations and their estimates of "cost"
are based on objective statistical data on actual outlays. Therefore
businesses which determine their prices on the basis of options facing
them at a given time often price below objective cost as defined by
past expenditures on production.

If the hypothetical Zingo Manufacturing Company is launched with

the idea that the world will be eager to buy zingoes, it may spend great
sums producing that product, only to discover after the fact that
consumers are so disinterested that zingoes can be sold only at prices
which cover half of the past costs incurred in producing them. The
options at that point are to (1) sell the existing zingoes at this price or
(2) to incur additional costs by holding zingoes in inventory, in hopes
of being able to drum up more consumer demand through advertising
or other devices, or (3) declare bankruptcy and let it all become the
creditor's problem. Depending upon the capital reserves of the firm,
selling "below cost" may allow them to minimize their losses on this
product and survive as a firm producing some other product(s) in the
future. But, regardless of which future option may be preferred, past
"cost" data are irrelevant. As economists say, "sunk costs are sunk."
They are history but they are not economics.

The general principle applies much more widely than in economic

transactions. Once Napoleon realized that he was losing in Russia, it
mattered not how many lives had been sacrificed for the goal of
conquering the country, or in capturing the Russian territory currently
held; if future prospects were not good, he had to pull the army out of
Russia, and write off the whole operation as a loss. In retreating,
Napoleon may well have been returning territory to the Russian armies
"below cost" in terms of the lives originally sacrificed to capture it. In
military terms, as in economic terms, a given physical thing does not
represent a given value without regard to time or circumstances. Land
which was prospectively valuable as a strategic area from which to
attack the rest of the country may turn out in retrospect to be just so
much impediment on a retreating army's escape route.

Businesses sell "below cost" not only when they have mistakenly
forecast the future, but also when their costs for a given decision under
specific conditions are less than the usual costs under the usual
conditions. As seen in Chapter 3, the use of otherwise idle equipment
may involve far lower incremental costs than acquiring equipment to
serve the same specific purpose. Pricing according to these
incremental costs ("marginal cost pricing" in the jargon of the
economists) may be rational for the seller and beneficial to the buyer
but is often attacked, penalized, or forbidden by the government.
Regulatory agencies have consistently opposed low prices based on
low incremental costs, and have insisted that the regulated firms base
their prices on average costs, including overhead. The extent to which
regulatory agenciesthe Interstate Commerce Commission, Federal
Communications Commission, Civil Aeronautics Board, etc.-keep
prices above the level preferred by individual firms remains largely
unknown to the general public, to whom such agencies are depicted as
"protecting" the public from high prices or "exploitation" by
"powerful" businesses. However, the government agencies are not
being irrational, nor are the businesses altruistic. High volume at low
prices has been the source of more than one fortune. Each side is
responding to the respective incentives faced.

Low incremental costs are also no defense in antitrust prosecutions

alleging sales "below cost" to "unfairly" drive out competitors. The
U.S. Supreme Court, in a noted Sherman Antitrust Act case, ruled
against a firm whose "price was less than its direct cost plus an
allocation for overhead" ' even though overhead is not part of
incremental cost. In this, as in many other antitrust cases, injury to an
incumbent competitor was equated with injury to the competitive
process, which the antitrust laws are supposed to protect.

Consumers are equally well protected against low prices based on

low incremental costs in a number of other government-controlled
areas, such as various agricultural markets. The government itself has
an "almost universal avoidance" 2 of incremental cost pricing for
public goods and services, such as the Post Office or toll roads and
bridges. Toll charges, in fact, typically are highest for those who create
the least cost and lowest for those who create the most. The capacity of
a highway or bridge is usually based on the volume of rush-hour
traffic, so that the costs of building and expanding the facility are due
to rush-hour users. The incremental cost of other people's using it
during nonrush hours, when it has idle capacity, are far less and
perhaps virtually zero. Yet discount books of toll coupons are likely to
be made available on terms which make them attractive only to regular
rush-hour users, not to occasional users who are more likely to be
nonrush-hour users. However economically perverse, this pricing
method makes political sense to elected officials, because regular users
are more easily organized into political pressure groups. That is,
regular users' costs of organization are spread over more units of
benefit, so that a rational equation of their individual costs and benefits
leads them to more political activity per person, as well as in the
aggregate, compared to sporadic users.

The growth of regulatory agencies, the expansion of antitrust laws

by legislative enactment and judicial interpretation, and increasing
government control of pricing in a variety of ways and areas all put
lower limits on price fluctuations, among many other effects that they
have. The question is, what effect does this have on the transmission of
knowledge? It overstates the actual cost of many goods and services,
leading some consumers to do without, even though they are willing
and able to pay enough to induce the producers to make more of those
goods and services, if the producers were free to accept their offers.
Knowledge is distorted in the transmission, due to the use of force by
third parties-in this case, various organs of government.
 While government actions inhibit or prevent the transmission of
knowledge in the summarized form of price fluctuations, the
government substi tutes its own decisions in the form of more
explicitly articulated knowledge, in either words or statistics.
Articulation, however, can lose great amounts of knowledge. The
continuously adjusting process of decision making through transient
subjective estimates of prospects is not recorded or available in
verifiable form to third parties. Retrospective data generated by this
prospective process are fragmentary artifacts analogous to bits of
broken pottery or remnants of clothing, from which an anthropologist
tries to reconstruct the life process of prehistoric peoples. The
anthropologist has no choice but to infer what he can from whatever he
finds, but no one would prefer such inferences to the knowledge of
someone who actually lived in prehistoric societies, if such people
were available. A similar disparity of knowledge is involved when
decisions are forcibly transferred from those who are part of an
ongoing process to third-party observers of statistical artifacts. Such
statistical artifacts are not merely incomplete but often positively
misleading, by being cast in terms wholly different from those of the
process they seek to depict. For example, we have already seen in
Chapter 4 that the subjective "time horizon" is not indicated by
objective data on remaining life span; babies have notoriously short
time horizons. Similarly, the averaging of fixed "overhead" costs over
output provides a categorical, retrospective picture of a prospective,
incremental process of decision making. The social utilization of idle
or only partly utilized resources-electricity generating capacity during
off-peak hours, half empty airplanes, factories operating below
capacity, etc.-is inhibited when effective knowledge of such low cost
opportunities is distorted by forcibly preventing low prices from
reflecting low incremental costs.

The element of force is crucial to the distortion. The knowledge

transmitted by voluntarily chosen prices conveys the terms on which
various forms of mutual cooperation are available. The knowledge
transmitted under government price constraints reflects the desire to
escape punishment, and the knowledge conveyed by such prices does
not reflect the full array of options actually available to the economy.
In particular it does not convey the cheapest options. For example, a
large, far-flung corporation can communicate among its many plants
either by using the already existing telephone network or by building
its own telephone system connecting its plants. It may require far
fewer of the economy's resources to use the existing telephone
network, but if these low incremental costs to the economy are
forbidden to be conveyed by low prices, the corporation may find it
cheaper (in its own financial terms) to build a socially redundant
telephone network for itself rather than pay high prices reflecting the
"average cost" of telephone service.

The crucial importance of force as a distorter of knowledge

transmission is overlooked in abstract discussions of the merits and
demerits of "marginal cost pricing." Such discussions attempt to
directly determine what should be done rather than decide who should
make that determination. Such questions as the precision with which
incremental ("marginal") costs can be calculated,' the cost of such
precision,' circumstantial variations in incremental costs,' and the
disparity between actual decision making variables and statistical
artifacts,' are serious social issues only in the context of forcibly
"solving" economic "problems" directly from a unitary or godlike
perspective, or as academic exercises. Where force is not involved,
then whatever methods of coping with these difficulties emerge, the
least cost methods among them will have a decisive competitive
advantage in voluntary transactions, whether those methods result
from intuitive insight, rationalistic expertise, or simply stumbling
across something that happens to work. It does not depend upon the
intentional modus operandi of businessmen,' but on the systemic
effects of competition.

Minimum wage laws likewise prevent transmission of knowledge of

labor available at costs which would induce its employment. By
misstating the cost of such labor, it causes some of the labor to be
unemployed, even though perfectly willing to work for wages which
others are perfectly willing to pay. The term "minimum wage" law
defines the process by its hoped-for results. But the law itself does not
guarantee that any wage will be paid, because employment remains a
voluntary transaction. All that the law does is reduce the set of options
available to both transactors. Once the law is defined by its
characteristics as a process rather than by its hoped-for results, it is
hardly surprising that there are fewer transactions (i.e., more
unemployment) with reduced options. What is perhaps more surprising
is the persistence and scope of the belief that people can be made
better off by reducing their options. In the case of the so-called'
minimum wage law, the empirical evidence has been growing that it
not only increases unemployment, but that it does so most among the
most disadvantaged workers.' This undermines some of the key
assumptions of the price fixing approach.

Some who might not support the general proposition that people are
made better off by reducing their options may nevertheless believe that
one party to a transaction or negotiation can be made better off by
eliminating his "worst" options-that is, low wages for a worker, high
rents for a tenant, or sales at a loss for a business firm. But, almost by
definition, these are not their worst options. They could have no
transactions at all (or fewer transac- tions)-that is, be unemployed,
unhoused, or unable to sell. Third parties may be morally uplifted by
saying, for example, that they would rather see people unemployed
than working at "exploitation" wages, but the mere fact that people are
voluntarily transacting as workers, tenants, or businessmen reveals
their own very different preferences. Unless price-fixing laws are to be
judged as moral consumer goods for observers, the revealed preference
of the transactor is empirically decisive. The fact that the worst-off
workers tend to be the most adversely affected by minimum wage laws
suggests that what is typically involved is not unconscionable
"exploitation" but the payment of wages commensurate with their
desirability as employees. If the lowest paid workers were simply the
most "underpaid" workers relative to their productivity, there would be
more than the usual profit to be made by employing them, and a
minimum wage law could simply transfer that extra profit to the
workers without costing them their jobs.

The "exploitation" explanation of low wages tends to emphasize the

intentional morality of the employer ("unconscionable") rather than the
systemic effects of competition. Nothing is more common in
economics than the attraction of new competitors whenever and
wherever there is a profit above the ordinary. If hiring low paid
workers presented such an opportunity-that is, if "exploitation" had
some substantive economic meaning-the competition attracted would
bid their wages up and keep them more fully employed than others. In
fact, however, their marginal desirability to employers is indicated by
their precarious and intermittent employment patterns, and by their
generally higher rates of unemployment. In short, for workers as for
business, knowledge transmitted by low prices (wages) is generally
accurate knowledge, and forbidding its transmission costs both the
economy and the intended beneficiary of such price fixing. Were the
facts themselves to be changed-by improving the job qualifications of
low paid workers, for example-the effects of that would be quite
different from merely forbidding or distorting the transmission of
knowledge of existing facts. In a purely informational sense, the
employer still knows low productivity or high-risk categories of
workers, but that only insures that the lack of effective knowledge
transmission through prices (wages) will lead to less employment of
them.

There is no inherent reason why low-skill or high-risk employees

are any less employable than high-skill, low-risk employees. Someone
who is five times as valuable to an employer is no more or less
employable than someone else who is one-fifth as valuable, when the
pay differences reflect their differences in benefits to the employer.
This is more than a theoretical point. Historically, lower skill levels did
not prevent black males from having labor force participation rates
higher than that of white males for every U.S. Census from 1890
through 1930.10 Since then, the general growth of wage fixing
arrangements-minimum wage laws, labor unions, civil service pay
scales, etc.-has reversed that and made more and more blacks
"unemployable," despite their rising levels of education and skill,
absolutely and relative to whites. In short, no one is employable or
unemployable absolutely, but only relative to a given pay scale.
Increasingly, blacks have been priced out of the market. This is
particularly apparent among the least experienced blacksthat is, black
teenagers, who have astronomical unemployment rates.

The alternative explanation of high black teenage unemployment by

"racism" collides with two very hard facts: (1) black teenage
unemployment in the 1940s and early 1950s was only a fraction of
what it was in the 1960s and 1970s (and was no different from white
teenage unemployment during the earlier period), despite the obvious
fact that there was certainly no less racism in the earlier period, and (2)
unemployment rates among blacks in their mid twenties drop sharply
to a fraction of what it was in their teens, even though the workers
have not changed color as they aged, but only become more
experienced. The intentional explanation-"racism"-may be more
moralistically satisfying, but the systemic explanation fits the facts. A
decade of rapid inflation after the federal minimum wage law of 1938
virtually repealed the law as an economic factor by the late 1940s and
early 1950s-before a series of amendments escalated the original
minimum. During the late 1940s and early 1950s, when inflation and
the exemption of many occupations from wage control made the
minimum wage law relatively ineffective, black teenage employment
was less than a third of what it was in the later period, after the
minimum was raised to keep pace with inflation and the coverage of
minimum wage laws extended to virtually the entire economy. To give
some idea of the magnitude of this effect, black teenage
unemployment in the recession year of 1949 was lower than it was to
be in any of the most prosperous years of the 1960s or 1970s.
Moreover, even in countries with all white labor forces, teenage
unemployment has been similarly vulnerable to minimum wage laws."
This is in keeping with the lesser work experience of teenagers and
therefore the greater distortion of knowledge involved when minimum
wage laws misstate their value to the employer. Statistical data happen
to be kept by age and race, but the more general point is that the
negative effect of forcible distortion of knowledge hurts most those for
whom the distortion is greatest.

While the government is the central repository of force, it is by no

means the sole repository of force. Labor unions often use force,
threats, and harassment during strikes to stop or reduce the flow of
customers or employees to the work place and/or the shipment of
goods in or out from a struck business. Many major employers do not
even attempt to operate during a strike, because of the high prospect of
violence and the low prospect of effective law enforcement.12

This private use of force to prevent the effective transmission of

prices reflecting economic options has very similar effects to those of
governmental force in the form of minimum wage laws. The systemic
effect of pricing the most disadvantaged workers out of a job is
sometimes compounded by intentional effects of barring various
minorities from unionized occupations, either explicitly or tacitly.
Virtually every immigrant minority was the target of such union
exclusions at one time or other during the nineteenth century, and
"white only" clauses existed in many union contracts or constitutions
in both the nineteenth and twentieth centuries, until civil rights
legislation in the 1960s barred such words. However, such intentional
discrimination is not necessary in order for unions to have adverse
systemic effects on the employment opportunities of disadvantaged
groups, similar to those of minimum wage laws which usually13 have
no intentional discrimination at all. Whether by intentional or systemic
effect, labor unions have historically had a devastating impact on the
employment opportunities of blacks. Some occupations once
dominated by blacks-railroad and construction occupations in the
South, for example-became "white only" after unionization."

The history of blacks in skilled occupations in the South and North

graphically illustrates the difference between intentional and systemic
variables. From an intentional point of view, the South would seem to
be the most averse to the employment of blacks in skilled occupations,
but in reality blacks remained in such positions longer in the South
than in the North,15 because the systemic effects of labor unions and
"liberal" or "progressive" wage-fixing legislation came much later to
the South.

FORCIBLY LOWERING PRICES

 Very similar principles are involved when prices are forcibly kept
below the level they would reach if allowed to fluctuate freely. Rent
control, interest rate ceilings, and general wage and price controls
during wartime or under comprehensive "planning" are examples of
forcibly limiting how high prices can go.

Since prices are simply knowledge of available terms of trade-off, to

limit how high the price of A can go in trade-offs for B is
economically the same as limiting how low the price of B can go in
trade-offs for A. All that differs is the phrasing. It should not be
surprising, therefore, when upper limits on rents lead to housing
shortages just as lower limits on wages lead to unemployment. A mere
change of phrasing shows that minimum wage laws limit how much
labor can be offered for a given job, causing a shortage of jobs at that
price, just as rent control limits how much rent can be offered for a
given housing unit, causing a shortage of housing units at that price.
All "shortages" and "surpluses" are at some given price, and not
absolutely in terms of the scarcity or abundance of the item in
quantitative terms. The severe housing shortage during World War II
occurred with no significant change in ei ther the amount of housing in
the country or in the size of the population. Indeed, more than ten
million people left the civilian population, and many left the country,
during World War II. More housing was demanded by the remaining
civilian population at rent-control prices. The effective knowledge
conveyed by artificially low prices was of far more abundant housing
than actually existed or had ever existed.

There is no fixed relationship between the number of people and the

amount of space "needed" to house them. Whether or to what extent
children will share rooms or have their own individual rooms, the time
at which young adults will move out to form their own households,
and the extent to which single kinfolks or roomers live with families
are all variable according to the price of housing and the incomes of
the people making the decisions. Virtually every American ethnic
group, for example, has at some point or other gone through a stage at
which taking in roomers was a pervasive social phenomenon. 16
 Artificially low prices under rent control facilitates the
disaggregation of existing families or living units into smaller groups
of individuals with separate households, and facilitates the use of more
space per person in existing households, so that very quickly "no
vacancy" signs appear almost everywhere. After that point, people
who find themselves having to move for compelling reasons may have
to double up or live in garages or other makeshift, overcrowded
housing, precisely because of the general use of more space per person
in the country as a whole. While young couples with growing families
may find themselves increasingly overcrowded in housing that was
once adequate, older couples whose children have left home have little
financial incentive to give up larger housing units that the family once
needed, because rent control makes the larger unit affordable and
leaves few alternative places to move into. In the absence of rent
control, there is an incentive for a continuous interchange of different
sized housing units among families at different stages of their life
cycle. The growing young family trades off other things for housing
incrementally, while the older family with children "leaving the nest"
can trade off excess space for other things they want. Prices convey
effective knowledge of these ever-changing trade-offs, directing each
set of decision makers to where they can get the most satisfaction-from
their own respective viewpoints-from their respective assets. Rent
control distorts-or virtually eliminates-this flow of information. The
same set of people and the same set of physical assets continue to
exist, but the simple fact that they cannot redistribute themselves
among the assets in accordance with their divergent and changing
desires means that there is less satisfaction derived from a given
housing stock. Though it is the same physical matter, its value is less.

The losses resulting from rent control are not losses of physical
matter or of money. Both can exist in the same amounts as before-and
therefore cannot be measured in "objective" statistical data based on
the relevant transactions (renting). The reduction or nonexistence of
desired transactions is precisely the loss and no numbers or expertise
can objectively measure thwarted desires. The most that can be
objectively documented are waiting lists, illegal payments to landlords,
and other scattered artifacts analogous to the broken pottery and
remnants of clothing available to anthropologists studying prehistoric
peoples. In a longer time perspective, rent control prices convey
distorted knowledge not only about the optimal allocation of existing
housing but about the trade-offs people would be willing to make to
get new housing. Renters are forbidden to convey the full urgency of
their desire for new housing, in the form of financial incentives that
would reach landlords, financial institutions, and builders. This
urgency may be growing as the old housing continually deteriorates
and wears out, but the effective signal received by builders may be that
there are few resources available to be traded off for more housing.
The effective signals received by landlords with old buildings may be
that there is little available to be traded off to get the maintenance and
repair needed to keep them going-even though the tenants might prefer
paying more rent to seeing the building deteriorate or the landlord
abandon it entirely, as has happened on a mass scale in New York City,
where rent control has persisted long after World War II.

Rent control illustrates not only the ease with which political
systems can distort the transmission of knowledge in an economic
system. Its history also illustrates how difficult it is for effective
feedback to correct a political decision. Political decision making units
are defined by geographic boundaries, not by particular subsets of
people who experience the consequences of given policies. Rent
control laws passed decades ago to benefit "New Yorkers" or tenants in
New York were initially judged through the political process by
incumbent New Yorkers and incumbent tenants, on the basis of the
prospective plausibility of such laws. A generation later, deaths, births,
and normal migration in and out of the city mean that the electorate
has turned over considerably, and very few of them have personally
experienced the effects of rent control from start to finish. Many of
those who actually experienced the deterioration of housing under rent
control in New York City are now living outside New York City, some
as a direct result. Their experience does not feed back through the
electoral process in the city. The current New York City electorate
includes great numbers of people who arrived in the city-by birth or
migration-when it was already experiencing the effects of rent control,
so they have no "before" and "after" experience to compare. They do
not know, for example, that the city once had a larger population, no
housing shortage, and no masses of abandoned buildings. Their
personal experience does not go back far enough to enable them to
spot the fatal flaw in the argument that rent control cannot be safely
repealed while there is still a housing shortage. Lacking this personal
experience, they would have to be trained in economics to realize that
a "shortage" is itself a price phenomenon, and so will persist as long as
the rent control persists.

While time and complexity insulate many political decisions from

effective feedback from the general electorate, some offsetting
knowledge is furnished by groups with lower knowledge costs because
they are more obviously affected adversely-the real estate lobby and
landlord associations, in this case. In general, special interests have not
only lower costs of knowledge of their own interests, but an incentive
to invest in discovering how other groups' interests are similarly
affected, so as to acquire political allies. However, to the extent that
special interest arguments are automatically discounted, this
knowledge is ineffective or even counterproductive. Landlord and real
estate interests, for example, provide pro-rent control forces with an
enemy to fight, a sense of moral superiority in fighting, and a
reassurance that they are acting in the interests of others who need
protecting-though this last crucial point rests on an implicit conception
of the economy as a zerosum (or negative-sum) game. Once the
economy is seen as a positive-sum game-that voluntary transactions
are mutually beneficial or they would not occur-then the losses
suffered when such transactions are forcibly restricted can also be
mutual. The fact that the complaints issue first or exclusively from one
party may reflect only his lower costs of knowledge of the effects on
him.

More generally, to totally discount all special interest arguments is

to implicitly assume that society is inherently a zero-sum game-which
is difficult to reconcile with the fact that societies of some sort or other
have existed among all peoples and ages.
 The effects of rent control on the quality of housing illustrates a
more general characteristic of price control and of the limits of
articulation. Whatever price is forcibly set by an observer, he must
define the product whose price is being controlled-and his articulation
can seldom match the unarticulated experience of actual, voluntary
transactors. The result is that prices set below the level that would have
prevailed otherwise lead to quality deterioration. In the case of rent
controlled apartments, maintenance, repair, painting, cleaning, heat,
hot water and general monitoring all decline. This is less damaging to
brand new buildings than to older buildings which require more
upkeep to avoid becoming slums. Since low income people are more
likely to live in older buildings, they are most likely to find their
homes become unheated slums with uncorrected building hazards. In
the extreme, they may find the building totally abandoned by the
landlord, once the cost of maintaining it at minimum legal levels
exceeds the rent permitted. In New York City, such abandonments
average about twenty-five thousand units per year."

Rent control is not unique in affecting the quality of the product.

General price controls during World War II brought on a proliferation
of inferior off brands, some made by brand-name producers who did
not want to damage the long-run reputation of their regular label.
Sometimes the quality deterioration took the form of deteriorated
service, leading to much contemporary comedy based on arrogant
butchers, insolent salespeople, etc. In general, price control involves
articulating not only a price-which is easy-but also articulating the
characteristics of a product. Although it may seem easy to define a
product such as an apartment or a can of peas, actual experience
demonstrates the crudity of articulation as compared to unarticulated
experience. An apartment is not simply a physical thing, but involves a
multitude of associated services, changes in the quantity and quality of
which affect operating cost, the vacancy rate, and the price that can be
charged in an uncontrolled market. When rents are forcibly lowered by
the government, costs are voluntarily lowered by the landlords through
declines in the quantity and quality of service, so that the "product"
itself changes. A perfect legal specification of a product, perfectly
monitored, would make this impossible. But the pervasiveness of this
deterioration-including total abandonmentindicates the limits of
articulation and third party monitoring.

In the absence of rent control, tenants monitor changes themselves

and communicate their reactions to the landlord not only verbally but-
more convincingly-through changes in the vacancy rate. They can
even monitor services of which they are generally unaware, in the
sense that they might not list them if asked to articulate what they want
in an apartment building. For example, many tenants might not
articulate a concern for management's monitoring of people who enter
the building-and yet if the building becomes a hangout for loiterers,
hoodlums, or addicts, the vacancy rate would rise. Conversely, if the
management officiously screened all entering guests, the same
negative reaction would occur. In other words, a service which is
seldom articulated must not only be performed but performed within
limits on either side, if the landlord is to minimize his vacancy rate and
maximize his rental income. The multiplicity and importance of these
auxiliary services is most dramatically seen, not in uncontrolled
markets where they become routine, but by their absence in rent-
control buildings and in government housing projects. Typically there
is far more explicit articulation of housing rules in such places but far
less effective monitoring.

Even a simple can of peas cannot be exhaustively defined and

completely monitored under price control. The flavor, appearance,
texture, and uniformity of peas within a can and from one can to the
next, depend on the selection and control of crops and the sorting and
processing of the peas. In an uncontrolled market, these are all
adjusted according to the incremental cost of each improvement and
the incremental value of the improvements as revealed by how high a
price the consumer is willing to pay for brands which reliably supply
the desired characteristics. If this price is forcibly set below the market
level by a third party, the supplier has incentives to supply less of these
qualities and thereby reduce his production costs.

Just as a price forcibly set below the market level tends to reduce the
quality of the price controlled product, so a price forcibly set above the
market level tends to increase the quality of the product. Minimum
wage laws tend to cause employers to hire fewer but better qualified
workers-that is, they make less skillful, less experienced, or otherwise
less desirable workers "unemployable." Higher quality workers and
more "unemployability" in a given work force are the same things
expressed in different words.

Interest rate ceilings-usury laws-tend similarly to reduce a major

service performed by the lender (risk taking) by causing him to
eliminate more borrowers as insufficiently good risks. When one
considers that the risk of losing money considerably exceeds 50
percent when drilling an oil well (that is, a well whose hoped-for result
is oil), it is clear that high risk alone will not deter capital suppliers if
the rate of return is allowed to vary sufficiently to compensate the risk.
But by forcibly restricting the rate of return on personal loans to what
is "reasonable" in the experience of good-credit-risk, middleclass
people who write such laws, credit is often denied or restricted to low
income people who may be only slightly less dependable risks and
would be able to get credit at only slightly higher interest rates.
Instead, they are left with no other choice but to resort to illegal "loan
sharks" whose interest rates are much higher and whose collection
methods are much rougher. Like other forms of price controls, usury
laws distort the communication of correct facts about credit risks
without in any way changing those facts themselves.

One of the more dramatic recent examples of the effect of forcibly

keeping prices below the market level has been the so-called "gasoline
crisis" of 1979. Because of the complexities in long-standing
government regulations controlling the price of gasoline, their full
effects began to be felt in the spring of 1979. As in the case of rent
control, the effects were not primarily on the quantity of the physically
defined product-gallons of gasoline in this case-but on the auxiliary
services not articulated in the law. Just as rent control tends to reduce
such auxiliary services as maintenance, heat, and hot water, so
controlling the price of gasoline reduced such auxiliary services as
hours of service at filling stations, credit card acceptance, and
checking un der the hood. Indeed, what was called a "gasoline
shortage" was primarily a shortage of hours of service at filling
stations, and the traumatic effects of this indicate that unarticulated
aspects of the physically defined product are by no means incidental.
In New York City, for example, the average filling station was open
110 hours a week in September 1978 and only 27 hours a week in June
1979.16 The actual amount of gasoline pumped declined by only a few
percentage points, while the hours of service declined 75 percent. That
is, filling stations tried to recoup their losses from price control by
reducing the man-hours of labor they paid for, while the motorists'
losses of man-hours waiting in gasoline lines went up by many times
what the filling stations had saved. Moreover, the motorists suffered
from increased risks in planning long distance trips, given the
unpredictability of filling station hours en route. This prospective
psychic loss to motorists was reflected in dramatically declining
business at vacation resorts, for example, but retrospective data on the
actual amount of gasoline sold showed only small percentage declines.
In short, the real cost of the so-called gasoline shortage was not simply
the small statistical change in the quantity of the physical product, but
the large prospective change in the ability to get it when and where it
was wanted. As in so many other cases, objective retrospective data do
not capture the economic reality.

FORCIBLY CHANGING COSTS

Costs to the economy as a whole may be given at a given time under

given technology. But, even so, costs as experienced by the decision
making unit can be raised by special taxes or lowered by subsidies.
Any tax represents force used to influence decisions, and subsidies
represent taxes forcibly extracted from others. It is indirect price
fixing. A special tax, over and above the normal tax on items of similar
value, misstates the cost transmitted through the economic system. The
extra money paid by the consumer is not a loss suffered by the
economy as a whole. The higher price is just an internal transfer of
wealth among individuals in the same system-making the system as a
whole no richer or poorer. What makes the system as a whole poorer
are the transactions that do not take place because of the artificially
high price. Where a high price conveys an actual scarcity of material
or a reluctance of people to do certain work, then it accurately conveys
information about the incremental cost to the economic system. But
when the price is simply made higher by government fiat-whether by
direct price fixing or by a special tax-then it conveys a false picture of
the cost, thereby causing potential consumers to forego the product
even though others are perfectly willing to supply it for a price that
they are willing to pay.

Information about the availability of goods is distorted in the

opposite direction when the government subsidizes goods. Some of the
people consuming a subsidized good would be unwilling to pay the
cost of it if that cost were accurately conveyed to them in the price.
Instead, third parties are forced to pay part of the cost in taxes,
regardless of their evaluation of the good and even regardless of
whether they ever used it.

Sometimes subsidies are more subtly arranged, without explicit

taxation. Where there is a government-run monopoly (such as the Post
Office) or a government-regulated industry where competition is kept
out by force of law (public utilities), then the prices that are set by
government cause some users to subsidize other users. Force is
applied, not to those users but to potential competitors, who are not
allowed to enter the industry and offer lower prices to those consumers
who are subsidizing others. Users of first-class mail pay more postage
than is necessary to cover the cost of delivering such mail, while
senders of "junk mail" pay less than its cost. The economic system in
this case conveys distorted information, making junk mail seem
cheaper to deliver than it is, and thereby causing more of it to be sent
than if its true cost was conveyed to the senders in prices. Resources
that would be more valuable to other people in other uses are used to
move junk mail, because its bids for those resources include not only
the assets voluntarily sacrificed on the basis of the value of that mail to
the sender but also assets which nonsenders of junk mail had to
surrender as the price of their own first-class mail-thereby becoming
involuntary bidders for resources they neither want nor use.
 In an ideally functioning political system with zero costs of
knowledge, the extra-payers would have as much ability to end this
cross-subsidy as the special interests have to create it. In the real
world, however, special interests are-almost by definition-groups with
lower costs of knowledge. They know individually what it is that they
have in common so that they can contact and organize each other as
people or organizations similarly affected by government policy. Their
greater political weight then enables them to forcibly take economic
resources from others.

As in all systems of price discrimination, cross-subsidy works only

as long as competitors can be kept out, and usually only the
government has sufficient force to do that effectively. Where price
discrimination is attempted in a competitive market, those who are
paying more than their own costs can be served more cheaply (and
profitably) by firms charging each set of customers according to their
own respective costs. Price discrimination under these conditions
quickly becomes attempted price discrimination, as overcharged
customers find other firms to transact with. This has happened, for
example, in the railroad industry as it lost its original monopoly with
the de velopment of trucking and airlines. Those kinds of freight which
had been overcharged to subsidize other kinds of freight simply began
being shipped by trucks, planes, or barges.

Given that a monopolistic market is essential for cross-subsidizing

(or other forms of price discrimination), it is not surprising that cross-
subsidy prices are common in the postal service, public utilities, and
other enterprises either run or directly controlled by the government.
The cross-subsidization of mail occurs not only as between first-class
and junk mail. It also occurs as between users in large cities and those
in remote places. The huge volume of mail between New York and
Chicago tends to make the cost per letter very low, while the low
volume of mail to remote villages makes their cost per letter much
higher. In an uncontrolled, competitive market, the respective prices
would tend to reflect these large cost differences. In a government
market, however, all the costs are lumped together and all the users
pay the same postage without regard to how much each contributed to
those costs. The knowledge conveyed by the uniform prices is
therefore a distortion of the real costs in terms of the resources used up
by the economy in directing mail to different places. To the extent that
other government controlled prices similarly distort the cost of
delivering electricity, water, and other services to rural locations, the
whole cost of living in isolated towns or villages is understated to
those' who are deciding where to locate.

The history of American transportation, from municipal bus and

streetcar lines to railroads and airlines, is a history of government-
imposed cross-subsidies. Initially, municipal transit was privately
owned by a number of firms operating streetcars along various routes.
The creation of city-wide franchises-monopolies-was usually
accompanied by fixed fares, regardless of distance traveled or transfers
required. Short-distance passengers subsidized long-distance
passengers. The effects were not only distributional but allocational.
More resources were devoted to carrying people long distances than
would have been if the true costs had been conveyed to those using the
service. Therefore, the creation of suburbs and central business
districts was subsidized, at the expense of people living in the city and
of neighborhood enterprises. The question is not which of these
residential or business arrangements is "better" in some categorical
sense. The point is simply that cross-subsidy conveyed false economic
information to those making decisions as to where to live or shop, and
the fact that the subsidy never appeared in a government budget
conveyed no information at all to the electorate.

Like most price discriminators, municipal transit was vulnerable to

competitors who chose to serve the overcharged segment of their
customers. Around 1914-1915, the mass production of the automobile
led to the rise of owner-operated bus or taxi services costing five cents
and therefore called "jitneys," the current slang for nickels:

The jitneys were owner-operated vehicles which essentially provided a

competitive market in urban transportation with the usual
characteristics of rapid entry and exit, quick adaptation to changes in
demand, and, in particular, excellent adaptation to peak load demands.
Some 60 percent of the jitneymen were part-time operators, many of
whom simply carried passengers for a nickel on trips between home
and work. Consequently, cities were criss-crossed with an infinity of
home-to-work routes every rush hour.

The jitneys were put down in every American city to protect the
street railways and, in particular, to perpetuate the cross-subsidization
of the street railways' citywide fare structures. As a result, the public
moved to automobiles as private rather than common carriers......

In short, the cross-subsidy scheme not only distorted the location of

homes and businesses; it artificially increased the "need" for private
automobiles by forcibly preventing or restricting the sharing of cars
through the market.

Ironically, years later, some municipalities have tried to encourage

car pools to reduce traffic congestion, but car-pooling through
nonmarket mechanisms requires far more knowledge than through the
market for jitneys, and conveys far less incentive for dependability and
cooperation. Because car pools are advance agreements among
particular small subsets of persons, rather than a systemic arrangement
for all the cars and passengers in the whole set of travelers, enormous
sorting and labeling costs are involved in car-pooling-determining
specifically who is going where and discovering how dependable and
punctual each other person in the subset happens to be. By contrast,
the jitney owner made profits by picking up people (usually on his
own way to work) and had every incentive to pick them up on time
every day, or some other jitney owner would pick them up before he
got there. But with nonmarket car pools, a particular set of riders is
waiting for a particular car-and it remains illegal for other cars to sell
their services to them without a city franchise as taxis. Under these
constraints, car pools have done little to relieve traffic congestion,
despite much exhortation.

The rush-hour traffic congestion caused by thousands of people

going to work separately in individual automobiles has been
denounced by social critics as "irrational" and explained by some
mysterious psychological attraction of Americans to automobiles. It is,
however, a perfectly rational response to the incentives and constraints
conveyed. The actual costs and benefits of automobile-sharing are
forcibly prevented from being conveyed by prices. As in other areas,
claims of public irrationality are a prelude to arguments for a
government-imposed rational "solution" to the "problem." Also as in
other areas, it is precisely the government's use of force to prevent the
accu rate transmission of knowledge through prices that leads to the
suboptimal systemic results which are articulated as irrational
intentional results of a personified "society."

Private force is used to prevent price transmission of knowledge of

the availability of drivers. Many unemployed people are perfectly
capable of driving, but are prevented from competing for such work,
either as employees or as owner-operators of vehicles. Labor unions
are the private force. This is not metaphorical force, though it may be
infrequently exercised force (as in armed robberies), because both
sides understand the situation. If any unemployed worker receives X
dollars as unemployment compensation but would rather work at 2X,
he will be prevented from doing so if the union wage is 3X.

It is not enough that the union have a contract for 3X with a given
employer, such as a bus company or taxi fleet. The unemployed
individual could work for 2X for himself or for a nonunion firm-if this
were not prevented by union threats and/or government force applied
directly to make these other options illegal.

Unions do not simply set the wages paid on a predestined number of

jobs. The wage rate charged determines how a certain task will be
performedthat is, how many "jobs" it will involve. In the case of
municipal transit, high wage rates for bus drivers create incentives for
large buses-the substitution of capital for labor in transporting a given
number of passengers. A leading transportation economist estimates
that about eight passengers per vehicle would be optimal in a system
where prices were allowed to convey accurate costs of vehicles,
drivers, and roadsl0-in contrast to the usual forty- to fiftypassenger
buses actually used. If only one fifth as many passengers were carried
per bus, there would be five times as many small buses, meaning five
times as many jobs for drivers and only one-fifth the waiting time
between buses for passengers. It would also be possible to have a far
greater variety of bus routes, as the jitneys had, rather than clogging a
few main thoroughfares during rush hours and letting passengers off
farther from their destinations than necessary, as at present. Under
these conditions buses would also be a far more attractive alternative
to private automobiles for many people.

Disastrous as the effects of political decision making have been in

municipal transportation, it is by no means irrational politically.
Indeed, the same set of policies have emerged in so many different
cities across the country, and reappeared again and again in national
transportation policy regarding passenger railroads and airline routes
that it is clearly a consistent effect, reflecting consistent causes rather
than anything as random as "irrationality." Central to the decision
making in this area has been the maintenance of incumbent
transportation entities, which often implies the maintenance of in
cumbent technologies-i.e., subsidized obsolescence21-resisting the
phasing out of existing modes of operation, as competing modes arise.
On the contrary, competing modes with technological or organizational
advantages are either penalized or prohibited (as in the case of the
jitneys), to preserve incumbent organizations and technology. It is not
even a pro-industry position but a pro-incumbent position, since there
might well be a far more profitable industry (consisting of new firms),
as well as one better serving the public, in the absence of such
regulation. To be pro-industry would be an ideological position; to be
pro-incumbent is a practical political position, since the incumbents
are either organized or easily organizable into effective special interest
groups. The same incumbent bias applies to labor-i.e., to unions of
existing employees, at the expense of other workers whose job
opportunities are sacrificed. For example the federal mass transit
subsidy program requires labor union approval of any major
expenditure" thereby assuring that no changes will be made that
adversely affect the incumbent union members.

There is nothing peculiar about transportation that brings about such

results. The regulated communications industry shows the same
patterns. As in transportation, there was once a plausible case for
government intervention, when the alternative of free competition did
not seem feasible under existing conditions. In the broadcasting
industry, there are inherent technological limits to how many
competitors can operate in a given area, because broadcast signals
interfere with one another, and beyond some point such interference
makes all broadcasts unintelligible. This was a clear case where the
government creation of a property right-in this case the right to
exclude others from broadcasting on a given station's wavelengths-was
a social gain, not simply a gain for the property owners. But the
government went beyond defining a property right to assigning a
property right. The crucial difference between the two functions is
apparent in the case of land, where there are elaborate laws on property
rights in general, and elaborate government records on each piece of
land, but the actual assignment of ownership occurs almost entirely
through market transactions. The defining of a property right in
broadcasting over certain wavelengths served the public interest, but
the power to assign such rights to particular individuals or corporations
served the interests of politicians. The regulatory process they created-
and continue to influence through appointments and appropriations-
had enormously valuable property rights to hand out at their discretion,
with little more legal restrictions than vague phrases about "the public
interest." In exchange, politicians and their appointees were in a
position to receive everything from simple obeisance23 through
campaign contributions, favors to constituents and friends, jobs in the
regulated industry, and outright bribes.

In communications, as in transit, new technological developments

threat ened incumbent organizations and incumbent technology. Cable
television made possible an unlimited transmission of stations to any
given point, unlike broadcasting through the air. The whole structure
of the industry-networks, affiliates, advertising patterns-could have
been undermined or destroyed by the new technological possibilities.
So too would have been the existing regulatory apparatus, which was
no longer needed after the industry was no longer inherently
monopolistic. But as in transportation after alternative modes (autos,
airplanes) eliminated the railroad monopoly on which the I.C.C. was
based, so in communications the response to the elimination of the
initial rationale for regulation was to extend the regulation to
encumber and contain the new threatening technology.

Under this set of institutional incentives and constraints, it is hardly

surprising that corruption scandals have plagued broadcasting
regulation for decades,24 and surrounding the outright proven
corruption is a large gray area of questionable financial windfalls to
politicians, including the fortune of Lyndon B. Johnson.

Sometimes the political gains from regulation are more indirect but
no less substantial and no less distorting to the use of resources in the
economy. For example, the routes of federally subsidized passenger
trains reflect the locations of the constituencies of key politicians,
rather than the concentration of people requiring the service:

Because the Chairman of the House Commerce Committee and a

prominent member of the ICC come from West Virginia, at various
times three passenger trains have been run east and west through the
state, which has limited demand for passenger service. Similarly
Amtrak has had to provide two routes through Montana on the former
Great Northern and Northern Pacific main lines because of the
political strength of senators from Montana. Because members of
Congress from Ohio have shown no special interest in transportation,
that populous state receives a relatively small coverage of passenger
trains: Cleveland was not served by Amtrak at all in the initial plan.
...25

Similar political considerations cause the federally financed

highway system "to contain a large mileage of lightly utilized freeway,
especially in the plains states, whereas the investment would have
given society a greater return in the more populous areas of the
country."26 Again, the point is not simply its inconsistency as
economic optimizing, but its perfect consistency as political
optimizing. A more basic question might be why anyone would expect
economic optimizing by people chosen politically, and operating under
political incentives and constraints. Vague personifications of "society"
and projections of government into that role may be the explanation.
 Cross-subsidy is so widespread and so deeply ingrained in
government controlled enterprises that a special term of opprobrium is
used to describe the disturbance of such schemes by new firms
entering to serve the previously overcharged segment of the market:
"cream skimming." Thus, when the United Parcel Service began
delivering more packages-more cheaply, quickly, and safely than the
Post Office-it was charged with skimming the cream of the market by
serving urban and suburban areas rather than all the remote areas
which are served by the Post Office. A private business has no
incentives to subsidize one set of customers at the expense of another.
Its individual incentive is to produce the maximum value at the least
cost (the difference being its profit), and systemically that means
getting the most possible from given resources at the least sacrifices of
alternative uses of those resourses.

An uncontrolled, competitive market for package deliveries would

not mean that people in remote areas would have no packages
delivered. It means that the frequency of such delivieries would be
less, reflecting the higher cost. Those people in such areas who are
able to stop by a post office or parcel service office in town during
shopping trips, or when going to or from work, would pick up
packages then rather than pay postage reflecting their true cost of
delivery.There would also be some incremental substitution of local
products for products shipped in. By contrast with market-induced
economizing on the use of costly resources, a government enterprise
whose residual claimants (taxpayers) are not its decision makers has an
incentive to maximize its size and budget by extending the "need" for
its service as far as possible-even when increasing incremental costs
are greater than the incremental value to the customers. Considering
the lack of incentives for internal efficiency in a tax supported
organization, it is also possible that all users of the service-in remote
areas as well as large cities-pay more for mail delivered by the
government than they would under private management, constrained
by profit and loss considerations.

Airports sell monopoly rights to a taxi company, a restaurant, gift

shops, and other concessionaires and use the proceeds to subsidize the
prices they charge to planes for landing at the airport. Thus, even
though economists estimate the cost of a landing at Kennedy Airport
during the peak hours at about $2,000, the plane pays only $75.27
Distorting the knowledge of the true cost of the plane's landing this
way means that the airlines make their decisions as if landing at
Kennedy Airport is far cheaper to the economy than it really is. A
given airline will, for example, fly numerous planes from a given city
into Kennedy Airport at various times during the day-these planes
sometimes carrying only a fifth or a tenth of the passengers that the
seating capacity will hold. In addition, other airlines serving the same
city will fly other planes in at similar times, with similarly few
passengers per plane. The net result is an inflated "need" for airport
facilities-calling (politically) for expansion of given airports and/or the
construction of new and expensive airports. Cross-subsidy thus creates
a "need" for a larger empire of staff, facilities, and appropriations,
whether the particular governmental enterprise is an airport, a postal
system, or whatever.

Objective statistics which apparently demonstrate the "need" for

more service-the numbers of planes landing and taking off per hour,
their waiting time in the air or on the ground, etc.-are completely
misleading. There is no such thing as objective, quantitative "need."
Whether with airports or apartments or a thousand other things, how
much is "needed" depends on the price charged. Just as artificially low
prices under rent control caused the same population to "need" more
apartments, so artificially low landing fees cause far more airplanes to
be "needed" to transport a given number of passengers between two
cities, in planes with many empty seats. With landing fees increased
about twenty-five times, reflecting the true cost of landing a plane at
Kennedy Airport, fewer flights per day would be made and a higher
percentage of the seats would be filled on each flight. Few private
planes with one or two passengers would be using up valuable landing
space at major airports if they had to pay thousands of dollars per
landing, though a little plane with only the pilot aboard may now
choose to land at an enormously expensive airport, delaying thousands
of other people circling around in a "stack," because the price he is
charged does not convey these alternative uses to him as effective
knowledge that he must incorporate into his decision as to where to
land.

The average commercial airliner in the United States flies with half
its seats empty-which means that only half as many flights would be
needed to transport the same number of passengers in existing planes.
Actually, less than that would be needed, since (1) planes idled by
more effective scheduling would tend to be the smaller planes, (2)
future planes would average larger sizes if landing fees rose by the
larger amounts reflecting the true economic cost of using major
airports. Small private planes would have financial incentives to land
at smaller airports, rather than add to the congestion at major airports
serving a large volume of commercial air traffic. In short, under prices
reflecting cost, the number of flights "needed" in the major urban
airports would be less, with less noise to destroy millions of dollars
worth of residential property values in the vicinity of airports, and less
"need" to confiscate more of such property to expand airport facilities.

The pattern of overuse through underpricing-including zero prices

for many government services-is not a case of "irrationality." Its
pervasiveness among the most diverse products and services, from
airports to stamps, suggests a reason for it, not random caprice. It is
completely rational from the standpoint of maximizing the well-being
of the decision making unit (airport authorities, postal officials, TVA
executives, etc.). When discussing underpricing policy, more "need"
can always be demonstrated "objectively" than under market pricing,
which would convey knowledge that would cause more economical
use of whatever is being sold.

Some idea of the complications insulating regulatory agencies from

feedback from the affected public may be suggested by the fact that
specialists studying federal regulatory agencies "cannot even agree on
the number" of such agencies, although "it is thought to be over 100.
"28 A senator critical of regulatory commissions claims that simple
"common sense" is "rare" in many of them, and then characterizes
them as "undemocratic, insulated, and mysterious to all but a few
bureaucrats and lawyers."29 Such criticism misses the point that the
agencies' own interests could hardly be better served than by being so
incomprehensible to outsiders that even a United States senator with a
staff at his disposal cannot find out precisely how many such agencies
there are, much less exercise effective legislative oversight over their
activities. The costs of regulation to the public-that is, its uneconomic
effects as well as its administrative costs-have been estimated by the
U.S. General Accounting Office at about $60 billion per year30-about
$1000 for every family in the United States. The regulatory decisions
which impose such costs may seem to lack "common sense" as public
policy, but such decisions often make perfect sense from the regulatory
commission's own viewpoint-especially in favoring such incumbent
special interests as have enough at stake to pay the high knowledge
costs of continuously monitoring a given agency's activities.

FORCIBLE TRANSFERS OF RESOURCES

In addition to forcibly changing-distorting-the price signals that

convey knowledge of scarcities and options, the government has also
increasingly used force directly to transfer resources. Massive "urban
renewal" programs, for example, have simply ordered people to give
up their homes and businesses, in order that land may be cleared and
something else built on the site. Similarly, the military draft has
forcibly transferred people from one occupation to another. Less
dramatically, but no less importantly, the government has also forcibly
appropriated many property rights over the years, without
appropriating the physical things to which these rights are attached. As
noted earlier (Chapter 5), to appropriate 10 percent of the value of land
is the same thing economically as appropriating 10 percent of the land
itself. Politically, however, the two things are quite different. The cost
of knowledge to the electorate is much higher when part of the value
of land is appropriated by restricting the options as to its use than when
an equivalent appropriation takes the obvious form of expropriating a
portion of the land itself. The same principle is involved when the
government forcibly changes the terms of contracts already voluntarily
negotiated between private parties, as when it changes the so-called
"retirement" age-i.e., the age at which one party's obligation to employ
the other ceases. Assets set aside for other purposes must legally be
expended to retain unwanted services-thereby reducing the real value
of given money assets by reducing the options as to their use, just as
land that cannot legally be used in as many ways is less valuable than
physically identical land unrestricted by entails, zoning, or lost mineral
rights.

Much articulation goes into trying to demonstrate to third party

observers that the forcible transfers lead to more beneficial results. Yet
on general principle, it is not clear that articulation is the best mode for
weighing alternative values or that third party observers are the best
judges. When a given set of homes and businesses are destroyed to
make way for a very different set of homes and businesses, as in
"urban renewal," a truly greater value of the second set would have
enabled their users (or financial intermediaries) to bid the land away
from the original users through voluntary market competition without
the use of force by the government (especially since the second set of
users almost invariably has higher incomes than the first).31 Voluntary
transfers of land are so commonplace as to cast doubt on the "need" for
force, if the second set of uses is in fact more valuable. Actually, force
is used twice in urban renewal transfers-once to dispossess the original
users and again to transfer assets from taxpayers to subsidize the
second set of users. The issue here is not the unpleasantness of force so
much as its implications for the claim that the transfer of resources was
to a more valuable use.

The particular site of the "urban renewal" may be far more attractive
afterwards than it was before, and this adds plausibility to the claim of
social benefits. But any site, activity, or person, can be made more
attractive by expending resources. Whether the incremental costs
experienced by those who pay them outweigh the incremental benefits
experienced by those who receive them is the crucial question. When
those who pay and those who benefit are the same, as in voluntary
market transactions, then it is unnecessary for third parties to incur the
costs of deciding on the basis of plausibility, much less pay the still
higher costs of obtaining more solid knowledge. Where force must be
used to effect the transfer, the incremental costs apparently exceed the
incremental benefits of the change as experienced by those directly
involved. "Objective" data showing that the people dispossessed
moved to "better" housing elsewhere likewise has more plausibility
than substance. That "better" housing was always an option before-at a
price, and the rejection of that option indicates a trade-off of housing
for other things more valued by those actually experiencing the
options. Forcibly reducing any set of options available can lead to a
new collection of results-some part of which is "better" than its
counterpart in the old collection, but the real question is which whole
collection was preferred by the chooser when he had the choice.

More generally, "urban renewal" has involved visible benefits

concentrated on a particular site and costs diffused over a nation of
taxpayers, as well as costs borne by dispersed former residents. In
other words, the cost of knowledge of benefits is much lower than the
cost of knowledge of losseseven when the losses exceed the benefits.
Therefore, it is rational for political decision makers to continue such
programs, even when irrational economically or socially.

The use of draftees by the army may similarly be rational from the
standpoint of the army and irrational from the standpoint of the
economy or society. There are no objectively quantifiable "needs" for
manpower by the military, any more than by any other organization. At
some set of prices, the number of soldiers, civilian employees, and
equipment needed to achieve a given military effect will be one thing,
and at a very different set of prices for each, the quantitative "needs"
for each can be quite different. Even in an all-out war, most soldiers do
not fight, but perform a variety of auxiliary services, many of which
can be performed by civilian employees, since most of these services
take place far from the scenes of battle. From the standpoint of the
army as an economic decision making unit, it is rational to draft a
chemist to sweep floors as long as his cost as a draftee is lower than
the cost of hiring a civilian floor sweeper. From the standpoint of the
economy as a whole, it is of course a waste of human resources.
Again, the use of force is significant not simply because force is
unpleasant, but because it distorts the effective knowledge of options.
 The appropriation of physical objects or of human beings is more
blatant than the appropriation of intangibles like property rights, but
the principles and effects are similar. Neither "property" nor the value
of property is a physical thing. Property is a set of defined options,
some of which (mineral rights, for example) can be sold separately
from others. It is that set of options which has economic value-which
is why zoning law changes, for example, can drastically raise or lower
the market value of the same physical land or buildings. It is the
options, and not the physical things, which are the "property"-
economically as well as legally. There are property rights in such
intangibles as copyrighted music, trademarked names, stock options,
and commodity futures. A contract is a property right in someone
else's future behavior, and can be bought and sold in the market, as in
the case of contracts with professional athletes or consumer credit
contracts. But because the public tends to think of property as tangible,
physical things, this opens the way politically for government
confiscation of property by forcibly taking away options while leaving
the physical objects untouched. This reduction of options can reduce
the value of the property to zero or even below zero, as in the case of
those rent controlled apartment buildings in New York, which are
abandoned by landlords because they can neither sell them nor give
them away, because the combination of building codes and rent
controls makes their value negative. Had the government confiscated
the building itself, the loss would have been less. The landlord in effect
gives the building to the government by abandoning it. Indeed, he pays
to get rid of it, because abandonment has additional costs in the form
of legal liability if the landlord is ever located and convicted of
abandoning the building, which is illegal.

Property rights which are not attached to any physical object are
even more vulnerable politically. Contracts concerning future behavior
have been virtually rewritten by legislation and/or court interpretation.
These have included both prior restraints on the terms of contracts-
interest rate ceilings, minimum wage laws, rent control, etc.-and
subsequent nullification of existing contracts, as in laws against so-
called "mandatory retirement." Few, if any, contracts require anybody
to retire, and -about 40 percent of all persons above the so-called
retirement age continued to work, even before this legislation was
passed. The so-called "retirement" age was simply the age at which the
employer's obligation to employ individuals ended. The only thing
"mandatory" was that contractual obligation-and it has been
unilaterally extended by the government. Categorical, speculative
articulation by third parties regarding the productive ability of the
elderly as a group has superseded incremental judgments of each
situation by the person actually employing each worker in question.

As in other cases, moving an asset or obligation backward or

forward in time drastically alters its value or cost. Changing the
retirement age a few years in either direction is the same as forcibly
transferring billions of dollars from one group to another, since the
costs of such commitments as life insurance, annuities, etc., depend
crucially on time. One of the largest financial commitments arbitrarily
changed by changing the retirement age is that of the government's
own "Social Security" program-which saves billions of dollars by
postponing its own payments to the retired by forcing employers to
continue to hire them longer. But because these changes in massive
financial obligation (on employers) and defaults (by government) take
the outward form of "merely" changing a date, it is politically insulated
by the cost of the knowledge required for voters to detect their full
economic impact.

CONTROLLING PRODUCERS AND SELLERS

Controlling the terms which individuals may offer each other is only
one method of economic control. Other techniques include (1)
controlling who can be included or excluded from a particular
economic activity, (2) what characteristics will be permitted or not
permitted in products, producers, or purchasers, and ultimately (3)
comprehensive economic "planning" which controls economic activity
in general on a national scale.

FORCIBLE RESTRICTION OF COMPETITION

 While prices are crucial as conveyors of knowledge to decision
makers, artificial prices which distort this knowledge can persist only
insofar as competitors whose prices would convey the true knowledge
are forcibly ex- cluded.32 One reason for forcibly excluding
competitors has already been noted-"external" effects, as in broadcast
interference, which makes unrestricted competition unfeasible.33
There are also industries where the production costs are
overwhelmingly fixed costs-and high fixed costs at that-so that the cost
per unit of output is constantly declining over any range of output that
is likely to be demanded. In this case, one producer can supply the
market more cheaply than two or more, since more output means
lower production costs. Examples include industries with huge
investments in massive systems of conduits of one sort or another
delivering water, gas, electricity, or telephone calls. These are what
economists call "natural monopolies," since it would cost more to get
the same service through multiple producers than through one
producer per given area. Therefore government regulation substitutes
for competition as a means of preventing high monopolistic prices
from being charged.

This is the idealized economic theory. The reality is something else.

Once a rationale for regulation has been created, the actual behavior of
regulatory agencies does not follow that rationale or its hoped-for
results, but adjusts to the institutional incentives and constraints facing
the agencies. For example, the scope of the regulation extends far
beyond "natural monopolies," even where it was initially applied only
to such firms. The broadcast-interference rationale for the creation of
the Federal Communications Commission in no way explains why it
extended its control to cable television. The "natural monopoly" that
railroads possessed in some nineteenth century markets led to the
creation of the Interstate Commerce Commission, but when trucks and
buses began to compete in the twentieth century, the regulation was
not discarded but extended to them. Airplanes have never been a
"natural mo nopoly," but the Civil Aeronautics Board has followed
policies completely parallel with the policies of other regulatory
agencies. It has protected incumbents from newcomers, just as the
FCC has protected broadcast networks from cable TV, as the ICC has
tried to protect railroads from trucking, or municipal regulatory
commissions have protected existing transit lines from jitneys or other
unrestricted automobile-sharing operations. As a leading authority has
summarized CAB policy: "Despite a 4,000 percent increase in demand
between 1938 and 1956, not a single new passenger trunk line carrier
was allowed to enter the industry."3'

Regulatory agencies in general have the legal right to exclude firms

from entering the industry they regulate. This is a property right worth
billions of dollars. The members of the commissions are not allowed to
sell this right, but they can dispense it in ways that make their job
easier, or their individual fortunes more secure as later employees of
the firms they currently regulate. Favoritism to incumbents is a
perfectly rational response to such incentives, however inconsistent
with the public interest. The only legal guidelines are that entry of
firms into the regulated industry must serve the "necessity and
convenience" of the public. The regulatory agency determines how
many firms are "needed" to serve the public. The idea is that there are
quantitative, objective "needs" determinable by third party observers-
as distinguished from the economic reality of varying quantities and
qualities demanded according to varying costs. But the "need" for
railroad service, for example, is "measured in physical rather than
economic terms" so that "as long as existing carriers are physically
capable of performing a particular service, prospective competitors are
to be denied entry-even if their service is cheaper, better, and more
efficient."35 Similar policies are followed by other regulatory
commissions.

Because the right to operate in a regulated industry is a valuable

property right available at virtually zero cost, the claimants' demand
always exceeds the supply, even when only incumbents are allowed to
compete. It is to the regulatory agency's political advantage to satisfy,
or at least appease, as many incumbents as possible-which is to say, to
distribute these operating rights widely, and therefore thinly. Thus
legal rights to engage in interstate trucking are spread so thin that they
are often rights to operate in only one direction-a "carrier between the
Pacific Northwest and Salt Lake City may haul commodities
eastbound, but not westbound,"36 for example-thereby doubling the
cost to consumers, who must pay enough freight charges to cover the
cost of the truck both ways. Sometimes the right to carry goods
between two points does not include the right to pick up and deliver at
points in between, so that again the cost of the service is made
artificially high by not allowing it to be shared by as many customers
as possible. However eco nomically costly this is to the country, it
makes perfect political sense as a means of spreading a given amount
of patronage as widely as possible to mollify as many constituents as
possible.

Since the general public knows little or nothing about such

regulatory agencies, their interests are a politically negligible
consideration. Whatever the individual morality or intentions of
regulatory commissions, the systemic factors leading to such results
are (1) the vast disparity in cost of knowledge per unit of benefit as
between the public and special interest groups, and (2) the appointment
rather than election of commissioners, so that no political competitor
has a high personal or organizational stake in informing the public of
incumbent commissioners' misdeeds. Political as well as economic
competition has been restricted or eliminated. Mollifying as many
constituents as possible means not only protecting incumbents from
prospective competitors; it means protecting high-cost (inefficient)
incumbents from unrestricted competition from low-cost (efficient)
incumbents, who could otherwise undercut their prices, taking away
their customers, and driving them toward bankruptcy. Rather than
quietly enter bankruptcy courts, such higher cost firms are more likely
to noisily enter the political arena, probably through the congressional
committee controlling the powers and appropriations of the regulatory
commission in question. It is politically prudent for the commission to
buy "insurance" against such problems-at costs externalized to the
public-by maintaining a minimum level of prices designed to insure
survival of the highest-cost firms. Lower-cost firms therefore earn
more profits per unit of sales but are prevented from completely
destroying the high-cost firms. In short, there is something for
everybody, which is a politically more viable situation than the
"cutthroat" or "ruinous" competition which regulatory agencies
constantly guard against.

Insofar as the public is interested in, and able to monitor, the results
of the regulatory process, it is usually in terms of product prices or the
profit rate of the industry. Almost by definition, they have nothing to
compare the prices with-there being no unregulated firm producing the
same good or service, in most cases. This leaves the profit rate of a
regulated firm as their criterion. The regulatory agency therefore
appeases the public by keeping this profit rate "low" in comparison
with unregulated firms. That is wholly different from keeping the
prices low. A low profit rate on a truck delivery that costs twice as
much as necessary, because the truck returns empty for lack of legal
authority to do business the other way, may still mean almost double
what the price would have been under unregulated competition.
Passenger fares may also be double what they would be without
regulation when commercial airlines fly half empty-which is the rule.
In the latter case, there is some comparison possible, because large
states like Texas and California have purely intrastate airlines which
thereby escape federal regulation. Pacific Southwest Airlines, for
example, flies between Los Angeles and San Francisco at far lower
fares-and higher profits-than federally-regulated airlines flying
between Washington and Boston, which is the same distance.37 They
simply fly with more of the seats filled,38 partly because there is no
CAB to stop them from charging low fares. In the words of economists
studying prices of airlines, the "subtantial traffic gains of the intrastate
carriers have more than offset the lower revenue yields per passenger
..... Indeed low markups and high volume have been the secret of many
profitable businesses in many fields.

Although pious words about the "public interest" may abound in

regulatory legislation and regulatory rulings, there is no institutional
mechanism to compel, induce, or reward commissions for weighing
the costs and benefits to the public when they make their decisions. In
particular, there are no incentives to keep costs down-and costs make
up a far higher percentage of the price of most goods than does profit.
A small inefficiency can raise the price of a good by much more than
the doubling of the profit rate would. The average profit rate in the
United States is about 10 percent, and a 20 percent rate for any firm is
considered enormous. Yet if Firm A has only 10 percent higher costs
than Firm B, its price would tend to rise as much as if its profit rate
had doubled. The political visibility of profit rates results in much
regulatory time, energy, and controversy when going into determining
whether a "reasonable" rate of return is 6 percent, 7 percent, or 8
percentdifferences which may mean very little to the average
consumer in dollars and cents. Much less effort goes into determining
whether costs of production are higher than they need be, even though
production costs may have far more effect on prices. This is partly
because of both legal and common sense limits on how far a,
regulatory agency can go into the actual management of a firm.

Regulated firms whose explicit financial profit rate is restricted have

every incentive to allow costs to rise, taking various benefits in
nonpecuniary forms, such as fringe benefits (especially for
management) more relaxed (inefficient) management, less innovative
activity and the headaches it brings, less unpleasantness such as firing
people or hiring associates who are offensive in manner, race or sex.d0
In addition, the more costs the regulated firm can accumulate-and get
the regulatory agency to accept as valid-the higher its total profits at a
given rate of profit." In short, there is little incentive for regulated
firms to keep down costs, and much incentive to let them rise,
especially in ways that make the management of such firms easier. For
example, high wage demands by unions in regulated industries need
not be resisted (and strikes risked) as strongly as in unregulated
industries, because wage increases become part of the cost on which
the regulatory agency sets prices. Some of the highest paid workers in
America are railroad workers and municipal transit workers, despite
the dire conditions of both industries and the frequent transfusions of
taxpayers' money they require.

Many of the most extreme examples of employing unnecessary

labor- "featherbedding"-are found in regulated industries. Duplicate
crews for handling trains on the road and handling the same trains
when they enter the railroad yard, retention of coal-shovellers or
"firemen" after locomotives stopped using coal, and elaborate "full
crew" laws and practices are among the many financial drains on the
American railroad industry, which is financially unable to keep its
tracks repaired or maintained in sufficiently safe conditions to prevent
numerous derailments per year and the spread of noxious or lethal
chemicals which often accompany such accidents. The managements
of such financially depleted railroads have likewise enjoyed
extraordinary financial benefits, including many of questionable
legality. To explain this by individual intentions-"greed"-is to miss the
central systemic question: Why can such greed on the part of both
labor and management be satisfied so much more in this industry than
in others? The incentives and constraints of regulation, compared to
those of competition, are a major part of the answer.

Regulation spreads not only because more regulatory agencies are

created to regulate more industries, but also because existing
regulatory agencies reach out to regulate more firms which have an
impact on their existing regulated industry. The FCC's reaching out to
include cable TV or the ICC's reaching out to include trucking are
classic examples of regulatory extension of the original mandate based
on the original rationale to include things neither contemplated nor
covered by that rationale. The tenacity with which regulatory agencies
hang onto existing regulated activity is indicated by the ICC's reaction
to the exemption of agricultural produce from its regulatory scope. It
ruled that chickens whose feathers had been plucked were no longer
agricultural but "manufactured" products-as were nuts whose shells
had been removed or frozen vegetables.42

Competition may be restricted not only by direct control of the

necessary legal papers required to enter a given industry but also by
control of subsidies in an industry whose whole price structure
requires subsidy for firms to survive. The American maritime industry,
for example, has such high wages and inefficient union rules that its
firms cannot survive without massive government subsidy. A firm
which is denied such subsidy simply cannot compete with the other
firms that have it, because it will have to charge its customers far more
than the subsidized firms charge. The Federal Maritime Board
determines who gets how much subsidy on which routes, on the basis
of its decisions about the "essential" nature ("need") for those
routes.43 Both the maritime industry and the maritime unions are
heavy contributors to both political parties, insuring the continuance of
such arrangements regardless of the outcome of elections.

Not all governmental restrictions on competition take the form of

regulation in the classic public utilities sense. There is much regulation
of particular markets such as various agricultural and dairy-product
markets, under a variety of rationales having nothing to do with
"natural monopoly" or consumer protection. The usual effect of such
restrictions is to raise product prices, and in many cases it is rather
transparent that that was the intention as well. Sometimes these
government interventions go beyond generalized price fixing to, for
example, setting a different price for milk for each of its various uses.
The terms of the trade-offs of yogurt for cheese or ice cream, etc., are
not allowed to be conveyed by prices that fluctuate with consumer
demand or technological change, but are fixed politically and therefore
distort knowledge of economic alternatives.

Occupational licensing laws are another very different form of

economic regulations which nevertheless share many of the political
characteristics common in commissions regulating public utilities or
common carriers. First there is an enormous bias towards incumbents.
Escalating qualification standards in the licensed occupation almost
invariably exempt existing practitioners, who thereby reap increased
earnings from the contrived scarcity, without having to pay the costs
they impose on new entrants in the form of longer schooling, tougher
qualifying examinations, or more extended appren- ticeship.44
Second, the prices of the services are artificially raised and the
undercutting of price either forbidden (taxi rides) or rendered
uneconomic by forbidding price advertising (lawyers, doctors,
optometrists). Although "the public interest" is a prominent rhetorical
feature of occupational licensing laws and pronouncements,
historically the impetus for such licensing comes almost invariably
from practitioners rather than the public, and it almost invariably
reduces the quantity of new practitioners through various restrictive
devices, and the net result is higher prices.

Some idea of the magnitude of the effect of occupational licensing

may be obtained from the prices of such licenses as are transferrable
through market sales. A taxi license in many American cities costs
thousands of dollars-up $50,000 in New York City.°5 Where licenses
are nontransferrable, as in medicine, the effect of the restrictive
practices can be indicated by the income of doctors-which were below
those of lawyers in the 1930s but are now more than double the
income of lawyers as a result of restrictive practices by the American
Medical Association, possessing far more control over medical school
admissions and hospital staffing than the American Bar Association
possesses over corresponding legal institutions.

Another area in which the government restricts competition is in the

application of laws on land use-including municipal land use or
recreational land policy for wilderness areas. Restrictions on the use of
land forcibly prevents bidding for it by certain users-notably
middlemen ("developers") selling or renting to working-class people.
The political impracticality of openly admitting that government force
is being summoned to keep out the poor leads to much vague and lofty
discussion in which people fade from the picture entirely and such
impersonal entities as "valuable open space"" and "fragile areas"47
dominate discussion about the need to "protect the environ- ment"48
under "rational and comprehensive"49 allocation of the land through
political processes. But the strong class bias is evident in such things
as (1) the heavily upper income occupations (executives, doctors,
engineers, academics) of members of the Sierra Club, which
spearheads much "environmental" political activity," (2) strong
working-class voter opposition to zoning and strong upper-class
support for it,51 (3) expensive home building "requirements" having
nothing to do with the "environment" or "ecology" but having much to
do with pricing the poor out of the market,52 and (4) the limiting of
cheap and fast access to wilderness recreation areas and favoring
timeconsuming access usable only by those with substantial leisure." A
student of the so-called "environmental controversy" finds "an ugly
strain of narrow class interests involved in the wilderness issue," an
"attempt by the prosperous to bar the rabble" and efforts by those who
"already have vacation colonies on secluded lakes" to keep out
"developments that cater to the masses. " 54

Defending class privileges in the name of the public interest has

required constant alarms and misleading statistics. For example, a
picture of spreading and pervasive urbanization is projected'by using
the Census definition of "urban" as any place with 2,500 inhabitants or
more. This technique conjures up a "megalopolis" extending "from
southern New Hampshire to northern Virginia and from the Atlantic
shore to the Appalachian foot- hills."55 In fact, however, the average
density of most of that area is about one house per every twelve acres.
A few high density areas like New York and other eastern cities
contain most of the people (87 percent) in the supposed "megalopolis,"
most of which is covered with greenery rather than concrete.56 Zoning
law proponents likewise invoke fears of factories and gas stations in
residential neighborhoods. But in cities without zoning-notably
Houston-no such dire things happen. Middle-class neighborhoods
there look like middle-class neighborhoods elsewhere. In lower
income neighborhoods, there are sometimes auto repair shops and
other such local conveniencesbut it is precisely in these neighborhoods
with automobile repair shops that zoning is overwhelmingly rejected
by the voters." Apparently the trade-off between convenience and
aesthetics is different for those with less money and older cars. Looked
at another way, zoning allows some people to impose their values and
life-style on others who may not share the values or be able to afford
the life-style.

ANTITRUST

Markets may be controlled by private parties as well as by the

government, and the antitrust laws are in general aimed at preventing
monopoly and related market distortions. However, the major antitrust
laws have been passed at widely varying times and represent varying
concepts and conflicting goals. The Sherman Antitrust Act of 1890 is
the oldest and most important of the federal statutes, carrying the
heaviest penalties, which can range up through millions of dollars in
civil damages to dissolution of a firm and/ or jail for its executives.
The Sherman Act forbids anyone to "monopolize, or attempt to
monopolize," or to engage in "restraint of trade." The Clayton Act of
1914 forbade certain actions incident to monopolistic behavior, such as
price discrimination, and the Federal Trade Commission Act of the
same year established an organization to monitor and issue orders
against a variety of undesired ("unfair") business practices. The most
enigmatic and controversial of the antitrust laws is the Robinson-
Patman Act of 1936, ostensibly strengthening the Clayton Act's ban on
price-discrimination, but in practice creating legal risks and
uncertainties for firms engaging in vigorous price competition. The
1950 Celler Amendment to the Clayton Act created new legal
obstacles to the merger of firms.

The legal problem of reconciling these overlapping statutes is

complicated by the overlapping jurisdiction of the justice Department
and the Federal Trade Commission in antitrust cases, and by the full or
partial exemption from antitrust laws of some economic activities,
including regulated public utilities and labor unions. Moreover, the
vague language of the law leaves ample room for judicial and
bureaucratic interpretations which have caused some of the leading
economic and legal scholars to claim that the antitrust laws have had
the opposite effects from their intentions.SB

Among the central concerns of the antitrust laws are market

structures, price fixing, and price discrimination. A monopoly would
not accurately transmit costs through its prices because those prices
would be set above a level that could persist with competitors.
Competitive businesses set prices reflecting costs of production only
because they stand to lose too many sales at prices that exceed what is
necessary to compensate others for supplying the same product. It is
neither greed nor altruism that explains price differences but rather the
systemic differences between competitive and noncompetitive
markets. Price discrimination is both a symptom of a noncompetitive
market and a further distortion of economic knowledge, as it conveys
different information about the relative scarcity of the same product to
different users-causing them to economize differently, and thus at least
one of them wrongly.

Antitrust laws, like all forms of third party monitoring, depend for
their social effectiveness on the articulation of characteristics
objectively observable in retrospect, which may or may not capture the
decision-making process as it appeared prospectively to the agents
involved. There is usually nothing in antitrust cases comparable to
finding someone standing over the corpse with a smoking pistol in his
hand. Objective statistical data abound, but its interpretation depends
crucially on the definitions and theories used to infer the nature of the
prospective process which left behind that particular residue of
retrospective numbers. For example, merely defining the product often
opens a bottomless pit of complexities. Cellophane is either a
monopoly-if the product is defined to include the trademarked name,
which only Dupont has a legal right to use-or has varying numbers of
competing substitutes, depending on how transparent and how flexible
some other brand of wrapping material must be in order to be
considered the same or comparable. Under some definitions or
demarcations of transparency and flexibility, cellophane is monpolistic
for lack of sufficient substitutes. But by other definitions it is in a
highly competitive market with innumerable substitutes. The
controversies following the Supreme Court's decision as to whether
cellophane was a "monopoly" (no) suggests that there were other
definitions which some (but not all) legal and economic experts found
preferable. The point here is that there is no objective and compelling
reason to take one definition rather than another, though the whole
issue often turns on which definition is chosen. In more complicated
products, there-are often numerous variations on the same goods, and
which of these are lumped together as "the same" product determines
what the market is and how much the producer's share of the market is,
as variously defined. For example, Smith-Corona has a smaller share
of total American typewriter sales than of electric typewriters sold in
the United States, or of all portable electric typewriters made by
American manufacturers. For many products, so much is imported that
a firm's share of American production is economically meaningless:
any American producer of single-lens reflex cameras would have a
monopoly by definition; all such cameras are currently imported. But
the purely definitional monopoly has no effect on economic behavior,
in the face of dozens of foreign competitors.

What is involved here is not a technicality of antitrust law but a far

broader question about the use of knowledge, and the role of
articulation. The basic problem in these definition-of-product issues is
that substitutability is ultimately subjective and prospective, while
attempts to define it must be objective and retrospective.

Even where a product seems unambiguously definable in some plain

sense-a tangerine, for example-a question may still arise as to the
economic significance of such a definition. If a worldwide cartel were
to gain control of every tangerine on the planet, they could still not
double the price of the monopolized product without ending up with
millions of unsaleable and spoiling tangerines in their warehouses,
while consumers switched to oranges, tangelos, and the like. In short,
even where the physical demarcation of a product seems obvious and
unambiguous, its economic demarcation may be difficult or
impossible. The extent to which the price of one product affects the
sales of another product is what is economically important. As a
practical matter, sellers can acquire an unarticulated "feel" for this in
an ongoing trial-and-error process, but that is very different from third-
party observers of retrospective statistics being able to objectively
document irrefutable results to courts. For one thing, the discrete time
units in which data are collected by observers may be far longer than
the almost continuous time dimensions of the actual transactors'
ongoing experience, so that the observers' data are more likely to
represent an amalgamation of highly disparate price and sales
fluctuations during the time interval studied.

Discussions of the systemic effects of monopoly tend to center on

the intentions or behavior of monopolists, when what is crucial is the
exclusion of competitors who would offer different terms to his
customers. This exclusion of competitors is of course the defining
characteristic of monopoly, so its explicit statement may seem
unnecessary. However, a real monopoly is quite rare, where
governmental exclusion is not involved, and in practice antitrust suits
claiming "monopolizaton" or attempting to prevent mergers or to break
up existing large firms usually involve industries where there are not
one, but a small number, of firms producing the bulk of a given
industry's output. A treacherous analogy or extension is then made to
the situation of one seller (monopoly) producing all of an industry's
output to the situation of a few sellers producing most of an industry's
output--which is implicitly taken to be very similar. But it becomes
crucial to recall that the systemic economic effect is not due to what
the producer(s) can do but to what the producer(s) can prevent others
from doing.

An industry with four firms producing 80 percent of its output may

seem to be a quasi-monopoly, but if there are dozens of other firms
producing the other 20 percent, then it has failed to exclude, which is
crucial. Any artificial raising of prices above competitive levels by
collusion among the four firms risks the fate of the tangerine cartel in
our other hypothetical example. Customers can start buying from the
dozens of other producers. The retrospective statistic that four firms
sold 80 percent of the industry output during a given time span does
not mean that there is anything fixed or prospective about that number.
Antitrust proponents have scored a verbal coup by constantly terming
such percentages the "share" of the market "controlled" by certain
firms, as if they were discussing prospective behavior rather than
retrospective numbers. Such insinuations of exclusionary powers or
intimidation require no evidence but instead rely on the time tested
principles of repetition. But historically, market shares have changed
over time-some drastically-and in some cases the so-called "dominant"
firm has disappeared entirely. Life magazine and the Graflex
Corporation are recent examples. Once the Graflex Corporation sold
virtually all the cameras used by newspaper photographers. But they
"controlled" nothing; there were always many other domestic and
foreign producers of press cameras, and almost all of them disappeared
along with Graflex when improvements in smaller-sized cameras made
the latter effective substitutes.
 The intellectual state of antitrust doctrine may be suggested by the
fact that some of the leading authorities in this field refer to these
prevailing doctrines in such terms as "a secular religion,"59 consider
them analogous to "evangelical theory,"60 or simply "wild and
woolly."" Even a Supreme Court Justice observed that in certain kinds
of antitrust cases the "sole consistency" is that "the government always
wins. "62 It is therefore especially important to systematically spell out
the specifics behind some of the many vague and tendentious terms
used in antitrust doctrines ("control," "predatory pricing,"
"foreclosing" the market, "incipient" monopoly, etc.).

There are two fairly obvious alternative explanations of why one

firm or a few firms sell the bulk of the output in a given industry. One
is that they in some way exercise "control" over others-either by being
able to exclude potential competitors or by intimidating them from
competitive pricing by threats to ruin them financially. An opposing
explanation is that firms differ in efficiency-whether in production, in
the quality of the product, in shipping costs, or in the general quality of
their respective managements. Those who argue that concentrated
industries represent monopolistic control, in some sense, deny
production efficiencies, product quality differences or differences in
management. For example, management quality differences are simply
assumed away in analyses which proceed as if each firm or plant rep
resents the "best current practice" in its production,63 or that
"managerial competence" can be "held equal,"64 by observers.
Economies of scale are sometimes defined narrowly as individual plant
economies-ignoring managerial differences among multiplant
corporations, as expressed in such things as how wisely each plant is
located, so as to minimize shipping costs of raw materials and finished
products and the costs of an efficient labor supply, a favorable
economic and political climate, etc. Economies are simply pronounced
to be negligible with such phrases as "only 2.7 percent" of production
and transportation costs.6J But given an average profit rate of 10
percent, a relatively small difference in such costs can translate into the
difference between a profit rate that keeps the business viable and one
low enough to reduce stockholders' return to less than they could get
by depositing their money in an insured savings and loan association-
obviously not a situation that can continue in the long-run. Observers
are the last people who can declare what is negligible with someone
else's money.

The alternative hypothesis is that some industries are concentrated

because some firms' products are simply preferred by consumers,
either because of their quality, price, convenience or other appeal. If
this is true, then the slightly greater profitability of industries with few
sellers is not because the whole industry is more profitable (as it would
be under collusion), but because some particular firms have a higher
profit rate which arithmetically brings up the average, while it
economically does not make the rest of the industry any more
profitable than under competitive conditions. The data in fact show no
profit advantage to a firm of a given size in being in a "concentrated"
versus a nonconcentrated industry."

The weakness of the case for believing that industries with few
sellers have monopolistic practices or results is indicated by (I) the
absence of any evidence generally accepted as convincing by either the
legal or the economics profession, (2) the arbitrary definitions and
sweeping assumptions included in such evidence as is offered, and (3)
the policy position of "deconcentration" advocates that the burden of
proof must be put on defendants in concentrated industries to show
that they are not harmful to the economy.67

Much of the legal and economic analysis of industries where one or

a few firms produce and sell most of the output give great weight to
the supposed homogeneity of the product, which should presumably
preclude any rational basis for a consumer preference that would lead
to such disproportionate market shares. However, on closer scrutiny
this supposed homogeneity usually turns out to mean that brand-new,
perfect specimens of each product as already located are identical or
similar. The difference between "similar" and "identical" can involve
substantial costs of knowledge, as can the process of locating the
product. Among the major ways in which apparently similar prod ucts
differ is in their durability-that is, their performance long after they
have ceased to be brand new-and in their respective quality control,
which determines what percentage of the specimens will have flaws, as
well as in their distributional availability to the consumer in
convenient retail outlets.

In such cases, so-called "expert" testimony can be the most

misleading kind of testimony. The expert has, by definition, already
paid more cost for knowledge than the average consumer, and so has
far lower present or prospective incremental knowledge costs than the
consumer. The mere fact that he can render a judgment on the product
means that he has already located a place from which to obtain a
specimen. That he knows how to produce equivalent results from
"similar" products means that he has sufficient knowledge of both
products to make them interchangeable to him, although not
necessarily to a consumer familiar with only one, and who may
perhaps have substantial prospective knowledge costs in changing to
the use of the other.

Examples abound. In a famous antitrust case involving Clorox, the

Supreme Court said that "all liquid bleach is identical."" But the
factual finding in the very same case was that "Clorox employed
superior quality controls" and that some brands of liquid bleach
"varied in strength" from one to another69-a fact of no small
importance to users considering how much is enough and how much
will ruin their clothes. It may well be that there are other brands of
liquid bleach absolutely identical to Clorox but the knowledge of
which ones they are is not a free good, and whether the uncertainty of
a variation is worth the price difference is not a question that must be
settled once and for all by third party observers, since consumers find
various brands sitting side by side on supermarket shelves. In another
well-known antitrust case, competing pies were considered by the
Supreme Court as being "of like grade and quality" despite one pie
company's "unwillingness to install quality control equipment," to
meet the competition of its more successful rival.70 Undoubtedly a
photograph taken with a press camera produced by the Graflex
Corporation, which dominated that market, would have been wholly
indistinguishable from a photograph taken with any number of other
cheaper press cameras, as of the date both were purchased brand new.
However, since its cameras were usually purchased by professional
photographers, and especially by the photographic departments of
newspapers, the strong preference for Graflex press cameras could not
be attributed to technical ignorance, "irrationality" or the caprice or
psychological susceptibilities of uninformed consumers. Experience
had simply established the ruggedness of this particular brand of press
camera in the rough usage to which it was subjected in crowds, on
sports fields, and in war time combat situations.

Sometimes the difference in consumer preference as between

products is not due to the characteristics of the products so much as it
is due to differences in the cost of knowing of other products'
characteristics. Photographic experts have determined that a number of
films manufactured by Ilford, Inc. produce results virtually
indistinguishable from those produced by films manufactured by
Eastman Kodak, which dominates that market. That is, a photographic
technician equally familiar with the processing of both brands of film,
can produce the same end results from either. Nor are the Ilford
processing requirements any more difficult than those of Kodak. They
are simply not as well known, just as the characteristics of Ilford film
are not as well known. Nor are all brands comparable to these two.
Even the singling out of Ilford as one brand among many others that is
comparable to Kodak requires a prior knowledge and sorting of little-
known brands. Note that what is involved here is not "taking
advantage" of consumers' ignorance. A professional photographer,
well aware of the similarity, may nevertheless continue to purchase the
one familiar brand rather than exert himself to stock or refer to two
different sets of developing data. There is also much to be gained by
using one brand to (1) free one's picture taking attention for aesthetic
concerns rather than technical considerations, and (2) be able to buy
new film identical to the old wherever one happens to be on
assignment, which is to say, not having to worry because one
company's dealer outlets are not as numerous as another's.

Third-party observers may dismiss product differences as negligible,

just as they dismiss production cost differences as negligible.
However, there is no "objective" measure of what is negligible.
Something is negligible or not negligible to someone. In baseball, for
example, the difference between a .250 hitter and a .350 hitter is only
about one hit out of every three games, which might seem negligible to
a casual onlooker, but that can be the difference between being sent
back to the minor leagues and ending up in the Hall of Fame.
Customers or stockholders may differ greatly from third-party
observers as to what is or is not negligible. Products sold to
professional photographers and photographic organizations exhibit the
same strong customer preference patterns and attendant "market
concentration" as products sold to the supposedly "irrational" general
public. What is repeatedly ignored in attempts to discount buyer
preferences is the cost of knowledge-knowledge of where to buy a
product, knowledge of its characteristics and of ways of using it, and
knowledge of the way quality varies from specimen to specimen. To
approach this from the standpoint of whether the producer "deserves"
such a large market share is to dismiss consumers' interests. To say that
a firm's reputation gives it an advantage-presumably an unfair
advantage-in competition71 is to say that consumers economize on
knowledge by sorting and labeling only to the firm level, in cases
where a company's histo ry of product reliability makes finer sorting
not incrementally worth the cost. The issue is not so much the
retrospective justice of rewarding a firm for establishing a reputation
for reliability. What is more important socially is the prospective
incentive to all companies to acquire or maintain such a reputation-that
is, from a social point of view, to localize monitoring incentives where
they can be most effectively carried out.

Preoccupation with the firm's market share has led to adverse

antitrust decisions even when there was no adverse economic effects
discernible by the courts. In the celebrated antitrust case against the
Aluminum Company of America-one of the very few privately created
monopolies on record-it was found that the profit rate averaged only
about 10 percent,72 like firms in competitive industries. Nor did the
Court find any negative effects on the economy-but Alcoa still lost. Its
"exclusion" of competitors consisted solely of building plant capacity
in anticipation of the growing demand for alumi- num.73 The chilling
effect of this finding could be seen in the later history of cellophane,
which was in chronic shortage because Dupont refused to build plant
capacity ahead of the growing demand, for fear of antitrust suits.

Most antitrust cases involve legal actions against individual firms

having nowhere near monopoly proportions of output or sales. In the
celebrated case of Brown Shoe Company v. United States, a merger
which gave the combined firms a total of 51/2 percent of American
shoe store sales was found to be in violation of the antitrust laws.74
Another merger which gave the Pabst Brewing Company 41/2 percent
of the nation's beer sales was also broken up as a violation of the
antitrust laws.75 In yet another well-known case, the Supreme Court
broke up a merger between two local grocery chains in Los Angeles
who together had only 71/2 percent of the grocery sales in that city.76
"Secular religion" may not be too strong a characterization for antitrust
doctrines which dismember firms that are that far from "monopolistic"
control, in industries with sometimes hundreds of competitors.
However, the processing of such cases by governmental agencies is by
no means irrational as institutional policy. Agencies with a mandate to
fight monopoly firms have every incentive to define the term as
broadly as they can, to see "incipient" monopoly in as many places as
possible-and especially so in an economy where private monopolies
are rare. To restrict themselves to fighting real monopolies or
significant monopoly threats could mean losing the bulk of their staff,
appropriations, and power. A more basic social question is how they
find the outside support that is politically necessary to continue such
activities into the region of diminishing (or negative) returns. This has
to do with the intellectual climate, and so will be discussed in Chapter
10.

Despite the original thrust of antitrust legislation toward preventing

high prices from being charged by monopolistic firms, it has
increasingly been used to prevent low prices from being charged. A
landmark in this development was the passage of the Robinson-Patman
Act in 1936. The ostensible purpose of this act was to prevent price
discrimination of a kind that would "substantially lessen competition."
The immediate political impetus behind the law was the growth of
high-volume, low-markup retail chains which bought from wholesalers
in huge quantities at discount prices and then undersold the smaller
merchants with whom it competed for retail sales to the public. Some
cynics called it the anti-Sears, Roebuck law. Price discrimination
complaints under the Robinson-Patman Act are usually made in
transactions involving wholesalers.

Robinson-Patman Act cases, which depend on how competition is

affected by a given action, provide especially dramatic examples of the
ambiguity involved, throughout the antitrust laws, between (1) the
systemic characteristics which constitute "competition" and (2) the
incumbent firms which at any given time constitute the competitors of
a defendant. Innumerable economists have complained that the
administrative agencies and the courts have protected competitors
instead of protecting competition. Courts have recognized such
distinctions verbally,77 but in case after case the issue has been
whether the defendant's low price adversely affected some competi-
tor(s). Wholesalers' discounts for very large purchases have been
declared illegal because smaller retailers "suffered actual financial
losses" which were equated with "injury to competition."" So were
reduced "competitive opportunities of certain merchants who are
injured" by having to pay ten cents a case more for table salt when
bought in amounts less than a railroad car- load.79 Theoretically, price
differences are legally permissible when they can be proved to
represent cost differences in serving different customers. However,
retrospective cost statistics are subject to highly variable interpretation,
so that in practice a seller usually cannot prove anything-and the
burden of proof is on the defendant, once it is established that he
charged different prices to different customers. The Supreme Court
itself has acknowledged that "too often no one can ascertain whether a
price is cost justified.""

The Supreme Court has included fixed overhead costs in claiming

that a wholesaler was selling below cost ("suffered substantial
losses")" which changed "market shares"82-from 1.8 percent of sales
in a local market to 8.3 percent! 83 Moreover, the Federal Trade
Commission has the power to put a limit on quantity discounts,
regardless of cost justifications.84 In addition the courts have not
allowed wholesalers to charge different prices to different categories of
buyers-such as supermarket chains versus individual "mom and pop"
grocery stores-even though the supermarkets are cheaper to serve,
unless there is "such self-sameness" among all those in each category
as to carry the burden of proof.85 Even though the Court
acknowledged that "a large majority" of independent stores required
services that supermarkets perform for themselves, "it was not shown
that all independents received these services."B6 In short, sorting-and-
labeling costs were ignored by insisting that every store be considered
individually and only afterwards classified among those sufficiently
similar-as this might be subsequently determined by a court.

The government does not "always win" in Robinson-Patman cases,

but the cases where the defendant wins reveal very much the same
pattern of economic (or noneconomic) reasoning. Despite the usual
verbal obeisance to the idea of protecting competition as a systemic
condition, the defendants who escape legal penalities do so because-in
the Court's words-they showed "proper restraint"" in their price
cutting, evidencing no "predatoriness"88 toward competititors, whose
prices they chose to "exactly meet" instead of undercutting.89 This is
in keeping with the legislative history of the Robinson-Patman Act,
whose philosophy Congressman Patman expressed as one of "live and
let live" and "everybody is entitled to a living"90-presumably at the
consumer's expense.

One of the theories used to justify the Robinson-Patman Act is that

big producers would otherwise temporarily cut prices, driving out
small competitors, and later raise prices to monopolistic levels.
Concrete examples have been notable by their scarcity (or
nonexistence)," even though the country existed for 160 years before
the Robinson-Patman Act was passed. Even as economic theory, the
argument has serious problems, because the only certainty would be
the short-run losses sustained to drive out smaller competitors, while
the longer-run profits needed to recoup these losses are highly
problematical, because of innumerable ways that new competition can
arise-including buying up the assets of the bankrupted firms at bargain
prices and then profitably underselling the would-be monopolists.
Actually, neither the empirical nor the theoretical case is made in
specific anti-trust prosecutions under the Robinson-Patman Act. It is
the defendant who must rebut the prima facie case, and the sinister
theories merely hover in the background as unarticulated
presumptions.

From the standpoint of the social consequences of social knowledge,

what restrictions on price competition do is to inhibit or forbid
information about the cheapest ways of doing things from being
effectively communicated in prices. It is cheaper to deliver 100 boxes
of cereal to a supermarket than to deliver ten boxes of cereal to each of
ten different "mom and pop" stores. This is effectively communicated
when the wholesaler shaves the price of goods sold in large quantity. If
he is either forbidden to do so, or is put through costly processes to
justify it in finely meshed sorting-and-labeling categories, that
knowledge does not guide economic decision making. Bur dens of
proof on the defendants in areas where irrefutable proof is virtually
impossible amount either to a de facto prohibition or are economically
the same as a large fine (legal costs) for engaging in the activity,
without any evidence of its social harmfulness.

As in other areas of law, antitrust decisions have impact far beyond

the particular parties involved, and in ways never intended by the law.
For example, many grocery wholesalers have their own trucks which
deliver to retailers and return empty, while other trucks bring grocery
items from factories or processors to those same wholesalers'
warehouses and also return empty. From a social point of view, it
would obviously make more sense to have the wholesalers' trucks stop
by the processors' plants and pick up grocery stock on their way back
to the warehouses. The present system is estimated to waste annually
100 million gallons of gasoline-enough to drive 140 thousand
automobiles for a year,92 not to mention the excess inventory of
trucks, the wasted labor of the drivers, or the needless air pollution.

As mere information, this is easy to understand, but it is not socially

effective knowledge because the prices that might transmit it are
forcibly constrained by the Federal Trade Commission's interpretations
of the RobinsonPatman Act. Ordinarily, food processors would charge
lower prices to those buyers who pick up their own shipments than to
buyers who require delivery, and this would become an incentive for
wholesalers to have their empty trucks stop by on their way back to the
warehouse to pick up some more stock. But the FTC has issued
advisories that such price differences could be interpreted as violating
the Robinson-Patman Act's prohibition against "price discrimination."
Therefore the uniform prices that are charged reflect the threat of force
rather than the relative costs, and the wholesalers respond to those
prices as if it were no cheaper to pick up groceries in empty trucks
than to have another truck deliver them-because that is financially true,
according to the knowledge conveyed to them by the legally
constrained prices. It is, of course, distorted knowledge from a social
point of view, but both its transmission and its reception are rational
within the legal incentives created by the Robinson-Patman Act. The
social rationality of the act itself is another matter.

Large costs are also created by the uncertainties surrounding the

interpretations of vague antitrust laws-especially the Robinson-Patman
Act, which a leading expert on that act refers to as a "miasma of legal
uncertainty,"93 and which even a Supreme Court Justice has called a
"singularly opaque and elusive statute."94

Antitrust policy, like utility regulation, exhibits a strong bias

towards incumbents-toward protecting competitors rather than
competition. This is readily understandable as institutional policy:
Competitors bring legal com plaints; competition as an abstract
process cannot. Competitors supply administrative agencies such as
the Federal Trade Commission with a political constituency;
competition as an abstraction cannot. It is only when governmental
agencies are seen as decision makers controlled by people with their
own individual career and institutional goals that many apparently
"irrational" antitrust policies make sense. For example, although
antitrust laws are ostensibly aimed at monopolistic practices, the actual
administration of such laws-and especially the Robinson-Patman Act-
has involved prosecuting primarily small businesses, most of whom
are not even listed in Moody's Industrials and very few of whom are
among Fortune's list of giant corpora- tions.95 The institutional reason
is simple: A case against a small firm is more likely to be successful,
because small firms do not have the money or the legal departments
that large corporations have. A major antitrust case against a giant
corporation can go on for a decade or more. A prosecution against a
small business can be concluded-probably successfully-within a period
that is within the time horizon of both the governmental agencies and
their lawyers' career goals.

The "rebuttable presumption" of guilt after a prima facie showing by

the government facilitates successful prosecutions, especially on
complex matters subject to such different retrospective interpretations
that no one can conclusively prove anything. In one well-known case,
an employer with only 19 employees, and who had about seventy
competitors in his own city alone, had to prove that his actions did not
"substantially lessen competition"-and he lost the case.96 It confirms
the wisdom of putting the burden of proof on the government in most
other kinds of prosecutions.

In general, the public image of antitrust laws and policy is of a way

of keeping giant monopolies from raising prices, but most major
antitrust cases are against businesses that lower prices-and most of the
businesses involved are small businesses.

ECONOMIC "PLANNING"

Economic "planning" is one of many politically misleading

expressions. Every economic activity under every conceivable form of
society has been planned. What differs are the decision making units
that do the planningwhich range from children saving their allowances
to buy toys to multinational corporations exploring for oil to the
central planning commission of a communist state. What is politically
defined as economic "planning" is the forcible superseding of other
people's plans by government officials. The merits and demerits of this
mode of economic decision making can be discussed in general or in
particular, but the issue is not between literal planning on the one hand
versus letting things happen randomly, on the other. This obvious point
needs to be emphasized and insisted upon, not only because of the
general tendentiousness of the word "planning," but also because of
specific laments about how "accident," "chance," or "uncoordinated"
institutions" lead to "helplessness" as the economy "drifts.""

We have already examined particular examples of the government's

superseding of other people's plans, as in various forms of price
control, control of particular markets, or direct or indirect transfers of
resources. What remains to be examined is comprehensive economic
"planning"-the subordination of nongovernmental economic decisions
in general to a design imposed on the whole economy. This can take
place while retaining private ownership of physical or financial assets
(capitalism), as happened under fascist regimes, or government
ownership of the means of production (socialism) may accompany
comprehensive "planning," or such government ownership may coexist
with market pricing mechanisms instead of "planning," as in so-called
"market socialism" (Yugoslavia being an example). There are also
welfare states (such as in Sweden) which may call themselves
"socialist" but which operate largely through tax transfers of income
earned in a private economy, rather than through comprehensive
government control of production decisions. The focus of the analysis
here will be comprehensive economic "planning" in general, rather
than its particular political or ideological accompaniments. That is, the
analysis will be in terms of institutional characteristics rather than
hoped-for results.

Comprehensive economic "planning" faces many of the same

problems already noted in particular kinds of governmental direction
of economic activities-essentially, problems of knowledge,
articulation, and motivation.

ARTICULATION

In an economy directed by national governmental authorities

("central planners"), the directives that are issued must articulate the
characteristics of the products to be produced. Earlier discussions of
rent control or price control in general have noted (1) the difficulties of
defining even such apparently simple things as an apartment or a can
of peas, and (2) the tendency of products-or labor-to change in quality
in perverse ways in response to price or wage controls. Both problems
are pervasive under comprehensive central direction of an economy.

Examples abound in the Soviet press, where economists and others

decry particularly glaring instances and demand "better" specification-
rather than raising the more politically dangerous question of whether
any articulated specification by central planners can substitute for
monitoring by actual users, as in price-coordinated economies. For
example, when Soviet nail factories had their output measured by
weight, they tended to make big, heavy nails, even if many of these big
nails sat unsold on the shelves while the country was "crying for small
nails."99 When output is measured in value terms, the individual firm
tends to produce fewer and more expensive units-whether clothing or
steel,'°° and regardless of the users' preferences. Where the articulated
measurements are in units of gross output, the firm tends to buy
unnecessarily large amounts of parts from other firms,101 receiving
credit in its final product statistics for things produced by others;
where the articulated measurements are in units of net output, then the
firm tends to make as much as possible itself, even where the cost of
parts produced by specialized subcontractors is lower.102 All of these
are perfectly rational decisions from the standpoint of the individual
Soviet firm, maximizing its own well-being, however perverse the
results may be from the standpoint of the Soviet economy. Even terror
under Stalin did not make the individual producer adopt the economy-
wide viewpoint. On the contrary, where imprisonment or death were
among the penalties for failure to fulfill the task assigned by the
central planners in Moscow, the individual firm manager was even
more prone to fulfill the letter of the law, without regard to larger
economic considerations. In one tragi-comic episode, badly needed
mining equipment was produced but not delivered to the mines
because the equipment was supposed to be painted with red, oil-
resistant paint-and the equipment manufacturer had on hand only oil-
resistant green paint and nonoil-resistant red paint. The unpainted
equipment continued to pile up in the factory despite the desperate
need in the mines, because-in the producer's words-"I don't want to get
eight years."103 To the actual users, the color of the paint made no
difference, but that incidental characteristic carried as much weight as
articulation as the most important technical specification.

These are not peculiarities of Russians or of the Soviet economic or

political system. They reflect inherent limitations of articulation. The
American political demand for more high school graduates-in the
academic paradigm, a solution to the "dropout" problem- led to more
of that product being produced, by whatever lowering of standards was
necessary. It is easy to articulate what is meant by a high school
graduate-someone who receives a certain embossed piece of paper
from an authorized agency-but it is much harder to articulate in
operational terms what education that is supposed to represent.

In price-coordinated decision making, the user can monitor results

with little or no articulation by either himself or the producers. The
kinds of nails that are incrementally preferable will become more
saleable or saleable at a higher price, and the producer will
automatically emphasize their production, even if he has not the
faintest idea why they are more in demand. If a certain color of paint
makes mining equipment more saleable, the producer will tend to use
that color of paint, but he will hardly forego, or needlessly postpone,
sales until he can get the particular color of paint, if the demand for the
equipment is such that it sells almost as fast with a different color.
Where price-coordinated education (private school) is a feasible
individual option, parents who have never sat down and articulated a
list of education criteria can nevertheless judge educational results in a
given school and compare them with results available from other
private schools or public schools and determine whether the
differences in results are worth the differences in cost.

Where prices are set by government fiat, they convey no

information as to ever-changing economic trade-offs which reflect
changing technology, tastes, and diminishing returns in both
production and consumption. Price changes are virtually instantaneous,
while statistics available to planners necessarily lag behind. As a
student of British economic planning has noted: "The ceaseless
changes in conditions affecting the daily demand and supply of
countless goods and services must render the best statistics out-of-date
before they can be collected.""' Using a relatively few "stale statistics"
to "guide a complex and ever-changing economy" means "in practice
falling back on ad hoc interventions interspersed with endless
exhortation `in the public inter- est'...."105 Nazi Germany had similar
economic problems in basing prospective decisions on retrospective
statistics.106 The problem is inherent in the circumstances, and not
peculiar to a given ideology, though some ideologies are more insistent
on maintaining such circumstances than are others.

Another way of looking at the vicissitudes of articulation is that one

cannot articulate what does not exist-namely an objective set of
characteristics which determine an objective scale of economic
priorities. All values are ultimately subjective and incrementally
variable. No single social group, or scale of priorities can define the
varying importance of multifaceted characteristics, either to disparate
consumers or to equally disparate producers. The millions of users of
millions of products can judge incremental trade-offs when confronted
with them, but no third party can capture these changing trade-offs in a
fixed definition articulated to producers in advance. When user
monitoring, oonveyed through prices and sales, is replaced by third-
party articulation, in words or numbers, vast amounts of knowledge
are lost in the process. In the absence of user monitoring of producer
output through a market, there must be third-party specification of
what the output shall consist of, and this runs into the inherent
limitations of articulation.

However many limitations and distortions articulation may have as a

means of communicating economic knowledge, its political appeal is
as widespread as the belief that order requires design, that the
alternative to chaos is explicit intention, and that there are not merely
incremental tradeoffs but objectively specifiable, quantifiable and
categorical "needs." From this perspective, one must "understand the
relationship" 107-which is to say, articulate the relationship-among
economic sectors in order for them to coordinate. Price-coordination
simply vanishes as an alternative within the framework of such beliefs.
There must be "priorities" and a "time frame" articulated.109 Indeed,
"we need a full presentation of the items we can choose among,"
which "a completely automatic free market" would not articulate-
which is why we "do not accept that approach."109 Instead we "must
be able to see" articulated alternatives in order to "make an intelligent
choice ."10 Under the assumption of objectively definable,
quantifiable "needs," efficiency is merely an engineering problem
rather than a reconciling of conflicting human desires, so that social
policy can be analogized to such fixed-objective activities as putting a
man on the moon,"' and even "planning" is simply a matter of
"technical coordination" by "experts" 112 using "systematic analysis
."13 In such a framework, even "the public interest""' can be
confidently discussed as an empirically meaningful notion, along with
"objective analysis ... of what is really desirable ."16 These quoted
statements are not the glib remarks of sophomores, but the
pronouncements of one of the most famous American senators and one
of the most famous American economists-Hubert Humphrey and
Wassily Leontief, respectively. They are by no means alone.

KNOWLEDGE TRANSFER

The limitations and distortions of articulation revolve around the

simple fact that third-party central planners cannot know what users
want, whether those users be consumers or other producers acquiring
raw material, component parts or production-line machinery. Complex
trade-offs among a given product's characteristics and between one
complex product and another, cannot be captured in a fixed definition,
however detailed. Indeed, the amount of detail itself involves trade-
offs, for beyond some point the detail becomes counterproductive, as
in the case of Soviet mining equipment that was supposed to have a
particular kind of paint.

It is not merely the enormous amount of data that exceeds the

capacity of the human mind. Conceivably, this data might be stored in
a computer with sufficient capacity. The real problem is that the
knowledge needed is a knowledge of subjective patterns of trade-off
that are nowhere articulated, not even to the individual himself. I might
think that, if faced with the stark prospect of bankruptcy, I would
rather sell my automobile than my furniture, or sacrifice the
refrigerator rather than the stove, but unless and until such a moment
comes, I will never know even my own trade-offs, much less anybody
else's. There is no way for such information to be fed into a computer,
when no one has such information in the first place.

Market transactions do not require any such knowledge in advance.

When actually faced with either an escalating price for a good which
one normally purchases, or a real bargain on something one normally
does not purchase, then and only then does a decision between the two
goods have to be made-and it is not uncommon for persons-in such
situations to make decisions that they would not have expected of
themselves, even if the results are sufficiently good to cause a
permanent change of consumption patterns. Most of us need not think
about what our choice would be as between owning a yacht and an
airplane, much less an incremental choice between a longer yacht
verses a higher-powered airplane. In a market economy, one individual
or decision making unit need be concerned with only a minute fraction
of the trade-offs in the economy. Under central planning, somebody
has to try to reconcile them all simultaneously. In a market economy,
even a manufacturer of yachts or a manufacturer of airplanes need not
concern himself with the trade-offs between the two products, much
less trade-offs between these and numerous other products which
compete for the same metal, glass, fuel, storage space, worker skills,
etc. Each producer need concern himself only with the trade-off
between his own product and money-a fungible medium in which
other people measure the trade-offs for their respective products. As a
figure of speech, it may be said that the economy trades off one use for
another through this medium. This is not only true, but an important
truth, for it helps explain why knowledge is economized through price
allocation. Another way of saying the same thing is that central
planning would require far more knowledge to be actually known by
the central planners to achieve the same net result.
 Although it may be empirically true that different ideologies
generally regard central planning in different ways, it is not ultimately
in principle an ideological question. Marx and Engels were unsparing
in their criticisms of their fellow socialists and fellow communists who
wanted to replace price coordination with central planning. Proudhon's
theory that the government should fix prices according to the labor
time required to produce each commodity was blasted by Marx in the
first chapter of The Poverty of Philosophy:

Let M. Proudhon take it upon himself to formulate and lay down such
a law, and we shall relieve him of the necessity of giving proofs. If, on
the other hand, he insists on justifying his theory, not as a legislator,
but as an economist, he will have to prove that the time needed to
create a commodity indicates exactly the degree of its utility and marks
its proportional relation to the demand, and in consequence, to the total
amount of wealth.16

It was clear from the rest of the chapter that he expected Proudhon
could do no such thing. Thirty years later, Engels denounced another
socialist theoretician who wanted to abolish markets:

Only through the undervaluation or overvaluation of products is it

forcibly brought home to the individual commodity producers what
things and what quantity of them society requires or does not require.
But it is just this sole regulator that the utopia in which Rodbertus also
shares would abolish. And if we then ask what guarantee we have that
necessary quantity and not more of each product will be produced, that
we shall not go hungry in regard to corn and meat while we are choked
in beet sugar and drowned in potato spirit, that we shall not lack
trousers to cover our nakedness while trouser buttons flood us in
millions-Rodbertus triumphantly shows us his famous calculation,
according to which the correct certificate has been handed out for
every superfluous pound of sugar, for every unsold barrel of spirit, for
every unusable trouser button. . . .17

Some modern socialist theoreticians have followed up on Marx and

Engels' ideas by constructing models of price-coordinated socialist
economies."8 This goes to the heart of the purpose of socialism or
"planning" in general. If the purpose is to give better economic
expression to the desires of the people at large-overcoming the
externalities of capitalism, for example-then such market socialism
schemes have more appeal than if the purpose is to supersede the
preferences of the people by the preferences of those who believe that
third parties (especially themselves) can define objective "needs" (or
its converse, "waste"). The prevalence of central planning over market
socialism-both in theory and in practice-suggests something about the
purpose or vision being pursued. Even where some elements of market
socialism have been introduced, it has usually been after first
attempting central planning and finding the results intolerable. Local
Soviet agricultural and dairy markets, for example, have been allowed
a measure of autonomy and coordination by uncontrolled prices after
food shortages and even famines followed earlier attempts at the
complete "planning" of agriculture. Private agricultural plots account
for about 3 percent of the total arable land of the USSR, and about one
third of the agricultural output.1'

The difficulties of understanding other people's complex trade-offs

and successfully articulating them to producers are compounded by the
difficulties of knowing how to produce what is wanted. It was noted in
Chapter 1 that no one really understands completely how to make even
a simple lead pencil. The task facing central planners is far more
complex than that, involving not only far more complex products, but
far more complex trade-offs among the millions of products using the
same or substitutable inputs. For example, the Soviet machine tool
industry alone produces about 125,000 products, involving an
estimated "15,000,000,000 possible relations.""' Even if the central
planners were to assemble all the experts on the production of each of
the products in the economy-which would amount to a stadium full of
people-the trade-offs between products competing for the same inputs
would still remain an unsolved problem. In short, central planners
cannot know what the trade-off patterns are in production any more
than in consumption. Others may know-each for his own minute
segment of the economy-but the transfer of that knowledge intact to a
central decision making unit is a costly and chancy matter.
 Much depends on the incentives and constraints facing the
individual on the spot who is supposed to transfer his knowledge to the
central planners. A Soviet plant manager knows what his plant can and
cannot do better than anyone in Moscow-just as settlers in colonial
America knew what was and was not economically feasible under
local conditions better than anyone in London, and just as slaves knew
what they could and could not do better than any overseer or slave
owner. The basic problem is the separation of knowledge and power.
Incentives can be contrived by those with power to elicit the
knowledge, but such incentives are themselves constrained by the reed
to preserve the basic relationship-central planning, colonialism, and
slavery, in these examples.

Because the central planners' estimates of each plant's capacity will

become the basis for subsequently judging each plant manager's
success, in transmitting information to the central planners Soviet
managers consistently "understate what they can do and overstate what
they need."12' The central planners know that they are being lied to,
but cannot know by how much, for that would require them to have the
knowledge that is missing. One way of trying to get performance
based on true potential rather than articulated transmissions is a system
of graduated incentive payments for "overfulfillment" of the assigned
tasks. Soviet managers, in turn, are of course well aware that much
higher production will lead to upward revisions of their assigned tasks,
so that a prudent manager is said to "overfulfill" his assignment by 5
percent, but not by 25 percent.122 In short, a "mutual attempt at
outguessing the other""' goes on between Soviet managers and central
planners. Knowledge is not transmitted intact.

The distortion of knowledge is far more serious when the whole

economy is coordinated on the basis of such articulation,
supplemented by central planners' guesses. In a market economy,
decisions are made through an entirely different process. The
individual enterprise that wants raw material, capital equipment, etc.,
goes into the market to bid for them on the basis of their own best
estimate of what they can achieve with them. Competition with other
potential users of the same inputs forces them to bid as high as they
can afford to, in the light of their own on-the-spot knowledge of their
enterprise and its customers. It is not a question of articulating
anything to anybody, but of conveying knowledge implicitly through
prices bid. Similarly, there is no point overstating production costs to
the customer, when competitors will undercut the price and take
customers away. In short, the unarticulated knowledge made implicitly
through prices has more reason to be accurate than the explicitly
articulated knowledge conveyed to central planners.

The special disadvantages of central planning in agriculture-

symbolized by massive importations of American grain by the Soviet
Union-are due to special problems of transmitting knowledge. There is
great variability in agricultural production and in agricultural output,
so that the volume of knowledge that would be needed for central
planning on the same scale as in industry would be even more
staggering. For example, land varies considerably-even within a few
hundred yards-in rockiness, chemical composition, physical contours,
and proximity to water (horizontally and vertically), all of which affect
what can be grown at what cost. The output varies, often literally from
unit to unit, and the freshness, nutritional value and perishability also
varies, from day to day and sometimes from hour to hour. All this is in
marked contrast to steel production, for example, where a given
combination of iron ore and coal in a given furnace produces a given
product, whether in Moscow or Vladivostok, and the product can
remain in its original condition for years.

The Soviets themselves have long recognized "the very varied

conditions which always exist in agriculture."124 But there is a big
gap between such recognition and being able to construct incentives to
deal with it, while at the same time not abandoning the political and
economic structure of the country. Innumerable "reforms" have swept
over Soviet agriculture in succession, trying to cope with that inherent
constraint. Many sound agricultural policies originating with the
central planners-crop rotation, planting systems, etc.-have been applied
categorically "regardless of local conditions" and over the opposition
of local agronomists, in places where the environment necessary to
make them successful was not present.125 Sometimes this was due to
following orders from above, but even when the Soviet Premier
warned against "excesses," many local authorities found it safer to
follow general official policy rather than risk a personal deviation
which might or might not work.126

While there is much modern literature on the vicissitudes of Soviet

planners, the point here is not that the Soviets are inefficient or that
"planning" has difficulties. All human life has difficulties. The point is
that a particular kind of institutional incentive structure has a specific
set of difficulties, traceable to the articulation and transmission of
knowledge. The point is reinforced by the appearance of the same kind
of difficulties with the same incentive structures under entirely
different historical and ideological conditions.

In colonial America, Georgia was the most elaborately "planned"

colony, directed and heavily subsidized from London for twenty years
by a nonprofit group of philanthropists, to whom the British
government had entrusted the governance of that colony. They issued
rations, appropriated funds for teachers and midwives, as well as for
cooking utensils and items of clothing-all for people living 3,000 miles
away in a land the London trustees had never seen.127 No other
colony had the benefit of so much "planning" or central direction. Yet
Georgia ended up "the least prosperous and the least populous of the
colonies. " 128

Its problems were the classic problems of planning. Initial

miscalculations based upon the inadequate knowledge of the distant
planners were not readily correctable by feedback based on the
knowledge possessed or acquired by the experience of those actually
on the scene. For example, property rights were not freely transferable,
so that the London trustees' initial estimates of the amount of Georgia
land necessary or optimal for farming became frozen into colonial
practice. While their articulated decisions were in terms of "land"-as if
it were a homogeneous resource-as already noted, land always varies
in chemistry, topography, and all the other variables which affect its
output potential. Equal rations of land surface were not equal rations of
these economically relevant variables, nor was there any way to trade
off these characteristics without actual trades between those on the
scene and familiar with the nature of the land, and of themselves as
farmers, the interaction of which would determine "fertility." In short,
the distortions of planning involved not merely inequities, but
inefficiencies. Had the initial allotments been freely transferable, the
inefficiency at least could have been corrected. 12'

Under the rule that farms must be entailed to a male heir, those
settlers with an allotment and no male heir to leave it to had an asset
with a shorter time horizon than others-and therefore had less incentive
to make long-run improvements, since it could not be sold in the
market.'30 The discontents and neglects to which this incentive system
led eventually forced the London trustees to relax some of their control
over the transfer of land, each concession being made grudgingly "as if
it were a sacrifice of principle ......

The London planners' lack of knowledge was also reflected in their

choice of economic activities to promote. Because Georgia had
mulberry trees, it was decided that it would be a good place for
silkworms and therefore for a silk industry. As often happens, "expert"
testimony (from an expert on the Italian silk industry) was enlisted to
promote the project, leading to a report "as rich in enthusiasm as it was
poor in firsthand knowledge. ..."132 A crucial piece of firsthand
knowledge that was lacking was that the particular variety of mulberry
tree in Georgia was different from the kind of mulberry tree used by
silkworms in the Orient. Nor was the climate the same, and half the
silkworms in Savannah died as a result.133 Nor was the labor
available in Georgia the same as that in the Orient in skill, diligence, or
low pay. Still, there was a favorable "demonstration project"-a gown of
silk produced in Georgia for the Queen-though Georgian silk never
became commercially successf ul.13'

Over a period of twenty years, the British government poured more

than £130,000 into Georgia, supplemented by church and private
donations, including over £90,000 from one of the trustees. Such
massive subsidies made it unnecessary for the settlers in Georgia to
pay taxes, and therefore made it unnecessary to have any
representative local government to raise taxesthereby eliminating the
need for institutions which could have provided political feedback
modifying the distant trustees' plans. The sum spent by the British
government was more than it had ever spent on any other nonmilitary
project. Meanwhile, the beneficiaries of all this largesse were leaving
Georgia for other colonies, less well subsidized but also less
controlled. Eventually, even massive subsidies were unable to keep the
planning project going, and in 1751 the trustees returned the colony to
the British government. Like later "planners" they blamed failure not
on their own decisions or on the inherent limitations of planning, but
on lack of enough additional financial support!'3'

NON-ECONOMIC RATIONALES

There are moral and political, as well as economic, reasons for

preferring governmental direction of the economy ("planning") to
decentralized price coordination ("capitalism"). Perhaps the most
common reason for preferring "planning" in general and socialist
"planning" in particular is a sense of the moral inadequacy of
capitalism-either (1) outright "exploitation" of one group by another,
domestically or internationally, or (2) a selfish, every-man for-himself
amorality, or (3) a "meritocracy" which ignores our common cultural
inheritance and our common humanity. More narrowly economic
reasons for preferring governmental direction to decentralized price
coordination include -the possibility of internalizing external costs,
taking a longer-run view of the consequences of economic decision
making and eliminating monopolistic practices which reduce the
efficiency of a price-coordinated economy. Politically, one of the major
objections to the price-coordination systems of Western society as they
have emerged historically is their inequality in wealth and power
among people and organizations, and the distortions which this
inequality introduces into both political and economic processes.

Capitalist middlemen are often depicted as "mere interceptors and

parasites""' and profit as simply "overcharge.""' While episodic
interception of goods on their way from producer to consumer might
seem plausible, the repeated and persistent choice of producers and
consumers to route their sales and purchases through a middleman is
difficult to explain unless they each find this less costly than dealing
directly with one another. Consumers would not have to go to the
factories, with all the inconveniences (and sometimes dangers) that
might involve. Producers could own their own retail outlets, as some
do. However, the rarity of this-even when producers have ample
capital available to finance it-suggests that there are different skills
necessary for different functions, so that firms which are successful in
one stage of the economic process find it cheaper at some point to turn
their output over to other firms which have lower costs of carrying out
the next phase. If the next firm were not cheaper or better at conveying
the products to the consumer, the producer would have no incentive to
incur the bother and the cost of negotiating with middlemen, shipping
his goods to them, and going through the financial problems of
collecting payments from them. Perhaps even weightier evidence of
the economy's advantages from middleman functions is that even the
"planned" Soviet economy-ideologically opposed to middlemen-has
found itself driven to setting up similar organizations, not only for
consumer goods but also for equipment and supplies used by
producers.138

In any kind of economic system, inventories are a substitute for

knowledge. The two are incrementally traded off for one another
according to their respective costs. If a housewife knew exactly what
her family was going to eat and in what amounts, neither her
refrigerator nor her pantry would have to contain as large or varied an
inventory as it does, nor would there be as much "waste" of food as
there is. Like so much other retrospective measurement of "waste," this
is based on an implicit standard of prospective omniscience or zero
knowledge cost. To trace in retrospect the path of a particular unit of a
particular product is often to discover "overcharge" or an "exorbitant"
markup for that item considered in isolation. But the whole rea son for
anyone-housewife or multinational corporation-to maintain an
inventory is the cost of prospective knowledge, so that a whole
aggregation of items is stocked precisely because no one can know in
advance which one will be wanted at a given time, and the costs of
stocking items which later turn out to be unwanted are covered by (are
part of) the cost charged for the particular items which turn out to be in
demand. This is most obvious in areas of greatest uncertainty (highest
knowledge cost), notably perishable agricultural products. If one-third
of all peaches have to be discarded somewhere on the way from
producer to consumer, then the cost of eating 200 peaches is the cost of
producing 300 peaches. To trace in retrospect the cost of the particular
200 peaches actually eaten would be to discover a 50 percent
"overcharge" even if no one made a cent of profit. Similarly, to ask
how much the original farmer was paid per peach compared to how
much the consumer paid per peach would be to discover a substantial
gap, even if all transportation, storage, and other middleman costs
were zero, in addition to a zero profit.

Given that middleman functions serve some economic purpose, and

have inherent costs, what is to prevent middlemen from charging more
for their services than they cost or are worth? Only what inhibits
everyone else performing any kind of function anywhere in the
economy or society from doing the same thing. Costs, as noted earlier,
are ultimately foregone alternatives. It is these alternatives open to
competitors which determine how much any given seller can
successfully demand. If some existing seller(s) charged more than
enough to cover the costs involved-that is, more than the risks and
efforts are worth to alternative producers, those alternative producers
will displace him by underpricing him. Sellers are, after all, more
concerned with increasing their total profits than with maximizing
profits per unit of sale, and whole retail empires have been built on
shaving a few cents off the price of various kinds of merchandise.
Indeed, the constant efforts to prevent this with "fair trade" laws and
the Robinson-Patman Act is some measure of how pervasive the
incentives are for price cutting. The desire of businessmen for profits
is what drives prices down unless forcibly prevented from engaging in
price competition, usually by governmental activity. Even Karl Marx
recognized that when one capitalist introduces a cost saving, the others
have no choice but to f ollow.139

All prices-whether called wages, profits, interest, fees, or whatever-

are constrained only by the competition of other suppliers. Profits are
no different in principle, except for being residual and variable rather
than contractually fixed. Sometimes profits are regarded as special in
representing the "exploitation" of other inputs-notably labor-rather
than (or in addition to) the consumer. One reason for believing this is
simply an emphasis on the physical production process as the source of
economic value, and the exclusion of those not taking part in that
physical process from any contribution to the economic end result, so
that anything that they receive for their nonexistent "contribution" is
exploitation.

The most elaborate vision of this sort is the Marxian theory of

"surplus val- ue"-or rather, his definition of surplus value as the
difference between the wages of the working class and total output.1'
Like so many emotionally powerful visions, the Marxian vision is not
a testable hypothesis but an axiomatic construction. Output per unit of
labor is simply called "labor's output," a practice common far beyond
the circle of Marxists. Obviously output can be divided by any input,
just as any numerator can be divided by any denominator. Instead of
output per man-hour we can arbitrarily divide automobiles by ounces
of hand lotion. The mere fact that one number is upstairs in a fraction
and the other number downstairs does not establish any causal
relationship between the two things. The implied connection between
automobiles and hand lotions is one we would see through
immediately. But once we begin with two things which are plausibly
connected, we can add the appearance of proof or precision to that
plausibility by making fractions out of them. Businessmen often ask
for tax reductions on grounds that they need X number of dollars of
investment per job, so that increasing employment will result from the
tax cut. That investment and employment are connected seems
reasonable and plausible in general, but proof or precision by fractions
is spurious. Quite aside from the possibility of distributing a business
tax cut as dividends or higher executive salaries, even if it all goes into
investment, this investment can just as easily go into displacing
existing employees with machinery as into hiring new employees. It all
depends on the relative prices, the state of the market for the output,
and technological developments. None of these prospective variables
are captured by retrospective data on total investment divided by total
employees.

The Marxian argument is the same game played with a different

deck of cards. Output per unit of labor becomes labor's output by
definition-indeed by a whole system of subsidiary definitions based on
the same arbitrary postulate."' The same doctrine expressed as a
testable hypothesis would collapse like a house of cards. If labor is the
sole-or even main-source of value, then in those economies where
there is more labor input and less nonlabor input, output per capita and
therefore real income would be higher. The opposite is blatant. In the
most desperately poor countries, people work longer and harder for
subsistence than in more elaborate and prosperous economies where
most people never touch physical goods during the production process.
Indeed, it is only in the latter countries that subsistence is sufficiently
easy to achieve that it is taken for granted, and that there is time and
money to spend on books on the "exploitation" or "alienation" of labor.

Attempts to salvage the exploitation theory sometimes use an

international framework to claim that prosperous "capitalist" nations
are guilty of "robbery of the rest of the world"' through
"imperialism.""' Sometimes this is based on nothing more than the
verbal arbitrariness of referring to a prosperous country's consumption
of its own output as its disproportionate consumption of "the world's"
output or "the world's" resources. This is a particularly misleading
procedure as regards the United States, whose total international
economic transactions are an insignificant fraction of its domestic
economic activity. Moreover, American international activity is
disproportionately concentrated in other industrial nations rather than
the Third World which is supposedly the source of American
prosperity. The United States has more invested in Canada than in all
of Latin America, or in Asia and Africa put together. American
investments in Western Europe are even higher than in Canada.1' Even
the data in Lenin's classic, Imperialism, shows industrialized nations
investing their money in each others' economies more than in any
underdeveloped areas,"' even though the words in the text claim that
capitalism has escaped its economic self-destruction only by exporting
capital to noncapitalist nations. When all else fails, believers in this
vision point to specific activities by capitalist nations that have
behaved in ways which are regarded as morally wrong. Whatever the
merits of their arguments in particular cases, the abuse of power is too
universal an historical phenomenon to be made a defining
characteristic of capitalism. It seems especially inappropriate as part of
an argument for alternative systems with more concentration of power.

SUMMARY AND IMPLICATIONS

The twentieth century has seen a definite trend toward third-party

economic decision making, under a variety of political or ideological
banners, and in many different economic forms. Sometimes it has
imposed decision making as regards a given kind of economic
transaction, as in rent control or minimum wage laws. Sometimes it
has been a more arbitrary attempt to control prices in general, or to
regulate particular industries such as transportation or communication.
In some countries, it has gone as far as attempting to control the whole
economy.

The results of modern "planning" have followed a pattern seen

centuries ago in different circumstances and with entirely different
ideologies and rhetoric. The results of comprehensive "planning" in
colonial Georgia parallel the results of Soviet planning, just as various
modern schemes of price control have produced results virtually
identical to those produced by price control in Hammurabi's Code or in
the Roman Empire under the Emperor Diocletian."' There is a special
irony in this, for much of modern "planning" emphasizes its
revolutionary newness-implying, presumably, some exemption from
being tested by old-fashioned analytic methods or judged by old-
fashioned moral standards. In fact nothing is older than the idea that
human wisdom is concentrated in a select few (present party always
included), who must impose it on the ignorant many. Repeated
attempts to apply this doctrine rigorously, in a wide range of historical
settings, suggests that it is less likely to survive as an hypothesis than
as an axiom or an ideology.
Chapter 9
 Trends in Law

Legal institutions in the United States are anchored in a Constitution

that is nearly two hundred years old, and which has changed relatively
little in its basic philosophy in that time. Most of the later amendments
follow the spirit of the original document and its Bill of Rights. Yet
despite this, American legal institutions have undergone a revolution
within the past generation-a revolution which coincided not only in
time, but also in spirit and direction, with changes in economic and
political institutions. The centralization of decision making is a pattern
that runs through landmark court cases, ranging from antitrust to civil
liberties to racial policy to the reapportionment of state legislatures.
The net result of these legal developments has been an enlargement of
the powers of courts and administrative agenciesinstitutions least
subject to feedback from the public, and therefore most susceptible to
continuing on a given course, once captured by an idea or a clique.
This represents an historic shift in both the location of decision making
and in the mode of decision making. Decisions once weighed in an
incremental and fungible medium like emotions or money, with low-
cost knowledge readily conducted through informal mechanisms, are
increasingly weighed in the medium of articulation, in more
categorical terms, and with higher costs of transmitting knowledge
through rules of evidence documentable to third parties. The
predilections or susceptibilities of those third parties also become more
important than was ever contemplated for a constitutional or a
democratic society.

Along with historic changes within the law has come an enormous
expansion of the sheer numbers of lawyers, judges, and cases. The
number of lawyers and judges per capita increased by 50 percent from
1970 to 1977.' Cali fornia alone has a larger judicial system than any
nation besides the United States.'
 The quantitative and qualitative aspects of trends in the law are not
independent-of one another. As courts have expanded the kinds of
questions they would adjudicate-including the internal rules of
voluntary organizations, and the restructuring of political entities-more
and more people have sought to win in court what they could not
achieve in other institutions, or have appealed trial results on more and
more tenuous grounds. A 1977 survey reported: "Appellate judges
estimate that 80 percent of all appeals are frivolous."' The cost of all
this is not simply the salaries of judges and lawyers. As in other areas,
the real costs are the foregone alternatives-notably speedy trials to
clear the innocent and convict the guilty, so that the public is not prey
to criminals walking the streets while legal processes drag on. In civil
cases, the costs of delay are obvious in cases with large economic
resources idled by legal uncertainties, but they are no less real in cases
where child custody or other emotionally-devastating matters drag on.
In short, there is a social trade-off between the costs and the benefits of
increased litigation or increasingly elaborate litigation. The
institutional question is, how are these social costs and benefits
conveyed to the individual decision makers: the parties, the lawyers,
and the judges?

To some parties the costs of litigation are not conveyed at all, but are
paid by the taxpayers, as in most criminal cases, where trial lawyers,
appeals and prison law libraries in which to prepare appeals are at
taxpayer expense. The more deadly costs of having criminals at large
while waiting trial or appeal are also paid by the public. All these costs
have been increased within recent decades by court decisions.
Lawyers, of course, do not pay costs but instead reap benefits as the
law becomes more intricate and time-consuming-and lawyers have in
fact opposed attempts at simplification, such as "no-fault" automobile
insurance. Lawyers' benefits have increased in recent years as
payments from clients have been supplemented by payments from
othersnot only taxpayers but also in institutional arrangements
popularly defined by their hoped-for results as "public interest" law
firms, supported by donors to "causes." Insofar as the tax money is
payable only for particular kinds of cases and the donors have a special
focus-as with the "environmentalists" or contributors to the NAACP-
then lawyers and legal institutions paid by third parties have every
incentive to pursue such cases well past the point of diminishing
returns or even negative returns to society at large.

Because the American judicial system of trial courts and appellate

courts reaches an apex in the Supreme Court of the United States, the
trends there are crucial for the behavior of the whole legal system.
Within the past three decades-and especially in the controversial
"Warren Court" era-there has been an expansion of the issues which
the Supreme Court will adjudicate, and of the extent to which the court
will go beyond defining the boundaries of other institutions' discretion
to reviewing the specific decisions made. Some degree of this is
inherent in any appellate court's functioning-a guilty verdict by a jury
in a courtroom surrounded by a raging lynch mob cannot be allowed to
stand merely because formal procedure was followed-but neither are
appellate courts supposed to re-try issues rather than determine the
constitutionality of trials and legislation. Otherwise, in the words of an
appellate judge, "Law becomes the subjective preference of the
reviewing court."'

The U.S. Supreme Court was increasingly surrounded by

controversy after Earl Warren became its Chief Justice in 1953. In the
early stages of these controversies, those who accused the court of
going beyond the legitimate bounds of constitutional interpretation
into the dangerous area of judicial policy making tended to be those
opposed to the particular social or political substance of the decisions
made, while those who defended the court tended to be those in favor
of the social and political impacts achieved or expected. It is
unnecessary at this point to enter the specifics of these early
controversies. As the Supreme Court continued along a path that
involved increased judicial activism at all levels and in a variety of
issues-lower courts running school systems, ordering prisons to be
built, or even ordering a state legislature to pass a tax bill-the nature of
the defense of the Court also began to change. Many of those in favor
of the social or political results of Supreme Court decisions began to
question whether there was any legal or constitutional basis for those
decisions. Some argued that a constitutional case could be made for the
decisions, though the court had not effectively made it.' Others
lamented that we had simply reached judicial policy making.' Still
others welcomed the judicial activism and lamented only its
concealmentthe "masking" of "decisions on the merits" and the court's
use of legal formalisms to "hide the reasoning behind its decision."'
According to this line of thought, the court should not be restricted to
the narrow role of interpreting the Constitution as a set of rules but
should aspire to the role of applying the Constitution as a set of
"values."' In short, both friend and foe alike came ultimately to see the
Supreme Court as going beyond the previous bounds of constitutional
interpretation, and into the realm of judicial policy making.

Trends in American legal institutions will be considered in four

broad areas, those dealing with (1) administrative law-making, (2) free
speech, (3) race, and (4) crime.

ADMINISTRATIVE AGENCIES

Along with the expansion of traditional legal institutions, operating

under traditional constitutional constraints, has come the emergence
and proliferation of a new hybrid institution-the administrative
commission, combining legislative, judicial, and executive functions,
in defiance of the separation-ofpowers principle, and constrained in its
exercise of power only by sporadic reversals of its decisions by
appellate courts or even more rare congressional legislation. These
institutions are a development within the past centurythe first, the
Interstate Commerce Commission, was founded in 1887-but their rapid
proliferation began with the New Deal of the 1930s which created
many so-called "alphabet agencies": the SEC, NLRB, FPC, etc. These
administrative commissions are headed by presidential appointees with
fixed and staggered terms which overlap one another and also overlap
the term of office of any given administration, in order to promote
independent decision making. Members of the commissions or boards
heading these agencies are removable only by impeachment, and their
regulations, which have the force of law, require neither presidential
nor congressional approval, but go into effect automatically after
having been published in the Federal Register. In addition to making
law in this way, the same administrative commissions also act as judge
and jury for anyone accused of violating their regulations. They also
administer staffs and bureaus which research, advise, and generally
patrol their domain. Some of their economic effects have been noted in
Chapter 8. Here the concern is with the broader legal and social
questions they raise.

The importance of these regulatory commissions is out of all

proportion to their public visibility or political accountability. They
create more law than Congress. Each year federal administrative
agencies issue ten thousand or more new regulations.' By contrast, it is
rare for Congress to pass a thousand bills in one session.'° Until recent
years, administrative agency regulations were directed largely toward
limited segments of the economy or society. But while the scope of
earlier administrative commissions was generally limited to particular
industries such as railroads (ICC), merchant shipping (NMC), or
broadcasting (FCC), the newer commissions regulate activities which
cut across industry lines and reach directly into virtually every
business, school, farm, or other social institution. They prescribe
employment procedures and results under "affirmative action" policies,
set and administer "environmental" standards, issue occupational
health and safety regulations, define the racial distribution of schools'
pupil populations, teachers, and administrators-all largely as they see
fit, limited only by such attention as appellate courts can give them
amid the courts' many other concerns.

Sometimes called a "fourth branch of government," the

administrative commissions from the outset faced grave challenges to
their legality under a constitution that prescribed only three branches
of government-and which carefully separated powers at that. The
constitutional issue was settled in favor of the agencies, at a time when
they were a peripheral factor in government decision making and
national life, but that categorial decision remained in effect as the
number and scope of such agencies expanded enormously over the
decades. This is hardly a criticism of the Supreme Court, for once the
incremental growth of regulatory commissions passed a certain point,
any reconsideration or reversal of their constitutionality would have
undermined a major part of the existing legal system of the country
and whole sections of the economy and society dependent upon that
set of regulatory "laws." This does, however, once more illustrate the
momentous impact of categorical decision making-in this case a stark
dichotomy between "constitutional" and "unconstitutional"-and the
high costs of subsequently attempting to bring to bear effective
knowledge of its consequences.

Administrative agencies enforce their decisions in ways which

escape the constraints of the Constitution or of Anglo-Saxon legal
traditions in general. American laws are prospective-that is, they
describe in advance what the citizen can and cannot do. The citizen
cannot simply be punished because his actions prove in retrospect to
be displeasing to the government. In addition, the burden of proof is on
the government, or on the plaintiff in general. Moreover, the citizen
cannot be forced to incriminate himself, under the Fifth Amendment.
All these safeguards are readily circumvented by administrative
agencies. As noted in Chapter 8, the National Maritime Commission
has a financial life-and-death power over merchant shippers by its
choice of when and where to grant or withhold the subsidies made
necessary by costly, government-prescribed practices which would
bankrupt any American shipping company solely dependent on
revenue from customers. Legally, these subsidies are not a right, and
so the denial of them is not a punishment subject to constitutional
constraints. Economically, however, massive government subsidies to
one's competitors are the same as a discriminatory fine for having
displeased the government, but legally the latter is not a constitutional
violation. The maritime industry has no constitutionally mandated
right to a subsidy, and indeed many economists find the whole scheme
ridiculous, but the point here is that once the industry as a whole is
being subsidized, to any individual competitor the loss of that subsidy
does not restore him to the position of being in an ordinary competitive
industry. On the contrary, it is a discriminatory fine for having
displeased the National Maritime Commission.
 The principle is far more general than the maritime industry, and
affects federal revenue sharing, "affirmative action" contract
compliance procedures and other administrative activity in which the
federal government makes benefits available to other entities on
condition that those other entities follow policies which the
government has no existing legal power to directly force them to
follow otherwise. As a matter of incentives and constraints, it makes
no difference whether (1) someone pays X dollars in taxes and is then
fined Y dollars for displeasing the government, or (2) pays X + Y
dollars in taxes and receives Y dollars back for pleasing the
government. Legally, however, it matters crucially. The constitutional
safeguards which apply in the first approach are circumvented by
using the second approach. There is no prospective law on the books
allowing the government to control the racial, sex, or other
composition of university faculties, but only such universities as please
the government in that regard are eligible for the mass federal
subsidies which make up much of the revenue of the leading "private"
universities. Universities as a group have no constitutional right to the
subsidies, but once most of Harvard's revenue comes from the federal
government, Yale cannot survive as a competitor if it displeases
administrators who control its eligibility for federal money. Similarly,
the federal government can require state and local governments to
follow various policies on highways, schools, or welfare, not because
the federal government has either constitutional or statutory authority
to control such things, but because administrators of various funds can
unilaterally make those requirements a precondition for receiving the
funds. Again, it is the general availability of the subsidies which puts
the individual competitor to whom they are denied in a worse position
than if the subsidy had never existed. The glib doctrine, "to get the
government off your back, get your hands out of the government's
pocket,"" misses the point entirely. To an industry or sector (such as
universities or local governments) that doctrine would make sense-if
whole industries or sectors were decision making units. The real
objection, however, is not the vicissitudes of particular claimants but
the growth of extralegal powers of the federal government-powers
never granted by the Constitution nor by legislation, and never voted
on by the public, but as real as any law passed by Congress, and often
carrying heavier penalties, including the total destruction of
institutions by massive subsidies to their competitors.

Another practice counter to American legal tradition is putting the

burden of proof on the defendant. As noted in Chapter 8, the
Robinson-Patman Act makes mere price differences to different
customers prima facie evidence creating a "rebuttable presumption" of
illegal price discrimination. In practice, the many possible
interpretations of given cost statistics makes such rebuttal virtually
impossible and the Supreme Court's conception of classifying
customers can make it too costly to attempt. Moreover, the cost
justification must first be made to the Federal Trade Commission,
which has every incentive not to accept it. Like a justice-of-the-peace
who is paid out of the fines he imposes, the FTC's judicial decisions
affect its own economic well-being, since the size of the appropriations
and staff which it can ask of congress in its executive role, and the
scope of the power it can exercise in its legislative role depend on how
much of a problem it finds its judicial role. In view of these
institutional incentives and constraints, it is hardly surprising that the
FTC has almost invariably gone further than the courts in the
stringency with which it has applied the Robinson-Patman Act.'Z This
is, however, neither peculiar to the FTC nor to the area of its
jurisdiction.

Very similar principles and results are found in the very different
jurisdiction of the Equal Employment Opportunity Commission
(EEOC). Here an employer's proportion of minority or female
employees must, in retrospect, match the expectations of the EEOC or
he faces a rebuttable presumption of discrimination, under guidelines
legislated and administered by the EEOC. He must rebut this
presumption before the EEOC, acting in its judicial capacity. Again,
the EEOC like the FTC, has consistently applied the law more
stringently than the courts.13 It is not the prospective use of law but
the retrospective punishment of results displeasing to the EEOC. But
because the punishment consists largely of liability to have federal
money stopped, it is not legally the same as punishment and so escapes
constitutional bans on retrospective punishments for acts not specified
in advance. Also contrary to the principles behind the Fifth
Amendment, employers are forced to confess in advance to "under-
utilization" of minority and female employees whenever their
employment numbers do not meet EEOC expectations, as a
precondition for being eligible for federal money. The Fifth
Amendment protects Nazis, Communists, and criminals but not
businessmen in this situation, because technically the latter are not
being punished or subjected to criminal penalties-even though they
may be subject to heavier losses than the fines imposed in criminal
cases.

In short, administrative agencies have become a major part of the

American legal system, and a part not merely outside the original
vision of the Constitution, but also able in practice to enact and enforce
laws in ways forbidden to other organs of government by the
Constitution. Despite their formal subordination to legislative
correction by Congress and judicial review by the appellate courts,
regulatory commissions are insulated from effective control by their
sheer numbers, by the intricacies and arcane language of their
regulations, and by the multitude of other claims on the time of
Congress and the courts. Effective feedback comes largely from
special interests, each with a sufficient stake to monitor its respective
agency, to shoulder the cost of appeals, and to lobby before the
appropriate committee of Congress. But a criminal can challenge the
verdict of a trial court much more cheaply than an ordinary citizen can
challenge the ruling of an administrative agency. Moreover, the kind of
personal bias which would disqualify a judge is considered acceptable,
or even desirable, in members of a regulatory commission. That
advocates of recreational interests ("environmentalists") should
dominate commissions concerned with environmental matters is
considered as natural as that "minority" activists should dominate the
EEOC. This would be a questionable departure from legal tradition,
even in cases not dependent upon "rebuttable presumptions," to be
rebutted to the satisfaction of such officials.

Costs are a crucial factor in all forms of legal proceedings. A legal

right worth X (in money or otherwise) is not in fact a right if it costs
2X to exercise it. This is obvious enough when the rights and the costs
can be reduced to money. The principle is no less true in cases where
the values are nonfinancial. For example, a woman's right to prosecute
a rapist can be drastically reduced-for some women, obliterated-by
allowing the defense attorney to put her through an additional trauma
on the witness stand with wide-ranging questions and observations,
publicly humiliating her but having little or nothing to do with the guilt
or innocence of his client. There is some belated recognition of this
cost in some places with changed trial rules in rape cases, but this is
usually seen as a special problem in a special situation, rather than a
general problem of costs in legal procedures. Where a right is so
defined, in legislation or by judicial interpretation, that either the
plaintiffs or the defendants can impose large costs on the others at little
or no cost to themselves, then the law may be so lopsided in its impact
that the right can be reduced to meaninglessness or expanded far
beyond its original scope or purpose. In the case of rape, it is the
defendant who can impose disproportionate costs-reaching prohibitive
levels for many women. In other kinds of cases and rights, it is the
plaintiff who can create huge costs for the defendant at little or no cost
for himself. For example, recreational interests ("environmentalists")
can impose large costs on builders of everything from bicycle paths to
power darns by demanding that they file "environmental impact"
statements, in effect putting the burden of proof on the accused.
Although such statements are officially defined by their hoped-for
results, they have virtually no demonstrated effectiveness for
predicting how any environment will in fact be affected." They are,
however, very effective in imposing both direct financial costs and
costs associated with delay. For projects requiring large investments,
the mere delay can cost millions of dollars and doom the project, since
the value of a given physical thing varies with the time at which it
becomes available. That is, so-called "environmental impact"
requirements impose high costs on one party at low cost to the other
party, regardless of the legal outcome of the case.

The law and legal critics are both so preoccupied with the ultimate
disposition of cases that costs of the process itself tend to fade into the
background. Yet these process costs may determine the whole issue at
stake. For some, to be totally vindicated after years of filing reports,
attending many administrative hearings, trials, and appeals is often
meaningless. Under environmental impact laws, the case to be made
by the plaintiff to keep a costly legal process going is either nil or may
consist solely of speculation. He does not bear the burden of proof.

Although adversary legal systems put much emphasis on litigants,

or at most on the categories of people they represent, all legal systems
are ultimately social processes serving social purposes, including
transmitting knowledge for social decisions based on costs entailed by
alternative social behavior. When the legal system causes the trade-offs
between opposing private interests, or opposing social concerns, to
take place in ways that put more costs on one side than on the other,
this affects much more than the justice or logic of the final decision in
those cases that are adjudicated. In legal as in economic processes, the
transactions that do not take place at all may represent the largest cost
to the public. The electric generating capacity that is not built, and the
traumatic blackouts that result from overtaxed electric generating
capacity, may far outweigh the annoyance of a handful of lakeside
resort owners or the Sierra Club-if the costs of the two results could be
equally accurately conveyed through either the economic system or the
legal system. Where the costs of transmitting one set of knowledge
(the demand for electricity, in this case) is artificially made greater
than the costs of conveying the other set of knowledge (recreational
demands), then the distortion of knowledge can lead to results which
neither the economic nor the legal decision makers would have
reached had accurate knowledge been equally transmittable from
opposing sides at equal cost. In the criminal law as well, the real costs
of the legal system are not the financial costs of such transactions as
happen to take place, but are primarily the social costs of those
transactions that do not take place-the cases that are not tried but
dropped or plea bargained because of the prohibitive cost of doing
otherwise.

FREE SPEECH
It is not merely as an individual benefit but as a systemic requirement
that free speech is integral to democratic political processes. The
systemic value of free speech depends upon the high individual cost of
knowledge-that is, lack of omniscience. "Persecution for the
expression of opinions" may be "perfectly logical," according to
justice Oliver Wendell Holmes, when "you have no doubt of your
premises." He continued:

But when men have realized that time has upset many fighting faiths,
they may come to believe even more than they believe the very
foundations of their own conduct that the ultimate good desired is
better reached by free trade in ideas-that the best test of truth is the
power of the thought to get itself accepted in the competition of the
market, and that truth is the only ground upon which their wishes
safely can be carried out. That at any rate is the theory of our
Constitution. It is an experiment, as all life is an experiment. Every
year if not every day we have to wager our salvation upon some
prophecy based upon imperfect knowledge. While that experiment is
part of our system I think that we should be eternally vigilant against
attempts to check the expression of opinions that we loathe and believe
to be fraught with death, unless they so imminently threaten immediate
interference with the lawful and pressing purposes of the law that an
immediate check is required to save the country.15

This faith in systemic processes rather than individual intentions or

individual wisdom meant that even "a silly leaflet by an unknown
man"" required constitutional protection, not for its individual merits,
nor as an act of benevolence or patronage, nor as recognition of an
opaque "sacred" character of an individual's endowment of "rights,"
but as a matter of social expediency in a long-run, systemic sense. For
that very reason, it was not a categorical right but one subordinated to
that social expediency which justified it in the first place, and therefore
revocable whenever it presented a "clear and present danger"" to the
continuation of that systemic process itself or to the people and
government in whom that process is expressed. In short, the right of
free speech is not an opaque "sacred" right of an individual, any more
than other rights such as property rights are "sacred" individual
possessions. All are justified (or not) by the litmus test of their social
expediency-not in the sense that any individual or group rash enough
to imagine themselves capable of following the specific ramifications
of each particular statute or privilege in its social impact may centrally
control all words or equipmentbut in the larger and longer-run sense
that we can judge the historic benefits of systemic interplay better than
we can determine individual wisdom in word or deed in process.
Adam Smith's systemic defense of laissez faire, despite his obvious
and pervasive disgust with businessmen,16 paralleled Holmes'
systemic justification for freedom for opinions he regarded as harm ful
or contemptible. Both amount, ultimately, to recognition of different
costs of knowledge in judging overall results rather than judging
individual parts of a process.

Complications arise with the very meaning of "free" and of

"speech." The basic conception of freedom of speech-that the
substantive content of individual communication be uncontrolled by
government-has been judicially supplemented or extended by
considering the economic cost of communication. If the content of
speech remains unconstrained by government, but the modalities of its
delivery are restricted (e.g., bans on sound trucks at 2:00 a.m.), then
beyond some point in such restrictions, the alternative costs of other
modes of communication could conceivably price the speaker out of
the market. "Freedom" of speech has therefore, in recent decades,
come to include concern for the cost of communication-almost as if
"free" had an economic rather than a political meaning. "Speech" has
also been judicially expanded to include various forms of articulation
(picketing, for example) and even inarticulate symbolism (flag
burning). Extensions of the concept of "speech" to other activities
places other aspects of these activities-harassment and intimidation, for
example-under constitutional protection intended only for
communication. Similarly, extending the freedom of the press can
mean allowing newpapers to be used as protected conduits for threats
or ransom demands by individuals or groups who communicate with
victims or their families or the authorities via newspaper stories
phoned to reporters.
 In the 1940 case of Thornhill v. Alabama the Supreme Court
declared a state ban on picketing unconstitutional as a violation of free
speech.19 The broadness of the ban and the corresponding broadness
of the affirmation of the right of free speech as applied to pickets led to
subsequent challenges to other picketing restrictions of a more limited
sort. Here the court recognized the nonspeech aspects of picketing as
subjecting the whole activity to some state control, such as when "the
momentum of fear generated by past violence would survive even
though future picketing might be wholly peace- ful.20 Moreover,
picketing by an organized group "is more than free speech" because
the presence of its picket line "may induce action of one kind or
another, quite irrespective of the nature of the ideas which are being
dissemi- nated.21 Despite these reservations as to the legal
immunization of nonspeech activities by the "freedom of speech"
provisions of the Constitution, over the years the courts have generally
expanded the scope of activities deemed to be protected by the First
Amendment, and extended the constitutional restrictions to
organizations not part of the governmental apparatus. The First
Amendment begins "Congress shall make no law ... ," but by
interpreting the Fourteenth Amendment as bringing the states under
federal constitutional restrictions, the Supreme Court applied the rest
of the earlier amendments to state governments.22 Then, in a series of
cases, it extended the constitutional restrictions to various private
organizations as well.

In the landmark case of Marsh v. Alabama (1946) the Supreme

Court ruled that the state could not prosecute for trespass a woman
who distributed religious leaflets in a privately owned suburb where
such distribution was forbidden by the owner. Although the state was
not forbidding distribution of leaflets, the state's enforcement of the
property owner's rights against trespass was held to be sufficient to
transform the property owner's ban into "state action" in violation of a
constitutional right. The court said: "When we balance the
constitutional rights of owners of property against those of the people
to enjoy freedom of press and religion, as we must here, we remain
mindful of the fact that the latter occupy a preferred position."23
 The fact that different costs and benefits must be balanced does not
in itself imply who must balance them-or even that there must be a
single balance for all, or a unitary viewpoint (one "we") from which
the issue is categorically resolved. Each individual who chooses
whether or not to live, work, or shop in a privately owned development
can balance the costs of those rules against the benefits of living,
working, or shopping there, just as people individually balance the
costs of participating in other activities under privately prescribed rules
(e.g., eating in a restaurant that requires a coat and tie, attending a
stage performance where cameras are fordidden, living in an apartment
building that bans pets). The court here went beyond the function of
carving out boundaries, within which other institutions could make
specific decisions, to making the substance of the decision itself. In
doing so, it transformed an individual incremental decision into a
categorical decision, confiscated a portion of one party's assets and
transferred them to another (a transfer recognized as such by the author
of the decision21), and substituted its evaluation of the costs and
benefits of access to communications for the evaluations of those
living, working, and shopping where the leaflets were being
distributed.

From a social decision-making point of view, it is a misstatement of

the issue to represent the opposing interests as being the property
owner and the leaflet dispenser. The owner of a development is a
middleman, whose own direct interest is in seeking profit, and whose
specific actions in his role as middleman represent transmissions of the
perceived preferences of other people-tenants and shoppers-who are
the sources of his profits. The real balance is between one individual's
desire for an audience and the prospective audience's willingness to
play that role. How important another channel of communication is to
the audience is incrementally variable, according to each individual's
already existing access to television, newspapers, maga zines, mail
advertisements, lectures, rallies-and other places and times where
leaflets can be handed out and received.

The prospective audience's incremental preference for tranquility

where they live or shop-undisturbed by messages or solicitations to
read messages-may be of greater value to them than any losses they
suffer from not receiving such messages at this particular time and
place, or the value to the soliciting party of reaching them at this time
and place, or even the social value of "free speech" as an input into
political and other decision-making processes. But no such balancing
takes place through legal processes conferring "rights" to
uncompensated transfers of benefits.

Both the solicitor and the solicited have alternative channels of

communication. To claim that the costs of some alternative channels
are "prohibitive" is to miss the whole point of costs-which is precisely
to be prohibitive. Costs transmit inherent limitations of resources
compared to the desires for them, but do not create this fundamental
disproportionality. All costs are prohibitive to some degree, and
virtually no costs are prohibitive absolutely.25 Clearly, the costs of
passing out leaflets would pay for direct mailing instead, or for
newspaper ads, telephone solicitation, public gatherings, etc.

"Free speech" in the sense of speech free of governmental control

does not imply inexpensive message transmission, any more than the
right of privacy implies subsidized window shades. It is especially
grotesque when the subsidy to message-senders takes the form of
forcing others to be an unwilling audience, and where the small
number of solicitors are called "the people" while the large number of
those solicited are summarized through their intermediary as "the
property owner." Even the dissentors in Marsh v. Alabama posed the
issue in those terms.26

More basic than the question of the probable desires of a prospective

audience is the question of who shall decide what those desires are,
either absolutely or relative to the desires of message senders. That is,
what decisionmaking process can best make that assessment-and
revise it if necessary? Apparently some people were presumed to be
receptive, or the leaflet distribution would not have been undertaken.
By the same token, others were presumed to want to be left alone, or
the solicitation ban and the lawsuit to enforce it would not have been
undertaken. Therefore, there is a question not only of the estimated
numbers and respective social costs of one course of action versus
another, but also a fundamental question of how an initially-mistaken
perception either way would be corrected by feedback under various
institutional processes.

Under informal or noninstitutionalized decision-making processes,

with neither the government nor the developer involved, the leaflet
distributor would have no incentive to take account of the external
costs imposed on people who prefer undisturbed coming and going to
receiving his message. Even if a large majority of his potential
audience preferred being left alone, as long as this desire was
conveyed in civil terms, short of abuse or violence, it may receive little
or no weight in the distributor's own balancing of costs and benefits.
The distribution would continue, regardless of how little benefit a
handful of passers-by felt they received and however much annoyance
the others might feel-and regardless of how mistaken the leaflet
distributor might be about either of these things.

Formal economic institutions translate the pleasure or displeasure of

tenants, shoppers, or other users of a private development into a higher
or lower financial value for a given set of physical structures. The
property owner, even if he lives elsewhere, or is personally indifferent
about leaflets, has an incentive to produce whatever degree of privacy
or tranquility is desired, as long as its cost of production to him does
not exceed its value to those who want it, as revealed by their
willingness to pay for it.27 More importantly, those property owners
who are mistaken as to the nature and magnitude of other people's
desires for privacy or tranquility find the value of their property less
than anticipated, and therefore have an incentive to strengthen, loosen,
or otherwise modify their rules of access.

Formal political institutions might reach similar results if

constitutionally permitted. Such institutions could, in this case, take
the form of a tenants or merchants association or an ordinary
municipality. The problem with voting on an issue like this is that the
vote of an individual who feels benefited to a minor extent counts the
same as the vote of another individual who feels seriously harassed.
By contrast, economic "voting" through the market reflects magnitudes
of feelings as well as directions. Unfortunately, economic voting may
also reflect substantial differences in income, but in general this effect
is minimized by the variety of income levels on both sides of a given
competition. Wealth distortions seem even less of a practical problem
among tenants and shoppers in a given, privately owned development,
which would tend to attract its own clientele, less socioeconomically
diverse than the whole society. Economic decision-making processes
also permit minority representation-in this case by transmitting the
desires of whichever side is financially "outvoted" in a given
development into a demand for other developments run by opposite
rules. Such processes are not bound by the uniformity required of
legislation nor by judicial concern for precedent. If a hundred
developments adopt rule A, that in no way hinders the 101st
development from adopting rule B to attract those economically
"outvoted" elsewhere.

Judicial decision making on the substance of such issues loses many

of the advantages of either economic or political institutions. Neither
the initial court decision nor any subsequent modifications of it are the
result of knowing the actual desires of the people involved, as
distinguished from the parties in court. Nor, if those desires were
known, would they provide any compelling incentive for the court to
rule in accordance with them.

The balancing of costs and benefits includes not only tenants and
shoppers with varying preferences but the leaflet distributors as well.
The property owner's legal right to exclude leaflet distributors as
trespassers does not mean that he will in fact do so. They can purchase
access, just as individual residential and business tenants do. The
solicitors would have to pay enough to counterbalance any net
reduction in the value of the property caused by its being less desired
by existing and prospective tenants as a result of its reduced privacy or
tranquility. Not only would leaflet distributors' interests be weighed
through the economic process against other people's interests; there
would be automatic incentives for them to modify the place, manner
and frequency of their solicitations, so as to minimize the annoyance to
others, and so minimize the price they would have to pay for access.
Economic processes are not mere zero-sum games involving transfers
of money among people. They are positive-sum decision-making
processes for mutual accommodation.

The Supreme Court could not, of course, "fine tune" their decision
as an economic process would, much less make it automatically
adjustable in accordance with the successively revealed (and perhaps
continuously changing) preferences of the people affected. Their
decision was both categorical and precedential-a "package deal" in
space and time. If this is what the Constitution commanded the court to
do, discussions of alternatives might be pointless. But even the
defenders of the court's decisions in the "state action" cases justify
those decisions on policy grounds as judicial improvisations-"sound
results" without "unifying doctrines,"" affirmation of the basic
principles of a "free society" with a "poverty of principled articulation"
of the legal basis for the conclusions,29 etc. The court has neither
obeyed a constitutional compulsion nor filled an institutional vacuum;
it has chosen to supersede other decision-making processes.

The legal basis of the Marsh decision was that the privately owned
development prohibited activities which "an ordinary town" could not
constitutionally prohibit, and that "there is nothing to distinguish" this
suburban development from ordinary municipalities "except that the
title belongs to a private corporation."30 Similarly, there is nothing to
distinguish the Supreme Court from any nine other men of similar
appearance except that they have legally certified titles to act as they
do. In neither instance can the elaborate social processes or weighty
commitments involved be waved aside by denigrating the pieces of
paper on which the end-results are summarized. If par allel appearance
or parallel function is sufficient to subject a privately purchased asset
to constitutional limitations not applicable to the same asset when in
alternative uses, then the economic value of assets in general is
reduced as their particular uses approach those of state run
organizations in form or function. Economically, this is an additional
(discriminatory) implicit tax on performing functions paralleling those
of state agencies. The social consequences of discouraging alternatives
to services provided by government seem especially questionable in a
pluralistic society, founded on rejection of over-reaching government.

What distinguishes the economic relationships surrounding private

property from the political relationships subject to constitutional state
action constraints is nothing as gross as outward appearance or day-to-
day functioning. The administrative routine in the headquarters of the
Red Cross might well resemble the administrative routine in the
headquarters of a Nazi death camp, but that would hardly make the
two organizations similar in any socially meaningful way. In the case
of economic relationships what is involved is voluntary association,
modifiable by mutual agreement and terminable by either party. In the
case of governmental relationships, what is involved is coercive power,
overwhelming to the individual, and pervasive throughout a given
geographic entity, however democratically selected the wielders of that
power might be. The constitutional limitations on governmental power
carve out areas of exemption from it, in order that individuals may
voluntarily create their own preferred order within their own
boundaries of discretion. The outward form of that voluntarily-created
order may in some instances strikingly resemble governmental
processes, but its voluntariness makes it fundamentally different in
meaning, and in the ultimate control of its human results. The appellate
courts' role as watchdogs patrolling the boundaries of governmental
power is essential in order that others may be secure and free on the
other side of those boundaries. But what makes watchdogs valuable is
precisely their ability to distinguish those people who are to be kept at
bay and those who are to be left alone. A watchdog who could not
make that distinction would not be a watchdog at all, but simply a
general menace.

The voluntariness of many actions-i.e., personal freedom-is valued

by many simply for its own sake. In addition, however, voluntary
decision-making processes have many advantages which are lost when
courts attempt to prescribe results rather than define decision-making
boundaries.
 The Marsh decision set a precedent which was not only followed but
extended. If a private development was functionally similar to a
municipality, a shopping center was "the functional equivalent" of part
of a municipality." Therefore pickets could not be considered as
trespassers in the shopping center.32 Again, the issue was posed in
terms of the free speech rights of the many against the property rights
of the few.33 The right of the public to be undisturbed, and the
intermediary role of the property owners as communicators and
defenders of that right, out of financial self-interest, were not allowed
to disturb this tableau. In the case of Food Employees Union v. Logan
Valley Plaza (1968), the few were described in terms of the much
larger entities of which they were a part ("workers") and in terms of
other large entities, some few of whom might also wish to do similar
things ("consumers," "minority groups"), while the contrary interests
of the many were described in impersonal terms as property rights or
summarized through a handful of intermediaries ("business
enterprises").34 As in the earlier decision, the dissenting opinions
accepted much of the same framework and complained primarily of
the extent to which the functional analogy to "state action" had been
stretched.

In a subsequent case, Lloyd Corporation v. Tanner (1972), the

Supreme Court pulled back, in a five-to-four decision which
emphasized that the leaflets were being distributed in a shopping plaza
that was not a "functional equivalent" because it was not in a "large
private enclave" like Logan Valley Plaza, where "no other reasonable
opportunity" to convey a message exist- ed.35 In short, once more
political freedom from governmental prohibitions was confused with
economic inexpensiveness in message sending. The dissenting opinion
also leaned heavily on the expensiveness of message sending, but
simply estimated the costs differently: "If speech is to reach these
people, it must reach them in Logan Center."36 There is, presumably, a
right to an audience, regardless of the audience's wishes.

Later Supreme Court rejections of the application of "state action"

constraints were similarly based on how far "this process of analogy
might be spun out to reach ... a host of functions commonly regarded
as nongovernmental though paralleling fields of government
activity."37 But the basic belief that such functional parallelism was
the determining factor was not rejected. Again, the majority differed
from the dissenters only in how far they were prepared to carry the
analogy, not on its validity in principle.

In a still later case of a privately owned public utility that

discontinued service without "due process," the failure to invoke "state
action" constraints was based on an assessment of insufficient
parallelism in function, whereas from the point of view of state power,
the consumer had no other choice of electric company precisely
because the state forbade competition when it licensed this producer.38
Even if one accepts the "natural monopoly" theory of public utilities,"
it is not economically inevitable that a particular state-selected firm be
that monopoly, regardless of how it treats customers. Natural
monopolies exist in some fields because of cost advantages, but cost
advan tages are never absolute-and sufficiently bad treatment of
customers creates opportunities for competitors-except where the state
prevents this economic feedback mechanism to act as "checks and
balances." To lose the economic checks and balances without any
offsetting political checks and balances is to combine the worst
features of both institutional processes.

Neither the dissents nor the pullbacks of the whole court in the
"state action" area were based on recognition of a different
constitutional principle, nor on the recognition of the relative
advantages of other decision-making processes for balancing the
interests at issue.

RACE

The Constitution, as originally adopted, contained no explicit reference

to slavery or to the enslaved race, though "free persons" and "other
persons" were distinguished for voting purposes. Slavery entered the
Constitution openly for the first time in 1865 when the Thirteenth
Amendment banned slavery, and in 1870 when the Fifteenth
Amendment asserted the right to vote without regard to "race, color or
previous condition of servitude." Sandwiched between them is the
momentous Fourteenth Amendment which decrees "equal protection
of the laws" to "all persons." It has been estimated that the Fourteenth
Amendment is the largest source of the Supreme Court's work. Its
ramifications reach beyond the area of race, though it is one of the
three amendments transforming race relations in the United States.

Three main strands of legal trends involving race will be considered

here: (1) state actions affecting race, struck down by the Supreme
Court as unconstitutional, (2) "affirmative action" policies and
practices of the 1960s and 1970s, as developed by courts and
administrative agencies, and (3) the racial integration of schools as
conceived in the landmark case of Brown v. Board of Education in
1954 and legally and socially evolved over more than two decades
since then.

STATE ACTION

Before the Fourteenth Amendment was passed in 1868, numerous

laws in both the North and the South specified different treatment for
black and white citizens. More such laws were passed in the South
after the Civil War and-particularly in the case of sweeping "vagrancy"
laws-virtually reenslaved the emancipated Negro. Other laws had
existed even before the Civil War to control the half million "free
persons of color" and to deny them such fundamental rights as the
right to testify in court (except against other blacks), to move freely
from place to place, or even to educate their own children at their own
expense.40 The sweeping and extreme nature of these denials of the
most ordinary and basic rights must be understood as a background to
the words of the Fourteenth Amendment. The "equal protection of the
laws" had a very plain and simple meaning-and a very limited
meaning, falling far short of a social revolution. So too did the ban on
any state action to deprive anyone of "life, liberty, or property" without
"due process." The writers of these words explicitly, repeatedly, and
even vehemently denied any interpretations going beyond prohibition
of the gross abuses all too evident around them." Even voting rights
were not included.42

The nineteenth-century Supreme Court decisions under the

Fourteenth Amendment followed the limited scope and intentions of
its authors. The Court declared that it was only "state action of a
particular character that is prohibited"; "Individual invasion of
individual rights is not the subject matter of the amendment."43 Public
accommodation laws were therefore held invalid." Even lynchings of
prisoners in state custody were ruled beyond the scope of the
Amendment.45

In the twentieth century, the Supreme Court began to expand the

meaning of "state action" in a series of cases (beginning in the 1920s)
revolving around white-only primaries in the South, where the
Democratic primary was tantamount to election, and where "state
delegation" of its power to set voter qualifications to the Democratic
party was a transparent subterfuge to prevent blacks from voting.46 In
these cases, governmental bodies took the initiative and made the
decisions which denied citizens equal treatment.

A very different series of "state action" cases began in the 1940s. In

these new cases, both the initiative and the decisions to treat
individuals unequally by race were private. The state became involved
only subsequently in protecting the legal rights of those private
individuals and organizations to make whatever decisions they chose
as regards contracts (restrictive covenants) and the use of their own
property (trespass laws). In short, the state in these cases simply
decided who had the right to decide, as defined in contracts and
trespass laws. State power was involved in enforcing contracts and
laws, but state decision making was not.

The Supreme Court conceded that the Fourteenth Amendment

"erects no shield against merely private conduct, however
discriminatory or wrongful." But state "enforcement" of restrictive
covenants was deemed paramount to "participation" by the state.47
This was called state action "in the full and complete sense of the
phrase."48 Similarly, state enforcement of trespass laws against sit-in
demonstrators seeking the desegregation of privately owned businesses
serving the public was invalidated as "state action" in violation of the
Fourteenth Amendment." Perhaps the furthest extreme of this concept
of "state action" was a 5 to 4 Supreme Court decision in Reitman v.
Mulkey (1967) that repeal of a California "fair housing" law was a
violation of the Fourteenth Amendment because the state was thereby
guilty of "encouraging" private discrimination."

In other cases, private descriminatory decisions were classified as

"state action" because some governmental body was financially,
administratively, or otherwise involved with the private party-as in
Burton v. Wilmington Parking Authority (1961), where a restaurant
leased in a government facility was racially discriminatory. The
question of how much government involvement with a private party
was necessary to make private decisions "state action" for legal
purposes was never resolved. The Supreme Court deemed the
fashioning of a "precise formula" to be "an impossible task" which
"this Court has never attempted."51 In other cases, however, state
licensing-even when restrictive52 or monopolistic53-was not sufficient
to convert the licensees' decisions into "state action." As the dissenters
in Burton observed, the lack of clear principle "leaves completely at
sea" what was and was not "state action."" What was left unresolved
was not merely the question of where to draw the line-a "precise
formula"-but on what principle.

In place of principle, a miscellany of ad hoc reasons are sprinkled

through "state action" cases: functional parallelism of private to public
activity,-,-, state receipt of benefits from a private activity'56 the
"publicness" of the ac- tivity,57 or even the fact that the state "could
have" acted in an area but chose to "abdicate" instead.58

The Civil Rights Act of 1964 made many distinctions between

private and state decision making legally unnecessary, since private
operators of various public accommodations were statutorily
prohibited from racial discrimination, just as the state was
constitutionally prohibited. Subsequent cases show the Supreme Court
pulling back in the "state action" area-not only on the question of
where to draw the line, but more fundamentally on the principle
involved in drawing it: "Respondent's exercise of the choice allowed
by state law where the initiative comes from it and not from the state,
does not make its action in doing so 'state action' for purposes of the
Fourteenth Amend- ment."58 This distinction between state
authorization of an area of private discretion and direct state decision
making would annihilate the rationale for most of the prior series of
landmark "state action" decisions, beginning with restrictive covenants
and ending with repeal of California's "fair housing" law. Although
this principle was announced in a nonracial discrimination case,
presumably the definition of constitutional principles does not depend
on who is involved. Neither in the "free speech" cases like Marsh nor
in such racial cases as Burton did the state initiate the decisions which
led to the legal activity. All that the state did was enforce private
individuals' general (nonracial) right to exclude. Yet the
inconsistencies throughout this series of cases raises disturbing
questions about whether this was simply another "re- sults"-oriented
area, for which the Supreme Court became known in the Warren era.60
If so, the underlying consistency of the cases may lie in the social
policy preferred by the court in the racial area, and in the greater ease
of achieving those results, after the Civil Rights Act of 1964, without
strained and shaky reasonings about "state action."

AFFIRMATIVE ACTION

The phrase "affirmative action" is ambiguous. It refers both to a

general approach and to highly specific policies. The general approach
is that to "cease and desist" from some harmful activity may be
insufficient to undo the harm already done, or even to prevent
additional harm in the future from a pattern of events set in motion in
the past. This idea antedates the civil rights issues of the 1960s. The
1935 Wagner Act prescribed that "affirmative action"6' be taken by
employers found guilty of intimidating unionized employees-for
example, posting notices of changed policies and/or reinstating
discharged workers with back pay.62
 Racial discrimination is another area where simply to cease and
desist would not prevent future harm from past actions. The
widespread practice of hiring new employees by word-of-mouth
referrals from existing employees means that a racially discriminatory
employer with an all-white labor force is likely to continue having an
all-white labor force long after he ceases discriminating, because he
will be hiring the relatives and friends of incumbent employees.
Opponents of racial discrimination therefore urged that "affirmative
action" be taken to break up or supersede hiring patterns and practices
which left racial or ethnic minorities largely outside the usual hiring
channels. This might include advertising in newspapers or in broadcast
media more likely to reach minority workers, or a variety of other
ways of creating equalized access to apply for employment, college
admissions, etc.

The first official use of the phrase "affirmative action" in a racial or

ethnic context was in an Executive Order issued by President Kennedy,
requiring that government contractors act affirmatively to recruit
workers on a nondiscriminatory basis.fi3 Another equally general
Executive Order was issued by President Johnson, requiring
affirmative action to insure that workers be hired "without regard to
their race, creed, color, or national origin."81 The Civil Rights Act of
1964 likewise repeatedly required in its various sections that hiring
and other decisions be made without regard to race or eth- nicity.65 In
short, special efforts were to be made to include previously excluded
racial or ethnic groups in the pools of applicants, though the actual
decisions among applicants were then to be made without regard to
race cethnicity. This was the initial thrust of "affirmative action."

Both the presidential orders and the congressional legislation

required various adminstrative agencies-existing and newly created-to
carry out and formulate more specific policy on a day-to-day basis. It
was here that "affirmative action" was transformed from a doctrine of
prospective equal opportunity to a doctrine of retrospective statistical
"representation" or quotas. This transformation was all the more
remarkable in the light of the explicit language and legislative history
of the Civil Rights Act of 1964, which expressly repudiated the
statistical representation approach. While steering this legislation
through the Senate, Senator Hubert Humphrey pointed out that it "does
not require an employer to achieve any kind of racial balance in his
work force by giving any kind of preferential treatment to any
individual or group. "ss There was an "express requirement of intent"
before an employer could be found to be guilty of discriminations"
Ability tests would continue to be legal, even if different proportions
of different groups passed them.66 Another supporter, Senator Joseph
Clark, pointed out that the burden of proof would be on the
government to show discrimination under the Civil Rights Act.69 Still
another supporter, Senator Williams of Delaware, declared that an
employer with an all-white work force could continue to hire "only the
best qualified persons even if they were all white."'° All these
assurances are consistent with the language of the Civil Rights Act"
but not with the actual policies subsequently followed by
administrative agencies.

A series of Labor Department "guidelines" for government

contractors began in 1968 with requirements for "specific goals and
timetables" involving the "utilization of minority group personnel,"
and by degrees this evolved into "result-oriented" efforts (1970) and
finally (1971) it meant that the employer had the burden of proof in
cases of "under-utilization" of minorities and women, now explicitly
defined as "fewer minorities and women in a particular job
classification than would be expected by their availability ..."72 These
so-called guidelines had the force of law, and given the large role of
the federal government in the economy, the affected government
contractors and subcontractors included a substantial proportion of all
major employers. The "availability" of minorities and women, as
judged by administrative agencies, often meant nothing more or less
than their percentage in the population.

"Representation" based on population disregards huge differences in

age distribution among American ethnic groups, due to differences in
the number of children per family. Half of all Hispanics in the United
States are ei ther infants, children, or teenagers. Their median age is
about a decade younger than that of the U.S. population as a whole,
two decades younger than the Irish or Italians, and about a quarter of a
century younger than the Jews." Such demographic facts are simply
ignored in statistics based on "representation" in the population, which
includes infants as well as adults. The high-level positions on which
"affirmative action" attention is especially focused are positions
usually held by persons with many years of experience and/or
education-which is to say, persons more likely to be in their forties
than in their twenties. The purely demographic disparities among
groups in these age brackets can be extreme. Half of all Jewish-
Americans are fortyfive years old or older, while only 12 percent of
Puerto Ricans are that old. Even a totally nondiscriminatory society
would have gross "underrepresentation" of Puerto Ricans in the kinds
of jobs held by people of that age. More generally, American ethnic
groups are not randomly distributed with respect to either age,
education, region, or other variables having substantial impact on
incomes and occupations."

The qualitative dimensions of "availability" have also been stretched

in affirmative action concepts. The barely "qualified" are counted as
fully as the well qualified or the highly qualified. Indeed, the Equal
Employment Opportunity Commission (EEOC) has stretched the
concept of a qualified applicant to mean "qualified people to train"75-
that is, people lacking the necessary qualifications, whose hiring would
entail more expense to an employer than if he hired someone already
qualified. Applicants or employees cannot be denied a job even for
serious crimes. The EEOC ruled that because "a substantially
disproportionate percentage of persons convicted of `serious crimes'
are minority group persons" an employer's policy against employing
anyone with a conviction for a serious crime "discriminates against
Negroes."T6 Employers could retain this practice only if they could
bear the burden of proof of the "job-relatedness of the conviction" and,
in addition, take into account the employee's "recent" past employment
history-to the ex post satisfaction of the EEOC."77

The EEOC defined which groups were "minorities" for legal

purposes: Negroes, Indians, Orientals, and Hispanics.78 Because this
was an unconstrained choice by an unelected commission, it did not
have to justify this selection to anyone, even though Orientals were
included when they have higher incomes than other ethnic groups not
included (such as Germans, Irish, Italians, or Polish-Americans79)-
and, in fact, had higher incomes and occupations than the average
American.80 The other officially designated ethnic minorities all have
lower average ages and educational levels than the general population-
a fact generally ignored in "representation" discussions. With the
addition of women to the groups entitled to preferential (or "reme
dial") treatment, all the persons so entitled constitute about two-thirds
of the total population of the United States. Looked at another way,
discrimination is legally authorized against one-third of the U.S.
population (Jewish, Italian, Irish, etc., males)-and for government
contractors and subcontractors, it is not merely authorized but
required.

The shifting of the burden of proof to the employer after a prima

facie showing of statistical "underrepresentation" (as administratively
defined) was paralleled by a shifting of the burden of proof to the
employer whenever a test had differential impact on the officially
designated minorities." The apparently reasonable requirement that
such tests be "validated" is in practice a virtual ban on tests for many
employers, because the cost of such validation has been estimated by
professional testers as "between $40,000 and $50,000 under favorable
circumstances,"82 and many employers simply do not have large
enough numbers of employees in each job classification to achieve
statistically significant results in any case, even if they were willing
and able to spend the money. The EEOC has even gone beyond
requiring "validation" to requiring differential validation for each
ethnic group-still more costly where possible, and possible in fewer
instances. The importance of costs and of placing the burden of proof
on the government in legal transactions is amply illustrated by the
results in the exceptional area of administrative law, where the accused
can be presumed guilty after a meager prima facie case. Under
"affirmative action," as administratively evolved, the prima facie case
consists simply of systemic results ("underrepresentation") legally
equated with intentional behavior ("discrimination"). As a wellknown
scholar in this area has observed: "One may review these enormous
g,)vernmental reports and legal cases at length and find scarcely a
single reference to any act of discrimination against an individual.""

However much "affirmative action" has come to mean quotas,

administrative agencies cannot explicitly assign quotas, since the Civil
Rights Act forbids that. What is done instead is to force an employer to
confess to "under-utilization" and to design his own specific
"affirmative action" plan as a precondition for retaining his eligibility
for federal contracts or for doing subcontracting for anyone else
receiving federal money. The agency does not tell him what numbers
or percentages to hire from each group, but can only disapprove his
particular mechanisms and goals until they agree. This raises the cost
of communicating knowledge for the agency, the employer, and the
economy. These costs are compounded by the overlapping
jurisdictions of various federal agencies involved-the EEOC, the
Justice Department, HEW, and the Labor Department. An "affirmative
action" plan that is acceptable to one agency may not be acceptable to
another agency, and even if it is acceptable to all the agencies
simultaneously, an individual employee can still sue the employer for
"reverse discrimination." Indeed, federal agencies have sued each other
under the Civil Rights Act.84 In short, the policy fails to clearly
prescribe in advance what an individual can and cannot do. Part of this
ambiguity is inherent in administrative agencies' covert pursuit of
policies that they are legally forbidden to follow.

The flouting of congressional intent brought attempts to return to the

initial meaning of "affirmative action" as an attempt to "expand the
pool of applicants."" This attempt to amend the law failed,86 and its
failure illustrates temporal bias as it affects special interest groups.
Laws do not simply respond to pre-existing special interests. Laws also
create special interests which then affect what is subsequently
politically possible. As noted before, special interests are essentially
people who have lower costs of knowledge of their own stake in
government policy, and in this sense special interests include
governmental personnel whose jobs and powers were created by given
legislation. The "affirmative action" policy followed had enormous
impact on the agencies administering such policies. For example,
within a period of three years the EEOC's staff of lawyers increased
tenfold." The impact on minority employment has been found to be
relatively minor."S Blacks have rejected preferential treatment 64
percent to 27 percent. Four-fifths of women also reject it. Indeed, no
racial, regional, sex, income or educational group studied by the
Gallup Poll favors preferential treatment.69 Yet the drive of the
administering agencies and the general acquiescense of the courts has
been enough to continue policies never authorized by Congress and
contrary to its plainly expressed legislative intent.

The insulation of administrative processes from political control is

illustrated by the fact that (1) administrative agencies went beyond
what was authorized by the two Democrats (Kennedy and Johnson) in
the White House who first authorized "affirmative action" in a sense
limited to decisions without regard to group identity, and (2) continue
to do so despite the two Republican presidents (Nixon and Ford) who
followed, who were positively opposed to the trends in agencies
formally under their control as parts of the executive branch of
government. This political insulation is illustrated even by the first
major setback for "affirmative action"-which came from another
nonelected branch of government, the Supreme Court, which after
more than a decade of support for "affirmative action" was able to put
a brake on the policy, which neither the public nor its elected
representatives could reverse.

In a five to four decision, with fragmented partial concurrences and

partial dissents, the Supreme Court ruled in the Bakke case (1978) that
a university cannot establish minority admissions quotas which have
the effect of "insulating each category of applicants ... from
competition with all other applicants."" It did not categorically forbid
the voluntary use of race as a consideration, where this "does not
insulate the individual from comparison with all other candidates,"94
but emphasized that any uses of racial designations by the state were
"inherently suspect and thus call for the most exacting judicial
examination" under the Fourteenth Amendment.91 The Supreme Court
rejected the idea of group compensation for generalized "societal"
wrongs-as distinguished from demonstrated discrimination by a given
decision-making unit.92 It pointed out that the Fourteenth Amendment
grants "equal rights" to individuals-not group rights, and certainly not
special rights to one group historically connected with the origin of the
Amend- ment.93 After more than a century of litigation under the
Fourteenth Amendment, it is "far too late to argue that the guarantee of
equal protection to all persons permits the recognition of special wards
entitled to a degree of protection greater than that accorded others."94
In a multi-ethnic society like the United States, the courts cannot
assume the task of evaluating the historic "prejudice and consequent
harm suffered by various minority groups."96 Indeed, the very
concepts "majority" and "minority" were challenged, since "the white
'majority' itself is composed of various ethnic groups, most of which
can lay claim to a history of previous discrimination at the hands of the
state and private individuals."" Any group rankings by harm suffered
and remedies available would be transient, requiring repeated
incremental adjustment as the judical remedies take effect, and the
"variable sociological and political analysis" necessary for this "simply
does not lie within the judicial competence"-even if it were otherwise
politically feasible and socially desirable.97

While the above-cited court's decision written by justice Lewis F.

Powell directly addressed most of the major issues raised by
"affirmative action" policies, the closeness of the vote and the partial
concurrences that created different sets of majorities for different
sections of the decision make the Bakke case less of a precedential
landmark than it might be otherwise. That highly diverse and opposing
groups greeted the decision as a victory for their particular viewpoints
is further evidence of this. Moreover, the four justices who concurred
with Powell in striking down the special minority admissions program
refused to concur in anything else in his official opinion for the
court,9S and observed that "only a majority can speak for the court or
determine what is the `central meaning' of any judgment of the
court.99 The narrowly limited basis of the concurrence prevented any
majority from existing over the range of issues addressed by Powell.
The future legal implications of the Bakke decision were further
clouded by the four dissenters, who tellingly pointed out how far the
Supreme Court had already gone in the direction it was now
rejecting.10U The narrowness and tenuousness of the decision in the
Bakke case was underscored by an opposite decision in the Weber case
just one year later.

After striking down admissions quotas at the University of

California, the U.S. Supreme Court upheld job training quotas at a
Kaiser Corporation plant in Louisiana. Following criticism of their
employment patterns by the Office of Federal Contract Compliance,
threatening loss of government contracts, Kaiser and the United
Steelworkers Union jointly prepared an "affirmative action" plan
modeled after a plan imposed on the steel industry by the government
in a consent decree. Half of all places in the training program were
reserved for blacks. One of the white workers excluded from the
training program in favor of blacks with less seniority was Brian F.
Weber, who instituted a lawsuit charging discrimination. Weber won in
the trial court and in the Court of Appeals, but lost on a five-to-two
decision by the Supreme Court. The four dissenting justices in the
Bakke case (Brennan, Marshall, White, and Blackmun) were joined by
justice Potter Stewart to form the new majority in the Weber case.

In Weber as in Bakke, the majority decision was based on the

relevant statutory law-the Civil Rights Act of 1964-rather than on the
Constitution. This meant that both cases avoided the establishment of a
broad legal principle. Both cases also construed the applicability of
even the statutory law very narrowly. In Bakke, the four concurring
justices declared:

This is not a class action. The controversy is between two specific

litigants.101

In Weber a very different majority likewise announced:

We emphasize at the outset the narrowness of our inquiry. Since the

Kaiser-USWA plan does not involve state action, this case does not
present an alleged violation of the Equal Protection Clause of the
Constitution.102
 The traditional avoidance of unnecessary Constitutional decisions,
when statutory law is sufficient, was in both cases carried to extremes
by (1) ignoring government involvement in the substance of both
quota decisions and (2) ignoring, and even boldly misstating,
Congressional intent in the Civil Rights Act. Bakke had applied to a
state-run medical school, and Weber had ap- pl'ed to a training
program established under pressure from the Office of Federal
Contract Compliance. Yet only justice Powell addressed the issue of
the Constitution's requirement that government provide "equal
protection of the laws."

As for Congressional intent, the four concurring justices in Bakke

asserted that "Congress was not directly concerned with the legality of
'reverse discrimination' or `affirmative action' programs""' when it was
debating the Civil Rights Act of 1964. Yet one of those very same
justices (Rehnquist) lat er reported at great length, in a Weber case
dissent, the numerous Congressional discussions of quotas and
preferences, which were repeatedly, decisively, and emphatically
rejected by Congress while writing the Civil Rights Act.101 Why,
then, the fictitious legislative history in Bakke? Its only effect was to
provide a basis for judicial exegesis on a point allegedly neglected by
Congress-in this case, creating a right to sue under the Civil Rights Act
on a point for which no such right was provided in the Act itself.105
This newly created right to sue made a statutory resolution of the
issues possible, avoiding a constitutional precedent. Equally fictitious
legislative history was invoked by a different set of justices in the
Weber case as a counterpoise to "a literal interpretation""' of what
Congress had written in the Civil Rights Act, forbidding preferential
treatment. Taking instead the "spirit" of that law and its "primary
concern" for "the plight of the Negro in our econo- my,"101 the Weber
majority upheld the Kaiser quota which it repeatedly described as
"voluntary," despite the obvious pressure from the OFCC noted by
both the trial court and the Court of Appeals.109 The Kaiser quota
system was in fact simply the government's quota system imposed on a
contractor.
 In short, eight out of nine justices-in two different cases before the
identical court-chose to preserve the Court's options to pick and choose
"affirmative action" plans it liked or disliked, even at the cost of (1)
pretending to enforce Congressional intentions it was directly
countering, and (2) ignoring government involvement in the creation
of the programs at issue. This is a very consistent pattern underlying
these differently decided cases, and may have more momentous
implications than the actual decision in either case.

The central presumption behind "affirmative action" quotas has not

been addressed directly by the courts or by the administrative agencies.
That presumption is that systemic patterns ("representation") show
either intentional actions ("discrimination") or, at the very least, the
consequences of behavior by "society" at large-rather than actions for
which the group in question may be in any way or to any degree
responsible, or patterns arising from demographic or cultural causes, or
statistical artifacts. The issue is not the categorical dichotomy between
"blaming the victim" and blaming "society." It is an incremental
question of multiple causation and perhaps multiple policy response.

More generally, the presumptive randomness of results selected as a

baseline from which to measure discrimination is itself nowhere either
empirically or logically demonstrated, and in many places and
manners it is falsified. For example, even actions wholly within the
descretion and control of each individual-choice of television
programs to watch, card games to play, opinions to express to poll
takers-show patterns that vary considerably by ethnicity, sex, region,
educational level, etc. It is wholly arbitrary to exclude variations which
originate within the group from any influence on results for the
group.10' It is equally arbitrary to assume that those variables that are
morally most important are causally most important.

A major nonmoral, nonsocietal variable that is routinely ignored is

age. As already noted, median age differences among American ethnic
groups range up to decades. The median age of American Indians is
only one-half that of Polish-Americans (twenty versus forty); the
median age of blacks is a little less than half that of Jews (twenty- two
versus forty-six)."' These differences affect everything from incomes
and occupations to unemployment rates, fertility rates, crime rates, and
death rates."' For example, Cuban-Americans average a higher income
than Mexican-Americans, who are a decade younger, but in the same
age brackets it is the Mexican-Americans who earn more.12 Any
attempt to explain gross income differences between these two groups
in terms of either discrimination by "society" or by their respective
"ability" runs into the hard fact that the gross difference is the opposite
of the age-specific difference. Similarly, blacks have lower death rates
than whites, but this in no way indicates better living conditions or
medical care for blacks, much less any ability of blacks to discriminate
against whites in these respects. Blacks are simply younger than
whites, and younger people have lower death rates than older people;
on an age-specific basis, whites have lower death rates than blacks.13
Age differences also overshadow racial differences in unemployment
rates: Blacks in the twenty-four to fourty-four- year-old brackets have
consistently had lower unemployment rates than whites under twenty-
every year for decades,"' even though whites as a group have lower
unemployment rates than blacks as a group. In short, the impact of age
on statistical data is so great that to compare groups without taking age
into account is like comparing apples and oranges. Yet "affirmative
action" comparisons of group "representation" almost invariably
ignore age differences.

Ages are important in another way related to "affirmative action"

data. When prospective equality of opportunity is measured by
retrospective results during a period of increasing opportunity, the
gross statistics lump together different age-cohorts subject to the
increased opportunities for varying proportions of their work careers-
ranging from zero to one hundred percent. Older people whose careers
began when there was less opportunity-or even total exclusion from
some occupations-will have correspondingly less "human capital" with
which to compete with their age peers in the general population.
Younger members of the same ethnic group will be less handicapped in
this respect, if opportunities have been increasing. Even if the ideal of
equal prospective opportunity were achieved, retrospective data would
not show statistical parity until decades later, after all members of the
older age-cohorts had passed from the scene. This is more than a
theoretical point. Black income as a percentage of white income is
progressively higher in younger age brackets,15 and while the rate of
return on education is lower for blacks than whites, the rate of return is
slightly higher for younger blacks than for their white counterparts."'

Locational differences are another nonmoral variable having little

relationship to the intentions of "society" but having a substantial
impact on statistical data. No American ethnic group has income as
low as one-half the national average, but two-to-one differences in
incomes from one location to another exist, even within the same
ethnic group. The 1970 census showed the average family income of
blacks in New York State to be more than double the average family
income of blacks in Mississippi. The average income of American
Indians in Chicago, Detroit, or New York City was more than double
what it is on most reservations. Mexican-Americans in the
metropolitan area of Detroit earn more than double the income of
MexicanAmericans in the metropolitan areas of Laredo or
Brownsville, Texas."' Given the size and regional diversity of the
United States, the geographic distribution of ethnic groups affects the
statistical averages that are often blithely quoted, with as little regard
for geographic as for demographic differences. Each ethnic group has
its own geographic distribution pattern, reflecting a variety of
historical and cultural influences,"' and having little to do with the
intentions of "society." Some indication of the combined influence of
age and location is that young black working couples living outside the
South had by 1971 achieved the same income as their white
counterparts in the same region.1' The disbelief and even denunciation
which greeted publication of this fact indicates something of the vested
interests that have built up in a different vision of the social process-
and in programs built on that vision. Subsequent studies have
reinforced the finding of income parity among these black and white
younger age-cohorts with similar cultural characteristics. 120

The point here is not that all is well. Far from it. The point is that
both causal determination and policy prescription require coherent
analysis, rather than gut feelings garnished with numbers. Many of the
hypotheses behind "affirmative action" are not unreasonable as
hypotheses. What is unreasonable is turning hypotheses into axioms.
The preference for intentional variables ("discrimination") has
virtually excluded systemic variables (age, location, culture) from even
being considered. The practical consequences of this arbitrary
theoretical exclusion extend far beyond the middlemen-employers-to
much larger and more vulnerable groups, notably ethnic minorities
themselves. Every false diagnosis of a condition is an obstacle to
improve ment. When recent studies show the still substantial black-
white income differences to reflect conditions that existed before the
younger age-cohorts ever reached the employer-reading (or
nonreading) habits in the home, education, etc."'-this has implications
for the effectiveness of programs which (1) postulate that
discrepancies discovered at the work place are due to decisions made
at the work place, and (2) establish legal processes centering on the
work place.

The effect of "affirmative action" programs is viewed as

axiomatically as its original process. In fact, however, studies have
found little or no effect from affirmative action in advancing ethnic
minorities, in either incomes or occupations."' In some particular
places-prominent firms, public utilities, and others especially in need
of appeasing federal administrative agenciesthere have been some
changes. But overall, the economic position of minorities changed
little since "goals and timetables" (quotas) became mandatory in
December 1971.

The ineffective record of "affirmative action" policies is in sharp

contrast with the record of "equal opportunity" laws in the years
immediately preceding. After passage of the Civil Rights Act of 1964-
and before quotas in 1971-black income as a percentage of white
income rose sharply, with blacks in white collar occupations also
rising, along with rising proportions of blacks in skilled and
professional jobs.123 One reason for the difference was the different
set of incentives presented by the two policies. "Equal opportunity"
laws provided penalties for specifically proven discrimination.
"Affirmative action" laws penalized numbers that disappointed
administrative agencies, and made defenses against "rebuttable
presumptions" costly and uncertain.

It might appear at first that "affirmative action" penalties-costs-were

"stronger" (higher), but not when costs are recognized as opportunity
costs, the difference between following one course of action rather
than another. The general unattainability of many quotas means that
penalties fall equally on discriminatory employers and
nondiscriminatory employers. A discriminatory employer therefore has
little to gain by becoming a nondiscriminatory employer, when the
characteristics of the target population (age, education, etc.) insure that
he will be unable to fill quotas anyway. Moreover, the ease with which
a discrimination case can be made makes minorities and women more
dangerous employees to have, in terms of future prospects of law suits
if their subsequent pay, promotions, or other benefits do not match
those of other employees or the expectations of administrative
agencies. As in the case of other groups with special rights, as noted in
Chapter 5, these rights have costs to the recipients themselves. In
short, "affirmative action" provides opposing incentives to hire and not
hire minorities and women. It is not surprising that it has been less
effective than "equal opportunity" laws which provide incentives in
only one direction.

Because "affirmative action" policies apply also to women, it should

be noted that there has been a similar unwillingness to look beyond
gross statistics for obviously systemic variables having little to do with
intentional discrimination. With women the key variable is marriage.
Even before "affirmative action" quotas, women in their thirties who
worked continuously since high school earned slightly more than men
in their thirties who worked continuously since high school.124 In the
academic world, where many discrimination charges have been filed
under affirmative action, female academics earned slightly more than
male academics when neither were mar- ried"'-again even before
"affirmative action"-and unmarried female Ph.D.'s who received their
degrees in the 1930s and 1940s became full professors in the 1950s to
a slightly greater extent than did unmarried male Ph.D.'s of the same
vintage.126 In short, the male-female differences in incomes and
occupations are largely differences between married women and all
other persons. Sometimes this is obscured in data for "single" women,
many of whom are widowed, divorced, or separated-that is, have had
domestic and maternal handicaps in pursuing their careers. The clear-
cut income parity (or better) among women who never married
suggests once again that systemic variables have more to do with the
statistics than the intentional decisions at the work place at which the
statistics were collected.

SCHOOL INTEGRATION

The 1954 Supreme Court decision in Brown v. Board of Education

set in motion a chain of events that has resulted in a bitter controversy
over what one side has characterized by its hoped-for results as "racial
integration" in the public schools, and which the other side has
characterized by its institutional mechanisms as "forced busing."
Racial integration, in turn, sometimes implied more than statistical
mixtures, and suggested at least some improved sense of mutual
regard. Forced busing referred to busing categorically imposed by
higher-more remote-authorities (usually appointed judges) on locally
elected officials, parents, and children, as distinguished from such
busing as the latter might voluntarily choose for themselves as
incrementally justified by the benefits.

The Brown decision was historic in many respects. It outlawed as

unconstitutional a whole political and legal pattern of racial
segregation in the South, extending far beyond public schools. It pitted
the Supreme Court against the whole political structure of that region
for many years, and indeed put the court's general credibility and
general effectiveness at stake on this particular issue. Had the Supreme
Court been defied with impunity on this issue, its ability to enforce its
other decisions in other areas could have been permanently
jeopardized. Last but by no means least, it was the beginning of the era
of Chief Justice Earl Warren and the increased judicial activism of the
Supreme Court under his leadership. The high political and judicial
stakes in the Brown decision are an integral part of the story of how
school desegregation metamorphosed over the years into compulsory
school busing to achieve prescribed racial proportions.127 Even before
the case was decided, justice Frankfurter pointed out the great danger
in a decision that might affirm a principle but be mocked in practice,
through local defiance and evasion.'28 An immediate and categorical
test of strength was avoided by announcing in the decision itself a
delay for rehearings, followed by the conclusion after rehearing that
the decision was to be implemented "with all deliberate speed"-i.e.,
incrementally, as political "realities" permitted. This highly unusual
legal procedure 129 permitted lower courts and the Supreme Court to
test the waters before proceeding, to assess and to some extent
accommodate local circumstances, especially in the South. It also
permitted time for opinion leaders to mobilize public support for "the
law of the land," given that the high stakes included the basic legal
framework of the nation and not simply the school system or even race
relations alone.

Whatever the strategic merits of this approach, it also had

momentous other consequences. It made the Supreme Court a party to
an ongoing adversary relationship with institutions over whom it was
established to have jurisdiction and to make rulings impartially.
Moreover, it was a virtual invitation to evasions and delay, in as many
forms as human ingenuity could devise. This in turn meant that the
courts had to monitor in detail the laws, plans, regulations, and
organizational patterns of institutions ranging all the way down to local
school boards. Courts had to go beyond defining legality to
determining "good faith." Among the evidences of good faith were the
numbers of black children actually integrated into white schools-
numbers that were often zero in some Southern states. For about a
decade after the Brown decision, racial segregation by the state public
schools remained entrenched in the Deep South.

As time went on, it became clear that courts could effectively

enforce their orders on other institutions, that local, state or-if
necessary-national government officials would use police or troops to
prevent "the law of the land" from being openly defied. Time also
permitted the most bitter opponents of racial desegregation to
withdraw their children from public to private schools, or to move out
to all-white suburban areas, weakening the effective opposition. As the
balance of political power turned against their adversaries who had
frustrated them for so long, the courts began to issue more and more
sweeping orders, involving the courts more and more in the detailed
operations of school systems.

Initially, the Brown decision required no more than that the state
could no longer use race in assigning children to schools. This was
reaffirmed in a later (1963) case where "racial classifications" were
"held to be invalid." This position also appeared in the 1964 Civil
Rights Act, which defined "desegregation" as the assignment of public
school pupils "without regard to their race, color, religion, or national
origin," and specified that it did not mean assignment "to overcome
racial imbalance.""' Indeed, such language appeared repeatedly in
various provisions of the Civil Rights Act and in the congressional
debates preceding its passage.131 The congressional intent was,
however, turned around in decisions by administrative agencies. The
U.S. Civil Rights Commission urged upon the U.S. Office of
Education the use of guidelines for the receipt of federal money by
school districts, which required that the districts not merely
"disestablish" segregated schools but achieve "integrated systems."
These recommendations were acted on in administrative guidelines
issued in 1966.132 That same year, the Fifth Circuit Court of Appeals
explicitly declared that the "racial mixing of students is a high priority
educational goal."133 This interpretation was unique to the Fifth
Circuit, but the Supreme Court reversed the contrary interpretations of
other circuits, obliquely establishing the Fifth Circuit decision as a
prece- dent.19' In short, a decision by administrative agencies in effect
reversed congressional legislation,"' and an appellate court's
endorsement of that philosophy created a new "constitutional"
requirement with neither congressional nor voter sanction and with no
such requirement to be found in the Constitution. As a dissenting judge
observed:

The English language simply could not be summoned to state any

more clearly than does that very positive enactment of Congress, that
these so-called 'guidelines' of this administrative agency ... are actually
promulgated and being used in opposition to and in violation of this
positive statute.16

Such sweeping changes in policy by oblique means is difficult to

explain as the actions of legal institutions impartially carrying out
judicial functions, but is much more understandable as actions against
long-time adversaries now being routed.

In the 1968 case of Green v. County School Board, the Supreme

Court declared unconstitutional a "free choice" enrollment plan
because there was now an "affirmative duty" to eliminate dual school
systems "root and branch."137 As in other areas, prospective equality
of opportunity was tested by retrospective results. Because only about
15 percent of the black children had chosen to transfer to the formerly
all-white school and no white children had chosen to transfer to the all-
black school, there was not a desegregated or "unitary" school system,
according to the Supreme Court.138 The Green decision was as
different from the Brown decision as the two colors in their titles.
Brown required pupil assignment without regard to race and Green
required pupil assignment specifically with regard to race, so as to
eliminate statistical imbalances in the results. Yet the Supreme Court
treated the 1968 decision as logically derived from the 1954 decision,
though no such derivation was explained-the 1954 decision being only
mentioned but not quoted. The Green decision has been aptly
characterized as "a masterwork of indirection" and "a rarely equalled
feat of sophistry."139 The court simply pushed on from one victory to
a further objective, in the manner of other unconstrained institutions
continuing in a given direction, in disregard of diminishing or negative
returns.

Under the Supreme Court umbrella provided by the Green decision,

lower courts began requiring massive busing,"' not only where there
had once been legally segregated school systems,"' but where there had
never been legally separated school systems,"' or even in places where
racial segregation was forbidden by state law antedating the Brown
decision."' Ability-grouping within schools was sometimes struck
down because its statistical effects were different for blacks than
whites, and the assignment of teachers by race upheld, along with the
firing of white teachers who enrolled their own children in private
schools."' Only with Milliken v. Bradley in 1971 did the Supreme
Court put a limit on how widely a court could require busing. By a five
to four decision, it overruled a lower court's order to bus between
Detroit and its suburban school districts-an area as large as the state of
Delaware and larger than the state of Rhode Island.1' Still, the general
principle of interdistrict busing was not repudiated,"' and there was no
reversal of the trend toward massive and pervasive retrospective court
monitoring of the behavior of school officials, including putting
burdens of proof on them to show their innocence after purely
statistical prima facie evidence.

The ability of the courts to supersede the authority of other

institutions is not the same as the ability to achieve the social results
aimed at. The spread of court-imposed busing has been followed by
massive withdrawals of white children from the affected schools,"'
increased racial polarization among the remaining "integrated"
students,1' heightened violence,"' and opposition to busing by both the
black and white populations at large.15' None of this constitutes
effective feedback to the Supreme Court, whose members have
lifetime appointments. Legislative attempts to prevent compulsory
busing to achieve racial statistical balance have been turned aside by
the Supreme Court by simply denying that the courts are seeking
statistical balance151 (though statistical imbalance is their operational
definition of "segregation"), thereby implying that the law does not
apply to the cases at hand.

The supposed educational or psychological benefits of school

desegregation for black children have proved elusive, though many
studies have been made to try to find them,15' and some studies have
triumphantly announced finding such benefits only to have the data
evaporate when challenged.15' The original premise of the historic
Brown decision-that separate schools are inherently inferior-was
neither supported by fact nor would it stand up under scrutiny. Within
walking distance of the Supreme Court was an all-black high school
whose eighty-year history prior to Brown denies that principle. As far
back as 1899, it had higher test scores than any of the white schools in
Washington,"' and its average I.Q. was eleven points above the
national average in 1939-fifteen years before the Supreme Court
declared such things impossible."' There have been other such black
schools elsewhere, and indeed NAACP attorney Thurgood Marshall in
the Brown case was a graduate of such a school in Baltimore."" The
history of all-Oriental and allJewish schools would reduce this
ponderous finding to a laughingstock, instead of the revered "law of
the land."

There was never a serious question whether black schools in general

had lower average performances than white schools in general. What
was an issue was the cause of this. A long history of highly unequal
financial support for black and white schools led some to attribute the
educational difference to this-but the Coleman Report 154 data showed
(1) how little difference there was between black and white schools in
this regard by the mid-twentieth century, and (2) how little difference
financial resources or other characteristics of schools made in
educational performances, Obvious genetic differences between blacks
and whites led others to attribute educational differences to this,158
but data on various European ethnic groups at a comparable stage of
their social evolution in American schools showed I.Q.'s similar to-and
in some cases, lower than-those of blacks, even though those European
ethnic groups' I.Q.'s have now reached or surpassed the national aver-
age.159 One of the problems in comparing any given group with the
"national average" is that the national average is itself simply an
amalgamation of highly varying individual and group averages.
Therefore a group may vary greatly from the national average without
being in any way unique.

Again, as in the case of "affirmative action," systemic explanations

(residential concentration, cultural orientation, etc.) of such social
phenomena were discounted in favor of intentional explanations
("segregation," "discrimination," etc.), even though black academic
performance was not historically unique either in kind or degree. Huge
statistical disparities exist ed among school performances of children
from different cultural groups in the past, even when all the groups
were white. As of 1911, for example, the proportion of Irish children
in New York City who finished high school was less than one-one
hundredth the proportion among Jewish children,1fi0 and the Italians
did less well than the Irish.161 Schools that were 99 percent Jewish
were not uncommon, and attempts to bus the Jewish children from
such schools to less crowded schools in Irish neighborhoods across
town were bitterly resisted by Jewish parents162 and the Jewish
press.'83 These earlier busing reforms from above were subject to
feedback because they originated with elected officials, unlike later
busing schemes initiated by courts and administrative agencies.

The institutional settings and institutional incentives and constraints

are crucial to understanding the thrust and persistence of school
"integration" or "busing" trends-especially as it has proceeded over the
opposition of blacks as well as whites. In the 1960s, Blacks were fairly
evenly divided, with a slight majority opposed to busing.16' In later
polls in cities like Detroit and Atlanta, where busing has actually been
tried on a massive scale, the majority of blacks against it was two-to-
one. 161 In the well-known Boston busing case, a coalition of dozens
of black community groups urged judge Garrity to minimize busing of
their children,"' but neither he nor the NAACP Legal Defense Fund
were deterred by such appeals. Indeed, the NAACP had gone against
its own local chapters in Atlanta and San Francisco on school bus-
ing.1B7 The head of the NAACP Legal Defense Fund said that his
organization cannot poll "each and every black person" before
instituting legal pro- ceedings,16' but this sidesteps the larger question
of why the organization proceeded in a direction opposed by blacks in
general. The answer may be instructive, not only as regards the
NAACP Legal Defense Fund but socalled "public interest" law firms
in general. The financial costs of the NAACP's litigation are not borne
by its official clients but by third parties, "middle class blacks or
whites who believe fervently in integration.""" In short, "the named
plaintiffs are nominal only""' and the black population in whose name
this is all done has little or no effective feedback. The NAACP lawyers
"answer to a miniscule constituency while serving a massive
clientele.""'
 To the outside white world, and especially the mass media, the
image of the NAACP officials and lawyers is that of "spokesmen" for
blacks as a whole-though there is no institutional mechanism to make
that so, and much public opinion evidence on both busing and
"affirmative action" to contradict that image. Institutionally, neither
blacks as a whole nor even the particular plaintiffs have any control
over, or effective input to, NAACP leaders or lawyers. Here, as
elsewhere, firms defined by hoped-for results as "public interest" law
firms are institutionally simply law firms financed by third party
interests. In the case of the NAACP, these third party interests are well
insulated'from the costs of their activities by the fact that their own
children are enrolled in private schools. This includes both direct
participants in the school "integration" drive, like Thurgood Marshall
and Kenneth B. Clark, political supporters like Senator Kennedy and
Senator McGovern"' and media supporters like Carl Rowan."'

The point here is not to make a categorical assessment of the

NAACP. Such an assessment would undoubtedly include many
valuable and heroic contributions of the NAACP in areas of crying
injustices. The question at this point is the incremental movement of
the NAACP, and whether that is in the area of diminishing or negative
returns. One of the NAACP's Legal Defense Fund's staunch supporters
and former officials recalls that by the mid1960s "the long golden days
of the civil rights movement had begun to wane""' and that legal "tools
had been developed which now threatened to collect dust""' unless
some new crusade was launched-as it was. Earlier, there was "simply
too much else to do.""' The progression from the urgent to the optional
to the counterproductive is one already seen in other organizations
with mandated jurisdiction and costs paid by third parties. There is no
reason to expect the NAACP to be exempt from patterns discovered
elsewhere under such incentives and constraints.

Where third party costs and benefits determine the actions of so-
called "public interest" law firms, and where the administrative and
judicial resolutions of the issues they raise are insulated from the
feedback from those directly affected, then a major shift in political
and legal power has occurred away from the actual experiences and
desires of the general public and toward the beliefs and dreams of
small self-anointed groups-and all this in the name of "democracy" and
"the public interest."

THE SPECIALNESS OF RACE

Racial preferences and antipathies theoretically might be-and

historically have been-dealt with by the whole range of social
processes and institutions. This plain fact can be expressed, on the one
hand, by saying that racism pervades American society, or can be
expressed on the other hand by saying that race-based attitudes and
behavior, which have affected mankind in every place and time, are
handled with varying degrees of effectiveness by this society's
decision-making processes and institutions as well. For "racism" to be
an empirically meaningful category, there would have to be a nonracist
alternative somewhere. Pending this discovery we are left with the
age-old problem of judging institutions by how well they resolve the
dilem mas that derive precisely from man's limitations in knowledge,
power, and morality. Presumably, God and the angels do not need
institutions.

Clearly, one reason for treating race as special is the historic and
traumatic experience of blacks, subject to slavery, discrimination, and
degradation in American society. But even if this might justify a
special policy for blacks, that is quite different from justifying a
general principle, applicable wherever racial differences exist, and
readily extendable-logically or politicallyto nonracially-defined
subsets of the population who choose to call themselves "minorities"
(in open defiance of statistical facts in the case of women). This
"unreflective extension of policies deriving from America's racial
dilemma to other areas""' is one of the costs of decision making
through those processes which by their nature make their decisions in
general and precedent-setting terms. Political, administrative, and
especially judicial processes tend to operate in this way. Not only does
this "trivialize the historic grievances""' which served as initial
rationale; it multiplies the cost of any resolution of race problems by
creating principles applicable beyond the special case used to justify
them.

Even within the area of race, it is by no means clear that all historic
grievances have a remedy, or who specifically should pay the cost of
such remedies as might be attempted. If the purpose is to compensate
the pain and suffering of slavery, those most deserving of such
compensation are long dead. If the purpose is to restore their
descendants to the position the latter would now occupy "but for" the
enslavement of their ancestors, is that position the average income,
status, and general well-being of other Americans or the average
income, status, and general well-being in their countries of origin? The
former implicitly assumes what is highly unlikely-a voluntary
immigration comparable to the forced shipment of blacks from Africa-
and the latter raises the grotesque prospect of expecting blacks to
compensate whites for the difference between American and African
standards of living. If what is to be compensated is the unpaid
economic contribution of slave ancestors to American development,
this is an area in which controversies have raged for centuries over the
effects of slavery on the American economy-not merely over its
magnitude, but over whether slavery's contribution was positive or
negative."T9 Without even attempting to resolve this continuing
dispute among specialists, it can be pointed out that the case for a
negative effect can hardly be dismissed a priori. The South was poorer
than the North even before the Civil War, and those parts of the South
in which slaves were most heavily concentrated have long been the
poorest parts of the South, for whites as well as blacks. Compensation
based on the economic contribution of slavery could turn out to be
negative. Would anyone be sufficiently devoted to that principle to ask
blacks to compensate whites? Or is this simply another "results-
oriented" principle, taken seriously only when forwarding some other
purpose? ^~~

If the basis for special or compensatory treatment of blacks is

simply a desire of some segment of contemporary white society to rid
itself of guilt for historic wrongs, the question arises as to why this
must be done through institutions which extend the cost to other-
perhaps much larger-segments of the society whose ancestors were not
even in the United States when most of this happened, or were in no
position to do anything about it. Even the argument that they or their
ancestors were passive beneficiaries of racial oppression loses much of
its force when it is unclear that there were any net social benefits
beyond the immediate profits of a tiny group of slave owners. If there
were ever any net social benefits, it is questionable whether they
survived the Civil War, whose costs seemed to confirm Lincoln's fear
that God's justice might require that the wealth from "unrequited toil
shall be sunk" and "every drop of blood drawn with the lash shall be
repaid by another drawn with the sword."180

Individual compassion or a sense of social responsibility for less

fortunate fellow men does not depend upon theories of guilt or
unjustified benefits, but without such theories it is harder to justify
compulsory exactions upon others. Nor do the others accept such
exactions without resentment: some "find it just a bit ironic when they
demand that we feel guilty for what their ancestors did to the blacks.
..."181 Moreover, specific compensatory activities may be opposed by
the intended beneficiaries themselves-as in public opinion polls which
have repeatedly shown a majority of blacks opposed to quotas.182 So
it is not clear that guilt-reduction activity is a net social gain. The
reduction of guilt, or the expression of social and humanitarian
concern, can take place through any number of voluntary
organizations, which have in fact made historic contributions to the
advancement of black Americans.'83

The question of who is to pay compensatory costs often has a

perverse answer where such costs are imposed through administrative
or judicial processes which permit little or no effective feedback. If
compensation were awarded in the generalized form of money, it
might at least be possible to make the costs bear some relationship to
ability to pay. But much of the compensatory activity takes the form of
specific transfers in kind-notably, exemption from standards applied to
other applicants for jobs, college admissions, etc. In this form, costs
are borne disproportionately by those members of the general
population who meet those standards with the least margin, and are
therefore most likely to be the ones displaced to make room for
minority applicants. Those who meet the standards by the widest
margin are not directly affected-that is, pay no costs. They are hired,
admitted, or promoted as if blacks did not exist. People from families
with the most general ability to pay also have the most ability to pay
for the kind of education and training that makes such performance
possible. The costs of special standards are paid by those who do not.
Among the black population, those most likely to benefit from the
lower standards are those closest to meeting the normal standards. It is
essentially an implicit transfer of wealth among people least different
in nonracial characteristics. For the white population, it is a
regressively graduated tax in kind, imposed on those who are rising
but not those already on top.

Where racial specialness extends beyond the historic black-white

dichotomy, the anomalies are compounded. Americans of Oriental
ancestry are often included in special categories. Biology and history
may provide some basis for this, but economics does not. Chinese-
Americans and JapaneseAmericans have long earned a higher income
than white Americans. Onefourth of all Chinese employed in the
United States are in the highest occupational category of professional
and technical workers.184 Historically, Orientals have in years past
suffered some of the most extreme discrimination and violence seen in
America.185 Past discrimination in schooling, for example, is still
visible in the high levels of illiteracy among older Chinese, so that
despite the above average education of Chinese-Americans, they also
have rates of illiteracy several times that of blacks.186 No amount of
favoritism to the son of a Chinese doctor or mathematician is going to
"compensate" some elderly illiterate Chinese whose life has been
restricted to working in a laundry or washing dishes in a restaurant.

The racial and ethnic mixture of the American population poses still
more dilemmas for any attempt to establish institutionalized "special"
treatment for race or ethnicity as defined in categorical terms. About
half the total American population cannot identify their ethnicity,
presumably because of its mixture.1S7 About 70 percent of black
Americans have some Caucasian an- cestor(s),"' and a leading social
historian estimates the number of whites with some black ancestors in
the tens of millions.18' Trying to undo history in this population is like
trying to unscramble an egg. Doing justice to individuals in our own
time may be more than enough challenge.

CRIME

Criminal law is basically a process for transmitting and evaluating

knowledge about the guilt or innocence of individuals suspected of
crime. It is also a process for transmitting to actual and potential
criminals effective knowledge of the costs of their crimes to others,
and the willingness of those others to shift those costs back, in the
form of punishments, to the criminals who created them.19' There are
costs to the transmission of knowledge of individual guilt or innocence
to the legal system, costs to individual defendants caught up in that
system, costs to convicted criminals, and of course costs to the victims
of crimes and to the general public whose anxieties and precautions
against crime are very real costs, whether expressed in money or not.
Ideally, the sum of these costs is to be minimized-though not
necessarily any one cost in isolation.

In an ideal legal system, the costs of determining guilt or innocence

would be held close to the minimum costs of gathering information
and determining its veracity to some acceptable level of probability-
"beyond a reasonable doubt" in the case of guilt, and to whatever level
of probability would socially justify dismissing charges or
discontinuing the investigation if the defendant or suspect appeared to
be innocent. Since these costs are positiveindeed, substantial-even an
ideally functioning legal system would not wholly eliminate crime, but
there would be some optimal quantity of crime"' based on costs of
knowledge, costs of precautionary measures, and the inconveniences
imposed on innocent parties as a result of rules, arrangements,
investigations, and suspicions incident to crime-prevention or
crimedetection. While the concept of an "optimal" quantity of crime
may be uncomfortable, it is also clear that no one is prepared to devote
half the Gross National Product to stamping out every residual trace of
gambling. Nor are we even prepared to reduce the murder rate at all
cost-when that would mean such stringent administration of homicide
laws and such low levels of proof required for conviction as to cause
some physicians to avoid accepting some or all patients who might die
while under their care. There would be no social gain from allowing
thousands to perish needlessly for lack of timely medical care, in order
to reduce murders by one hundred. Obviously, no one would advocate
going to such extremes regarding gambling, murder, or any other
crimes, but the point here is to indicate the reasons why-reasons that
apply, to some degree, across a much wider range of situations.

In crime control, as in other social processes, decisions and

evaluations must be incremental rather than categorical. It is pointless
to argue that this or that action will or will not stop this or that
crime.192 Nothing short of capital punishment will stop even the
individual criminals already caught and convicted, much less others,
and no one is prepared to use capital punishment for all crimes. The
balancing of social costs implied by incremental decision making on
crime control includes costs to all parties, including criminals.
Virtually no one is prepared to impose unlimited costs-penalties-for
petty crimes or disproportionate penalties even for serious ones. Costs
(penalties) are imposed on criminals to reduce the costs they impose
on others. If a wrist slap would deter murder, then that would be the
socially optimal pun ishment, in the sense of minimizing the total
social costs associated with crime. The argument for some harsher
punishment is that a wrist slap will not reduce murders as much, if at
all. That is, minimizing the costs to criminals is not minimizing social
costs but only externalizing more costs to victims.

Changes in the criminal law change the effectiveness with which

knowledge can be transmitted to those deciding innocence or guilt, to
criminals contemplating crime, and to the voting public assessing their
experience and assessing the protection offered-or not offered-by the
criminal justice system.

There are many sources of knowledge, and the behavior of legal

authorities puts a higher or lower cost on its transmission or
effectiveness. The simple knowledge that a crime has been committed
can vary in its availability to the criminal justice system according to
the costs imposed on victims, witnesses, or informants. The costs of
reporting rape can obviously be increased or decreased substantially by
the way police respond to rape victims, by the way opposing attorneys
are permitted to cross-examine the victim in court, and by the
likelihood that a convicted rapist will be either turned loose soon
(perhaps to retaliate against the plaintiff or witnesses) or given a retrial
on a technicality. In the landmark Mallory rape case,193 for example,
the retrial ordered on appeal was the same as an acquittal, because the
victim could not bear to go through the emotional trauma again. The
abstract knowledge of guilt-from the defendant's confession as well as
the victim's accusationwas not socially effective knowledge. Rape is a
dramatic and readily understood example of a crime whose very
existence can be socially and effectively known only according to the
costs imposed by the legal institutions' behavior. But the same
principle applies more generally, and includes laws and practices
regarding publication of the identity of informants or the addresses of
plaintiffs and witnesses.

The interpretation and administration of rules of evidence also

controls or restricts the flow of knowledge necessary to determine
innocence or guilt. American law is unique in the extent to which it
excludes evidence.19` Evidence can be excluded either because it is
considered qualitatively less certain than other evidence, or because of
the procedures by which it was obtained. Information that is
incrementally less certain is often treated as categorically nonexistent
under "hearsay" exclusionary rules in Anglo-Saxon law, though the
same quality of evidence could be heard in courts in other Western
countries or in Japan.195 "Hearsay" does not mean simply gossip, but
includes many official documents whose authenticity and veracity are
un- challenged.19fi In addition to directly reducing the flow of
knowledge into the criminal justice system, Anglo-Saxon "hearsay"
rules have been held "re sponsible for most of the procedural quibbling
that takes up so much time in American and British courts.""' By
adding to court congestion and trial delay, it indirectly reduces the
flow of knowledge in other cases as well.
 One of the most important ways in which knowledge is screened out
of the criminal justice system is either by excluding it from trial or
reversing the conviction in the appellate courts because it was not
excluded. Evidence acquired without following minutely prescribed
procedures can also be excluded, without regard to how accurate,
verifiable, or relevant it may be. The great fear behind this initially
was that police would beat confessions out of innocent people,
reducing the reliablity of the confession as well as being a crime in
itself. But even after coerced confessions were ruled inadmissible, the
Supreme Court went further to exclude independent evidence of guilt,
if that evidence was found as a result of information obtained from a
coerced confession. The meaning of "coercion" was also expanded
from physical beatings to psychological pressures to "unnecessary"
detention to police failure to describe all the suspect's legal options.19'
There may be enough independent evidence to convict a murderer, if
his confession leads police to the scene of the crime, where they find
the corpse, and the murder weapon bearing the defendant's fingerprints
all over it-but all of this evidence must be discarded by the criminal
justice system if the original confession was procedurally incorrect.199
Even the British do not go nearly that far.

In short, the social costs of effective knowledge of guilt or

innocence is multiplied by the restrictions placed on gathering the
knowledge in the first place, and by the many ways of having the
effectiveness of the knowledge cancelled by appellate courts. It is the
same net result if costs of knowledge are directly tripled or if only one-
third the knowledge gathered survives the screening processes
involved in restrictive rules of evidence, procedural technicalities, and
the exhaustion of witnesses through delays and retrials.

In criminal law, as in other social processes, there are inherent

constraints of circumstances and human beings, and these constraints
entail trade-offs. The repugnance and pain which a conscientious
person feels at the thought of imprisoning or executing an innocent
man, or letting a guilty sadistic murderer go scot-free back into society
on a technicality, in no way removes the constraints or relieves the
essentiality of trade-offs. The ideal of "a government of laws and not
of men" implies an established process rather than ad hoc judgments of
what is right in each case. Inherent in this are deviations between the
particular consequences of a systemic process and the individual
results most in accord with the principles that the process was meant to
embody. The more effective the legal processes, the smaller are these
deviations, but in any process conceived and carried out by human
beings there will be deviations-and in some cases, extreme deviations.
Legal systems try to reduce these extreme deviations by allowing
appellate courts to review cases. But to some extent this recreates the
original dilemmas of trial court systems at the appellate court level.

If appellate courts are to be part of a coherent legal system, rather

than arbiters armed with power to decide each case anew in whatever
way they choose, then what is decided in one case must be part of a
legal pattern applicable to other cases with similar objective factors
involved. What is decided in extreme cases becomes a precedent for
other cases. In this kind of social package deal, often "hard cases make
bad law" for the future. For example, blatant racial bias in trials and
sentencing in some cases in some states may cause the whole federal
legal system to involve itself in the minute details of state courts in all
states.200 As a result, a white, Anglo-Saxon criminal caught in the act
in California may go free because of legal procedures created when an
innocent black was railroaded to jail by an all-white jury in
Mississippi. Appellate courts can adjust the application of their
decisions to some extent, but there are limits to how far this can go and
still retain the rule of law and the role of appellate courts as rule-
making organizations, rather than roving commissions with sovereign
powers to decide each case as they please. This is neither a criticism
nor a defense of appellate courts, but simply an indication of the
momentous legal trade-offs involved.

The Constitution of the United States limits how far these trade-offs
can go in one direction-that is, how high the cost can go for a criminal
defendant, or even for a convicted criminal. There are no comparable
limits on the costs which the legal system can impose on a crime
victim seeking to prosecute the criminal. In the case of rape victims
these costs are obvious not only for the victim, but also for the larger
society, which has its own interests in keeping rapists off the street.
But there are no victim's counterpart of the defendant's constitutional
protections against double jeopardy, self-incrimination, or cruel and
unusual punishment. In particular, the right to a speedy trial applies
only to the defendant, not to the victim or to witnesses who can
become exhausted, disgusted, fearful, or forgetful in crucial details as
repeated trial delays stretch out for months or even years. Indeed,
victims or witnesses may die or move out of state as legal processes
drag on, quite aside from the financial losses imposed in taking off
from work repeatedly to go to court for a trial that is again and again
postponed at the defendant's request. Criminal lawyers are well aware
of the advantages of sheer delay in wearing down plaintiffs and
witnesses, or even a district attorney with a limited budget and limited
time. In short, "due process" has a social cost, and that cost can-in
particular cases-rise to levels which in effect negate the law in
question. This may or may not be inherent in any form of
constitutional law. What is important here is to be aware of such cost
relationships-the central reality of trade-offs-as we turn from this brief
static sketch of criminal law and appellate courts to a consideration of
the trends in criminal law recent decades. These include trends in
crime rates, in arrest procedures, in trials, and appeals.

CRIME RATES

Crime rates per 100,000 persons more than doubled during the
decade of the 1960s-whether measured by total crime, violent crime,
or property crime.201 How much of this represents an actual rise in
crime, and how much an increased reporting of crime, remains a
matter of controversy. However, there is general agreement among
people who agree on little else, that murder has generally been
accurately reported, since it is hard to ignore a corpse or someone's
sudden disappearance.202 Trends in this widely reported crime are
also rising dramatically. Murder rates in large cities doubled in less
than a decade between 1963 and 1971. The probability that someone
living his whole life in a large city today will be murdered is greater
than the probability of an American soldier in World War 11 being
killed in combat.203
 Crime is no more random than any other social activities. Murder
rates in the big cities are more than four times as high as in the
suburbs.20' More than half of all serious crime in the United States is
committed by youths from ten to seventeen years old.205 Moreover,
juvenile crime rates are increasing faster than adult crime rates.20' The
number of murders committed by sixteenyear-olds tripled in four years
in New York City.20'

These patterns have some bearing on popular explanations for

crime. For example, crime has been blamed on "poverty, racism and
discrimination"208 and on "the inhumanity of our prisons."209 As
already noted, poverty and racial discrimination (whether measured in
incomes, education, or segregation laws) were greater in the past, and
their continuing effects are more apparent among older blacks than the
younger. Crime, however, is greatest among youthful blacks210 and
hostility to police is greatest among upper income blacks.2 ' As for
harsh punishment as a source of repeated crimes, (1) those persons
arrested and released or acquitted are rearrested more often than those
that are imprisoned"' and (2) the escalation of crime rates during the
1960s occurred while smaller and smaller proportions of people were
going to prison-indeed while the conviction rate was falling213 and
the prison population was going down as the crime rate soared.l14
Insofar as poverty, discrimination, and imprisonment are variables
believed to be correlated with crime rates, the evidence refutes the
hypothesis. Insofar as these constitute an axiom, it is of course immune
to evidence.

The level and trend of American crime rates may be put in

perspective by comparison with those of other nations. Murder rates in
the United States have been several times those in such comparable
societies as those of Western Europe and Japan.215 Robbery rates are
also higher.216 Crime rates in general are only moderately higher in
the United States than in Europe, 217 but it is in the violent crimes that
the difference between the U.S. and other countries is greatest. For
example, New York, London, and Tokyo have comparable numbers of
inhabitants (Tokyo the most), but there are eight times as many
murders in New York as in Tokyo,218 and fifteen times as many
murders as in London.219 Intertemporal comparisons show a rise in
crime rates around the world"'-with the notable exception of Japan.
What is different about Japan may provide some factual basis for
testing competing theories of crime control.

The rising murder rate in the United States is largely a phenomenon

dating from the mid-1960s, and continuing to escalate in the
1970s221-a rise generally coinciding with the sharp dropoff in
executions.222 This rise in murder rates reversed a long-term decline
in the murder rate in the United States. The absolute number of
murders in American urban centers of 25,000 or more remained
relatively constant from 1937 through 1957,223 even though the
population in such centers was growing rapidly over that span.224
Urbanization, as such, apparently had not entailed rising murder rates.
Demographic and socioeconomic changes in the population have been
too gradual to account for the sudden reversal of a downward trend
and its replacement by an escalating upward trend. The only apparent
variable that has changed dramatically in the 1960s and 1970s has
been the procedures and practices of the criminal law.

CRIMINAL LAW PROCEDURE

One of the basic questions about criminal law procedure is simply

how much of it there is, in purely quantitative terms. In England, the
longest criminal trial on record lasted forty-eight days.225 In the
United States, there have been criminal trials in which the selection of
a jury alone has taken months.226 In England the selection of a jury
"usually takes no more than a few minutes.227 A criminal trial length
that would be "routine" in California"' would be record-breaking in
England. The British example is particularly appropriate, not only
because of general similarities between the two countries but more
particularly because American law grew out of British law, the two
countries have similar notions of fairness, and England is not regarded
as either a police state or a place where innocent defendants are
railroaded to jail.
 Delays in American courts did not just happen. A procedural
revolution in criminal law was created by the Supreme Court in the
1960s-the decade when crime rates more than doubled. Much attention
has been focused on the specifics of these procedural changes-
warnings to suspects, restrictions on evidence, etc.-but it is also worth
noting the sheer multiplicity of new grounds for delay at every stage of
criminal procedure, from jury selection all the way to appeals to the
Supreme Court.

Contrary to a long legal tradition, the Warren Court interpreted the

Fourteenth Amendment as applying many federal rights and practices
to the states in general, and the state courts in particular.229 Quite
aside from the question of whether this was justified constitutional
interpretation, or even whether the specific federal practices were
better or worse than existing state practices, this created dual channels
of legal appeal, between which a defendant could go back and forth-
repeatedly adjudicating each of numerous new rights in two whole
systems of multiple courts. The lowest federal district judge could now
overturn the decision of a state supreme court, and the federal courts in
general now assumed jurisdiction over procedures used in state trial
and appellate courts. Moreover, some of these newly discovered or
newly created rights were made retroactive, so that a criminal could,
for example, challenge prior convictions on grounds that the state court
could not prove that they had supplied him with a lawyer, thirty years
before the Supreme Court required them to supply him with a lawyer-
or to keep records of such things.29' Similarly, the Supreme Court's
1968 ruling that it was unconstitutional to allow a jury to hear the
unedited confession of a codefendant was made retroactive, and was
then used in 1969 to overturn a 1938 felony conviction in which that
had happened.23'

The increased litigation made possible by the decisions of the

Warren Court was litigation over procedures-not guilt or innocence.
Premeditated murderers, witnessed in the act, were able to continue
appeals for more than a decade without even claiming to be innocent,
but merely challenging legal procedure.232 A murderer-rapist of an
eight-year-old child, whose confession was corroborated by both
evidence and other testimony, was set free by federal courts on
procedural grounds-and the state courts forbidden to re-try him-even
though his confession was found to be voluntary, the facts of the crime
undisputed, and the evidence "overwhelming" in the judgment of the
state supreme court.233 Nor were these procedural matters anything as
serious as police beatings or even threats, but turned instead on fine
legal points on which appellate judges often divided four to three or
five to four.

The social costs of the Warren Court's procedural changes were not
simply those particular instances of freeing dangerous criminals which
outraged the public, but also included an exponential increase in
litigation which backed up other criminal cases and necessitated plea
bargaining. The number of state prisoners applying for writs of habeas
corpus in the federal courts increased from less than 100 in 1940 to
more than 12,000 in 1970.234 Nor were these cases newly discovered
miscarriages of justice. A federal appellate judge observed:

For all our work on thousands of state prisoner cases I have yet to hear
of one where an innocent man had been convicted. The net result of
our fruitless search for a nonexistent needle in the ever-larger haystack
has been a serious detriment to the administration of justice by the
states.235

A California appellate judge likewise observed:

It is with almost melancholy nostalgia that we recall how only five

years ago it was possible to sustain a judgment of conviction entered in
such a clear case of unquestionable guilt and to accomplish it without
undue strain. Today, however, the situation is vastly changed.236

While the extent to which procedural complexities and ambiguities

impede criminal justice processes may be unique to the United States,
elements of this trend have spread beyond the American borders. Even
though the British courts do not exclude illegally seized evidence, and
will not turn a felon loose merely because of police failure to follow
procedural rules,237 there has been some movement in the direction of
"the `Americanization' of English criminal justice":238 less chance of
imprisonment,239 more lenient sen- tencing,240 more release into the
community,24' and activities described by their hoped-for results as
"rehabilitation" programs. How much things have changed in England
may be indicated by the fact that in the 1930s a murder conviction
meant a two-out-of-three chance of execution within two months'212
whereas in 1975 the death penalty was abolished.243 Along with these
American procedures have come American results-court congestion
2'4 delayed trials,245 and rising crime rates.246

British intellectuals, like their American counterparts, have been

preoccupied with the presumed social causes of crime247-the "root
causes" in American intellectual terminology. The usually presumed
social "causes" of crime-poverty, unemployment, and broken homes-
are wholly uncorrelated with the rise in crime in Britain. There has
been no increase in poverty or broken homes there, and there has been
a reduction of income inequality and a "virtually nonexistent"
unemployment rate in Britain during the period of rapidly increasing
crime rates.248 The criminal justice system has simply become slower
and more uncertain.

By contrast, the only major nation in which crime rates have been
going down over the past generation is Japan, where more than 90
percent of all violent crimes lead to arrest and 98 percent of all
defendants are found guilty. Plea bargaining is illegal in Japan,249 as it
is in many other countries. The sentences are no greater in Japan,250
but the chance of getting away scotfree are less. Various supposed
causes of crime-television violence, urbanization, crowding-are at least
as prevalent in Japan as in the United States.261 There are, however,
far more policemen per square mile in Japan than in the United States,
though somewhat fewer per number of people.252 There is no
evidence, however, that Japan has discovered the "root causes" of
crime, much less eliminated them-or, indeed, is putting forth much
effort in that direction.

Both international and intertemporal comparisons indicate that

criminal law procedures affect crime in the way that common sense
suggests: punishment which comes quicker and/or with higher
probability deters more than punishment that can be delayed or
evaded. The tendency of the Supreme Court in the Warren era has been
to expand the number and scope of the grounds on which criminals can
appeal-delaying (and thereby diluting) a given punishment, reducing
the probability of conviction for the actual offense (more plea
bargaining) and reducing the probability of being convicted at all. The
fact that guilt becomes largely irrelevant when the police do not follow
specified procedures allows corrupt policemen to convey legal
immunity to criminals by deliberately violating such procedures.252
The cost of groundless appeals to the criminal is zero if he has a
lawyer supplied by the state or by third-party-financed ("public
interest") law firms. Even if- he has to act as his own attorney, the
costs are negligible if he is in jail with nothing else to do. The
repugnant task of rationing justice is no less inescapable for its
repugnance. Unless unlimited resources are available for criminal
justice procedures-and congested courts imply that they are not-then
one man's right to appeal means a sacrifice of someone else's right to a
speedy trial and/or the sacrifice of innocent third parties victimized by
the backlog of other criminals free on bail while awaiting trial in a
congested court system.

In recent years criminal law procedures have often been viewed, not
as social institutions for transmitting knowledge about guilt or
innocence, but as arenas for contests between combatants (prosecution
and defendants) whose prospects must be to some degree equalized. In
particular, the power of the state is depicted as so disproportionate to
that of the defendant that some kind of equalization is in order. There
is even great concern for intracriminal equity-equalizing the prospects
of criminals with varying sophistication to escape prosecution or
conviction. If experienced criminals, gang members, and Mafiosi
know how to "stonewall" police questions, then "elemental fairness
"264 requires that similar sophistication be supplied by the
government to less sophisticated criminals as a precondition for a
guilty verdict to stand up in the appellate courts.255 To do otherwise,
according to this view, is to "take advantage of the poor, the ignorant,
and the distracted."255 Thus, intracri minal equity supersedes
criminal-victim equity in this formula-or rather, the second kind of
equity is ignored. This is a special case of the "fair contest" approach,
which emphasizes the great power of the government vis-avis the
individual criminal. But to judge "power" by physical artifactsnumbers
of officials, sums of money, quantity of weapons, etc.-is to ignore the
relationship of those things to their intended objects. A motor that is
far too powerful for a lawn mower may be grossly inadequate for a
truck. The individual criminal need only be concerned with saving
himself from conviction, while the government must safeguard a
whole population from his acts and the acts of other criminals, and
from the fears and precautions due to those acts. Empirically, the
evidence is that criminals as a group are more than able to hold their
own against the government. Few crimes in the United States lead to
anyone's being imprisoned.257

Intracriminal equity, like any form of equity, is equity only along a

given dimension and conflicts with equity along other dimensions. For
example, if people are to be paid according to an equitable principle of
how much effort they put into their work, that conflicts with sharing
equitably in the employer's earnings, or receiving an equitable portion
of total national outputquite aside from the conflict of equity in general
with various economic and other principles. Intracriminal equity
likewise cannot be extended indefinitely without conflicting with
equitable considerations regarding the victims of crime or the public in
general. However, no institutional mechanism forces federal appellate
courts to weigh these other considerations. And because federal courts
supersede all state courts, the latter-though elective and therefore
subject to feedback-are bound by the federal precedent. In short, the
only constraints on how far intracriminal equity can be carried are
constraints the federal judges choose to impose on themselves. When a
U.S. Attorney General and a Chief Justice of the Supreme Court both
argue for judicial equalization of legal prospects as between less
sophisticated criminals and more sophisticated criminals, so that
"hardened underworld types" will not have an unfair advantage over
"unwary"258 or "distracted"259 criminals, clearly intracriminal equity
is a principle enjoying a vogue in high places. The principle has been
extended well beyond the idea that a court must not create categorical
inequities of its own to the idea that it must redress certain preexisting
inequities in criminal endowments of sophistication in eluding the law.
Since courts cannot equalize downward by reducing the cleverness of
the most accomplished criminals, all that is left is to equalize upward
by increasing the ability of less clever criminals to evade punishment
for their acts-regardless of what that means in terms of equity to
victims and the public.

Intracriminal equity extends even to groundless appeals. If privately

paid lawyers make frivolous appeals based on unsubstantiated claims
of "insanity," then a court-appointed attorney who fails to do so for his
client has, in this view, denied the client his constitutionally
guaranteed right to coun- se1280-a right expanded during the Warren
Court years to mean free provision of counsel, whose conduct of the
defense can then be retrospectively evaluated by appellate courts to
insure that he attempted enough technicalities to satisfy their
conception of "competent" representation. It is not that the appellate
court actually found the defendant insane-or even regarded that as a
likely possibility-but that they second-guessed the defense strategy of
the court-appointed attorney and thought that was a tactic he might
have tried. Such extrapolations and improvisations from the simple
constitutional right to use a lawyer illustrate again the law of
diminishing returns, and the tendency of unconstrained institutions to
extend themselves past the point of counterproductive inputs from the
standpoint of their mandated purpose-in this case, determining guilt or
innocence and meting out justice.

PUNISHMENT

Trends in the punishment of criminals can be readily summarized:

over the past generation, punishments for convicted criminals have
become less common, less severe, and less honestly reported to the
public. In the American legal system, punishment is less common than
in the British legal system from which it evolved. California alone has
six times as many robbers as England, but more people were in prison
for robbery in England than in Cali- fornia.261 On paper, the United
States has "the most severe set of criminal penalties in its law books of
any advanced Western nation,"262 but they are seldom put into
practice. Less severe penalties-that are actually enforcedhave produced
a long-term reduction of serious crime (including hard drug usage) in
Japan, over the same decades during which American crime rates have
been soaring. Studies in various American cities show that most felons
with prior convictions are placed on probation rather than going to
jail.263

Harsh penalties on paper and probation in practice are part of a more

general pattern of duplicity. "Life" sentences in many states mean
"eligibility for parole in three to five years."264 "First offenders"
include long-term criminals whose prior convictions are not
technically admissible in court because of the age at which these
crimes were committed. Supposedly successful "rehabilitation"
programs have repeatedly been found on closer scrutiny to have been
ineffective, or even counterproductive.265 These are not random
divergences between theory and practice. They are systematic biases
overstating to the public what punishment is being applied or
understating either the crime (reduced charges under "plea
bargaining") or the nature of the criminal ("first offender"). Concurrent
sentences mean that there are no sentences for additional
contemporaneous crimes. Parole boards mean that even the few
sentences handed out in court are grossly overstated. So-called
"supervised" probation or parole consists of "a 10- or 15-minute
interview once or twice a month"266 between a criminal who is on his
own otherwise and an official who, in two-thirds of felony probations,
is responsible for more than one hundred cases at a time.26'

These systematic biases in the transmission of knowledge insulate

decision makers, advisers, and others who influence the criminal
justice system from feedback from the actual experience of the public
with the fruits of their decisions. Central to the duplicity and the
insulation are vast differences between the beliefs of criminal law
"insiders" and the public-and the determination on the part of insiders
that public influence is to be minimized. It is a point of honor to have
ignored "public clamor." In short, criminal law decision making is
insulated from feedback, not only institutionally but ideologically. No
insulation is ever perfect, so that public outrage in some egregious
cases that happen to come to light has occasional effect on the law.
Nevertheless, the history of trends in criminal law over the past
generation is essentially the history of intellectual fashions among a
small group of theorists in law and sociology. These fashions include
several key premises: (1) punishment is morally questionable, (2)
punishment does not deter, and (3) sentences should be individualized
to the criminal rather than generalized from the crime.

The moral questionability of punishment derives from the premise

that "vengeance" is a "brutalizing throwback to the full horror of man's
inhumanity in an earlier time ..."268 This argument from location in
time is buttressed by claims that a personified "society" itself causes
crime. According to this theory, "healthy, rational people will not
injure others,"269 so that crime is the result of a social failure to create
such people or to rehabilitate the criminal into becoming someone who
"will not have the capacity-cannot bring himself-to injure another to
take or destroy property."27' Neither blueprints nor examples are
provided. Moreover, these quotations are not from a sophomore term
paper, but from a book widely hailed by legal scholars, practicing
lawyers, and leading newspapers and magazines.271 In a similar vein,
Chief Justice Earl Warren found crime "in our disturbed society" to be
due to "root causes" such as "slum life in the ghettos, ignorance,
poverty" and even-tautologically-the illegal drug traffic and organized
crime.272 "Root causes" are prominently featured in this literature,"'
and confidently spoken of as if they were well-documented facts,
rather than arbitrary assertions at variance with the empirical
relationship between the rising crime rates and reduced poverty and
discrimination. The idea that people are forced to commit crimes by
bad conditions of one sort or another also ignores thousands of years
of history during which kings and emperors, raised in the midst of
luxury, committed the most brutal atrocities against their subjects.

The argument that punishment does not deter takes many forms. At
the most primitive level, failure of punishment to deter is claimed on
the ground that various crimes-or crimes in general-have not been
categorically eliminated. From this standpoint, the very existence of
crime is proof of the futility of deterrence, for "criminals are still with
us."2T4 By parallel reasoning, we could demonstrate the futility of
food as a cure for hunger, since people get hungry again and again
despite having eaten. An old joke has a small child decrying baths as
futile because "you only get dirty again." Similar reasoning by a grown
man who was also the top law enforcement officer in the country
seems somewhat less humorous, though no less ridiculous."'

The meaningful issue is not categorical deterrence but the

incremental effect of punishment on crime rates. It is easy to become
bogged down in the question as to how much the environment is
responsible for crime as compared to individual volitional
responsibility. But even if we accept, for the sake of argument, that
environment is largely responsible-or even solely responsible-it does
not follow that punishment is futile, either incrementally or
categorically. Punishment is itself part of the environment. The
argument that environmental forces influence or control the incidence
of crime in no way precludes punishment from being effective, though
that theory has often been put forth for that purpose. This is ultimately
an empirical rather than a philosophical question, but commitment to
the social reform or "root causes" approach has meant that few legal or
sociological theorists "are even willing to entertain the possibility that
penalties make a difference."276 Only in relatively recent years have
there been a few serious statistical analyses designed to test the
empirical question-and they have indicated that punishment does
deter.277

Arguments for "individualizing" the punishment to the criminal,

rather than generalizing punishment from the crime, presuppose a
result rather than specifying a process. Whether or not such a result is
desirable, the question must first be faced whether courts can in fact do
it. Merely varying sentences is easy, but to do so in a manner related to
the actual personalities of each criminal is neither easy nor necessarily
even feasible. As noted in Chapter 2, formal institutions have great
difficulty acquiring accurate knowledge about individual personalities.
Everything in the criminal justice setting provides incentives for
concealment and deception on the part of the criminal, his family and
friends-i.e., those actually possessed of the fullest and most accurate
knowledge. Banks tend to leave the financing of new small businesses
to their founders and the founders' family and friends for similar rea
sons. Courts are not institutionally constrained from speculating about
personality traits, the way banks are constrained by the prospect of
financial losses, but the social costs of such speculation can be even
greater when courts rely on either mechanical criteria or psychological
guesswork to "individualize" sentences. Moreover, so-called
"individualized" sentences in practice mean reduced sentences. No
psychological findings or other evidence will legally justify life
imprisonment or execution for a petty thief, no matter what deadly
personality characteristics are uncovered. It is a wholly asymmetrical
process, and should be judged for what it is-one more way of reducing
or eliminating punishment.

What are the social costs of this asymmetrical process of sentence-

reduction? Insofar as sentences are reduced (or eliminated) to match
the presumed personality of each offender, they do not convey as clear
or as definite a message as deterrence to others. Moreover, even to the
individual criminal, they present punishment not as their fellow man's
assessment of the seriousness of their crime, but as a happenstance
deriving from the personality or mood of a particular judge, or the
criminal's own performance in impressing or maneuvering with
psychiatrists, psychologists, or probation or parole officials. The social
costs also include still more delay introduced into the courts, while all
sorts of information, "findings," and "recommendations" are
assembled-a process that can go on for months, even in relatively
simple cases where all this activity does not change the end result.

As in other cases of attempted "fine tuning" of social decisions, the

question in criminal justice is not what decision we should make if we
were God, but what decisions we can make effectively, given that we
are only human, with all that that implies in terms of limitations of
individual knowledge. Juvenile criminal sentencing is particularly
subject to "individualizing" tendencies-in some states, it is solely the
well being of the individual young criminal that can be legally taken
into account in the disposition of his case-and it is perhaps revealing
that it is here that the failure of the system is most apparent in
especially rapidly escalating crime rates.

In the emotion-laden area of capital punishment, a recent study

indicates several murders deterred for every execution.278 This
conflicts with an earlier and cruder study, and the reception of the two
kinds of studies by legal and social theorists is revealing. The earlier
capital punishment study, by Thorsten Sellin, compared states with and
without death penalty laws on their books.249 The later study, by Isaac
Ehrlich, compared actual executions rather than laws seldom put into
effect. Clearly it is the executions rather than the words in law books
which constitute capital punishment, and the question of deterrent
effects is a question about executions. It is Ehrlich's study of actual
executions that shows a deterrent effect. Yet the earlier and cruder
study continues to be cited as proof that capital punishment is
ineffective as a deterrent, while the later study is either ignored or
subjected to far more critical scrutiny than the earlier.2B0 It is clear
which conclusion is preferred by legal and social theorists, but the
policy preferences of "experts" do not become empirical facts by
consensual approval or by sheer repetition.

Virtually all researchers on both sides of the capital punishment

controversy are agreed that there are problems inherent in the data281
and problems inherent in the choice of statistical techniques to analyze
the data.282 The very definition of "murder" creates problems. Data
are usually available on "homicide," which includes accidental
vehicular homicide and negligent manslaughter as well as murder and
nonnegligent manslaughter, and "records are not generally separated
according to the type of homicide commit- ted."288 No one expects
the death penalty for first-degree murder to deter automobile accident
fatalities, which are also included in the data being analyzed.
Moreover, the drastic decline and-in some years-total disappearance of
executions over the past generation2R' creates statistical problems due
to small (or nonexistent) samples of one of the variables. There has
been no period of history with both good data on first-degree murder
and also a substantial number of executions. Finally, the period in
which the death penalty declined and virtually disappeared was also a
period when the risk of any punishment was also declining. In short,
there is no factual proof either way, despite the consensual dogma that
capital punishment does not deter.

As in other policy areas, however, the question is not what should be

decided, but who should decide what should be done. Courts have
largely appropriated that legislative function under the guise of
"interpreting" the Constitution. What is far more clear is that a
declining incidence of punishment in general (and capital punishment
in particular) over the past generation-but especially during the 1960s-
has been accompanied by a rising rate of violent crime in general, and
murder in particular. International comparisons buttress this conclusion
and are also consistent with the conclusion that it is not the words on
law books which constitute deterrence. American laws are among the
most severe in the Western world in theory and the least applied in
practice, and the United States has far higher rates of violent crime
(especially murder) than countries with less severe laws that are
applied more often. Various historic, cultural and other differences
among nations make international comparisons more difficult, but it is
significant that the spread of American legal theories and practices to
other countries has been accompanied by American results in court
congestion and rises in crime rates. The influence of legal and social
theorists on criminal law practices has also spread beyond the United
States, and these "experts" are apparently no more open to factual
evidence counter to their consensual beliefs abroad than in the United
States.28'

Throughout the Western world, capital punishment has been either

explicitly abolished or has dwindled to the vanishing point in practice.
The United States was already part of the general pattern of a declining
use of capital punishment when the Supreme Court in 1972 declared
the death penalty unconstitutional as "cruel and unusual punishment"
forbidden by the Eighth Amendment-in some instances.286 Since the
Eighth Amendment consists of only one sentence287 and contains no
exceptions, the partial outlawing of the death penalty is even more
obviously a judicial improvisation than the decision itself. The fallacy
of confusing decisiveness with exactness runs through much of the
Supreme Court testimony and questioning as to what exactly was
meant by "cruel and unusual."288 What clearly was not meant was the
death penalty. The Fifth Amendment, passed at the same time as the
Eighth Amendment, recognized the death penalty and required only
that "due process" precede it. The states which ratified both
amendments had death penalty laws which they-and others-applied for
almost two centuries before they were stopped by a five to four
Supreme Court decision (with nine separate opinions) saying that it
was unconstitutional in some circumstances. The particular
circumstances that would make it unconstitutional have themselves
varied, so that in practice death penalties are unconstitutional when a
particular Supreme Court chooses to object to the procedures used to
reach verdicts. It is, in effect, the laws and the verdicts which have
been ruled unconstitutional, under the guise of ruling the punishment
unconstitutional as "disproportionate to the offense" or as capriciously
applied-neither of which are characteristics of punishment itself.

Several arguments have been emphasized by opponents of the death

penalty: (1) it is immoral for the state to deliberately kill, (2) capital
punishment does not deter, (3) errors are irrevocable, (4) the
application of the death penalty has been arbitrary and capricious in
practice, and (5) blacks have been disproportionately overrepresented
among those executed, showing the racial bias of the system.

The immorality of execution is based on a parallel between the first-

degree murderer's premeditated killing of his victim and the law's
subsequent premeditated killing of the murderer. In this view, we must
"put behind us the notion that the second wrong makes a right. ..."289
The two events are certainly parallel as physical actions, but if that
principle determines morality, it would be equally immoral to take
back by force from a robber what he had taken by force in the first
place. It would be equally immoral to imprison someone who had
imprisoned someone else. It is another case of the physical fallacy-
regarding things which are physically the same as being the same in
value; in this case, moral value. By this standard a woman who uses
force to resist rape would be as immoral as the would-be rapist. Insofar
as he is successfully beaten off, all that has happened physically is that
two people have been fighting each other. No one would regard the
physical equivalence as moral equivalence. When the physical parallel
involves human life, the stakes are higher, but the principle does not
change. The morality of execution does not depend upon physical
parallels.

Sometimes the claim of immorality is based on a supposedly

inadvertent revelation of shame by the unwillingness of most people-
even advocates of capital punishment-to witness an execution."' But
most people would not want to witness an abdominal operation, and
yet no one regards that as evidence of immorality in such operations.
Nor would a philanthropist who donated money to a hospital to
advance such operations be considered a hypocrite if he declined an
invitation to watch the surgery. Such arguments are even more difficult
to take seriously, when the very same proponents claim that it was
immoral for people to watch executions when they did,"' and that it is
immoral for us not to watch them now.292

The argument that capital punishment does not deter glosses over
some important distinctions. Any punishment may deter either by
incapacitating the criminal (temporarily or permanently) from
repeating his crime, or by using him as an example to deter others.
Clearly capital punishment incapacitates as nothing else. The
obviousness of this in no way reduces its importance. It is especially
important because the attempt to incapacitate by socalled "life
sentences" means nothing of the sort, and can mean that a firstdegree
murderer will be back on the street within five years legally, and of
course sooner than that if he escapes. He can also kill in prison.
Arguments about the supposedly low recidivism rates of murderers in
general are beside the point. They would be relevant if the issue were
whether all murderers must always be executed regardless of
circumstances. But that is not the law at issue, nor have American
judges and juries followed any practice approaching that. What is at
issue is whether courts shall have that option to apply in those
particular cases where that seems to be the only thing that makes
sense.
 The irrevocable error of executing the wrong person is a horror to
anyone. The killing of innocent people by released or escaped
murderers is no less a horror, and certainly no less common. The
recidivism rate among murderers has never been zero, nor can the
human error in capital cases ever be reduced to zero. Innocent people
will die either way. If there were some alternative which would prevent
the killing of innocent people, virtually anyone would take it. But such
an alternative does not come into existence because we fervently wish
it, or choose to assume it by closing our eyes to the inherent and bitter
trade-off involved. Trying to escape these inherent constraints by
arguments that "a society which is capable of putting a man on the
moon" is "capable of keeping a murderer in jail and preventing him
from killing while there"293 is using an argument that would make us
capableseriatim, at least-of accomplishing almost anything we wanted
to in any aspect of life. It is the democratic fallacy run wild.

Because executions take place in only a fraction of the convictions

for capital crimes, opponents of capital punishment have claimed that
the condemned were chosen "capriciously," "freakishly," "arbitrarily,"
or at random, or with no logic or justice.L94 Justice, of course, has
many dimensions, of which intracriminal equity is only one; nor is it
obvious why intracriminal equity should be the sole or overriding
consideration. If this argument were taken seriously and applied
seriously, it would be impossible to punish any criminals for any
crime, in a system with different juries-which is to say, in all possible
legal systems, as long as human beings are mortal. Barring a single,
immortal, jury to hear all criminal cases, intracriminal equity can never
be carried to perfection, but only into regions of negative returns, in
any system of justice concerned also with other kinds of equity,
including victims and the public.

To argue that the degree of intracriminal equity can be directly

deduced from numbers and percentages is to repeat the fallacy in
"affirmative action" cases of presupposing that numbers collected at a
given institution are caused by that institution. If people differ in the
quantity or manner of their crimes, they will differ also in their
conviction and sentencing statistics, even if judges and juries were all
totally impartial and just. We know that such perfection is not to be
found among judges and juries, any more than among other groups of
human beings, and in particular cases-blacks facing allwhite juries in
the South being the classic example-the reality has sometimes been
very remote from the ideal. However, this is based on history and
observations, not on the statistics cited as evidence and used to give it
all a "scientific" appearance. If statistics, as such, are to be taken
seriously, then a much ignored statistic must also be included: more
black people are murdered than whites-that is, there are more black
murder victims in absolute numbers than white murder victims,295
even though blacks are only about 12 percent of the population.
Moreover, murder is usually not across racial lines, involving as it
often does family members and friends. Against that background, the
statistic that blacks are overrepresented among those executed assumes
a different dimension, since blacks are also grossly overrepresented
among the victims. A recent study in the north found persons who
commit murder about equally likely to be executed, whether they are
black or white.296 It is one thing to lament historic injustices; it is
another to use them to misrepresent current empirical data.

Even in racially homogeneous societies there are undoubtedly

differences in murder rates among very different social groups. Indeed,
in the United States there are vast differences in murder rates between
men and women.Z" Even in the absence of such evidence, however,
anyone with any humility or sense of common humanity must
recognize that, if raised under sufficiently bad conditions-taught no
difference between right and wrong, and growing up in an
environment where violence was not only accepted but admiredthat he,
too, could have grown up into the kind of person with whom no
society can cope. In some ultimate ethical sense, "there but for the
grace of God go I." It would be inexcusable even to shoot a mad dog if
we knew how to catch him readily and safely, and cure him instantly.
We shoot mad dogs only because of our own inherent limitations as
human beings. There is no need to apologize for this-and certainly no
need to pretend to more knowledge than we have, whether to
"rehabilitate" a murderer or to eliminate "root causes" of crime. We do
not play God when we act-as we mustwithin our limitations. We play
God when we pretend to an omniscience and a range of options we do
not in fact possess.

The notion that the death penalty is applied with caprice-as

distinguished from bias-is an argument from ignorance. Observers do
not know why some juries decided one thing and another jury decided
something else. Since there is no institutional provision for juries to
articulate their reasonsmuch less coordinate the articulation of one
jury's findings with those of other juries-the absence of such a pattern
is hardly surprising. To say that an observer does not see a pattern is
not to say that there is no pattern. A motorist driving down a highway
or through town may see no pattern in the location of hamburger
stands, but an executive in the headquarters of McDonald's or Burger
King might be able to show him that these locations are by no means
random or capricious. Indeed, the mark of a specialist in any field is
the ability to discern patterns which escape common observation. For
many areas of human experience, there are no specialists or experts
because no one is prepared to invest the time and effort needed to
discover patterns in those areas. In an area such as jury verdicts, where
reasons would be difficult to accurately articulate, where they are not
required to be articulated, and where there are indeed restrictions on
such articulation in public, to consider the absence of an apparent
pattern among juries a sign of "freakish" decisions and arbitrary
choices is the arrogance of asserting that what one does not discern
does not exist. And to make that the basis of a constitutional ruling is
to impose the arrogance of an elite on the rest of the country as "the
law of the land."

CONSTITUTIONAL INTERPRETATION

Over and beyond questions of the wisdom, effectiveness, or efficiency

of legal decisions regarding free speech, race, crime, and other vital
concerns, is a larger question of the role of law, and particularly of "a
government of laws and not of men." Considering the centuries of
human suffering, struggle, and bloodshed to escape arbitrary tyranny, it
is hardly surprising that there should be profound anxiety about the
erosion or circumvention of that ideal. At sporadic intervals in history,
the Supreme Court of the United States has been the center of storms
of controversy, involving not only the merits of particular decisions,
but also the fear that its role of constitutional interpretation was being
expanded to judicial policy making-representing a threat to the very
rule of law which it is supposed to epitomize. Such apprehensions go
back to Marbury v. Madison in 1803, which established the Supreme
Court's power to invalidate the laws of Congress as unconstitutional,
and have surfaced again in such cases as the Dred Scott decision in
1857, the "court packing" controversy of the 1930s and Brown v.
Board of Education in 1954. But while modern controversies
surrounding the Supreme Court are not historically unique, what has
been unique is the frequency, scope, and sustained bitterness of
controversy engendered by a whole series of court decisions reaching
into every area of American society. What has also been unique is that
Warren Court partisans-notably in the law schools-have not only
accepted but advocated judicial policy making as a Supreme Court
function, urging it to more openly pass judgment on the wisdom and
morality of congressional and presidential actions, under broadly
conceived constitutional "values" rather than narrowly explicit
constitutional rules.298

The issues involved in controversies over constitutional

interpretation reach beyond the American legal system to questions
about social processes and human freedom in general. The extent to
which it is possible for central decision makers to wisely foresee and
control the consequences of their decisions in a complex social process
is seen very differently by those who want the court to act boldly from
the way it is seen by those who want the court to construe the
Constitution as a set of specific rules, interpreted as closely as possible
to the sense in which they were written.299 The extent to which either
of these modes is desirable depends also on the value assigned to the
freedom of the many as against the presumed wisdom of the few-
though the latter presumption has itself been seriously challenged,"'
and the earlier discussion in this chapter may at least raise some
questions in that regard. Finally, the substantive content of Supreme
Court decisions has obviously influenced positions taken by observers
or critics. Some Warren Court partisans have sweepingly dismissed its
critics as "segregationists and security- mongers,"30' "military
fanatics,"302 "reactionary interests,"303 "bigots,""' or "crackers."300
But historically, opponents of sweeping judicial interpretation have
varied across the political spectrum, and in the wake of the Dred Scott
decision, its opponents were among the strongest advocates of the
cause of blacks, notably Thaddeus Stevens."' Even in our own time,
severe critics of the Warren Court have included men who opposed
racial segregation years before Brown v. Board.30' Indeed, as the court
pushed further and further into judicial activism, some of its own early
partisans, such as Alexander Bickel, began to question its basic
philosophy, and found themselves being heaped with the kind of
scorn308 which they had once poured onto others.309 Even a
dedicated civil rights lawyer who had braved the dangers of
Mississippi violence31' was denigrated as a sellout when he later
questioned busing.3' Legal insurgency has exhibited the same kind of
pattern found in other forms of insurgency.

The constitutional provisions which provided the point of departure

for the legal revolution of the Warren Court were the "due process"
clauses of the Fifth and Fourteenth Amendments, and the "equal
protection" clause of the latter. Those who favor "strict construction"
of the Constitution find these technical legal phrases to have limited
and highly specific meanings,"' while those who favor "judicial
activism" find them to be phrases which "were designed to have the
chameleon's capacity to change their color with changing moods and
circumstances.""'

JUDICIAL ACTIVISM

The case for judicial latitude or activism in interpreting the

Constitution rests on several assertions: (1) the specific application of
constitutional generalities inherently requires judgments, including
value judgments,31' (2) the original meaning or intent of constitutional
clauses are often lost in the mists of time, or were never intended to be
very specific in the first place,"' (3) even when the original, historical
meaning is discernible, it need not be blindly accepted as against later
insights and experience, (4) courts are in a better position than are
legislative or executive institutions to judge the morality or the
consequences of broad social principles,"' (5) courts are "the least
dangerous branch" of government because they lack the power of arms
or money,317 and (6) courts are a last resort for achieving social goals
not achievable in other institutions."' These claims will be considered
in order.

The limitations of language alone require some use of judgment in

interpreting any set of rules, including the Constitution. At various
times value judgments may also need to be made in finely balanced
cases or when constitutional provisions conflict in a particular
application. Virtually no one on ei ther side of this controversy denies
either of these points, though some proponents of judicial activism
have set up as a straw man "literalists" who are "wedded" to "ever-
irresistible simplicities.""' But because certain inputs (judgments, value
judgments) into the decision-making process are incrementally
productive in some cases does not mean that they are categorically
necessary or desirable in all cases or in general. An appellate court
may be compelled to resort to these inputs in particular cases, but that
in no way means that the Supreme Court has a general mandate to
"evolve and apply""' such principles of its own as it finds "rational" or
in the "spirit" of constitutional "values." Although the view that it does
takes on an air of modernity, it is in fact quite old. Such ideas were set
forth-and rejected-in the nineteenth century. In 1873 the Supreme
Court declared that "vague notions of the spirit of the Constitution" are
no basis on which to declare void "laws which do not square with
those views," and the "spirit" of a constitution "is too abstract and
intangible for application to courts of justice, and is, above all,
dangerous as a ground on which to declare the legislation of Congress
void by the decisions of a court."321 The idea of applying the spirit or
values instead of rules is not new. What is new is the extent to which
the tendency to do so has been indulged. It rests ultimately on the non
sequitur that what is necessary in some cases is authorized, justified, or
beneficial as a general principle. It is as if an argument for the
existence of justifiable homicide as a legal category proved that laws
against first-degree murder were unnecessary.
 The above argument that the Supreme Court should abandon the
original meaning of the constitutional rules is often supplemented with
the claim that it cannot follow the original meanings of those rules
because they are too vague and imprecise, or their original meaning
has somehow been lost in history. However, there are voluminous,
detailed, verbatim records of the debates preceding the adoption of the
Constitution and of its various amendments, so sheer lack of historical
materials is not a real problem. The difficulties of ascertaining the
original meaning or intention of constitutional provisions often turns
on what can be called "the precisional fallacy"-the practice of asserting
the necessity of a degree of precision exceeding that required for
deciding the issue at hand. Ultimately there is no degree of precision-
in words or numbers-that cannot be considered inadequate by simply
demanding a higher degree of precision. If someone measures the
distance from the Washington Monument to the Eiffel Tower
accurately to, a tenth of a mile, this can be rejected as imprecise simply
by requiring it in inches, and if in inches, requiring it in millimeters,
and so on ad infinitum. On the other hand, even a vague request by an
employer for an employment agency to send him a "tall" man may be
enough for us to determine that the agency has disregarded his
instructions when it sends him a man who is 4 feet 3 inches tall. The
vagueness of "tall" might be enough to cause interminable discussions
about men who are 5 foot i1 or 6 foot 1, but if in the actual case at
hand the man is "short" by any common standard, then vagueness is a
red herring for that particular case.

The precisional fallacy is often used polemically. For example, an

apologist for slavery raised the question as to where precisely one
draws the line between freedom and involuntary servitude, citing such
examples as divorced husbands who must work to pay alimony.322
However fascinating these where-do-you-draw-the-line questions may
be, they frequently have no bearing at all on the issue at hand.
Wherever you draw the line in regard to freedom, to any rational
person slavery is going to be on the other side of the line. On a
spectrum where one color gradually blends into another, you cannot
draw a line at all-but that in no way prevents us from telling red from
blue (in the center of their respective regions). To argue that decisive
distinctions necessarily require precision is to commit the precisional
fallacy.

In the law, the question is not precisely what "due process" or other
constitutional terms mean in all conceivable cases, but whether it
precludes certain meanings in a given case. No one knows precisely
the original meaning or boundaries of the constitutional ban on "cruel
and unusual punishment"but it is nevertheless clear from history that it
was never intended to outlaw capital punishment. Therefore its
"vagueness"323 is not carte blanche to substitute any standard that
Supreme Court justices happen to like. In the same vein, Chief Justice
Earl Warren's remark in Brown v. Board of Education about the
"inconclusive nature" of the Fourteenth Amendment's history "with
respect to segregated schools"324 confused the crucial point that there
was no evidence that the writers of the Amendment intended to outlaw
any kind of segregation, and much evidence that social policy issues
were outside the scope of the Amendment.32' Because we do not know
precisely what the boundaries of the Fourteenth Amendment are does
not mean that we cannot know that certain things are outside those
boundaries. A border dispute between Greece and Yugoslavia does not
prevent us from knowing that Athens is in one country and Belgrade in
another. Decisiveness is not precision.

The precisional fallacy-the confusion of decisiveness with

exactnessruns through the literature advocating judicial activism: the
Constitution lacks "precision" or is not "exact,"326 and is "muddy"327
or "clothed in mys- tery."328 The self-serving nature of "convenient
vagueness" was exposed by Felix Frankfurter long before he became a
Supreme Court Justice. The question he asked was "`convenient' for
whom and to what end?"329 While genuine agnosticism might be
associated with caution, tolerance, or indecisiveness in the area of
uncertainty, judicial avowals of agnosticism are frequently pre ludes to
revolutionary changes in the interpretation of the Constitution. Even
some supporters of judicial activism recognize the judicial tendency
"to resort to bad legislative history" as an excuse to reinterpret the
law.330 A fictitious legislative history may even be fabricated out of
whole cloth, as when the Supreme Court majority in Bakke claimed
that Congress had not considered "reverse discrimination" when
writing the Civil Rights Act of 1964,33' even though it is a matter of
record that reverse discrimination issues came up again and again
during the debates.332 Much of what has been done under the claim of
vagueness has been directly counter to intentions that were quite clear
as regards those particular interpretations, regardless of how unclear it
might have been on other things. It is the kind of judicial approach that
has been called "statesmanlike deviousness"333 and "dissimulation"
that is "unavoidable""' by a partisan of judicial activism and "merely
window dressing"335 by a critic who considers it "a Marxist-type
perversion of the relation between truth and utility."336

More fundamental than the question as to whether original

constitutional meanings and intentions can be discerned is the question
whether those meanings and intentions should be sought and followed
as rules for presentday judicial decisions. Admirers of judicial activism
emphasize the need for "the evolution of principles in novel
circumstances,"33, that the Constitution is "a complex charter of
government, lookng to unforeseeable future exigen- cies"338 and
virtually "an invitation to contemporary judgment."339 The framers of
the Constitution "did not believe in a static world""' or in a constitution
"forever and specifically binding,""' and we must use "our own
reasoned and revocable will not some idealized ancestral
compulsion.""' Therefore we must "update the Constitution"313 to
"keep the Constitution adjusted to the advancing needs of time."311 In
this context, the original interpretations of the framers of the
Constitution are merely "artifacts of verbal archeology""' and to take
them seriously is a "filiopietistic notion""' which would allow the
founders of the republic "to rule us from their graves. " 3"

As in the case of precision, so in the case of change, a great amount

of effort (and airs of "realism") go as into arguing something that is
both obvious and irrelevant to the conclusion actually reached, in the
situations in which it is applied. To argue about "change" in
generalized terms is to argue with oneself, for no sane person denies
change since the writing of the Constitution. The question is-what kind
of change: technological, verbal, philosophic, geographical,
demographic, etc., and in what specific way does the change affect a
particular constitutional provision or its application? This the activists
shy away from. Clearly there are technological changes, such as
electronic listening devices, which raise questions about the
constitutional right to privacy in a context unforeseen by the writers of
the Constitution. But the great controversies raging around the Warren
Court's judicial activism have involved things that have existed for
hundreds or thousands of years-the death penalty, the segregation of
racial groups (the very word "ghetto" derives from the Jewish
experience in centuries past), the arrest of criminals, the power of
bureaucracy (both the Roman Empire and ancient China developed
stifling bureaucracy), the gerrymandering of political districts, and the
different weighting of votes. In this particular context, the constant
reiteration of the word "change" is little more than a magic incantation.
It is hard to imagine why the writers of the Constitution would have set
up a congress or a president as decorative institutions if they thought
there would be nothing for them to do in meeting the evolving needs of
the nation. Incantations about "change" cannot drown out the central
question in any social process-not what is to be done, but who is to
decide what is to be done, and under what incentives and constraints?
This question is at the heart of constitutional government, and no
amount of insistence that something be done-or that something new be
done-can be allowed to obscure it.

Words and "original intentions" become important as constraints-not

as historical or archaeological artifacts, nor as pious ways of showing
reverence for the Founding Fathers. Knowledge costs are crucial in
conveying "the law of the land" across a vast and diverse nation, and
through time across the centuries. What is crucially different about the
original meaning of a given permutation of words in the Constitution
(compared to alternative meanings that might accord just as well with
a dictionary or a grammar book) is that that particular meaning has
been documented, reiterated, analyzed and diffused throughout a vast
decision-making network, and major public and private commitments
made within the framework of that meaning. Frameworks sometimes
have to be changed despite enormous losses, but the issue is who is to
decide when and how. Shall it be elected officials subject to feedback
from those who actually pay the many costs of changes in the social
framework, or shall it be an appointed judiciary influenced only by
those particular viewpoints to which it is arbitrarily responsive (known
as "moral conscience") and arbitrarily oblivious to other views (known
as "public clamor")? Shall the change be made openly, weighing the
costs and benefits in the light of all the knowledge and experience
diffused among all the people, or shall it be accomplished by verbal
sleight-of-hand in the Supreme Court chambers and in the light of the
constricted experience of nine individuals? Important as these issues
are in particular constitutional decisions, they are truly momentous
when considering a general policy of judicial activism which throws
doubt over the whole framework of laws, not merely those par ticular
laws arbitrarily changed by judicial fiat. The "above the law" thinking
implicit in judicial activism can also spread beyond the courts to other
branches of government, as the Watergate episode illustrates. The very
rhetoric of a "flexible" constitution which can be interpreted "in the
light of modern needs" was used in the Nixon inner circle.3'e The
extralegal transfer of the constitutional war-making power from
Congress to the president, so bitterly resented during the Vietnam War,
was in the same tradition. The selective indignation of the press and
the intellectual community generally to these very similar usurpations
for very different purposes is part of the environment within which
judicial activism flourishes.

When it is not deemed sufficient to simply glide from the need for
"change" to an assumption that courts are the chosen vehicles of
change, arguments are advanced that courts are either the best or the
only governmental institutions capable of making a certain necessary
social change. In this approach, evolving social morality replaces
explicit constitutional rules, as the court "makes value choices under
the broad provisions" of the Constitution,"' and this is deemed "a
principled process""' of judicial decision making because judges are
not simply making subjective rulings or even deciding issues ad
hoc,35' but are following some general rule, one sensed in society
rather than found in the explicit language of a constitution. Even a
justice so identified with "judicial restraint" as Felix Frankfurter
reflected this view. Although Justice Frankfurter rejected any idea that
he would "sit like a kadi under a tree dispensing justice according to
considerations of individual expediency," he could still say that he was
enforcing "society's opinion" rather than his "private view" and that
society's opinion was the relevant standard "enjoined by the
Constitution."352 To sense the evolving social morality, Frankfurter
felt that a judge should have "antennae registering feeling and
judgment beyond logical, let alone quantitative, proof."353 In this
vision of judicial restraint, as further expressed by Frankfurter's former
law clerk, Alexander Bickel, the court which is liberated from the
explicit constraints of the written Constitution judicially restrains itself
to be the mouthpiece of evolving social morality and makes
"experiential judgment" on the state of society in making its
rulings.35<

It may seem strange that an institution deliberately insulated from

the popular feedback which constrains the legislative and executive
branches of government should choose to adopt that constraint for
itself and to put it in place of the explicit constraints of the written
Constitution. However, as in the case of the argument from precision
or "change," this is simply not quite ingenuous. The judicially-
restrained court is not binding itself to respond to the general public at
large, by any means. Although there is some talk that the Supreme
Court "represents the national will against local particular ism""' the
judiciary is more often spoken of by exponents of judicial activism as
an "educational institution"356 a "defender of the faith"357 and "a
leader of opinion, not a mere register of it."356 In short, the court is to
be in the vanguard of moral change, able to act when other institutions
run by elected officials are constrained by an amorphous and
somewhat tainted entity called political "reality," which among other
things, makes amending the Constitution difficult. What all these lofty
and vague phrases boil down to is that the court can impose things that
the voters don't want and the Constitution does not require, but which
are in vogue in circles to which the court responds. Paradoxically,
these are called "democratic" things in terms of what people would,
should, or ultimately will want, though perhaps "counter-majoritarian"
at a given time.359 The court is to cut itself off from both the words of
the past and the public beliefs of the present and be general
(principled) rather than ad hoc in its decisions. Thus, this approach
can, with statesmanlike balance, reject the notion of direct, arbitrary,
ad hoc rule by courts,"" and the limited role of interpreting
constitutional rules.

Perhaps the most telling commentary on this vision is that its most
eloquent exponent, Alexander Bickel, turned against it after he saw it
in action for a few years.361 Instead of glorying in the courts' freedom
to shape events, the later Bickel found it "a moral duty" to "obey the
manifest constitution, unless it is altered by the amendment process it
itself provides for."362 Judicial amendment by "interpretation" and
"educating" society were no longer envisioned, and the "benevolent
quota" to which he had been sympathetic earlier363 was now seen as
"a divider of society, a creator of castes" and "all the worse for its
racial base."36' The events of the Watergate era were merely "the last
straws" of a "results" oriented way of thinking that went back to the
Warren Court.365

Ironically, the much-disdained "original intentions" of the framers of

the Constitution foresaw the problems which the twentieth-century
sophisticates had to discover from hard experience. Thomas Jefferson
regarded judicially activist judges as a "subtle corps of sappers and
miners" of the foundations of the American form of government,366
who would concentrate power in the federal government, because that
would "lay all things at their feet...... 367

DUE PROCESS

The Constitution of the United States twice declares that a person

shall not be "deprived of life, liberty, or property, without due process
of law"-ei- ther by the federal government (Fifth Amendment) or by
state governments (Fourteenth Amendment). According to Alexander
Hamilton, "the words `due process' have a precise technical import,
and are only applicable to the process and proceedings of the courts of
justice; they can never be referred to an act of the legislature."368 At
the very least, the two fateful words already had a long history in
Anglo-Saxon law as of the time they were first placed in the American
Bill of Rights in 1791.369 An even longer history of arbitrary power-
of lands and even lives confiscated by royal or imperial decrees, and of
heads cut off by peremptory order-lend momentous importance to the
requirement that only prearranged legal procedures may deal with the
fundamental rights of individuals. Centuries of struggle and bloodshed
lay behind those two words.

The first historic attempt to make "due process" mean something

more than adherence to legal procedures occurred in the Dred Scott
case in 1857. The Supreme Court declared that "an Act of Congress
which deprives a citizen of the United States of his liberty or property
merely because he came himself or brought his property into a
particular Territory of the United States, and who had committed no
offense against the laws, could hardly be dignified with the name of
due process of law."370 Here the issue was not whether regularized
procedures had been followed in the passage or administration of the
law, but whether the substance of the legislation was valid. In many
other very different issues, the battle would be joined again and again
over the next century as to whether "procedural due process" was
enough to satisfy the constitutional requirement, or whether the
Supreme Court should also consider "substantive due process"-i.e.,
pass judgment on the validity of the substance of duly passed laws and
duly established judicial proceedings.

The first historic judicial activist interpretation of "due process" as

calling for Supreme Court approval of the substance of duly enacted
legislation declared that property-a slave named Dred Scott-would be
taken without due process of law if the slave were freed simply
because he had been transported into a territory where Congress had
outlawed slavery under the Missouri Compromise. Therefore it was
ruled that it would be unconstitutional to set him free. The easy
assumption that judicial activism is on the side that twentieth-century
liberals regard as moral or socially forward-looking does not square
with the history of the due process clause.

There was an historically brief respite from the "substantive due

process" interpretation after the Supreme Court in 1873 refused to
consider the substantive merits of a state-created slaughterhouse
monopoly in Louisiana, on grounds that to rule on the substantive
merits "would constitute this court a perpetual censor upon all
legislation of the states."37' It continued to resist the efforts of those
unsuccessful elsewhere to use the Supreme Court to review the
substantive justice of lower court decisions or "the merits of the
legislation on which such a decision may be founded."372 However,
less than two decades later, a new Supreme Court declared in 1887 that
it would look beyond "mere pretenses" to "the substance of things.""'
By the turn of the century, the era of "substantive due process" was
launched-in which the Supreme Court repeatedly invalidated as
unconstitutional laws regulating businesses or working conditions. The
"substantive due process" era lasted longer than the Warren Court era.
It was, of course, lamented in retrospect by those who supported the
Warren Court's activism.

Courts in the "substantive due process" era-roughly 1905 to 1937-

regarded property not as simply the physical things themselves, but as
the options pertaining to those things, and recognized that to destroy
options was exactly the same as confiscating property-even though the
physical objects as such might be left in the possession of the owners.
The economic validity of their reasoning is demonstrated perhaps most
dramatically in the case of New York City rent-controlled buildings,
whose value is often reduced to negative levels (note abandonment
despite the risk of legal penalties), by simply reducing the landlord's
options, while leaving him in sole possession of the physical structure
itself. Conversely, working men possessing no physical property
nevertheless had options of employment alternatives, and to reduce
these alternatives was also considered by the Supreme Court to be a
deprivation of property in violation of the Constitution.344 The
economic reasoning is as valid here as in the case of business property,
for it is essentially the same principle that property rights are basically
options rather than physical things. A more fundamental constitutional
question regarding the Supreme Court's role in the "substantive due
process" era was whether the protection of property under the Fifth
and Fourteenth Amendments required the courts to monitor the
economic substance of legislation. In short, the economic argument
shows only that there has in fact been a confiscation of property, while
the legal question is-was it under due process of law? Later decisions
repudiating economic "substantive due process" either deny or sidestep
the confiscation of property.

Post-1937 Supreme Court decisions somewhat ostentatiously cited

decisions of the economic "substantive due process" era as examples
of what it was not going to do.375 Paradoxically, it was justice
William 0. Douglas, a leading judicial activist, who wrote opinions
sweepingly rejecting the use of "notions of public policy"376 and
declared that "we do not sit as a super-legislature to weigh the wisdom
of legislation.""' The apparent paradox turns on the addition of clauses
restricting this judicial restraint to areas of "economic and social
programs,""' "the business-labor field,"379 or "business, economic,
and social affairs,"3eo or "business and industrial conditions,""' In
short, a constitutional double standard was created by the court,
relieving itself of the burden and the political responsibility for liberal
social legislation, while pioneering in new judicial activism in criminal
law, civil rights, and political power areas. Far from signalling a
reduction in Supreme Court inquiry into the substance of "due
process," it marked the expansion of such substantive issues on an
unprecedented scale. "Due process" became the phrase by which
federal restrictions-both explicit constitutional provisions and judicial
extrapolations-were imposed on state courts and state law enforcement
agencies,382 in defiance of the Constitution and its judicial
interpretations for nearly two hundred years. The exclusion of
evidence,383 the requirement of government paid defense lawyers,384
restrictions on questioning suspects,385 on search warrants,386 on
confessions, 367 and even the desegregation of the District of
Columbia schools388 and the nullification of Connecticut's anticontra-
ception law,388 were all based on substantive rather than procedural
"due process." Only the phrase "substantive due process" had been
stricken from judicial interpretation.

SUMMARY AND IMPLICATIONS

Trends in American law in the twentieth century-and especially in the
Warren Court era-have included (1) a growing volume of law and
litigation in general, and especially of laws and litigation growing out
of decisions made by institutions insulated from feedback-especially
administrative agencies and the federal judiciary, (2) a changing role of
appellate courts from defining the boundaries of other institutions'
discretion to second-guessing the substance of the decisions made by
those other institutions, and (3) an ever more apparent social
partisanship, as distinguished from biased principles, in applying the
law.

Insulation from feedback takes many forms, not the least of which is
duplicity. Administrative agencies have turned the Civil Rights Act's
equal treatment provisions into preferential treatment practices. Laws
prescribe severe criminal penalties vastly in excess of what is in fact
carried out. A "re- sults"-oriented Supreme Court creates constitutional
"interpretations" that horrify even those who agree with the social
policy announced. There is even duplicity imposed upon others, as
when "affirmative action" requires employers to confess to being
guilty of "under-utilization" of minorties and women, and to promise-
in their "goals and timetables"-to achieve numbers or percentages
which all parties may know to be impossible. Quite aside from the
moral issues, doctrines which cannot be openly argued-quotas, judicial
policy making, nonenforcement of criminal laws-cannot be subject to
effective scrutiny.

Ironically, "results"-oriented legal policies have achieved largely

intermediate institutional results, rather than their social goals.
Appellate courts have successfully imposed their will on other
institutions-school boards, trial courts, universities, employers-without
achieving the social end results expected. For all the countless
criminals freed on evidentiary technicalities, there is no evidence that
the police practices the courts attacked have been eliminated or even
reduced.39° For all the costly and controversial procedures imposed by
"affirmative action" quotas, there is little or no evidence that such
policies have advanced blacks beyond what was achieved under the
previous "equal opportunity" policy.391 For all the bitterness
surrounding the busing controversy, there is no overall evidence of any
social, educational, or psychological gains from these policies,392 and
even purely statistical "integration" has been offset to a great extent by
"white flight" to the suburbs."' In short, legal sacrifices of principles to
get "results" have often been a oneway trade-off with no social gain, in
terms of the avowed goals. That little or nothing has been achieved
does not mean that there has been no cost. The purely financial costs
of busing can run into the hundreds of millions of dollars for just one
school system,39' not to mention the hundreds of millions of dollars
nationally in school closings alone,395 and such social costs as
increased racial antagonism,396 and a disruption of school children's
social life and reduced parental input into local schools.39' An
"affirmative action" report can cost an employer hundreds of
thousands of dollars, not to mention its costs in morale to officials,"'
white male employees, and even minority and female employees
feeling the backlash.

None of this is evidence of special ignorance or culpability in the

individuals in appellate courts and administrative agencies who impose
these policies. Rather, it is evidence of the inherent limitations of such
institutions, and ultimately of human knowledge, as it exists in any one
place. The elaborate, overlapping, knowledge-transmitting networks
which constitute the various institutions of a complex society
demonstrate both the wide diffusion of relevant knowledge and the
high cost and high value of its transmission and coordination. For
political institutions, especially for those insulated from effective
feedback, to persistently override the decisions of other institutions
and millions of individuals is virtually to insure results that are
unproductive or counterproductive, even in terms of the preferences of
the overriding institutions.

The virtual impossibility, in many circumstances, of having any real

knowledge beforehand has created a demand for surrogates for
knowledge the so-called "findings" of "experts." In Brown v. Board of
Education, for example, Chief Justice Earl Warren confidently referred
to psychological findings "amply supported by modern authority,"399
and cited as his particular authority a study subsequently devastated as
invalid, if not fraudulent.400 Even the attorneys who used the study
regarded it skeptically among themselves, and one said, years later, "I
may have used the word `crap'...."40' Courts, like other institutions,
often fail to make the crucial distinction between (1) opinions in vogue
among intellectuals, and (2) empirical evidence, based on recognized
analytical procedures, such as controlling for variables other than the
ones at issue. "Affirmative action," for example, abounds with
numbers and percentages which consistently ignore such gross
demographic differences as age, and discussions of capital punishment
repeat as dogma the findings of a superseded study which defined
"capital punishment" as words in law books, rather than executions. To
lump all these things together under the ponderous name of "expertise"
is to add self-deception to insulation from the firsthand knowledge so
readily dismissed as "public clamor."

The purely institutional, factual, or methodological, deficiences of

legal decision making might explain random variations but not
systematic bias. Indeed, bias is not quite the right word, insofar as it
implies a preference for a particular principle, such as a Marxist's
preference for socialism or a teetotaler's preference for non-alcoholic
drinks. A court with a biased approach might, for example,
consistently insist on an extremely stringent standard of proof, or-if
biased in the other direction-consistently accept rather low levels of
evidence as proof. The courts have done neither of these things. They
have applied extreme standards of proof before accepting the
convictions of some categories of defendants and have made other
categories of defendants virtually have to prove their innocence. This
is not a principled bias but social partisanship.

A court that believed in the principle of either "procedural" due

process or "substantive" due process might consider following either
principle or-if unable to make up its mind-vacillate randomly between
them. The courts have done neither of these things. They have applied
the principle of procedural due process to some social categories of
litigants (property owners, for example) and substantive due process to
others (criminals, for example). A court biased in principle for or
against overriding the decisions of other institutions might consistently
move in either of these directions, but the Supreme Court's consistency
is only in which kinds of institutional processes it would defer to
(administrative agencies), and which kinds it would review and
monitor in detail (state courts, businesses). Courts biased for or against
the principle of extended accountability for the consequences of one's
actions might go in either of these directions, but only socially partisan
courts would extend the principle to unprecedented lengths of "product
liability" for busi- nessmen402 while reducing it by unprecedented
amounts in libel immunity for newspapers.403 When the post-1937
Supreme Court ostentatiously repudiated the "substantive due process"
doctrine in economic matters, it simultaneously began an extensive
and unprecedented expansion of its scrutiny of the substantive nature
of "due process" in criminal, civil liberties, and racial cases. This
might appear to be "compartmentalized thinking""' from the standpoint
of reconciling principles, but it is perfectly consistent as social
partisanship. Indeed, there is remarkable consistency in social
partisanship across the various areas of inconsistent principles.

Repudiation of the economic version of substantive due process

meant allowing politically liberal legislation and administrative
agencies a free hand to control businessmen with little judicial scrutiny
of constitutional issues, such as confiscation of property. Relaxed
standards of proof-including de facto burdens of proof on the accused-
facilitated the same policy at the expense of the same social group,
with judicial "deference" to the "expert" findings of administrative
agencies in issues from antitrust to "affirmative action." The findings
of trial courts of judges and jurors selected for impartiality were given
no such deference as the findings of administrative agencies staffed by
personnel selected for their zeal on one side of an issue. Even proof of
a criminal defendant's guilt in court was not enough to sustain a
conviction at the appellate level if any of a number of newly created
and sometimes retroactive technicalities were not observed-even
though the technicalities might be a matter of close dispute among
expert appellate judges,40' and therefore far from obvious to
policemen on the street.
 The problem with social partisanship is not simply the particular
selection of groups to be favored or disfavored, but (1) its general
inappropriateness in a system of law, (2) the duplicity necessary to
sustain it in the guise of legal principles which appear and disappear
rapidly and unpredictably, (3) uncertainty and demoralization where
the legal system provides, not a framework within which to place and
utilize knowledge best known to those involved, but instead a
continual threat of second guessing which may cause decision makers
to act in ways most likely to appear plausible to outsiders, rather than
in ways judged best by those who actually know. Even those groups
supposedly favored by the social partisanship of the courts lose as
members of the general society, so that what is involved is not simply
a judicial transfer of benefits but a set of policies which can become so
counterproductive that everyone loses. It is perhaps indicative when
polls show blacks opposed to busing or to "preferential" treatment
(quotas), and declaring that the law is too "lenient" with criminals.406

Despite the tendency of intellectuals, "experts," and policy makers

to view the functioning of society as a series of issues and problems to
be directly "solved" from an implicitly unitary viewpoint, the real
problem is to locate decision-making discretion in the respective social
processes most able to resolve the particular considerations arising in
different areas of human life. The same diversity of values which
makes this desirable also makes it difficult to achieve. Those in the
higher, more powerful, and more remote institutions face the constant
temptation to prescribe results rather than define the boundaries of
other institutions' discretion. Nothing is easier than to confuse .broader
powers with deeper insight. But, almost by definition, those with the
broadest powers are the most remote from the specific knowledge
needed for either deciding or for knowing the actual consequences of
their decisions.

Various feedback mechanisms serve to limit the impact of errors,

moderate the presumptions of the powerful, and remedy the essential
ignorance of social "expertise." These feedback mechanisms may be
formal or informal, and social, economic, or political. Their
effectiveness varies with the extent to which they convey not only
information, but also a degree of persuasion or coercion which cannot
be ignored by those whose decisions must be reconsidered. In the
intimacy of the family, or in other important informal relationships, the
value of the relationship itself forces some mutual accommodation. In
economic organizations, the life-and-death power diffused among
customers makes ignoring their preferences a folly in which few can
indulge, and which even fewer can survive. Political organizations are
constrained by elections, but the courts-which is to say, ultimately, the
Supreme Courtare constrained only by history and by "a decent respect
for the opinions of mankind."

Because history is by definition tardy, and the opinions that matter

to judges may be far more restricted than those of mankind, courts are
especially inappropriate for making "results"-oriented decisions, as
distinguished from decisions of principle or decisions which demarcate
the boundaries of other institutions' discretion. The relative lack of
flexibility of courts is an asset for decision making in those areas
where we want very little flexibility- i.e., in areas dealing with the
security of our persons, possessions, and freedom. In venturing beyond
such areas, courts are venturing beyond their institutional advantages.

As the legislative and executive branches of government demarcate

the boundaries of private decision making, so the courts have confined
the scope of the government's activities. Constitutional guarantees
encumber the state precisely so that the state may not encumber the
citizen. Imposing outsiders' rules to supersede insiders' understanding
and flexibility is questionable even as social policy, aside from its
constitutional problems. When something simi lar was suggested for
the Supreme Court itself, in the modest form of a case prescreening
panel to reduce its work load, the institutional needs of the court were
expressed in terms which go to the heart of what the court's own
decisions have done to other institutions across the country. According
to justice Brennan, "flexibility would be lost""' in an "inherently
subjective" pro- cess40A with "intangible factors"409 that are "more a
matter of 'feel' than of precisely ascertainable facts,""' and which
involve a "delicate interplay" of "discretionary forces.""' The tragedy
is that he apparently considered this to be an institutional peculiarity of
the Supreme Court,d12 rather than a pervasive fact of decision making
in general.
Chapter io
 Trends in Politics

Among the prominent political currents of the twentieth century are (1)
a worldwide growth in the size and scope of government, (2) the rise
of ideological politics, and (3) the growing political role of
intellectuals. In addition, it has been an "American century" in terms of
the growing role of the United States on the world stage, particularly
during two world wars and in the nuclear age. This does not imply that
international events have followed an American blueprint or have even
been favorable on the whole to American interests or desires. It does
imply that the fate of the United States has become of world historic,
rather than purely national, significance. These developments will be
considered here in terms of their implications for the effective use of
knowledge in social processes, and in terms of the even more
important question of their implications for human freedom.

THE SIZE AND SCOPE OF GOVERNMENT

SIZE

By almost any index, government has grown in size and in the range
of its activities and powers over the past century, throughout the
Western world. This has been true of governments at all levels, but
particularly of central or national government. In the United States,
there were less than half a million civilian employees of the federal
government as late as the onset of World War I, but there are now more
than six times that number,' and even this understates the growth of the
federal payroll, because "most government activities are carried out by
workers who are not included in the federal employment statistics"'-
employees of federal contractors or subcontractors, and state and local
programs financed and controlled from Washington. In addition,
"about one person in every four in the U.S. population receives
workless pay from government sources"'-relief, unemployment
compensation, and innumerable benefits of various other social
programs. The expenditures of the federal government in 1975 were
more than double what they were in 1965, and these in turn were
nearly twice what they were in 1955.` To compare this with pre-New
Deal expenditure patterns, 1975 federal spending was more than one
hundred times federal spending in 1925.5 Moreover, the budget of
HEW alone is roughly equal to that of all fifty state governments
combined.'

One of the problems in trying to comprehend federal spending is

that the units involved-billions of dollars-are so large as to be almost
meaningless to many citizens. To visualize what a billion dollars
means, imagine that some organization had been spending a thousand
dollars a day every day since the birth of Christ. They would not yet
have spent a billion dollars.' In the year 2000 they would still be more
than 250 million dollars short of one billion dollars. Government
agencies of course spend not one but many billions of dollars annually.
HEW alone spends about 182 billion dollars annually.' To get a figure
comparable to what the entire federal government spends annually,
change the one thousand dollars per day to half a million dollars per
day, every day since the birth of Christ. At the end of two thousand
years the grand total would amount to less than three quarters of what
the federal government spent in 1978 .alone.

The size of government has grown, not simply by doing more of the
same things but by expanding the scope of what it does. At the
extreme of this development, a new political phenomenon has made its
appearance in the twentieth century-the totalitarian state.
Undemocratic, despotic, or tyrannical governments have existed down
through the ages, but the totalitarian state is more than this.

TOTALITARIANISM

It is not simply the origin or basis of political power that defines

totalitarianism, nor even the amount of power or its ruthless
application. A tyrant is not automatically a totalitarian. It is the
political blanketing of the vast range of human activities-from intimate
personal relations to philosophical beliefs-that constitutes
"totalitarianism." The founder of fascism and origina tor of the term
"totalitarianism," Benito Mussolini, summed it up: "All through the
state, all for the state, nothing against the state, and nothing outside the
state."' Totalitarianism "recognizes the individual only insofar as his
interests coincide with those of the State." Nongovernmental entities,
whether formal or informal, had no place. "No individuals or groups,
political parties, associations, economic unions, social classes are to
exist apart from the state."10 It is the exclusion or suppression of
autonomous sources of orientation that is the defining characteristic of
totalitarianism.

A military dictator may hold power through force of arms and

mercilessly kill every political rival, and yet care little how children
are raised, or whether the people are religious or not. In the Roman
Empire before Christianity became the state religion, religious
toleration was widespread," as was a certain amount of general
toleration, accommodation, and social mobility in a large multiracial,
multicultural domain.'Z At this juncture, the Judeo-Chris- tian
religions were dealt with harshly precisely because they refused to
accommodate other religions, which they denounced as idolatry.13 Yet
the Roman Empire was an autocracy, and at various times a military
dictatorship in which the emperor exercised arbitrary powers of life
and death over the masses and the aristocracy alike. It was not
totalitarian, however.

Totalitarian governments reach into every nook and cranny of

private life, among the masses as well as the elite. Children are
indoctrinated with the official ideology, taught to betray even their
parents to the state, and as adults live in an atmosphere in which even
the most intimate relationships are subject to state scrutiny and carry
the threat of mutual betrayal or official retaliation against lovers or
family members for the actions of an individual who has displeased the
political authorities. History, science, and the arts are all made subject
to political direction. Hitler's "pseudoauthoritative judgments about
everything under the sun"" were matched by Stalin's pronouncements
that extended to linguistics and his disastrous imposition of Lysenko's
genetic theories on Soviet agriculture, and by Mao's "sayings" which
seemed to cover every aspect of human existence. It is not the source
or the ruthlessness of power alone which defines totalitarianism, but
the unprecedented scope of the activities subjected to political control.

A concentration camp is the ultimate in totalitarianism, with

political decisions determining such routine things as eating and
sleeping, as well as personal relations (dehumanization) and death
(extermination). Slave plantations in the antebellum South have been
analogized to concentration camps,15 but their paramount nonpolitical
objective of economic gain meant that slave owners had to make far
more concessions to slaves than concentration camp commanders ever
made to their inmates. Concentration camps in both Nazi Germany and
the Soviet Union were far less economically efficient than the
totalitarian societies of which they were a part,18 but they were
maintained despite this, for political purposes. Slave plantations were
profit-making enterprises," inherently limited by that fact in how far
they could go in oppressing or destroying the sources of their wealth.
Whatever moral equivalence may have existed between the two kinds
of institutions, they were neither politically nor economically
equivalent.

A unifying ideology is essential in a totalitarian state, if only so that

its multitudes of organizations do not work at cross purposes to such
an extent as to- be self-destructive. In the intentional terms of
totalitarian belief or propaganda, power is exercised in the service of
the ideology. However, in view of the ease with which Nazi officials
became Communist officials after World War II, it is also possible that
the ideology is exercised in the service of power. Certainly it is hard to
imagine totalitarian state power without a unifying ideological theme,
and history presents no examples.

The particular ideology may be a creation of the totalitarian leader,

as in Hitler's National Socialism, or may have an historical tradition, as
in Marxism. However, even in the latter case, the ideology may still be
instrumental rather than controlling. Certainly people following
Marxism-as distinguished from using Marxism-could never set up a
totalitarian state. Marx and Engels opposed autocracy, much less
totalitarianism.18 The whole point of the proletarian revolution-i.e., a
revolution from the bottom up-was that revolution from the top down
implied a post-revolutionary dictatorship over the proletariat.19
Lenin's revolution from the top down confirmed the Marxian fears, but
Lenin was not bound by the "original meaning" of Marxism and in fact
reinterpreted Marx to justify what he had done.20

Ideology is not only instrumental, or a producer's good, for the

government; it is also a consumer good for the populace, or segments
thereof. Totalitarian ideology typically features (1) the localization of
evil-in Jews, capitalists, or some other group-so that comprehensive
political solutions to age-old human problems seem feasible within a
reasonable time horizon by surgically removing the offending group,
leaving a healthy body politic intact, (2) the localization of wisdom, to
explain why this miraculous cure has escaped so many minds for so
many centuries, as well as explaining the necessity for superseding
democratic institutions and beliefs, (3) a single scale of values by
which priorities may be arranged in every field of human endeavor, to
be achieved "at all cost," (4) the presupposition of sufficient
knowledge to achieve whatever goal may be projected, (5) the urgency
of the "problem" to be "solved" so that ruthlessness is the lesser of two
evils, and (6) a psychic identification with millions, whose opinions
may nevertheless be disregarded and whose lives may be sacrificed in
the cause, without feelings of guilt. Finally, the totalitarian ideology
must be a self-enclosed sys tem, to exclude alternative views and
visions which are-regardless of their substance-inherently antithetical
to a single totalitarian ideology. It is therefore central to totalitarian
ideology that it convert questions of fact into questions of motive.21
Facts are a threat because they are independent of the ideology, and
questioning the motives of whoever reports discordant facts is a low-
cost way of disposing of them.

An ideology may be viewed as a knowledge-economizing device,

for it explains complex empirical data with a few simple and familiar
variables. It is hardly surprising that ideological explanations should
have a special appeal to those with higher costs of alternative
knowledge-the inexperienced ("youth") and the previously politically
apathetic ("masses"). As a leading student of totalitarianism has
observed:

It was characteristic of the rise of the Nazi movement in Germany and

of the Communist movements in Europe after 1930 that they recruited
their members from this mass of apparently indifferent people whom
all other parties had given up as too apathetic or too stupid for their
attention.22

It is also in keeping with the concept of ideology as a knowledge-

economizing device that there should be defections with age as
discordant knowledge forces itself on one's attention, until a point is
reached where the cost of reconciling it with the ideological vision
exceeds the cost of discarding the vision itself. Explaining complex
reality with simple and familiar variables is a low-cost process
initially, but this cost tends to rise over time, as ever more complex
relationships must be postulated between the simple variables and the
accumulating complex reality-much like the Flat Earth Society
explaining away phenomena which have long ago convinced others
that the earth is round. Indeed, when theories are viewed
instrumentally, rather than as literal reconstructions of reality, the
reason for preferring the round earth theory is basically an intellectual
economizing process: the incremental investment in a slightly more
complex initial assumption than a flat earth is later repaid by lesser
intellectual effort in reconciling the results with empirical observation.
It is a question of cost-effectiveness rather than of reaching ultimate,
immutable truth. For the initiate in totalitarian ideology, however, cost-
effectiveness may lie with the simple assumptions, because
authentication is a sequential process in which the full costs will he
revealed only in the course of time. He may also be more interested in
the power than in the cognitive advantages to be derived from
totalitarianism-or may become so oriented in the course of time.

This consumer good aspect of totalitarian ideology is an essential

part of the phenomenon. The hypnotic fascination and exhilaration
with which Hitler's followers listened to his speeches was an integral
part of Nazism. Among Communists, the vision of the ideology itself-
the "wretched of the earth" creating "a new world"-substitutes for
oratorical genius, and has in fact proven far more effective with
intellectuals. The "intellectual delight" and "intellectual bliss" on
reading the Marxian vision," the sense of revelation when "the whole
universe falls into a pattern like the stray pieces of a jigsaw puzzle
assembled by magic at one stroke,"24 the thrill when the
"revolutionary words leaped from the printed page and struck me with
tremendous force""-these are part of the psychic rewards for the total
commitment that characterizes totalitarian movements.

Because Marx and Engels had already paid the high fixed costs of
creating the vision, latter-day Marxists could achieve ideological
results at lower incremental costs. They need not possess Hitler's
genius for oratory or for discerning exploitable human susceptibilities.
It is only in the light of such ideological visions that it is possible to
understand the "confessions" to nonexistent crimes which have been
produced not only in Soviet courts but even in Communist movements
in Western democracies-movements possessing no tangible power to
punish their members. The ideological context dwarfs the particular
characteristics of the particular individual, as in this description of an
internal party "trial" among American Communists in the 1930s:

... there had to be established in the minds of all present a vivid picture
of mankind under oppression.... At last, the world, the national, and the
local picture had been fused into one overwhelming drama of moral
struggle in which everybody in the hall was participating. This
presentation had lasted for more than three hours, but it had enthroned
a new sense of reality in the hearts of those present, a sense of man on
Earth.... Toward evening the direct charges against Ross were made....

The moment came for Ross to defend himself. I had been told that
he had arranged for friends to testify in his behalf, but he called upon
no one. He stood, trembling; he tried to talk and his words would not
come. The hall was as still as death. Guilt was written in every pore of
his black skin. His hands shook, he held onto the edge of the table to
keep on his feet. His personality, his sense of himself, had been
obliterated. Yet he could not have been so humbled unless he had
shared and accepted the vision that had crushed him, the common
vision that bound us all together.

"Comrades," he said in a low, charged voice, "I'm guilty of all the

charges, all of them. "

His voice broke in a sob. No one prodded him. No one tortured him.
No one threatened him. He was free to go out of the hall and never see
another Communist. But he did not want to. He could not. The vision
of a communal world had sunk into his soul and it would never leave
him until life left him.2'

Conversely, without the commitment to the ideological vision, even

the horrors of slave labor camps could not silence Solzhenitsyn,
Sakharov, or other Soviet opponents of totalitarianism.

Ironically, the first book that Marx and Engels wrote together, in
1843, contained a scathing indictment of the practice of first breaking
down indi vidual self-respect and personality, and then attempting to
reconstruct a human being according to some preconceived plan. The
hero of a contemporary novel had made a religious conversion in that
way. Marx and Engels pointed out that with his "smooth, honeyed
curse" he had first "to soil her in her own eyes" in order to make her
receptive to the redemption he would offer.27 The lofty motives with
which this was done were simply camouflage for the zealot's "lust" for
"the self-humiliation of man"" Even in a political context, Marx had no
use for the idea of state indoctrination.29

"Confessions" to nonexistent crimes illustrate another characteristic

of totalitarianism-the concept of "political truth." Not only people and
organizations are subject to total control, so too is the truth. Hitler's use
of the reiterated big lie, and numerous Soviet revisions of official
history (complete with air brush erasures in historic photographs) are
part of a pattern of control that extends to the basic data itself. This is
more than the usual political lying common to systems of various
sorts. It is monopolistic lying, with the exclusion of alternative sources
of information. Moreover, it is lying on principle-or rather, it is a
philosophy that regards what is said as largely instrumental, so that the
very distinction between lying and the truth becomes blurred or even
regarded as trivial or naive.30 Political truth is whatever will advance
the interests of the cause or movement. Quite aside from ethical
questions, this approach makes the same assumption of
omnicompetence that is central to totalitarianism as a whole.

The philosophic postulate that statements are instrumental may be

necessary, but by no means sufficient, as the basis for lying as a
principle. It is not that philosophical postulate but the empirical
presupposition of virtually zero incremental knowledge costs
(omniscience) for some subset of people ("leaders") that is crucial for
the conclusion. Even viewed from a wholly instrumental perspective,
the ethical norm of truth is a cost-saving social institution for people
for whom knowledge is not a free good. If the set of such people
includes all of humanity, then instrumental lying has social costs which
cannot be assumed to be less than whatever benefits are contemplated-
either for society at large or even for the subset who engage in this
wholesale disinvestment in credibility. The presumption is indeed the
other way. The systemic evolution of ethical norms of truthfulness in
the most diverse and separated cultures-around the world and down
through history-suggests something of the instrumental value of truth.
Similar ethical norms in this regard originating in the prehistory of the
human race, when the species was even more separated and
fragmented than today, hardly seem the product of coincidental
philosophic intentions rather than of systemic universalistic
experience. It is difficult even to conceive theoretically of a society
that could survive if statements had no more probability of being true
than if they were generated by a process that was random with respect
to truth as a value in itself. Even totalitarian governments invest
substantially in the production of truth, including secret police and
torture, from an instrumental point of view.

The substitution of instrumental consequences for empirical truth as

the criterion for statements is by no means the substitution of a more
manageable standard. "The usefulness of an opinion is itself matter of
opinion: as disputable, as open to discussion and requiring discussion
as much as the opinion itself."" The sweeping scope and arbitrariness
of the assumption that one can trace the instrumental consequences of
particular words and deeds may be indicated by asking whether
anyone could have foreseen the consequences of a certain Italian
explorer's theory that he could reach India by sailing west-a set of
words and deeds that led to the discovery of half the planet and
changed the course of history in both halves. It is especially ironic for
totalitarianism to assume such omniscience, since it was precisely
totalitarian oppression which drove from Germany and Italy the men
who gave America the decisive military weapon of World War II and
ushered in the nuclear age-Albert Einstein and Enrico Fermi.

Conversely, imagine a being with zero incremental knowledge

costsomeone able to discern the remotest ramifications of his every
statement. Why should such a being be bound by ethical norms of
truth, either from the standpoint of self-interest or even if making the
interests of humanity the paramount determinant of his behavior? If he
knows to a certainty that saying A would on net balance (in all its
ramifications) be more beneficial to mankind than saying B, would it
not be blind, fetishistic, traditionalism for him to say B? Would it not
be self-indulgence to say B in order to salve his own conscience at the
known expense of perhaps millions of his fellow creatures, now and in
the future? This is only to say that if human beings were entirely
different creatures, entirely different principles might well apply. More
practically, a choice among principles involves an understanding of the
inherent limitations of the species and its surrounding circumstances,
rather than a comparison of what would be the best mode of operation
in an unconstrained world.

The instrumental case for truth is the instrumental case for human
institutions in general-ultimately knowledge costs, which is to say, the
unattainability of omniscience. Courts are preferred to lynch mobs
even when it is known to a certainty in the particular case that the
accused is guilty, and even if the lynch mob inflicts exactly the same
punishment that the court would have inflicted. The philosophic
principle that we "should not take the law into our own hands" can be
viewed instrumentally as the statement that, however great our
certainty in the particular case, we cannot supplant legal institutions as
cost-saving devices because we cannot assume equal certainty in
future cases. If we could know with certainty (zero incremental
knowledge cost) in all cases who was guilty, would it not be blind,
fetishistic traditionalism to maintain legal institutions to determine
such matters? If man were indeed able to take in all existence at a
glance-including past, present and future existence-would there be any
reason for any institutions? Even if some of these omniscient beings
preferred antisocial behavior, why would it be necessary to have rules
existing beforehand (and that is what institutions are) to deal with
them, when the necessary actions to deal with them could be
determined ad hoc-and indeed the potentially antisocial people would
know this themselves and be deterred.

Totalitarian institutions would be a contradiciton in terms, if the

central assumption of omnicompetence were universalistic. But
totalitarian movements and institutions are based on a belief in
differential knowledge costs (their leader or doctrine supposedly
giving them vast advantages over others) and therefore one-way lying.
The instrumental value of truth in the other direction is recognized by
totalitarian nations' pervasive surveillance of the population,
monitoring of the effectiveness of their indoctrination, and sorting and
labeling of the populace according to their perceived instrumental
value to the state. All these assessments are intended to be as true as
possible, even by the most lying totalitarian state. Soviet economic
statistics are generally assumed to be technically correct, even if
selectively and misleadingly published," simply because it is
instrumentally essential that Soviet decision makers have the truth as
far as they can get it themselves, and a multitude of copies of two
different sets of statistics (one true for internal use and one false for the
outside world) would be unfeasible, just from the virtual certainty of
leaks in such a massive undertaking in duplicity.

The instrumental case for truthfulness rests ultimately on the same

assumption as the instrumental case for human institutions in general,
and for free institutions in particular. That assumption is that, because
we cannot know all the ramifications of whatever we say or do, we
must put our faith in certain general or systemic processes (morality,
constitutions, the family, etc.), whose authentication by social
experience over the centuries is more substantial than any particular
individual revelation or articulation. This is not to say that no social
processes should be changed or even abandoned. On the contrary, their
history has been largely a history of change-usually based on social
experience, even when marked by individual revelation or articulation.
What is at issue is: who should decide the nature of these changes,
subject to what incentives and contraints? An enduring framework-
morality or a constitution-does. not preclude change but may well
facilitate it, by reducing the fears that might otherwise be aroused by
reforms if their full ramifications were literally unbounded and
unimaginable. Countries may change faster because they have certain
institutional limitations, just as cars travel faster because they have
brakes.

The social and political differences between the United States today
and two centuries ago are staggering, though all within the same
general legal and moral framework. Totalitarian governments can
make more rapid changes of personnel ("purges") and policies (the
Nazi-Soviet pact, changes in Sino-Soviet relations, etc.) as of a given
time, but the fixed purposes of all such changes may mean less
fundamental social and political change within the country than in a
democratic or conventionally autocratic system. Certainly it would be
difficult to argue that the Soviet Union today is as socially and
politically different from the Soviet Union fifty years ago as is the
contemporary United States from what it was half a century ago. The
change in the status of the American black population alone has been
dramatic, in addition to changes in the role of government in the
economy and society, and countless shifts in the balance of social and
political power among a variety of regional, economic, and
philosophic groups.

Change is one of the great promises of totalitarian movements-

whether Hitler's "New Order," Mussolini's "new departure in
history,"33 or a variety of Marxist-Leninist-Stalinist variations on the
same theme. Initially profound changes in political power are indeed
characteristic of totalitarianism. But whatever the intentional forces at
work among the original insurgents, the systemic effects have been
centered on retaining the totalitarian power, at whatever cost in terms
of violating the original program or ideology. This has typically
necessitated, at some point, a purge of those attracted by the original
insurgent program that is now being discarded when in power. Hitler's
1934 purge of his storm trooper leaders from insurgent days3° and
Stalin's purge of Trotsky (and many others) were part of a pattern that
has been characteristic of totalitarian governments around the world.
While national dangers have been used to justify such actions, they
have in fact typically occurred after a consolidation of power, when
there was considerable evidence (including statements within the
regime) that the dangers to the government had lessened.35 Perhaps
these events mark the transition from a totalitarian movement's seeking
of power for a purpose to a situation in which power has itself become
the purpose. For at least some unfortunate segments of totalitarian
movements, it is clear that they could not predict the ramifications of
the forces they set in motion as insurgents.

CONSTITUTIONAL DEMOCRACY

As noted in Chapter 5, a government whose source of power is

democratic may promote either freedom or tyranny. The rise of
popularly elected gov ernment in the American South toward the end
of the nineteenth century marked the spread of Jim Crow laws and an
unprecedented terror against the black population, both inside and
outside the law. By contrast, most of the personal rights which are
loosely referred to as "democratic" rights were pioneered in England
under governments that were democratically elected only within the
past century-the popular franchise being a consequence rather than the
cause of these developments, which go back to Magna Carta. In short,
despite a general, historical association of freedom and democracy,
they can be independent of each other in theory, and have at times been
so in practice. Indeed, Hitler came to power through democratic and
constitutional processes.
 Freedom cannot be made definitionally a part of democracy. The
democratic process is a mode of political decision making. Freedom
may occur under this or other modes. The more autocratic the
government, however, the more freedom depends on the benevolence,
indifference, or inefficiency of the authorities. Such freedom can
readily be suspended or revoked when it threatens the existing
authorities or the existing form of government. By contrast, democratic
freedom typically means recognition as a practical matter-and/or as an
ethical principle-that freedom is difficult to maintain for most when it
is not maintained for all. Thus democratic freedoms include the
freedom to denounce freedom and to advocate and even carry out its
destruction, as in the rise of Hitler in the Weimar Republic. In short,
the movement from freedom to totalitarianism tends institutionally to
be a one-way movement, since despotism recognizes no popular right
to move back toward freedom. Historically, the movement from
despotism to freedom has taken place after despotism's self-destruction
(Hitler being the clearest example) through either internal or external
force, aroused by the excesses of despotism itself. The immediate
incremental costs of moving in the totalitarian direction are, however,
asymmetrical. It is easy to give up freedom and hard to get it back.
Only a general horror of loss of freedom acts to convey these future
costs into present-day decision-making processes.

In the perspective of world history, constitutional democracy is a

very late arrival. Autocratic, aristocratic, and dynastic governments all
go back for thousands of years, but the first time in history when a
national government voluntarily relinquished power to an alternative
set of political leaders as a result of a popular vote was 1800, when the
Federalists turned power over to Jefferson's Democratic Republicans.
Constitutional democracy is a new-and indeed, fragile-form of
government. Yet its appeal is so widespread that even some totalitarian
governments create its outward appearances to win supporters (or at
least, neutralize critics) at home and abroad.36

While freedom antedates constitutional democracy, both are rooted

in a division of power. A constitution intentionally creates
institutionally what has occurred fortuitously or systemically at various
times in history-such a division of the decision-making power as to
preclude one faction's complete domination and to necessitate their
courting of popularity. "Despotism itself is forced to truck and
huckster," under such circumstances, and even an absolute monarch
"governs with a loose rein that he may govern at all ..... Freedom as a
result of division prevailed among the Arabs before Mohammed united
them,39 and religious freedom existed among the diverse peoples of
the Roman Empire before Christianity united them by conversion or
through force. Much of the freedom of colonial America and the early
United States was a fortuitous freedom, born of the sheer diversity of
local despotisms, too numerous and widespread to unite or overcome
one another. A leading American historian has observed: "In none of
the colonies was there anything that would today be recognized as
`freedom of the press.' "39 Religious freedom was equally scarce. In
1637 the Massachusetts Bay Colony "passed an ordinance prohibiting
anyone from settling within the colony without first having his
orthodoxy approved by the magistrates."" A Puritan leader declared
that other religionists "shall have free Liberty to keep away from us.""
The banishment of Roger Williams," and the public whippings and
brutal imprisonment of the Quakers who came to Massachusetts43
indicate that this was no idle statement. Nor was Massachusetts
unique, or Quakerism the only proscribed religion. In late colonial
America, "the only place where the public exercise of Catholic rites
was permitted was Pennsylvania, and this was over the protest of the
last governor."44 It was from this "decentralized authoritarianism" that
a "great diversity of opinion" came, not from toleration in principle but
from "the existence of many communities within the society each with
its own rigid canons of orthodoxy.""

Systemically evolved freedom in colonial American later became

intentionally preserved freedom, in the Constitution of the United
States. The Constitution relied on institutionalized divisions of power
to preserve the freedom created by fortuitous divisions of power. It
was the social equivalent of a chance mutation being preserved
because it proved valuable. In addition to the classic division of
powers into legislative, executive, and judicial, the Constitution
divided powers into federal and state-with the state power being the
predominant power in most areas, superseded by federal power
primarily in interstate or international matters. This created as many
independent power centers as there were states. States' rights, like
some other rights, exist not so much to benefit the actual holders of
these rights, but to serve larger social purposes.

The dominant theme of the Constitution itself and of the writings of

those who created it was the danger of power concentrated in a single
decision making unit or in a few decision making units operating in
concert. What Madison called a system of "opposite and rival
interests"" was built into the American government. Each branch of
government was given "the necessary constitutional means and
personal motives to resist encroachments of the oth- ers."47 Freedom
was not trusted to the morality of leaders but to their conflicting
drives: "Ambition must be made to counter ambition."4R Government
was not to create divisiveness but to utilize the inherent conflicts
"sown in the nature of man" as a means of preserving freedom.49
Perhaps the point is most easily illustrated in reverse: the one area in
which a united national majority was easily identified in colonial
America was race, and it was here that the loss of freedom was carried
to its extreme in slavery. Although it is known when Africans were
first brought to America (in 1619), it is not known when slavery
began, because the first captured Africans became indentured servants,
like an even larger number of contemporary whites.50 But slavery
evolved as systemically for blacks as freedom for whites, and in both
cases the legal system later ratified what was already an accomplished
fact. In short, the connection between freedom and the presence of
offsetting powers is shown both by the presence and the absence of
freedom in colonial America.

Over the years, but especially in the twentieth century, the

constitutional division of powers has been eroded or destroyed in a
number of ways. The intentional combination of the constitutionally-
divided legislative, executive, and judicial powers in administrative
agencies is only one of these ways, though perhaps the most blatant.
The Civil War and its aftermath for generations set up federal-state
confrontations in which "states' rights "were almost invariably
interwoven with racial oppressions increasingly rejected by the
country at large. The preservation of the historic division of powers
has been dependent upon the interpretation of the Constitution by a
Supreme Court which itself stands to benefit from the concentration of
power in the federal government, and by extending judicial power into
executive and legislative areas. Moreover, the sheer growth in size of
the federal government has given it new powers derived neither from
the Constitution nor from any statutes, but inherent in the disposition
of vast sums of money, many important jobs, and great discretionary
powers of enforcing a massive and ever growing amount of laws and
regulations. Finally, the ideologizing of politics has made the
preservation of the constitutional framework a matter of reduced
importance in the face of passionately felt urgencies. These various
forces can be summed up as the moral and the institutional reasons for
the erosion of the constitutional divisions of power.

How does the sheer size of government affect constitutional

democracy or freedom? First of all, the size of the government affects
the ability of the citizens to monitor what it does-or even the ability of
their elected political surrogates to monitor the activities of a far-flung
administrative empire, with officials who may dispose of sums of
money greater than the gross national products of many nations. The
congressional committee system attempts to cope with the problem by
assigning a segment of each house to concentrate on particular policy
issues-banking and currency, the military, labor, etc.- and make reports
to the full Senate or House of Representatives, to guide the votes of
individual members. However, as the government has expanded the
scope of its activities, each Senator or Representative has to serve on
so many committees and subcommittees (about ten subcommittees per
Senator, for example51) dealing with matters of such complexity that
no unaided individual could stay abreast of it all. This in turn means
that political surrogates themselves are forced to resort to other
surrogates-their staff aides, whose influence is so pervasive that they
have been referred to as a second set of lawmakers.52 Committee
staffs do not simply acquire factual information; they influence the
substance and thrust of legislation, and often write its provisions. The
high cost of knowledge also adds weight to lobbyists for special
interests, who have incentives to become knowledgeable in a narrow
but often complex area. Like the committee staffs and lobbyists, career
bureaucrats owe much of their influence to the high cost of knowledge.
The career bureaucrats both write and interpret federal regulations,
which in 1975 occupied more than 60,000 pages of the Federal
Register-three times the number of pages in 1970.53 In short,
escalating knowledge costs reduce the representativeness of
government. There are also huge financial costs of government
programs, which tend to be argued over in terms of their individual
merits or demerits, without regard to their effect on the size and
responsiveness of government.

The growth of administrative agencies is not merely the growth of

an arm of government performing assigned tasks. It is the growth of a
sector with its own political initiatives and its own external
constituencies developed as a result of its initial mandate, constantly
pushing for an expansion of its activities and benefits. It is the creation
of an external constituency that is politically crucial, and this means
that one segment of the electorate receives-in addition to whatever
current direct benefits are involved-the enduring advantage of mutual
knowledge of who constitues the beneficiaries at a lower cost than the
average citizen's cost of knowledge of who pays in money and in other
ways. The net result is that programs whose costs exceed their benefits
may not only continue but expand, due to different costs of knowledge
between the created constituency and the general public. In the light of
these different knowledge costs, it is understandable that between 1950
and 1970 government payments to farmers increased tenfold, even
though the number of farms was reduced about 50 percent,54 that
heavily criticized programs like Urban Renewal had their
appropriations tripled in less than a decade,55 or that expenditures on
elementary and secondary education have risen exponentially while
both the numbers and performances of students have been declining.56
It is difficult to imagine any of these things happening in a world of
zero knowledge cost or even of equal knowledge cost as between
bureaucratic constituencies and the voting public.
 The knowledge cost differential is exploited in various ways. One is
the "entering wedge" approach to political innovation, in which the
initial stakes are so low as to cause opposition fears to seem so
exaggerated as to be discredited as outlandish. Later, the scope of the
innovation can manifest itself in growing sums of money and/or
burgeoning powers, after public interest has waned or turned to other
things. For example, HEW began with less than a six billion dollar
appropriation, which has since increased to more than thirty times that
amount. The income tax began in 1913 with a maximum tax rate of 6
percent on incomes of a million dollars per year and over; now higher
rates than that are paid on incomes of two thousand dollars per year.5'
Temporary concealment pays big political dividends because of the
high cost-and differential costs per unit of benefit-to the public of
trying to continuously monitor all ongoing programs. Building
subsidies in various government housing programs are routinely
understated at the outset, even though it will obviously be impossible
to conceal them indefinitely, because, as one federal official said (in
justification), "if you put these huge capital contributions up front
there's no way any administration would propose it or any Congress
would approve it."" In other words, the voters would never stand for it
if they knew. That it will eventually become "public knowledge" in
some sense means little in practical political decision-making terms, if
"eventually" lies beyond the time horizon of political incumbents
and/or if the "public" which eventually knows the facts is substantially
less than the electorate.

Many economic devices and accounting tricks which do nothing

more than postpone the transmission of financial knowledge to the
public depend for their political effectiveness on knowledge cost
differentials between the public and "insiders." One such device is
simply mislabeling as "loans" expenditures which no one expects to be
repaid. These may be "loans" to individuals, businesses,
municipalities, other nations, or international organizations. Even
better for concealment purposes are "loan guarantees" in which both
the federal government and the recipient can boldly state (without fear
of immediate demonstrable contradiction) that there is "no handout"
involved but only federal good offices used in obtaining private loans
from banks. Everyone directly involved may know-as in the case of
federal loan guarantees to New York City-that there is no rational hope
that the private loans will ever be repaid, and that the banks will
collect from the U.S. Treasury, eventually. In the meantime, it is not
carried on the books as an expenditure or as a liability (economically
or politically) of the incumbent administration. This is not a new
phenomenon historically. It has long been commonplace in the deficit
financing of Italian cities by the central government in Rome.59 Its
political acceptance in America is relatively new because previously
there was a strong but generalized and largely unarticulated suspicion
of subsidies in any form. With the emergence of an onus of articulated
rationality for all positions taken, such low-cost political protection
was no longer available to the public.

The political advantages to "insiders" of postponed knowledge

availability are more readily seen in economic terms, but the same
principle applies in noneconomic policy areas as well. One can
produce "peace in our time" as British Prime Minister Neville
Chamberlain did in 1938, at costs that become manifest in later times-
though not late enough for Chamberlain's political career in this
particular case. Japan's militarists produced exhilarating triumphs at
Pearl Harbor and Bataan, whose ultimate costs were paid at Hiroshima
and Nagasaki. Hitler likewise produced a great national exhilaration
with a series of triumphs for Germany at later costs that included
German cities more devastated than Hiroshima or Nagasaki, though by
pre-nuclear technology. It was not simply that Tojo or Hitler
miscalculated. Rather, they took calculated risks whose magnitudes
(costs) were insufficiently understood by their respective peoples
during the decision-making period. More politically successful cost
concealments abound, however. On a smaller scale, social experiments
of various sorts have produced immediate political benefits for their
partisans at costs only much later manifested in demonstrable
consequences.

The classical criticism of the growth of government has been that it

threatens both efficiency and freedom-that it is "the road to
serfdom."60 While many inefficiencies of government are too blatant
to deny, the big-government threat to freedom has been denied and
ridiculed. It is claimed that "nothing of the sort has happened."61 "Nor
need we fear" that "increased government intervention" will mean
"serfdom."62 It is pointed out that "in none of the welfare states has
government control of the economy-regardless of the wisdom and
feasibility of the regulatory measures-prevented the electorate from
voting the governing political party out of power."63 Such views are
not confined to the liberal-left portion of the political spectrum. A
leading economist of the "Chicago School" has stated: "hardly anyone
believes that any basic liberties are seriously infringed today."54

Part of the problem with the argument that freedom has not been im
paired by big government is the arbitrarily restrictive definition of
"freedom" as those particular freedoms central to the activities of
intellectuals as a social class. But the right to be free of govermment-
imposed disabilities in seeking a job or an education are rights of great
value, not only to racial or ethnic minorities-as shown by the civil
rights movements of the 1960s-but also to the population at large, as
shown in their outraged (but largely futile) reaction to "affirmative
action" and "busing" in the 1970s. Even aside from the question of the
substantive merits or demerits of these policies, clearly people
perceive their freedom impaired when such vital concerns as their
work and their children are controlled by governmental decisions
repugnant to, but insulated from, the desires of themselves and the
population at large. This loss of freedom is no less real when others
make the case for the merits of the various social policies involved or
denounce as immoral the opposition to them. Freedom is precisely the
right to behave contrary to the values, desires or beliefs of others. To
say that this right can never be absolute is only to say that freedom
itself can never be absolute. Much of the loss of freedom with the
growth of big government has been concealed because the direct losses
have been suffered by intermediary decision-makers-notably
businessmen-and it is only after the process has gone on for a long
time that it becomes blatantly obvious to the public that an employer's
loss of freedom in choosing whom to hire is the worker's loss of
freedom in getting a job on his merits, that a university's loss of
freedom in selecting faculty or students is their children's loss of
freedom in seeking admission or in seeking the best minds to be taught
by. The passions aroused by these issues go well beyond what would
be involved in a simple question of efficiency, as distinguished from
freedom. Nor can the passionate opposition be waved aside as mere
"racism." Not only are minorities themselves opposed to quotas and
busing: so are others who have fought for racial equality long before it
became popular. Nor are racial issues unique in arousing passions.
Even such an apparently small issue as mandatory seat belt buzzers
created a storm of protest against government encroachment on the
freedom of the individual. The quiescence of intellectuals as long as
their freedom to write and lecture remained safe may be less an
indication of the preeminence of these particular freedoms than of the
insularity of intellectuals.

The argument that the ability to vote to put political leaders out of
office remains unimpaired by the growth of government is somewhat
beside the point. Democracy is not simply the right to change political
personnel, but the right to change policies. The reduced ability of the
electorate to change policy is one of the consequences of growing
government-and particularly of government whose power is growing
most in its most insulated institutions, the federal courts and
administrative agencies. The judicial and ad ministrative nullification
of congressional attempts to stop quotas and bus- ing65 are only the
most striking contemporary examples. The undeclared war in Vietnam
was another short-circuiting of public control over major national
policy. Public opinion against leniency to criminals has had little
effect, and the growing public support for capital punishment" has
paralleled a growing outlawing of its use by the Supreme Court. Even
policies nominally under the control of elected officials have gone
counter to the philosophy of those officials. "Affirmative action"
quotas and massive school busing both developed under the Nixon-
Ford administrations which were opposed to them. So too did the rapid
growth of federal welfare expenditures, which finally surpassed
military expenditures under Nixon." The substantive merits of these
developments are not at issue here. The point is that this illustrates the
increasing difficulty of public control of governmental policies, even
with changes of officials, even at the highest elected levels.
 None of this is historically unique. In the late stages of the Roman
Empire its civil servants "felt able to exhibit a serene defiance of the
emperor."68 Roman emperors had the power of life and death, but
Roman bureaucrats knew how to run a vast empire that had grown
beyond the effective control (or even knowledge) of any individual.
The same was later true of Czarist Russia, for John Stuart Mill
declared: "The Czar himself is powerless against the bureaucratic
body; he can send any one of them to Siberia, but he cannot govern
without them, or against their will."69 The experience of imperial
China was very much the same.10

Freedom to act in economic matters is neither a negligible kind of

freedom in itself nor unrelated to other freedoms. The "McCarthy era"
attacks on people associated with left-wing causes was primarily an
attack or their jobs rather than any attempt to get direct government
prohibitions or restrictions on what people could say or believe. Yet
both sides recognized the high political stakes in this basically
economic restriction. But even as regards issues where both the ends
and the means are economic, freedom may yet be involved. When
people living in homes and neighborhoods that pose no threat to
themselves or others are forced to uproot themselves and scatter
against their will, leaving their homes to be destroyed by bulldozers,
they have lost freedom as well as houses and personal relationships.
This loss of freedom would be no less real if it were justifiable by
some national emergency (military action) or locally urgent conditions
(epidemic). That it is more likely to be a result of some administrative
agency's preference for seeing a shopping mall where the
neighborhood once stood only adds economic and sociological issues.
It does not eliminate the issue of freedom. Indeed, serfdom itself was
largely an economic relationship, but that did not prevent its
disappearance from being a milestone in the development of freedom.
The oft-noted political "cowardice" of big business corporations may
in fact be prudence in light of the many costly processes through
which government can run them. The constitutional protections against
government punishment-by-processing (independent of ultimate
verdicts) do not apply where economically punitive actions are not
legally interpreted as punishments, or where administrative agencies
can drain their time and money, subject neither to restrictions of
impartial judiciary concepts nor to governmental bearing of burdens of
proof. What is "euphemistically called social responsibility" may in
fact be simply the "threat of law""-or of extralegal powers derived
from institutions set up for entirely different purposes. For example,
the Internal Revenue Service can (and has) threatened to revoke the
taxexempt status of organizations whose policies displease the
government, even though such organizations violated no explicit
statute. In addition, political hostility to philanthropic foundations
found expression in the 1969 Tax Reform Act which both drained and
constrained the use of foundations' financial resources."

Though the Constitution was intended as a barrier against the

concentration of power in the federal government, it has been
construed by the Supreme Court in ways that facilitate such
concentration. Despite the impartiality expected of the judiciary, the
Supreme Court is itself an interested party in any case concerning the
constitutional division of power, either between state and federal
governments or among the executive, legislative, and judicial branches
of the latter. Public opinion long stood as a barrier to judicial activism,
and the "court-packing" threat of Franklin D. Roosevelt in the 1930s
which forced the Court to retreat from "substantive due process"
doctrines was evidence of the limits of political toleration and the
Court's reluctance to face a constitutional showdown. Less than twenty
years later, however, the Supreme Court was launched on a course of
judicial activism which made the earlier courts seem very tame-and
there was no similar reaction of public opinion or political leaders.
Attempts at restraining the Court or impeaching particular justices-
Warren and Douglas being prime targetswere ridiculed for their
futility. Partly this may have been due to the fact that the courts were,
initially at least, moving with the currents of the time, especially in
desegregation. Partly, too, it reflected the growing influence of
political and legal "realism" about the impossibility of objective
"interpretation" of the Constitution as distinguished from judicial
policy-making. As in other contexts, "realism" here meant the
acceptance of incremental defects as categorical precedents. A
continuum between objective "interpretation" and subjective policy-
making was arbitrarily dichotomized in such a way that everything fell
on the subjective side. Having proven the impossibility of perfect
universally objective and neutral interpretation, it was a short step to
acceptance of a growing subjective component in what was
increasingly regarded by even the Supreme Court's friends and
partisans as judicial policymaking. It was another triumph of the
precisional fallacy, that because a line could not be precisely drawn,
there were no decisive distinctions among any parts of the relevant
continuum.

Whatever the mixture of reasons and their respective weights, the

courts were no constitutional barrier to the concentration of power. In
the jargon of the times, they were not part of the solution, but part of
the problem.

Historic events also promoted the concentration of power. The Civil

War and its racial aftermath, in the South especially, ranged many of
the most conscientious people in the nation on the side of federal
power against "states' rights." The principle of "states' rights" was
generally available only in a "package deal" with racial bigotry,
cynical discrimination, and lynchings. In such a package, the principle
had no chance of long-run-survival on its own merit vis-a-vis the
principle of unrestrained federalism. But every decision increasing
federal power at the expense of state power applies to all the states-not
just the South-and reduces the states from autonomous power centers
toward the status of administrative units of the national government.
This is most apparent in federal-state joint programs, ranging from
"revenue sharing" to specific "matching grants" or other Washington-
financed and Washington-controlled activities in which federal money
sustains state activities-contingent on state subordination of its
decision-making discretion to federal "guidelines." However, even in
activities solely administered by the state or local government-public
schools, for example-federal "guidelines" control not only the hiring of
teachers and the placement of students but a host of other decisions
down to such minute considerations as the number of cheerleaders for
girls' and boys' athletic teams.73 That the physical administration
remains wholly in state and local hands in no way changes the fact that
the decision making has moved to Washington. In this way the
physical fallacy conceals an historic shift of power.

Even more of an historic landmark in political development was the

Great Depression of the 1930s. 'Though liberal and conservative
scholars alike have traced the origin of the Depression to catastrophic
governmental monetary policies," the popular interpretation and the
political consensus both treat the Great Depression as showing the
failure of the economic market and the inherent flaws of capitalism,
demonstrating an "objective" need for government economic
intervention. However disputable this belief, what is not seriously
disputable is that the belief itself marked a turning point in the political
and economic thinking of an age. It would be hard to explain how
postWorld War II America, in an age of unprecedented prosperity,
widening opportunities, and virtually nonexistent unemployment
became preoccupied with government guaranteed security, without
realizing that only a decade earlier this generation went through a
traumatic economic and social experience. The 1930s left more than a
psychic legacy, however. Enduring institutions were created to deal
with an episodic crisis. The severity of that crisis need not be
underestimated because it was episodic. Millions of American farmers
and homeowners found themselves on the verge of losing what they
had worked and sacrificed for a lifetime to have, when monetary
contractions beyond their control or foresight increased the real burden
of their mortgages at a time when their incomes were sharply cut or
lost altogether. When mortgage foreclosures were resisted by armed
and desperate people, the government's options were bloodshed or
relief measures. However prudent, wise, or humane it may have been
to aid destitute farmers, for example, to aid them by establishing
enduring institutions meant that, decades later, billions of dollars
would still be spent under entirely different conditions-much of it
going to agricultural corporations.

Agriculture was, of course, only one of many areas in which

permanent institutions were established to cope with an episodic crisis.
Labor, aviation, electric power generation, public housing, dairy
products, and a host of "fair-traded" items all became subjects of
newly created federal agencies. The fiscal policies of the federal
government were also permanently altered. Whereas years of
government budget surpluses outnumber years of deficits in both the
eighteenth and nineteenth centuries, and though the 1920s were a solid
decade of surpluses, the 1930s were a solid decade of deficits-setting
the stage for the general prevalence of deficits ever since.75 The
inflationary effects of these deficits can be seen in the doubling of the
wholesale price level between 1931 and 1948, whereas it declined
between 1831 and 1848, and, in fact, prices were lower at the end of
the 19th century than they were at the beginning.76 But aside from
their economic effects, budget deficits have the political effect of
insulating expenditures from immediate taxpayer knowledge.

The New Deal administration of the 1930s also introduced

intellectuals into the government on a large scale-enlisting in the
process not only those intellectuals actually in office but to a
considerable extent also enlisting as natural partisans their fellow-
intellectuals in the academy and elsewhere. This too has remained an
enduring and expanding feature of political decision-making. The
beliefs and fashions of intellectuals entered political decision-making,
not under the open and challengeable banner of interest or ideology,
but in the insulated guise of "expertise." In short, it was another force
tending toward the insulation of governmental decision making from
effective public feedback. The opening of political careers (usually
nonelective) to intellectuals also provided intellectuals inside and
outside of government with an incentive for favoring the concentration
of power. As Tocqueville observed more than a century ago:

It may easily be foreseen that almost all the able and ambitious
members of a democratic community will labor unceasingly to extend
the powers of government, because they all hope at some time or other
to wield those powers themselves. It would be a waste of time to
attempt to prove to them that extreme centralization may be injurious
to the state, since they are centralizing it for their own benefit. Among
the public men of democracies, there are hardly any but men of great
disinterestedness or extreme mediocrity who seek to oppose the
centralization of government; the former are scarce, the latter
powerless."

RATIONALES FOR POWER

The discussion thus far has been primarily in terms of the manner in
which government has expanded more so than the underlying
rationales behind such changes. Perhaps the simplest rationale for
expansion of the areas and powers of governmental decision-making is
that a crisis has thrust new responsibilities upon the government, and it
would be derelict in its duty if it did not expand its powers to meet
them. Among the more prominent ideological rationales for expanded
government is a "maldistribution" of status, rights, or benefits-any
existing process or result constituting "maldistribution" to those who
would prefer something else. For example, equality can be a
maldistribution of status from the standpoint of racists, and the
correction of this "maldistribution" was in fact a central feature of
Hitler's program. Power may also be sought on the rationale that it is
needed to offset already existing power. Yet another rationale for
expanded government is the creation of national "purpose"-consensus
being viewed as a consumer good (implicitly, worth its cost).

CRISIS

Even the most democratic and constitutional governments tend to

expand their powers during wartime, and in natural disaster areas it is
common to station troops and declare martial law even in peacetime.
Such buildups of governmental power tend to dissipate with the
passage of the emergency, which is generally easily recognized by the
public at large.

An enduring concentration of governmental power requires either

that the public perception of crisis be deliberately prolonged or that the
crisis be used to establish institutions which will outlast the crisis
itself.
 A deliberately prolonged crisis atmosphere can be managed
indefinitely only by a totalitarian state, able to depict itself to its people
as threatened on all sides by enemies-and able to exclude contrary
interpretations of events. This has in fact been the basic posture of
totalitarian states in general. For example, the reiterated theme of
"peace," renunciations of expansionism in general and in particular,
and an outright ridicule of foreign fears to the contrary were common
to Hitler78 and to Stalin in the 1930s-though the latter annexed even
more territory than the former from the beginning of World War II to
the Nazi's invasion of the U.S.S.R." Even the most aggressive
totalitarian state can claim to be threatened by others-and can even cite
evidence, since its aggressive military preparations are sure to
stimulate at least some military preparedness on the part of other
countries. Hitler in the 1930s was perhaps the classic example of this
propaganda inversion of cause and effect, though certainly not the last.

In a constitutional democracy, a crisis cannot be made to last

indefinitely because alternative versions of events cannot be
suppressed. Real crises must be utilized to establish enduring
institutions. The Great Depression of the 1930s was a landmark in this
respect. The monetary system-the gold standard-was permanently
changed. Labor-management relations were permanently changed by
the Wagner Act, adding legal sanctions against employers to other
union powers. The permissible limits of price competition were
permanently reduced by the Robinson-Patman Act, "fair trade" laws,
and a host of special restrictions and subsidies applying to sugar, the
maritime industry, and others. All these political developments
enhanced governmental power, either directly, as with regulatory laws,
or indirectly by freeing government from previously existing restraints,
as with the abandonment of the gold standard and relaxed standards of
constitutionality for the hybrid executive-legislative-judicial agencies
created by the New Deal. There was not only an extraordinary growth
of governmental power but an unprecedented political swing.
Roosevelt's electoral victory in 1936 was the greatest ever achieved at
that point: he carried all but two states. Moreover, it was part of a
larger, historical pattern, which ultimately included an unheard of
string of four successful presidential elections, along with one political
party's control of both houses of congress for more than a decade-also
unprecedented in American history.

The demonstrable political value of crises was not lost upon

subsequent governments or politicians. So many things have since
been called a "crisis" that the word has virtually become a political
synonym for "situation," and indicates little more than something that
someone wants to change.

In recent decades, there has been a trend toward superseding

individual decision making based on behavioral assessments with
decision making based on ascribed status. There have been laws
proposed and enacted, administrative rulings, judicial decisions, and
other political directives prohibiting various kinds of private decision
makers from sorting and labeling on the basis of innate biological
characteristics (race, sex), transient conditions (childhood, old age) or
even volitional behavior (homosexuality, drug use, criminal record). In
addition, there have been costs of various sorts and magnitudes
imposed by government on those attempting to sort people by various
performance characteristics (test scores, work evaluations). For
example, letters of reference have been forced to become
nonconfidential, and together with the increasing ease of initiating
lawsuits, this means that they have become so bland and noncommital
as to lose much of their value as transmissions of information on
which to sort and label job applicants or seekers after various other
kinds of benefits. The imposition of "due process" concepts on public
school administrators has similarly reduced the ability of decision
makers on the scene to sort out students preventing other children from
learning, either by direct disruption of classes or by creating an
atmosphere of random terrorism and/or systematic extortion.8°

Sometimes these governmental activities have been accompanied by

admonitions to judge each person individually, rather than by sorting
and labeling selected characteristics, but such advice is little more than
gratuitous salt in the wound, given the cost differentials involved in
these two methods. Sometimes the ascribed status is preferential, so
that sorting and labeling that is biased in the prescribed direction is
legal but any bias in a different direction is not.

Many decisions which involve status ascription might be regarded

from some other points of view as ordinary social decisions involving
efficiency or other such mundane considerations. However, what is
striking about recent times is precisely the growth of an ideological
passion which regards particular decisions and decision making
processes as symbolic of status rather than simply instruments of
social expediency. One of the more extreme examples of this was the
insistence of French-Canadian authorities in Canada's Quebec
Province that airline pilots landing at their airports converse with the
control towers only in French. Even though hundreds of lives are at
stake in conversations between pilots and control towers, this social
expediency consideration was subordinated to status ascription issues
involved-the general controversy over the preeminence of French
language and culture in Quebec. Only a concerted refusal of
international airline pilots to fly into Quebec forced the government to
reconsider this policy. In the United States, various groups have
regarded various laws and policies (private and public) as involving
the status of its members-their ultimate value as human beingsrather
than simply questions about the best way to get a given job done or the
social expediency of particular processes. Even where there are
demonstrable behavioral differences between groups-e.g., a decade's
difference in longevity between men and women-the law has forbidden
employee pension plans to treat men and women differently, as a
violation of their equal status.81 The separation of boys and girls in
athletic and social activities is also challengeable in courts, even where
such separation is by nongovernmental, voluntary organizations like
the Boys Club, and even though there are numerous demonstrable
behavioral differences between boys and girls, including not only
physical strength but maturation rates as some of the more obvious
examples. Yet the passion behind objections to differences in treatment
turns on status questions rather than behavioral questions. Moreover,
the issue is often posed as if it were inherently and solely a status
issue-as if there is no conflict between behavior-based and status-based
decisions, and therefore opponents of particular status-based decisions
are depicted as advocates of inferior status for a group in question.
Even groups defined by behavioral differences (homosexuals,
alcoholics) claim denial of their equal status when treated differently
by others. Carried to its logical conclusions, this trend would argue
that social processes should make decisions solely on the basis of
status rather than behavior: if there are homes for unwed mothers,
there should be homes for unwed fathers. While few would go that far,
the point is that the principle invoked-and the categorical way it is
invoked and its opponents smeared-provides no logical stopping point
short of that. The only practical limit is what status ascription
advocates find intuitively plausible or politically feasible at a given
time-and neither of these considerations provides any long-run
constraint on carrying the principle into regions of diminishing or
negative returns.

The link between status ascription and political power is apparent in

the "redistribution" of income and other economic benefits. While
growing governmental control over the output generated by private
activity is often described by its hoped for result as "income
redistribution," statistical data show that the actual "redistribution" of
money and power from the public to the government vastly exceeds
any "redistribution" from one income class to another. The percentage
of the aggregate American income earned by the top fifth, bottom fifth,
etc., has remained almost unchanged for decades82 while
governmental powers and welfare state expenditures have expanded
tremendously. There has been "less a redistribution of free income
from the richer to the poorer, as we imagined, than a redistribution of
power from the individual to the State.-83 International comparisons
show the same result as intertemporal comparisons: "In all the Western
nations-the United States, Sweden, the United Kingdom, France,
Germany-despite the varieties of social and economic policies of their
governments, the distribution "of income is strikingly similar."84 What
the national differences in "welfare state" policies actually affect is the
distribution of money and power between the public and the
government.
 So-called "income redistribution" schemes substitute status for
behavior as the basis for receipt of income: Because of one's status as
an equal citizen of the country, one has a "right" to at least a "decent
income," and perhaps an "equitable share" in the nation's output or
even an "equal share" where this doctrine is carried to its logical
conclusion. In short, personal income should not be based on
behavioral assessments by users of one's services but by ascribed
status as determined by a given set of political authorities. Implicit in
this latter process is a concentration of power, for "distributive justice"
as a hoped-for ideal means distributor's justice as a social process.

In an uncontrolled economy it is possible for all individuals to

become more prosperous, each acquiring more of his own preferred
mixture of goods. But because "justice" is inherently interpersonal, it is
not similarly possible for everyone to acquire more justice. More
"social justice" necessarily means more of one conception of justice
overriding all others. The economic inefficiencies involved in such a
process are less important politically for their own sake than from their
effect on freedom. An imposed social pattern that leaves many
unrealized economic gains to be made from mutually beneficial
transactions must devote much political power to preventing these
transactions from taking place, and must pay the cost not only
economically and in loss of freedom, but in a demoralization of the
social fabric as duplicity and/or corruption become ways of life. The
demoralizing experience of attempting to prevent mutually preferred
transactions in only one commodity-alcoholic beverages under
Prohibition-suggests something of the magnitude of the problem
involved.

Justice of any sort-criminal justice as well as so-called "social

justice"implies the imposition of a given standard on people with
different standards. Ironically, many of those politically most in favor
of "social justice" are most critical of the loss of personal freedom
under the authority of criminal justice, and most prone to restrict the
discretion and power of police and trial judges in order to safeguard or
enhance personal freedom. The imposition of criminal justice
standards, however, usually involves far more agreement on values-the
undesirableness of murder or robbery, for examplethan is involved in
standards of "social justice," and should therefore require less loss of
freedom in imposing one standard on all. Certainly it would be hard to
argue the opposite, in view of the broad similarity of criminal justice
across nations and ages, and their disparities as regards the distribution
of income and power ("social justice").

What is in fact being sought and achieved under the banner of

"social jus tice" is a redistribution of decision-making authority.
Decision makers acting as surrogates for others in exchange for money
or votes are being either replaced or superseded by decision makers
responsible largely or solely to the pervasive'social vision of their
clique. This redistribution is often advocated or justified on the basis
of the supposed amorality of the first decision makers, who are
depicted as solely interested in money or votes. But insofar as this
depiction is correct, such decision makers are only transmitters of the
preferences of the public, not originators of their own preferences, and
so exercise no real "power," however much their decisions affect social
processes. It is the second-more moral or ideological-set of decision
makers who originate and impose standards, i.e., who reduce freedom.
Their passionate arguments for particular social results tend to obscure
or distract attention from the question of the social processes by which
these hoped-for results are to be pursued.

This is nowhere better illustrated than in John Rawls' Justice, which

speaks of having a society somehow "arrange"85 social results
according to a given conception of justice-the bland and innocuous
word "arrange" covering a pervasive exercise of power necessary to
supersede innumerable individual decisions throughout the society by
sufficient force or threat of force to make people stop doing what they
want to do and do instead what some given principle imposes. Even
Rawls' principle of restricting "economic and social inequalities to
those in everyone's interests"" requires forcible intervention in all
transactions, quite aside from the difficulties of the principle as a
principle. On a sinking ship with fewer life preservers than passengers,
the only just solution is for everyone to drown. Yet virtually anyone
would prefer to save lives, even if those saved had no more just claim
to such preference than anyone else. This example is extreme only in
the starkness of the alternatives. More generally, social decisions are
not a zero-sum process, so the "distribution" of benefits ("justice")
cannot be categorically more important than the benefits themselves,
as Rawls' central thesis suggests. There must be some prior value to
the things distributed in order to have their distribution mean anything.
No one cares if we each leave the beach with different numbers of
grains of sand in our hair.

THE POLITICAL ROLE OF INTELLECTUALS

One of the fundamental problems in any analysis of intellectuals is to

define the group in such a way as to distinguish a class of people from
a qualitative judgment about cognitive activity. Intellectuals will be
defined here as the social class of persons whose economic output
consists of generalized ideas, and whose economic rewards come from
the transmission of those generalized ideas. This in no way implies any
qualitative cognitive judgment concerning the originality, creativity,
intelligence, or authenticity of the ideas transmitted. Intellectuals are
simply defined in a sociological sense, and a transmitter of shallow,
confused, or wholly unsubstantiated ideas is as much of an intellectual
in this sense as Einstein. It is an occupational description. Just as an
ineffective, corrupt, or otherwise counterproductive policeman is still
regarded as having the same occupational duties and authority as the
finest policeman on the force, so the inept or confused intellectuals
cannot be arbitrarily reclassified as a "pseudo-intellectual" in an
occupational sense, however much he might deserve that classification
in a qualitative cognitive sense. Qualitative questions about the
intellectual process are another matter entirely, and will also be
considered-but separately.

The distinction between the intellectual class and the intellectual

process is crucial. One might, for example, be anti-intellectual in the
sense of opposing the social views of that particular class of people,
and yet be very intellectual in the sense of having exacting standards in
the cognitive process. Conversely, a totalitarian dictator might be anti-
intellectual in the sense of disdaining and discrediting cognitive
processes that would otherwise undermine the ideological mind
conditioning that is central to totalitarianism, and yet provide
unprecedented political power and/or economic rewards to those
intellectuals willing to serve the regime. Lysenko achieved a degree of
prominence and dominance under Stalin that no contemporary
geneticist could achieve in a free society.

The hoped-for results of the intellectual occupation-creativity,

objectivincor=porated be into the very definition of the occupation.
Whether or to what de- intelligence-cannot penetrating or knowledge,
authenticated itygree they in fact exist in the occupation are empirical
questions. One definition of intellectuals is that they are "professional
second-hand dealers in ideas ""-incorporating a negative assessment of
their creativity in the very definition. Truly creative intellectuals may
in fact be rare, but empirical results of whatever sort do not belong in
the definition itself. Intellectuals may choose to believe that they are
purveyors of knowledge, but there is no reason to assume that the bulk
of what they say or write consists of ideas sufficiently authenticated in
either empirical or analytic terms to qualify as "knowledge." Such a
general assumption would itself be cognitively unsubstantiated, and (as
social policy) politically dangerous.

Many occupations deal with ideas, and even with ideas of a complex
or profound order, without the practitioners being considered
intellectuals. The output of an athletic coach or advertising executive
consists of ideas, but these are not the kind of people that come to
mind when "intellectuals" are mentioned. Even the designers of
television circuits, mining equipment, or parlor games like
"Monopoly" are less likely to come to mind than professors, authors,
or lecturers. Those occupations which involve the application of ideas,
however complex, seem less likely to be regarded as intellectual than
occupations which consist primarily of transmitting ideas. Moreover,
even those transmitting ideas that are highly specific-a boxing manager
telling his fighter how to counter a left jab, or a printer explaining the
complexities of his craft-are not considered to be intellectuals in the
same sense as those who deal with more sweepingly general ideas such
as political theory, economics, or mathematics. The most narrowly
specialized physicist bases his work on generalized systems of analytic
procedures and symbolic manipulations common to economics,
chemistry, and numerous other fields. He is an intellectual because his
work deals in generalized ideas, howevef narrow the focus of his
particular interest. By the same token, a drugstore clerk is not
considered an intellectual, though dealing with a wide range of
products and people, but with the work itself not requiring mastery of a
generalized scheme of abstractions. Nor is it complexity or intelligence
that is central. Even if we believe (like the present writer) that being a
photographic technician requires more intelligence and authenticated
knowledge than being a sociologist, nevertheless the sociologist is an
intellectual and the photographic technician is not, because one
transmits generalities and the other uses ideas that are far less general.

The point here is not to illustrate an arbitrary definition, but to show

that the definition is far from arbitrary, and reflects what is a general
pattern of usage, even if unarticulated. Moreover, as will be seen, these
definitional distinctions correspond to empirical distinctions in the
political and social viewpoints of the various groups as categorized.
Even on university faculties, agronomists and engineers have very
different political opinions from those of sociologists or the humanities
faculty.88 In defining the intellectual occupation, the purpose is not so
much to make hard-and-fast boundaries as to define a central
conception and to recognize different degrees of approximation to it.
Thus there is some sense in which an agronomist or engineer is less
likely to be classified as an "intellectual" than is a sociologist or a
literary critic, or is thought to fit in the category less fully or less well.

The incentives and constraints of intellectual processes are quite

different from the incentives and constraints of intellectual activity as
an occupation. For example, intellectual processes are highly
restrictive as to the conclusions that may be reached, requiring
painstaking care in the formulation of theories, rigorous discipline in
the design and carrying out of experiments, and strict limitations of
conclusions to what the evidence can logically support. By contrast,
intellectuals as a social class are rewarded for presenting numerous,
sweeping, plausible, popular and policy-relevant conclusions.
Criminology may be at a stage of highly disparate speculation,89 but
public policy pressures to "solve" the crime "problem" mean that large
sums of government money are available to criminologists who will
claim to know how to "rehabilitate" criminals or discover the "root
causes" of crime. How many criminologists or intellectuals in general
succumb to the incentives of their class, as distinguished from the
incentives of their cognitive process, is not at issue here. The point is
that they are very different incentives.

THE INTELLECTUAL PROCESS

Intelligence may take many forms, from the incrementally

imperceptible and partially unconscious modifications of behavior
over the years that we call "experience" to the elaborately articulated
arguments and conclusions that are central to the intellectual process.
Intelligence and intellectual are two different things. The hoped-for
result is that the latter will incorporate the former, but whatever the
facts may be about their overlap, they are not conceptually congruent.

Explicit articulation-in words or symbols-is central to the

intellectual process. By contrast the enormously complex information
required to make life itself possible, which has systemically evolved
and exists in unarticulated form in the genetic code, is not intellectual,
though the efforts to transform the genetic code into an articulated
form is a challenging if uncompleted intellectual process. Conversely,
the forms of articulation may be elaborate and impressive and yet the
substance of what is elaborated simple or even trivial. There is nothing
either instrinsically difficult or profound about the proposition that
LIX times XXXIII equals MCMXLVII. Children in the fourth grade
perform this kind of arithmetic every day. The symbols alone make it
formidable. Graphs, Latin phrases, and mathematical symbols likewise
create an air of complexity or profundity in the process of elaborating
ideas that may contain little of complexity or substance, much less
validity.
 However limited the scope of articulation, within those limits it
serves a vital role in the intellectual process. A mere isolated idea, or
arbitrary constellation of ideas-a vision-is metamorphosed into an
empirically meaningful theory by the systematic articulation of its
premises and the logical deduction of their implications. This does not
in itself produce either truth or creativity. It aids in detecting error or
meaningless rhetoric. The more rigorously formalized the reasoning,
the more readily detectable are shifting premises or other internal
inconsistencies, or a discord between the implications of the theory
and observable events. In short, articulation is crucial to the
intellectual process, however limited (and sometimes confusing) it
may be in the social decision making process.

Articulation, indeed, readily loses information, as noted in Chapter 8

in discussions of price control and central planning. The definition or
articulation of product characteristics by third parties seldom covers as
many dimensions as are unconsciously coordinated in unarticulated
market processes, so that (for example) an apartment typically has
more auxiliary services when there is less articulation (in private
housing markets) than when there are more elaborate articulations (in
public housing regulations). The characteristics of even relatively
simple things like an apartment or a can of peas cannot be exhaustively
articulated, or even articulated enough in most cases to match the
systemic control of characteristics through voluntary transactions. In
more elaborate or subtle things, such as deeply felt emotions,
articulation often seems so wholly inadequate as to be discarded for
symbolic gestures, looks, and tones of voice, which may be less
explicit and yet convey more meaning. Resort to poetry, music, and
flowers on highly emotional occasions is evidence of the limited
transmission capacity of articulation.

Because nothing can be literally exhaustively articulated, the

process of articulation is necessarily to some extent also a process of
abstraction. Some characteristics are defined, to the neglect of others
which may be present but which are deemed less significant for the
matter at issue. This purely judgmental decision may of course prove
to be right or wrong. The point is that abstract intellectual models-
"mimic and fabulous worlds"" as Bacon characterized them-are
inherent in intellectual activity, whether these models be explicit and
highly formalized (as in systems of mathematical equations) or
informal or even implicit. In the implicit models, however, it is
possible to ignore the fact that one .is abstracting and theorizing, to
call the premises or conclusions "common sense" and to shift one's
premises without being aware oneself and without alerting others to
the shift. For example, one may use the public witnessing of
executions as evidence for the immorality of capital punishment in one
part of an informal and implicit argument, and pages later also use the
public's not witnessing executions as more evidence for its immorality.
Were all the arguments reduced to equations, the inconsistent premises
would at the very least be located nearer one another in a more
condensed presentation, would be more readily detectable and more
conclusively demonstrable by universally recognized mathematical
principles. In a celebrated episode in the development of modern
economic theory, a set of instructions given to a draftsman preparing a
graph proved impossible to execute, leading to the later discovery of a
substantive economic principle inherent in that impossibility.91 Had
the same theory been presented in a purely informal and verbal
manner, nothing would have compelled the recognition of the
inconsistency. Indeed the particular inconsistency in question is still
common among "practical" men, though analytically discredited
decades ago.92

The enormous value of articulation, abstraction, and formalized

rationality in the intellectual process is as part of the authentication
process. They are neither part of the creative act nor of the empirical
evidence which determines its ultimate applicability. The essentially
negative role of articulated rationality in filtering, modifying, and
eliminating ideas on their way to becoming knowledge is teachable in
schools because it is formally demonstrable. But the creative
performance-the "preanalytic cognitive act"93 as it has been called-is
not. The most highly trained products of the leading universities are
therefore better equipped to demolish ideas than to generate them. This
is a systemic characteristic to be understood rather than an intentional
choice to be criticized. It must be kept in mind, however, when
considering such people as potential creators of "solutions" for social
"problems." Insofar as they are being creative, they are not doing what
they were taught, but are instead professionals acting in an amateur
capacity. The maxim that "experts" should be "on tap but not on top"
expresses an appreciation of their valuable but largely negative role in
filtering policy alternatives.

The very concept of "solving" social "problems" extends academic

practices to a completely different process. The academic process is a
process of pre-arrangement by persons already in possession of
knowledge which they intend to articulate and convey unilaterally.
Social processes are processes of systemic discovery of knowledge and
of its multilateral communication in a variety of largely unarticulated
forms. To "solve" an academic "problem" is to deal with pre-selected
variables in a prescribed manner to reach a pre-arranged solution. To
apply the academic paradigm to the real world is to arbitrarily
preconceive social processes-the whole complex of economic, social,
legal, etc., activities-as already comprehended or comprehensible to a
given decision maker, when in fact these very processes themselves are
often largely mechanisms for coping with pervasive uncertainty and
economizing on scarce and fragmented knowledge. Resolutions of
conflicting desires and beliefs may emerge from social processes,
through the communication and coordination of scattered and
fragmented knowledge, but that is wholly different from a solution
being imposed from above as "best" by a given overriding standard in
the light of a given fragment of knowledge.

What is a social "problem"? It is generally a situation which

someone finds less preferable than another situation that is
incrementally costlier to achieve. If the alternative situation is no
costlier, it would already have been chosen, and there would be no
tangible "problem" remaining. In both theory and practice, a social
problem is likely to be one of the higher valued unfulfilled desires-one
that is almost but not quite worth the cost of satisfying. Such situations
are inherent in the incremental balancing of costs and benefits, which
is itself inherent in the condition of scarcity and trade-off. A "solution"
to such "problems" is a contradiction in terms. It is of course always
possible to eliminate all unfulfilled desires of a given sort-that is,
extend the consumption of some benefit to the point where its
incremental value is zero-but in a system of inherent scarcity (i.e.,
unlimited human desires) that means denying some other benefit(s)
even more. Much political discussion of problem-solving consists of
elaborately demonstrating the truism that extending a given benefit
would be beneficial in that particular regardmore airports, day-care
centers, rental housing, etc.-without any concern with the incremental
value of sacrificed alternatives. A variation on this theme is that some
set of people "need" a particular benefit but cannot "afford" it-i.e., its
incremental value to group A exceeds its incremental cost to group B.
Whatever the plausibility or perhaps even merit of this argument with
particular benefits and particular descriptions of people, it clearly loses
validity as group A approaches a state of being identical with group B.
Yet very similar political arguments for "solving" some "problems" are
used when A and B are identical. For example, the Amercan people
cannot afford the medical care they need, and so should have national
health insurance (paid for by the American people).

To "solve" some social "problem" is (1) to move the locus of social

decision making from systemic processes of reciprocal interaction to
intentional processes of unilateral or hierarchical directives, (2) to
change the mode of communication and control from fungible and
therefore incrementally variable media (emotional ties, money, etc.) to
categorical priorities selected by a subset of a population for the whole
population, and (3) because of the diversity of human values, which
make any given set of tangible results highly disparate in value terms
(financial or moral), pervasive uncompensated changes through force
are likely to elicit pervasive resistance and evasion, which can only be
overcome by more force-which is to say, less freedom. Moreover, the
very concept of a "solution" involves some given standard by which
one situation will be regarded as a "solution" of another. These
standards may be moral or material, or anywhere in between, but there
must be a standard for there to be a "solution." With diverse people
making diverse trade-offs, however satisfying the results they reach
may be for them respectively, it can only be "chaos" or a "problem"
requiring "solution" to anyone applying a single standard.
 The undemocratic implications of applying the academic paradigm
in politics are exacerbated by the tendency of many intellectuals to
favor-or indirectly insist upon-decision making processes cast solely in
the mold of explicit articulation. In this view, social decisions must
require articulation before government commissions, administrative
agencies, courts, parole boards, school committees, advisory groups to
corporations, police departments, and all other social decision makers.
Unarticulated decision making is equated with "irrationality." "Why do
we need four gas stations at a single intersection?" asks an intellectual
painting a picture of "wasteful" decision making in America by "a
thousand little kings" motivated by "greed."94 The more fundamental
question is why articulated justification to third parties must be the
mode of determining business location or any other decisions by any
other segment of the population? To the extent that decision makers
are motivated by "greed" rather than an a priori preference pattern,
their decisions are constrained by the decisions of competing bidders
who are in turn surrogates for alternative sets of particular resources,
including locations.

That a set of decisions is not articulated is not evidence that they are
either irrational or undemocratic. On the contrary, the need to articulate
to a tribunal of third parties applying their own standards is a reduction
in both democracy and freedom, and often involves a loss of effective
knowledge transmission in decision making. Moreover, it is socially
biased in favor of those more skilled in articulation, even if their skills
in other respects are lacking. Given the advantages of specialization,
there is no reason to expect that those skilled in articulation will be
more skilled in particular fields than those specialized in those fields.
Systematic location patterns-gas stations and doctors offices being near
each other and liquor stores and stationery shops often being dispersed
from one another-suggests that there is nothing as random as
"irrationality" behind it, nor anything as widespread as the desire for
an improved economic condition responsible for one particular pattern.
That a decision is called "greed" when it is found in some groups but
"aspirations" or "need" in others is an incidental characteristic of
fashions among intellectuals.
 The virtues of the intellectual process are virtues within the
intellectual process, and not necessarily virtues when universalized as
paramount in other social processes. Articulation, formalized
rationality, and fact-supported conclusions are central features of the
intellectual process when determined by its own inner incentives and
constraints. To what extent such considerations characterize the
behavior of intellectuals as a social class in the political arena is
another question. So too is the extent to which these intellectual virtues
survive even in intellectual matters when the personal or political
rewards available to intellectuals as a social class provide incentives to
do otherwise.

INTELLECTUALS AS A SOCIAL CLASS

Intellectuals-persons who earn their living by transmitting

generalized ideas-have incentives and constraints determined by the
peculiarities of their social class, as well as incentives deriving from
the nature of the intellectual process. Questions about resolving
conflicts between the two-how to be honest while political, ethical
while an advocate-only highlight the existence of two disparate sets of
incentives and constraints. Such conflicts are defined out of existence
when intellecutals are categorized as people who "live for rather than
off ideas."95 Such may be the hoped-for ideal, but the actual
observable characteristic of the group is that they live off ideas. The
extent to which they ignore that fact and regard purely cognitive
incentives as overriding is an empirical question that can be examined
after first determining the incentives created by their social class and
those created by their cognitive activity.

It is to the self-interest of intellectuals as a social class to benefit

themselves economically, politically, and psychically, and for each
intellectual to benefit himself similarly. Among the ways in which this
can be done is by increasing the demand for the services of
intellectuals and increasing the supply of raw material used in their
work. The output of intellectuals-ideas-is a product supplied in
abundance by all other members of society, so that a prerequisite for
increasing the demand for specifically intellectuals' ideas is to
differentiate their product. Certificates from authenticating institutions
(universities, learned societies, research institutes, etc.) help, but the
intellectual differentiates his product most distinctively by its manner
of packaging-the choice of words, organization of the material, and
observance of cognitive principles and scholarly form. The intellectual
who does these things can even dispense with degrees entirely, as John
Stuart Mill did, or the degree may be wholly incidental, as in the case
of Karl Marx (a law degree) and Adam Smith (a degree in philosophy).
It may well be that most contemporary intellectuals are degree-holders,
but that is hardly their defining characteristic.

The conflict between cognitive and occupational incentives is

particularly clear in the choice between existing knowledge and newly
created ideas. An intellectual is rewarded not so much for reaching the
truth as for demonstrating his own mental ability. Recourse to well-
established and widely accepted ideas will never demonstrate the
mental ability of the intellectual, however valid its application to a
particular question or issue. The intellectu- al's virtuosity is shown by
recourse to the new, the esoteric, and if possible his own originality in
concept or application-whether or not its conclusions are more or less
valid than the received wisdom. Intellectuals have an incentive to
"study more the reputation of their own wit than the success of
another's business," as Hobbes observed more than three centuries
ago.96 As part of this product differentiation, it is essential that
alternative (competing) social inputs be discredited cognitively
("irrational") or morally ("biased," "corrupt"), that competing elites be
discredited ("greedy," "power hungry"), and that the issues at hand be
depicted as too unprecedented for application of existing knowledge
inputs available to intellectuals and nonintellectuals alike, and too
urgent (a "crisis") to wait for systemic responses, which are also
alternatives that compete with intentional intellectual "expertise."
More generally, the meaning of knowledge must be narrowed to only
those particular kinds of formalized generalities peculiar to
intellectuals. Assertions of the gross inadequacy of existing institutions
and ideas likewise increase the demand for intellectuals by discrediting
alternatives. The rewards are both psychic and financial.
 The demand for intellectuals' services is also increased by
developing preferences for such political and social processes as
commonly use more of intellectuals' inputs-e.g., political control and
status ascription from the top down, "education" or "more research" as
the answers to the world's ills, and "participation" and institutional
articulation as the way to better decisions.

The occupational self-interest of intellectuals is served not only by

product differentiation, but by "relevance." Many cognitively
intellectual productions are of no immediate applicability, because (1)
they have not yet been subjected to empirical validation or cannot be
in the real world, or (2) their very nature and thrust are different from
political discussions on the same subject matter, or (3) the time horizon
of the scholarly endeavor may far exceed that of politics, so that no
cognitively authenticated conclusion may be available within the time
in which a political decision has to be made, and (4) such articulated
knowledge as may be available may go counter to what is politically
desired. Making intellectual output "relevant" involves resolving such
dilemmas. Cognitive incentives mean less relevance and lower
occupational rewards in money, status, power, popularity, etc.
Occupational incentives obviously mean more of such rewards and
less cognitive authenticity.

The incentives sketched are intended to depict the behavior of an

intellectual motivated solely by occupational rewards, and prepared to
trade off as expendable considerations such competing incentives as
cognitive principles, ethical standards, and democratic freedoms. The
point here is not to define a priori how many intellectuals will behave
what way but to provide a framework within which to judge the
observable behavior of actual intellectuals in a variety of social,
political and historical settings.

RELEVANCE"

Intellectuals have long sought to be politically "relevant." More than

three centuries ago, Hobbes expressed the hope that his Leviathan
would someday "fall into the hands of a sovereign" who would
"convert this truth of speculation into the utility of practice."91 Karl
Marx eloquently expressed the psychic importance of "relevance" to
the intellectual:

... the time must come when philosophy not only internally by its
content but externally by its appearance comes into contact and mutual
reaction with the real contemporary world ... Philosophy is introduced
into the world by the clamour of its enemies who betray their internal
infection by their desperate appeals for help against the blaze of ideas.
These cries of its enemies mean as much for philosophy as the first cry
of a child for the anxious ear of the mother, they are the cry of life of
the ideas which have burst open the orderly hieroglyphic husk of the
system and become citizens of the world.98

It is noteworthy that this was not an expression of the satisfaction of

promoting a particular doctrine or cause. Marx at this point had not yet
met Engels, who converted him to communism, and so there was not
yet a Marxian theory to promote. It expressed simply the general joy of
intellectuals at being taken seriously and talking about big things.

Nor is it solely in political subjects that political "relevance" is

sought. Demography was heavily involved in politics literally from the
first page of the first edition of Malthus' Essay on Population in
1798.99 Biology was made the basis for political theory in the
nineteenth and early twentieth century intellectual vogue called "social
Darwinism.""' Psychology was politicized in the decades long
controversies preceding the drastic revision of American immigration
laws in the 1920s. In the political crisis of the Great Depression,
virtually all of the so-called "social sciences" attempted to be
politically "relevant" rather than simply cognitively valid, and the rise
of the welfare state institutionalized this tendency of applied
intellectual activity among "social scientists." In totalitarian nations,
virtually every intellectual field is politicized. Genetics and economics
acquire ideological significance in the Soviet Union,101 and Nazi
Germany proclaimed the existence of such intellectual entities as
German physics, German chemistry, and German mathematics. 102
The concern here, however, is not so much with what governments
have done to the intellectual process, but what intellectuals themselves
have done in the quest for "relevance."

Malthus' population theory was openly intended to counter

contemporary revolutionary political theories, notably those of
Godwin and Condorcet. After these theories faded with the years, later
editions of Malthus' Essay on Population turned its thrust toward other
policy issues, the aim being not so much policy solutions as moral
justification of the existing institutions:

... it is evident that every man in the lower classes of society who
became acquainted with these truths, would be disposed to bear the
distresses in which he might be involved with more patience; would
feel less discontent and irritation at the government and the higher
classes of society, on account of his poverty ... The mere knowledge of
these truths, even if they did not operate sufficiently to produce any
marked changes in the prudential habits of the poor with regard to
marriage, would still have a most beneficial effect on their conduct in a
political light.103

While the mere intentions or applications of a doctrine, in

themselves, have no necessary effect on its cognitive validity, the
Malthusian theory's many intellectual flaws related directly to its
political goals. Like many other intellectual productions with political
"relevance," its most fundamental flaw was not a particular conclusion
but an inadequate basis for any conclusion. On a theoretical level, the
Malthusian doctrine inconsistently compared one variable defined as
an abstract potentiality (population growth) with another variable
defined as an historical generalization (food growth).10' On an
empirical level, there was grossly inadequate evidence for the
postulated behavior of either variable. The supposed doubling of the
population in colonial America every 25 years was based on a guess
by Benjamin Franklin, repeated by a British clergyman named Price
and obtained third-hand by Malthus. The first American census was
published after Franklin's death and the first British census was taken
three years after Malthus' book was published. The theoretical
argument depended on shifting usages of the word "tendency," to
sometimes mean (1) what was abstractly possible, (2) what was
causally probable, or (3) what was historically observable-each
according to the polemical convenience of the moment. Though
contemporaries criticized this shifting ambiguity that was central to the
Malthusian doctrine, Malthus refused to be pinned down to any given
meaning.105 Empirically, the successive censuses after Malthus' book
was published revealed that in fact the food supply was growing faster
than the population, and that most of the population growth was not
due to reckless marriages and childbearing among the poor, as Malthus
claimed, but to reduced death rates.10' The Malthusian theory boils
down to the proposition that population growth increases with
prosperity-an empirical relationship that is demonstrably false from
both the history of given countries over time and from comparisons of
countries at a given time. As countries become more prosperous, their
birth rates and population growth rates generally decline. At a given
time, prosperous countries typically do not have higher population
growth rates than poorer countries. In purely cognitive terms, it may
well be that the Malthusian theory has received one of the most
thorough refutations of any theory in the social sci- ences,107 but in
social and political terms, the Malthusian doctrine is still going strong
almost two centuries after its first appearance. Like so many other
political-intellectual productions, its triumph is largely a triumph of
reiteration. Malthus' crucial success was in identifying poverty with
"overpopulation" in the public mind, so that to deny the latter is
deemed tantamount to denying the former.

One of the elements in the public success of the Malthusian doctrine

which has proved equally serviceable in other politically "relevant"
doctrines has been the display of cognitively irrelevant statistics. The
second edition of Malthus' Essay on Population was several times
larger than the first, due to the addition of masses of data. These data
were never used to test the Malthusian theory but to illustrate or apply
it. In Malthus' own words, the data are intended to "elucidate the
manner" in which his theory operates, to "examine the effects of one
great cause"-the population principle-but not to test the principle itself.
Any population size or growth rate would be consistent with the
principle: "The natural tendency to increase is everywhere so great that
it will generally be easy to account for the height at which the
population is found in any country."108 No matter what the data show,
he would be "right."

This decorative display of numbers which in no way test the central

premise continues in modern, more sophisticated, statistical studies.A
noted study of the economic effects of racial discrimination begins by
simply defining "discrimination" as all intergroup differences in
economic prospects.109 It then proceeds to elaborate mathematically
and statistically in the light of that premise, but never testing the
premise itself. All intergroup differences in cultural orientation toward
education, work, risk, management, etc., are simply banished from
consideration by definition. Discrimination in this context becomes
simply a word denoting statistical results, though of course the very
reason we are interested in discrimination, in its usual sense, is because
it refers to intentional behavior whose moral, political, and social
implications concern us. That social and political concern is implicitly
appropriated for statistical results that depend on numerous other
factors as well.

Such arbitrary attribution of causation by definition is a special case

of a more general problem that plagues statistical analysis. Whenever
outcome A is due to factors B and C, by holding B constant, one can
determine the residual effect of C on A. The problem is that A may
also be affected by factors D, E, or F, etc., and if they are not specified
in the analysis, then all of their effect is wrongly attributed to C.
Moreover, even the attempt to hold B constant may fail in practice.
Theoretical variables may be continuously divisible, but actual
statistics may be available only in discrete categories. In comparing
two groups who differ on a particular variable (male and female
differences in height, for example), attempts to hold that variable
constant by comparing individuals with the same value of the variable
(the same height) may mean in practice comparing individuals who
fall in the same discrete intervals (between five and six feet, for
example). But groups whose distributions differ across specified
intervals can also differ within those respective intervals. The average
height of males and females who fall in the interval from five feet to
six feet is probably different (males in that interval being taller than
females in the same interval), despite the attempt to hold them
constant. Therefore some of the effect of the variable supposedly held
constant will appear statistically as the effect of some residual
variable(s). This residual method of analysis has great potential for
misstating causation, through inadequate specification of the variables
involved, either inadvertently or deliberately. Whether one's preferred
residual explanation is discrimination, genetics, schooling, etc.,
deficiencies in the specification of alternative variables are rewarded
with more apparent effect from the preferred residual variable. The
ultimate extreme of this is to implicitly hold all other variables
constant by arbitrarily defining one variable as the variable and using
this definition as if it were a fact about the real world, by using the
same word normally used to describe that fact-"discrimination" in this
case. The political benefits of this cognitive deficiency may be
illustrated not only by the reliance of national political figures and
institutions on the advice of the economist using this technique, but
also his academic success in promoting a conclusion consonant with
academics' social and political vision, however cognitively
questionable. It is a technique-and a resultcommon in other fields, as
will be noted again.

A similar pattern of disregarding alternative variables is followed in

discussions of "income distribution," where statistical results about
people in various phases of their economic life cycle are spoken of as
if they referred to socioeconomic classes in the usual sense of people
stratified in a certain way across their lifetimes. The "top 10 percent"
of wealth holders may conjure up visions of Rockefellers or Kennedys,
but they are more likely to be elderly individuals who have finally paid
off their mortgages, and who may well have been among the statistical
"poor" in data collected when they were younger. The point here is not
whether income or wealth differences are greater or less than might be
desired from some point of view or other. The more basic question is
whether there is sufficient congruence between the statistical
categories and the social realities to make any conclusion viable. To
declare that "dry statistics translate into workers with poverty-level
incomes""' may be politically effective but it asserts what is very much
open to question.

The negative cognitive effects of political "relevance" can be further

illus trated with Darwin's theory of evolution. The political application
of Darwin's biological concept of "survival of the fittest" involved not
simply an extension but a distortion of the concept. What was in
Darwin a causal principle of biological evolution pertaining to species
became in its political application an evaluative principle pertaining to
individuals. The systemic tendency toward adaptation of organisms to
their respective environments became an intentional triumph of
individuals evaluated as superior not merely within a particular set of
social environmental circumstances, but politically justifying one set
of circumstances rather than another."' This political application
distorted the Darwinian principle. Lazy amorality might be the "fittest"
quality to survive in a sufficiently extreme welfare state, for example,
or ruthless ambition in a sufficiently extreme laissez-faire economy
without adequate law enforcement. Darwin himself did not make the
political applications and distortions known as "social Darwinism." It
was Herbert Spencer in England, William Graham Sumner in America,
and countless disciples in both countries who turned the Darwinian
principle of biological change into a political principle justifying the
status quo.

Darwinism at least retained its integrity within biology. But the

young field of psychology was not so fortunate in its rush to establish
its claims to scientific stature and political "relevance." Intelligence
tests began in France in 1905 with a politically defined policy goal-the
sorting out of students with low academic aptitudes to be placed in
special schools. The test developed for that purpose by Alfred Binet in
France was translated and adapted for American youths by Lewis
Terman of Stanford University as the Stanford-Binet I.Q. Test. It was
also politically adapted to American issuesthe controversies then
raging over American immigration policy.

Unlike earlier generations of immigrants, the immigrant groups

ariving in the United States in the 1880s and afterwards were no longer
of northern and western European stock, but largely eastern and
southern Europeans who differed culturally, religiously (many being
Catholic or Jewish) and genetically from the American population at
large, as well as from earlier immigrants. The serious social stresses
associated with the emergence of every new ethnic minority in the
urban economy and society were seen as peculiarities of these new and
"unassimilable" immigrants. Vast amounts of data showed that these
"new" immigrant groups had higher incidences of social pathology-and
lower I.Q.'s. To the new field of psychology, the immigrants' low I.Q.'s
were an opportunity to establish the political "relevance" of their
profession along with its cognitive ("scientific") claims.

The leading test "experts" of the era-including Terman, Goddard,

and Yerkes-insisted that they were presenting "not theory or opinions
but facts" and facts of relevance "above all to our law-makers.. They
were "measur ing native or inborn intelligence.""' Their results
indicated "the fixed character of mental levels.""' Intelligence tests
would "bring tens of thousands" of "defectives" under "the
surveillance and protection of society ."15 All of this was said at a
time when the I.Q. test had existed for less than a decade in the United
States.

The leading I.Q. "experts" were also members of eugenics societies

devoted to preventing the reproduction of "inferior" stocks.1' However,
the political impossibility "at present" of convincing "society" that low
I.Q. groups "should not be allowed to reproduce""' made the "experts"
predict a "decline in American intelligence" over time.1' After a later
survey of data generated by the mass testing of soldiers in World War
I, testing expert Carl Brigham-later creator of the College Board SAT-
concluded that "public action" and "legal steps" were needed to
prevent the "decline of American intelligence." Such steps should be
"dictated by science and not by political expediency," and included
immigration laws that would be not only "restrictive" but "highly
selective," and other policies for "prevention of the continued
propagation of defective strains in the present population.""' Virtually
identical conclusions were reached at the same time by Rudolf Pintner,
another leading authority and also the creator of a well-known mental
test: "Mental ability is inherited.... The country cannot afford to admit
year after year large numbers of mentally inferior people, who will
continue to multiply and lower the level of intelligence of the whole
nation."'20

These were not the views of the village racist. They were the
conclusions of the top contemporary authorities in the field, based on
masses of statistical data, and virtually unchallenged either
intellectually, morally, or politically within the profession at the time.
Controversies raged between the "experts" and others-notably Walter
Lippman121-but such critics' conclusions were contemptuously
dismissed as "sentiment and opinion" as contrasted with the
"quantitative methods" of the new science.122

In many ways this episode illustrates far more general

characteristics of intellectual-political "relevance": (1) the almost
casual ease with which vast expansions of the amount and scope of
government power were called for by intellectuals to be used against
their fellow citizens and fellow human beings, for purposes of
implementing the intellectuals' vision, (2) the automatic presumption
that differences between the current views of the relevant intellectuals
("experts") and the views of others reflect only the misguided
ignorance of the latter, who are to be either "educated," dismissed, or
discredited, rather than being argued with directly in terms of cognitive
substance (that is, the intellectual process was involved primarily in
giving one side sufficient reputation not to have to engage in it with
non-"experts"), (3) the confidence with which predictions were made,
without reference to any prior record of correct predictions nor to any
monitoring processes to confirm the future validity of current
predictions, (4) the moral as well as intellectual superiority that
accompanied the implicit faith that the current views of the "experts"
represented the objective, inescapable conclusions of scientific
evidence and logic, and their direct applicability for the public good,
rather than either the vogues or the professional self-interest of these
"experts," and (5) a concentration on determining the most likely
alternative conclusions rather than whether any of the conclusions had
sufficient basis to go beyond tentative cognitive results to sweeping
policy prescription.

What was the compelling evidence that led the early test experts to
conclude that southern and eastern Europeans-including Jews123-were
innately intellectually inferior to other European "races"? They scored
lower on mental tests-averaging I.Q.'s of about 85, the same as blacks
today nationally, and slightly lower than northern blacks.124 What was
controlled or held constant in these statistical comparisons? Practically
nothing. The new immigrants (Jews, Italians, Slovaks, etc.) almost by
definition averaged fewer years in the United States than most of the
older immigrant groups (Germans, Irish, Britons, etc.), spoke
correspondingly less English, and lived in commensurably lower
socioeconomic conditions. When years of residence in the United
States were held constant, the mental test differences disap- peared.125
In the massive World War I testing program, the results on many
subsets of the tests showed the modal number of correct answers to be
zeroindicating little understanding of the instructions.'26 On those
subsections where special efforts were made to elaborate instructions
or to demonstrate what was expected, zero scores were less common,
even when the questions themselves were more complex (the same
was true of black soldiers).127 Some "intelligence" test questions dealt
with such peculiarly American phenomena as the name of the
Brooklyn National League baseball team, Lee's surrender at
Appomattox, and the author of Huckleberry Finn.128 As for controlled
samples, the methods of selecting which soldiers would take which test
"varied from camp to camp, and sometimes from week to week at the
same camp." 129

These defects in testing were known to the "experts" who

sweepingly labeled great portions of the human race as innately
inferior. One rationale for accepting the results was offered by Carl
Brigham:

The adjustment to test conditions is a part of the intelligence test.... If

the tests used included some mysterious type of situation that was
"typically American," we are indeed fortunate, for this is America, and
the purpose of our inquiry is that of obtaining a measure of the
character of our immigration. Inability to respond to a "typically
American" situation is obviously an undesirable trait."'

Whatever merit this kind of reasoning might have as a justification

of the purely empirical predictive validity of a test, that is wholly
different from reaching conclusions about genetic mental capacity as it
must unfold in subsequent generations of American-born offspring-
especially in the context of draconian proposals to forcibly control the
reproduction of these groups. As for the correlation between
immigrants' mental test scores and their years of residence in the
United States, this was dismissed by showing that immigrants with
five years of residence taking the nonverbal test still did not reach
native American test score levels 131-five years being presumably
sufficient to change life-long cultural patterns, and a nonverbal test
being presumed to be culturally unbiased. The ominous prediction of a
declining national I.Q.-a prediction common in the literature in the
United States and in other countries-had no empirical evidence, and as
evidence accumulated over the years, it showed the national I.Q.'s in
the United States and elsewhere either remaining constant or drifting
upward, forcing later upward revisions of I.Q. standards.'32

The point here is not that particular results in a particular field

during a particular era were wrong. The point rather is that a certain
general pattern of behavior appeared that has been far more general, a
pattern later reappearing when psychological fashions changed and
equality of the races was now deemed to be proven by "evidence"
equally as shaky. Moreover, it is a pattern apparent in many other areas
having nothing to do with I.Q. or race.

The dogmatic conclusions about racial inferiority which reigned

supreme among "experts" in the 1910s and 1920s were replaced with
equally dogmatic conclusions about scientific proof of racial equality
in the same field by the 1940s and 1950s. By the 1960s official
government agencies could declare it "demonstrable"-without
demonstration-that "the talent pool in any one ethnic group is
substantially the same as that in any other ethnic group. "133
According to the new dogma, "Intellectual potential is distributed
among Negro infants in the same proportion and pattern as among
Icelanders or Chinese, or any other group."134 These statements may
someday be shown to be true, but that is wholly different from
claiming that any such evidence or proof exists today. Both in the
earlier and the later dogmatism, the cognitive question is simply not
open for discussion, and the ideologically preferred position becomes a
moral touchstone rather than a tentative cognitive conclusion. Unlike
the earlier period, the present dogmatism has some challenge within
the profession-notably by Arthur R. Jensen"'-but the efforts to discredit
his conclusions ("racist") rather than confront his analysis, and
sometimes to physically prevent his speaking,'36 indicate that the new
dogma is no more willing to treat issues according to intellectual
processes than was the old. It is as if beliefs in the psychological field
of mental testing have gone through the phases of adolescent fads-
fiercely obligatory while in vogue and wholly beyond consideration
once the vogue has passed. At least one of the leaders of the older
dogmatism-Carl Brigham-later soberly recanted, after the vogue had
passed, repudiating the reasoning of the earlier studies and declaring
that his own earlier conclusions were "without foundation."137 Not
mistaken, exaggerated, or inconsistent, but without foundation.

Both phases of the innate intelligence controversy illustrate a more

general characteristic of socially and politically "relevant" intellectual
activity-an unwillingness or inability to say, "we don't know," or even
to admit that conclusions are tentative. Such admissions would be
wholly consonant with intellectual processes but not with the interests
of intellectuals as a social class. The distinction must be insisted upon,
in part because even otherwise worldly thinkers often proceed as if
intellectuals have no self-interests involved but act solely on cognitive
bases or in the policy interest of society at large. Even Voltaire could
naively say: "The philosophers having no particular interest to defend,
can only speak up in favor of reason and the public interest.""' That
belief-in their own minds or in the minds of others-is itself one of their
greatest assets in furthering their own self-interests under protective
coloration.
POWER

Intellectuals have for centuries promoted the abrogation of ordinary

people's freedom, and romanticized despotism. The shocking record of
Western intellectuals glorifying Stalinism in the 1930s was no isolated
aberration.

Religious intellectuals in the later Roman Empire, after it became

Christian, created a "systematic, active intolerance" that was
"something hitherto unknown in the Mediterranean world.""' There
had been "transient persecutions""' of early Christians, whose doctrinal
abhorrence of "idolatry" had led them to disdain, insult, and even
disrupt other religions.141 But it was only with the triumph of
Christianity, and especially of theological intellectuals like Augustine,
that intolerance and persecution became pervasive in the Roman
Empire. Pagan sacred books were burned,142 pagan traditions
persecut- ed,143 and a "forced Christianization" 144 imposed on the
Roman Empire, which had long had religious diversity and tolerance
as a means of preserving political tranquility and unity. The attempt to
impose a particular intellectual (religious) unity or orthodoxy created
political disunity as "the bands of civil society were torn asunder by
the fury of religious factions." 14' A theoretical controversy among
Christian intellectuals over the nature of the Trinity "successively
penetrated into every part of the Christian world." 141 In the wake of
this and other theological disputes followed violence and atrocities by
Christians on other Christians deemed heretical."' In many provinces,
"towns and villages were laid waste and utterly destroyed."16 After a
respite of tolerance under the Emperor Julian,"' persecution was
resumed under his successors.150 The internecine violence among
various denominations of Christians took far more lives than all the
earlier persecutions of Christians in the Roman Empire.151 Like later
totalitarian persecutions in the twentieth century, the persecutions by
the Christians produced the emigration of some of the "most
industrious subjects" of the Roman Empire, taking with them "the arts
both of peace and war."152 Centuries later, the Reformation brought
forth freedom-not by intention but systemically, from the new diversity
of power sources. The Protestant Reformation was as intolerant and
bloody as any Catholic inquisition.15' Freedom "was the consequence
rather than the design of the Reformation."15'

In the Roman Empire, as with later persecutions, the abstruse issues

involved were matters of moment only to intellectuals. Yet the rival
intellectuals' attempts to impose their own vision by force produced
mass devastation and a divisiveness that contributed to the decline and
fall of the empire.'55 Its immediate effect was to vastly expand the
scope of government power into an area-religion-which had once been
a realm of freedom.

Such patterns-intellectuals promoting government power and

intolerant divisiveness-were not peculiar to the Roman Empire, nor
even to Western civilization. In the later dynasties of the Chinese
empire, intellectuals also rose to dominance, producing a similar
pattern in a very different setting. Beginning with the Sung dynasty
(960-1127 A.D.), "scholar-officials," chosen by examinations,
dominated the Chinese government and society.1S' Rulers became
more autocratic, and government powers more centralized and
pervasive in their scope, including "smothering government control of
large scale business""' and a "secret police almost unfettered by legal
re- straints."158 Later, the "recurrent factional controversies" among
the intellectuals running the government became "a major factor in the
decline of the Ming dynasty."15' As in ancient Rome, so in the later
Chinese empire, the military profession was downgraded"' and the
army "declined in strength and fighting ability.""" As in ancient Rome,
this was the prelude to the Chinese empire's being overwhelmed
militarily by foreign peoples once disdained as barbarians.

Prior to its decline and fall, imperial China was the preeminent
nation in the world in technology, organization, commerce, and
literature,"' and had the highest standard of living in the world, as late
as the sixteenth century. 163 As in the case of Rome in its decline, so
in the last century of the Ming dynasty, many people emigrated from
China.16' These "overseas Chinese" have flourished economically in
numerous countries from southeast Asia to the Caribbean, while their
native land languished in poverty and weakness, for lack of the
practical skills and abilities of those driven out by the oppressions of
governments dominated by intellectuals. These intellectuals, "applying
the principles they learned from ancient Chinese writings to the realm
of practical governance,"165 promoted "a strong sense of social-
welfare activism" in which "central governments assumed
responsibility for the total well-being of all Chinese and asserted
regulatory authority over all aspects of Chinese life."166 In short,
Chinese intellectuals in power were impelled by Neo-Confucian ideals
that would today be called "social justice." But whatever the hoped-for
results, the actual processes led to despotism, decline, and defeat.

Intellectuals' promotion of despotism has not been confined to

situations, like those in the Roman or Chinese empires, where they
themselves were directly involved in wielding power or instigating
violence. Even such admirers of freedom in principle as the
eighteenth-century French philosophes were also admirers of
contemporary Russian and Chinese despotism,167 much like their
twentieth-century counterparts. The reasons were also quite similar.
The despotisms in question were seen as vehicles for the imposition of
intellectuals' designs on society at large. In the eighteenth-century
despotisms "the men of letters served in places of eminence, at the
very center of things."166 Class self-interest was, however, seen as the
public interest. According to D'Alembert, "the greatest happiness of a
nation is realized when those who govern agree with those who
instruct it."169 In the nineteenth century free nations as well, as John
Stuart Mill observed, "impatient reformers, thinking it easier to get
possession of the government than of the intellects and dispositions of
the people," proposed to expand "the power of govern- ment."170

The French Revolution gave the eighteenth-century intellectuals a

chance to rule directly, rather than by their influence on existing
despots. Though disciples of the freedom-extolling philosophes and
ostensibly concerned only with the public interest, their "all-powerful
Committee of Public Safety ruled France absolutely as no monarch
had ever been able to rule it."17' The brief rule of Jacobin intellectuals
was not only despotic and bloody, but totalitarian in its pervasiveness.
The very names of months and years were changed to correspond with
their ideology, as were the names of streets, people, and even playing
cards.172 Their regulations extended to friendship and marriage: each
adult male had to publicly declare who his friends were, and any
married couple who did not either have children or adopt children
within a specified time were to have their marriage dissolved and be
separated by the government.17' To administer all this control of
individuals, the intellectual-politicians created a vast bureaucracy-
never dismantled, and the enduring legacy of the Revolution long after
the ideologues were replaced by Napoleon and then by innumerable
other French governments. It was one of the earliest demonstrations of
what it meant in practice to "arrange" a society according to "justice."

Although there were despotic governments in the nineteenth

century, it was not until twentieth-century totalitarianism that anything
like the Committee of Public Safety emerged again. Once more, it was
intellectuals who created it-Lenin, Trotsky, and their successors and
offshoots carrying out a vision descended from Marx, and Hitler
carrying out his own vision from Mein Kampf. Whether or not any of
these political leaders were intellectuals in the qualitatively cognitive
sense, all owed their power precisely to their transmission of ideas,
rather than to other political routes to power from dynastic succession,
economic achievements, hierarchical progression, or technical
expertise. The characteristics of these modern totalitarian governments
have already been noted. The support, apologetics, and glorification of
foreign totalitarianism among intellectuals in the democratic nations
must also be noted, however. The glorification of the Stalin regime by
democratic Fabian socialists Sidney and Beatrice Webb is perhaps the
classic example,"' but they are part of a long line of intellectuals
including Jean-Paul Sartre, 15 George Bernard Shaw,'76 and G. D. H.
Cole,17' who extolled the virtues of Stalinist Russia, joined by the
Nation, The New Republic, and (in England) The New Statesman.17'
The supporters of an American Communist for President of the United
States in 1932 included John Dos Passos, Sherwood Anderson,
Edmund Wilson, and Granville Hicks.179 Fascism also did not lack
for apologists and romanticizers, including Irving Babbitt, Charles
Beard, George Santayana, and Ezra Pound. Leo
 Most American intellectuals of the 1930s were, however, content to
support a vast expansion of governmental power in more conventional
terms under the New Deal. Disillusionment with Stalin and the Soviet
Union eventually led many intellectuals to return to the liberal-left. It
has not prevented a similar cycle of romantic glorification of Mao,
Castro, and other totalitarians.

THE INTELLECTUAL VISION

Virtually everyone has political opinions, but not everyone has a

political vision-a central set of premises from which particular
positions can be deduced as corollaries. These premises may be
religious, tribal, or ideological. What makes them a coherent vision is
the high degree of correlation among the particular conclusions
reached on highly disparate subjects. To a racist, for example, the color
of an individual's skin may determine a whole host of intellectual,
moral, aesthetic, political, and even etiquette questions pertaining to
that individual.

An ideological vision is more than belief in a principle. It is a belief

that that principle is crucial or overriding, so that other principles or
even empirical facts must give way when in conflict with it. The
Inquisition had to reject Galileo's astronomical findings in the interests
of a higher vision, as the Nazis had to reject Einstein in spite of any
evidence about his theories or his individual abilities.

An ideology has been defined as a "systematic and self-contained

set of ideas supposedly dealing with the nature of reality (usually
social reality), or some segment of reality, and of man's relation
(attitude, conduct) toward it; and calling for a commitment
independent of specific experience or events."181 The intellectual
process might seem to be a counterforce against generalized,
ideological visions, since its canons imply following the particular
consequences of its cognitive procedures wherever those consequences
(truth) lead in specific instances. Insofar as intellectuals as a social
class are motivated by the intellectual process, their positions might be
expected to be as diverse as the different readings possible on the
complexities of political issues. In short, intellectuals as a social class
might be expected to show less of a "herd instinct" pattern as regards
group conformity, and at the individual level to dissect issues on their
respective specific merits, leading to less correlation among their
various political positions than among people who "vote the straight
ticket" in either a partisan or an ideological sense. Actual studies of
opinions among academics, however, show "exceptionally high
correlations among opinions across a broad array of issues,""' even
when the specifics involve such disparate matters as foreign policy,
marijuana, and race. These cohesive beliefs among intellectuals have
been politically to the left of the general public for as long as such
surveys have been taken.183 This is true not only in the United States,
but internationally.164 What is important at this point, however, is not
so much where the intellectuals are politically, but how cohesively the
various positions fit together as principles deduced from an underlying
vision.

The coherence of a vision may derive from an accurate depiction of

a coherent set of relationships empirically observed in the real world,
or from the deduction of various conclusions from a given set of
premises without much regard to observed facts. As noted in earlier
chapters, many political policies are neither based on hard evidence as
to causation nor monitor hard evidence on subsequent effects, and
especially not negative effects. Antitrust laws, schools busing, rent
control, and minimum wage laws, are all based on their consonance
with a general vision of the social process, rather than on empirical
tests of their positive and negative effects. That crime is caused by
poverty and/or discrimination is also part of the same vision, but the
empirical evidence is hardly overwhelming, or even unambiguous,
since violent crime declined in the 1930s185 during the greatest
depression in history and skyrocketed during the affluent 1960s. In
England, the crime rate rose as unemployment was reduced to the
vanishing point. What Earl Warren called "our disturbed society""' had
a downwardly trending urban murder rate for about twenty years until
the 1960s, when it suddenly doubled in less than a decade, as the
Warren Court changed the rules of criminal justice. Sex education in
the public schools was another part of the same social vision, and was
promoted as a means of reducing teenage pregnancy and venereal
disease-but no reconsideration of its wisdom or effectiveness has been
made in the light of steep increases in both. The percentage of the
public disavowing sex education in the public schools has increased,""
but among intellectuals there is no such reconsideration in the light of
evidence. Public support of the death penalty, which was declining
prior to the increase in the murder rate in the 1960s, rose again as the
murder rate rose. Again, this suggests a public more responsive to
empirical evidence than intellectuals-i.e., less ideological. A critic has
said of liberal intellectuals that their responses to public issues "are as
predictable as the salivation of Pavlovian dogs" and can be predicted
"with the same comforting assurance with which you expect the sun to
rise tomorrow."188 The data show this to be an overstatement-but not
otherwise an incorrect statement.

If the existence of the intellectual vision raises questions about

whether it is a product of intellectual processes or of intellectuals'
occupational self-interest, the specific contents of the prevailing
intellectual vision raise the same question even more sharply. These
may be summarized, and to some extent simplified, as follows:

1. There is vast unhappiness ("social problems") caused by other elites

with whom intellectual elites are competing-notably businessmen, the
military, and politicians.

2. Those who are empirically less fortunate are morally and causally
"victims" of those competing elites, and their salvation lies in more
utilization of the services of intellectuals as "educators" (literally or
figuratively), as designers of programs (or societies), and as political
leaders and decision-making surrogates.

3. Articulated rationality-the occupational characteristic of

intellectuals-is the best mode of social decision making.

4. Existing knowledge-whether scattered in fragments through society

or collected together in traditions, the Constitution, etc.-is inadequate
for decision making, so that "solving" the society's "problems"
depends on the specific fragment of knowledge held by intellectuals.
Egocentric visions of the world do not imply deliberate attempts at
deception and self-aggrandizement. The mechanisms of human
rationalization are too complex for any attempt here to say how such
views emerged. It is enough for present purposes that such views of
social organization are con centrated among intellectuals, and the
question is how these views compare with ascertainable facts.

As a necessarily limited sampling of what has been called a "litany

of woe and crisis," there have been recent assertions by intellectuals
that "human society is in a stage of comprehensive breakdown,"189
that the United States "disintegrates," 19" that the nation is "essentially
evil and the evil can be exorcised only by turning the system upside
down," 191 that "the civil rights legislation is absolutely meaningless,
and it was meant to be meaningless,""' and that "life has broken down
in this country."193 Although intellectuals often pose as articulators of
a general malaise, in fact neither the general public nor the designated
"victims" share this vision of the intellectuals. Among the supposedly
embittered and disenchanted youth, 90 percent describe their past life
as happy and 93 percent expect their future life to be so.194 From 80
to 90 percent of the supposedly alienated workers with
"dehumanizing" jobs describe themselves as satisfied with their
work.195 Significantly, about half felt that others were dissatisfied
with their work;` the intellectuals' outpourings were not ineffective, in
matters outside people's direct experience. More blacks were satisfied
than dissatisfied in such areas as work, housing, and education.19T In
contrast to the intellectuals' preoccupation with "distributive justice,"
there were four times as many blacks who thought that people with
more ability should earn more as there were who believed in even
approximate equality of earnings.198 As for "women's liberation,"
fewer women than men were sympathetic to it.199 For Americans as a
whole, only 12 percent would like to live in another country-less than
in Sweden, Holland, Brazil, or Greece, and less than half as many as in
West Germany or Great Brit- ain.200 Among those in foreign
countries who would like to live somewhere else, the United States
was either the first or second choice in Sweden, West Germany,
Greece, Brazil, Finland and Uruguay.201
 Where the public differs from intellectuals, it is often taken as
axiomatic that that demonstrates the misguided ignorance of the public
and their need to be "educated." However, the supposed "alienation" of
workers, "black rage," and the opinion of women are subjects on
which these respective groups are themselves the experts. Moreover,
insofar as there are hard data on such matters, these data almost
invariably support public opinion rather than the intellectual vision.
The supposedly "meaningless" civil rights revolution saw black family
income double in the 1960s while white family income rose by only 69
percent,202 black college enrollment almost doubled in less than a
decade,20' and the number of black foremen and policemen more than
doubled during the 1960s.204 While statisticians keep large-scale
poverty alive with data limited to cash income, in-kind transfers (food
stamps, housing subsidies, free medical care, etc.) have reduced it
drastically in fact.205 The tripling of government welfare spending
from 1965 to 1973 provided a total value of resources consumed by
the poor in 1973 which was "enough to raise every officially poor
family 30 percent above its poverty line."206 Yet the official census
data are based on samples in which people "are not even asked if they
receive food stamps, live in public housing, or are eligible for
medicaid."207 Independent private researchers who count in-kind
transfers find only 3 to 6 percent of the American population poor208
by the same standards as the government uses. One perhaps revealing
statistic is that 30 percent of the families with official incomes under
$3,000 have air conditioners and 29 percent have color televisions.209

Intellectuals almost automatically explain the misfortunes of groups

in terms of victimization by elites who are rivals of intellectuals. By
asserting or defining (seldom testing) misfortune as victimization, all
other possible explanations are arbitrarily ruled out of order, and with
them perhaps hopes of in fact remedying the misfortune. The
victimhood approach also requires ignoring, suppressing, or
deemphasizing successful initiatives already undertaken by the
disadvantaged group or portions thereof-thereby sacrificing
accumulated human capital in terms of know-how, morale, and a
favorable public image of groups usually portrayed as a "problem." In
the victimization approach, intergroup statistical differences become
"inequities," though in particular cases they may be due to group
differences in age, geographical distribution, or other variables with no
moral implications.

Victimhood as an explanation of intergroup differences extends

internationally to the Third World-typically countries that were poor
before Western nations arrived, remained poor while they were there,
and have continued poor after they left. The explanation of their
poverty? Western exploitation! An economist who treats this as a
testable hypothesis notes that "throughout the underdeveloped world
the most prosperous areas are those with which the West has
established closest contact" and contrasts this with "the extreme
backwardness of societies and regions without external con- tacts."210
But like other victimhood approaches, Third-Worldism is not really an
hypothesis but an axiom, not so much argued explicitly as insinuated
by the words chosen ("the web of capitalism,"211 "the imperialist
network""') and established by reiteration.

What is the function of victimhood for intellectuals? It hardly

derives from rigorous application of intellectual processes. It does,
however, greatly enhance the role of intellectuals as a social class-as
consultants, advisors, planners, experimenters, authorities, etc. At a
minimum, the victimhood approach presents intellectuals with psychic
gratifications213 (including denouncing rival elites). Beyond that are
influence, power, visibility, and money-ample incentives for most
people in most times. The victimhood concept is at least a rational
approach, and perhaps an optimal approach, to social questions from
the standpoint of intellectuals as a social class, however little it does
for anyone else and however counterproductive it may be for society at
large. The victimhood approach is also consonant with a more general,
intellectual approach to human beings, abstracting from tangible
natural or cultural differences-and being left highly suspicious of
intergroup differences in socioeconomic results, which are indeed
inexplicable, once major variables have been assumed away.

Behind this questionable cognitive procedure may lie a desire to

establish the equality of man and perhaps a sense of "there but for the
grace of God go I." This may be a laudable objective as a counterpoise
to the egoistic ideology of individual or group "merit." But both
approaches confuse causation with morality. If individual A has
characteristic X, and individual B does not, then it is important for
both to know whether X is an advantage or a disadvantage, even if
neither "deserves" it and even if both are completely creatures of
circumstances beyond their control as regards that characteristic.
Nothing is gained by pretending that it doesn't matter when it does, or
by leaving it out of account in explaining differences between them.
That only opens the way to concocting mythical reasons for their
differences.

The victimhood axiom is based on little more than a minute scrutiny

of rival elites and a reporting of their numerous sins and shortcomings-
such as could be found in equally close scrutiny of any other group of
human beings-elite or otherwise. That multinational corporations have
cheated here and bribed there is neither startling as information nor a
causal explanation of Third World poverty, however morally
deplorable or legally actionable it may be. If prosperity could come
only from the united efforts of upright and noble-minded people, all of
mankind would still be sunk in poverty. It is always true, at least in the
short run, that those poorly fed would be better fed if the well-fed
shared some of their food. That is wholly different from saying that
people are starving in India because overfed Americans somehow took
their food.

The dissonance between the intellectual vision and the experience

and opinions of the public has led to a new phenomenon in recent
years, sometimes called "totalitarian democracy." Whereas in earlier
times-the New Deal era, for example-the "intelligentsia saw The
People as its ally in the struggle for power,"214 and "a plebiscitary
interpretation of democracy""' was considered a hallmark of
liberalism, they now see public opinion and democratic processes as
obstacles to be overcome. While intellectuals still speak in the name of
The People and espouse democratic ideals, "their ceaseless strategy is
inconsistent with their professed thought."216 Such strategy features
"rules that minimize majority participation, thereby permitting a small
faction to gain control."217 Whether within political party caucuses,
environmental agencies, or other social decision-making institutions,
complex rules and tiresome procedures are sorting devices that ensure
the differentia survival of intellectuals in decision-making processes.
These procedures are, in effect, "the poll tax that the New Elite has
been imposing on everyone else.""' Recourse to courts and
administrative agencies as the preferred mechanisms of decision
making also favors the chances of intellectuals in imposing their vision
on the rest of society. As a leader in the fight for eliminating capital
punishment observed, there was "an unmistakable preference for the
courts," because reform through democratic legislation requires either
"public consensus or a powerful minority lobby,"219 as contrasted
with the greater ease of attempts to "market new constitutional
protections to judges."Y20 A bow toward democracy is made with
claims that the newly created "constitutional" rights are "a response to
deeply rooted social conflicts that elected representatives have not
addressed" because "the interests that the Court protected could not
mobilize sufficient power,"221 but these vague references to "deeply
rooted social conflicts" and "power" boil down to the simple fact that a
majority of the public-indeed, "a twenty-year high"supported the death
penalty in the midst of the intellectuals' crusade to abolish it.2Y2
Appeals to a higher moral code-of which they are axiomatically the
keepers-not only justifies the superseding of the democratic will or the
constitutional processes, but justifies calling it "democracy," for it is
what the people would want, if only they knew better, if only they
shared the intellectuals' vision. This approach has been aptly called
"totalitarian democracy." Sometimes the moral superiority of
intellectuals is put even more bluntly, as in the assertion that "a more
equal society is a better society even if its citizens prefer
inequality."223

Political intellectuals attempt to supersede not only political

processes but also cognitive processes. Although they may specialize
in cognitive skills, the impersonal or "objective" nature of this skill
makes it politically unreliable at any given juncture. What is far more
reliable is to use the intellectuals' general superiority in cognitive
matters as a reason for dismissing-rather than arguing with-opposing
views on a particular matter. Terman did not in any substantive sense
argue with Walter Lippman over the issue of racially innate
intelligence. Rather he used his position as an "expert" in the field to
dismiss Lippman's ideas as "sentiment and opinion," contrasted with
his own "quantitative methods"-which he referred to but in no way
exhibited. Keynes, in a book devoted to comparing capitalisn and
communism, sweepingly dismissed Marxism as a doctrine "which I
know to be not only scientifically erroneous but without interest or
application for the modern world22,- without ever telling us why it
was wrong, or even offering a hint. James Baldwin similarly asserted
that Americans are "the most dishonorable and violent people in the
world,"225 without any reference to others whose claim to that title
included the wholesale extermination of more people than were denied
civil rights in the United States. More generally, intellectuals' personal
preferences and beliefs tend to become axioms rather than hypotheses.
The notion that minority progress can only occur through
governmental intervention is a typical such axiom-even though (1)
low-income American Indians have long had much government
involvement, while more financially successful groups such as
Orientals and Jews have had little government involvement in their
rise from poverty to affluence, (2) the very existence of northern urban
black communities is due almost exclusively to private transfers of
property through market mechanisms, and (3) the education of black
youngsters was initially almost solely nongovernmental (or even
antigovern- mental, in defiance of laws against their education in the
antebellum South), and it was 1916 before the number of black
youngsters educated in public high schools equalled the number
educated privately.226 The point is not that these particular facts are
determining as far as the relative importance of contemporary political
and nonpolitical alternatives. Rather, the point is that opposite facts
have been arbitrarily postulated or implicitly assumed, as if they were
determining.

Intellectuals' attempts to depict the less fortunate as victims of some

competing elite-especially businessmen-is likewise seldom subject to
any empirical test or even specification of alternative hypotheses. If
lowpaid workers were exploited, for example, we might expect to find
their employers unusually prosperous rather than finding, as we
generally do, high rates of bankruptcy among low-wage firms. The
point is not that this particular test has not been used, but that the
whole discussion avoided any test, and relied instead on axioms. It is
ideological rather than cognitive thinking: "When we discover that
certain ideas about man, history and society seem, to those who
believe in them, to be either self-evident or so manifestly correct that
opposing them is a mark of stupidity or malice, then we may be fairly
sure we are dealing with an ideology and ideological thinking.""'

The intellectual vision of victimhood makes the Third World the

source of the wealth of the industrial countries, when in fact the bulk
of American investments, for example, are in other industrial countries
rather than the poorer nations. The rhetoric of victimhood extends even
to those who prosper from so-called "underground" publications which
are sold openly everywhere, including in government buildings. Often
the nonempirical assertions assume the camouflage of empirical
statements by the use of modifying words which reduce their
meaningfulness "immeasureably," "invariably," "profoundly," etc.-
which simply "indicates that the writer has no data, has done no
research, and has merely transmuted perceptions into 'facts.' "228

Sometimes this transmuting of notions into "facts" includes an

exaggeration of the advancement of foreign totalitarians rather than a
denigration of that of democratic nations. For example, the supposed
economic triumphs of the Bolsheviks are often based on the belief that
czarist Russia had advanced unusually slowly, when in fact it had
become one of the fastest growing economies in Europe. The military
might of the U.S.S.R. is not proportional to its economic development,
but to the ability of its government to appropriate a higher share of its
output for military purposes.

Articulated rationality as a process and the delegation of decision

making to "experts" have become the central features of the
intellectuals' vision of political and social decision making. Where
there is no compellingly articulated rationality, then there is
irrationality, from this viewpoint. The experiential, systemic,
traditional, or other forms of authentication are not even considered.
Thus "Americans have an irrational commitment to private
ownership""' to which they are "addicted""' and social goals are built
into the very definition of "rational" policy,231 in the approach of two
well-known scholars who unsurprisingly declare: "Delegation to
experts has become an indispensible aid to rational calculation in
modern life."232 To them bureaucracy "is a method for bringing
scientific judgments to bear on policy deci- sions,"233 and a "triumph
for the deliberate, calculated, conscious attempt to adapt means to ends
in the most rational manner.""' Like Max Weber's assertion of the
"indubitable technical superiority" of bureaucracy235 and Thorstein
Veblen's assertions of the supposed efficiency of a technocratic
economy,236 this argument ignores the fact that there is no such thing
as efficiency independent of values. Processes are efficient or
inefficient at reaching specified values-e.g., an engine in moving a car
forward, rather than dissipating its power in random shaking. No
amount of bureaucratic or technological expertise can produce
"efficiency" by numerous and disparate individual standards, however
much they may facilitate the substitution of other standards by
"experts" to whom power has been delegated.

Perhaps the most important policy question is not how or why

intellectuals have sought power but how and why others have granted
them as much power and influence as they have. It has seldom been
because of any demonstrated success. Crime rates have soared as the
theories of criminologists were put into practice; educational test
scores have plummeted as new educational theories were tried. Indeed,
no small part of the intellectuals' achievement has been in keeping
empirical verification processes off the agenda. Moreover, those who
are more essentially intellectual in occupation-primarily producers of
ideas-have been both more avid and more favored in power terms than
those who produce tangible benefits in verifiable form. It is not the
agronomists, physicians, or engineers who have risen to power, but the
sociologists, psychologists, and legal theorists. It is the latter groups
who have transformed the political and social landscape of the United
States and much of the Western world. Not only is much of their
cognitive output inherently unverifiable empirically; they have by
various definitions and axiomatic procedures made their output even
less susceptible of authentication than it would be otherwise. The
jargon alone in these fields makes their substance largely inaccessible
to outsiders. Transitionism explains away all disastrous consequences
as the short-run price for a long-run triumph. They have conquered by
faith rather than works. This is hardly surprising in the light of similar
achievements by religious intellectuals who preceded them by
centuries. Whatever has made human beings eager to hear those who
claim to know the future has worked for modern as well as ancient
intellectuals.

The modern equivalent of the ancient seer to whom men submitted

their credulity is the "expert." Deference to "experts" generally does
not depend upon any consideraton of (1) whether there is in fact any
expertise on the particular issue (often there is not, especially in the
social sciences), (2) whether the individuals selected have in fact any
such expertise, as contrasted with an assortment of miscellaneous
information, or (3) whether those who have expertise are in fact
applying it, as distinguished from using it as a means of imposing
personal preferences or group fashions. Politicians may also take
issues to "experts" as a means of escaping political responsibility for
unpredictable or controversial outcomes. Finally, there are "experts"
whose expertise consists largely of detailed knowledge of some
particular governmental program, whose institutional complexities and
jargon make them incomprehensible to others. The enormous
investment of time and effort required to acquire familiarity with
intricate regulations and labyrinthine administrative procedures is
unlikely to be made by someone unsympathetic to a program, both
because the philosophic or cognitive interest would not be sufficient
and because such an investment offers large payoffs only to those
whom the particular bureaucracy would employ as consultants or
officialsobviously not those unsympathetic to its programs. Even
among "experts" in institutional detail who are unaffiliated with the
program, their expertise has value only so long as the program itself
exists. They would become experts in nothing if the programs were
abolished, and a costly investment on their part would be destroyed.
Under this set of incentives and constraints, it may be a truism that "all
the experts" favor this or that program, but that may indicate very little
about its value to the larger society. "Experts" of this sort can often
devastate critics by exposing the latter's misunderstandings of particu
lar details, terminology, or legal technicalities-none of which may be
crucial to the issue but all of which establish politically the superior
knowledge of those favoring the program, and enable them to dismiss
critics as "misinformed. "

It is not so much the bias of "expert" intellectuals that is crucial, but

the difference between their perceived "objective" expertise and the
reality which makes the political process vulnerable to their influence.
Publicly recognized special interest groups-landlords discussing rent
control, oil companies discussing energy, etc.-may have similar
incentives and constraints, but are far less effective in getting their
social viewpoints accepted as objective truth or social concern. But
when an academic intellectual appears as an "expert" witness before a
congressional committee, no one ever asks if he has been a recipient of
large research grants or lucrative consulting fees from the very agency
whose programs he is about to "objectively" assess in terms of the
public interest. While special interest advertising carries not only that
explicit designation but a heavy price tag as well, talk show hosts
eagerly welcome "experts" extolling the virtues of this or that program,
or raising alarms about the dire consequences of its possible
curtailment or extinction. Such experts are then thanked warmly for
"taking time out from your busy schedule" to come "inform" the
public-i.e., to get free advertising for their special interest, with an
audience in the millions. The print media are equally likely to bill such
"experts' " statements as news rather than advertising.

As noted in Chapter 8, special interests can serve a useful social

purpose in airing issues-especially when there are competing special
interests and they are all recognized for what they are. The political
advantages of intellectuals derive precisely from their not being
recognized as interested parties. It is this difference in the public's cost
of knowledge of the personal stakes of the spokesman involved when
businessmen, academic intellectuals, and others dispute that gives the
intellectuals their decisive advantage. In many issues, there are no
competing organized interests to challenge the intellectuals, as when it
is a question of taking tax money and using it to create or support
programs that intellectuals favor on ideological grounds or for personal
gain. Vast governmental research funds, controlled by the very
agencies whose performances and impact are being evaluated, ensure
that any politically sophisticated agency can field a battalion of
precommitted "experts" from among its academic grant recipients and
consultants. Not all of the latter are simply "hired guns." As long as the
agency involved can select among grant recipients, they can choose
people sincerely committed to their viewpoint and not those sincerely
committed to opposite views. The former will have massive research
to back up their viewpoint; the latter may be reduced to speaking in
generalities or raising methodological questions about others' re
search, neither of which is very effective politically. The net result is
that tax money is used to subsidize campaigns to get more tax money.
More important, from the standpoint of freedom, central government
power is used to promote more central government power, with
intellectuals a major force in these efforts.

Despite their acceptance as independent "experts" giving objective

judgements, intellectuals have enormous personal stakes. In addition to
their immediate personal gains as individuals, intellectuals as a class
are dependent upon the backing of political power to impose their
visions on the underlying population. The history of intellectuals from
the Roman and Chinese empires to the French Revolution to modern
totalitarianism shows how compelling a goal that has been, and how
readily the freedom of others is sacrificed to such visions-whether of
religious salvation, or "social justice." Totalitarianism is only a
carrying to its logical conclusion of the view that the vision-ideals,
principles, religion, etc.-is paramount and flesh-and-blood human
beings expendable.

Ironically, despite intellectuals' power concentrating role and their

insulation of that power from public feedback, among their
justifications is that other decision-making elites possess concentrated
power, and are unaccountable in its use. Attempts to depict
nonintellectual decision makers as both powerful and socially
irresponsible are clearly in the class interest of intellectuals. Moreover,
it is easy for intellectuals to conceive of rival elites as unaccountable
powers because their accountability is often not in terms of articulated
rationality, the central modality of intellectuals. Corporate executives'
decisions may reflect very little articulated input from the public and
may be accompanied by very little discussion of their own reasons, or
may even be obfuscated by public relations statements-and yet be
responsive to public opinion to the point of paranoia about offending,
boring, or otherwise losing their customers. The extreme sensitivity of
television networks to program ratings is a classic case of corporate
hyperresponsiveness in a situation where there is virtually no articulate
consumer-producer interaction. The Edsel was not dropped, nor the
W.T. Grant department store chain liquidated because of articualtion in
either direction, but because customer choices forced such decisions.

In short, the absence of articulated accountability is not an absence

of accountability as such. Conversely, the presence of articulation, and
of phrases about "the public interest" or "the people" does not imply
accountability, whether such phrases are used by intellectuals,
politicians, or corporate press agents copying their styles to convey a
fashionable image of "corporate responsibility." The decisive
knowledge that is conveyed, and responded to, is transmitted
financially. Accountability is apparent not only in the dramatic cases
where famous products or companies disappear, but more pervasively
in the constant changing of products, corporate policies and/or
managements to accomodate changing consumer preferences and
changing technological and organizational possibilities.

That intellectuals tend to conceive of accountability solely in terms

of their own processes of articulated rationality says more about the
myopia or egocentricity of intellectuals than about the functioning of
social processes. A businessman whose whole economic future is
staked on the correctness of his assessments of consumer desires or
technological possibilities is regarded by intellectuals as
unaccountable, because he does not articulate to anyone. Conversely,
psychiatrists, psychologists and social workers whose articulated
assessments lead to dangerous criminals being turned loose are not
accused of being unaccountable, even though they suffer no penalties
for the robberies, assaults, or murders committed by those released-not
even the embarrassment of having a personal box score kept on the
criminals released on their recommendations.

Many of the same intellectuals who depict business as

unaccountable to the public also deplore such things as television
ratings and the proliferation of product models differing by nuances
(automobiles, telephones, airline passenger sections)-all representing
attempts to cater to public taste(s). Intellectuals' conceptions of making
business accountable almost invariably involve making more
articulation necessary-at stockholders' meetings, before government
agencies, or public disclosures about internal business processes.
Unarticulated accountability by results-product characteristics and
prices-is either ignored or arbitrarily subordinated to articulation about
processes, despite the fact that (almost by definition) a lay public is
more likely to be able to judge tangible end results than to monitor
complex specialized processes. Often proposals for accountability in
the name of the public mean in practice articulation to intellectuals
placed on corporate boards by government (or under threat of
government action) as "public" representatives. Here the self-interest
of intellectuals is even more apparent, and the claim of responsiveness
to the desires of the general public even more questionable.

Nowhere is the meaning of "public" representation better illustrated

than in so-called "public" television, where the tastes actually served
are not those of the public but of atypical elites, favoring sports
(soccer, tennis) different from those preferred by the public (baseball,
football), favoring British soap operas ("Poldark," "Upstairs,
Downstairs") rather than American, and rescuing performers who lost
out in public popularity (Dick Cavett) compared to their competitors
(Johnny Carson), but who happen to be favored by intel lectuals. The
issue here is not about the artistic merits of these various entertainment
productions, but about what "public" accountability means in practice,
when conceived of as articulation rather than alternative processes for
conveying public preferences.
 Sometimes the supposed lack of "accountability" of corporate
management is vis-a-vis stockholders, rather than the general public.
The "separation of ownership and control" has long been regarded as a
social "problem" to be "solved"-almost invariably by more articulation
and/or political control. The possibility that such separation may be
desired by stockholders themselves is ignored. Yet many stockholders
have sufficient investments to form their own business and manage it-
if they wanted to. Their preference for having someone else carry out
the managerial functions is revealed by their purchase of stock. As
stockholders, they monitor end-results-dividends-rather than attempt to
monitor managerial processes. To allow other stockholders or "public"
representatives to monitor managerial processes would be to deprive
stockholders in general of the option of choosing to whom to entrust
their investments. Those stockholders who might prefer being involved
in management can of course hold stock in such corporations as
choose to attract them by offering such terms, if such arrangements are
sufficiently viable to allow such corporations to compete and survive.

Sometimes the business "concentration" that is attacked is based on

the percentage of the market served ("controlled") by some small
number of companies or the proportion of wealth or land owned by
some given number or percent of businesses, families, or individuals.
As noted in earlier discussions of so-called "income distribution,"
much of the individual and family data reflect different stages of a life
cycle rather than people in one class rather than another-some of
today's upper bracket people being yesterday's lower bracket people
and some of today's lower bracket people being the children of today's
upper bracket people. Business concentration figures are even trickier.
Statements that, for example, 568 companies control 11 percent of the
land area237 convey insinuations but no economic conclusion or even
allegation, since 568 companies are not a decision-making unit, nor
even a basis for a viable conspiracy-even if 11 percent of the land were
enough to conspire with. To claim, as Ralph Nader does, that twenty-
five landowners own more than 61 percent of California's private
land238 is completely misleading. Not only do state and national
government own a substantial part of California-reducing the true
percentage well below the 61 percent figure-it is also important to
realize that the so-called twenty-five "landowners" include thousands
or millions of people, because of organizational ownership by
corporations with vast numbers of stockholders. The full facts reveal
not so much a concentration of land ownership among few people as a
preference of many people to have their assets managed for them by
professional managers.

Given the advantages of specialization, it is hard to imagine how

various activities could fail to be "concentrated." Business
concentration is simply arbitrarily singled out for detailed scrutiny and
expose-style treatment, fraught with insinuations but devoid of
empirically testable conclusions. The implicit premise is that there is
something strange, unique, or sinister in such numerical relationships
representing "concentration," when in fact such numerical
relationships are commonplace throughout human endeavors. Anyone
who watches professional basketball knows that less than 12 percent of
the population supplies over half the basketball stars. Only 3 percent of
the population grows all of the food, less than 1 percent of the
population runs all of the post offices or drives all of the taxicabs.
Indeed, far less than 1 percent of the population writes all the stories
about small percentages of people controlling large percentages of
activities. All the authors, editors and reporters in the country add up
to much less than one percent of the population-and in fact less than
one-twentieth as many people as proprietors, managers, and officials in
business, who are supposed to represent "concentration" dangers.239
The simple underlying fact of advantages of specialization can be
looked at in many ways, including the sinister insinuations chosen by
intellectuals when discussing competing elites.

The discussion here of the political role of intellectuals has been

almost exclusively a discussion of the role of politically liberal
intellectuals because (1) the predominant political orientation of
American intellectuals has been liberal and left, and (2) the small,
politically far less influential, nonliberal intellectuals are a
heterogeneous group, consisting of followers of specific economic or
social principles-the "Chicago School" of economists (Milton
Friedman, George Stigler, etc.), the sociologically oriented "Neo-
conservatives" (Irving Kristol, James Q. Wilson, etc.) and
conservatives in the more usual sense of people who follow traditional
values (William F. Buckley, Russell Kirk, etc,). Unlike political
liberalism, which can be reduced to a body of values, postulates or
inferences,"' "conservatism," as the term is usually applied (to include
all the varieties itemized above, for example), has little or no
determinate content. If a conservative is someone who wants to
conserve, then what specifically he wants to conserve depends upon
what happens to exist, and this might be anything from the social-
political system of eighteenth-century England to the contemporary
Soviet Union. In short, the broad label "conservative" is itself virtually
devoid of content, however much specific content there may be in each
of the groupings and individuals to whom that label is loosely applied.

Because the great majority of intellectuals are liberal, it is

essentially liberals who define what is meant by the term
"conservative." In the liberal vision, conservatives are people who
want to either preserve the status quo or go back to some earlier and
"simpler" times. However politically effective such conceptions may
be, in putting alternatives out of court, there are great cognitive
difficulties with such characterizations. For example, there is not a
speck of evidence that earlier times were in fact "simpler," though of
course our knowledge of such times may be cruder. Moreover, the
status quo in the United States and throughout much of Western
Europe is a liberal-left status quo, entrenched for at least a generation.
Alternatives to this are arbitrarily called "going back," even when
these alternatives refer to social arrangements that have never existed
(the monetary proposals of Chicago economists, for example), while
proposals to continue or accelerate existing political-economic trends
are called "innovative" or even "radical." Conservers of liberal or
socialist institutions are never called by the perjorative term,
"conservative." Neither are those who espouse the ideals, or repeat the
very phrases, of 1789 France. In the broad sweep of history, the
systemic advantages of decentralized decision making are a far more
recent conception than the idea that salvation lies in concentrating
power in the hands of the right people with the right principles. Adam
Smith came two thousand years after Plato, but contemporary versions
of the philosopher-king approach are considered new and
revolutionary, while contemporary versions of systemic
decentralization are considered "outmoded." Such expressions are
themselves part of a vision in which ideas may be judged temporally
rather than cognitively-what was adequate to older and simpler times
being inadequate for the complexities of modern life.

The characteristics of the intellectual vision are strikingly similar to

the characteristics of totalitarian ideology-especially the localization of
evil and of wisdom, and psychic identification with the interests of
great masses, whose actual preferences are ignored in favor of the
overriding preferences of intellectuals. It is consistent with this that
intellectuals have supported and indeed spearheaded the movement
toward a centralization of political power in democratic nations and
have apologized for foreign despotisms and totalitarianisms which
featured like-minded people. Democratic traditions may create either
internal ideological conflicts or an external pragmatic need to
rhetorically paper over the totalitarian thrust of the intellectual vision.
Here intellectual processes-definitional clarity, logical consistency,
canons of evidence-are often sacrificed to the intellectual vision or the
self-interest of the intellectual class. For example, antidemocratic
processes may be described by democratic rhetoric as "participation"
or "public" representation. Presumption may be substituted for
evidence-past, present, or future-as in numerous arguments that the
national I.Q. was declining, or existing evidence may be resolutely
disregarded, as in claims that crime rates reflect social "root causes,"
or that "innovative" educational methods are more effective, or that
sex education reduces the incidence of teenage pregnancy and venereal
disease. In short, there is little to suggest that intellectuals' political
positions reflect the intellectual process, and much to suggest that their
positions reflect a vision and a set of interests peculiar to the
intellectual class.

SUMMARY: EMBATTLED FREEDOM

Freedom has always been embattled, where it has not been wholly
crushed. The desire for freedom and for its opposite, power, are as
universal as any human attributes. The nuclear age has added a new
dimension to the struggle between them. So too has the rise to
prominence of intellectuals as a social class with growing political
aspirations, influence and/or dominance.

Almost by definition, the movement to totalitarianism is a one-way

movement. No totalitarian government has ever chosen to become free
or democratic, though a free and democratic nation may choose to
move toward totalitarianism, as Germany did in 1933. If governmental
choice were the only variable, the eventual worldwide triumph of
totalitarianism would be inevitable, since choices in one direction are
reversible and choices in the other direction are not. Nazi
totalitarianism was smashed by external military power and its empire
liberated by invading armies. But the invasion of Normandy that led to
the liberation of Western Europe can hardly find a new counterpart to
liberate Eastern Europe in a nuclear age. That the Western democracies
had to stand by helplessly while Soviet tanks crushed Eastern
European uprisings in the 1950s was grim proof of the new realities of
nuclear annihilation. Perhaps in a very long run, political erosions
might sap the vitality of totalitarianism or economic efficiency claims
modify it incrementally (as it has already in agriculture) to the point
where ultimately it no longer resembles its present centralized model.
But even these remote hopes are lessened if the surviving examples of
free and democratic nations are lost before this can happen.

In the nuclear era, the international survival of the nontotalitarian

world rests ultimately on an American nuclear deterrent. Otherwise the
nuclear power of the Soviet Union would be irresistible as a threat in
international power politics, whether or not it was ever actually used.
Seldom has the sur vival of human freedom rested so decisively in the
hands of one government, or the survival of the species in just two.

The spread of totalitarianism-communism since World War 11-has

been at the expense of all kinds of nontotalitarian governments: a
democracy in Czechoslovakia, a kingdom in Laos, a Latin American
autocracy in Cuba. These various forms of government, whatever their
merits or demerits otherwise, tend to be changeable. A dictatorship
like Spain could liberalize after Franco, and Portugal could swing to
the left after Salazar. As of any given moment, some of these
governments might seem not very different in their degrees of freedom
from communist dictatorships. But a communist dictatorship has a
permanence that these other forms of government cannot approach.
Inasmuch as most of the governments on the planet are nondemocratic
as well as noncommunist, stemming the spread of totalitarianism
necessarily means American cooperation with nondemocratic nations.
To some Americans, but especially intellectuals, such cooperation
appears as a violation of the democratic creed, and should be
contingent on the nondemocratic nation's adoption of democratic
institutions. This is a special case of the general implicit assumption of
a single scale of values applicable to all. The historical recency and
rarity of constitutional democracy makes the universal application of
such a model especially egocentric and arbitrary. As a precondition for
cooperation to stem the tide of an irreversible totalitarianism, it
suggests either a low estimate of the threat or an unwillingness to face
the historic responsibility implied by it. The central assumption of a
single scale of values applicable to all is a force in domestic as well as
international politics. It has facilitated the imposition of many specific
laws and policies resented by the population, and-more important-it
has altered the enduring political framework to make such impositions
possible through courts, administrative agencies, and other institutions
and processes insulated from public feedback and responsive to
smaller, more zealous constituencies. Domestically as well as
internationally, freedom as the general preservation of options gives
way to the imposition of one group's preferred option. Their influence
greatly exceeds their numbers, partly because they are perceived as
objective "experts" and partly because of the moral nature of their
arguments and the apparently moral high ground that they themselves
occupy (as contrasted with the arguments of conventional special
interest groups in these respects).

The moralistic approach to public policy is not merely a political

advantage to those seeking greater concentration of power. Moralism
in itself implies a concentration of power. More justice for all is a
contradiction in terms, in a world of diverse values and disparate
conceptions of justice itself. "More" justice in such a world means
more forcible imposition of one particular brand of justice-i.e., less
freedom. Perfect justice in this context means perfect tyranny. The
point is not merely semantic or theoretical. The reach of national
political power into every nook and cranny has proceeded in step with
campaigns for greater "social justice." A parent forced by the law and
income to send his child off to a public school where he is abused or
terrorized by other children is painfully aware of a loss of freedom,
however much distant theoreticians talk of justice as they forcibly
unsort people, and however safe the occupational advantages of
intellectuals remain from governmental power.

The myopic conception of freedom as those freedoms peculiar to

intellectuals, or formal constitutional guarantees, ignores the many
ways in which options can be forcibly removed by administrative or
judicial fiat, or by the government's ability to structure financial or
other incentives in such a way as to impose high costs or grant high
rewards according to whether individuals and organizations do what
the government wants done-whether or not the government has any
explicit statutory or constitutional authority for controlling such
behavior. More than a century ago, John Stuart Mill saw the dangers in
the growth of the extralegal powers of government:

Every function superadded to those already exercised by the

government causes its influence over hopes and fears to be more
widely diffused, and converts, more and more, the active and
ambitious part of the public into hangers-on of the government, or of
some part which aims at becoming the government. If the roads, the
railways, the banks, the insurance offices, the great joint-stock
companies, the universities, and the public charities were all of them
branches of the government; if, in addition, the municipal corporations
and local boards, with all that now devolves on them, became
departments of the central administration; if the employees of all these
different enterprises were appointed and paid by the government, and
looked to the government for every rise in life; not all the freedom of
the press and popular constitution of the legislature would make this or
any other country free otherwise than in name."'

Freedom is endangered both internationally and domestically. The

international danger turns ultimately on military power, and the
domestic danger on ideology. It is not merely that an ideology may be
wrong-everything human is imperfect-but that the zeal, the urgency,
and the moral certitude behind it create special dangers to a free
constitutional government of checks and balances, for maintaining that
constitutional freedom often seems less important than scoring a
victory for "justice" as envisioned by zealots. When a segment of these
zealots are able to pose as disinterested "experts" the dangers are
compounded.

The United States of America is a central battleground for both

kinds of dangers to freedom, domestic and international. Militarily, the
whole West ern world is dependent on American nuclear power.
Politically, the powercentralizing forces have advanced much further
toward their goals in other Western countries than in America, where a
variety of autonomous forces are still able to oppose these trends.
Intellectuals have never been as cohesive in the United States as in
smaller, more socially homogeneous countries,"' and the public has
never been as thoroughly awed by them. One symptom of this is the
utter failure of socialist movements to take root in the United States,
while they are strong in Western Europe. Socialist movements (and
communist movements) have-in every period of history and around the
world-been the creation of middle class intellectuals, though the
ceaseless reiteration of the "working class" theme in socialist rhetoric
may verbally obscure this plain fact. Where socialist intellectuals have
allied themselves politically with labor unions-as in the British Labor
Party, for example-it is the intellectuals who lead the alliance to the
left, with varying degrees of resistance or acquiescence by the working
class segment of the alliance. The very same pattern has been
attempted at various times in American history, but American workers
have historically been far less deferential to their "betters"-whether
employers or intellectuals-than European workers. The intellectuals
have been more successfully rebuffed here.
 Certainly if the trend toward centralization of power-and the
corresponding erosion of freedom-can be stopped anywhere, it can be
stopped in America. But in a nuclear age, even the momentous
question of human freedom must be considered in the light of military
realities.

THE MILITARY "BALANCE"

For a brief period at the end of World War II, the United States stood
in a military power position perhaps unparalleled in human history.
The Roman Empire at its height was not as unchallengeable. In
addition to its monopoly of the greatest military weapon in history, the
United States alone of the industrial nations had its entire productive
capacity intact, unscathed by war, and producing more than all the rest
of the world put together.zd3 Its people were united behind the
government as seldom before or since. In sheer power terms, the
United States could have imposed an American empire or at least a
modern version of the Pax Britannica that kept Europe and most of the
world free of major wars for generations. The point here is not to argue
that either of these things should have been done. The point is to show
the situation, the possibilities, and to compare these with what in fact
happened.

What actually happened was that three-quarters of the total

American military force demobilized in one year-9 million men and
women from 1945 to 1946, and the remaining 3 million military
personnel were reduced by half again by 1947.2" By 1948 the
American military force was smaller than it had been at the time of
Pearl Harbor. Nations from which the American army drove the Nazis
were forthwith restored to their own sovereignty. The American
occupation army that entered Japan in 1945 was ordered to neither take
nor even buy food from the Japanese, as that would reduce food badly
needed by the Japanese civilian population. For what may have been
the first time in history, a conquering army was put on short rations
until food arrived from their homeland, so that a conquered people
would not be deprived. The humane treatment of conquered enemy
nations made Germany and Japan two of the most pro-American
nations in the world, both politically and culturally. These actions are
noteworthy in themselves, remarkable against the historical
background of other conquering nations, incongruous with the image
of a "sick" society, and in particular contrast with the record of the
Soviet Union.

Over the years since World War II, the military supremacy of the
United States has disappeared, and what has been called the "nuclear
stalemate" has emerged. Both the United States and the Soviet Union
have enough nuclear weapons to annihilate the major population
centers of the other nation several times over-"overkill," as it is called.
However, nuclear "overkill" may not be as unprecedented as it appears
nor decisive as an indication of negligible incremental returns to
continued military development. It may well be that when France
surrendered to Nazi Germany in 1940, it had enough bullets left to kill
every German soldier twice over, but such theoretical calculations
would have meant little to a conquered nation. Would anyone say that
a lone policeman confronting three criminals had "overkill" because
his revolver contained enough bullets to kill them all twice over? On
the contrary, depending on how close they were, and with what
weapons they were armed, he might be in a very precarious position.

In an era of sophisticated radar defenses and missile interceptor

systems, the only way to actually deliver a nuclear weapon on target
might be to saturate the enemy defense system with more incoming
missiles than it can handle-that is, with a number of missiles
representing extravagant "overkill" in terms of what would be
theoretically necessary if the enemy were as defenseless as a sitting
duck. Since both the United States and the Soviet Union have missile
defense systems, theoretical examples of "overkill"-if taken 1 t- erally-
represent either naivete or demagoguery, depending upon how they are
used. As long as the technology of attack and defense systems keeps
advancing, there is no point at which we can comfortably say,
"enough," because it is not the size of the arsenal that matters but the
ability to deliver it through enemy defense systems that matters.
Military forces have always had overkill. It is doubtful if most of the
bullets fired in most wars ever hit anybody, and a substantial number
of soldiers never fire at all. Yet no one would claim that it is futile to
arm soldiers going into combat or that it is a waste to issue more
bullets than there are enemy soldiers.

The history of the Soviet-American military balance has been

essentially a history of the relative decline of the American position.
Whereas the United States in 1965 had several hundred more nuclear
missiles than the U.S.S.R., by 1975 the Soviets had more than a
thousand more nuclear missiles than the United States.245 Whereas
the United States in 1965 had more military personnel in both
conventional and nuclear attack forces than the U.S.S.R., by 1975 that
too had been reversed.246 Most other components of nuclear military
power had also changed to the detriment of the United States in this
decade.247 In Europe, the Soviet bloc Warsaw Pact outnumbers the
Western NATO allies in troops (50 percent more), tanks (three times as
many), airplanes (40 percent more) and artillery pieces (three times as
many), with the lone Western military advantage being in tactical
nuclear weapons (twice as many).248 Tactical nuclear weapons-the
West's one advantage-have the serious disadvantage that a defending
nation risks endangering its own people with radioactive fallout if it
uses the weapon against an invader. The invading forces face no
comparable risk, since its tactical nuclear weapons would be used near
someone else's civilian population.

Western attempts to redress this imbalance by developing a tactical

nuclear weapon with reduced and more transient fallout-the so-called
"neutron bomb" (actually an artillery shell) were met by a massive
worldwide propaganda campaign, centering on an incidental feature of
the weapon, its lack of destruction of physical structures. That it would
"kill people but not destroy property" became the theme of Soviet
propaganda, echoed in the West, creating the impression that this
demonstrated the capitalist mentality of concern for things rather than
people. That the Soviets would argue this way is unsurprising, but that
it should find such a responsive echo on the political left in Western
countries-especially on a matter of national survival rather than
political ideology-proved politically decisive. Antineutron "bomb"
demonstrations swept across the Western world, and at the eleventh
hour in the NATO negotiations, the American President withdrew
plans for this tactical weapon, whose chief military characteristic was
that it equalized defensive forces with offensive forces by not requiring
defensive forces to destroy their own civilians to repel an invader.
Existing tactical nuclear weapons, for example, would kill an
estimated five million civilians in West Germany alone if used to repel
an invader.249 The credibility of such a weapon as a deterrent could be
discounted in advance by any invader, aware that it could literally hurt
defenders worse than it would hurt an invading army. That emotional
or ideological predispositions should influence decisions of this grim
magnitude is an indication of the greater political as well as military
vulnerability of the West. Such political reactions on the political left
in Europe were far stronger than in the United States, the left itself
being stronger in Western Europe. In America, the leading liberal
spokesman, Senator Hubert Humphrey, threw his support behind the
weapon.250 Western governments were apparently also in favor of the
weapon, but often more so privately than publicly, given the political
furor."'

How did the present military imbalance develop, given the initial
Western predominance? Quite simply by political decisions to trade off
defense spending for domestic welfare programs. In 1952 military
expenditures were 66 percent of the federal budget, but this declined to
24 percent by 1977 while social welfare expenditures rose from 17
percent to 50 percent over the same span.252 Inflationary dollar
figures maintain the political illusion that defense spending is rising,
but in constant purchasing power terms military expenditures in the
United States declined not only relatively but absolutely. Moreover,
much of today's military spending represents simply higher pay for
military personnel-a fourfold increase in cost per soldier since
19522s3- rather than for weapons. More than half of all current
American military expenditures are for personnel costs. The Soviet
government has maintained and increased its military expenditures as
the United States has reduced its. In short, the relative decline of
American military power has been largely self-imposed, and "arms
race" talk simply ignores the Soviet military buildup that has
proceeded while American military resources were being diverted to
social programs.

There is a striking parallel here with the decline and fall of the
Roman Empire. In its early years the Romans "preserved the peace by
a constant preparedness for war."254 Their soldiers were rigorously
trained255 and carried heavy armor and weaponry,256 and were
commanded by the Roman aristocracy and led in battle by
emperors.26' Their morale was supported by the pride of being
Roman.258 Later, discipline relaxed,259 and the soldiers carried less
armor and weaponry, as a result of their complaints about carrying
burdens that had been carried in earlier generations.26' They were
defeated by barbarian armies smaller than other barbarian armies that
had been routed by Roman legions in earlier times.261 Behind the
self-weakening of Rome lay forces similar to those at work today in
the United States and in the Western world at large: internal
divisiveness262 and demoralization,"" rising welfare expenditures,"' a
growing and stifling bureaucracy265-and a rising political influence of
intellectuals."" In Rome, as in later Western countries, both the
zealotry and the power were concentrated precisely in those particular
intellectuals who dealt in nonverifiable theories-religious theories in
the case of Rome; "social justice" in the contemporary West.

The longer time horizon of a one-party totalitarian state is a military

as well as political advantage. In the short run, elected officials in a
democratic country have incentives to convert military expenditures
into social welfare expenditures, since the former involve long-run
national interests and the latter have short-run political payoff. This is
especially so in an era when high levels of fixed governmental
obligations and voter resistance to higher taxes leave little room for
financial maneuvering, other than cutting the military share of the
budget. In the United States that share has already been reduced by
more than 40 percentage points in the past quarter century.L67 A
totalitarian government like the Soviet Union need make no such
reductions, nor has it.
 Not only are there political dividends in cutting defense spending-
defense "waste" by either allegation or definition-to finance social
programs; there are also more direct political dividends from
advancing toward "peace" through military agreements with the Soviet
Union, regardless of the long-run consequences of the specific terms of
those agreements. The political advantages of such agreements fall
within the time horizon of elected incumbents, while any later
consequences are left for future administrations or generations to cope
with. Again, this is not to claim that such explicitly cynical
calculations are made. The point is that this is the tendency of the
incentives, and human rationalization in the face of tempting
incentives is a common phenomenon. As Congressman Les Aspin
remarked, "you've got to cut the defense budget if you want sufficient
money for your own pro- grams."268 The net result is an asymmetry
in the bargaining power of the U.S. and the U.S.S.R. Politically,
American elected officials need to make such agreements moreso than
do Soviet officials, who are in a position to hold out for terms which
neutralize those weapons in which the U.S. has an advantage and
enhance the prospects for those weapons in which the U.S.S.R. has an
advantage. At any given time, the results need not be a blatant
imbalance. The cumulative effect over time is what matters.

The history of the West in general and the United States in particular
is not encouraging as regards military preparedness. In the 1930s, the
American army was only the sixteenth largest in the world, behind
Portugal and Greece. In 1934, despite the aggressions of Japan in the
Orient and the rise of Hitler in Europe, the budget of the U.S. army
was cut 51 percent, to help finance New Deal programs.269 Overall
military expenditures were reduced 23 percent in one year,27' and total
military personnel on active duty fell below a quarter of a million in
the early 1930s, drifting downward each year from 1930 through
1934.L7' The Civilian Conservation Corps of young men working in
forests was larger than the army-and the CCC recruits were paid
more.272 Attempts to train them militarily were defeated politically by
a pacifist protest led by intellectuals-John Dewey and Reinhold
Neibuhr.273 Later, attempts to build some semblance of military
defense for the Philippines were criticized by the editor of the Nation,
who asked why the islands' people were not being taught to live rather
than to kill .17' This lofty assumption of unconstrained choice-three
years before Pearl Harbor-takes on a grim or even hideous aspect as an
historical background to the devastation of the Philippines and
massive, unspeakable atrocities against its people by invading
Japanese armies. American soldiers in the Philippines vainly attempted
to defend themselves with obsolete rifles, mortars a quarter of a
century old, and mortar shells so old that they proved to be duds in 70
percent of the cases.276 On Bataan, four out of five American hand
grenades failed to ex- plode.276 Attempts to break through the
Japanese blockade of the Philippines had to be made "with banana
boats hired from the United Fruit Company, and with converted World
War I destroyers. -17' These were among the longrun costs of the
"savings" on military expenditures during the previous decade.
Actually it was not a saving but a disinvestment-a current consumption
of future resources.

The uncontrolled political climate of a free nation allows the

development of ideological currents inimical to national defense-the
so-called "neutron bomb" episode being but one example-or even the
orchestration of propaganda campaigns by foreign powers with an
obvious vested interest in reduced Western military defense. Moreover,
the unverified nature of arguments about nuclear prospects-prospects
that no sane person wants verified-gives a special political advantage
to the verbally adept, that is, to intellectuals, who have tended to be
antimilitary at least as far back as the Roman Empire.278 It was
precisely at the leading British universities that young men took the
"Oxford Pledge" in the 1930s never to defend their own country in
warfare.279 Such pacifist reaction to the carnage of World War I may
have been understandable, like the current American reaction to the
bitterness of Vietnam. However, such attitudes were a crucial element
in the Western powers' appeasement of Hitler at a time when they had
superior military force but were politically incapable of using it.28° By
the time Hitler's rearmament policy, annexations, and conquests had
changed Britain's attitude, he now had superior military force. When
the young men who took the "Oxford Pledge" saw Hitler's armies
marching and the bombs falling on their own homes, they vindicated
themselves in the skies over Britain and later on the beaches at
Normandy. But it was still a desperately close brush with subjugation
by one of the greatest barbarians in human history. Hitler's outrages
put a pacifist intellectual like Einstein in the ironic position of
initiating the development of the most destructive military weapon
ever used. But now that the nuclear age is here, such changes of mind
as a result of crisis experience may no longer be possible-'-or at least,
not in time to change policy and change history. The timetable of a
nuclear war-or nuclear blackmail-may not permit second thoughts
about what should have been done when we had the chance.

For a richer and technologically more advanced nation to fall behind

militarily, when national survival and the survival of democratic
freedom internationally are among the stakes, requires a certain
amount of demoralization. No one supplies this demoralization more
constantly or effectively than intellectuals. Again, this is not,
historically, a new role for intellectuals, The intellectuals' vision has
long taken precedence over any tangible reality. In the Roman Empire,
the vision was religious salvation, and if divisiveness was engendered
by persecutions of pagans, thereby weakening a whole civilization in
the face of barbarian invaders, so be it. If the social visions behind the
French Revolution required the execution of tens of thousands of
human beings (including revolutionary philosophers like Condorcet),
so be it. If the vision of proletarian communism or German racial
purity required that millions be slain, so be it. Against this background,
there is hardly any reason for surprise if current visions of "social
justice" do not moderate to accommodate military necessity, or if
campaigns to discredit rival elites like businessmen or the military are
so all-out that the consequences are the demoralization of a whole
civilization and a weakening of the will to defend it.

In this context, it is understandable how an American official can

speak of the military arms race as something for which "all of us here
in America are to blame," how "the United States has led the way in
arms escalation" and how "the lion's share of the blame," within the
U.S. "belongs to the business sector of society" which is seeking "the
profits of doom."28' It 'is a remarkable statement from an official
representative of the United States to the U.N. Disarmament Session,
and particularly for the representative of a country that demobilized
almost 90 percent of its armed forces in three years and has voluntarily
relinquished military supremacy over the years by cutting back the
resources devoted to it. But it is no more remarkable than statements
by former U.N. Ambassador Andrew Young equating massive slave
labor camps in the Soviet Union with individual miscarriages of justice
in American courts, calling the victims of both "political prisoners."
Both officials are extreme examples of a more general tendency
toward national demoralization, without which such people could not
survive in their official positions. The public's outrage is a sign that the
battle is not over, but that American officials can continue in office
after making anti-American propaganda on an international stage is
also a sign of the political climate.

THE FUTURE OF FREEDOM

Hobbes defined freedom as the absence of opposition or

impediments.282 Freedom may be constrained by political power or
informal influences, but as long as diverse human beings constitute a
society, their disparate values must somehow be reconciled and
therefore someone's-or everyone's-free- dom must be curtailed. When
these mutual reconciliations are affected through informal channels,
reciprocal advantages may be traded off, so that the disparate values of
individuals permit them to incrementally relinquish what they value
least for what they value most, even though physically what one
relinquishes is identical to what another receives. When reconciliations
are made by the decisions of formal hierarchies, one scheme of values
is offered, and if the hierarchy is a monopoly-such as government-
imposed. A choice among hierarchies (churches, employers,
associations) preserved freedom through the inevitable differences
among human beings as individuals or groups.

Where the differences among people are least-in the desire to be

safe from violence and secure in their possessions, for example-there is
less sacrifice of freedom in assigning to a monopoly the power to
punish individual violence or robbery. Were the same monopoly to
determine the "best" size(s) or style(s) of shoes, the result would be
mass discomfort, and were it to determine more and weightier matters
the results would be even less satisfactory in terms of the differing
values of individuals, however "better" it might be in terms of the
particular values of the monopoly.

This brief summary of various "efficiency" arguments already

elaborated in earlier chapters is relevant here to freedom as a separate
value in its own right. It is the difference between the preferred and the
imposed values that necessitates the use of force-the curtailment (or
extinction) of freedom. In this context, an ideology of categorically
transcendant values-whether religious salvation or "social justice"-is
an ideology of crushing power. The logic of transcendant values drives
even the humane toward the use of force, as those not imbued with the
same values prove recalcitrant, evasive, or undermining-provoking
indignant anger and confronting decision makers with a choice
between accepting defeat for sacred causes or applying more power.
This systemic logic rather than intentional design drove Robespierre-"a
man of great sweetness of character" `-to mass executions as flesh-
andblood human beings repeatedly acted at cross purposes with the
ideals of the French Revolution. "Moralism is fatal to freedom," wrote
a former friend of Robespierre, while awaiting the guillotine."' It was
not a principle unique to the French Revolution. Much milder political
changes have been driven by similar logic to exert far more power than
originally contemplated in pursuit of a transcendant goal. No one
expected Brown v. Board of Education to lead to federal judges taking
over local school systems and ordering the massive busing of children,
in disregard of both initial opposition and subsequent consequences.
Indeed, no one expected the humane social programs initiated by the
New Deal to lead to bureaucratic empires issuing their own lawsmore
laws than Congress-unilaterally, outside the constitutional framework,
and almost immune to either electoral correction or judicial oversight.
Where, whether and how we can build a roof over our heads is
determined by an anonymous zoning commission; whether we dare
walk the streets near our home is determined by decisions of equally
unknown parole board members; and how long we can live in our
neighborhood depends on the grand designs of urban redevelopment
administrators.

These are of course not attacks on intellectual freedom; merely on

some of the most precious concerns of ordinary human beings down
through the ages. Just how far the myopic view of freedom can go may
be illustrated by the behavior of musicians under Nazi rule. As various
ethnic, political, and cultural groups successively fled Nazi
persecution, the musicians-including, notably, conductor Kurt
Furtwangler and composer Richard Strauss-remained behind to
collaborate with the Hitler regime, because there were no comparable
restrictions on musicians' freedom.285 Against this background, it may
be less surprising that intellectuals living in affluent suburbs (or in
"security buildings" in the cities) and/or with their children in private
schools, can see no reason for working class people's resentment of
"progressive" political developments other than benighted ignorance,
blind reaction, or vicious racism. Evidence that these are not, in fact,
the attitudes of most working people is ignored, for these are the only
explanations consonant with the intellectual vision. That businessmen-
large or small-are in effect conscripted to be part-time, unpaid
administrators for the Internal Revenue Service, the Social Security
Administration, and numerous other federal agencies will occasion
even less concern.

Past erosions of freedom are less critical than current trends which
have implications for the future of freedom. Some of these trends
amount to little less than the quiet, piecemeal, repeal of the American
Revolution.

The American Revolution was very different from the French

Revolution of the same era. The French Revolution was based on
abstract speculation on the nature of man by intellectuals, and on the
potentiality of government as a means of human improvement. The
American Revolution was based on historical experience of man as he
is and has been, and on the shortcomings and dangers of government
as actually observed. Experience-personal and historical-was the last
court of appeal of the founders of the United States and the writers of
the Constitution. Their constantly reiterated references were to
"experience, the least fallible guide of human opinions,"286 to "the
accumulated experience of ages,"287 to "the uniform course of human
events,"288 to the history of ancient Rome,289 to "the popular
governments of antiquity,""' and the history, economics, and
geography of contemporary European nations.291 They explicitly
rejected "Utopian speculations,""' "the fallacy and extravagance" of
"idle theories" with their "deceitful dream of a golden age."293 In
contrast to Robespierre, who said that revolutionary bloodshed would
end "when all people will have become equally devoted to their
country and its laws,""' The Federalist regarded the idea of individual
actions "unbiased by considerations not connected with the public
good" to be an eventuality "more ardently to be wished than seriously
to be expect- ed."295 They were establishing a government for such
flesh-and-blood people as they knew about, not such creatures as they
might hope to create by their activities.

The opposing policies of the two revolutions-and their very different

historical fates-were related to their very different premises about the
nature of knowledge and the nature of man. To the men who made the
American Revolution and wrote the Constitution, knowledge derived
from experience-personal and historical-and not from speculation or
rhetorical virtuosity. Their own backgrounds before the Revolution
were as men of affairs, personally responsible for economic outcomes,
whether commercial or agricultural. By contrast, the French
philosophes were denizens of literary salons where style, wit, and
rhetoric were crucial'"-and whose whole lives were lived under
circumstances in which the only authentication process consisted of
impressing readers or listeners. In the modern vernacular, they "never
met a payroll"-or a scoreboard, or a laboratory experiment, or a
military campaign, or any other authentication process whose
empirical results could not be talked away. They were masters of the
world of unverified plausibilities.

Man, as he appeared in the writings of the American revolutionaries,

was very different from man as he appeared in the writings of the
French revolutionaries. In contrast with the "perfectability of man" in,
contemporary French thinking, The Federalist speaks of "the
constitution of man" as an inherent barrier to objective decision
making or administration .211 While the French revolutionaries put
their faith in selecting the most dedicated lead- ers-"the brightest and
the best" in modern terms-and entrusting them with vast powers, the
Americans argued that the very reason why government existed at all
was because "the passions of men will not conform to the dictates of
reason and justice" otherwise,288 and that governments, like
individuals, have a pride which "naturally disposes them to justify all
their actions, and opposes their acknowledging, correcting, or repairing
their errors and offenses. "299 Though there were American leaders
"tried and justly ap proved for patriotism and abilities,"300 the future
of the country could not be left to depend on such leaders:
"Enlightened statesmen will not always be at the helm."301 Moreover,
there are "endless diversities in the opinions of men,"302 so that
"latent cases of faction are thus sown in the nature of man," and
mankind has a propensity "to fall into mutual animosities."303 Men
"are ambitious, vindictive, and rapacious." They have a "love of power
or the desire of pre-eminence and dominion."304 The question facing
the founders of the American government was not how to give
expression to the ideas of those presumed to be morally or
intellectually superior, but how to guard freedom from the inherent
weaknesses and destructive characteristics of men in general. Their
answer was a series of checks and balances in which ambitions would
counter ambition and power counter power, with all powers not
explicitly granted retained by the people themselves or dispersed
among state and local governments. Nor were they prepared to rely on
pious hopes in the Constituion-"parchment barriers against the
encroaching spirit of power," as Madison called them3os-but relied
instead on so structuring the institutions that they will "be the means of
keeping each other in their proper places:""' Such separation of powers
was "essential to the preservation of liberty"307 and their coalescence
in any branch was "precisely the definition of despotic
government."3os They did not trust anyone. If freedom was to exist, it
had to be systemic rather than intentional, "supplying by opposite and
rival interests, the defect of better motives," and arranging things so
that "the private interest of every individual may be a sentinel over the
public rights."309 That all this implied a negative view of man did not
stop the writers of the Constitution:

It may be a reflection on human nature that such devices should be

necessary to control the abuses of government. But what is
government itself but the greatest of all reflections on human nature? If
men were angels, no government would be necessary. If angels were to
govern men, neither external nor internal controls on 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."'

Like a judo expert using an opponent's strength against him, so the

writers of the Constitution hoped to use the strong, if negative,
motivations of man for the purpose of preserving the political benefits
of freedom. As a modern writer has observed: "A system built on sin is
built on very solid foundations indeed ."311 This is true of both
economic and political systems. Neither constitutional democracy nor
a market economy relies on decision makers to have superior wisdom
or morality. Both put in the hands of the mass of ordinary people the
ultimate power to thwart or topple decision makers. Historically, it
was-and is-a revolutionary concept, rejecting theories going back
thousands of years which insist that what matters is which persons and
which doctrines rule, rather than the systemic incentives and
constraints that control whoever rules under whatever doctrine. The
American Constitution left little room for philosopher-kings or
messiahs.

The great vulnerability of the Constitution today is that it is an

obstacle in the path of groups that are growing in size, influence, and
impatience. The most striking, and perhaps most important, of these
are the intellectuals, especially in the politicized "social sciences."
Politicians, once constrained by national (voter) reverence for
constitutional guarantees, now operate more freely in an atmosphere
where intellectuals make all reverence suspect and make "social
justice" imperative. The decline in political party control ("machine
politics") has given the individual politician more scope to be
charismatic and entrepreneurial about causes and issues. Politicians
ambitious for themselves as individuals and intellectuals ambitious for
recognition as a class must discredit existing social processes,
alternative decision-making elites, and the accumulated human capital
of national experience and tradition which competes with their
product, newly minted social salvation. However much they may
emphasize the special virtues of their particular schemes, it is
unnecessary here to go into them, for the point is that whatever the
current specifics, they are certain to be superseded by new specifics in
a few years to perform the same political function for the careers of
new politicians and intellectuals. The danger to the Constitution is not
so much in particular laws as in the general climate of opinion in
which law and government are no longer seen as a framework within
which individuals make changes incrementally, but as themselves
means of making categorical changes directly, according to the
preferences of whoever happens to have control of these institutions.
One symptom of how far this has gone is that the first peacetime
imposition of federal wage and price controls in American history
occurred in 1971 under an administration widely regarded as
"conservative"-as indeed it was. But that even "liberal" administrations
in the past had not dared to do the same thing was one indication of
how much the political climate had changed.

The "crisis" orientation of politicians and intellectuals is accepted

and amplified by the mass media. Today's "problems" are news;
neither the longrun implications nor the inherent constraints can be
photographed by the television camera, or even discussed in the brief
minutes between commercials. Moreover, with print and broadcast
journalists as part of the intellectual class, grounded largely in the so-
called "social sciences," few questions may be raised about the
cognitive processes they employ.

The rise of goal-oriented imperatives has meant the undermining or

superseding of process-oriented constitutionalism. The imperatives of
economic re covery from the Great Depression of the 1930s spawned
numerous hybrid agencies combining the very powers which the
Constitution had so carefully separated. Military imperatives,
beginning in World War II and continuing into the nuclear age, have
sanctioned an increase of the presidential powers as commander-in-
chief of the armed forces, to the point where they include the de facto
power to declare war without congress, as demonstrated in Vietnam.
Finally, moral imperatives concerning the less fortunate segments of
society (farmers and industrial workers in the 1930s, blacks in the
1960s, miscellaneous other groups in the 1970s) have expanded the
scope of the judiciary beyond anything ever contemplated when the
Constitution was written. Along with this has developed a philosophy
that it is not merely expedient but legitimate to circumvent the
democratic process in the interest of "higher" moral goals-ending the
death penalty, integrating the schools, redistributing income, and other
forms of "social justice."

While the new trends in the political climate are easiest to notice,
there is no need to extrapolate them as an inevitable "wave of the
future." There are ample signs that the public has had more than
enough, and even signs that some of this disenchantment has begun to
penetrate the insulation of courts, bureaucracies, and other institutions.
The Burger Court is not the Warren Court, though it is hardly the pre-
Warren Court either. Deregulation moves by the Civil Aeronautics
Board, stronger criminal sentencing laws in various states, and the
defeat of school bond issues that were once passed easily are all signs
that nothing is inevitable. Whether this particular period is merely a
pause in a long march or a time of reassessment for new directions is
something that only the future can tell. The point here is not to
prophesy but to consider what is at stake, in terms of human freedom.

Historically, freedom is a rare and fragile thing. It has emerged out

of the stalemates of would-be oppressors. Freedom has cost the blood
of millions in obscure places and in historic sites ranging from
Gettysburg to the Gulag Archipelago. A frontal assault on freedom is
still impossible in America and in most of Western civilization.
Perhaps nowhere in the world is anyone frankly against it, though
everywhere there are those prepared to scrap it for other things that
shine more brightly for the moment. That something that cost so much
in human lives should be surrendered piecemeal in exchange for
visions or rhetoric seems grotesque. Freedom is not simply the right of
intellectuals to circulate their merchandise. It is, above all, the right of
ordinary people to find elbow room for themselves and a refuge from
the rampaging presumptions of their "betters."
 NOTES

Preface

1. Thomas Sowell, The Vision of the Anointed: Self-Congratulation

as a Basis for Social Policy (Basic Books, 1995).

2. William L. Shirer, The Rise and Fall of the Third Reich: A

History of Nazi Germany (Simon and Schuster, 1960), p. 198.

3. Marver H. Bernstein, "The Life Cycle of Regulatory

Commissions," The Politics of Regulation, ed., Samuel Krislov and
Lloyd D. Musolf (Houghton Mifflin Co., 1964), pp. 80-87.

4. In addition to my own The Vision of the Anointed, other

explorations and critiques of these visions can be found in Gertrude
Himmelfarb, The De-Moralization of Society (Alfred A. Knopf, 1995)
and in James Q. Wilson, The Moral Sense (The Free Press, 1993),
among others.

5. See Thomas Sowell, Civil Rights: Rhetoric or Reality (William

Morrow, 1984), pp. 91-102; Thomas Sowell The Vision of the
Anointed, pp. 38-40.

6. See Robert L. Bartley, The Seven Fat Years: And How to Do It

Again (The Free Press, 1992), p. 140.

7. See my critique of these revisionist claims in The Vision of the

Anointed, pp. 82-85.

8. Richard Epstein, Takings: Private Property and the Power of

Eminent Domain (Harvard University Press, 1985).

9. See, for example, James Q. Wilson, Thinking About Crime (Basic

Books, 1975); James Q. Wilson and Richard J. Herrnstein, Crime and
Human Nature (Simon and Schuster, 1985).
 10. See, for example, Richard J. Herrnstein and Charles Murray, The
Bell Curve: Intelligence and Class Structure in American Life (The
Free Press, 1994), pp. 81.

11. The Tenth Amendment is very brief, plain, and to the point:
"The powers not delegated to the United States by the Constitution,
nor prohibited by it to the States, are reserved to the States
respectively, or to the people." In short, the federal government can do
only what it is specifically authorized to do by the Constitution, but the
states or the people can do whatever the Constitution does not forbid
them to do.

12. Wickard v. Filburn, 317 U.S. 111 (1942).

13. United States v. Lopez (1995), Daily Appellate Report. pp.

5825-5827.

14. Winston S. Churchill, Churchill Speaks: Winston S. Churchill in

Peace and War: Collected Speeches, 1897-1963, ed., Robert Rhodes
James (New York: Chelsea House, 1980) pp. 809-810.

15. Oliver Wendell Holmes, Collected Legal Papers (New York:

Peter Smith, 1952), p. 32.

16. F. A. Hayek, "The Best Book on General Economics in Many a

Year," Reason, Vol. 13, No. 8 (December 1981), pp. 47-49.

Chapter 1

1. Milton Friedman, "The Methodology of Positive Economics,"

Essays in Positive Economics (University of Chicago Press, 1953), pp.
32-34.

2. Kenneth Fearing, Collected Poems of Kenneth Fearing (Random

House, 1940), p. 7.
 3. Eugene Genovese, Roll, Jordan, Roll (Pantheon Books, 1974), pp.
587-621.

4. Thomas Sowell, Race and Economics (David McKay Co., 1975),

pp. 11-15.

Chapter 2

1. George J. Stigler of the University of Chicago, after leaving a

committee meeting.

2. Theodore Caplow and Reece J. McGee, The Academic

Marketplace (Science Editions, Inc., 1961), pp. 238-255; Gerald G.
Somers, "The Functioning of the Market for Economists," American
Economic Review, May 1962, pp. 516-518; David G. Brown, The
Mobile Professors (Council on Education, 1967), pp. 170-187.

3. Richard A. Lester, Anti bias Regulation of Universities (McGraw-

Hill Book Company, 1974), pp. 13-29.

4. Gerald G. Somers, op. cit., p. 517; Kathleen Brook and F. Ray

Marshall, "The Labor Market for Economists," American Economic
Review, May 1974, pp. 505-506, 508.

5. David G. Brown, op. cit., Chapter 4.

6. F. A. Hayek, "The Use of Knowledge in Society," American

Economic Review, September 1945, pp. 519-530.

7. Richard Gambino, Blood of My Blood (Anchor Books, 1974), pp.

7-8.

8. Robert W. Fogel and Stanley L. Engerman, Time on the Cross

(Little, Brown and Company, 1974). pp. 214-215.

9. Loc. cit., Eugene D. Genovese, Roll, Jordan Roll: The World the
Slaves Made (Pantheon Books, 1974), pp. 14-20.
 10. The probability of being correct on all three variables at the
same time is the probability of being correct on each variable
separately multiplied by the probability of being correct on each of the
other variables: -Y4 X s/4 X s/4 = 27/64. See W. Allen Wallis, and
Harry V. Roberts, Statistics: A New Approach (The Free Press, 1956),
pp. 324-325.

11. R. H. Coase, "The Problem of Social Cost," Journal of Law and

Economics, Vol. III (October 1960), pp. 1-44.

12. Harold Demsetz, "Toward a Theory of Property Rights,"

American Economic Review, Vol. LVII, No. 2 (May 1967), pp. 347-
359.

13. Robert A. Dahl and Charles E. Lindblom, Politics, Economics

and Welfare, (University of Chicago Press, 1976), p. xxii.

Chapter 3

1. The two kinds of knowledge that are differently weighed are not
merely different amounts of expertise on how to administer municipal
affairs, but knowledge of the different specific effects of policy on
different people with different values. Ideally, those with the great est
expertise can manage a city in such a way as to maximize the
satisfaction of the values of all, including those denied a direct (or
fully weighted) input or feedback to the decision-making process.
Under such an ideal arrangement, those disfranchised would achieve
higher levels of satisfaction of their own values, because the same
values would be as fully represented in the decision-making process as
if they were voting, but would be pursued with greater expertise by
administrative surrogates chosen for their ability rather than their
political articulateness or charisma. In reality, however, the city
manager form is also a tempting arrangement for substituting the
values of some for the values of the disfranchised. Viewed as a
knowledge-conveying device, it screens out some knowledge of both
values and effects and provides no institutional incentive to take them
into account, even vicariously, though some decision makers might
choose to do so out of conscience.

2. In other words, only cost-constrained decision-making units can

be assured of not proceeding into the region of absolutely diminishing
returns-and then only if the cost constraints relate to the particular
input in question. Most profit-and-loss enterprises are automatically
kept out of that region in most of their activities. Enterprises that are
institutionally neither impelled by profit nor constrained by losses can
often proceed a considerable distance into the region of absolutely
diminishing returns-government agencies and such "nonprofit" (and
non-loss) organizations as universities, hospitals, and foundations
being pominent examples. As of any given time, almost all activities
and institutions have a limited budget, but expansion of that budget
over time may cost non-profit institutions only the effort to make a
plausible case for increased ..need..'

3. This can also be stated preposterously, as it has been by some

economists, by saying that roundabout production is more valuable.
Actually, the additional cost of time-consuming production is paid
only because the thing produced is already more valuable.

4. Hamlet's soliloquy.

5. Peter F. Drucker, "Pension Fund 'Socialism'," The Public Interest,

Winter 1976, pp. 346.

6. St. Thomas Aquinas, "Summa Theologica," Early Economic

Thought, ed. Eli Monroe (Harvard University Press, 1951), pp. 53-64.

7. R.A. Radford, "The Ecenomic Organization of a Prisoner of War

Camp," Economica, November 1945, pp. 189-201.

8. Adam Smith, An Inquiry into the Nature and Causes of the

Wealth of Nations (Random House, 1937), pp. lvii, 79.

9. See Christopher Finch, The Art of Walt Disney, New Concise

N.A.L. Edition (Walt Disney Productions, 1975), pp. 21-24.
 10. U. S. Bureau of the Census, Social Indicators, 1976 (U.S.
Government Printing Office, 1977), p. 455.

11. Ibid., p. 462.

Chapter 4

1. James M. McPherson, The Struggle for Equality (Princeton

University Press, 1964), pp. 103, 109. See also pp. 27, 95.

2. Edward C. Banfield, The Unheavenly City Revisited (Little,

Brown and Co., 1974), p. 204.

3. Ibid., p. 198.

4. Adam Smith, The Wealth of Nations, p. 460.

5. Ibid., p. 423.

6. Karl Marx, Capital, Vol. 1.

7. Karl Marx and Friedrich Engels, Basic Writings on Politics and

Philosophy (Anchor Books, 1959), p. 399.

8. See, for example, Oscar Handlin, Boston's Immigrants

(Atheneum, 1970), chapter IV; Carl Wittke, The Irish in America
(Russell & Russell, 1956), chapter 111; Diane Ravitch, The Great
School Wars (Harper and Row, 1974), pp. 27-29.

9. Diane Ravitch, op. cit., pp. 178, 311; E. C. Banfield, op. cit., pp.
65-66, 68; Herbert J. Gans, The Urban Villagers (The Free Press,
1962), p. 241.

10. Compare Richard Gambino, Blood of My Blood (Garden City:

Doubleday Anchor Books, 1974), pp. 245-273; Louis Wirth, The
Ghetto (Chicago: University of Chicago Press, 1956), pp. 76-77, 82,
148; Nathan Glazer and Daniel Patrick Moynihan, Beyond the Melting
Pot (MIT Press, 1963) pp. 155-159, 199.
 11. Maldwyn Allen Jones, American Immigration (University of
Chicago Press) pp. 212213.

12. Anthony Downs, An Economic Theory of Democracy (Harper

and Row, 1957), p. 4.

13. Thorstein Veblen, The Place of Science in Modern Civilization

(Russell & Russell, 1961), p. 251.

14. Edmund Burke, Reflections on the Revolution in France

(Everyman's Library, 1967), p. 84.

15. Loc. cit.

16. Quoted in F. A. Hayek, Law, Legislation and Liberty (University

of Chicago Press, 1973), Vol. 1, p. 26.

17. Edmund Burke, op. cit., p. 84.

18. Perhaps the classic case is the citing of Kenneth B. Clark's

"study" of segregation in Brown v. Board of Education in 1954.
Subsequent criticism has devastated Clark's "findings." See, for
example, E. van den Haag, "Social Science Testimony in the
Desegregation Cases," Villanova Law Review, Fall 1960, pp. 69-79.

19. Adam Smith, op. cit., p 423.

20. For example, by Dahl and Lindblom, op. cit., p. 392, and
Richard A. Lester, "Shortcomings of Marginal Analysis for Wage
Employment Problems," American Economic Review, March 1946,
pp. 62-82.

21. F. A. Hayek, Individualism and Economic Order (University of

Chicago Press, 1948), p. 32.

22. Eugene Genovese, op. cit., p. 471.

23. Ibid., p. 622.

 24. Ibid., pp. 379, 380-381, 382, 619.

25. Ibid., pp. 450-458; see also Herbert G. Gutman, The Black
Family in Slavery and Freedom, 1750-1925 (Pantheon, 1976) passim.

26. See, for example, Hans Miihlestein, "Marx and the Utopian
Wilhelm Weitling," Science & Society, Winter 1948, pp. 128-129.

27. Adam Smith, The Theory of Moral Sentiments (Liberty

Classics, 1976), p. 381.

28. Ibid., p. 379.

29. Ibid., p. 380.

Chapter 5

1. Daniel Patrick Moynihan, Maximum Feasible Misunderstanding

(The Free Press, 1970), p. lvii.

2. Richard Posner, Antitrust Law (University of Chicago Press,

1976), p. 230.

3. Loc. cit.; Nathan Glazer, Affirmative Discrimination (Basic

Books, Inc., 1975), pp. 212214.

4. For example, Dahl and Lindblom assert that the government

"cannot keep its hands off" wage negotiations because so "much is at
stake" (op. cit., p. 185); government regulation is used to "remedy
deficiencies in the price system" (p. 213), war "compels the
abandonment of the price system" (p. 374), because "of course the
price system cannot perform well" (p. 381); medical care, housing, and
other activities are "collectivized because of particular shortcomings in
the price system" (p. 419). In none of these examples is the possibility
of political incentives for taking such actions even mentioned, much
less seriously considered. Similar assertions and avoidances are found
in Adolph A. Berle, Power (Harcourt, Brace and World., Inc., 1969),
where the government "had to be called in" in education (p. 195);
"cannot avoid" expansion of economic controls (p. 261); France
"found it necessary" to have government control capital markets (p.
214); government control of consumption is "the only practicable
escape from unendurable congestion and confusion, if not chaos" (p.
252).

5. Anthony Downs, An Economic Theory of Democracy, p. 28.

6. Quoted in F. A. Hayek, The Constitution of Freedom (University

of Chicago Press, 1960), p. 11.

7. Edmund Burke, Reflections on the Revolution in France (J. M.

Dent & Sons, Ltd., 1967); Alexander Hamilton, James Madison and
John Jay, The Federalist Papers (New American Library, 1961), pp.
310-311; Alexis de Tocqueville, Democracy in America (Alfred A.
Knopf 1966), Vol. II, Fourth Book. chapter III.

8. Robert Higgs, Competition and Coercion (Cambridge University

Press, 1977), passim.

9. Gunnar Myrdal, An American Dilemma.

10. Richard Kluger, Simple Justice (Alfred A. Knopf, 1976),

passim.

11. Dahl and Lindblom, op. cit., p. 29; Anthony Downs, Inside
Bureaucracy (Boston: Little, Brown and Co., 1966), p. 259; Karl Marx
and Friedrich Engels, The Holy Family (Foreign Languages Publishing
House, USSR, 1950), p. 176; Karl Marx and Friedrich Engels, Basic
Writings on Politics & Philosophy, p. 222.

12. Adam Smith, The Theory of Moral Sentiments, Pt. I., Section
11, Ch. 3, p. 166; John Rawls, A Theory of Justice (The Belknap
Press, 1971), p. 3.

13. Loc. cit.

 14. Ibid., Part II, Section II, Chapter 2, pp. 380-381.

15. Rawls, op. cit., p. 3-4.

16. Dahl and Lindblom, op. cit., p. 49.

17. This is denied by F. A. Hayek in The Road to Serfdom

(University of Chicago Press, 1944), p. 80, on the ground that
something is not a privilege if everyone can acquire it. This says
prospectively that access is not a privilege, which in no way denies
that retrospective possession may be a privilege. Surely the President
of the United States is a privileged office, even though the Constitution
makes it prospectively attainable by almost anyone (and some of the
incumbents reinforce the reality of this). A function, such as the
presidency or property rights, may be a privilege without the
individual who ends up exercising that function having reached that
point as a result of personal advantages or privileges. The emperor of
the Roman Empire was an enormously privileged office, though many
individuals who achieved that position rose from modest or even
disadvantaged positions in society.

18. In this context, the expression "property rights versus human

rights" loses much of its meaning. Property itself has no rights. Only
human beings have rights. The only meaningful choice is between
alternative decision-making mechanisms for resolving conflicts
between people regarding trade-offs among alternative goods. Some
urgency of the moment may or may not outrank the importance of a
particular property right. But here, as with freedom, individual
questions of ranking need not be allowed to overshadow or confuse the
central question of distinguishing.

19. Even a ninety-year-old owner of a forest need not cut it all down
if he wants immediate gain. The future value of trees that will mature
long after his death are reflected in the present value of his forest in the
market. The value of the forest is not limited by his use of it, but by
others' use of it. However limited the ninety-year-old man's time
horizon may be, there are others with longer time horizons to whom it
will have correspondingly greater value. A life insurance company
may be quite interested in trees (or other assets) that will mature in
fifty years, when many of its current policy holders' claims will have to
be paid off.

20. Quoted in Joseph S. Berliner, "Prospects for Technological

Progress," Soviet Economy In a New Perspective, Joint Economic
Committee, Congress of the United States (Government Printing
Office, 1976), p. 437

21. -See, for example, Richard Posner, Economic Analysis of Law

(Little, Brown and Company, 1972), Chapter 2; Henry G. Manne, ed.,
The Economics of Legal Relationships (West Publishing Co., 1975),
Part I, Section B.

22. Alec Nove, The Soviet Economy (Frederick A. Praeger, 1961),

p. 234.

23. Walter E. Williams, Youth and Minority Unemployment

(Hoover Institution Press, 1977), pp. 34-35.

24. Oliver MacDonagh, "The Irish Famine Emigration to the United

States," Perspectives in American History, Vol. X (1976), p. 412.

25. If the patient is dying from a condition that is only incrementally

different from a condition from which people are recovering every day,
documenting the degree of his illness may be a more formidable task.

26. Edward F. Denison, The Sources of Economic Growth in the

United States (Committee for Economic Development), p. 17.

27. Loc. cit.

28. George F. Will, "Rah, Rah, Rah! Sis, Boom, Bah! Let's Hear It
for Title IX!" Los Angeles Times, March 6, 1978, Part 11, p. 7.

29. Anthony Downs, Inside Bureaucracy, p. 258.

30. Dahl and Lindblom, op. cit., p. 27.

 31. Ibid., p. 213.

32. ibid., p. 419.

33. Ibid., p. 465.

34. Ibid., p. 467.

35. Ibid., p. 185.

36. Ibid., p. 374

37. Ibid., p. 467.

38. Ibid., p. 185.

39. Ibid., p. 374.

40. Roger Freeman, The Growth of American Government, p. 10.

41. Marver H. Bernstein, "The Life Cycle of Regulatory

Commissions," The Politics of Regulation, ed., Samuel Krislov and
Lloyd D. Musolf (Houghton Mifflin Co., 1964), pp. 80-87.

Chapter 6

1. The explicitness of a trade-off may range from a consumer's

comparison of products, sitting side by side on a shelf with price tags
on each, to the implicit systemic trade-off involved when the
dinosaur's size and strength failed to preserve their existence in
competition with smaller, more agile, intelligent or otherwise
environmentally more adaptable creatures.

2. See, for example, the celebrated Lester-Machlup controversy of a

generation ago in economics. Lester challenged the systemic effects
predicted by marginal productivity theory by sending questionnaires to
businessmen asking if they intentionally did those kinds of things.
When they replied that they did not, he considered this systemic theory
disproved! Richard A. Lester, "Shortcomings of Marginal Analysis for
Wage-Employment Problems," American Economic Review, March
1946, pp. 63-82; Fritz Machlup, "Marginal Analysis and Empirical
Research," American Economic Review, September 1946, pp. 519-
554.

3. Adam Smith, The Wealth of Nations (Modern Library, 1937), p.

423.

4. Ibid., pp. 128, 249-250, 402-403, 429, 438, 460, 579.

5. Karl Marx, Capital (Charles H. Kerr & Co., 1906), Vol. I, p. 15.

6. See Thomas Sowell, "Adam Smith in Theory and Practice,"

Adam Smith and Modern Political Economy, ed. Gerald P. O'Driscoll
(Iowa State University Press, 1979), pp. 7, 16; Thomas Sowell, "Karl
Marx and the Freedom of the Individual," Ethics, January 1963, p.
121.

7. Marx and Beard are contrasted, Loc. cit.

8. Edmund Burke, Burke's Politics, ed. Ross J. S. Hoffman and Paul

Levack (Alfred A. Knopf, 1949), p. 36.

9. Ibid., p. 290.

10. Ibid., p. 38.

11. Ibid., p. 57.

12. Ibid., p. 58.

13. Friedrich Engels, "Socialism: Utopian and Scientific," Karl

Marx and Friedrich Engels, Basic Writings on Politics and Philosophy,
ed. Lewis S. Fever (Anchor Books, 1959), pp. 107108.

14. See, for example, Karl Marx, "The British Rule in India," Ibid.,
pp. 479-481. See also Ibid., pp. 450-452.
 15. Cf. Horace B. Davis, "Nations, Colonies and Social Classes: The
Position of Marx and Engels," Science & Society, Winter 1965, pp. 26-
43.

16. Eugene D. Genovese, Roll, Jordan, Roll, pp. 13-14; Alec Nove,
"Soviet Agriculture Marks Time," Foreign Affairs, July 1962, pp. 589-
590.

Chapter 7

1. Everett C. Ladd, Jr., and Seymour Martin Lipset, The Divided

Academy (McGraw Hill, 1975), Chapter 1.

2. See, for example, Milton Friedman and Anna J. Schwartz, A

Monetary History of the United States, 1876-1960 (Princeton
University Press, 1963), Chapter 7, especially pp. 407-419.

Chapter 8

1. Utah Pie Co. v. Continental Baking Co., et al., 386 U.S. 685
(1967) at 698.

2. A. Lawrence Chickering, "The God that Cannot Fail," The

Politics of Planning, ed. A. L. Chickering (Institute for Contemporary
Studies, 1976), p, 332.

3. Dahl and Lindblom, op. cit., p. 204.

4. Ibid., p. 206.

5. Ibid., pp 205, 206.

6. "A second group of difficulties is the measurement of cost and

demand and those which arise from the impossibility of getting
statistical equivalents to theoretical concepts," Ibid., p. 206 (italics in
the original).
 7. As claimed Ibid., pp. 207-209. Perhaps the classic example of this
animistic fallacy is Richard A. Lester, "Shortcomings of Marginal
Analysis for Wage-Employment Problems," American Economic
Review, March 1946, pp. 63-82. Among the many replies to Lester is
Fritz Machlup, "Marginal Analysis and Empirical Research,"
American Economic Review, September 1946. See also Milton
Friedman, Essays in Positive Economics (Univ. of Chicago Press,
1953, pp. 3-43).

8. , it would be a real minimum wage law if it guaranteed that such a

wage could be earned, such as by making jobs available at that wage.
Pointing this out does not of course constitute advocacy of such a
scheme, the merits and demerits of which would require further
exploration. For a sketch of some objections to such a policy, see
Thomas Sowell, "Beneficiaries and Victims," The Washington Star,
February 24, 1978, p. A-7.

9. Walter E. Williams, Youth and Minority Unemployment (Hoover

Institution Press, 1978).

10. U. S. Bureau of the Census, Historical Statistics of the United

States, Colonial Times to 1957 (U. S. Government Printing Office,
1961), p. 72.

11. Walter E. Williams, Youth and Minority Unemployment, pp. 16-

18.

12. See Albert Rees, The Economics of Trade Unions (University of

Chicago, 1962), pp. 34-35.

13. But not always. See Walter E. Williams, Youth and Minority
Unemployment, pp. 2324; W. H. Hutt, The Economics of the Colour
Bar (Andre Deutsch, Ltd., 1964), p. 71; P. T. Bauer, "Regulated Wages
in Under-developed Countries," The Public Stake in Union Power, ed.
Philip D. Bradley (University of Virginia Press, 1959), pp. 346-347.

14. Lorenzo J. Green and Carter G. Woodson, The Negro Wage

Earner (Columbia University Press, 1930), pp. 34-35.
 15. Thomas Sowell, "Three Black Histories," American Ethnic
Groups, ed. Thomas Sowell, (Urban Institute, 1978), pp. 19-20.

16. Irving Howe, World of Our Fathers (Harcourt, Brace,

Jovanovich, 1976), pp. 177-179; Kathleen Neils Conzen, Immigrant
Milwaukee, 1836-1860, (Harvard University Press, 1976), pp. 57-59,
80-81; Gunnar Myrdal, An American Dilemma (McGraw-Hill, 1964),
vol. 1, p. 376.

17. Senator Thomas F. Eagleton, "Why Rent Controls Don't Work,"

Reader's Digest, August 1977, p. 111.

18. "Gas Crisis in New York: One Fact, Many Notions," New York
Times, July 29, 1979, p. 30.

19. George W. Hilton, "American Transportation Planning," The

Politics of Planning, ed. A. Lawrence Chickering, p. 152.

20. Ibid., pp. 153-154.

21. Ibid., pp. 167, 170, 172.

22. Ibid., p. 154.

23. George J. Stigler, The Citizen and the State, p. 19.

24. See, for example, Clair Wilcox, Public Policies Toward Business
(Richard D. Irwin, Inc., 1971), pp. 452-453.

25. George W. Hilton, op. cit., p. 163.

26. Ibid., p. 147.

27. Ibid., p. 149.

28. Senator Charles Percy, Congressional Record, Vol. 125, No. 20,
February 3, 1977, p. S2133.

29. Loc. cit.

 30. Loc. cit.

31. Martin Anderson, The Federal Bulldozer (M.I.T. Press, 1965),

pp. 67, 220, 221.

32. This is obvious with artificially high prices, but even artificially
low prices can persist only so long as either (1) products with
deteriorated quality under price controls need not compete with higher
quality uncontrolled products, or (2) the subsidy which makes other
low prices possible is concealed or politically insulated from feedback
from those forced to subsidize these prices.

33. In a sense, this is no more than a special case of the common

principle underlying all property rights-namely, that two entirely
different independently run activities cannot go on unrestrictedly in the
same place and time without interfering with one another. Therefore
one party is legally permitted to exclude all others, not ultimately for
his benefit but so that some activity can go on effectively, to the
ultimate benefit of society. This right to exclude others from the use of
a given resource is all that makes any resource usable in practice. A
socialist state must exercise this right as rigorously as a private
capitalist or nothing could be produced (e.g., with a baseball game
going on in a glass factory while fun lovers conduct pistol practice on
the same site).

34. Walter Adams, "The Role of Competition in the Regulated

Industries," American Economic Review, May 1958, p. 539.

35. Ibid., p. 529.

36. Loc. cit.

37. Simat, Helliesen and Eichner, Inc., "The Intrastate Air

Regulation Experience in Texas and California," Regulation of
Passenger Fares and Competition among the Airlines, ed. Paul W.
MacAroy and John W. Snow (American Enterprise Institute, 1977),
pp. 42-44.
 38. Ibid., p. 44.

39. Loc. cit.

40. Armen A. Alchian and Reuben A. Kessel, "Competition,

Monopoly, and the Pursuit of Money," Aspects of Labor Economics,
ed. H. Gregg Lewis (Princeton University Press, 1962), pp. 157-183.

41. Harry Averich and L. L. Johnson, "The Behavior of the Firm

Under Regulatory Constraint," American Economic Review,
December 1962, pp. 1052-1069.

42. Walter Adams., op. cit., p. 537. These rulings were later
overturned in court.

43. Ibid., p. 541.

44. Simon Rottenberg, "The Economics of Occupational Licensing,"

Aspects of Labor Economics, ed. H. Gregg Lewis, pp. 11-12.

45. Walter E. Williams, "Government Sanctioned Restraints that

Reduce Economic Opportunities for Minorities," Policy Review, July
1978, p. 22.

46. Morris K. Udall, "Land Use: Why We Need Federal

Legislation," No Land Is an Is-

land, p. 59.

47. Ibid., p. 65.

48. Ibid., p. 70.

49. Ibid., p. 74.

50. A. Lawrence Chickering, "Land Use Controls and Low Income

Groups: Why Are There No Poor People in the Sierra Club," Ibid., pp.
87-91.
 51. Bernard Siegan, "No Zoning is the Best Zoning." Ibid., pp. 160-
161.

52. Benjamin F. Bobo, "The Effects of Land Use Controls on Low

Income and Minority Groups: Court Actions and Economic
Implications," Ibid., p. 95.

53. B. Bruce-Briggs, "Land Use and the Environment," Ibid., p. 9.

54. Loc. cit.

55. Jean Gottman, Megalopolis (M.I.T. Press, 1962), p. 3.

56. B. Bruce-Briggs, op. cit., p. 13.

57. Bernard H. Siegan, "No Zoning is the Best Zoning," California

Real Estate Magazine, February 1975, p. 38.

58. Robert H. Bork and Ward S. Bowman, "The Crisis in Antitrust,"

Columbia Law Review. Vol. 65, No. 3 (March 1965), pp. 363-376;
Frederick M. Rowe, "The Federal Trade Commission's Administration
of the Anti-Price Discrimination Policy," Columbia Law Review, Vol.
64, No. 3 (March 1964), pp. 415-438; Richard Posner, Antitrust Law:
An Economic Perspective (University of Chicago Press, 1976).

59. Robert H. Bork, "Contrasts in Antitrust Theory: I," Columbia

Law Review, Vol. 65, No. 3 (March 1965), p. 401.

60. Donald J. Dewey, "The New, Learning: One Man's View,"

Industrial Concentration: The New Learning, ed. Harvey J.
Goldschmidt, H. Michael Mann, J. Fred Weston, (Boston: Little,
Brown and Co., 1974), p. 3.

61. Richard A. Posner, Antitrust Law: An Economic Perspective

(Chicago: University of Chicago Press, 1976), p. 228.

62. United States v. Von's Grocery Co., 384 U. S. 270 (1965) at 301.
 63. F. M. Scherer, "Economies of Scale and Industrial
Concentration," Industrial Concentration: The New Learning, ed. H. J.
Goldschmidt, et at. p. 21.

64. Ibid., p. 26.

65. Ibid., p. 31.

66. Harold Demsetz, The Market Concentration Doctrine (American

Enterprise Institute, 1973).

67. "Dialogue," Industrial Concentration: The New Learning, pp.

244-245; see also Posner, op. cit., p. 89.

68. Federal Trade Commission v. Proctor & Gamble Co., 386 U. S.

568 (1967) at 572.

69. Ibid., pp. 603n-604n.

70. Utah Pie Co. v. Continental Baking Co., et al., 386 U. S. 685
(1967) at 690, 695.

71. See Posner, op. cit., p. 119.

72. United States v. Aluminum Co. of America, 148 F. 2d 416 (2d

Cir. 1945) at 426.

73. Ibid., at 431.

74. Brown Shoe Co., Inc., v. United States 370 U. S. 294 (1962) at
303.

75. United States v. Pabst Brewing Co., 384 U. S. 546 (1966) at 550.

76. United States v. Von's Grocery Co., 384 U. S. 270 (1966) at 272.

77. "The Act is really referring to the effect upon competition and
not merely upon competitors ... " Anheuser-Busch, Inc. v. Federal
Trade Commission, 289 F 2d 835 (7th Cir. 1961), at 840.
 78. Federal Trade Commission v. Morton Salt Co., 334 U. S. 37
(1948) at 50.

79. Ibid. at 46-47.

80. Automatic Canteen Co. v. Federal Trade Commission, 346 U. S.

61 (1953) at 79.

81. Utah Pie Co. v. Continental Baking Co., et al., 386 U S. 685
(1967) at 697.

82. Ibid., at 691n.

83. Ibid., at 699.

84. Robinson Patman Act, Section 2(a).

85. United States v. Borden Co., 370 U. S. 460 (1962) at 469. See
also pp. 470-471.

86. Ibid., at 470.

87. Anheuser-Busch, Inc. v. Federal Trade Commission, 289 F. 2d

835 (7th Cir. 1961), at 843.

88. Loc. cit.

89. Ibid., at 842.

90. Frederick M. Rowe, op. cit., p. 416n.

91. The nineteenth-century activities of the Standard Oil Company

have been repeatedly cited by twentieth-century exponents of the
"predatory pricing" theory (suggesting a dearth of more timely
examples). However, the authenticity of even that one ancient example
has been challenged. John S. McGee, "Predatory Price Cutting: The
Standard Oil (N.J.) Case," Journal of Law U Economics, October
1958, pp. 137-169.
 92. "The Empty Truck Syndrome," Wall Street Journal, July 15,
1977, p. 6.

93. Frederick M. Rowe, op. cit., p. 427.

94. Ibid., p. 436n.

95. Frederick M. Rowe, op. cit., p. 430.

96. Areeda, op. cit., pp. 847-848

97. Wassily Leontief and Leonard Woodcock, The Case for

Planning," The Politics of Planning, p. 348.

98. Ibid., p. 352.

99. David K. Shipler, "Pravda Points Up Continuing Problems in

Providing Goods That Are in Demand," New York Times, December
4, 1977, p. 3.

100. Alec Nove, "The Problem of 'Success Indicators' in Soviet

Industry," Economica, February 1958, p. 5; Alec Nove, The Soviet
Economic System (George Allen & Unwin, Ltd., 1977), pp. 97-99.

101. "Some manufacturers inflate their production statistics by

dividing their assembly lines among various enterprises and then
counting the value of a part several times as it moves from one factory
to another." David K. Shipler, op. cit.

102. Alec Nove, "The Problem of 'Success Indicators'," op. cit., p. 6;

David Granick, The Red Executive (Anchor Books, 1961), pp. 132-
134.

103. David Granick, op. cit., p. 134.

104. Ralph Harris, "Great Britain: The Lessons of Socialist

Planning," The Politics of Planning, p. 58.

105. Ibid., p. 59.

 106. Walter Eucken, "On the Theory of the Centrally Administered
Economy: An Analysis of the German Experiment," Comparative
Economic System, ed. Morris Bornstein (Richard D. Irwin, Inc.,
1969), pp. 132, 135.

107. Hubert H. Humphrey in National Economic Planning: Right or

Wrong for the U. S.? (American Enterprise Institute, 1976), p. 3.

108. Ibid., p. 6.

109. Wassily Leontief in Ibid., p. 9.

110. Loc. cit.

111. Hubert Humphrey in Ibid., p. 7.

112. Wassily Leontief in Ibid., pp. 14-15.

113. Ibid., p. 20.

114. Hubert Humphrey in Ibid., p. 19.

115. Ibid., p. 37.

116. Karl Marx, The Poverty of Philosophy (International Publishers

Co., Inc., 1963), pp. 60-61.

117. Frederich Engels, "Preface to the First German Edition," Ibid.,

p. 19.

118. Oskar Lange,-` On the Economic Theory of Socialism," On the

Economic Theory of Socialism, ed. Benjamin E. Lippincott (New
York: McGraw-Hill, 1964), pp. 57-143; Abba P. Lerner, The
Economics of Control (The Macmillan Co., 1944).

119. Svetozar Pejovich, "The End of Planning: The Soviet Union

and East European Experiences," The Politics of Planning, p. 109.

120. Ibid., p. 99.

 121. Loc. cit.

122. Alec Nove, "The Problem of 'Success Indicators'," op. cit., p. 4.

123. Joseph S. Berliner, "Managerial Incentives and Decision-

Making: A Comparison of the United States and the Soviet Union,"
Comparison of the United States and Soviet Economics, Subcommittee
on Economic Statistics, Joint Economic Committee of the United
States, 1959, Part I, p. 361.

124. Alec Nove, "Soviet Agriculture Marks Time," Foreign Affairs,

July 1962, p. 588.

125. Ibid., p. 581.

126. Ibid., pp. 582-583.

127. Daniel J. Boorstin, The Americans, Vol. I: The Colonial

Experience (New York: Random House, 1958), pp. 87, 88.

128. Ibid., p. 95

129. The physical characteristics of the land in Georgia would have

remained unchanged, but the average size of a farm would have moved
toward the optimum level, and the distribution of land among people
with different amounts of agricultural knowledge would have made the
total land more productive after this sorting process.

130. Daniel Boorstin, op. cit.

131. Ibid., p. 90.

132. Ibid., p. M.

133. Ibid., p. 93.

134. Loc. cit.

135. Loc. cit.

 136. George Bernard Shaw, The Intelligent Woman's Guide to
Socialism (Brentano's Publishers, 1928), p. 334.

137. Ibid., p. 137.

138. Joseph S. Berliner, "Prospects for Technological Progress," op.

cit., p. 440. Centralized inventories and the "middleman" in charge of
them are an alternative (at least incrementally) to individual
inventories held by consumers and producers. One of the problems
chronically plaguing the Soviet economy has been the hoarding of raw
materials and equipment by individual Soviet factories. Ideally, central
planners allocate the amount of inputs each producer needs for his
output, but the omniscience implicit in that theory is seldom realized in
practice. A bottleneck at one point can result in a chain reaction of
unfulfilled production quotas, unless there are inventories available to
the individual producer without going through the long bureaucratic
process of articulating feedback to central planners "through
channels." Yet without channels to authenticate, sort and label
requests, the central planners would be swamped with requestsranging
from desperate to frivolous-for more of everything, from all over a
vast nation. Experimental Soviet middlemen are able to respond to
local demands without central authorization, a procedure which in
effect "denies the value of centralized planning" (loc. dt.)-or at least
makes explicit its limitations, which may explain politically why it
remains experimental.

139. Karl Marx, "Wage Labour and Capital," Karl Marx and
Frederich Engels, Selected Works (Foreign Languages Publishing
House, Moscow, 1955), Vo. 1, pp. 99-105.

140. Karl Marx, Capital (Charles H. Kerr & Co., 1906), Vol. I, pp.
207-220.

141. Ibid., pp. 207-255.

142. Eugene D. Genovese in "Capitalism, Socialism, and

Democracy: A Symposium," Commentary, April 1978, p. 41.
 143. U. S. Bureau of the Census, Historical Statistics of the United
States, Colonial Times to 1970, p. 870.

144. V. I. Lenin, Imperialism: The Highest Stage of Capitalism

(International Publishers, 1963), p. 64.

145. Robert L. Schuettinger, "Four Thousand Years of Wage and

Price Controls," Policy Review, Summer 1978, p. 74.

Chapter 9

1. "Those Lawyers," Time, April 10, 1978, p. 59.

2. J. Anthony Kline, "Curbing California's Colossal Legal Appetite,"

Los Angeles Times, February 12, 1978, Part VI, p. 1.

3. "Too Much Law?" Newsweek, January 10, 1977, p. 45.

4. Wheeler v. St. Joseph Hospital, App. 133 Cal. Rptr. 775, at 794.

5. Robert J. Glennon, Jr. and John E' Nowak, 'A Functional Analysis
of the Fourteenth Amendment 'State Action' Requirement,' The
Supreme Court Review 1976, ed. Philip B. Kurland (University of
Chicago Press, 1977), p. 247; Harold W. Horowitz and Kenneth L.
Karst, "The Proposition Fourteen Cases: Justice in Search of a
Justification," UCLA Law Review, Vol. 14, No. 1 (November 1966),
pp. 37-51.

6. Richard A. Maidment, "Policy in Search of Law: The Warren

Court from Brown to Miranda," Journal of American Studies, Vol. 9,
No. 3 (December 1975), pp. 301-320; Raoul Berger, Government by
Judiciary: The Transformation of the Fourteenth Amendment (Harvard
University Press, 1977); Philip B. Kurland, Politics, The Constitution
and the Warren Court (University of Chicago Press, 1970).

7. Robert J. Glennon Jr. and John E. Nowak, "A Functional Analysis

of the Fourteenth Amendment 'State Action' Requirement," The
Supreme Court Review 1976, ed. Philip B. Kurland (University of
Chicago Press, 1977), p. 247.

8. Ibid., p. 260.

9. William Lilley III and Jame C. Miller III, "The New 'Social
Regulation,' " The Public Interest, Spring 1977, p. 51.

10. U. S. Bureau of the Census, Historical Statistics of the United

States: From Colonial Times to 1970, Vo. II, p. 1081.

11. U. S. Senator Gary Hart, on numerous occasions.

12. Frederick M. Rowe, "The Federal Trade Commission's

Administration of the Anti-Price Discrimination Law-A Paradox of
Antitrust Policy," Columbia Law Review, Vol. 64, No. 3 (March 1964),
pp. 415-438; Richard A. Posner, The Robinson Patman Act: Federal
Regulation of Price Differences (American Enterprise Institute, 1976),
pp. 31, 46.

13. Thomas Sowell, Affirmative Action Reconsidered (American

Enterprise Institute, 1975), p. 7.

14. Eugene Bardach and Lucian Pugliaresi, "The Environmental-

Impact Statement vs. The Real World," The Public Interest, Fall 1977,
pp. 29-31; Gary Sands Miller, "Environmental Report May Have Little
Value in Predicting Impact," Wall Street Journal, June 1, 1978, pp. 1 if.

15. Abrams v. United States, 250 U.S. 616 (1919) at 659.

16. Ibid., at 661.

17. Schenck v. United States, 249 U. S. 47 (1919) 655.

18. Adam Smith, The Wealth of Nations, pp. 128. 249-250, 402-
403, 429, 438, 579.

19. Thornhill v. Alabama, 310 U. S. 88.

 20. Milk Wagon Drivers Union v. Meadowmoor Dairies, 312 U. S.
287 (1941) at 193.

21. Bakery Drivers Local v. Wohl, 315 U. S. 769 at 776.

22. See Raoul Berger, Government by Judiciary: The

Transformation of the Fourteenth Amendment (Harvard University
Press, 1977), Chapter 8.

23. Marsh v. Alabama, 326 U. S. 501 (1946) at 507.

24. Amalgamated Food Employees Union Local 590, et al. v. Logan

Valley Plaza, Inc., et al., 391 U. S. 308 (1968) at 330.

25. For example, the daily rental fee for a Rolls-Royce is well
within the budgets of most Americans, though most could also think of
better uses for the money.

26. Marsh v. Alabama, 326 U. S. 501 (1946) at 512-517, passim.

27. Customers pay through higher prices in shops with "better"

atmosphere.

28. Harold W. Horowitz and Kenneth L. Karst, op. •cit. p. 38.

29. Herbert Wechsler, "Toward Neutral Principles of Constitutional

Law," Harvard Law Review, Vol. 73, No. 1 (1959), pp. 19, 24.

30. Marsh V. Alabama, 326 U. S. 501 (1946) at 503.

31. Amalgamated Food Employees Union Local 590, et at. v. Logan

Valley Plaza Inc., et al., 391 U. S. 308 (1968) at 318.

32. Ibid., at 324-325.

33. Ibid., at 309, 313, 324, 326, "Naked title is all that is at issue,"
Ibid., p. 324.

34. Ibid., p. 324.

 35. Lloyd Corp., Ltd., v. Tanner, et al., 407 U. S. 551 (1972), at 563.

36. Ibid., at 580.

37. Evans et al. v. Newton et al., 382 U. S. 296 (1966) at 322.

38. Public utility companies may not be set up without state

authorization as being conducive to "the public necessity and
convenience"-which it never is deemed to be when an existing utility
is serving the same community, however well or badly.

39. Thomas Sowell, Economics: Analysis and Issues (Scott,

Foresman & Co., 1977), pp. 120-121.

40. Thomas Sowell, "Three Black Histories," American Ethnic

Groups (Urban Institute, 1978), p. 21.

41. Raoul Berger, Government by Judiciary (Harvard University

Press, 1977), Chapter 2.

42. Ibid., p. 30.

43. Civil Rights Cases, 109 U. S. 3 (1883) at 11.

44. Ibid., at 26-27.

45. United States v. Cruikshank, 92 U. S. 542 (1875); United States

v. Harris, 106 U. S. 629 (1882).

46. Nixon v. Herndon, 273 U. S. 536 (1927); Smith v. Allwright,

321 U. S. 649 (1944).

47. Shelley v. Kraemer, 334 U. S. 1 (1948) at 13.

48. Ibid., at 19.

49. Peterson v. Greenville, 373 U. S. 244 (1956); Lombard v.

Louisiana, 373 U. S. 267 (1963).
 50. Reitman, et al., v. Mulkey, et al., 387 U. S. 369 (1967) at 375,
approvingly quoting the California Supreme Court decision which the
U. S. Supreme Court affirmed.

51. Burton v. Wilmington Parking Authority, et al., 365 U. S. 715

(1961), at 722.

52. Moose Lodge No. 107 v. Irvin, 407 U. S. 163 (1972).

53. Jackson v. Metropolitan Edison Co., 419 U. S. 345 (1974).

54, Burton v. Wilmington Parking Authority, et al., 365 U. S. 715

(1961), at 728.

55. Marsh v. Alabama, 326 U. S. 501 (1946); Amalgamated Food

Employees Union v. Logan Valley Plaza, 391 U. S. 308 (1968).

56. Burton v. Wilmington Parking Authority, et al., 365 U. S. 715

(1961).

57. Evans, et al. v. Newton, et al. 382 U. S. 296 (1966).

58. Burton v. Wilmington Parking Authority, et al., 365 U. S. 715

(1961), at 725.

59. Jackson v. Metropolitan Edison Co., 419 U. S. 345 (1974) at

357.

60. See notes 6 and 7 'above and Charles L. Black quoted in Raoul
Berger, op. cit., pp. 346350, passim.

61. Section 10(c), National Labor Relations Act of 1935.

62. Harry A. Millis and Emily Clark Brown, From the Wagner Act
to Taft-Hartley (University of Chicago Press, 1950), p. 97.

63. Nathan Glazer, Affirmative Discrimination: Ethnic Inequality

and Public Policy (Basic Books, Inc., 1975), p. 46.
 63a. See U. S. Equal Employment Opportunity Commission,
Legislative History of Titles VII and XI of Civil Rights Act of 1964,
(Washington, D.C.: U. S. Government Printing Office, no date), p. 4.

64. Quoted in Richard A. Lester, Antibias Regulation of Universities

(McGraw-Hill Book Co., 1974), p. 62.

65. The Civil Rights Act of 1964, Section 401(b) uses the phrase
"without regard to their race, color, religion, sex, or national origin,"
and other sections declare that various decisions or exclusions cannot
be "on the ground of race, color, religion, or national origin" (Section
202; see also Section 601), "on account of" such designations (Section
301[a]) or "because of" similar designations (Section 703).

66. U. S. Equal Employment Opportunity Commission, Legislative

History of Titles VII and XI of Civil Rights Act of 1964, p. 3005.

67. Ibid., p. 3006.

68. Ibid., pp. 3160, 3161.

69. Ibid., p. 3015.

70. Quoted in Glazer, Affirmative Discrimination, p. 45.

71. "Nothing contained in this title shall be interpreted to require

any employer, employment agency, labor organization, or joint labor-
management committee subject to this title to grant preferential
treatment to any individual or any group because of the race, color,
religion, sex, or national origin of such individual or group on account
of an imbalance which may exist with respect to the total number or
percentage of persons of any race, color, religion, sex, or national
origin employed ..." Section 703(j), Civil Rights Act of 1964.

72. U. S. Department of Labor guidelines issued December 4, 1971,

quoted in Glazer, Affirmative Discrimination, p. 49.
 73. Thomas Sowell, "Ethnicity in a Changing America," Daedalus,
Winter 1978, p. 221.

74. Ibid., pp. 213-237.

75. Hearings before the Equal Employment Opportunity

Commission on Utilization of Minority and Women Workers in
Certain Major Industries (Hearings held in Los Angeles, California,
March 12-14, 1969), p. 303.

76. Quoted in Glazer, op. cit., p. 56.

77. Ibid., p. 57.

78. Ibid., p. 47.

79. Sowell, "Ethnicity in a Changing America," op. cit., pp. 214,

215.

80. Ibid., p. 214.

81. Glazer, op. cit., pp. 51-56.

82. Ibid., p. 57.

83. Ibid., p. 67.

84. Francis Ward, "U. S. Agencies Clash in Rights Lawsuit, Los

Angeles Times, April 27, 1975, Part IV, p. 1 if.

85. James L. Buckley, Congressional Record, March 2, 1976, Vol.

127, No. 28.

86. Congressional Record, 94th Congress, Second Session, Vol. 122,

No. 28.

87. Nathan Glazer, op. cit., p. 38.

 88. James P. Smith and Finis Welch, Race Differences in Earnings:
A Survey and New Evidence (Rand Corporation, 1978), p. 1.

89. Gallup Opinion Index, June 1977, Report 143, p. 23.

90. Regents of the University of California v. Allan Bakke, 46 U. S.

Law Week 4896 at 4909.

91. Ibid., at 4902.

92. Ibid., at 4906.

93. Ibid., at 4901.

94. Ibid., at 4903.

95. Loc. cit.

96. Ibid.

97. Ibid.

98. Ibid., at 4935.

99. Ibid., footnote I at 4933.

100. Ibid., at 4918-4922, passim.

101. Ibid., at 4933.

102. United Steelworkers of America v. Brian F. Weber, 47 U.S.

Law Week 4851, at 4853.

103. Regents of the University of California v. Allan Bakke, 46 U.S.

Law Week 4896, at 1934.

104. United Steelworkers of America v. Brian F. Weber, 47 U.S.

Law Week 4851, at 48614866.
 105. Regents of the University of California v. Allan Bakke, 46 U.S.
Law Week 4896, at 4936.

106. United Steelworkers of America v. Brian F. Weber, 47 U.S.

Law Week 4851, at 4853.

107. Loc. cit.

108. Ibid., at 4853, 4854, 4859.

109. Moreover, using negative differences from the national average

(in income, occupational "representation," etc.) as a measure of
discrimination implicitly excludes a priori the possibility of any
group's ever having overcome discrimination to any degree.

110. Thomas Sowell, "Ethnicity in a Changing America," op. cit., p.

221.

111. Ibid., pp. 221-225.

112. U. S. Bureau of the Census, Current Population Reports, Series

P-20, No. 213, p. 6.

113. Ben Wattenberg, The Real America (Doubleday, 1974), p. 136.

114. Employment and Training Report of the President, 1976

(Government Printing Office, 1976), p. 241-243.

115. James P. Welch and Finis Welch, Race Differences in Earnings:

A Survey and New Evidence (Rand Corporation, 1978), p. 7.

116. Finis Welch, "Black-White Differences in Returns to

Schooling," American Economic Review, Vol. LXIII, No. 5
(December 1973), pp. 893-907.

117. U. S. Bureau of the Census, U. S. Census of Population, 1970:

Subject Reports PC (2)- 7C, pp. 170, 171.
 118. Thomas Sowell, "Ethnicity in a Changing America," op. cit.,
pp. 225-226.

119. U. S. Bureau of the Census, Current Population Reports, Series

P-23, No. 46, p. 22.

120. Richard B. Freeman, Black Elite, pp. 88, 107; Thomas Sowell,
Affirmative Action Reconsidered, pp. 21-22.

121. Freeman, Loc. cit.

122. James P. Smith and Finis Welch, Race Differences in Earnings,

pp. 21, 47-50; Orley Ashenfelter, "Comments," Frontiers of
Quantitative Economics, ed. M. D. Intriligator and D. A. Kendrick
(North-Holland Publishing Company, 1974), Vol. 2, p. 508; Thomas
Sowell, Affirmative Action Reconsidered, pp. 23, 41-42.

123. Ben Wattenberg, op. cit., pp. 131-132.

124. "The Economic Role of Women," in The Economic Report of

the President, 1973 (U. S. Government Printing Office, 1973), p. 103.

125. Thomas Sowell, Affirmative Action Reconsidered, pp. 32-33.

126. Helen S. Astin, "Career Profiles of Women Doctorates,"

Academic Women on the Move, ed. Alice S. Rossi and Ann
Calderwood (Russell Sage Foundation, 1973), p. 153.

127. Lino A. Graglia, Disaster by Decree: The Supreme Court

Decisions on Race and the Schools (Cornell University Press, 1976),
Chapter 3.

128. Richard Kluger, Simple Justice: The History of Brown v. Board

of Education and Black America's Struggle for Equality (Alfred A.
Knopf, 1976), p. 572.

129. Lino A. Graglia, op. cit., p. 34.

130. Ibid., p. 46.

 131. Ibid., pp. 46-52.

132. Ibid., p. 55.

133. Ibid., p. 59.

134. Ibid., p. 66.

135. Thomas Sowell, Affirmative Action Reconsidered, pp. 4-7.

136. Bell v. School City of Gary, Indiana, 372 F2d 910 at 906.

137. Green v. County School Board of New Kent County 391 U. S.

430 (1968), at 437-438.

138. Ibid., at 441.

139. Lino A. Graglia, op. cit., p. 71.

140. Ibid., passim.

141. Ibid., p. 105.

142. Ibid., pp. 129, 132, 203.

143. Ibid, pp. 160, 161.

144. Ibid., pp. 145, 223; Glazer, op. cit., pp. 92-93.

145. Ibid., p 216.

146. Ibid., p. 257.

147. Ibid., p. 132; David Armor, White Flight, Demographic

Transition, and the Future of School Desegregation (The Rand
Corporation, 1978).

148. Lino A. Graglia, op. cit., p. 276; David Armor "The Evidence
on Busing," The Public Interest, Summer 1972, pp. 90-126; "On
Busing: An Exchange," The Public Interest, Winter 1973, pp. 88-134.

149. Graglia, op. cit., p. 269; Langerton, op. cit., pp. 15-16.

150. David J. Armor, Sociology and School Busing Policy (The

Rand Corporation, 1978), p. 2; Graglia, op. cit., p. 277; Langerton, op.
cit., p. 3.

151. Graglia, op. cit., pp. 153-154.

152. Ibid., pp. 272-273

153. Langerton, op. cit., pp. 51-57, 72.

154. Constance McLaughlin Green, The Secret City (Princeton

University Press, 1967), p. 137.

155. Thomas Sowell, "Black Excellence-the Case of Dunbar High

School," The Public Interest, Spring 1974, p. 8.

156. Thomas Sowell, "Patterns of Black Excellence," The Public

Interest, Spring 1976, p. 8. See also pp. 35-37.

157. James S. Coleman, et. al., Equality of Educational Opportunity

(Government Printing Office, 1966).

158. Arthur R. Jensen, "How Much Can We Boost IQ and

Scholastic Achievement?" Harvard Educational Review, Vol. 39, No. 1
(Winter 1969), pp. 1-123.

159. Thomas Sowell, "Race and IQ Reconsidered," Essays and Data

on American Ethnic Groups, pp. 203-238.

160. Diane Ravitch, The Great School Wars (Basic Books, Inc.,
1974), p. 178.

161. Loc. cit.

162. Ibid., p. 176.

 163. Irving Howe, World of Our Fathers, (Harcourt Brace
Jovanovich, 1976), p. 278.

164. Langerton, op. cit., p. 37.

165. Ibid , pp. 37,'42.

166. Derrick A. Bell, Jr., "Serving Two Masters: Integration Ideals

and Client Interests in School Desegregation Litigation," Yale Law
Journal Vol. 85, No. 4 (March 1976), p. 470, 482.

167. Ibid., p. 486; Glazer, op. cit.

168. Quoted in Ibid., p. 492.

169. Derrick A. Bell, op. cit., p. 489.

170. Ibid., p. 491n.

171. Ronald R. Edmonds, "Advocating Inequity: A Critique of the

Civil Rights Attorney in Class Action Desegregation Cases," The
Black Law Journal, Vol. 3, Nos. 2, 3 (1974), p. 178.

172. Graglia, op. cit., p. 334-335.

173. Langerton, op. cit., pp. 152-153.

174. Michael Meltsner, Cruel and Unusual: The Supreme Court and
Capital Punishment (Random House, 1973), p. 36.

175. Ibid., p. 37.

176. Ibid., p. 15.

177. Peter L. Berger and Richard John Neuhaus, To Empower

People: The Role of Mediating Structures in Public Policy (American
Enterprise Institute, 1977), p. 12.

178. Loc. cit.

 179. Harold B. Woodman, "The Profitability of Slavery: A
Historical Perennial," Journal of Southern History, August 1963, pp.
303-325,

180. Second Inaugural Address of Abraham Lincoln.

181. Andrew M. Greeley, That Most Distressful Nation (Quadrangle

Books, 1972), p. 40. See also Antonin Scalia, "The Disease as Cure,"
Washington University Law Quarterly, Winter 1979, p. 152.

182. Gallup Opinion Index, June 1977, Report 143, p. 23.

183. James M. McPherson, The Abolitionist Legacy (Princeton

University Press, 1975), Chapters 9-11.

184. Thomas Sowell, ed., Essays and Data on American Ethnic

Groups (Urban Institute, 1978), p. 300.

185. Stanford M. Lyman, Chinese Americans (Random House, Inc.,

1974), Chapters 4, 5; William Petersen, Japanese Americans (Random
House, 1971), Chapters 3, 4.

186. Betty Lee Sung, The Story of the Chinese in America (Collier
Books, 1967), p. 125.

187. U. S. Bureau of the Census, Current Population Reports,

(Government Printing Office, 1973), Series P-20, No. 249, p. 1.

188. Gunnar Myrdal, An American Dilemma (McGraw-Hill Book

Company, 1964), Vol. I, p. 133.

189. J. C. Furnas, The Americans (G. P. Putnam's Sons, 1969), p.

406, "State laws carefully defined those with up to seven-eighths white
ancestry as 'Negroes.' To have pushed the definition any further would
have embarrassed too many prominent 'white' families." Eugene
Genovese, op. cit., p. 420.

190. There is no illusion that each criminal can be punished for his
crime, but this simply makes the application of the principle depend on
probability like the search for oil wells, the purchase of life insurance,
or other individual or social decisions involving probabilities.

191. Gary S. Becker and William M. Landes, eds., Essays in the

Economics of Crime and Punishment (Columbia University Press,
1974), pp. 55-67.

192. "...these practices will not be stopped by mere force." Ramsey

Clark, op. cit., p. 118.

193. 354 U. S. 449 (1957)

194. Gordon Tullock, The Logic of the Law, p. 93; Steven

Schlesinger, Exclusionary Injustice (Marcel Dekker, Inc., 1977), pp. 4,
107-108.

195. Gordon Tullock, op. cit., p. 94.

196. Ibid., pp. 93-97.

197. Ibid., p. 96.

198. See Escobido v. Illinois, 378 U. S. 748 (1964); Miranda v.

Arizona, 384 U. S. 436 (1966).

199. Macklin Fleming, The Price of Perfect Justice, pp. 123-124;

Steven R. Schlesinger, Exclusionary Injustice, pp. 31-32.

200. The extent of such involvement is discussed in Macklin

Fleming, op. cit., Chapters 37.

201. U. S. Bureau of the Census, Historical Statistics of the United

States, Colonial Times to 1970 (U. S. Government Printing Office,
1974), p. 413.

202. Ramsey Clark, op. cit., p. 31.

203. James Q. Wilson, Thinking About Crime (Basic Books, Inc.,

1975), p. 17.
 204. Ramsey Clark, op. cit., p. 34.

205. "The Youth Crime Plague," Time, January 11, 1977, p. 18.

206. "All Kinds of Crime-Growing ... Growing ... Growing," U. S.

News and World Report, December 16, 1974, p. 33.

207. Ernest van den Haag, Punishing Criminals (Basic Books, Inc.,
1975), p. 146.

208. Ramsey Clark, Crime in America, p. 35.

209. Ibid., p. 195.

210. Ernest van den Haag, op. cit., p. 100.

211. James Q. Wilson, Thinking About Crime, p. 104.

212. Charles R. Tittle, "Punishment and Deterrence of Deviance,"

The Economics of Crime and Punishment, ed. Simon Rottenberg
(American Enterprise Institute, 1973), p. 89.

213. Ernest van den Haag, op. cit., p. 158.

214. U. S. Bureau of the Census, Historical Statistics of the United

States, From Colonial Times to 1970, pp. 413, 420.

215. Ernest van den Haag, Punishing Criminals, p. 222.

216. James Q. Wilson, Thinking About Crime, p. 199; Ernest van

den Haag, Punishing Criminals, p. 5n.

217. James Q. Wilson, "Crime and Punishment in England," The

Public Interest, Spring 1976, p. 5.

218. Ernest van den Haag, op. cit., p. 5n.

219. James Q. Wilson, "Crime and Punishment in England," op. cit.,

p. 6.
 220. Ibid., p. 10.

221. U. S. Bureau of the Census, Pocket Data Books USA 1976

(Government Printing Office, 1976), p. 142.

222. Loc. cit. See also U. S. Bureau of the Census, Historical

Statistics of the United States, Colonial Times to 1970, p. 422.

223. Ibid., p. 413.

224. Ibid., p. 11.

225. Ernest van den Haag, op. cit., p. 166.

226. Macklin Fleming, op. cit., p. 64; Ernest van den Haag, op. cit.,
p. 166.

227. Macklin Fleming, Loc. cit.

228. Ibid., p. 65.

229. Raoul Berger, Government by Judiciary: The Transformation

of the Fourteenth Amendment (Harvard University Press, 1977),
Chapter 8; Philip B. Kurland, Politics and the Warren Court
(University of Chicago Press, 1970), Chapter 3.

230. Macklin Fleming, op. cit., p. 16.

231. Ibid., pp. 17-18.

232. Ibid., pp. 28-29.

233. Ibid., pp. 31-35.

234. Ibid., p. 27.

235. Loc. cit.

236. Ibid., p. 17.

 237. James Q. Wilson, "Crime and Punishment in England," op. cit.,
pp. 13-14.

238. Ibid., p` 5.

239. Ibid., p. 20.

240. Ibid., p. 21.

241. Ibid., p. 22.

242. Gordon Tullock, "Does Punishment Deter Crime?" The Public

Interest, Summer 1974, p. 108.

243. James Q. Wilson, "Crime and Punishment in England." op. cit,

p. 25.

244. Ibid., p` 5.

245. Ibid., p. 25.

246. Ibid., pp. 4, 6.

247. Ibid., p. 10.

248. Ibid., pp. 9-10.

249. Ernest van den Haag, Punishing Criminals, p. 157.

250. David Bayley, "Learning About Crime-The Japanese

Experience," The Public Interest, Summer 1976, p. 60.

251. Ibid., pp. 58-60.

252. Ibid., pp. 58-59.

253. Jonathan Rubinstein, City Police (Ballantine Books, 1973), p.

378; Steven R. Schlesinger, Exclusionary Injustice, p. 57.
 254. Ramsey Clark, Crime in America, p. 297.

255. Such considerations appeared in quoted statements in the

landmark case of Miranda v. Arizona, 384 U. S. 436 (1966), at 470,
471.

256. Ramsey Clark, op. cit., p. 298.

257. The exact percentage varies with the definition-one out of sixty
according to Gordon Tullock, The Logic of the Law, p. 171. A much
higher percentage is cited in Charles E. Silberman, Criminal Violence,
Criminal Justice, (Random House, 1978), pp. 257-260. Silberman first
excludes more than a quarter of a million juveniles from his statistics
(p. 259) and then proceeds to refer to the remainder of the criminals as
"the total" and "all," in figuring his percentages. He also defends the
Warren Court's criminal law decisions by (1) basing his analysis of
1970s national crime rates on extrapolations from California statistics
for the early 1960s (pp. 257258), before many of the controversial
Warren Court decisions, and (2) uses 1920s data as before-and-after
evidence of the Warren Court's effect on crime rates (pp. 261-262)-
even though the Warren Court era did not begin until 1953 and its
major criminal decisions date from the mid to late 1960s. Such
desperate statistical maneuvers are revealing, not only as regards the
vulnerability of the Warren Court's record, but also its partisans' will to
believe.

258. Earl Warren, The Memoirs of Earl Warren, (Doubleday & Co.,
Inc., 1977), p. 316.

259. Ramsey Clark, op. cit., p. 298.

260. Macklin Fleming, op. cit., pp. 75-76.

261. James Q. Wilson, "Crime and Punishment in England." op. cit.,

p. 19.

262. James Q. Wilson, Thinking About Crime, p. xiv.

 263. Ibid., pp. 165, 173.

264. Ibid., p. 186.

265. Ibid., pp. 168-169, 186-187. See also p. 172.

266. The Challenge of Crime in a Free Society, A report by the

President's Commission on Law Enforcement and Administration of
justice (Government Printing Office, 1967), p. 165.

267. Ibid., p. 169.

268. Ramsey Clark, Crime in America, p. 199.

269. Ibid., p. 200.

270. Loc. cit.

271. Ibid., p. i and back cover.

272. Earl Warren, op. cit., p. 317.

273. Ibid., p. 317; Michael Meltsner, Cruel and Unusual: The

Supreme Court and Capital Punishment (Random House, 1973), p. 40.

274. Anthony G. Amsterdam, "Capital Punishment," The Stanford

Magazine, Fall/Winter 1977, p. 47.

275. Ramsey Clark, op. cit., pp. 117-118.

276. James Q. Wilson, Thinking About Crime, p. 175.

277. Ibid., pp. 174-175.

278. Isaac Ehrlich, "The Deterrent Effect of Capital Punishment: A

Question of Life or Death," American Economic Review, 1975, p. 39.

279. Thorsten Sellin, "The Death Penalty," Model Penal Code

(American Law Institute, 1959).
 280. David C. Baldus and James W. L. Cole, "A Comparison of the
Work of Thorsten Sellin and Isaac Ehrlich on the Deterrent Effect of
Capital Punishment," Yale Law Journal, Vol. 85, No. 2 (December
1975), pp. 170-186; William J. Bowers and Glenn L. Pierce, "The
Illusion of Deterrence in Isaac Ehrlich's Research on Capital
Punishment," Ibid., pp. 187-208; Hans Zeisel. "The Deterrent Effect of
the Death Penalty: Facts v. Faiths," The Supreme Court Review, 1976
(University of Chicago Press, 1977) pp. 326-327.

281. Hans Zeisel, op. cit., pp. 326-327; Furman v. Georgia, 408 U.
S. 238 (1972), at 349.

282. Hans Zeisel, op. cit., p 333.

283. Ibid., p. 326.

284. U. S. Bureau of the Census, Historical Statistics of the United

States, From Colonial Times to 1970, p. 422.

285. James Q. Wilson, "Crime and Punishment in England," op. cit.,

p. 23.

286. Furman v. Georgia, 408 U. S. 238 (1972).

287. "Excessive bail shall not be required, nor excessive fines

imposed, nor cruel and unusual punishments inflicted."

288. Quoted in Michael Meltsner, op. cit., pp. 268-278.

289. Michael Meltsner, op. cit., p. 316. See also Anthony

Amsterdam, op. cit., p. 43.

290. Michael Meltsner, op. cit., pp. 62. 181.

291. Ibid., p. 61.

292. Ibid., pp. 62, 181.

 293. Amsterdam, op. cit., p. 46. See also Furman v. Georgia, 408 U.
S. 238 (1972), at 300301.

294. Furman v. Georgia, 408 U. S. 238 (1972), at 293, 295, 300,

304, 309, 310.

295. Ben Wattenberg, The Real America, (Doubleday & Co., Inc.,
1974), p. 142.

296. James Q. Wilson, Thinking About Crime, pp. 188-189.

297. U. S. Bureau of the Census, Historical Statistics of the United

States, Colonial Times to 1970, p. 414.

298. "The constitutional function of the Court is to define values and

proclaim principles." Alexander M. Bickel, The Least Dangerous
Branch (Bobbs-Merrill Co., Inc., 1962), p. 68. See also Ibid., pp. 27,
39, 48, 50, 55, 58, 71; Robert J. Glennon and John E. Nowak,
"Functional Analysis of the Fourteenth Amendment `State Action'
Requirement," The Supreme Court Review 1976, pp. 227, 261.

299. For the latter view, see Raoul Berger, Government by judiciary,
passim.

300. See infra, Chapters 8 and 9, passim.

301. Alexander M. Bickel, The Least Dangerous Branch, p. 46.

302. Earl Warren, op. cit., p. 325.

303. Ibid., p. 330.

304. Ibid., p. 293.

305. Richard Kluger, Simple justice, p. 747.

306. Raoul Berger, Government by judiciary, p. 222.

307. Ibid., p. 4.
 308. Ibid., p. 322.

309. Alexander M. Bickel, The Least Dangerous Branch, pp. 46. 74,
75.

310. Derrick A. Bell. See Michael Meltsner, Cruel and Unusual, p.

12.

311. Nathaniel R. Jones, "Is Brown Obsolete? No!" Integrated

Education, May-June 1976, p. 29.

312. "Study of what the terms meant to the framers indicates that
there was no mystery," Raoul Berger, Government by judiciary, p. 18;
See also Ibid., Chapters 2, 10, 11.

313. Ibid., p. 100n.

314. Alexander M. Bickel, The Least Dangerous Branch, pp. 43, 48,
58, 68, 71.

315. Ibid., pp. 15, 49, 93, 103, 104.

316. Ibid., pp. 33-

317. Ibid., Chapter 5.

318. Michael Meltsner, Cruel and Unusual, pp. 25-26.

319. Alexander M. Bickel, The Least Dangerous Branch, p. 75.

320. Ibid., p. 55.

321. Hepburn v. Griswold, 75 U. S. 603 (1869) at 638.

322. Ulrich Bonnell Phillips, Life and Labor in the Old South,
(Little, Brown and Co., 1957), p. 160.

323. Michael Meltsner, op. cit., p. 269.

 324. Brown v. Board of Education of Topeka, 347 U. S. 483.

325. Raoul Berger, op. cit., pp. 117-133.

326. Alexander M. Bickel, The Least Dangerous Branch , p. 36.

327. See Raoul Berger, op. cit., p. 343.

328. See Ibid., p. 368n.

329. Ibid., p. 193n.

330. Ibid., p.'387.

331. Regents of the University of California v. Allan Bakke, 46 U.

S. Law Week, 4896, at 4934.

332. U. S. Equal Employment Opportunity Commission, Legislative

History of Titles VII and XI of Civil Rights Act of 1964 (U. S.
Government Printing Office, no date), pp. 3005, 3006, 3015, 3131,
3134, 3160, 3161.

333. Alexander M. Bickel, The Least Dangerous Branch, p. 14.

334. Ibid., p. 96.

335. Raoul Berger, Government by judiciary, p. 244.

336. Ibid., p. 319.

337. Alexander M. Bickel, The Least Dangerous Branch, p. 25.

338. Ibid., p. 35.

339. Ibid., p. 93.

340. Ibid., p. 103.

341. Ibid., p. 106.

 342. Ibid., p. 110.

343. See Raoul Berger, op. cit., p. 282.

344. Ibid., p. 363n.

345. Ibid., p. 288.

346. Loc. cit.

347. Ibid., p. 314.

348. Ibid., p. 329.

349. Alexander M. Bickel, The Least Dangerous Branch, p. 48.

350. Ibid., p. 58.

351. Ibid., p. 59.

352. Louisiana ex rel, Francis v. Resweber 329 U. S. 459 (1947), at

471.

353. Quoted in Raoul Berger, Government by judiciary, 261n.

354. Alexander M. Bickel, The Least Dangerous Branch, p. 57.

355. Ibid., p. 33.

356. Ibid., p. 33.

357. Ibid., p. 70.

358. Ibid., p. 239.

359. Ibid., p. 16.

360. Ibid., pp. 43. 244.

 361. Alexander M. Bickel, The Morality of Consent (Yale
University Press, 1975), pp. 2730.

362. Ibid., p. 30.

363. Ibid., p. 60.

364. Ibid., p. 133.

365. Ibid., pp. 119-120.

366. Quoted in Philip B. Kurland, Politics, the Constitution and the

Warren Court (University of Chicago Press, 1970), p. 56.

367. Ibid., p. 57.

368. Raoul Berger, op. cit., p. 194.

369. Ibid., p. 196n, "The words 'due process of law,' were

undoubtedly intended to convey the same meaning as the words, 'by
the law of the land,' in Magna Carta." Murray's Lessee v. Hoboken
Land Co., 59 U. S. 272 (1856);

370. Dred Scott v. Sanford, 60 U. S. 393 (1857).

371. Slaughter-House Cases, 21 L. Ed. 394 (1873).

372. Davidson v. New Orleans, 96 U. S. 97 (1877).

373. Mugler v. Kansas, 123 U. S. 623 (1877).

374. Lochner v. New York, 198 U. S. 452 S. Ct. 539.

375. Olsen v. Nebraska, 313 U. S. 236 (1941), at 247; Lincoln

Federal Labor Union v. Northwestern Iron & Metal Co., 335 U. S. 525
(1949), at 535-537; Ferguson v. Skrupa, 372 U. S. 726 (1963), at 729-
731; Day-Brite Lighting, Inc. v. Missouri, 342 U. S. 421 (1952) at 423;
Williamson v. Lee Optical Co., 348 U. S. 483 (1955), at 488; Griswold
v. Connecticut, 381 U. S. 479 (1965), at 482.
 376. Olsen v. Nebraska, 313 U.S. 236 (1941), at 247.

377. Day-Brite Lighting, Inc. v. Missouri, 342 U. S. 421 (1952), at

423.

378. Olsen v. Nebraska, 313 U. S. 236 (1941), at 247.

379. Day-Brite Lighting, Inc. v. Missouri 342 U. S. 421 (1952), at

423.

380. Ibid., at 425.

381. Williamson v. Lee Optical Co., 348 U. S. 483 (1955), at 488.

382. Macklin Fleming, op. cit., p. 93; Raoul Berger, op. cit., Chapter
8.

383. Mapp v. Ohio, 367 U.S. 643 (1961).

384. Gideon v. Wainright, 372 U.S. 335 (1963).

385. Escobido v. Illinois, 378 U. S. 748 (1964); Miranda v. Arizona,

348 U. S. 436 (1966).

386. Ker v. California, 374 U.S. 23 (1963).

387. See-footnote-385, above.

388. Bolling v. Sharpe, 347 U.S. 497 (1954).

389. Griswold v. Connecticut, 381 U.S. 479 (1965).

390. Bivens v. Six Unknown Federal Narcotics Agents, 403 U.S.

388 (1971), at 411.

391. James P. Smith and Finis Welch, Race Differences in Earnings,

pp. 47-54; Orley Ashenfelter, "Comments," Frontiers of Quantitative
Economics, ed. M. D. Intriligator and D. A. Kendrick (North-Holland
Publishing Co., 1974), Vol. 2, p. 558; Thomas Sowell, Affirmative
Action Reconsidered (American Enterprise Institute, 1975), p. 23.

392. See footnotes 148-150 above.

393. See footnote 147 above.

394. Lino A. Graglia, Disaster by Decree, p. 264.

395. Ibid., pp. 264-265.

396. Ibid., p. 276.

397. Nathan Glazer, Affirmative Discrimination, p. 104.

398. See, for example, Joseph Adelson, "Living with Quotas"

Commentary, May 1978, pp. 23-29.

399. Brown v. Board of Education of Topeka, 347 U.S. 483 (1954),

at 494.

400. See, for example, Ernest van den Haag, "Social Science
Testimony in the Desegregation Cases-A Reply to Professor Kenneth
Clark," Villanova Law Review, Vol. 6, No. 1 (Fall 1960), pp. 69-79;
James Gregor, "The Law, Social Science, and School Segregation: An
Assessment," Western Reserve Law Review, Vol. 14, No. 4
(September 1963), pp. 621-636.

401. Richard Kluger, Simple justice, p. 555.

402. See, for example, Henningsen v. Bloomfield Motors, Inc., N.J.

358 A. 2d (1960); Collins v. Uniroyal, 64 N.J. 260, 315A. 2d. 16
(1974). See also James A. Henderson, Jr. "Judicial Review of
Manufacturers' Conscious Design Choices: The Limits of
Adjudication." Columbia Law Review, Vol. 73, No. 4 (December
1973), pp. 1531-1578.

403. New York Times Co, v. Sullivan, 376 U.S. 254 (1964).
 404. Raoul Berger, op. cit., p. 303.

405. Macklin Fleming, The Price of Perfect Justice, p. 123.

406. Gallop Opinion Index, June 1977, Report 143, p. 23; Ben
Wattenberg, The Real America, p. 278.

407. William J. Brennan, Jr., "The National Court of Appeals:

Another Dissent," University of Chicago Law Review, Vol. 40, No. 3
(Spring 1973), p. 480.

408. Ibid., p. 481.

409. Ibid., p. 482.

410. Ibid., p. 479.

411. Ibid., p. 484.

412. Loc. cit.

Chapter 10

1. U. S. Bureau of the Census, Historical Statistics of the United

States, From Colonial Times to 1970, p. 1102.

2. Roger Freeman, The Growth of American Government (Hoover

Institution, 1977), p. 5.

3. Ibid., p. 6.

4. U. S. Bureau of the Census, Pocket Data Book, 1976, p. 99; idem,

Historical Statistics of the United States: From Colonial Times to
1970, p. 1105.

5. Idem, Historical Statistics of the United States, Colonial Times to

1970, p. 1104.
 6. "The Beneficent Monster," Time, June 12, 1978, p. 24.

7. A thousand dollars a day for 365 days a year is $365,000

annually. For a thousand years that adds up to $365 million, and for
two thousand years $730 million. A billion dollars are a thousand
million, so $730 million is less than three-quarters of a billion.

8. "The Beneficent Monster," op. cit.

9. Quoted in Bertram D. Wolfe, An Ideology in Power (Stein and

Day, 1969), p. 162n.

10. Loc. cit.

11. Edward Gibbon, The Decline and Fall of the Roman Empire
(Modern Library, no date), Vol. I, pp. 25-26, 28, Ibid., Vol.11, pp. 49,
464-465.

12. Ibid., Vol. I, pp. 29-35, 240-241, 303,9 . 45; Ibid., Vol. II, p. 79,
196, 885.

13. Ibid., Vol. I, pp. 383-385, 406, 448.

14. Hannah Arendt, The Origins of Totalitarianism (Harcourt Brace

Jovanovich, Inc., 1973), p. 305.

15. Stanley Elkins, Slavery (University of Chicago Press, 1969).

16. Hannah Arendt, The Origins of Totalitarianism, p. 00.

17. Alfred H. Conrad and John R. Meyer, "The Economics of

Slavery in the Antebellum South," Journal of Political Economy, April
1958, pp. 95-130, Robert W. Fogel and Stanley L. Engerman, Time on
the Cross (Little Brown and Co., 1974), pp. 59-106, 174, 184-190.

18. See Thomas Sowell, "Karl Marx and the Freedom of the
Individual," Ethics, January 1963, pp. 119-125.

19. Ibid., pp. 122-123.

 20. Ibid., p. 123.

21. Totalitarian elites "dissolve every statement of fact into a

declaration of purpose." Hannah Arendt, The Origins of
Totalitarianism, p. 385.

22. Ibid., p. 311.

23. Richard Crossman, ed., The God that Failed (Bantam Books,
1949), p. 16.

24. Ibid., p. 19.

25. Ibid., p. 125.

26. Ibid., pp. 140-141.

27. Karl Marx and Friedrich Engels, The Holy Family (Foreign
Languages Publishing House, Moscow 1956), pp. 230, 232.

28. Ibid., p. 240.

29. Karl Marx, "Critique of the Gotha Programme," Karl Marx and
Friedrich Engels, Basic Writings on Politics and Philosophy, ed. Lewis
S. Fever (Anchor Books, 1959), p. 130.

30. -Richard Crossman, ed., The God that Failed, pp. 92-100.

31. John Stuart Mill, "On Liberty," The English Philosophers from
Bacon to Mill, ed. Edwin A. Burtt (Modern Library, 1939), p. 966.

32. Abram Bergson, "Reliability and Usability of Soviet Statistics:

A Summary Appraisal," American Statistician, June-July 1953, pp. 19-
23.

33. Bertram Wolfe, op. cit., p. 162n.

34. William L. Shirer, The Rise and Fall of the Third Reich (Fawcett
Publications, 1960), pp. 307-308.
 35. Hannah Arendt. op. cit., p. 390n,

36. Svetozar Pejovich, The End of Planning: The Soviet Union and
East European Experiences," The Politics of Planning, ed. A.
Lawrence Chickering (Institute for Contemporary Studies, 1976), p.
96.

37. Edmund Burke, "On Conciliation with the Colonies," Speeches

and Letters on American Affairs, ed. Peter McKevitt (J. M. Dent &
Sons, Ltd., 1961), p. 96.

38. Edward Gibbon, The Decline and Fall of the Roman Empire, pp.
65-67.

39. Daniel Boorstin, The Americans, Vol. I: The Colonial

Experience (Random House, 1958), p. 329.

40. Ibid., p. 7.

41. Loc. cit.

42. Ibid., p. 8.

43. Ibid., p. 37.

44. John P. Roche, Shadow and Substance (Collier Books, 1969), p.

10.

45. Ibid., p. 41.

46. Alexander Hamilton, James Madison, and John Jay, The

Federalist Papers, No. 51 (New American Library of World Literature,
Inc., 1961), p. 322.

47. Ibid., pp. 321-322.

48. Ibid., p. 322.

49. Ibid., p. 79.

 50 Maldwyn Allan Jones, American Immigration (University of
Chicago Press, 1960), pp. 13, 32.

51. Michael J. Malbin, "Congressional Committee Staffs: Who's in

Charge Here?" The Public Interest, Spring 1977, p. 36.

52. "Capitol Hill Staffs: Hidden Government in Washington," U. S.

News & World Report, April 4, 1977, p. 37; "Reflections of a Senate
Aide," The Public Interest, Spring 1977, p. 42.

53. William Lilley Ill & James C. Miller III, "The New 'Social
Regulation', ' The Public Interest, Spring 1977, p. 50.

54. James Q. Wilson, "The Rise of the Bureaucratic State," The

Public Interest Fall 1975, p. 92.

55. Loc. cit..

56. "Quest for Better Schools," U. S. News & World Report,

September 11, 1978, p. 51.

57. U. S. Bureau of the Census, Historical Statistics of the United

States: From Colonial Times to 1970, p. 1111.

58. Martin Mayer, The Builders (W. W. Norton & Co., Inc., 1978),
p. 417.

59. "New York City-Italian Style," Wall Street Journal, July 21,
1978, p. 8.

60. F. A. Hayek, The Road to Serfdom (University of Chicago Press,

1957).

61. "Capitalism, Socialism, and Democracy," Commentary, April

1978, p. 31.

62. Loc. cit.

63. Ibid., p. 49.

 64. George J. Stigler, The Citizen and the State (University of
Chicago Press, 1975), p. 5.

65. See Nathan Glazer, Affirmative Discrimination, Chapters 1-3.

66. Michael Meltsner, Cruel and Unusual, p. 308.

67. Martin Anderson, Welfare (Hoover Institution Press, 1978), pp.

26-27.

68. Michael Grant, The Fall of the Roman Empire, (Annenberg

School Press, 1976), p. 147.

69. John Stuart Mill, "On Liberty,"op. cit., p. 1038.

70. Charles 0. Hucker, China's Imperial Past (Stanford University

Press, 1975), p. 306.

71. Michael C. Jensen and William H. Meckling, "Can the

Corporation Survive?" Public Policy Working Paper Series, pps. 76-4
(May 1976) Graduate School of Management, University of Rochester,
p. 3.

72. Gerald D. Keim and Roger E. Meiners, "Corporate Social

Responsibility: Private Means for Public Wants?" Policy Review,
Summer 1978, p. 92.

73. George F. Will, "Rah, Rah, Rah! Sis, Boom, Bah! Let's Hear It
for Title IX!" Los Angeles Times, March 6, 1978, Part II, p. 7.

74. See, for example, John Kenneth Galbraith The Great Crash
(Houghton-Mifflin Co., 1961), Chapter III; Milton Friedman and Anna
Schwartz, A Monetary History of the United States (Princeton
University Press, 1963), Chapter 7, especially pp. 407-409.

75. U.S. Bureau of the Census, Historical Statistics of the United

States, From Colonial Times to 1970, pp. 1104-1105.

76. Ibid., pp. 200-202.

 77. Alexis de Tocqueville, Democracy in America (Alfred A.
Knopf, 1956) Vol. II, pp. 307308.

78. William L. Shirer, The Rise and Fall of the Third Reich, pp. 291-
292, 394, 632-633.

79. See, for example, Alexander Werth, Russia at War (Barrie and
Rockliff, 1969), Part One, Chapters III, IV, V.

80. See Goss, et al. v. Lopez, et al. 419 U. S. 565 (1975).

81. City of Los Angeles v. Manhart, 435 U.S. 702 (1978).

82. U. S. Bureau of the Census, Historical Statistics of the United

States, From Colonial Times to 1970, p. 293.

83. Irving Kristol, Two Cheers for Capitalism, p. 224.

84. Ibid., p. 185.

85. John Rawls, A Theory of Justice (Harvard University Press,

1971), p. 43.

86. Ibid., p. 30.

87. F. A. Hayek, Studies in Philosophy, Politics and Economics

(Simon and Schuster, 1967), p. 178.

88. • Everett C. Ladd, Jr. and Seymour Martin Lipset, The Divided
Academy (McGraw-Hill Book Co., 1975), Chapter 3.

89. "One recent textbook devotes 82 pages to what the author terms
a very condensed summary of current theories of crime causation."
The Economics of Crime and Punishment, ed. Simon Rottenberg, p.
13. Also James Q. Wilson, Thinking About Crime, see Chapter 3.

90. Francis Bacon, "The Great Instauration," The English

Philosophers from Bacon to Mill, ed. Edwin A. Burtt, p. 19.
 91. See Jacob Viner, The Long View and the Short (The Free Press,
1958), pp. 79-84.

92. "Practical" (i.e., non-analytical) men often fail to recognize that

utilizing given equipment to its optimal extent (Producing that quantity
of output for which average cost is lowest) is not the same as
producing a given level of output (even that same level of output) at its
lowest cost. An obvious example is that most automobiles are idle 90
percent of the time, and yet that may be the most efficient mode of
transportation in many cases.

93. J. A. Schumpeter, History of Economic Analysis (Oxford

University Press, 1954), p. 4.

94. Howard Sherman, Radical Political Economy (Basic Books,

1972), p. 73.

95. Lewis Coser, Men of Ideas (The Free Press, 1970), p, viii.

96. Thomas Hobbes, "Leviathan," The English Philosophers from

Bacon to Mill, ed. Edwin A. Burtt, p. 148.

97. Ibid., p. 220.

98. Karl Marx, The Leading Article of No. 179 of KSlnische

Zeitung," K. Marx and F. Engels, On Religion (Foreign Languages
Publishing House, Moscow, 1955), p. 31.

99. Thomas Robert Malthus, Population: The First Essay, ed.

Kenneth .E. Boulding (University of Michigan, 1959), pp. xiii, 1.

100. See Richard Hofstadter, Social Darwinism in American

Thought (The Beacon Press, 1955).

101. Alec Nove, The Soviet Economic System, pp. 127. 312-313.

102. William L. Shirer, The Rise and Fall of the Third Reich, p. 345.
 103. T. R. Malthus, An Essay on the Principle of Population (J. M.
Dent & Sons, Ltd.), Vol. II, p. 260.

104. See Thomas Sowell, Classical Economics Reconsidered

(Princeton University Press, 1974), pp. 88-89.

105. See Nassau William Senior, Two Lectures on Population

(Saunders and Ottley, 1829), Appendix.

106. See Thomas Sowell, "Sismondi: A Neglected Pioneer," History

of Poitical Economy, Spring 1972, p. 82.

107. George J. Stigler, "The Ricardian Theory of Value and

Distribution," Journal of Political Economy, June 1952.

108. T. R. Malthus, An Essay on the Principle of Population, Vol. 1,

p. 131.

109. Lester C. Thurow, Poverty and Discrimination (The Brookings

Institution, 1969), p. 2.

110. Howard Sherman, Radical Political Economy, p. 74.

111. See Richard Hofstadter, Social Darwinism in American

Thought (University of Pennsylvania Press, 1945).

112. Carl Brigham, A Study of American Intelligence (Princeton

University Press, 1923), p. viii.

113. Ibid., p. 100.

114. Quoted in Leon Kamin, The Science and Politics of I.Q.

(Erlbaum Associates, 1974), p. 8.

115. Ibid., p. 6.

116. Loc. cit.

117. Loc. cit.

 118. Ibid., p. 21.

119. Carl Brigham, op. cit., p. 210.

120. Rudolf Pintner, Intelligence Testing: Methods and Results

(Henry Holt & Co., 1923), p. 361.

121. See N. J. Block and Gerald Dworkin, The I.Q. Controversy

(Pantheon Books, 1976), pp. 4-44.

122. Ibid., p. 31.

123. Thomas Sowell, "Race and I.Q. Reconsidered," Essays and

Data on American Ethnic Groups, ed. T. Sowell (Urban Institute,
1978), pp. 208.

124. Ibid., p. 207.

125. Oscar Handlin, Race and Nationality in American Life.

126. Thomas Sowell, "Race and I.Q. Reconsidered," op. cit., pp.
226-227.

127. Ibid., p. 227.

128. Carl Brigham, op. cit., p. 29.

129. Ibid., p. 57.

130. Ibid., p. W.

131. Ibid., p. 102.

132. John C. Loehlin, Gardiner Lindsey, and J. N. Spuhler, Race

Differences in Intelligence (W. H. Freeman and Co., 1975), Chapter 6.

133. Arthur R. Jensen, Educability and Group Differences

(Methuem, 1973), p. 215n.
 134. Loc. cit.

135. Arthur R. Jensen, "How Much Can We Boost I.Q. and

Scholastic Achievement?" Harvard Educational Review,Vol. 39, No. I
(Winter 1969) pp.1-123.

136. Arthur R. Jensen, Genetics and Education (Harper & Row,

1973), pp. 44-46.

137. Carl Brigham, "Intelligence Tests of Immigrant Groups,"

Psychological Review, March 1930, pp. 158-165. Myrdal, op. cit., p.
148n.

138. Quoted in Lewis Coser, Men of Ideas, p.232.

139. Michael Grant, The Fall of the Roman Empire, p. 266.

140. Edward Gibbon, The Decline and Fall of the Roman Empire,
Vol. 1, p. 477.

141. Ibid., pp. 448, 465, 474.

142. Michael Grant, op. cit., p. 257.

143. Ibid., pp. 257-263.

144. Ibid., p.258.

145. Edward Gibbons, op. cit., Vol. 1, p. 715.

146. Ibid., p. 675.

147. Ibid., p. 710.

148. Ibid., p. 719.

149. Ibid., p. 767.

150. Ibid., p. 841. See also pp. 61, 374, 379, 835-865.
 151. Ibid., p. 504.

, 152. Ibid. Vol. II, p. 848.

153. Ibid., Vol. III, p. 314.

154. Loc. Cit.

155. Ibid., Vol. pp. 715, 719; Ibid., Vol. II, pp. 8.

156. Charles 0. Hucker, China's Imperial Past (Stanford University

Press, 1975), p. 303.

157. Ibid., p. 356.

158. Ibid., p. 304. 159. Ibid., p. 309.

160. Ibid., pp. 323, 324, 334.

161. Ibid., p 327.

162. "In many respects, eleventh-century China was at a level of

economic development not achieved by any European state until the
eighteenth century at the earliest." Ibid., p. 324. See also pp. 336, 349,
351, 352.

163. Ibid., p. 356.

164. Ibid., p. 296.

165. Ibid., p. 362.

166. Ibid., p. 365.

167. Lewis Coser, Men of Ideas, pp. 227-233.

168. Ibid., p. 231.

169. Loc. cit.

 170. John Stuart Mill, Principles of Political Economy, ed. W.J.
Ashley (Longmans, Green and Co., 1909), p. 950.

171. Lewis Coser, op. cit., p. 150.

172. Ibid., pp. 150-151.

173. Ibid., p. 155.

174. Sidney and Beatrice Webb, Soviet Communism: A New

Civilization?

175. Arnold Beichman, Nine Lies About America (Pocket Books,

1973), p. 177.

176. Lewis Coser, op. cit., p. 237.

177. Arnold Beichman, op. cit., p. 192.

178. Lewis Coser, op. cit., pp. 234-235.

179. Ibid., p. 234.

180. Seymour Martin Lipset and Richard B. Dobson, "The

Intellectual as Critic and Rebel: With Special Reference to the United
States and the Soviet Union," Daedalus, Summer 1972, p. 170.

181. James Burnham, Suicide of the West (Arlington House, 1975),

p. 104.

182. Ladd and Lipset, op. cit., p. 39.

183. Ibid., Chapter 1.

184. Ibid., p. 123.

185. Frank E. Ambruster, The Forgotten Americans (Arlington

House, 1972), p. 55n.
 186. Earl Warren, The Memoirs of Earl Warren, p. 317.

187. Frank E. Ambruster, op. cit., pp. 31-32.

188. James Burnham, Suicide of the West, p. 143.

189. Ben Wattenberg, The Real America, p. 4.

190. Ibid., p. 15.

191. Ibid., p. 105.

192. Ibid., p. 20.

193. Loc. cit.

194. Ibid., p. 188.

195. Ibid., p. 189.

196. Ibid., p. 198.

197. Ibid., p. 192.

198. Everett C. Ladd, Jr., "Traditional Values Regnant," Public

Opinion, March-April 1978, p. 48.

199. Ben Wattenberg, op. cit., p. 222.

200. Ibid., p. 194.

201. Loc. cit.

202. Ibid., p. 125.

203. Ibid., p. 134.

204. Ibid., p. 132.

205. Martin Anderson, Welfare, pp. 19-24.

 206. Ibid., p. 19.

207. Ibid., p. 20.

208. Ibid., pp. 22-24.

209. U.S. Bureau of the Census, Social Indicators, p. 466.

210. Erich Streissler, et al., Roads to Freedom: Essays in Honor of

Friedrich A. von Hayek (Routledge & Kegan Paul, 1969), p. 7-8.

211. -Howard Sherman, op. cit., p. 154.

212. Harry Magdoff, The Age of Imperialism: The Economics of U.

S. Foreign Policy (Monthly Review Press, 1969), p. 21.

213. "The humanitarians and social reformers particularly need

people who can be plausibly classified as helpless victims of causes
and conditions beyond their control. And the classification of groups
as helpless then actually promotes helplessness, thus serving the
psychological, and political aims and possibly also the financial aims
of the classifiers," Peter T. Bauer, "Development Economics: The
Spurious Consensus and its Background," Roads to Freedom, ed. Erich
Streissler, p. 19.

214. David Lebedoff, "The Dangerous Arrogance of the New Elite,"

Esquire, August 29, 1978, p. 22.

215. James Burnham, op. cit., p. 78.

216. Daivd Lebedoff, op. cit., p. 24.

217. Loc. cit.

218. Loc. cit.

219. Michael Meltsner, Cruel and Unusual, p. 25.

220. Ibid., p. 26.

 221. Ibid., p. 304.

222. Ibid., p. 308.

223. Ronald Dworkin quoted in Irving Kristol, Two Cheers for

Capitalism (Basic Books, Inc., 1978), p. 192.

224. John Maynard Keynes, Laissez-Faire and Communism (New

Republic Inc., 1926), p. 99.

225. Arnold Beichman, Nine Lies About America, p. 46.

226. James M. McPherson, The Abolitionist Legacy (Princeton

University Press, 1975), p. 206.

227. James Burnham, Suicide of the West, p. 100.

228. Arnold Beichman, op. cit., 127.

229. Robert A. Dahl and Charles E. Lindblom, Politics, Economics

and Welfare, p. xxvi.

230. Ibid., p. xxviii.

231. Ibid., p. 19. See also p. 73.

232. Ibid., p. 73.

233. Ibid., p. 79.

234. Ibid., p. 245.

235. Max Weber, "Bureaucracy," From Max Weber: Essays in

Sociology, ed. H. H. Gerth and C. Wright Mills (Oxford University
Press, 1958), p. 224.

236. Thorstein Veblen, The Engineers and the Price System (The
Viking Press, 1954), pp. 142, 144.
 237. Peter Meyer, "Land Rush," Harper's Magazine, January 1979,
p. 49.

238. Loc. cit.

239. U. S. Bureau of the Census, Historical Statistics of the United

States, Colonial Times to 1970, pp. 140-141.

240. James Burnham, Suicide of the West, Chapter VII.

241. John Stuart Mill, "On Liberty," The English Philosophers from
Bacon to Mill, p. 1037.

242. Lewis Coser, Men of Ideas, pp. 350-352.

243. James Burnham, op. cit., p. 259.

244. U.S. Bureau of the Census, Historical Statistics of the United

States, Colonial Times to 1970, p. 1141.

245. The Library of Congress, Congressional Research Service,

United States/Soviet Military Balance (Government Printing Office,
1978), p. 43.

246. Ibid., pp. 43, 45.

247. Ibid., pp. 43-45.

248. "The Equalizer," Newsweek, April 17, 1978, p. 37.

249. Ibid., p. 36.

250. Ibid., p. 37.

251. Ibid., p. 37.

252. Roger Freeman, The Growth of American Government

(Hoover Institution, 1977), pp. 6-7.
 253. Ibid., p. 14.

254. Edward Gibbon, The Decline and Fall of the Roman Empire,
Vol. I, p. 8.

255. Ibid., pp. 10-11.

256. Ibid., p. 15.

257. Ibid., p. 815; Ibid., Vol. II, pp. 317, 793.

, 258. Ibid. Vol. I, pp. 30-33.

259. Ibid., pp. 107-108, 133, 203, 539; Ibid., Vol. II, pp. 45-46, 100,
203.

260. Michael Grant, The Fall of the Roman Empire, pp. 70-71.

261. Edward Gibbon, The Decline and Fall of the Roman Empire,
Vol. II, pp. 45-46.

262. Ibid., Vol. 1, pp. 272, 497, 504, 672, 675, 683, 687, 692, 708,
710, 715, 719-720, 841; Ibid., Vol. II, pp. 21, 46, 131, 805-865; Ibid.,
Vol. III, pp. 9, 870, 872; Michael Grant, The Fall of the Roman
Empire, pp. 52-53, 110-111, 158, 252, 257, 258-267, 317.

263. Michael Grant, op. cit., pp. 73-75" 81,'82, 82, 85, 100, 117,
158; Edward Gibbon, op. cit., Vol. 1, pp. 381, 542, 953; Ibid., Vol. II,
pp. 281, 329, 530.

264. Edward Gibbon, op. cit., Vol. 1, p. 518; Vol. II, pp. 147, 299,
346; Michael Grant, op. cit., 92-95, 103.

265. Michael Grant, op. cit., Chapter 6.

266. Edward Gibbon, op. cit., pp' 490, 692, 715, 719; Ibid., Vol. II,
p. 8.

267. Roger Freeman, op. cit., p. 6.

 268. Quoted in Ibid., p. 15.

269. William Manchester, American Caesar: Douglas MacArthur,

1880-1964 (Little, Brown and Co:, 1978), p. 154.

270. U.S. Bureau of the Census, Historical Statistics of the United

States, Colonial Times to 1970, p. 1120.

271. Ibid., p. 1141.

272. William Manchester, op. cit., pp. 156-157.

273. Ibid., p. 157.

274. Ibid., p. 174.

275. Ibid., p. 193.

276. Ibid., p. 236.

277. Ibid., p. 243.

278. Michael Grant, op. cit., pp. 297, 307.

279. Telford Taylor, Munich: The Price of Peace (Doubleday & Co.,
Inc., 1979), pp. 197199.

280. William L. Shirer, The Rise and Fall of the Third Reich, pp.
402-403.

281. Harold Willens, "Braking the 'Mad Momentum' Behind the

Arms Race," Los Angeles Times, June 18, 1978, Part IV, p. 2.

282. Thomas Hobbes, Leviathan (Everyman's Library. 1970), p. 110.

283. Lewis Coser, Men of ideas, p. 152.

284. Loc. cit.

 285. William L. Shirer, op. cit., p. 335.

286. Alexander Hamilton, James Madison, and John Jay, The

Federalist Papers, p. 157. See also p. 138.

287. Ibid., p. 54.

288. Loc. cit.

289. Ibid., p. 53.

290. Ibid., p. 100.

291. Ibid., pp. 101-102.

292. Ibid., p. 54.

293. Ibid., p. 59.

294. Lewis Coser, Men of Ideas, p. 151.

295. Alexander Hamilton, et al., op. cit., p. 33.

296. Lewis Coser, op. cit., pp. 31, 5.

297. Alexander Hamilton, et al., op. cit., p. 111.

298. Ibid., p. 110.

299. Ibid., p. 45.

300. Ibid., p. 41.

301. Ibid., p. 80.

302. Ibid., p. 150.

303. Ibid., p. 79.

304. Ibid., p. 54.

 305. Ibid., p. 308.

306. Ibid., p. 320.

307. Ibid., p. 321.

308. Ibid., pp. 310-311.

309. Ibid., p. 322.

310. Loc. cit.

311. Michael Novak, "A Closet Capitalist Confesses," Wall Street

Journal, April 20, 1976, p. 22.
 INDEX

Ability, 99, 100. See also Intelligence; Merit;

Skills
Academic paradigm, 154, 215, 336, 337-338
Accountability, 363-364, 365
Administrative agencies, 213, 232-237, 253,
299, 318, 321-322, 323, 369, 379
Civil Aeronautics Board, 134, 170, 196, 198,
383
court deference, 302
Equal Employment Opportunity Commission (EEOC), 235, 251, 252, 253
Federal Trade Commission, 202, 210, 212,
213
hybrid powers, 232, 317
incentives and constraints, 15-16, 134, 142,
146-147,195-196,213
Interstate Commerce Commission, 133,
134, 170, 188, 195, 196, 199, 232
National Maritime Commission, 233
partisanship, 236
"Affirmative action," 232, 234, 246, 249-260,
296, 300, 301, 321
administrative agencies, 250, 252, 253
Bakke case, 253-255
Civil Rights Act of 1964, 249, 250, 255, 256,
259
"Compensation" for the past, 254, 268-269
Congressional intent, 250, 253, 255-256
courts, 253-256, 300, 301
discrimination, 249-260
Executive Orders, 249
guidelines, 250
incentives, 259-260
 inter-ethnic differences, 250-251
meanings, 250, 253
minorities designated, 251
opportunity versus results, 250
qualifications, 250, 251
quotas vs. goals, 252
"representation," 250, 251, 256, 257
results, 259, 300
Weber case, 255-256
Africa 227, 267
Age, 78, 192, 251, 257-258
Agnosticism, tactical, 292, 293. See also Precisional Fallacy
Agriculture, 14, 219, 222
Agriculture Department, 134
Airports, 189-191
Aluminum Company of America, 209
American Medical Association, 133, 200
American Automobile Association, 11
American Revolution, 12, 379-380
Anderson, Sherwood, 352

Anglo-Saxons, 139, 273. See also Law, AngloSaxon

Animistic fallacy, 97-98, 390 (note 7)
Antitrust laws, 129, 169, 171, 202-213, 353
burden of proof, 206, 211, 213
Federal Trade Commission, 202, 210, 212,
213
Justice Department, 202
"predatory" pricing, 169, 211
Robinson-Patman Act, 202, 210-212, 213,
225
Sherman Act, 202
theories, 202, 205, 211
Appomattox, 347
Articulation, 40, 102, 141, 150, 171, 192, 194,
202, 204, 214-217, 220, 222, 288, 334336, 338, 360. See also Indicators of
performance; Performance indicators
advantages, 334-336
disadvantages, 40, 172, 179, 180-181, 215,
216, 217, 338
importance in intellectual processes, 334336
information loss, 172, 216
not essential in all social processes, 303,
363-364
versus accountability, 363-365
Asia, 227
Aspin, Les, 375
Athens, 292
Atlanta, 265
Authentication, 4-6, 8, 9, 148, 150, 271, 309,
336, 360
consensual, 5-6, 150, 284, 301
scientific, 5-6, 150
Automobiles, 10, 29, 30, 63, 75, 120, 136, 184185, 186, 201-202, 226
Axiomatic doctrines, 120, 226, 258, 274, 356,
358
Babbitt, Irving, 352
Bacon, Francis, 335
Bakke case, 253-256, 293
Baldwin, James, 359
Bankruptcy, 9, 64, 170, 218
Banks, 25
Baseball, 208, 347, 364
Bataan, 320, 376
Beard, Charles A., 154, 352
Belgrade, 292
Berle, Adolph A., 387 (note 4)
Bias versus partisanship, 301-302
Bickel, Alexander, 295-296
 Bill of Rights, 131, 229, 297
Binet, Alfred, 345
Blacks, 88-89, 99, 141, 142, 174, 175, 176,
246, 251, 253, 255, 256, 257, 258, 259,
262, 264-269, 274, 302, 315, 348, 355,
358
Blackmun, Harry A., 255
Boston, 198, 265
Boys Club, 329
Brady, Matthew, 10
Brazil, 355
Brennan, William J., 255, 304
Brigham, Carl, 346, 347, 348
Britain, 19, 128, 148, 155, 216, 222, 223, 275,
277, 280, 315, 329, 342, 354, 364, 366,
371
Brown Shoe Company v. United States, 209
Brown v. Board of Education, 19, 260-262,
263, 264, 289, 292, 378-379
Brownsville, 258
Buckley, William F., 366
Bureaucracy, 15, 138, 139, 140-143, 164, 294,
351, 360, 379. See also Administrative
agencies
China, 294
duplication of functions, 143-144
governmental, 22
incentives, 15, 141-144, 146
Roman Empire, 294
Russia, 322
Burke, Edmund, 101, 154-155
Burton v. Wilmington Parking Authority,
248, 249
Business, 9, 65, 112, 206, 226, 235, 321, 379.
See also Antitrust laws; Property rights
accountability, 323, 338, 363-364, 365
attitudes of businessmen, 111-112, 133,
 153-154, 155, 323
attitudes of courts, 298-299, 301-302
attitudes of intellectuals, 359, 363, 364, 379
attitudes of politicians, 133, 377
competition, 66, 133
concentration, 204, 206, 209, 363, 365-366
developers, 35, 201, 240
employers, 34, 235, 249, 250, 251, 252, 258,
259
firm, 32-33, 34
incentives and constraints, 9, 111-112, 143,
155, 169-170, 303, 323
incumbents, 133
landlords, 178, 179, 180
"the market," 41-42, 68
management, 205-206
Marxian analysis, 70-71, 225-227
mergers, 133
middlemen, 35-36, 68-69, 201, 224-225,
240-241, 258
monopoly, 119, 195, 202-203, 204, 205,
209, 245
political isolation, 164, 165, 166
"predatory" behavior, 169, 211
"power," 363-364
profit, 206
regulation, 133

residual claimants, 64-67, 164, 165, 166,

189
small, 213
"social responsibility," 323, 363
stockholders, 206, 365
subsidy, 184, 199-200, 233, 234
takeover bids, 66, 133
 Busing, 19, 39, 260, 263, 265, 321, 353
California, 229-230, 248, 273, 275, 277, 280,
365
Canada, 4, 227, 328
Capital punishment, 270, 277, 283-288, 292,
294, 322, 354, 358, 383
Caitalism, 14, 45, 73, 77, 80, 123, 127, 155,
214, 223, 227
Carson, Johnny, 364
Categorical decisions, 36, 40, 50, 97, 118, 137144, 154, 194, 256, 260, 269,
271, 291,
323, 329, 382. See also incremental decisions
Catholic Church, 69, 92, 316, 345, 350
Caucasians, 269
Cavett, Dick, 364
Census, 174, 342
Chamberlain, Neville, 19, 135, 320
"Change," 293-294, 295, 314
Chaos, 42, 43, 79, 98, 217
Chicago, 132, 184, 258
"Chicago School" of economists, 320, 366, 367
China, 164, 294, 314, 322, 350-351, 363
Chinese, 69, 91, 92, 348, 350-351
Chinese-Americans, 91-92, 269
Christianity, 153, 307, 349-350
Chrysler Corporation, 70
Civil Aeronautics Board, 134, 170, 196, 198,
383
Civil Rights Act of 1964, 248, 249, 253, 262,
293, 299
Civil Rights Commission, 262
Civil War, 10, 81, 246, 267, 268, 317, 324
Civil Conservation Corps (CCC), 375
Civilization, 6-8
Clark, Joseph, 250
Clark, Kenneth B., 266, 301, 387 (note 18)
Clayton Act, 202
 Cleveland, 188
Clorox, 207
Cole, G. D. H., 352
Coleman Report, 264
College Board S.A.T., 87, 346
Communism, 52, 60, 132, 166, 235, 310, 369,
377. See also Marxism; Socialism; Totalitarianism
Competition, 183, 187, 195, 197, 202-203,
210, 211, 212-213
anti-trust laws, 210
government regulation, 197, 225
Competition
meaning, 210, 211
political, 38, 144, 145, 238
Complexity, 3, 10-11, 217-218, 220, 334
Condorcet, Marquis de, 341, 377

Conductivity of knowledge, 110, 111, 112

Conformity, 105
Congress, 235-236, 255-256, 262, 318, 319,
379
Connecticut, 299
Consensual Authentication, 5-6, 284. See also
Intellectual fashions
Consensus, 43-44, 76
Conservatives, 38, 366, 367, 382
Constitution, 21, 36, 39, 43, 131, 229, 234,
235, 238, 245, 273, 280, 288, 379-383,
388 (note 17)
Bill of Rights, 131, 229, 297
change, 293-294, 295, 296
circumvention, 60, 256
democracy, 314-325, 327, 380, 381
"due process," 60, 247, 290, 292
"equal protection," 246-247, 254, 255, 290
 federalism, 276, 299, 324
interpretation, 289-299
"original intention," 289, 290, 291, 293,
294, 296
separation of powers, 232, 233, 316-317,
381, 383
"state action," 240, 245, 246-248
"values" vs. rules, 231, 289, 291
Constraints, 14, 105, 241, 263, 272, 376
Consumers, 32-33, 34, 35, 38, 49, 94, 128,
138, 164, 171, 182, 183, 196, 198, 206209, 211. See also Quality control
"Control" of markets, 205
Cost of knowledge. See Knowledge, cost, cost
differences
Costs, 50-54
average, 53, 54, 172
definition, 51, 53, 167, 225, 230
external, 35
fixed, 135, 172, 195, 210
misstatements, 115, 182
overhead, 53, 172
"prohibitive," 241
incremental, 53-54, 170, 171, 173, 189
subjective, 167, 169, 172
transactions costs, 33, 36, 42, 131, 145
Courts, 36, 81, 164, 210, 283, 284, 286, 296.
See also judicial activism; Supreme
Court
appellate, 82, 83, 230, 232, 272, 273, 276,
278, 279, 291
attitude toward administrative agencies,
302
attitude toward business, 298-299, 301-302
Burger Court, 383
defining boundaries vs. specifying results,
231, 240, 244, 299
educational role, 296
 institutional advantages, 39-40, 303
judicial restraint, 295
last resort for social change, 290, 295-296
partisanship, 301-302
Supreme Court, 82, 230-271, 303
tactical agnosticism, 292-293
trials, 271-272, 273, 275, 302
Warren Court, 231, 249, 276, 278, 289, 290,

294, 296, 298, 299, 354, 383, 400-401

(note 257)
Crime, 96, 230, 251, 269-288
causes, 274, 277, 278, 353-354
costs, 270
criminals, 235, 328
criminology, 9, 334, 360
deterrence. 282, 283, 286
ethnicity and race, 273, 274, 281, 287
international comparisons, 274-275, 277
278, 284
intertemporal comparisons, 275, 354, 400401 (note 257)
intracriminal equity, 278-280, 287
organized, 92-93
plea bargaining, 237, 276
punishment, 95, 104, 269
race and ethnicity, 273, 274, 281, 287
rehabilitation of criminals, 280, 281
"root causes," 277, 278, 281, 282
victims, 273, 278-279, 287
youth, 20, 274, 283
Crisis, 326-327, 340, 382
concept, 327
political effect, 146
Culture, 100-110
Cuba, 369
 Cuban American, 257
Czars, 148, 322
Czechoslovakia, 369
Dahl, Robert A., 387 (note 4)
D'Alembert, Jean Le Rond, 351
Darwin, Charles, 6, 98, 103, 147, 341, 345
Davis, Jefferson, 81
Death penalty, 270, 277, 283-288, 292, 294,
354, 358, 383
Decision-Making Units, 11-14, 17, 18, 40, 57,
173, 182, 193, 234, 284, 294, 313
defining boundaries vs. specifying results,
122, 231, 240, 244, 299, 303
Defense Department, 147
Delaware, 263
Democracy, 12, 42, 137, 296, 321, 358
and elitism, 357-358
and freedom, 116, 117, 314-315
Democratic fallacy, 119, 143, 152, 287
Democratic Party, 247
Detroit, 258, 263, 265
Developers, 35, 201, 240. See also Zoning
Dichotomies, 81, 323
Diminishing returns, 39, 54-57, 78, 122, 130,
140, 142, 263, 266, 386 (note 2)
and mandated purposes, 263, 266
in consumption, 78
in production, 54-57
Diocletian, 228
Discrimination, 99, 100, 141, 176, 249, 250,
251, 252-260, 269, 274, 293, 343
Disney, Walt, 71
Diversity, 42, 43, 61, 79, 84, 139, 303, 331,
380. See also Consensus; Chaos; Optimality; Society
 as a value itself, 84
effect in market economy, 42
of values, 42, 43, 61, 303, 331
Dos Passos, John, 352
Douglas, William 0., 298, 323
Dred Scott v. Sanford, 289, 290, 297
"Due Process," 24, 95, 245, 247, 273, 296-299,
328
historical meaning, 296-297
judicial expansion, 297
procedural, 297, 301-302
substantive, 297, 298, 301-302
Duplication in government, 144
DuPont Corporation, 203, 209
Eastman Kodak, 141, 208
Economics, 45-80, 167-228
Chicago school, 320, 366, 367
demand vs. "need," 189, 196
definition, 45-46
economy defined, 45
principles applicable in other areas, 39, 54,
56, 58, 59, 83, 236
Edison, Thomas A., 72
Edsel automobile, 169, 363
Education, 42, 87, 89-90, 215, 234, 247, 264,
269, 324, 359, 360
Effective knowledge, 35, 53, 105, 110, 139,
150, 190, 212, 271, 272, 303
Efficiency, 52, 205-206, 217, 360, 378, 406
(note 92)
and freedom, 378
vs. merit, 75-77
Ehrlich, Isaac, 283-284
Elitism, 5, 101-102, 201-202
Emotions, 111, 157, 158, 335, 337
expression, 335
role, 111-112, 337
 Employees, 32-34, 47-48, 127, 133, 174
Engels, Friedrich, 99, 155, 218, 219, 310, 341
Eiffel Tower, 291
Einstein, Albert, 312, 353, 376
England. See Britain
Environmentalists. See Special interests, recreational
Equal Employment Opportunity Commission
(EEOC), 235, 251, 252, 253
Equality, 126-127
Ethnicity and race, 27, 246-269, 346-348,
358, 399 (note 189)
Eugenics, 346
Evidence. See Authentication; Law; Statistics
Evolution, 98, 103
Experts, 13, 41, 48, 52, 61, 86, 102, 178, 203,
206, 220, 223, 284-285, 288, 300, 302303, 325, 336, 340, 346, 347, 348,
358,
360, 361-363, 369
"Exploitation," 170, 174, 223, 225-226, 227,
359-360
External costs, 36-37, 57, 83, 96, 195, 197,
219, 224, 241-242, 271
"Fair trade" laws, 327

Fallacies
animistic, 97-98, 390 (note 7)
democratic, 119, 143, 152, 287
physical, 67-72, 285-286
precisional, 291-292, 324
Family, 23, 91, 92, 105, 177
Fascism, 52, 106, 306, 352
Federal Communications Commission, 170,
195, 196, 199, 232
Federal Register, 232, 318
Federal Trade Commission, 235
 The Federalist, 380-381
Federalists, 315
Feedback, 35, 36, 41, 103, 107, 133, 141, 142,
150, 155, 164, 191, 246, 294, 303
effective, 39, 110, 265
insulation, 36, 110, 112-113, 133, 143, 155,
163, 164, 179, 184, 194, 222, 227, 235,
253, 265, 266, 295, 299-300,321, 324,
357, 363, 369, 379, 386 (note 1)
Fermi, Enrico, 312
Finland, 354
Flat Earth Society, 309
Flexibility, 39-40
Food and Drug Administration, 143
Food Employees Union v. Logan Valley Plaza, 245
Force, 105, 115-121, 145, 175
distorter of knowledge, 167-168, 172, 175
governmental, 116, 122, 175, 185-186,
192
metaphorical, 118, 151, 186
private, 175-176, 186
Ford, Gerald R., 253, 322
Ford, Henry, 72
Ford Motor Company, 29, 169
Formal institutions, 21, 22, 27, 31-40, 378
France, 329, 351, 367. See also French Revolution
Franco, Francisco, 369, 372
Frankfurter, Felix, 261, 292, 295
Franklin, Benjamin, 342
Freedom, 44, 105, 115-121, 143, 292, 320321, 322, 331, 349, 350, 351,
368-371,
378-383
conformity, 105
defined, 115-116, 370
democracy, 116, 117, 314-315
of speech, 238-245, 248
trade-offs, 116
 French Revolution, 351-352, 363, 367, 377,
378, 379, 380
Friedman, Milton, ix, 366, 390 (note 7)
Fungibility, 28, 111, 127, 218, 229, 337
Furtwangler, Kurt, 379
Galileo, 353
Gallup Poll, 253
Gasoline, 181-182, 338
General Accounting Office, 191
General Motors, 29
Georgia, 222-223
German-Americans, 347

Germany, 82, 216, 307, 312, 320, 341, 354,

368, 372, 377
Gerbers baby food, 141
Gettysburg, 383
God, 6, 40, 43, 61, 88, 97-98, 283, 288
Goddard, H. H., 345
Godwin, William, 341
Government, 41, 157, 164, 379. See also Democracy; Politics;
Totalitarianism
bureaucracy, 138, 139
decision-making units, 114-115
economic intervention, 165, 167-228
finance, 306, 325, 375
framework for private decisions, 37-38,
145, 382
incentives and constraints, 15-16, 114-115,
125, 134, 142, 146-147, 157, 195, 213,
379, 387 (note 4)
"participation," 121, 340, 367
"planning," 98, 195, 213-227, 228
power, 137, 278
"public interest" personification, 146
 size 305-306, 317-319, 322, 351-352, 370
Graflex Corporation, 71, 205
Grant, W. T., 71, 363
Great Depression of the 1930s, 165, 324-325,
327, 383
Greece, 292, 355
Greed, 199, 202, 338
Green v. County School Board, 262, 263
Gross national product, 120
Growth rate, 136-137
Hamilton, Alexander, 296
Hammurabi's Code, 228
Harvard University, 234
Hayek, F. A., ix, 388 (note 17)
Health, Education, and Welfare Department
(H.E.W.), 142, 252, 306
Hegel, G. W. F., 103
Hicks, Granville, 352
Hierarchy, 12-13, 18, 27
Hiroshima, 320
History, 103, 163-166, 184, 256, 291, 303, 324
Hitler, Adolf, 19, 307, 309, 310, 311, 315, 320,
327, 352, 375, 376
Hobbes, Thomas, 155, 378
Holiday Inn, 85
Holland, 354
Holmes, Oliver Wendell, 238-239
Homicide, 270, 274. See also Death Penalty,
Murder, Punishment
accidental, 284
data, 284
international comparisons, 275, 277
intertemporal comparisons, 274, 275, 354
terminally ill patients and homicide laws,
130-131,270
vehicular,284
Honesty, 37, 158. See also Lying; Tactical agnosticism
 "noble" deception, 281, 293
social capital, 37
Hong Kong, 92

Honor, 91, 104

Hoped-for results, 65, 116, 119, 120, 121, 152,
168, 173, 214, 230, 265-266, 330, 331,
332, 339
House of Representatives, 318
Housing, 88-89, 176-180, 192-193, 201-202,
247, 248, 319
Houston, 201
Huckleberry Finn, 347
Human capital, 59-60, 257
Hume, David, 98
Humphrey, Hubert, 217, 250, 374
Hypotheses, 220, 258, 274, 356, 358
Ibos, 163
Ideas, 3, 4-6, 8, 150
Ideology. 43, 107, 187, 216, 353, 354, 370,
376, 378. See also Communism; Facism;
Racism; Socialism
Illusions, 4-5
Imperialism, 155, 227, 356
Incentives, 14-16, 56, 136, 141, 158-159, 220,
222, 259-260, 282. 294, 334, 339-340,
379
and constraints, 14, 22, 44, 125, 142, 144,
146, 147, 150, 155, 188, 189, 195, 198,
199, 209, 234, 339, 361, 375
conductivity, 111
fungibility, 111, 218, 229
Income, 35, 76-78, 154, 329-338, 344, 355356
"Income distribution" metaphor, 76-78, 154,
330
 Incremental decisions, 18, 26-28, 218, 240,
261, 337. See also Categorical decisions
Incumbents, 132-134. 169, 178, 186-187, 191,
196, 200, 211
India, 312
Indians, American, 251, 257, 258, 358
Indicators of performance, 15-16
Individualism, 4, 43, 105, 106, 107
Individualizing decisions. See also Sorting and
labeling
criminal sentencing, 282
judging each person as an individual, 86,
92, 328
Inflation, 120, 325
Informal processes, 23-30, 40
Innovation, 37-38
Institutions, 41, 67-68, 155, 265-266, 287,
312-313, 325
advantages and disadvantages, 21, 36, 41-
42,242-243,303
economic, 32-36, 37, 41-42
formal, 21, 22, 31-40, 378
hierarchical, 12-13, 18, 27, 378
informal, 21, 22, 23-25, 241-242, 378
judicial, 36, 39
mandated purpose and diminishing returns,
263, 266
political, 36-39
"Insurance" behavior, 24, 106, 130, 137, 197
Insurgents, 120, 147-149, 153
defined, 147, 153

post-victory internal conflicts, 148, 153,

290, 314
Integration, racial, 260
 Intellectual process, 334-338, 343-344, 346
Intellectuals, 8, 9, 20, 165, 277, 302-303, 305,
321, 325-326, 331-367, 382. See also Experts; Intellectual process
academics, 44, 90, 353
American, 369, 371
defined, 332-333, 339
demoralization, 355, 377
devisiveness, 350, 355
egocentricity, 354, 364
fashions, 348-349, 361
freedom conceived as intellectual freedom,
370, 379, 383
freedom of others opposed, 351, 382
historical roles, 349-352
incentives, 339-340, 349, 351, 363, 364
insinuation, 205
international comparisons, 277
partisanship, 165
political role, 325-326, 346
"relevance," 340, 341-348
religious, 349-350
vs. competing elites, 165, 340, 354, 356,
359, 363, 366, 376-377
vision, 352-367, 377
Intelligence, 334, 345-349
I.Q., 89, 264, 345-349
racial differences, 264, 346-348, 358
Intention, 148, 238, 258, 337
animistic fallacy, 97-98, 390 (note 7)
vs. systemic causation, 103, 252, 256, 264
Interest group. See Special interests
Internal Revenue Service, 37
Interstate Commerce Commission (I.C.C.),
133, 134, 170, 188, 195, 196, 199, 232
Inventory, 68, 170, 224, 394 (note 138)
Investment, 25, 37, 59-60
economic, 25, 59-60
 social, 31, 59-60
Irrationality, 29, 94, 106, 141, 146, 169, 185
Irish-Americans, 92, 251, 252, 265
Italian-Americans, 99, 251, 252, 265
Italy, 106
Japan, 47, 271, 275, 277-278, 280, 320, 372,
375, 376
Japanese-Americans, 91, 92, 269
Jefferson, Thomas, 296, 315
Jensen, Arthur R., 348
Jewish-Americans, 92, 99, 100, 251, 252, 257,
264, 265, 347
Jews, 12, 69, 163, 347
Jitney taxis, 185
Johnson, Lyndon B., 188, 249, 253
Judicial Activism, 231, 239, 240, 243, 248,
249, 254, 256, 261-264, 276, 280, 285,
289-299, 323, 383
Congressional intent, 250, 253, 255-256,
262, 263-264, 291, 293, 321-322
educational role of courts, 296
Jefferson, Thomas, 296

partisanship, 301-302
rationale, 290, 291, 293, 295, 296
"results" vs. principles, 249, 267, 296, 300,
303
Judicial restraint, 295
"Just price," 67
Justice, 330, 369-370. See also Crime; Law;
Merit; Morality; Social Justice
Justice Department, 202, 252
Kaiser Corporation, 255, 256
Kennedy Airport, 189, 190
Kennedy, Edward M., 266
 Kennedy, John F., 249, 253
Keynes, John Maynard, 102, 358
Kirk, Russell, 366
Knowledge
authentication, 3
complexity, 3
cost, 8, 25, 26, 28, 208, 271, 272, 294, 300,
311, 318
cost differences, 13, 14, 26, 33, 40, 87, 133,
139, 179, 207, 237, 253, 318, 319, 362
dispersion, 7-8, 17, 48, 61-63, 150, 300
economizing 7-8, 33, 138, 218, 309
force as distorter, 167, 172-173, 174, 175,
178, 185-186
general, 13-14
"higher" and "lower," 9
meaning of knowing, 8-11, 48, 56
misinformation, 4, 220
quantity, 6-8, 9, 10
specific, 13-14, 61
trends, 10
Kodak, 141, 208
Kristol, Irving, 366
Kulaks, 163
Labor Department, 250, 252
Labor unions, 186, 198-199, 202
Land use, 201-202
Landlords, 178, 179, 180
Laos, 369
Laredo, 258
Latin, 334
Law, 157-158, 229-304. See also Constitution;
Courts; Property Rights.
administrative, 232-236, 253, 299
Anglo-Saxon, 253, 271-272, 297
antitrust, 129, 169, 171, 202-213, 225, 353
burden of proof, 131, 206, 234, 236, 250,
 251, 252, 263, 302
comprehensibility, 140
contracts, 31, 34, 140, 192, 193-194
costs, 236-237
criminal, 269-288, 299, 330, 354, 383
defining boundaries vs. specifying results,
122, 231, 240, 244, 303
"due process," 24, 95, 245, 247, 273, 296299, 301-302, 328
evidence, 271-272, 276, 277
international comparisons, 277-278, 280
judges, 229

Law, (continued)
lawyers, 229
liability, 35, 112
partisanship, 236
police, 272, 278. 330
precedents, 267, 271
prescriptive, 233, 235
'"public interest" law firms, 230
quantity of legal action, 229-230, 232, 246,
275, 276, 277, 229
rights, 36, 40, 122-131, 236, 238, 259, 316
rigidities, 31-32, 36, 39-40
Lee, Robert E., 347
Lenin, V. I., 69, 227, 308, 352
Leontief, Wassily, 217
Lester, Richard A., 389 (note 2), 390 (note 7)
Liberalism, 38, 297, 299, 302, 357, 366-367
Lincoln, Abraham, 81, 82, 115, 268
Life (magazine), 71, 205
Lindbergh, Charles A., 24
Lindblom, Charles E., 387 (note 4)
Lippmann, Walter, 346, 358
Lloyd Corporation v. Tanner, 245
 Locke, John, 155
London, 220, 223, 275
Los Angeles, 96, 198, 209
Lying, See also Tactical agnosticism
"noble," 281, 293
on principle, 311-313
Lysenko, Trofim D., 307
McCarthy era, 322
Machlup, Fritz, 389 (note 2), 390 (note 7)
Madison, James, 381
Magna Carta, 315
Mallory v. United States, 271
Malthus, Thomas Robert, 341-343
Mandated jurisdictions, 140-141, 142, 144,
266
Mandated purposes and diminishing returns,
141, 144
Mandatory retirement, 192, 194
Mae Tse-tung, 307
Marbury v. Madison, 289
March of Dimes, 141
"Market" decision making, 41-42, 119-120,
143, 185, 359
Marsh v. Alabama, 239-244
Marshall, Thurgood, 255, 266
Marx, Karl, ix, 98, 99, 103, 107-108, 153-54.
155, 218, 219, 308, 310, 311, 341, 352
Marxism, 69, 70-71, 155, 218-219, 226-227,
293, 301, 308, 358
exploitation theory, 70-71, 225-227
historic role, 308
prices under socialism, 219
systemic analysis, 98, 99, 100, 103, 153-154,
155
Massachusetts Bay Colony, 316
Media of Mass Communications, 144-145,
295, 364-365, 382
 "Megalopolis,". 201
Merit, 75-77, 103, 224, 357
Metaphors
"the market," 41
force, 118, 151, 186
"income distribution," 76-78, 154, 330
"society," 11, 12, 15, 21, 41, 57, 61, 79, 114,
146, 153, 188, 254, 256, 258, 281
Mexican-Americans, 257, 258
Middle Ages, 11
Middle Man, 35-36, 68, 201, 224, 240, 258
function, 68-69, 224-225, 240
unpopularity, 35, 68-69
Military, 4, 16, 18, 91, 191, 193, 322, 371-377,
383
nuclear weapons, 4, 368, 371, 372, 373, 376,
377
"overkill," 372-373
Mill, John Stuart, 59, 98, 107, 322, 351, 370
Milliken v. Bradley, 263
Ming dynasty, 350
Minimum wage laws, 73, 126, 168-169, 173,
174, 175, 176, 181, 353, 390 (note 8)
"Minorities." See also Ethnicity and race
concept, 254
government-designated, 251-252
Mississippi, 258, 273
Monarchy, 42, 109
Money, 35, 47, 58, 67, 78, 80, 94, 104, 111,
218, 337
Monitoring, 39. 55-56, 65-66, 106, 111-112,
125, 137, 142, 144, 180, 191, 197, 209,
215-226, 261, 298, 347, 365. See also
Self-monitoring monitors
Monopoly, 119, 144, 184, 189, 195, 202-203,
204, 205, 206, 209, 245, 378
Morality, 95, 107-110, 154, 174, 197, 223,
 285-286, 295, 317, 335, 340, 342, 358,
369, 383. See also Merit; Justice; Social
Justice
destructive, 107-108
differential rectitude (moral superiority),
179, 358, 380, 381
diminishing returns, 107, 108
as social capital, 37, 107
vs, causation, 257, 258, 356, 357
vs, freedom, 358, 378
vs. social benefits, 108, 109
Moscow, 220, 221
Murder, 276, 283, 284. See also Death penalty; Punishment
data, 274, 275
ethnicity and race, 287-288
international comparisons, 275, 277
intertemporal comparisons, 274, 275, 354
race and ethnicity, 287-288
recidivism among murderers, 286
sex differences, 288
victims, 287
Mussolini, Benito, 307
Myths, 5
Nader, Ralph, 365

Nagasaki, 320
Napoleon, 169, 170, 352
Nation (journal), 352, 376
National Association for the Advancement of
Colored People (NAACP), 142, 230, 265,
266
National Maritime Commission, 233
Nazis, 82, 155, 163, 166, 216, 235, 244, 309,
314, 327, 341, 372, 379
"Need," 189-190, 193, 196, 200, 217, 337, 386
 (note 2)
Neo-Conservatives, 366
New Deal, 232, 306, 325, 352, 357, 375, 379
New Hampshire, 201
New Republic (journal), 352
New Statesman (journal), 352
New York City, 96, 131, 132, 178-179, 180,
182, 184, 194, 200, 201, 258, 265, 274,
275, 320
Newness, 228, 291
Nixon, Richard M., 253, 295, 322
Normandy, 376
North Atlantic Treaty Organization (NATO),
373
Nuclear era, 312, 320, 368, 373, 376-377
Objectivity, 20, 49, 52, 61, 67, 167, 172, 178,
182, 190, 191, 192, 202, 204, 205, 208,
216, 217, 323, 360
statistics, 169, 170, 202
values, 51
Occupational licensing, 200-201
Office of Education, 262
Office of Federal Contract Compliance, 255,
256
Oil, 61, 75-76, 103-104, 179. See also Gasoline
Omniscience, 76, 137, 224
Optimality, 72-78, 79, 81, 145, 154, 186, 188,
270-271
Options, 55, 128, 152, 167, 168, 173, 192-193,
194. See also Transactions thwarted
Order vs. design, 98, 217. See also Systematic
analysis; Systematic processes
Organized crime, 92-83
"Oxford Pledge," 376
Pabst Brewing Company, 209
Pacific Southwest Airlines (P.S.A.), 198
"Package deal" decisions, 18, 28, 33, 34, 40,
 243, 324
Pagans, 349, 377
Parents, 37, 83, 101, 111, 112
Pareto optimality, 72
"Participation," 121, 340, 367
Partisanship vs. bias, 301-302
Patman, Wright, 211
Pearl Harbor, 4, 20, 48, 372, 376
Penalties. See Incentives, and constraints;
Punishment
Pennsylvania, 316
Performance indicators, 15-16

Ph.D.'s, 8, 260
Philippines, 376
Phillips, U. B., 151
Photography, 10, 33, 141, 203-204, 205, 207,
208
Physical fallacy, 67-72, 285-286
Pintner, Rudolf, 346
"Planning," 98, 195, 213-227, 228
Plato, 367
Pluralism, 43, 244
Police, 272, 278, 330
Polish-Americans, 251, 257
Politics, 12, 36-39, 114-149, 154, 164, 177,
305-383. See also Democracy; Government; Totalitarianism
corruption, 138, 139, 140, 187, 188
freedom, 115-122, 320-322, 331, 349-352,
368-383
charismatic, 132
machines, 131-132, 138-140, 383
reformers, 139
temporal bias, 132-136, 253
time horizon, 131, 133
 trade-offs, 114-149
Portugal, 369
Post Office, 171, 183, 189
Posterity, 5
Pound, Ezra, 352
Poverty, 78, 343, 355, 356
Powell, Lewis F., 254
Power, 279, 326-331, 363-364. See also Force
concentration, 363, 365-366, 367, 369
Precisional fallacy, 291-292, 324
Preferences
revealed by behavior, 53, 128, 174, 365
third-party, 52, 202, 219, 360
Present value, 39, 158
Price, 80, 341
below cost, 143, 168-171, 210
conveys knowledge, 38, 78, 79, 80, 167-168,
171, 174, 176, 177, 181, 189, 190, 191,
195, 216, 242
Price control, 168-191, 382
Price discrimination, 183-184, 202, 392 (note
91)
Priorities, 50, 216, 217
Privilege, 42, 109, 388 (note 17)
Probability, 63, 84-85
Problem," 42, 154, 185, 215, 303, 334, 336337, 354
Process assessment vs. result assessment, 121,
239, 363, 365
Process vs. result, 38-39, 120, 141, 142, 152,
215-216, 363, 383
Product differences, 206-208
Profit, 66, 76, 197-198, 206, 209, 224, 225.
See also Residual claimants
Property rights, 39, 109, 152, 187, 191, 193,
196, 222, 240, 245, 247
capitalism, 123, 126
confiscation, 39, 191-192, 194, 298
social role, 124-125, 126, 187, 391 (note 33)
socialism, 123, 124, 152, 391 (note 33)
vs. human rights, 388 (note 18)

Prospective vs. retrospective concepts, 23, 28,

43, 66-67, 88, 104, 172, 182, 202, 204,
250, 257, 258, 262, 263
opportunity, 250, 262
"control" of markets, 205
survivors as misleading sample, 70-71
segregation, 262-263
statistical data, 216
Protestant Reformation, 350
Proudhon, Pierre J., 218-219
Public Health Service, 144
"Public interest" organizations, 152, 198, 230,
265-266
Public opinion, 253, 265, 268, 295-296, 302,
322, 323, 354, 355, 379, 382
"Public" television, 364-365
Puerto Ricans, 251
Punishment, 94, 95, 215, 269, 270, 274, 277,
278, 279, 280, 288, 292
Puritans, 316
Quakers, 316
Quality control, 139, 207
Quality variations, 180, 181, 214
Quotas, 252
Race and ethnicity, 27, 246-269, 346-348,
358, 399 (note 189)
Racial integration, 260, 262
Racism, 175, 266, 274, 348
Railroads, 183, 196, 199, 232
Ranking vs. distingushing, 117, 118
Rape, 236, 271, 273
 Rationalism, 102, 103
Rationality, 26, 100, 101, 102, 113, 139, 140,
150, 151, 169, 171, 185, 186-187, 190191, 193, 197, 207, 209, 211, 213,
215,
287, 288, 340, 360. See also Irrationality
Rawls, John, 118, 331
"Realism," 293, 323
Red Cross, 68, 147, 249
Reformers, 138-140, 143
Regents of the University of California v. Allan Bakke, 253-256, 293
Regulatory agencies, 15, 148, 170, 171, 187,
188, 191, 194-200, 232, 383
Rehnquist, William, 255-256
Reitman v. Mulkey, 248
"Relevance," 340, 341-348
Religion, 43, 97-98, 377. See also Christianity;
God
Rent control, 176-180, 194, 353
Republican Party, 253
Residual claimants, 64-67, 164, 166, 189
Responsibility, 363-364
Retirement, 194
Retrospective concepts. See Prospective vs.
retrospective concepts
Rewards. See Incentives
Rhode Island, 263
Rights, 36, 40, 122-131, 236, 238, 316
benefits, 128, 129, 236, 316

costs, 127-128, 129, 236, 259

defined, 122
defining boundaries rather than specifying
results, 122
equal, 126-129
general, 129-131
 property, 122-126
property vs. human, 388 (note 18)
special, 126-129, 259
Risk, 31, 60-63, 76, 127, 164, 179, 182
Robespierre, Maximilien Marie Isidore, 378
Robinson-Patman Act, 202, 210-212, 213,
225, 234, 235, 322
Rodbertus, Karl Johann, 219
Rogers, Will, 3
Rolls Royce, 119
Roman Empire, 153,349-350,374
bureaucracy, 294, 322
Christianity, 153, 307, 349-350
decline and fall, 384, 377
emperors, 374
enemies, 374
intellectuals, 349-350, 363, 374
internal conflict, 349-350, 374
military strength, 374
succession of leadership, 42
tolerance, 307, 349
Roosevelt, Franklin D., 323, 327. See also
New Deal
Rowan, Carl, 266
Royalty, 42, 109
Rules, 22, 32, 111, 112, 137, 138, 142, 145,
157, 180
Russia, 164, 169, 170, 322, 360. See also Soviet
Union
Salazar, Antonio de Oliveira, 369
Salt Lake City, 196
San Francisco, 198, 265
Santayana, George, 352
Sartre, jean-Paul, 352
Savannah,223
Scarcity, 45-46, 49, 176. See also Shortage
Scholastic Aptitude Test (S.A.T.), 87, 346
 Sears, Roebuck and Co., 210
Segregation, 83, 89, 262, 263, 292, 294
prospective, 262
retrospective result, 262
Self-monitoring monitors, 66, 111, 125, 144
Self-Interest. See Incentives
Sellin, Thorsten, 283-284
"Selling Out," 148, 290
Senate of the United States, 318
Shaw, George Bernard, 352
Sherman Antitrust Act, 171, 202
Short Run, 131-136
Shortages, 176, 177, 179, 181, 182. See also
Scarcity
as price phenomena, 176-177, 179
gasoline, 181-182
housing, 176-177, 179
Sierra Club, 201, 237
Silberman, Charles E., 400-401 (note 257)

Slavery, 12-13, 17, 27, 105, 246, 267, 292,

307, 308
American, 317
compared to concentration camps, 307-308
"compensation" to descendants of slaves,
268-269
incentives, 13
knowledge-power dichotomy, 12-13, 27
Slovak-Americans, 347
Smiles, Samuel, 154
Smith, Adam, 59, 69, 98, 99, 103, 107, 108,
118, 238, 367
Smith-Corona, 203
Social capital, 30, 37, 101
Social Darwinism, 345
 "Social justice," 152, 330-331, 370, 377, 378,
382, 383
hoped-for ideal, 330
institutional mechanisms, 330-331, 351-352
Social Partisanship vs. biased principles, 301302
"Social problems." See Academic paradigm
Social processes, 21-113
formal, 21-23, 31-39
informal, 21-30
"Social science," 6, 9, 36, 382
Social Security, 194
Socialism, 123, 124, 125, 126, 147, 155, 214,
219, 223, 371. See also Communism;
Marxism
defined, 152
goals, 152
socialists, 147
"Society" Metaphor, 11, 12, 15, 21, 41, 57, 61,
79, 114, 115, 146, 153, 188, 254, 256, 258,
281. See also Constraints; Decision-Making Units; Diversity; Incentives;
Systemic
processes
Solzhenitsyn, Aleksandr 1., 310
Sorting and Labeling, 83-93, 328. See also Individualizing decisions
brand names, 85, 138
costs and benefits, 83, 209, 211
fineness, 83, 85, 91-93, 138-139, 209
judging each person as an individual, 86,
92, 328
people, 83, 86-93, 328, 329
segregation, 83, 88
Soviet Union, 16-17, 125, 132, 137, 148, 215,
219, 222, 224, 307, 313, 327, 341, 360,
366, 368, 372, 373, 375
Spain, 166, 369
Special interests, 132, 134, 179, 187, 191, 235236, 253, 318, 362
creation, 134, 145, 253, 318
 defined, 183, 253
incumbents, 132
intellectuals, 362, 369
landlords, 179
recreational, 35-36, 230, 236-237
Specialization, 8, 338
concentration, 366
knowledge economizing, 8, 366
Spencer, Herbert, 345

Stalin, Josef, 215, 307, 314, 327, 352

Standard Oil Company, 392, (note 91)
"State Action," 240, 245, 246-248
Statistics, 216, 234, 284, 287, 344, 355
Status, 327-329
Status vs. behavior, 327-329
Stevens, Thaddeus, 290
Stewart, Potter, 255
Stigler, George J., 366
Strauss, Richard, 379
Subsidies, 182-185, 188-189, 190, 199-200,
233, 234
Substitution, 49-50, 189
Success indicators, 15-16
Sung dynasty, 350
Sumner, William Graham, 345
Supreme Court, 82, 230-231, 233, 234, 239,
240, 243, 245, 246, 248, 249, 253-256,
260-265, 272, 276, 278, 279, 285, 289,
290, 292, 294, 297, 298, 303, 304, 323,
324
Surplus, 176
Surrogate decision makers, 5, 138-140, 318,
331, 354, 360, 386 (note 1)
economic 35-36
 political 36-37, 38, 138-140, 318
Sweden, 214, 329, 355
Systemic analysis, 98-100, 153, 175, 264
Charles Darwin, 98, 100, 103
Oliver Wendell Holmes, 238-239
independent of ideology, 98-99
Karl Marx, 98, 99, 100, 103, 153-154, 155
Adam Smith, 98, 99, 100, 103, 153, 154, 238
vs. intentional analysis, 103, 252, 256, 264
Systemic processes, 104, 151, 155, 175-176,
202, 252, 256, 334, 337, 340, 345, 378,
382
biological, 98, 100, 103
role of time, 97-98, 99
social, 98-100
vs. intentional processes, 238, 337
Tactical agnosticism, 292-293
Takeover bids, 66, 133
Teapot Dome, 135
Temporal bias, 132-136
Tennessee Valley Authority (T.V.A.), 191
Terman, Lewis, 345, 358
Terminal patient and homicide cases, 130131, 270, 388 (note 25)
Terrorism justifications, 120
Third party decision makers, 36, 40, 79, 142,
172, 173, 179, 194, 202, 204, 207, 208,
216, 217, 227, 265, 266, 278, 335
"experts," 13, 41, 48, 52, 61, 86, 102, 178,
203, 206, 220, 223, 284-285, 288, 300,
302-303, 325, 336, 340, 346, 347, 348,
358, 360, 361-363, 369
"planning," 98, 195, 213-227, 228
"public interest" organizations, 230, 265, 278
substitution of preferences, 219
"Third World," 227, 356, 357, 359
Thornhill v. Alabama, 239
 Thurow, Lester C., 343-344
Time, 16-17, 57-63, 77-78, 93-100, 101, 131137. See also Investment
continuous versus discrete, 16-17, 131, 136137, 204
effect on value, 57-59, 94-95, 194
systemic processes, 97-98
temporal bias, 132-136, 253
time horizon, 37, 95-97, 131, 134, 135, 172,
318, 375, 388 (note 19)
value of time, 93, 94
de Tocqueville, Alexis, 326
Top, Hideki, 320
Tokyo, 275
Totalitarianism, 12, 144, 155, 163, 164, 306313, 315, 327, 341, 350, 352,
363, 368,
369, 375
defined, 306
ideology, 308-310, 367
movements, 309-310, 314
premises, 308
truth, 311-313
Trade-offs, 31, 44, 53, 217, 218, 220, 389 (note
1)
denials and evasions, 116-118, 121, 122,
129, 151-152, 286-287
economic, 34, 44, 45-80, 177
incremental, 26-27, 29, 34, 36, 50, 82, 86,
118, 137-145, 154, 177, 260
legal, 140, 273, 278, 300
political, 114-149
social, 81-113
Transactions costs, 33, 36, 42, 131, 145
Treasury of the United States, 320
Transactions thwarted, 73, 168, 178, 182, 237
Trotski, Leon, 314, 352
Trucking, 196-197
Unemployment, 133, 173, 174, 175, 179, 257,
277, 354
 Unions, 186, 198-199, 202
United Fruit Company, 376
United Parcel Service, 189
United States of America, 159, 163, 164, 165,
227, 254, 305, 314, 320, 324, 347, 348,
357, 361. See also Constitution
colonial America, 220, 222-223, 316
comparisons with other countries, 271, 272,
275, 277-278, 280, 284-285, 329-330,
348, 353, 355, 358, 367, 371-377
founding fathers, 12, 293, 294, 379-382
freedom, 316-326, 368-369, 370-371, 381,
383
international role, 227, 305, 359-360, 370371
law, 271
military preparedness, 375-376
"sick society," 281, 372
slavery, 317
United States Steel, 70

United Steelworkers of America v. Brian F.

Weber, 255-256
Unmonitored Monitors, 66, 111, 125, 144
Urban League, 92
Urban renewal, 191, 192, 193
Urbanization, 100, 201, 275
Uruguay, 355
Values, 50-52, 57-59, 67, 76, 79, 170, 177,
193, 226, 308, 369, 378, 386 (note 1)
Veblen, Thorstein, 101, 360
Veterans Administration, 144
Viet Nam, 16, 19, 295, 376
Violence, 73-74, 93, 247, 288, 349-350, 359
Virginia, 201
Vision, 4, 35253
 Vladivostok, 221
Voltaire, Francois Marie Arouet de, 349
Voting, 18, 119-120, 131-138, 140, 143, 164165, 242, 294, 321
Wagner Act, 249
Warren Court, 231, 249, 276, 278, 289, 290,
294, 296, 298, 299, 354, 383, 400-401
(note 257)
Warren, Earl, 231, 261, 281, 292, 301, 323,
354
War Department, 4, 147
Warsaw Pact, 373
Washington, D.C., 198, 299, 306, 324
Washington Monument, 291
"waste," 29, 52, 142, 219, 224, 375
Watergate, 295, 296
Wealth, 80, 365
Webb, Sidney and Beatrice, 151, 352
Weber, Brian F'., 255
Weber case, 255-256
Weber, Max, 360
Weimar Republic, 82
White, Byron R., 255
White House, 132
Williams, Harrison, 250
Williams, Roger, 316
Wilson, Edmund, 352
Wilson, James Q., 366
Windfall gains, 75, 76, 168
Women, 127, 250, 251, 252, 260, 288, 355
World War 1, 346, 376
World War 11, 67, 166, 177, 178, 274, 327,
383
World War 111, 4
Yerkes, Robert Mearns, 345
Yale University, 234
Young, Andrew, 377
Yugoslavia, 214, 292
Zero sum games, 90, 143, 179, 243
Zoning, 83, 201-202
 Table of Contents
Part I
Part II
Preface to the 1996 Edition
Acknowledgments
The Role of Knowledge
Decision-Making Process
Economic Trade-Offs
Social Trade-Offs
Political Trade-Offs
An Overview
Historical Trends
Trends in Economics
Trends in Law
Trends in Politics
Notes
Index
 Table of Contents
Part I
Part II
Preface to the 1996 Edition
Acknowledgments
The Role of Knowledge
Decision-Making Process
Economic Trade-Offs
Social Trade-Offs
Political Trade-Offs
An Overview
Historical Trends
Trends in Economics
Trends in Law
Trends in Politics
Notes
Index