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Regulation (Editor's note: As most of you might have noticed, we frequently post articles in "the War" forum that are concerned with domestic, rather than international issues. I believe that we should consider ourselves at war with anything, anyone, or any group that threatens our survival. I would say the following might be considered a domestic issue. "Regulation" is the fifth chapter of a book by Mr. Pugsley entitled "The Alpha Strategy", written twenty-eight years ago. We intend to post a chapter each week. -JSB)
In the field of finance, the government regulates (among other things) the amount of interest each type of financial company can pay on loans, the amount that can be charged for loans, the way interest must be disclosed to borrowers, where finance companies can open offices, what their advertisements can and cannot say, what types of securities can be issued, what must be and what cannot be said about securities, who can sell them, and how the sellers can be compensated for their sales. In the field of medicine, the government regulates (among other things) who can practice medicine, what schools can teach medicine, what courses are to be taught, what types of medicine are acceptable, where doctors can practice, what prescriptions are allowed, what drugs can be sold, who can sell them, what education is required for those who sell them, in many cases what can be charged for them, who can manufacture them, and what can be said about them in advertisements. In the field of transportation, government determines (among other things) who can operate airlines, buses, taxicabs, and railroads, what equipment is acceptable, how often equipment must be serviced, the timetable of service, where passengers can be taken, who can operate the equipment, how much can be charged, what attendants must tell passengers, how passengers must behave while being transported, and how much can be carried aboard the transporting vehicle. In the transporting of goods, government regulates (among other things) the amount that can be shipped by different types of carriers, what routes carriers can take, how much each carrier can carry, what hours drivers and pilots can operate, what carriers can charge, who can operate transport equipment, how old operators must be, and what training and experience they must have. Of course, food is perhaps the biggest industry of all, and certainly the most highly regulated. Take the case of a simple hamburger. A study by Colorado State University identified over 41,000 state and federal regulations that apply to this common sandwich. These regulations apply to everything from the grazing of beef cattle to the assembly of the burger at your local fast food outlet. This is a small sample. Mountains of regulations suffocate every field of human endeavor, from medicine to manufacturing, from construction to energy. The government is out to protect us - from ourselves. How did politicians and bureaucrats become so concerned about our well-being? The Source of Regulation On the surface, the government's regulation of business appears to be a genuine attempt at consumer protection. The regulations are justified on the grounds that they protect us from greed, ensure open competition in the marketplace, and protect our domestic economy. While there is a growing feeling that many government regulations are stifling business because of the inefficiency of the bureaucracy, still, almost everyone is for them in principle. But that is a part of every good sting. The victim must be totally convinced that he is benefiting even as he is being robbed. In our discussion of human nature and economics in Chapter One, we concluded that the only reason individuals take action is because they believe they will get something they want by taking that action. People in general are not altruists. Yet it would seem that there must be some self-sacrificing individuals who are willing to devote their lives to designing regulations to protect us from greedy businessmen who would sell us shoddy or dangerous products. After all, how could a politician benefit from supporting business regulation? It must be that he has a genuine concern for the safety and well-being of the public. Otherwise, why would he work so hard to pass so many laws regulating business? It's simple. Politicians who support business regulation are not doing so because of deep-seated concern for public safety - they are merely meeting the demands of lobbyists who are hired and paid by businessmen. With only a few exceptions, the entire body of government regulations applying to business in the world today was designed and created by the very businessmen who are being regulated. These are selfimposed restrictions. However, do not think for a moment that these businessmen re altruists. These regulations are not aimed at them; they are aimed at you. Business regulation is the cleverest of all methods ever devised for taking money from you without your knowledge. Sound far-fetched? Of course it does. We have been programmed our entire lives to believe that the government acts in the interest of the individual. We believe it is one giant consumer protection agency. In fact, it is nothing of the kind. It is one giant agency programmed to protect the business interests of established firms at the expense of the individual consumer. For a clarification of how business benefits from regulation, let's visit our island again. Remember that Maynard's business was put into jeopardy by the arrival of another baker. That baker was more efficient and therefore able to sell you bread at a lower price than Maynard. We left Maynard with three choices: lower his standard of living, become a more efficient baker and thus compete, or go into another line of work. Suppose Maynard is not satisfied with these three alternatives, and thinks of another way. At this point, allow me the literary license to introduce a fourth inhabitant on our island. This fourth person is a judge and policeman whose sole job it is to maintain the safety of the other three inhabitants. he first decides what he thinks is in their best interest, and then uses brute force to make them comply. Maynard appeals to this burly fellow on the following grounds: "This new baker," says Maynard, "has begun producing bread and trading it for fish. Although the fisherman is buying this bread, he doesn't realize that the bread is inferior, and possibly a hazard to his health. The baker has poor facilities, unsanitary working conditions, and uses inferior ingredients. It is your job to protect the fisherman from his own ignorance, and see to it that the baker does not sell any bread that is not safe for consumption. My only interest is to see that the fisherman is protected. Since I have expertise in this area, I'd be happy to draw up a set of criteria which would ensure that any bread baked by this baker or anyone else, including myself, would be perfectly safe." The policeman, happy to have some help in his difficult job, agrees to Maynard's suggestions, and has Maynard draw up the plans. Strangely enough, Maynard's facilities and baking practices already completely conform to the new standards. The next afternoon you trek over to the baker's, fish in hand, to get your two loaves of bread. "Sorry," says the baker when you ask for the bread, "from now on I can only let you have one loaf for a fish." "What happened?" you ask. "Well, the policeman said my premises were unsafe, and I had to spend most of the day building new ovens. He tells me I must use better grain, which is harder to find, so I have to spend more time gathering it. Also, I am told I must keep this place cleaner. Again, that takes time. I only have time to make two loaves a day now, so I can only give you one." You have been protected, even though you did not ask to be, and Maynard is no longer forced to change his ways. He can continue charging the same price for his bread, content in the knowledge that competition will not undercut him. He can also take credit for being a good citizen, for hasn't he looked out for your best interests without even being asked? Of course, Maynard's values regarding the quality of bread have been substituted for yours. The bread you were willing to accept has been removed from the market and replaced with a better bread (according to him). Before you had tow loaves of bread, and now you have one. Your standard of living has fallen by one loaf, but isn't that loaf a better one? You still have the same total value, according to Maynard and the policeman. If you value the two loaves of lower-quality bread more than the one loaf of higher-quality bread, you must be wrong, right? Wrong. Remember Economic law Number 5: Value is not absolute; it is merely the subjective judgment of the person making the choice. you are the only one who can decide what you value more, fewer loaves of higher-quality bread, or more loaves of lower-quality bread. Maynard and the policeman have no basis on which to make that judgment for you. It is your fish, and you should be free to choose. Maynard has done with feigned altruism what he could not accomplish through competition. He could not convince you to buy his higher-quality bread at his price, so he used indirect force to remove the other bread from the market. Now you have no choice. He could have accomplished the same thing by just coming into your hut and stealing the extra loaf when you were away, couldn't he? In effect, that is just what he has done. Against your will and without your consent, he has lowered your standard of living. In real life, there are three ways that a businessman can limit his competition and thus gain your business by default: first, he can get the government to prevent the competitor from offering products at all; second, he can get the government to force the competitor to raise his price; and third, he can get the government to force his competitors' cost up, thus indirectly forcing up the price. All three of these methods are widespread confidence games that have around for centuries. By getting government to limit the introduction of competitive products into the marketplace, any businessman can set his own prices for the same products much higher and you will buy from him without suspecting that he has forced you to do so. If you still question this analysis, examine the evidence. Take some time and research the records regarding which individuals lobbied for regulations, designed the regulations, and reported violations of the regulations. Time after time, you'll find that it was not wounded consumers who were responsible but businesses already active in the market. Established airlines lobbied for creation of the Civil Aeronautics board, volunteered to draft regulations governing airlines, and then screamed when deregulation was mentioned. Established banks lobbied for establishment of the Federal Reserve. Established trucking firms demanded regulation of interstate trucking; established shipping firms demanded regulation of ocean freight; established railroads demanded regulation of the rails. Established firms do not like competition. It threatens to take away their customers, and lower their profits. Free enterprise is a fine concept when a businessman wants to complain about government interference in his own affairs, but when competition threatens his markets he is quick to point the political guns at his adversary. When the entrenched firms succeed in getting the government to regulate their industry, you, the consumer, are the loser. You are not protected by these regulations; you are denied the chance to buy the product of someone who might have been willing to offer you a lower price or a different quality. You are deprived of your chance to set your own values on goods. Let's take a look at some of the specific ways producers can control your ability to choose. Tariffs When a manufacturer is threatened by foreign competition, he pleads with the politicians for help. He points out that foreign firms are selling their products in this country at substantially less than he is able to charge for his. Consequently, dollars are flowing out of the country, providing jobs overseas, and costing jobs here. The foreign country is strengthened and America weakened. Feigning concern for the "national interest," the manufacturer asks that the government limit the amount of products his foreign competitors can bring into the country, fix the price at which they can be sold, or tax those products so that their price is raised up to or above the domestic manufacturers' prices. On the surface, the argument for restricting imports seems sound, and most people fall for it. In fact, it is a very sophisticated lie, and you would be very much in the minority if you had ever discovered the fallacy. To understand why these arguments are totally fraudulent, let us return briefly to the imaginary island. You have decided to build yourself a cabin, and have fashioned yourself an axe and are proceeding to hew planks from trees you have cut down. Each plank requires enormous effort on your part, taking fifteen days to make. In addition, your axe is continually being dulled by the work, and you must take time out to sharpen it. Maynard, your economist neighbor, has watched your efforts with interest, and wholeheartedly approves. he sees this labor as a fine example of an economy in full employment. One day, as you are laboring away, you glance down at the beach and notice an object has been cast up by the waves. On looking closely, you see it is a plank, perfect in every respect, exactly the type you have been laboring so hard to make. You yell out your good fortune to Maynard, and run down to pick it up. Maynard thinks for a moment, and then shakes his head violently. "Absolutely not," he shouts. "Leave it alone. or better yet, throw it back into the waves!" You're dumbfounded. "What in heaven's name are you talking about? It's a perfect plank. It'll save me fifteen days' work." "Exactly," says Maynard. "Don't you see that if you make a plank with your axe instead, it will provide you with fifteen days work. If you use that plank from the sea, you'll be unemployed fifteen days sooner. Labor is wealth, and you would put yourself out of work completely if you picked up every plank you saw floating in on the waves. Actually, you can increase your employment if you take the trouble to cast the plank back into the sea."* I do not have to repeat what you say to Maynard at this point, for his logic is so twisted that even a person unschooled in economics has no difficulty seeing the absurdity of his suggestion. Throw away a perfectly good plank, and then have to go to the trouble to spend fifteen days making one? Every individual can see the fallacy clearly when it applies directly to him, but somehow, when it applies to the individuals comprising a nation, the fallacy is obscured. Maynard's distorted logic is exactly the logic being used by any nation that imposes tariffs or restrictions on inexpensive foreign goods. Those people who favor tariffs are casting back the plank that can be had for a small amount of effort, and prefer instead to expend a great deal more labor making one. They stop low-cost foreign imports at their borders in order to provide themselves with work. The nation imposing the tariff even sees a benefit from the labor the protectionist legislation creates for customs officers. It is like Maynard's suggestion that you take the time to throw the plank back into the waves because it creates additional labor for you. Frederic Bastiat pointed out that the confusion about tariffs stems from observing that which is seen, and ignoring that which is not seen. What Maynard saw was that your would lose your job if you picked up free planks rather than creating them yourself. What he did not see was that the same amount of effort that would have been expended shaping the plank could have been put to some other use. By taking the free plank and then spending fifteen days building a chair, you would have both the enjoyment that the plank provides by helping to complete your cabin fifteen days earlier, and a chair to sit in as well. The jobs lost when low-cost imports compete with high-cost domestic products are highly visible. We watch as the factories close down and the workers are laid off. What is not seen is that the individuals who buy the low-cost products, that is, you and I, have money left over that we now can spend on other things, and other manufacturers and laborers will find employment meeting our demands. Those unemployed workers will find job opportunities with firms making other goods. A tariff raises the cost of the import and the domestic worker keeps his job, but there is no net benefit to the country. Wealth is merely transferred from one citizen, the consumer, to another citizen, the protected worker. The country is worse off in that it has lost a good plank that would have increased the overall standard of living of its inhabitants. A second fallacy buried in this argument for tariffs is that money spent with foreigners is somehow lost to us. If we were still bartering goods for goods, it would be immediately obvious that exchanging one good for another good could not hurt either nation. If I grow a bushel of wheat and exchange it with a foreigner for a shirt, both of us have benefited by the trade. Neither nation has less than it started with. Once money is involved in the trade, however, it becomes more difficult to reason out the end result. If you think about it for just a moment, you must realize that money is only paper, and giving it away for real goods must help the nation that receives the real goods. If the United States could print up enough money to buy all the goods produced in the rest of the world (assuming the other countries would be stupid enough to sell), we would have all their goods and they would have only paper. How could we be hurt by this? In reality, money which goes to the foreign manufacturer is not lost to our economy. We don't get to keep their goods for merely the cost of a little paper and ink. Those dollar bills are merely claim checks, and foreigners cannot benefit from them until they turn them in for real wealth. When they decide to turn in those claims, they will bid for products we are manufacturing, and the money will provide employment for domestic workers once again. It is easy to see, however, why politicians so willingly set up import restrictions. If the American shoe manufacturers, for example, are put out of business by foreign competition, they stand to lose millions of dollars. Each employee of those companies stands to have his income terminated, forcing him to find another job, which may even mean learning another skill. These companies and employees can afford to spend great sums reaching the politicians and lobbying for the tariffs. You and I may not even realize we are being forced to pay a higher price for a pair of shoes, and even if we do realize this, how much time and effort are we willing to spend lobbying in hopes we might save $10 on those shoes? Next to none, and so the politician hears only the voices of the domestic shoemakers. He buys their campaign contributions and their votes with import restrictions. When any individual, foreign or domestic, produces something more economically, and offers it to you at a lower price than someone else, you are the direct beneficiary of his skill. Even if a foreign government steals money from its own citizens and subsidizes certain of its industries so that they can afford to dump products in our country at below cost, you are not a loser; you are the direct beneficiary of their stupidity. Just in case you still have any doubts about this, pretend for a moment that you have discovered a magic wand that can create bread out of thin air. Would you say that mankind would be better off or worse off? Obviously, it would end hunger for all time, and raise everyone's standard of living. All the human energy and capital now expended on the production of bread could be diverted into the production of some other product, increasing the variety and amount of goods we all enjoy. But not everyone would be happy. The bakers in the world would rebel, and would claim it was putting them out of business. They would petition the politicians to pass laws prohibiting people from accepting this free bread. meanwhile, since the demand for wheat would fall sharply, the wheat farmers would demand subsidies, insisting that the government force you to pay taxes to buy their wheat, even if you do not want it. To farmers and bakers, the magic wand would be an evil competitor. Would you recommend destroying the magic wand to save their jobs? How would this differ from having a foreign country offer any product absolutely free to your country? Or at any price lower than what it costs you to make it? Obviously, the standard of living of any country rises whenever the inhabitants of another country are willing to supply products to it at a cost lower than the local cost of production. Some people agree that tariffs and other import restrictions are bad for some products, but argue that if imports affect a big industry, such as the automobile industry, then the great number of jobs threatened justifies government intervention. The fallacy of this view is apparent if we go back to the island and assume that it was Maynard who was making the planks and selling them to you for fish. You find the plank on the beach, and this time he complains that you are throwing him out of work. Truly, you are. Pick up the free plank and he will be deprived of fifteen days of work. Assuming that you and Maynard are the only people on your island at the time, your action is throwing fifty percent of the population out of a job. Is it bad for your economy as a whole? Obviously not. The free plank merely forces Maynard to produce some other product to trade with you for fish. You are in no way affected by his unemployment. You still fish, and you already have the plank you need. Only companies and workers in the industry that is affected by imports are losers to low-cost foreign goods. Everyone else in the society benefits. to block the imports merely benefits the domestic producers at the expense of the domestic consumers. The domestic manufacturer who demands import restrictions is really saying that he has a claim on your business. He has a right to force you to buy from him at his price. Since you refuse to do so voluntarily, preferring to get a better value for your money, he will ask the government to force you to buy from him. When the government places a tariff on the foreigner's goods, you are forcibly prevented from buying at the lower price. When the government prevents others from bringing their goods into this country by instituting import controls or quotas, you are unable to deal with them, and are left with only one choice: buy domestic or go without. There is not one whit of difference between a subsidy, a tariff, and an import quota. In every case, the U.S. manufacturer has set his price higher than the foreign competition, and rather than allow you to make a free choice about how you will spend the money, he uses the force of law to (a) take the money from you directly (via subsidy), (b) force the competitor's price higher (via tariff), and (c) prevent the competitor's product from reaching you (via import quotas). You would not throw the plank back into the waves if you had a choice. Nor would you refuse to buy the cheaper shoes. Nor should you. Do not let yourself be conned into believing that you are benefiting from import restrictions. Any way you look at it, you are being plundered. Professional Licensing Manufacturers use tariffs as one method of dealing with competition. Professional groups have found an even more effective way to appeal to the regulators. It is called professional licensing. I would like to give you one vivid example of how the licensing scam works. This example is risky, because you may close your mind. It might hit too close to your most cherished beliefs about the protective role of government. But by now you may be ready to have some of those beliefs challenged. The example is medicine. During most of the nineteenth century, medicine was a wide open field in the United States. Anyone who believed he was qualified, or could convince others he was qualified, could hang out a shingle and offer his services to the public. There were good practitioners and bad, quacks and healers, charlatans and geniuses. It was open competition for the patient's dollar. The same was true in the field of drugs. Any drug could be legally sold, and any claims could be made for effectiveness. The patent medicine men roamed the country, hawking their snake oils from the backs of wagons, in direct competition with the established pharmacists. medical schools were also easy to start, required no licensing, and offered education of any kind to any student they were able to attract. This resulted in the availability of a wide menu of education and health care. There were many medical schools - some endowed, some faculty-owned, most profit-seeking - and there were many different types of medicine being taught, including allopathy, homeopathy, osteopathy, naturopathy, and faith healing. Naturally, each type of medicine considered itself the best, and each was faced with attracting a share of the market by open competition - in other words by demonstrating to the patient that its type was the best. Physicians trained at the more traditional medical schools and universities were disgruntled at being forced to compete for patients with those practitioners whom they considered quacks and charlatans. In 1847, a group of these physicians founded the American Medical Association, with the basic purpose of eliminating competition by promoting two propositions: that medical students should have acquired a "suitable preliminary education" and that a "uniform elevated standard of requirements for the degree of M.D. should be adopted by all medical schools in the United States." The AMA argued that the country suffered from an oversupply of under-qualified doctors, and that what it needed was a smaller supply of better trained ones. It counseled that the public should be protected against the consequences of buying medical services from inadequately trained doctors. (Just as Maynard pointed out to the policeman that people should be protected from inferior bread.) During the latter half of the nineteenth century, the AMA lobbied vigorously in state legislatures for laws requiring the licensing of physicians. It was successful, and by the turn of the century the AMA was able to concentrate its efforts on controlling the supply of medical schools. In 1904, it set up the Council on Medical Education, which then ordered a study of the quality of education in medical schools throughout the country. When completed, the survey approved the curriculums of only 82 of the 160 schools surveyed. In 1910, Alexander Flexner, of the Carnegie Foundation, and N.P. Colwell, secretary of the Council, published a report that recommended closing a large number of the existing schools, instituting higher standards in the remainder, and sharply curtailing the number of admissions. The Flexner report became a milestone in the efforts of the AMA, and it has had a more profound effect on the direction of medical care in the United States than any other document in history. As a direct result of Flexner's arguments, legislation was passed that gave AMA responsibility for determining the standards for medical education in this country. To earn a license to practice medicine, a physician now had to be a graduate of an AMA-approved medical school. As a result of power granted the AMA, the number of medical schools in the United States fell from 162 in 1906 to 69 in 1944. The number of medical students enrolled became almost stagnant, even though the U.S. population was soaring. Through its power to grant certification to medical schools, the AMA had indirect but effective control over the output of physicians in the country. Economist Reuben A. Kessel in his article "Price Discrimination in Medicine," clearly stated the fallacy: "The delegation by the state legislatures to the AMA of the power to regulate the medical industry in the public interest is on a par with giving the American Iron and Steel Institute the power to determine the output of steel." The AMA could limit the supply of doctors by limiting the number of medical schools, but the individual doctors, especially the new ones just entering the field, might still use price-cutting tactics to break into an existing market, or to enlarge their share of the market. Over the last few decades there has been little price competition among doctors, because the AMA found a very effective method for eliminating it. Most doctors require access to hospital facilities for treatment of their patients. Without such access, they have limited ability to develop large practices. To have access to a hospital, a doctor must become a member of its staff. At the request of the AMA, legislatures added to the licensing requirements the provision that to qualify, a doctor had to serve a term of internship, and in some cases residency, at a hospital. Since the AMA had been set up as the judge of medical education, it assumed the responsibility for determining which hospitals would be approved for internship training, and since interns were originally considered a source of cheap labor for the hospitals, hospitals were eager to be approved. As part of the requirements for approval, the AMA ruled that a hospital could not have any doctors on its staff who were not members of the local medical society. Through this mechanism, the AMA closed the gate to price cutting. The members of the local medical society were already in practice with the community and stood to lose if a young doctor engaged in competitive pricing to establish his practice. The medical society first forced the new doctor to join, and then set up a code of ethics for members that prevented them from advertising, price cutting, or engaging in any competitive practices that might threaten the established doctors. If a doctor violated the written or unwritten ethics of the society, he was expelled. Once out of the local society, he lost his right to be on the staff of most hospitals. Once out of the hospital, he was effectively out of business. Thus, the AMA and its subsidiary local societies, through a circuitous chain of controls, could punish any doctor posing a threat to their price monopoly. They could limit the supply of doctors and could prevent those that were licensed from engaging in any competitive practices. The AMA was a primary force in the birth of the idea that individuals should be protected from their own ignorance by government force. They established the precedent that professionals should meet certain industry standards before being allowed to sell their wares in the market, and every other profession has followed suit. Lawyers argue that a client's well-being could be jeopardized if he is defended by an unqualified attorney; contractors claim your house might fall down if built by someone whom they haven't approved; undertakers point out that a poorly trained mortician might damage a corpse or start an epidemic; even barbers argue that an untrained barber is a threat to his client's safety. Nor does it end with professionals. All regulations on all the different products mentioned earlier were born from the businessman's attempt to limit competition. Whether it's licensing restrictions on physicians, routing controls on interstate trucking, or usury controls on interest rates, the source is the businessman, the excuse is your protection, and the result is a control on your ability to make a free choice with your money. For every regulation, someone is making a profit at your expense. One of the most consistent phenomenon in society is a producer's attempt to eliminate competition. This has existed throughout history and in every culture. Producers already in a market form societies, trade associations, guilds, labor unions, professional groups, and industrial cartels. They begin by establishing rules of behavior and codes of business ethics for the good of the industry or profession (a weak measure to discourage new competitors) and end in aggressively lobbying for legislation to stifle competition by force. Labor Laws I hope I have clearly pointed out how some businessmen and professionals are using the force of the state to steal you wealth. This theft is not limited to them, however. These businessmen are just individuals, pursuing their own selfish interests, and are no different either in objectives or methods from individual workers. It is a great pity that our language has differentiated between the products and services of business and the work of the laborer. In reality, they are identical. Labor is a product - the time and effort of the laborer. Each worker may be considered to be a one-man company whose product is the output of his hands and mind, and whose single customer is his employer. This mini-manufacturer seeks the same thing that the industrial tycoon seeks - the maximum profit he can realize from the sale of his wares in the marketplace. The laborer competes with all other laborers of similar skill when he offers his time and effort (his product) to an employer. The identical nature of the laborer and the businessman is even more obvious if you think of the business owner as a laborer. He brings together all the components of a product - the tools, the physical parts, the nuts and bolts, the labor, the capital - and through mental effort causes them to be assembled into a finished product. The people who buy his products could be said to be his employers. The laborer is doing the same thing, only his job is more specialized, the number of parts he is putting together is more limited, and he has only one customer. The price of labor is set in the same way that the price of all products is set: by competition. The supply of labor and the demand for labor reaches equilibrium at a given price - the prevailing wage for each skill. If a company needs five clerks and only two are available, those two can demand and probably get a higher price for their labor than if the company needs only two and five are available. The company competes with other companies for the clerks, and the clerks compete with one another for the jobs. In the end, the price you pay for a product comprises all the costs the manufacturer has paid for his component parts, including the cost of labor and his own profit. You pay the lowest price and get the most product in exchange for your money when the manufacturer pays the lowest price for his components. We have seen that the more open the competition in the marketing of products, and the more freely new producers can enter the market and compete with existing producers, the lower the cost and the wider the range of choice available to you, the consumer. We have observed the way business tries to avoid the effects of competition by the use of State force. We have also seen that established producers find it easier to limit the entry of new competitors if they band together into trade associations and cartels. As a group, producers can wield more political weight then they can as individuals. Individual workers are just as concerned about limiting competition that would lower wage rates (or take away jobs), and since their individual political power is small, they are even more inclined toward banding together than are producers. laborers seek to establish clout by forming trade unions. The trade union has one professed purpose: to increase the wages and to improve the working conditions of its members. To the extent that it tries to accomplish its goals by limiting competition, however, or by decreasing the output of each individual member in order to make more work for all, it decreases productivity, and thus lowers the standard of living of both its members and of society as a whole. It is interesting to note the similarity between the ways in which unions and businessmen attempt to limit competition. Individual workers are threatened by numerous competitive forces. Young people are always pouring into the work force looking for jobs, and are usually willing to take lower wages in order to get work. Workers from sections of the country where productivity is low (as was the case in the Dust Bowl during the thirties) migrate toward those areas where productivity, and thus wages, are higher, competing with locals for available jobs. Foreign workers seek to emigrate to countries where high production offers higher wages. They, too, compete for jobs, and thus drive the price of labor down. Even technology acts as competition to unskilled (or even skilled) labor as machines eliminate the need for workers. I said that workers are competing for jobs. It would be more accurate to say that workers are competing for customers. As I pointed out above, the employer is simply a customer for the output of the worker. How can a laborer limit the competition for his job? He can do it directly by threatening harm to any new applicant. That is common but is usually illegal and is occasionally even punished. the most practical way to eliminate competition is for the laborer to follow the lead of businesses and get the State to do the dirty work for him under the cover of the "national interest." Using the arguments that the well-being of the nation is served by having full employment, and that laborers deserve a "fair" wage, he seeks political support for eliminating competition. Minimum-wage laws. For workers with low skills, competition comes from unskilled workers. If the low-skilled worker is employed at $3.00 an hour, he is threatened by a worker who might be willing to replace him for $2.50 an hour. He has a simple remedy. He can take the altruistic position that no one should be forced to work for wages of less than $3.00 an hour, maintaining that it is beneath human dignity, and that anything below $3.00 an hour is too low a wage to provide a decent living. the laborer then appeals to politicians, who, sensitive to the labor vote, pass minimum wage laws. Once the minimum wage law is in force, government will prevent employers from hiring anyone for less than the minimum wage. Labor unions have lobbied aggressively for minimum wage laws, even though union wages have consistently exceeded minimum wages. It would seem that they could not benefit from this, but in reality they do. If a unionized company is producing shirts and paying its workers union scale, the price of the shirts must reflect this. if a non-union company begins producing shirts, it can undersell the union company, and put it out of business. The union laborer would prefer to see the non-union company be forced to pay union wages. In this way, it would have no price advantage in the market. If it cannot unionize the company, and cannot force it to meet union wages, it can still limit the price differential between products by at least forcing the company to pay minimum wages. This particular situation creates an anomaly. Normally, the laborer demands minimum wage laws, while the employer is against them, but occasionally even manufacturers find it in their interests to lobby for these laws. A few decades back, the northern textile manufacturers, who were unionized, were hard-pressed to compete with the low labor costs in the South where the shops were not unionized. The attempts at unionization in the South were unsuccessful, and finally both the unions and the northern manufacturers joined forces to lobby in Congress for federal minimum wage laws that would apply to these southern companies. This lobbying was instrumental in bringing in the laws and driving the costs of the southern manufacturers up, thus narrowing the price advantage that the southerners had enjoyed. Who lost? You did. The price of your clothes went up. Minimum wage laws force labor costs higher than they would otherwise be, and thus subsidize the employed worker at the expense of the consumer. They also guarantee that many unskilled workers will remain unemployed. If the minimum wage is $3.00 an hour, and an individual cannot produce some product in an hour that can be sold for at least $3.00 plus his employer's overhead and profit, then no one will hire him. The least skilled workers, normally teenagers who have not developed a skill, and especially the minority teenagers such as blacks, are condemned to unemployment by these minimum wage laws. The employed workers have limited competition for their jobs by force of law, at the expense of both the consumer and the unskilled. It is ironic that the excuse for instituting minimum wage laws is to protect the unskilled worker from being exploited by ruthless employers who would pay him less than a living wage. Is no wage at all an answer? Obviously, those who lobby for these laws are guilty of fraud, because what they promise, that is, a living wage, cannot be delivered by the law they advocate. The damage to you as a consumer does not stop with the higher prices you are forced to pay. You are also forced to subsidize the unemployed who are victims of the law. Job training programs, welfare benefits, and higher costs of crime prevention and prosecution are all billed directly to you in the form of taxes and inflation. Congratulations. You've been had. Child labor laws. While looking at the clever ways in which organized labor (with the tacit support of many in unorganized labor) has limited competition from the unskilled at your expense, let's not overlook the child labor laws. Think for a moment about those laws on the books of most states that set a minimum age at which a business can employ a worker. On the surface, those laws appear to protect minors by preventing them from being exploited. Who lobbies to get the laws on the books? The minors themselves? Heavens, no! They want jobs at whatever wage is offered. If they don't want a job, they certainly don't have to apply for one. Their parents? Of course not. The parents would love to see the child employed! The employers? Wrong again. If an employer believes that minors cannot do the job, he is not forced to hire them. In fact, an employer is eager to get competent help at any age, and the lower the cost, the better. By now you must have the answer. The culprits who lobby for these laws are those laborers who are looking for ways to limit competition. What better, more plausible excuse could be found than to protect innocent children? It is the ideal fraud, because it appears to be based on care and concern for the weak. No one thinks to question it. In case you wonder about all those poor children who were forced to work in the sweatshops and mines during the Industrial Revolution, and who were supposedly saved by the child labor laws, let me disabuse you. When someone is held in slavery, and forced to work against his will, that is a crime. But the laws we are discussing are laws that prevent individuals from voluntarily taking jobs. This is a crucial difference. The majority of those poor children in the Industrial Revolution were voluntarily employed. The do-gooders who sought to emancipate them did them no favors. Their wages were low and their lives miserable, but the jobs meant the difference between survival and starvation. They were choosing a life of toil and subsistence wages because the alternative was death by starvation. What history books fail to point out is that during the period prior to the Industrial Revolution, and prior to the sweatshops, most human beings died of starvation. Abject poverty was the norm. The sweatshops may have been bad by today's standards, but to the starving masses they were a blessing. Most history books have completely distorted the plight of the pre-Industrial Revolution worker. The real facts are available to anyone who cares to dig them out. Closed-shop laws. When workers from one section of the country migrate to an area of higher paying jobs, they may be threatened by mayhem (as were the Okies in John Steinbeck's novel, The Grapes of Wrath) or they may be kept away from jobs by their inability to enter the union. If the union succeeds in getting the employer to agree to a closed shop, or better yet, if the union can get the government to pass a law forcing employers to hire only union members, the union has total control of the competition and can let in only enough members to replace retiring workers. This situation is identical to the professional association that gets laws passed to prevent anyone from practicing without a license. No matter that the outsider is willing to work for a lower wage, he is prevented by law from bidding for the job. This is one more way that a union can limit competition and transfer wealth from your pockets to the pockets of the union members against your will. Unions have another much maligned and misunderstood method of demanding higher wages while at the same time limiting competition. It is the strike. A strike is identical to a manufacturer withholding his products from the market in order to force the price up. The striker refuses to sell his labor at the price the manufacturer offers. There is nothing immoral about an individual refusing to sell something he has if no one is willing to pay his price. It is his property, and he alone should be able to set a value on it. If the employer really is offering too low a wage, then the striker can prove this by offering his labor on the open market, and he should be able to find another customer (employer), who will pay his price. In that case, the original employer will have to raise his wage offer if he wants to attract an employee with similar skills, or he will go out of business. If the laborer cannot find another customer for his labor at his price, he may be asking too much. Still, he is justified in refusing any offer he feels is too low. The problem is not in the concept of striking. The problem is that too often the laborer takes the position that the job belongs to him, not to the employer, and therefore he feels justified in using intimidation or even force to prevent the employer from offering that job to anyone else. Think about exactly what a job really is. A job is a contract for services between an employer and an employee. It is an agreement in which one person agrees to buy something that another person owns. The employee owns his time and his skills. The employer wants them and agrees to buy them. To say that the employee "owns" the job is to say that the employee "owns" the agreement. To suggest that an employee is justified in preventing the employer from making an agreement with another laborer must rest on the assumption that when the worker contracted with the employer, that employer agreed never to buy those same services from anyone else. If You made an agreement with a baker to buy a loaf of his bread, how would you feel if that baker then claimed that you no longer had the right to buy bread from anyone but him? The idea that a laborer owns the job is identical to the nonsensical idea that a merchant owns the right to your business once you have purchased anything from him. The essence of any agreement or contract is that it is a voluntary exchange between two individuals. If you do not voluntarily agree to deal exclusively with that merchant after once making a purchase, how can he justify his claim on your future business? He may want your business, but he should not be able to force you to give it to him. He must earn it each time by delivering a product you will voluntarily accept at a price to which you voluntarily agree. Anything else is theft. When strikers physically attack "scabs," they are using brute force to prevent competitors from dealing with their customers. Attacking the non-union strikebreaker through government force is no different. When a union succeeds in getting politicians to pass laws that compel the employer to bargain with the union, it is simply using the guns of government, instead of clubs of the union member, against the employer and nonunion worker. It is theft of the employer's right to set his own value on his own goods, and indirectly a theft of your property, for as a consumer you must now pay more for those goods. There is no difference to you if Maynard comes into your home and steals your loaf of bread, or if he uses a gun to prevent the other baker from selling you the bread in the first place. It lowers your standard of living. It deprives you of your ability to trade your goods at the value you set on them. It destroys production. Minimum wage laws, closed-shop laws, and strikes are not the only weapons laborers use to prevent competition for their jobs. Labor and management often get together and jointly attack competition when that competition hurts them both. We saw an example of it in the case of the northern textile manufacturers and the minimum wage. It is even more prevalent in the case of foreign goods. When you are tempted to buy a foreign product instead of a domestic one, laborers are quick to side with employers and ask politicians to prevent or inhibit your choice by legislating tariffs, import quotas, or outright embargoes. Immigration laws. When it is only foreign labor that is the competition, rather than foreign manufacturers, the employer and the union part ways. If cheap foreign labor is immigrating into the country, the employer is happy to have it, for it lowers his cost of production and allows him to lower his prices and increase his share of the market. But foreign laborers compete for jobs and lower the price of labor. The union, then, pressures for government immigration laws to stop or slow down the number of foreigners entering the country. Most consumers do not realize that instead of being injured by immigrant laborers, a nation is benefited. Workers are like small factories that produce goods. Lower-cost labor means lower-cost products and more production. There is not a whit of difference between Maynard's suggestion that you throw back the free plank that the waves have cast up than the unions' (or their politicians') contention that the low-cost laborer should be cast back across the border. By supporting restrictive immigration laws you assist in your own plunder. Resistance to technology. In addition to the efforts of organized labor to limit competition from other workers, unions also have been the foremost adversaries of technological change. Examples of this go far back in history. You may remember studying the Industrial Revolution and how the weavers in England revolted against the introduction of automatic looms and stocking frames. Even in present-day America we've seen carpenters' unions pass rules prohibiting the use of hand tools that might speed up the job (such as restricting the use of larger hammers so that nails can't be driven as quickly, and painters' unions impose restrictions designed to make work (such as prohibiting the use of spray guns in order to slow down the application of paint). Clearly, such rules and laws merely reduce production. Carried to its logical conclusion, if the idea of inhibiting the use of machinery is sound, we should destroy all technology and revert to our pre-industrial condition of poverty and starvation. When two people voluntarily trade, each profits. You are better off with the loaf of bread than with fifty cents, and the baker is better off with fifty cents than with the loaf of bread. You each win, and production is stimulated. When one person steals from another, no matter whether he does it by armed robbery, fraud, or through the force of government, only he benefits, and then only temporarily. He is richer by the amount he has plundered, but the person he has robbed is poorer. Moreover, the incentive for both of them to produce more wealth has been destroyed, so production falls, and eventually everyone's standard of living falls. This is why the laborer is really victimized by his union leaders. He is told that his enemy is the company. He is led to believe that he is in competition with the employer for the spoils of their mutual effort. He is taught that the company profits are earned at his expense. None of this is true. The worker is being swindled by those who tell him that he should attack and plunder his own customer, his employer. It makes no more sense than for the butcher to assume that the families that buy his meat are his enemies, and try and force them at gunpoint to pay more for his beef. The idea that the laborer and his employer are adversaries is one of the greatest con jobs in the history of civilization, and certainly one of the most destructive. The employer is the laborer's customer, and that customer must be allowed to spend his money wherever he wants, just as the laborer must be allowed to spend his money wherever he wants. We live in a society in which businessmen, laborers, and consumers are simultaneously guilty and not guilty. Each is guilty when he uses force to control the right of others to set their won prices, or produce what they want. Each is not guilty when he sets his own value on what he owns and produces. Unfortunately, all three of these parties are continually attacking each other for imagined crimes, while failing to call attention to the real crimes. The businessman commits a real crime when he uses government as a weapon against his competitor, but is he attacked for this? No. Instead he is vilified for refusing to pay higher wages, or for charging too much - both purely voluntary market actions. The consumer plunders merchants by using government action to force them to lower prices (e.g., through anti-trust laws and price controls), but is he exposed for this crime? No, instead he is accused of being the cause of inflation for borrowing too much or not saving enough. The laborer plunders consumers by using government force to keep out foreign labor or to prevent workers from underbidding his price. Is he exposed for this crime? No. Instead, he is treated with contempt for demanding higher wages whenever inflation rages out of control. It seems insane, but right here in the United States of America, in a country founded on the principle that the purpose of government was to protect individual property rights, the total power of government has been turned to denying each of us the right to make what we want, sell it to whom we please, and price it at what we please. Rather than protecting our property, the government has become an instrument of almost total plunder. Who loses the most from this system? Those on the lowest end of the socio-economic scale. Since the laws are designed to prevent competition for customers' dollars, and to freeze markets for the benefit of established workers and firms, the brunt of their effect falls on those who are trying to develop skills, enter into businesses, or improve their positions. The laws block the advancement of every individual, but those with the least power to buck the system are hurt the most, as they are locked into their positions, and stymied in their attempts to advance. What was once a land of opportunity where anyone willing to work hard could live the Horatio Alger dream, is now a land of castes, where each is discouraged by a maze of bureaucratic regulations from ever improving his position. In today's world, it is the laborer who suffers the very most from the enormous pyramid of plunder. His answer - his only hope - for a higher standard of living is to see that the whole pyramid of theft is abandoned. Most people are oblivious to the fact that it is not the labor we want but the product of the labor. We do not want the effort of making the plank, we want the plank. Each of us is a worker. Each produces a product. Every effort that opens the market up to totally free competition, and which frees each person to spend his wealth on whatever he chooses to spend it on at the price he voluntarily accepts, increases production, and thereby increases the standard of living for all of us. Each effort that limits competition, slows work, or removes the reward of effort by taking our choices away from us, destroys production and lowers our standard of living. We live in a nation and a world in which almost without exception every individual believes he is better off if the mechanisms of theft I have described - subsidy, tariffs, government regulations, licensing, minimum wage laws, immigration laws, price controls, wage controls, etc., etc.--are all used. Each individual sees the immediate benefit to himself when one of these methods of theft puts the plunder in his pocket. What he fails to see is that even as he is pocketing his plunder, millions of other individuals are using his same techniques to plunder him. The member of one labor union may think he benefits from blocking competition for his job, or forcing his employer to pay him more, but he fails to think about all the products he buys that cost more because millions of others are doing the same thing to him. Conclusion Price controls, wage controls, anti-trust laws, professional licensing laws, minimum wage laws, immigration laws, tariffs, and all other forms of personal and business regulation result from the attempt by others to limit your ability to spend your money with whomever you choose, or to sell your property at whatever price you choose. These laws are justified on the grounds that people are somehow injured because you, the owner of the goods or services, are asking too high a price. If you catch a fish, how is someone else injured if you set a high price? Why is someone else's opinion better than yours as to what price you should sell it for? Whose fish is it, anyway? Does it belong to you who caught it, or another individual who wants it, or to all the other individuals who make up society? When the majority of individuals in a society try to enforce their claim on the production of others through the legal process, they are guaranteeing that their society will have a lower standard of living than if they honor each person's right to enjoy and set his own value on the fruits of his labor. The standard of living of any nation is directly proportionate to the personal freedom enjoyed in that nation. The evidence of this truth can be seen wherever you look. For example, the people of China and India are not poor because they are stupid; they are not poor because they lack natural resources; they are not poor because they lack modern industrial tools. They are poor because they have lived for decades under social systems in which the established, entrenched classes are able to use law and custom to control the production, price, and sale of all goods and services produced. By removing the ability of individuals to benefit from ingenuity and hard work, they have destroyed the incentive of individuals to produce and save. Without savings, there is no capital for the creation and improvement of the tools of production, and without tools there is only poverty. Legalized plunder has strangled China, India, and most of the rest of the socialist or communist world. It is the reason for their abysmally low productivity, and the subsistence-level existence of their citizens. By the same token, the people of the United States are not rich because of any special intelligence, natural resources, or work habits. We are rich because for the first 150 years after the founding of the nation individuals were allowed nearly total freedom to produce and control the products of their labor. This freedom encouraged individuals to develop habits of hard work and thrift, and to apply their intelligence to the natural resources in order to create the wealth of this nation. Unfortunately, the seeds of destruction were sown when the founding fathers granted power to the new government to tax and control the lives of individuals. As one person after another discovered that government is a willing agent that will plunder others on request, plunder has grown and the rewards of production have fallen. Thus, the freedom that created the nation withers, and so does your standard of living.
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Every major industry in the world, including food, commodities, housing, transportation, medicine, energy, and money, is regulated at almost every level by government. Just listing the regulations pertaining to any single industry would take volumes.
John Pugsley is chairman of