Part One: On Peace and Presen-Day Ideologies

PART ONE On Peace and Presentday Ideologies JLHE friends of socialism and interventionism maintain that the free market economy has failed in this age of atomic power and giant cities, and that it hurts the vital interests of the public. They condemn the market economy for having brought about war and depression, slavery, oppression and exploitation of the immense majority of the people by greedy businessmen and capitalists. Having blamed the market economy for every conceivable vice, past and present, they proceed to offer as a ready panacea their various plans of government authority as a substitute for the plans of free individuals. Thus, they maintain, order and stability, welfare and prosperity, would replace the "anarchy of production." The socialists advocate complete and immediate abolition of the market economy and its freedoms for individuals, and the setting up of one central agency to plan and regulate all economic activity. The interventionists differ from the socialists in that they recommend a third system which is said to retain the advantages of socialism and the market economy, and avoid the shortcomings of both. This system of "the middle-of-the road" concurs with socialism in its critique and rejection of the unhampered market economy and, if not abandoned in time, will also lead to socialism.

THE CASE FOR INTERVENTIONISM The case for government planning and middle-of-the-road policies is most fervently presented by Alvin H. Hansen in his book Eco5 6 HOW CAN EUROPE SURVIVE nomic Policy and Full Employment.1 "The plain fact is," says Alvin H. Hansen, "that all advanced individual nations have moved very far away from the atomistic individualism of the mid-nineteenth century. Then economic opportunity meant essentially a chance to operate your own farm or small business. Today economic opportunity means largely a chance to get a job. Then the bulk of the population lived in the country—on farms or in small villages. Today they live in great urban centers. Industrialization and urbanization have come upon us with a speed that no one could have imagined in 1850. Torn from the old individualist pattern of work and living into a society characterized by great factories and giant cities, modern man must erect a new social structure adapted to the changed conditions." 2 The new social structure differs from that of the nineteenth century inasmuch as it not only must keep open the door for new enterprise and the acquisition of a farm, but also it makes it a primary responsibility for modern society to maintain at all times adequate employment opportunities. "In all modern countries," says Hansen, "the trend of technology, whether in industry, transportation, or distribution, restricts economic opportunity, for the overwhelming majority, to the getting of a job—not to establishing a business of their own." 3 A hundred years ago the right to free land meant economic opportunity; today it is the right to useful, remunerative, and regular employment. To maintain a high and stable level of employment should, therefore, be the primary aim and responsibility of government. This is the new responsibility which the political democracies of our time must undertake.

Hansen anticipates innumerable difficulties in the government pursuit of a fullemployment policy. But the fact that this experiment will prove difficult should not permit us to evade it. The fullemployment experiment will command the ingenuity and re1 McGraw-Hill Book Co., Inc., New York, 1947. See also: John M. Clark, Guideposts in Time of Change, Harper & Bros., New York, 1949; , Alternative to Serfdom, A. A. Knopf, New York, 1950; William H. Beveridge, Full Employment in a Free Society, W. W. Norton & Co., Inc., New York, 1945; John Maynard Keynes, The General Theory of Employment, Interest, and Money, Harcourt, Brace and Co., New York, 1936; Abba P. Lerner, The Economics of Control, Macmillan Co., New York, 1944; Sumner H. Slichter, The American Economy, A. A. Knopf, New York, 1948; Irwin Ross, Strategy for Liberals, Harper & Bros., New York, 1949; Robert E. Sherwood et al, Peace on Earth, Hermitage House, New York, 1949.

2 Alvin H. Hansen, Economic Policy and Full Employment, p. 14. 3 Ibid., pp. 15, 16.

ON PEACE AND PRESENTDAY IDEOLOGIES 7 sourcefulness of government officials and government economists for many decades to come. In Hansen's concept of a free society, personal liberty will be preserved by a government guarantee of the citizen's right to choose between numerous employers, including private entrepreneurs, cooperatives, and governments. "Thus the great goal of full employment, if it is to be achieved in a free society, involves planning to make the market economy function in a workable manner so as to provide adequate employment opportunities together with the privilege of choice between different employers/'4 Democratic Planning. Hansen rejoices in the active role presentday government must take in economic life. "If the democratic countries were not now planning and developing new institutional arrangements designed to make the market economy function more effectively than it did in the past," he states, "the future would be black indeed." 5 Conditions have changed and, therefore, our institutions must change to meet the problems of today. New plans, domestic and international, should be devised, for "the old market economy has broken down. It failed us utterly in the two decades between the two world wars. In England unemployment, never falling below 10 per cent, reached in some years 22 per cent of the labor force and averaged 14 to 15 per cent for the entire decades.

In the United States, taking account of the whole interwar period, the spotty twenties and the depressed thirties, unemployment averaged about 12 per cent, and in the worst years, 1932-1933, reached 24 to 25 per cent of the labor force." 6 The prewar market economy cannot be restored, for "the great depression which shook the entire world and fanned the flames of the ensuing world conflagration" has shattered all hopes for its restoration. International economic cooperation and division of labor were destroyed and economic warfare was substituted. Thus the old order collapsed. Modern government should rely upon three measures for a policy of stability and full employment: (1) Government spending for public investments should supplement private spending, acting as a balance wheel to the private sector; (2) a broad and comprehensive social security system should be introduced to sustain and advance the level of income and spending; (3) variations in the basic income-tax rate should counteract the fluctuations of the business cycle.

International Planning. National planning for stability and wel* Ibid., p. 17. 5 Ibid., p. 17. 6 Ibid., pp. 17, 18.

8 HOW CAN EUROPE SURVIVE fare must not stop short at the national boundaries but must be supplemented by government planning on an international level to achieve international stability and expansion. Hansen expresses his satisfaction regarding the numerous international conferences held by the leading governments during and after World War II. He expressly mentions the world conference on Relief and Rehabilitation in Atlantic City, on Food and Agriculture in Hot Springs, on international monetary problems in Bretton Woods, and the conference on the United Nations Charter in Dumbarton Oaks and San Francisco. He praises the United Nations Social and Economic Council through which the member nations endeavor to solve the common economic problems of stability and full employment. Only nations that succeed in the realization of domestic stability can contribute to international stability and be good neighbors in the family of nations. To contribute to international stability the United States government must, above all, achieve a high and stable level of prosperity. But also new international institutions are needed if we are to escape the disastrous effects of policies of confusion and planlessness. "We have become convinced, at long last," Hansen proclaims, "that the old machinery will not work. In all the advanced countries we are reaching some degree of agreement about what we need to do to reshape our world in order to make it again a functioning and manageable system."7 Progressive Programs Adopted. The programs of government planning and development designed by our numerous progressive economists are busily put into effect by governments all over the world. During the last thirty years the local, state, and federal governments in the United States have assumed an ever-increasing responsibility and authority for the control of the entire economic system. Government indeed has not taken over every farm, business, and factory, but it has assumed complete control over the basic functions of credit, electric power, transportation, and insurance, including the so-called welfare activities. The rest of the economic system has remained in private hands which are carefully controlled and supervised by numerous government bureaus. The "record of progress," as our progressive economists like to call it, is indeed very impressive. It includes progressive principles of taxation, expenditure, and borrowing, monetary depreciation and devaluation, progressive banking and security exchange legislation, an everexpanding system of social security, government home financing and guaranteeing, public housing and public works, etc. Finally, 7 Ibid., p. 25.

ON PEACE AND PRESENTDAY IDEOLOGIES 9 the Employment Act of 1946 declared it the continuing policy and responsibility of government to secure maximum employment, production, and purchasing power. In England the Churchill government follows a program which it issued in May, 1944, under the title "White Paper on Employment Policy" which was supplemented by Sir William Beveridge's report on "Full Employment in a Free Society," published in June, 1944. The main elements in contemporary British government planning are based on these two documents and can be described as follows: (1) financial control; (2) control over raw materials; and (3) price control. The most important financial control for the sake of British economic stability and full employment is government control over foreign exchange transactions the principles of which are laid down in the Exchange Control Act of 1947. This act confers on the Treasury the power to regulate the buying and selling and the lending and borrowing of foreign exchange and gold, the making of payments to foreigners, the issue or transfer of securities to foreigners, the import and export of securities, and the transfer and settlement of property outside the United Kingdom. The Borrowing Act of July 1946 imposed government controls on borrowing and issuing new securities. It set up a Capital Issues Committee to regulate new issues according to the general government program of capital investment.

The British government also imposed controls on the purchase and sale of raw materials. As most raw materials have to be imported from abroad, this control is largely exercised through foreign exchange control, import licenses, and systems of allocation of raw materials to the consuming industries. These controls, finally, are supplemented by a system of government price control. Maximum prices are fixed for a large number of commodities and services and a purchase tax is levied to supplement price controls. Also a broad system of social security and national health insurance serves the general purpose of sustaining and advancing the national level of spending and employment. The Canadian government is committed to a policy of stability and full employment. The levels of employment and income are planned to be greatly above those ruling before the war which, according to Hansen, will call for government expenditures at higher than prewar levels. The Canadian government also embarked upon policies "to stabilize markets and purchasing power through export credits, floor prices, public investment, and extended social serv10 HOW CAN EUROPE SURVIVE ices."8 For periods of declining business the Canadian government has pledged itself to expand expenditures boldly and deliberately plan for large deficits.

In Australia the government has issued two documents declaring its responsibility to stimulate spending to the extent necessary to maintain full employment. According to these official papers, a minimum program of public investment is believed to be vital for a high standard of living, and a compensatory program of public spending is prepared to attain a fullemployment economy. In addition, the Australian government is committed to a high level of spending for social services, such as invalid and old-age pensions, child endowment and widows' pensions, education, health and medical services, kindergartens and libraries. Numerous other government controls are imposed to stabilize the private sector of economy and eliminate fluctuations as far as possible. Another government which is frequently applauded by progressive economists for its extensive economic planning is the Swedish government. It is owner of the public utilities, the telephone and telegraph system, the railroads, large parts of the forests, and it holds liquor and tobacco monopolies. Furthermore, numerous pulp and sawmills, iron works, and other enterprises are owned by the Swedish government. This extensive government ownership in diversified fields of production, says Hansen, puts Sweden "in a peculiarly favorable position to implement effectively public investment in its over-all employment program."9 That is to say, widespread government ownership of the means of production greatly facilitates a policy of full employment and a high standard of living.

For purposes of full employment and economic stability the Swedish government has introduced a system of subsidies to agriculture and forestry. To direct private investment various taxes have been levied or exemption from such taxes has been granted. A special agency has been created that is charged with stockpiling during a period of recession. Through the device of stockpiling it is hoped that each branch of production will be kept fully employed, which would avoid the shifting of labor and capital to public works and other fields of government spending. Furthermore, several other measures have been adopted to sustain and stimulate spending and consumption. This system of planned economy as advocated by numerous pro8 Ibid., p. 82. 9 Ibid., p. 100.

ON PEACE AND PRESENTDAY IDEOLOGIES 11 gressive economists has gradually spread all over the world and has been accepted by all nations that are not outright socialist or communist. It is the system called interventionism which is preparatory to socialism. It is a system of continuous government interference and transformation of the market economy into socialism. THE FALLACIES The Condemnation of the Market Economy. Progressive economists unanimously base their clamor for government planning and control over the economic system on the assertion that the market economy no longer works, that it is identical with a state of confusion and planlessness, and that economic freedom leads to depression, exploitation, and war. Hansen declares the old machinery, i.e., the market economy, does not work. It has broken down and has lead to decades of depression, unemployment, and world conflagration. We must reshape the world "in order to make it again a functioning and manageable system."

This most popular interpretation of recent history reveals a tragic distortion of the causal relations of historic phenomena. It flagrantly contradicts elementary rules of causal explanation based on simple economic reasoning and rejects all rules of scientific relevance. Serious and obvious mistakes in political and economic reasoning and historical understanding render the entire system of "progressive thought" hollow and empty. However, it derives its eminent importance from the fact that it is accepted by public opinion and applied by numerous governments all over the world. Ideas find their realization in human action and the results of such action, no matter whether they are derived from correct or faulty reasoning, from established facts or mere superstitions. The assertion that it was the market economy and its individual freedoms which inaugurated this age of economic turmoil and international conflict is unsupported by facts or reasoning. It is true, during the two decades between the two world wars, that the market economies of the Western nations broke down or failed to function effectively. But why? Why did they fail to work effectively in our century after having made the nineteenth century the great century of Western civilization? Our progressive economists either entirely fail to answer this important question, or they take refuge behind explanations that defy all scientific thought. Hansen, for example, points to great factories, giant cities, technology, industrialization, and urbanization as the deciding factors of changed conditions requiring a new social structure. That is to say, the 12 HOW CAN EUROPE SURVIVE market economy, which is the very system that created the great factories, giant cities, etc., is said to have collapsed because of its most beneficial effects. This is absurd! Because our cities are larger than they were some time ago, we are urged to resort to central planning! Because our factories have increased in size and productivity, we are urged to adopt a new social structure. Because our technological knowledge has advanced during the last decades, we are to resort to government control. Because our means of transportation are more efficient and comfortable, we are urged to relinquish the freedoms of our forebears. Such an explanation lacks any basis in reason or fact.

There is only one reason for an unsatisfactory operation of the market economy: it is government intervention. A market economy that is crippled and mutilated, modified and hampered by a host of government regulators and planners can no longer operate as smoothly as a free market economy. Government interference is intended to have certain effects and, indeed, always has. But as far as its actual effects are concerned, whether intended or unforeseen and undesirable, the market economy must be acquitted from all responsibility. Human principles of justice and fairness forbid us to condemn someone for a crime which not he but someone else committed. And justice and fairness also forbid us to condemn the market economy for undesirable conditions which someone else brought about. How, for example, can the market economy be declared responsible for inflation and its concomitant effects? It is the government that regulates the money supply. How can we blame a butcher or baker for a crime, in this case inflation and its effects upon prices, which the Secretary of the Treasury and the governors of the Reserve Banks committed? How can we possibly blame the market economy for periods of depression and unemployment if our economic planners and regulators conduct policies resulting in depression and unemployment? But this is precisely what our progressive economists are trying to do. They blame the market economy for the interwar period with all its deficiencies, its wounds and mutilations, which, in fact, the planners themselves inflicted upon it.

TWENTY YEARS OF GOVERNMENT PLANNING Let us pause here for a moment to review the economic history of the two decades between the two world wars. Throughout World War I the governments of the belligerents of Continental Europe imposed socialist controls upon their economies and inflated their currencies at an unprecedented rate. During the postwar period of ON PEACE AND PRESENTDAY IDEOLOGIES 13 "reconstruction" the monetary depreciation in Europe moved forward rapidly. Europe was buying enormous quantities of goods on credit from the United States and other parts of the world, which created a fictitious prosperity. The funds which Europe needed for the purchase of materials were largely financed by the United States government which, in the two years following the Armistice, spent practically as much money as it had spent during the war itself. The United States, to which the world was heavily indebted, rather preferred to grant loans than to allow foreign countries to pay their debts with goods imported. Reaction and collapse were inevitable and, in 1920, the first postwar crisis appeared.

In 1921 and 1922 the United States government under President Harding continued to raise the tariffs, first by an agricultural tariff bill that had relatively little significance because American agriculture is an export industry and, second, by the Fordney Tariff Act of 1922 that raised rates sharply on many manufactured goods. This tariff imposed a grave barrier against European industrial revival and severely hurt the export trade of the American farmer who primarily sold his products to Europe. Europeans who could not sell their industrial goods on American markets obviously could not buy from America, unless the U. S. government was willing to continue to finance these purchases. The American tariff legislation granting protection to domestic industries thus cut the American farmer from his export markets which amounted to 60% of the cotton produced, 40% of the lard, more than 20% of the wheat, 40% of the tobacco. It created a serious agricultural problem in the United States which plagues us to this very day.10 In Japan conditions were worse. Early in 1920, the progressive economists and government officials got together and destroyed the market economy. The decline in commodity prices was arrested and the Japanese government held the prices above the receding world prices for seven years. During these years Japan suffered from chronic industrial stagnation and at the end, in 1927, many great branch bank systems as well as many export industries broke down.

"It was a stupid policy," said Anderson. "In the effort to avert losses on inventory representing one year's production, Japan lost seven years, only to incur greatly exaggerated losses at the end. The New Deal philosophy began in Japan in early 1920—a planned economy under government direction designed to prevent natural 10 Benjamin M. Anderson, Economics and the Public Welfare, D. Van Nostrand, Co., Inc., New York, 1949, p. 90.

14 HOW CAN EUROPE SURVIVE market forces from operating and, above all, designed to protect the general price level." n In Germany the government embarked upon a policy of inflation at an unprecedented rate. The central bank printed paper money to supply the government with funds with which to bring about full employment and prosperity. From the summer of 1919 to the time of the Dawes Plan in 1924 the price for German marks in foreign exchange markets dropped from 8 cents per mark to about 16 trillion marks to the dollar. Vast quantities of newly created marks were sold by the German government in the speculative foreign exchange markets at whatever price they would bring. This money sold abroad brought in, year after year, the foreign exchange with which foreign goods could be purchased. The German people thus could consume more than it produced at the expense of the buyers of marks in foreign countries. The incredible depreciation of German marks naturally had an utterly demoralizing effect upon the economic life of this industrial nation. The German economic middle class was pretty well wiped out in this process. Working capital of German enterprises largely disappeared and the standard of life of the people sank steadily.

In France weak and short-lived governments ran up enormous deficits, which progressive economists like to glorify and call "government investment," to secure full employment and prosperity. In 1919 the government deficits amounted to 46.7 billion francs; in 1920,42 billions; in 1921, 27.9 billions; in 1922,18.9 billions; in 1923, 16.6 billions; and in 1924, 14.1 billions.12 In the foreign exchange market the franc dropped continuously and prices for commodities rose. Throughout this period French and foreign liquid capital left France and went into foreign values. French private holdings of gold, dollars, sterling, Swiss francs, Dutch guilders, and securities of foreign countries increased considerably while the French economy lacked funds for expansion and improvements. French conditions only improved when, in July 1926, Poincare began cutting government expenditures and government pensions, dismissing needless government officials, and creating a fiscal surplus.

The British government brought economic distress and turmoil to its people through an entirely different set of interventionist measures. At the end of World War I Britain began to straighten out her public finances, balanced her budget, and even reduced her public debt. The pound, which had depreciated from the par of $4.8668 to ., pp. 75, 76. 12 Ibid., p. 100.

ON PEACE AND PRESENTDAY IDEOLOGIES 15 a low of $3.18 in February of 1920, recovered quickly and sold at approximately 10% below parity in early 1925. Under the leadership of Winston Churchill as Chancellor of the Exchequer the British government then embarked upon an extremely harmful policy of deflation in order to bring the pound back to par. While a parity of 90% of the old par had been suitable for monetary stabilization, Churchill, motivated by pride in the British monetary tradition and Britain's position as leading banker of the world, but with an utter ignorance of the economic consequences of a policy of deflation, preferred to go all the way back to the prewar par. Consequently a downward readjustment of British prices and costs of about 10% was effected. A country with an unhampered market economy can take such a readjustment in its stride. But England had lost her economic flexibility. The wages of organized labor were rigid. The prevailing progressive ideology supported union leaders in their outright refusal of wage cuts in accordance with reductions in the cost of living. Furthermore, large price-fixing combines in British industries were considered desirable and were encouraged by the government which granted efficient protection through tariffs and other import restrictions. Therefore the downward readjustment in prices and wages was slow and painful. It was accompanied by heavy chronic unemployment which lasted to the eve of World War II. But this institutional unemployment did not result from the nature of the market economy, but from the lack of it. The British government endeavored to increase the purchasing power of the pound, which necessitated a downward readjustment of wages. The labor unions, having received power, favors, and reputation by government legislation, counteracted the readjustment policy and held wages above the height which the supply and demand would have dictated. The inevitable effect was unemployment.

These were the economic conditions in the major countries prior to the great depression of 1929-1940. The paper currencies outside the United States were depreciated or fluctuated violently in value. Until about 1925, through the operation of Gresham's Law the banks in the United States gained gold steadily from the outside world, although most of the important countries had restricted gold payments or had ceased to make them. Gresham's Law (the principle that bad money drives out good money) asserts that a man does not sell his gold or foreign exchange to his central bank which shortchanges him by giving depreciated domestic money in exchange. He rather sends his gold to a country where he is not short16 HOW CAN EUROPE SURVIVE changed in an exchange transaction but where he receives a price in accordance with the true purchasing power of gold. The American Prelude to the Great Depression. The fact that foreign gold continued to flow into the United States, however, does not mean that the American monetary authorities refrained from policies of inflation and credit expansion. It merely indicates that the United States dollar was better than other important currencies and that the rate of inflation and credit expansion proceeded more slowly than abroad. Indeed, the United States government flooded the money and credit market in three great moves. The first of these came in 1922 when the Federal Reserve Banks made heavy open market purchases of government securities in order to acquire earning assets. In 1924 the Federal Reserve banks bought large amounts of government securities for the deliberate purpose of flooding the money and credit market. These transactions may be considered the first government measures of New-Deal type of planning and regulating the money supply to attain prosperity and full employment. Then again in the latter part of 1927 the Federal Reserve System for the third time purchased government securities to bring about easy money and expansion of credit. Simultaneously the Federal Reserve banks lowered their discount rates. When the Chicago Federal Reserve Bank refused to fall in line with this policy, it was overruled by the Federal Reserve Board in Washington, by whose action the Chicago rate was reduced in line with the others.

The newly created credit went rapidly into security loans and bank investments in securities. Business conditions at home and abroad did not warrant a productive expansion; therefore, business in general refrained from making use of the newly created funds. Commercial loans only increased moderately during this predepression period. Tempted by low interest rates, the stock market took the money. Stocks went rapidly higher, generating a psychological boom atmosphere. Supplied with abundant money the stock market rose by leaps and bounds. According to the Dow-Jones Industrial Index, stock prices moved as follows: Date Closing Price November 15, 1922 95.11 January 10, 1924 97.23 November 10, 1924 105.91 November 15, 1927 195.37 February 15, 1928 197.59 November 15, 1928 269.42 August 29, 1929 376.18 ON PEACE AND PRESENTDAY IDEOLOGIES 17 The huge amount of money and credit created by the Federal Reserve banks also caused the volume of new securities, domestic as well as foreign, to grow at an enormous rate. Many of them did not survive the big crash of 1929 and the following years of depression.

The excessive supply of Federal Reserve money created speculation in every field, especially in the field of real estate. Mortgage bonds were issued at a tremendous pace and real estate values soared. Bank and business consolidations increased with great rapidity. The easier the financing and floating of all kinds of securities became, the greater grew the number of holding companies, investment trusts, and other combinations. Finally, the Federal Reserve authorities became alarmed about these undesirable effects of their own policy. They began to reverse it. They raised rediscount rates and sold government securities on the open market. But the boom went on. It had caught the public imagination. And so much new money had been created in the period from 1922 to 1929 that the problem of reabsorbing it was extremely difficult—indeed too difficult for the monetary planners to control the situation of their own creation.

Reaction Sets In. On October 24, 1929 the stock market prices began to break initiating a readjustment which was long overdue. The forthcoming period of readjustment could have been a period of orderly liquidation and adjustment followed by a normal revival. The financial structure of business was very strong. Fixed costs were low, as business had refunded a good many bond issues and had reduced debts to banks with the proceeds of the sale of stock. In the following months earning power of almost any business continued to make a reasonable showing. But there were weak points in the banking system. Many small banks that had participated in the boom were loaded with illiquid bonds and mortgages based on very exaggerated real estate prices. A fall in price would hit them hard. Also, the international credit picture looked very dark. High American tariffs interfered with the movement of goods and prevented the European debtors from paying their debts with goods or services. Recognition of this fact and of the disastrous effects of a policy of cheap money and credit expansion would have eased the situation and led to orderly readjustment. But the American government was dead set against any readjustment. Instead it turned to government planning to bring about continuous boom, prosperity, and full employment.

President Hoover, in an address to the business leaders, urged them not to cut prices, not to cut wages, but to increase capital out18 HOW CAN EUROPE SURVIVE lay and other expenditures. He advised them to spend to keep purchasing power high. This was the "progressive" way of dealing with periods of readjustment. Hoover put the government into the wheat business in a strenuous effort to hold prices up. But though government storages were being filled, prices of wheat here and abroad continued to decline. Early in 1930 the Federal Reserve policy of artificially cheap money was renewed, but production continued to decline. As B. Anderson put it: "The jaded economic organism could no longer respond to financial stimulus." 13 Congress Legislates Depression. Then came the crowning folly of government planning and intervention. In June 1930, Congress passed the Hawley-Smoot Tariff Bill which gave high tariff protection to American industries. The consequences of this Act were tragic. The world was staggering under a load of international debt which could be carried only if the debtor nations were allowed to pay by exporting goods to the creditor nations. But the United States, the great creditor nation of the world, raised its tariffs again.

"Once we raised our tariffs," wrote Benjamin Anderson, "an irresistible movement all over the world to raise tariffs and to erect other trade barriers, including quotas, began. Protectionism ran wild over the world. Markets were cut off. Trade lines were narrowed. Unemployment in the export industries all over the world grew with great rapidity, and the prices of export commodities, notably farm commodities in the United States, dropped with ominous rapidity. Farm prices in the United States dropped sharply through the whole of 1930, but the most rapid rate of decline came following the passage of the tariff bill."14 When President Hoover signed the bill the industrial stocks broke 20 points in one day. Now, the world was really heading towards its severest depression. The economic situation further deteriorated when, in 1931, first Austria and Germany and later Great Britain went off the gold standard. Their banks had been employing short-term acceptance credits in long-term transactions and with government encouragement had expanded credit to the limit of their ability. When Austria and Germany ceased to make foreign payments, large British and American funds were frozen. When also Great Britain suspended gold exports, additional American funds were tied up in England.

While Austria and Germany each made a strenuous fight to stay solvent, the Bank of England continued its easy money policy and went off the gold standard at the modest rate of 4%%. The princii» B. Anderson, Ibid., p. 224. " ibid., p. 225.

ON PEACE AND PRESENTDAY IDEOLOGIES 19 pies of "progressive" banking had gotten hold of the British monetary authorities. The freezing of foreign credits affected only a few large New York institutions and the holders of foreign securities. But another consequence was much more serious. The fall in foreign bond values set off a collapse of the general bond market which hit the American banks at their weakest point—their investment portfolios. By scores and by hundreds, overinvested banks closed their doors. When Roosevelt became President the policy of internal regimentation triumphed. By Presidential decree it became unlawful to own or hold gold coins, gold bullion, or gold certificates. Gold exports and foreign exchange transactions were controlled, and it ceased to be lawful to export gold in making payments to foreigners except under license from the Secretary of the Treasury. Of course, the President pretended that these measures were temporary. But up to this very day they are in effect and the monetary authorities continue their policies of internal regimentation.

Business Upturn Averted. After production had dropped to unprecedentedly low levels in 1932 and early 1933, an extraordinary rally in American business took place. It was the inevitable upswing from extreme panic and depression. But the upturn was nipped in the bud by a new government act: the National Industrial Recovery Act of 1933 which imposed new internal regimentation and contained new provisions for restrictions on imports. The purpose of the Act was to raise prices of manufactured goods through restraint of trade and production. Industries of all kinds were called upon to prepare codes concerned with shorter hours, minimum wages, and price fixing disguised as prohibitions of sales below costs. The Act was a naive attempt at "increasing purchasing power" by increasing payrolls. But, naturally, the immense increase in business costs through shorter hours and higher wage costs worked as a most successful anti-revival measure. The South, especially, suffered a great deal of unemployment caused by the minimum wage provisions under NRA. Southern wages were greatly increased above the height of the free market, which forced about 500,000 Negroes out of work. Some industries were even diverted from the South to the North and Pacific Northwest.15 The first real revival came in the summer of 1935 when the Supreme Court declared the NRA unconstitutional. Business again began to pick up. But after a short period of growing activity and 15 Roose, Charles, NRA Economic Planning, Principia Press, Bloomington, Indiana, 1937, p. 166 et seq.; see also B. Anderson, Ibid., p. 327 et. seq.

20 HOW CAN EUROPE SURVIVE sinking unemployment, effected through successful business readjustment under fearful handicaps, President Roosevelt and his progressive planners in Congress dealt the American economy another series of painful blows. In July, 1935, Congress passed the Wagner Act. At first it did not effect great changes in labor relations. But following the election of 1936, the labor unions began active unionization and forced wage raises. Ugly labor conditions developed, inflicting heavy losses on business. In Detroit laborers occupied the plants but refused to work, while the State of Michigan looked on, refusing legal remedies. Such conditions resulted in a startling increase in labor costs with a simultaneous decrease in the productivity of labor. All this occurred while unemployment stood well over six millions. But the New Deal was not content. Through the Undistributed Profits Tax of 1936 it struck a heavy blow at corporate savings.

Corporations were taxed on their savings in order to prevent them from expanding through putting profits back into the business. Retained profits are the major basis for a country's growth. But the New Deal planners did not want industrial capacity to grow; they were thinking in terms of spending and consumption. Other major factors working towards the violent collapse in industrial activity in the fall of 1937 were continuous government deficits, Roosevelt's shocking attempt to subdue the Supreme Court by packing it with his own appointees, and the government policy directed at destroying the stock market. The violent collapse in industrial activity was finally set off by a sudden break in the stock market followed by the most violent break in economic activity in American history. Within the short period of eight months, unemployment climbed to over 10 millions. The winter of 1937-1938 became a period of gloom and fear both for the country and the progressive planners in Washington.

But this was not all. In 1938 the President forced his last New Deal law through Congress: the Wage and Hour Act. "It was a very dangerous piece of legislation," said B. Anderson, "and, coming on top of all the other measures which had made complications to business, it had very ominous possibilities." 16 It provided that increases in minimum wages should be speeded up and working hours should be limited to 44 hours a week during the first year, 42 hours for the second year, and 40 hours a week thereafter. Overtime had to be paid for at not less than 1% times the regular wage. This law had relatively little significance in those industries, mostly located in the 16 Ibid., p. 468.

ON PEACE AND PRESENTDAY IDEOLOGIES 21 North, in which the productivity of labor was already higher than the costs imposed by the law as minimum. But it affected severely the South and, above all, Puerto Rico, where capital was scarce and labor productivity low. Immense unemployment resulted. Only the war, through substituting a catastrophe for the economic disaster, brought relief to a suffering country and its progressive planners in Washington. The American nation had experienced its severest and longest depression in history. If it had not been for the war and the unprecedented monetary depreciation, the depression would have continued indefinitely until Washington had been purged of its planners. According to the Conference Board Economic Record, unemployment in the United States moved as follows: Unemployment as per cent of labor force 0.9 7.8 16.3 24.9 25.1 20.2 18.4 14.5 12.0 18.8 16.7 Source: Conference Board Economic Record, March 20, 1940, quoted by B. Anderson, Ibid., p. 488.

A World of Government Planning and Economic Nationalism. Similar conditions existed throughout the world. Government planning became paramount, and the world economy disintegrated rapidly. Some nations finally decided to do something about it. Instead of freeing the individual and restoring the market economy, which offered the only solution to their problems, they chose to shoot their way out of the planned chaos. To the immense suffering of the whole world, they continued on the road to disaster. Throughout this period the international situation offered a comfortless picture. With the spread of socialist and welfare ideas, whose international aspect is tantamount to economic nationalism, the world community disintegrated into numerous strictly conYear 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 Unemployment (in millions) 429 3,809 8,113 12,478 12,744 10,400 9,522 7,599 6,372 10,099 9,080 22 HOW CAN EUROPE SURVIVE trolled and greatly self-sufficient areas. Through differential tariffs, import and export licenses and quotas, exchange controls and clearing agreements, barter treaties, government import and export monopolies, socialist and welfare governments succeeded in destroying the world economy. The system of bilateralism, i.e., the principle "we buy where we sell," enforced by nearly ah1 governments, replaced the free system of multilateralism, thus creating as many more or less independent "national economies" as there were national governments. Because of inevitable divergencies in national and social planning, foreign trade decreased materially and the cleavage between the national price and cost systems grew. Under such conditions the greater economic units enjoyed a relative advantage over the smaller ones since they were less dependent on foreign trade. Smaller nations had to tie themselves economically to larger units whose bilateral bargaining position endangered the economic independence of the smaller units. To the same extent, the political independence of the smaller nations was endangered by the disintegration of the political world and by their loss of economic independence. Thus economic and political blocs developed which, although themselves divided into numerous national units, meant further disintegration of the world economy. Out of the ruins of a free world community a world of socialist and interventionist planning emerged, bringing in its wake chaos and war.

The "planned world" was a world of fluctuation and irregularity. We could observe abrupt closing or opening of foreign trade markets caused by changing political conditions and domestic positions of pressure groups. Foreign trade was increasingly politicalized. The world market became a vast dumping ground where governments or their subsidized monopolies dumped whatever their foreign or domestic policies prescribed. Agricultural and industrial protectionism prevailed. The destruction of the gold standard by central banks and national treasuries and its substitution by monetary planning, which always means inflation and depreciation, resulted in domestic instability and chronic international chaos. Thus the doctrines of full employment, monetary and credit management, fair and social taxation, government protection for farmers, workers, and many other groups led to progressive disparities of prices and wages and to a constantly growing separation of economies and nations.

The Nature of Business Cycles. Socialist or welfare planning means chaos internally as well as internationally. An economic crisis is inevitable as soon as a government or pressure group empowered by government interferes with the smooth operation of the market ON PEACE AND PRESENTDAY IDEOLOGIES 23 economy in order to realize ambitious schemes of progressive planning. On the other hand, there are full employment and prosperity when business is allowed to operate profitably. When profits are improving, business expands. When profits decline or when a decline is anticipated because of unfavorable political, monetary, labor, marketing and other conditions, business contracts. Profits, according to business terminology, are the excess of gross income over costs of which labor costs are overwhelmingly important. It is obvious that business must decline when labor costs are forcedly increased either by government or labor unions in utter disregard of profits. Also, the government policy of inflation and credit expansion always results in a cycle of boom and depression. In the beginning everything looks fine. Prices rise and profits increase because of the rise in prices and the low business costs. Business begins to expand.

The demand for the several factors of production—land, capital, and labor—increases. We have full employment, even labor shortages. The increased demand for the production factors naturally raises their prices, which are business costs. Costs are climbing. They climb until they reach the point where business is no longer profitable. At this point the downfall begins. We enter a period of recession and readjustment. It lasts until the costs have come down and business becomes profitable again. The only inference to be drawn from this knowledge is that government should refrain from interfering with the operation of the market economy and refrain from policies of inflation and credit expansion. Booms and busts do not lie in the nature of human economy. They are imposed upon us by "omniscient" government economists and public officials who like to do the planning for the citizens. Hansen, for example, would step up public capital outlays if the citizens' outlays decline. "Thus," he says, "the public sector can act as a balance wheel to the private sector. With adequate planning, much could be done to stabilize the construction industry as a whole, taking account of both the public and the private sectors.

Public projects should be built in the usual case under private contract. Thus contractors would switch from private to public projects as private capital outlays declined and public outlays took up the slack. But the construction industry, privately owned and operated, would find a stabilized volume of outlays, public and private combined." 17 Indeed, very easy! If the citizens do not spend, government should spend. We need no science of economics, no economic reasoning, indeed no further questions! The all-important question 17 A. H. Hansen, Ibid., pp. 21, 22.

24 HOW CAN EUROPE SURVIVE as to why there is a business slack, for example, need not bother us. This is precisely what progressive "economists" want us to believe. "Let government watch the business indices," they say, "and spend accordingly." It is almost too superficial to require further refutation. As illustrated previously, the business downfall begins when business is no longer profitable because of climbing costs. And the following period of recession and readjustment lasts until the costs have come down and business becomes profitable again. Now, if government really acts as a balance wheel to the private sector and maintains the aggregate volume of demand through stepping up public demand, it necessarily will stabilize the prices of the factors of production. That is to say, government keeps wages and other factor costs up. But high business costs are the very reason for the downtrend! If government perpetuates this reason, how can business recover? It cannot. The depression is perpetuated because government fights against the revival. President Roosevelt did it for many years and how successful he was!

We may illustrate our contention with a short example. Let us assume that building costs have soared to a point where a downtrend in the industry develops; costs are just too high. But immediately government intervenes. It begins to spend vast amounts on public projects and, through its demand for the factors of production, keeps wages and other building costs skyhigh. The labor unions may even persuade the government to raise wages. What are the consequences? The cause for the business slack, i.e., high costs, is perpetuated or even intensified. And the economy will continue to recede. Government Spending Means Inflation. But still another aspect of the policy of government spending must here be mentioned. According to our progressive economists and politicians, government outlays should vary according to the requirements of stability and full employment. "If private capital outlays decline," says Hansen, "public outlays can be stepped up." Yes, but where does our government get the money? When business declines, government revenues decline. In all likelihood, our government is running deficits even without progressive investment programs. Well, it may raise taxes. But taxes mostly constitute a factor in business costs a raise of which would only intensify the depression. Taxes taken from consumers would only decrease private demand and substitute government demand. Or our government may borrow from its citizens.

But a government loan, like taxes, is merely a shift of demand from ON PEACE AND PRESENTDAY IDEOLOGIES 25 private hands to government hands. Finally, and this is what our planners have in mind, our government may create money and credit and embark upon a policy of inflation and credit expansion. How does inflation work? Does it tend to make business profitable by lowering business costs? Except for a small decrease in the cost of money and credit, it does not. It rather leads to further increases in the costs of labor and material. Thus the depression continues. Tax Relief Does Not Remedy the Evil. "But public spending alone is not enough," say our progressive economists. "Also variations in the basic income tax should counteract the fluctuations of the business cycle. That is to say, in periods of business recession taxes should be lowered and be increased again in periods of full employment." But such a measure does not remedy the evil. It is true the lowering of taxes on business lowers costs, which makes business more profitable. We may experience an economic revival and comeback. But at the same time our government is running deficits which are financed through inflation and credit expansion.

Finally, business costs begin to soar again until the point of unprofitability is again reached. It is even conceivable that government would refrain from imposing any business taxes whatever and, yet, we may have depression and unemployment because high union wage rates and other costs make business unprofitable. Our government also may lower taxes on consumers while it finances its own spending through inflation. In this case the prices of consumers' goods tend to rise which gives relief to business. But then the inflationary spending of government causes the prices for producers' goods, i.e., business costs, to rise until another downfall begins. These are the inevitable effects of policies of government planning. If history could offer proof for knowledge won through reasoning, the history of the recent decades would offer cogent proof for these contentions. Government intervention leads to boom and bust. There is no remedy but to refrain from intervention and establish the unhampered market economy.

Progressive Taxes Destroy Capital. "Public spending alone cannot be depended upon as a stabilizing factor of the economy as a whole," say our planners. According to Hansen, "a broad and comprehensive system of social security and social welfare, combined with a progressive tax structure, acts steadily and continuously as a powerful stabilizing factor."18 The progressive tax structure of which Hansen is speaking refers to confiscatory tax rates in higher is Ibid., p. 22.

26 HOW CAN EUROPE SURVIVE income brackets. His objective is to avoid saving and the accumulation of capital and to stimulate spending. That is to say, progress is spending, no longer saving, as it used to be throughout the ages. The truth is that labor productivity, the standard of living and, in general, the wealth of a nation mainly depend on the accumulation of capital and investment per head of population. And the bulk of capital is accumulated by people in the higher and middle income brackets. If our government confiscates most of their income, capital formation is rendered impossible. The savings of well-to-do people are employed in production, i.e., in stocks, bonds, factories, apartment houses, etc. If we consume their capital, we impede production and thus lower everybody's standard of living. A consistent policy of spending and capital destruction may even lower our living conditions to a level of an underdeveloped country.

Social Security Based on Government Debt. We also disagree with the progressive planners on their contention that social security and social welfare are powerful stabilizing factors. What is social security and how does it work? Social security is a compulsory exchange of present contributions against claims for future benefits. While employed, a man pays in to the social security fund. The federal government receives the money and spends it. In return, it deposits investment bonds, which are claims against the federal government, with the Social Security Administration. Now let us assume business begins to taper off and we head towards a depression. Immediately contributions decline while claims for benefits tend to increase. The social security administration needs money. It turns towards the government to cash the bonds. But government is running deficits, for also government revenues decline in depression. The final solution is inflation. But inflation is the cause of evil, it cannot be remedy.

Planning and the Cumulative Depression. Our progressive economists have a lot to say about the cumulative feature of the business cycle. If governments would follow his designs of planning, Hansen maintains, "the cumulative features that have characterized the cycle for a hundred years would tend to disappear. Under the automatic forces that controlled the cycle in the past, once the downward movement got started, the cumulative process fed on itself. Unemployment spread fear among consumers and reduced the volume of expenditures. Falling prices and falling markets induced pessimism among businessmen and cut off new capital outlays." 19 We readily admit that there is a cumulative feature in the business 19 Ibid., p. 22.

ON PEACE AND PRESENTDAY IDEOLOGIES 27 cycle. But we emphatically disagree as to the nature of this cumulative feature. We believe that there is a psychological tendency in government, once it has brought about the cycle through a policy of inflation and credit expansion, to "correct" the undesirable effects of the cycle through additional measures of government intervention. Nobody, least of all public officials, likes to admit the mistakes made and be responsible for the consequences. They rather blame the market economy, businessmen, speculators, etc., than admit failure. They sooner speak about loopholes and embark upon additional intervention. And this additional intervention has cumulative effects. Throughout the nineteenth century falling prices did not induce pessimism among businessmen and did not cut off new outlays. It was a century of continuously sinking prices which meant rising standards of living, a century of huge capital accumulations and outlays. It was a century of unprecedented progress. But we readily admit that under prevailing progressive ideological conditions falling prices may indeed induce pessimism among businessmen because falling prices in the eyes of our planners are evil and provide occasion to encroach upon our liberties and the market economy. This thought fills us with fear.

Controls versus Progress. "Social and economic planning is a new and great experiment," say the progressive planners. To stabilize the construction industry they urge our governments to develop the national resources and to modernize our roads and railroads, airlines, and waterways. They urge us to "rebuild America on lines commensurate with the potentialities of modern science and modern technology."20 The physical conditions of our great cities are deplorable, they say. Urban and rural housing is substandard, transportation facilities are congested, and natural resources are wasted. Though we are in utter disagreement as to the deplorable conditions of this great country, we may yield this argument, for there is no way to determine exactly through reasoning the deplorable state of conditions. We merely raise the question as to why conditions are so deplorable. Why is urban and rural housing substandard?21 Why are our transportation facilities congested? Why are our roads, railroads, and waterways in need of modernization? The answer is simple. In all the fields mentioned government intervention and control are hampering business activity most severely. Urban and rural housing is subject to numerous government controls. For many 20 Ibid., p. 23.

21 For the sake of argument let us assume we know what the "standard" is.

28 HOW CAN EUROPE SURVIVE years rigid rent controls by all levels of government restricted building activity. Our transportation facilities are bound to be congested because there is hardly an industry that is more intensively regulated as to rates and operation than the transportation industry. Our railroads are literally controlled and taxed to death. Other transportation facilities are even owned and operated by the states or municipalities. Is it a surprise that they are congested? Government as Entrepreneur. Hansen's remark that we should rebuild America on lines commensurate with the potentialities of modern science and modern technology obviously is addressed to our governments. They are to rebuild America. He expressly states that governments should thoroughly modernize our transportation facilities, develop natural resources, rebuild cities, etc. In other words, they are to modernize and rebuild America. This is the most presumptuous statement a government planner can make. What makes government so suited to build and rebuild, to produce and to create? For over 150 years the U. S. government had an excellent opportunity to prove its entrepreneurial ability. For over 150 years it has been owner and manager of the postal service. Inferring from the statements of our government planners, we may assume that the U. S. Post Office is our most efficient industry, being constantly rebuilt and modernized commensurable with the potentialities of modern science and modern technology. However, such an assumption would be an outright contradiction of fact. Our post offices are most pitiful and deplorable. They constitute the greatest waste of the American economy.

Let us pause for a moment to inspect this government enterprise. The operations of the United States Post Office in its latest audited year cost every man, woman, and child in the country $4.50 more than each paid in ordinary postal charges.22 That is to say, the American public paid a total of $727,000,000 in taxes to the government in addition to charges for its postal services. The Post Office spent $4 for every $3 it received, paid no taxes, and enjoyed a formidable monopolistic position. These figures are provided us by government accountants. Reality looks even worse. In all fairness, Mr. Hansen's suggestion to entrust the modernization and reconstruction of America to the owner of the U. S. Post Office must be rejected. The Planner, Education, and Welfare. The progressives' critique of the market economy even extends to education, health and nutrition, recreational facilities, and cultural activities. "Forty per 22 New York Times, February 13, 1954, p. 9.

ON PEACE AND PRESENTDAY IDEOLOGIES 29 cent of our children grow up in areas deplorably deficient in educational facilities," says Hansen. "A disquieting percentage of the young men drafted into the service were adjudged 'functional illiterates' or were physically unfit for military duty."23 It is obvious that there is hardly a vice for which the free economy is not blamed and for which the planned economy is not offered as ready panacea. Wild accusations and arbitrary assertions are made for which no proof is offered, nor can be offered. What, for instance, does "deplorably deficient in educational facilities" mean? What standard do we use? It cannot be the world average as standard, which itself is rather ambiguous, for the world's education is much more deficient than the American. How does Hansen arrive at the figure of 40 per cent? Why is it not 60 or 90 per cent? According to assertions of those who oppose the public school system, 95 per cent of the educational facilities are deplorably deficient. They at least offer the fact as proof that 95 per cent of our educational facilities are publicly owned and operated. Another arbitrary judgment of Hansen's is contained in the assertion that "a disquieting percentage of the young men drafted into the service were adjudged 'functional illiterates' or were physically unfit for military duty." What is functional illiteracy and who determines it? It is obvious that these concepts are based on expediency and depend on the judgment of the person who determines the standard. In the final days of World War II, 99 per cent of the German male population between 14 and 70 years of age were adjudged functional literates and physically fit for military duty. Was the Nazi state so successful?

National Planning and International Cooperation. According to our progressive economists, national planning for stability and welfare must be supplemented by planning on an international level to achieve domestic as well as international stability and economic expansion. New international institutions are needed, says Hansen, "to reshape our world in order to make it again a functioning and manageable system." This contention that nations should conduct policies of economic and social planning in order to contribute to international stability reveals a lack of economic knowledge and reasoning. Government planning always means interference with the market economy and the international division of labor. It is planning for international disparities of prices, wages, and production structures. In its domestic effectiveness it depends on tariffs, import and export licenses and quotas, exchange controls, and a multiplicity of other controls which 23 A. H. Hansen, Ibid., p. 24.

30 HOW CAN EUROPE SURVIVE protect the domestic economy from competition of the world market. Government planning is identical with economic nationalism. A government that guarantees its farmers a cotton price above that of the world market must inevitably prohibit imports of cotton or risk the whole world production being shipped to its country. But prohibition of imports causes international conflict. And this conflict is constantly fed by the multiplicity of sovereign states and planners. Each national plan is constantly changed according to the politicians, parties, and pressure groups in power. Thus the world economy is in a continuous maladjustment. Ideologies of Conflict. The present age of war and conflict is testimony to the fact that ideologies accepted by the majority of the world's population are those of aggressive nationalism, communism, socialism, Fair-Dealism, and other systems of intervention which cause international conflicts. The numerous adherents of these ideologies deny this contention. They maintain that unrestrained individuals do not cooperate and thus cause the world turmoil. Their remedy is a social system of coerced cooperation. If all the world were communistic, socialist, or interventionist, they maintain, no cause for world conflict and war could exist.

A glance at the nature of these ideologies and their systems of social organization reveals the fallacies of this assertion. If the entire world were communistic, for example, the problem of leadership could not be solved. Also, central planning in the "interest of the world" would necessarily create additional serious problems because certain parts of the world would be favored to the detriment of others. Discrimination through world planning, like national planning, would take the form of regulating prices and costs, fixing production and export quotas, allocating raw materials and capital goods, and many other means of world government planning and regulation. The richer nations would probably take the view that the instruments of production invested in their areas are their property and no other nation should be entitled to benefit from them. On the other hand, the poorer nations would insist upon sharing the benefits from the capital and favorable production conditions enjoyed by the richer nations. They would undoubtedly insist upon the right to migrate in vast numbers to places with more favorable conditions of production. How could a world board for economic planning solve all these problems without deciding in favor of one side against the other? Even a "fair" compromise would constitute a decision that benefits or harms someone. Last but not least, the absence of a market economy under communism ON PEACE AND PRESENTDAY IDEOLOGIES 31 would render the calculation of capital and costs of production impossible, which means communist planners would be deprived of any way of ascertaining whether or not a certain production or method of production were economically worth while. Thus, if the entire world were communist, numerous conflicts would arise and turn the world into an arena of war and planned chaos.

If all the world were interventionist, peaceful coexistence of sovereign nations would also be impossible. Government interference with the operation of the market economy favors certain producers to the detriment of other producers and consumers. This "favor" and "protection" usually takes the form of influencing and regulating prices, which in turn is based upon the restriction of imports and exports. Import and export restrictions, however, are measures of economic nationalism and cause international economic conflict. Inflationary policies together with arbitrary parity regulations bring about foreign exchange shortages, which in turn lead to further government restrictions on foreign trade. Numerous other forms of government intervention and protection—restriction of competition and investment, control of quantity and quality of goods produced, supervision of the methods of production employed, taxation that consumes capital and drives liquid capital elsewhere, and protection of numerous trade and professional organizations—are either direct acts of economic nationalism or depend upon supplementary acts of economic nationalism. No matter how we may analyze the system of interventionism, its inherent international aspect is the disintegration of the division of labor. Each act of economic nationalism requires painful adjustments on the part of those countries that deal with the offending country. In the final analysis, the structure of production in all countries, interdependent through foreign trade, is forced to make adjustments because of a single act of economic nationalism. Only the system of individual liberty and the unhampered world economy can provide the enormous advantages of the international division of labor and provide the milieu for nations to live in peace.