The Great Depression, World War II, and American Prosperity, Part II

0:00Finishing up this discussion of the New Deal that we've only barely started, really, I want to first start off by adding one final point to one of the questions that was raised at the end of the last session, because somebody was asking, well, I don't remember, but one gentleman was asking the question of how did this false historiography get started, The Theory of Money and Credit

0:54The American Liberty League was mainly an organization that was really a matter of degree rather than of kind. They weren't absolutely opposed to all government intervention, but they were more or less anti-New Deal. So because Hoover became an outspoken opponent of the New Deal, I think that fact alone fed into the mythology, because the fact is he was an opponent of the New Deal, so you tend to think that he must have had exactly the opposite position, but he didn't have exactly the opposite position. Okay, well, where we left off was the National Industrial Recovery Act, and my aim at the end of the last session was to demonstrate that that idea did not just emerge from the brow of Franklin Roosevelt, but was the culmination of desires on the part of businessmen for the past at least decade and a half to, in effect, suppress competition and coordinate production and to proceed on a basis of cooperation rather than competition.

1:53Now, Roosevelt, in doing this, was not only, in effect, exceeding to this business desire for regulation, he's also, as I mentioned, involved in trying to prop up wages, because in order to get organized labor on board for this legislation, the production codes that each industry was permitted to establish would also include wages, So Roosevelt's stated purpose in doing all of this was to keep wages high, and the workweek short, and prices from declining too much as a result of excessive competition.

2:44He thinks declining prices are in some way a contributor to depression. Now, the effect of this was to raise prices on every good whose production had been organized into one of these cartels and on every good that used such artificially overpriced goods as inputs in its own production. So if FDR is saying that he wants higher wages, but he also wants business to be able to establish these production codes and establish minimum selling prices, and the selling prices, well that's going to tend to offset the higher wages because the things people buy are going to increase at the same time. So higher nominal wages don't mean a whole lot when so many goods are deliberately made more expensive. But nevertheless these minimum wages that were called for in these various production codes were extremely high by recent standards.

3:36The general minimum was 90% of the average hourly wage of 1933. So, when we think minimum wages, we're thinking, you know, whatever it is, $5 and change an hour in current terms. But these are very high minimums that are being imposed. And so, once again, the veteran-Galloway thesis pops in here that it's going to have the effect of discouraging employment. And that is, in fact, what happened. Wages were quite strong during the Great Depression, but the problem, of course, was that millions of Americans had no wages at all. In fact, as you read in that book, Out of Work, Americans, for example, bought more than twice as many refrigerators in 1935 when unemployment was over 20%, as they did in 1929 when unemployment was 3.2%.

4:26Beneath the surface of most New Deal programs, and of course the National Industrial Recovery Act was part of that, was the assumption that so-called purchasing power needed to be restored. And that, so therefore we need to increase people's wages so that they have the purchasing power to be able to acquire the goods that the economy is making available. Now of course, if you really want to increase purchasing power, the way to do that is to have more production. Because how, in fact, am I able to demand things in the marketplace? Only by virtue of my having produced something in the past, or contributed to the production of something in the past, and then I use the proceeds from that to acquire the things I need. So production is what makes demand of other goods possible.

5:13I mean, in effect, that's what Say's law says. But this insight does not seem to have penetrated. A publication called The Magazine of Wall Street Wall Street made an interesting observation to this effect, that purchasing power needed to be increased. Magazine of Wall Street came back and said, well, if the president really believes, as he seems to, that reducing the work week in order to spread work among more people and increasing wages would help the economy by boosting purchasing power, then the Magazine of Wall Street asked, why not swell purchasing power still more by establishing a 10-hour week and quadrupling wages? Well, again, this emphasis on purchasing power in itself is based on a misunderstanding of the causes of the depression, as we discussed in the last session.

6:03Well, given that the capital goods industries are the ones where the heaviest downturn has occurred, what can be done to reverse that? Well, you might think what you'd want to do is to create a climate favorable to business, and by which I don't mean subsidies to business, Just get out of the way of business. But instead, what Franklin Roosevelt did, and what came forth from his administration, was a series of ceaseless and bewildering regulatory measures, combined with tax increases, increased labor costs, and endless denunciations of economic royalists. And the Depression continued. By some miracle, apparently, the Depression continued. Even under these conditions of tax increases and everything else, the Depression still went on.

6:49Now the agricultural policies of Franklin Roosevelt are among the most interesting of all. If by interesting you mean hideous, evil and destructive, then yes, quite interesting. Falling prices are hindering economic recovery according to FDR, so therefore prices need to be raised by any means necessary. And he's looking at one sector of the economy at a time. Now he's going to look at the agricultural sector. And it's quite clear that the program of Herbert Hoover was not successful, because it was, in effect, a voluntary program. There was no way to prevent people from increasing their acreage or new people coming along and producing more of a given crop. So the Roosevelt policy in the Agricultural Adjustment Act is geared toward, in fact, placing limits on the amount of acreage you can bring into cultivation.

7:41So at first, the first phase of the Agricultural Adjustment Act involves dealing with the fact that at this moment, in 1933, you have supposedly a huge glut of agricultural goods. So we have to deal with that crisis right from the beginning. The very fact that that's a crisis is kind of interesting. And so the response is to start, as many of you know, to start destroying a lot of this surplus so as to increase prices for these goods, so to destroy 10 million acres of cotton and slaughter 6 million pigs and on and on down the line.

8:50in Texas, at the time that this program was initiated and he was told to plow under and destroy some cotton and he absolutely refused to take part in that and so in effect his cotton was boycotted, he couldn't sell it and he never sold any cotton ever again, is that right? That was it, that was it. So that, you know, that's what actually happened and it's funny that one criticism I got when I discussed the agriculture policy in the politically incorrect guide is that I wasn't fair to Roosevelt because I didn't outline all the arguments in favor of destroying these surpluses. And I thought, well, I guess I didn't, you know, throw me in jail, I guess I didn't.

9:37But I don't even know how to, where would I even begin to respond to that? Yeah, well I guess there are pros and cons to destroying wealth and crops. Anyway, there's no satisfying some people. Well, so in the short run, Franklin Roosevelt has to deal with the already existing stocks of goods whose abundance was leading to low prices, and so you have this destructive policy. But ultimately, rather than doing that every year, the other solution would be just simply to limit acreage in the future or to pay farmers to produce less or not to produce at all. Now, the Agriculture Secretary, Henry Wallace, who is described hysterically in John T. Flynn's book, The Roosevelt Myth, was a total Soviet dupe and everything else, he described this process of destroying crops.

10:30He said, this was a cleaning up of the wreckage from the old days of unbalanced production. Let's just leave that. Wallace obviously had some special insight into precisely what quantity of production would bring things into balance. The U.S. history text that I am forced to use, the text I use from about 1877 to the present, is by George Tyndall and David Shee. And they assure us that, quote, for a while these farm measures worked, unquote. Well, if by worked they mean that they raised the prices of food and clothing at a time when people were desperately poor, then they did work.

11:17Slaughtering animals and destroying crops did increase the prices of these items. Congratulations. Shortly after the Agricultural Adjustment Act was established, The Department of Agriculture released the findings of its study of the American diet during these difficult years. The study constructed four sample diets, liberal, moderate, minimum and emergency, below subsistence. It found that America was not producing enough food to sustain its population at the minimum subsistence diet. John T. Flynn said that the last course a government run by sane men would adopt to get this problem solved would be to destroy a good part of what we do produce.

12:03But of course that was the policy. When the Supreme Court struck down the Agricultural Adjustment Act and Franklin Roosevelt's program, the President conjured up a horrifying picture. He said, Are we going to take the hands of the Federal Government completely off any effort to adjust the growing of national crops, and go right straight back to the old principle that every farmer is a lord of his own farm, and can do anything he wants, raise anything, any old time, in any quantity, and sell any time he wants? Well, this grave peril was wisely averted. Meanwhile, evidence that FDR's approach was wrong-headed continued to mount.

12:51The Department of Agriculture's Bureau of Agricultural Economics reported in 1936 that in the case of cotton, farm income would have been at least as high and perhaps even higher in the absence of the Agricultural Adjustment Act. Following month, Cornell University's James Boyle argued in the Atlantic that the Agricultural Adjustment Act had been responsible for the joblessness of at least 2 million Americans, especially sharecroppers and other farm laborers, because of course if you think about it, what is there for a farm laborer to do when you're not producing or cutting back on production? And although the AAA was intended to increase farm income, Jim Powell in his book FDR's Folly notes that farmers actually found themselves worse off because FDR's National Recovery Administration had been even more successful in forcing up the prices that consumers, including farmers, had to pay for manufactured goods.

13:45Now as we well know, this kind of massive government intervention into agriculture never went away. And the gentleman who was with the USDA, I've sort of made him promise that he's going to share at least one horror story with us later. But even in the 1980s, a decade that people associate with, rightly or wrongly, associate with government retrenchment, you still get $30 billion annually on farm programs. Two-thirds of them are subsidies, two-thirds of that money, and then the other in higher prices to consumers. The price support is the key mechanism here. The Federal Government establishes an amount that it will pay farmers per unit of a given product. At that price, the Federal Government will buy any amount that the farmers are willing to sell.

14:32So farmers are not going to sell on the market if the Federal Government is going to pay them more, of course. The Federal Government therefore winds up with enormous amounts of various agricultural products on its hands. on its hands, and so typically or at least in many cases, it will just destroy them, because anything else it does will just glut the market again and create more problems. So when you consider what's actually happening here, the logic of it is indeed quite perverse. By offering price supports to farmers, the federal government is going to encourage more agricultural production than would have occurred without such supports, so it creates surpluses. Then it has to figure out a way of getting rid of these surpluses. So it will simply destroy them very often. So in the 1980s, USDA marketing orders were responsible for destroying 50 million lemons a year, 100 million pounds of raisins, a billion oranges and so on.

15:26Since 1937, as much as 40% of all oranges grown annually in the US have by law been destroyed, fed to livestock or exported. Quotas on peanuts have in effect doubled the price of peanuts and peanut butter. Dairy subsidies have amounted to each dairy cow in America being subsidized to about the tune of about $700 a year, which happens to be an amount greater than the income of half the world's population, according to one scholar. For most of the 20th century, the price of sugar to Americans was 500% higher than the world price. Sugar producers are getting an average of $235,000 a year from that policy. So again, you can understand why it is that these policies would stay in effect. And of course, all American industries that use sugar are at a competitive disadvantage as a result because they don't have to pay a higher price for sugar.

16:17So this is one of the lasting legacies of the New Deal. Okay, we have Franklin Roosevelt to thank. Basically, primarily big farmers and agricultural concerns and bureaucrats in the Department of Agriculture make very comfortable livings at the expense of the rest of us. The program favors the largest farmers. The federal payments were based on the amount of acreage that you owned and the amount of acreage that you could therefore keep out of production. So in a 1989 study, the USDA, turns out, gave in direct payment to the 29,000 largest farms an average of $46,000, an amount that exceeded the net worth of over half the families in America. That's a little excessive, I think.

17:02So that's a little bit something about the agricultural program. Now what I'm going to note to you now is perhaps not entirely fair, but why not at least note it? It's just interesting information and it probably makes more sense to discuss this in the context of the cartels and the National Industrial Recovery Administration Act and the National Recovery Administration. But this has to do with the fascism element in all this. And John T. Flynn points out why it is that people like Mussolini or people who had fascist sympathies in effect were sympathetic to Roosevelt.

17:47And in fact why it was that people who were sympathetic to Roosevelt sometimes had fascist sympathies or were sympathetic to what Mussolini was doing with the economy. So for example, speaking about Mussolini, John T. Flynn says what they liked particularly was his corporative system. He organized each trade or industrial group or professional group into a state-supervised trade association. He called it a cooperative. These cooperatives operated under state supervision and could plan production, quality, prices, distribution, labor standards, etc. The NRA provided that in American industry, each industry should be organized into to a federally supervised trade association. It was not called a cooperative, it was called a code authority, but it was essentially the same thing.

18:33This was fascism. Well, Mussolini himself, who was an admirer of New Deal policies, went so far as to describe FDR as a social fascist. But he wasn't the only admirer of the president. Late in the first year of his administration, FDR told his secretary of the interior that, quote, what we were doing in this country These were some of the things that were being done in Russia and even some things that were being done under Hitler in Germany, but we were doing them in an orderly way.

19:06Now Hitler himself wrote to the U.S. Ambassador in early 1934 and says, The Reich Chancellor requests Mr. Dodd to present his greetings to President Roosevelt. He congratulates the President upon his heroic effort in the interest of the American people. The President's successful struggle against economic distress is being followed by the entire German people with interest and admiration. The Reich Chancellor is in accord with the President that the virtues of sense of duty, readiness for sacrifice and discipline must be the supreme rule for the whole nation. This moral demand, which the President is addressing to every single citizen, is only the quintessence of German philosophy of the state, expressed in the motto, the public will before the private gain.

19:53Hitler later told a New York Times correspondent, I have sympathy for Mr. Roosevelt because he marches straight toward his objectives over Congress, lobbies and bureaucracy. Hitler later described himself as the only European leader who expressed quote understanding of the methods and motives of President Roosevelt all right well all right I don't know if that's fair or not but it did happen right can't I mention it I'll get a lot of hate mail for that but then I'd say well why are you listening to this lecture series anyway you had to know you weren't going Now still other aspects of the New Deal damage the economy even further. I'm going to postpone discussion of the public works programs for just a moment.

20:51New Deal labor laws are going to be, as I said earlier, that's the subject I'm going to cover in my discussion of labor history tomorrow. I had a whole chapter on the history of American labor unions that would have gone into my book, but for space reasons it just didn't make it. So I'll be using some of that tomorrow. So we won't talk about that right now. Other than to say that New Deal labor laws did in fact increase labor costs, and veteran Galloway makes some estimates with regard to just the degree to which that damaged the economy, and it was not insubstantial. There's also the increased labor costs associated with social security, because of course you understand that your employer puts in half of that for you, so you really are only paying half.

21:41The Social Security issue, I feel like this is as dead a horse as there is in terms of people writing and talking about it, so I hope you'll excuse me if I decide that Social Security The funny thing about Social Security though, I can't resist noting, is that the time that it was established, if you look at the average life expectancy of the American man, it's about 57, the American woman 61, so the average American by age 65 would be dead.

22:30You wouldn't have to pay out anything to them. So as time goes on, we get healthier and our life expectancy increases. We also have the fact that FDR is fairly consistently making pretty severe rhetorical salvos against the business community, like they're conspiring against recovery, and they're conspiring against him, and then the tax increases all the time. These are not exactly recipes for economic recovery. Bob Higgs, Regime Uncertainty, Help to Hinder the Recovery

23:23The independent review, I believe, started in 1997, and at least in the first year of that publication, Higgs had an article on, I can't think of the title of it, but it was something along the lines of why the Great Depression lasted as long as it did, and he adds this additional, it's not just some of the things we've looked at, it's also something, a phenomenon that Higgs identifies as regime uncertainty. When the business community is uncertain of the intentions of the regime, is the regime going to If the regime is hostile to business or is unpredictable and its programs are sort of chaotic and haphazard, this is going to have an effect on business confidence and a willingness to invest, and a willingness to start up businesses.

24:13So what you tended to have, according to Higgs, was businesses refraining from investing altogether. Now this point is confirmed by Benjamin Anderson, who had a book on the economics of public welfare. Benjamin Anderson said, The impact of all these multitudinous measures, industrial, agricultural, financial, monetary and other, upon a bewildered industrial and financial community, was extraordinarily heavy. We must add the effect of continuing, disquieting utterances by the President. He had castigated the bankers in his inaugural speech. He had made a slurring comparison of British and American bankers in his speech in the summer of 1934.

25:01That private enterprise could survive and rally in the midst of so great a disorder is an amazing demonstration of the vitality of private enterprise. Now, on this thesis of Higgs on regime uncertainty, he points out that, he says, for one thing, we can engage this a little bit on the basis of polling data. Now, organized polling began only in the 1930s, and it wasn't until 1939 that pollsters began to compile data on the perceptions of businessmen and the general public regarding the climate for investment. That year, an organization called the American Institute of Public Opinion, AIPO, posed the question, do you think the attitude of the Roosevelt administration toward business is delaying business recovery?

25:51Some 54% said yes, and 26% said no, with the remainder having no opinion. The AIPO also asked Americans, do you think that 10 years from now there will be more or less government control of business? Business, 56% said more, 22% less, with 22% either expecting no change or having no opinion. Also in 1939, Fortune magazine asked business executives, with which of these statements do you come closest to agreeing? Number one, the policies of the administration have so affected the confidence of businessmen that recovery has been seriously held back, or number two, businessmen generally have In late 1941, on the eve of American entry into World War II, Fortune magazine polled business executives regarding the kind of economic regime they expected to see in place after the war.

26:51The Christian magazine polled business executives regarding the kind of economic regime they expected to see in place after the war. 93% believed that private property would be further compromised in one way or another. 36.7% expected, quote, a semi-socialized society in which there will be very little room for the profit system to operate. And another 3% anticipated a complete economic dictatorship along fascist or communist lines. All these figures reveal serious and ongoing misgivings and uncertainty on the part of business. And Higgs draws this conclusion, he says, given the unparalleled outpouring of business threatening laws, regulations and court decisions, the oft-stated hostility of President Roosevelt and his lieutenants toward investors as a class, and the character of the anti-business This zealots who composed the strategists and administrators of the New Deal from 1935 to 1941.

27:52The political climate could hardly have failed to discourage some investors from making fresh long-term commitments. We have further evidence of this point about regime uncertainty in financial markets and investment data. Higgs notes that investments made during the first and second Roosevelt administrations remained far more concentrated in short-term assets than the investments made during the latter half of the 1920s. That's Higgs. The kind of sustained long-term investment was precisely what uncertain businessmen were moving away from. In the bond market, long-term bonds carried a substantial risk premium, indicating that business leaders were very uncertain about the future.

28:38So this uncertainty about the future, If we add in the polling data that we just looked at indicates an uncertainty about future government policy. Businessmen took seriously the various ravings of the, what Higgs calls, anti-business zealots who occupied the White House. At one point, by the way, Roosevelt attempted to impose by executive order a 100% top income tax rate for anyone earning over The Illinois Manufacturers Association, in a statement forwarded to Roosevelt, via Commerce Secretary Daniel Roper, cautioned that the principal obstacle to business revival in the United States of America, is the lack of the ability to do business.

29:34with accompanying increase in unemployment is the almost universal attitude of uncertainty and apprehension on the part of business executives regarding the future policies of the federal government on issues directly affecting the welfare of private enterprise. Now that tends to lend support also to the Higgs thesis. I've dug up some quotations like this. In the fall of 1934, a meeting of more than a hundred business executives and financial experts was held on Long Island. New York, under the auspices of the American Management Association. Their report, which was approved with only two dissenting votes and sent to Roosevelt through Secretary of the Treasury Henry Morgenthau, concluded the following. Uncertainties concerning the fiscal situation likely to result from the government's borrowing and spending activities with consequent effects upon monetary and revenue policies are retarding in Reemployment and Recovery.

30:34Even Walter Lippmann, himself no libertarian and in fact an erstwhile supporter of the New Deal, broke with Roosevelt over the president's ongoing inability or refusal to come up with anything more creative than still more punitive measures against business. Roosevelt's measures, according to Lippmann, only retarded enterprise at a time when the The relief of unemployment and of insolvency depends primarily upon the revival of enterprise. What the economy needed, of course, was for Roosevelt to give business business a breathing spell free of new reform initiatives, but no such spell was forthcoming. Instead, in June 1935, Roosevelt proposed a series of tax increases calling for higher inheritance taxes, gift taxes, personal income taxes, as well as a graduated scale of corporate Income Taxes Lippmann, who is still frustrated by the New Deal, commented that the tax bill reflected quote, the absence of any plan and the lack of intellectual effort, the work of tired brains relying on their wishes and their prejudices and throwing out casual suggestions which

31:41they are too hot and bothered to think about. Even the New Republic magazine complained that the whole conception behind the tax bill overlooks the fundamental fact that there is little point in trying to redistribute wealth as long as nothing is done to produce more than a fraction of the wealth we are equipped to create. The tax bill that Congress ultimately passed fell short of what FDR had requested. But the effort helped to alienate a good portion of the president's supporters. Gary Dean Best says this, previously pro-Roosevelt newspapers, news paper men, businessmen and Progressives abandoned him in large numbers over the tax bill, many of them not to return to the New Deal fold again. In large part, the defection resulted because the arguments put forth in defense of the bill were so quickly and easily discredited, and that when these layers of argument were peeled away, nothing remained to justify the bill but prejudice, vindictiveness and spite."

32:40Okay, well now we do have to get of course to the issue of public works programs because we know that people, you know, people got jobs with these things and didn't they help the country and help people find employment and I mean that's how Ralph Cramden met Alice, he was working on the WPA and she was handing out the shovels. See, there used to be a show called The Honeymooners. Anyway, Jackie Gleason is one of my favorite old shows. Anyway, so he tells that story about the WPA. There are all kinds of jokes you can tell about the WPA and the silly jobs people were given.

33:28When I was doing some media thing and I was talking about the WPA, sorry, the Works Progress Administration, As a public works thing, the idea is that we put people to work building bridges or stadiums or whatever, anything, just to put people to work on the government dole. And I gave the example that some of these jobs didn't seem to me to be necessary. And I said, for instance, there were people under the auspices of the WPA who were paid to chase starlings off the White House lawn. and so I said that, and then later I looked at the transcript of the interview and it had me saying that they were paid to chase starlets off the White House lawn. Starlets, so they're obviously thinking of the Clinton White House, I guess.

34:16It's so cheap making Clinton jokes, isn't it? I mean, the guy's been out of office for years now, who the heck cares, but I don't know, that one just was screaming out, I hope you'll forgive me for that, it's the only Clinton joke for the whole week, so savor it. What we need to point out first of all is the economics of these types of programs. As we all know, obviously the government cannot create jobs. What the government does is takes money from the private sector and spends it to pay people to perform some task. I was taken to task for suggesting that because there's no profit and loss system in government public works programs, we have no way of assessing rationally whether these programs are a net benefit or not, The government doesn't go out of business. The government's revenue comes through coercion.

35:06So there's no way of knowing. Would people, in the absence of this, voluntarily have paid for this project or not? There's no way to know. Whereas in the private sector, you have to test everything you do by profit and loss. If people aren't willing to purchase this product, then you go out of business. There's something that guides you, and you're guided in how much to produce, where to produce, what type of thing to produce. None of these forms of evaluation are available to a government program. It's just an obvious point. It's a point that Mises repeatedly makes in his book, Bureaucracy. This is the difference between a profit-making firm and the government sector. Now, what, in fact, these programs did was to divert capital from the private sector and thereby inhibit job creation.

35:52In fact, there are studies that are cited in the Powell book that I just refer you to, In which economists have suggested that the public sector jobs created by New Deal spending programs either simply displaced or even on net destroyed jobs, destroyed private sector jobs. So the various public works programs that FDR established and the billions of dollars spent on them served to dry up capital in an already capital starved private sector in favor of government projects that were, in and of themselves, ipso facto inherently wasteful because they lacked the kind of profit and loss test that guides entrepreneurs in their investment decisions. So the problem, therefore, with anecdotal evidence about the New Deal and people talking about, you know, what would I have done if my grandfather hadn't had the job from the WPA or something, is that, of course, the WPA job, you know, and I hate to lecture this group, you all know Bastiat's what is seen and what is not seen,

36:51But we all see the jobs created by the government. Nobody knows exactly which jobs are destroyed because of all these resources being sucked out of the private sector. You can't know which jobs are gone as a result of that. So the costs of this are, in effect, invisible or unknown. The benefits are clearly earmarked. Hey, look, these people have jobs. So naturally, people are going to support that. They have no way of seeing what the costs of it are. Well, there's also, as Tom DiLorenzo has pointed out, and a great many other scholars beginning in the 1970s began to point out, was that there's a peculiar distribution of the spending on these projects, because it seems to be the case that a lot of this money for WPA work went to areas of the country that didn't seem to be the most depressed areas.

37:41The South was hit particularly hard and yet the South received the least assistance in WPA money. And what has been suggested by a whole line of economic historians is that there may be a political explanation for this. I'm sorry that your innocent ears have to be exposed to that cynical conclusion. But that in fact it was a desire to get votes. And given that the South, the South, if Satan himself... Well, I don't want to put it quite that way because the South would not vote for... They would just not vote in that case. They would still not vote for the Republican. They would just not vote if Satan were running on the Democratic ticket. But they would basically vote for any Democrat at that point. They remember Reconstruction even still. They're not going to vote for a Republican. They're going to vote for the Democrats. So FDR has got a lock on that section of the country. So why bother with too many government jobs down there?

38:30But there seems to be a correlation. Again, it doesn't necessarily imply causation or relationship. But there is a correlation between how much Franklin Roosevelt seemed to need that state politically in terms of electoral votes and how many UWPA jobs they got. And so, as I say, this has been done, there have actually been studies done that have looked into this. Gavin Wright found that political factors, he believes, can account for 80% of the interstate differential in New Deal spending. So the South had given FDR two-thirds of the vote. Two-thirds of the vote went to FDR. So it's much more politically secure for him than the West. And so he didn't have as much need, in effect, to buy their votes. WPA workers were often pressured into supporting Roosevelt's favorite candidates, or changing their party affiliations, or contributing to FDR's re-election campaign.

39:35A Senate committee, in fact, undertook an investigation of these programs and found a great many cases of WPA employees being instructed to contribute a portion of their salaries to the President's re-election campaign, if they wish to remain employed, or of people being thrown off the relief rolls for refusing to pledge their support for a favored candidate, and of demands that registered Republicans on relief register as Democrats in order to keep their jobs. But there's still more political intimidation that occurred under Roosevelt. When Fr. James Gillis, who was a Paulist priest, sort of an old righty type guy, criticized Franklin Roosevelt and his court packing scheme, which we haven't gotten to yet, the FCC took his license away. As early as 1935, Roosevelt was requesting that the FBI investigate a variety of conservative, pro-market type organizations.

40:29and later, of course, Roosevelt became notorious for secretly seeking proof that there was Nazi money and Nazi influence going into the America First Committee, which was the committee that did not want American involvement in World War II. They never found any such money, of course, but that was sort of typical of FDR. Now, in 1937, we get Franklin Roosevelt's so-called court packing scheme, because the court has been striking down some of his most cherished legislation, and in particular the NRA and the AAA, and Roosevelt is going around condemning this type of horse and buggy jurisprudence, Robert Roosevelt was one of his students, because he says that, you know, these old fogies on the Supreme Court, they're taking us back to the horse and buggy days, you know, whereas now that we, apparently now that we have cars that operate on their own steam, the Constitution needs to be changed or something, but anyway, that's his thinking, that this is old fashioned and we need these programs for recovery and for heaven's sake. But when Roosevelt first proposes his court packing scheme, he conceals its true purpose,

41:46The aim was that for every Supreme Court justice over the age of 70, the president gets to name an additional justice. And given that six of the nine Supreme Court justices were over the age of 70, this would have increased the court to a potential 15 justices, and naturally they would have been justices who shared Roosevelt's very, very broad interpretation of the Constitution. But he portrayed this at first as an attempt to help the Supreme Court because they had a backlog of cases and they just needed more bodies to help them with this workload. And that was such an insult to people's intelligence when he tried to portray it that way that even his own supporters said, look, if you just want to pack the court with your friends, why don't you at least have the decency to come out and say so?

42:34So he finally did say that and say, all right, I am doing this because I think we need to to Rescue the Constitution from these unreasonably narrow Supreme Court justices. The opposition of this was unbelievable and even the Democrats, FDR's fellow Democrats, many of them had to depart from the President on this matter. The Senate Judiciary Committee said this, we recommend the rejection of this bill as a needless, futile and utterly dangerous Its practical operation would be to make the Constitution what the executive or legislative branches of the government choose to say it is, an interpretation to be changed with each change of administration.

43:23It is a measure which should be so emphatically rejected that its parallel will never again be presented to the free representatives of the free people of America. Well, the bill was rejected, but that does not mean that FDR's intimidation of the court had no effects. There's a lot of speculation that Justice Owen Roberts was sort of spooked by this whole campaign and began to become much more friendly to the Roosevelt administration in his decisions. And in any event, Franklin Roosevelt got his opportunity to influence and change the court after all, and not through such crude manipulation. Over the next four years, the president was able to fill seven vacancies on the court caused by resignations, retirements and death.

44:15So what kind of jurisprudence then do we get with this new court, the new Franklin Rooseveltized court? What do we wind up with? Here's a classic case that I think some of us have heard about, but it bears repeating. 1942, here's a classic case of how the new jurisprudence is going to go. It's a case called Wickard v. Filburn. What we need to recall here is that one of the clauses in the Constitution, the Constitution has a clause about the federal government's power to regulate commerce, commerce among the states, interstate commerce. And that had been interpreted as a limitation on what fell under the authority of the Federal Government to regulate. Because if it didn't involve interstate commerce, commerce from one state to another, the Federal Government could not, it was thought, interfere with it.

45:08Well, now what we're going to get is a Supreme Court that is going to interpret interstate commerce so broadly that everything will somehow be described as constituting interstate commerce You have here the case of a farmer growing wheat for his own use on his own property. This is defined by the court as interstate commerce. Now it's a farmer growing wheat for his own use on his own property.

45:55This is interstate commerce, says the court, and therefore subject to regulation. Now the way that the case came to court, basically what it dealt with was, this was a farmer who wasn't restricting himself to what the agriculture department was telling him he was entitled to plant. Just to clarify something from earlier, I said that the Agricultural Adjustment Act was found unconstitutional, so you may wonder, how is this still going on? Well, it was repackaged later as a soil conservation measure. So we're just conserving the soil, and that's sort of like a general welfare thing or something. So we get that back again. But you have a gentleman who says that, well, look, it's my property, and plus I'm not growing this wheat to sell it anywhere. I'm growing it for my own use and consumption. Well, the court said, well, nevertheless, that's still interstate commerce and still subject to federal regulation because according to the court, homegrown wheat supplies a need of the man who grew it, which would otherwise be reflected by purchases in the open market.

46:55Homegrown wheat in this sense competes with wheat in commerce. So what they're saying is that somebody who supplies himself with wheat, because he is not purchasing wheat on the market, is therefore indirectly affecting interstate commerce. So really anything would qualify as interstate commerce here and thereby be subject to federal regulation under that type of standard. That's what we have. Everything is defined as interstate commerce. Now a century and a half later, or a century and a half after the 10th Amendment had been drafted, You've got Franklin Roosevelt's court, having been either intimidated or totally changed in its personnel, began to redefine even what the meaning of the 10th Amendment was.

47:44Thomas Jefferson had said the 10th Amendment is the cornerstone of the whole Constitution, reserves powers to the states, it militates against political centralization. But a century and a half after that ratification, you've got the Roosevelt Supreme Court declaring In declaring, in the United States versus Derby, that the 10th Amendment was a mere tautology. So, in other words, it's just like all bachelors are unmarried, all powers not delegated or reserved. Well, sure, of course all powers not delegated or reserved, but they say that has no substantial import. It's just a statement of the obvious. It is not in itself a limitation of the Federal Government. So, everyone who thought that up to now, I guess, wasn't understanding it as well as the experts from 1940. It was now obvious that the Court had no intention of allowing the Interstate Commerce Clause to limit the authority of the Federal Government.

48:32We get other Court decisions suggesting that the Federal Government can extend its power over any area in which it might contribute to the general welfare. So in other words, exactly the opposite of what Madison said the meaning of the General Welfare Clause was is now the official version. If it's in favor of the general welfare, then the presumption is that it's okay. Now, we should take a brief moment to say something about the Commerce Clause, just to make clear that this is a misinterpretation and obviously an extremely broad reading. And just look at what was the original intent of the Commerce Clause. And here's an area where I think the Bill Watkins book on reclaiming the American Revolution is very good because he's got a very good synced but extremely persuasive and well argued discussion of the Commerce Clause.

49:27Commerce Clause basically says that Congress has the authority to regulate commerce with foreign nations and among the several states and with the Indian tribes. Now Watkins points out that at the time of the framing, if you look at Samuel Johnson's dictionary, what did commerce mean? It meant intercourse, exchange of one thing for another, interchange of anything, trade, traffic. So the word would not have included local concerns like agriculture. Now in case anyone might want to try to argue that the commerce clause could give the federal government the power to interfere in local matters.

50:12We have Alexander Hamilton in Federalist Number 17 saying that the Commerce Clause would not affect the administration of private justice, the supervision of agriculture and of other concerns of a similar nature. So this FDR version of the Commerce Clause is expressly ruled out even by someone like Hamilton. Now Richard Epstein makes just the simple point that if you look at the construction of the Commerce Clause, it says that the Congress has the power to regulate commerce with foreign nations, among the several states and with the Indian tribes. Well then if it says that, then the word commerce has to have the same meaning in each of those three cases in relation to foreign nations, several states and Indian tribes.

51:00So let's suppose that interstate commerce could in fact actually include something like The Theory of Money and Credit

51:34What eventually comes to be, though, in Wickard v. Filburn, is that if something exerts a substantial economic effect on interstate commerce, then it is subject to federal regulation. Now in the case of Wickard v. Filburn, we're talking about 11.9 acres of wheat. Again, very insubstantial, but the point is that what if we had a lot of guys like this? Then it really would influence interstate commerce. I mean, it's about as dishonest an interpretation as you can get. In fact, in 1997, the Solicitor General of the United States was asked by a Supreme Court Justice, can you name for us something, some activity that you believe the Federal Government under the Constitution would not have any authority over? And he stood there dumb-bounded. He had no answer. This is a lot of the root of that.

52:28Now recently, Watkins did an article trying to talk about the medical marijuana issue in relation to this because it's very interesting that the court, talking about medical marijuana, says that this is something that can be regulated by the federal government under the Interstate Commerce Clause because, and listen to the weird parallel with Wickard v. Filburn, because homegrown marijuana displaces drugs sold in both the open drug market and the black drug market, Regulated by the Controlled Substances Act So it's concluded then that Congress, or at least this is the government's brief in the case, the government's brief says this, Congress has the power to regulate the interstate market in marijuana as well as activity that substantially affects that market regardless of the purported use of the drug.

53:17And then Watkins goes on to make the point that if this were true, that anything that might affect the market in marijuana, and Marijuana. It was a market that the government doesn't even permit in the first place. Anything that might affect that market could itself be regulated. And so Watkins says, then why doesn't Congress claim to have a power to regulate procreation? Because the more people we create in this world, the more we could affect the interstate market in marijuana and the price of marijuana, the more people there are. Why couldn't you use the interstate commerce clause then to regulate World War II got the country out of the depression.

54:19by Bob Higgs from 1992, I'll have to get the exact site, but I haven't, where he did some excellent work on this. And he showed that, you know, your instinct that war can't be a source of prosperity is in fact correct. And that destroying things and bombing things cannot be the source of prosperity. In a way it's sort of related to people who say to get us out of depression we need more consumption, we need to consume more. Because when you think of what that's actually saying, that's saying that to become prosperous we need to use things up. How would that make us prosperous? We just started using things up. Well the same kind of thinking suggests that war is good for the economy. And I'm happy there are at least some conservatives who still acknowledge this.

55:08I was on Phyllis Schlafly's radio program and she said, I mean, if that were true, for one thing, it might be a good idea to be at war all the time. You see, now I should keep my mouth shut, okay? Okay? You know, we could get rich bombing, you know, whatever country or just a completely deserted area, and we put a lot of money into it. We could get rich bombing, you know, whatever country or just a completely deserted area, and we put a lot of money into it. Mises once said, war prosperity is like the prosperity that an earthquake or a plague brings, and that brings us back down earth.

55:53Well, every time there's a war or a natural disaster, you always get people who come out and say it's wonderful for the economy. Well, last year, just about this time, The Washington Post published an article called Across America, War Means Jobs. Now, although in parts the piece acknowledged that the matter wasn't quite so simple, it nevertheless quoted a great many people who argued that war was indeed a boon for the economy. If it wasn't for defense department contracting, said Brian Smith of Columbia Sewing Company, The economy is always helped by war, appliance salesman Gary Gayer told The Post. That's just a fact.

56:50I sometimes wonder what's the most depressing job in the world. I mean, I love my job, I love it, but it's depressing in that you have to answer the same myths all the time. But I wonder in economics if it's even more depressing that the same inane things come up again and again and no matter how many times you answer them, they come up again and again and again. And again, I mean, obviously war would lend a stimulus to certain sectors of the economy but it is logically and economically unjustified to equate that kind of stimulus with prosperity for the economy at large or the American people as a whole. Now, I am going to just briefly lay out the broken window fallacy for anybody who doesn't know this or is watching it because, you know, there was a time when some of us didn't know what that was.

57:41But Frederic Bastiat was a great 19th century thinker. Frederic Bastiat wrote this little book called The Law, and it's great fun to read, it's wonderful. I assigned it to my Western Civ classes a couple years ago to show them what classical liberalism was, because there it is in a nutshell, and he's explaining about, in effect, taxation being legal plunder, and that as soon as one group uses the state to plunder others, and so on, and it becomes this big anti-social mess with everybody trying to live at everybody else's expense. And it was sort of depressing for me because most of the students did not at all understand how radical his position is. I had to write on their paper. Do you understand that basically, if you take what he's saying to heart, that 99% at least of what government now does would be illegitimate?

58:31Bastiat basically answered this sort of claim because a window broken by an errant ball is said to benefit the economy since the company that fixes the window enjoys a stimulus, which in turn is passed on to those with whom the window company does business. Now, obviously, what you're overlooking here is what the homeowner would have spent his money on if he had not had to repair his window. The stimulus that would have been bestowed upon, let's say, the picture frame industry, when he spent his money on an elaborate picture frame, now never takes place, since the homeowner had to spend his picture frame money on replacing his window.

59:17Without the ball breaking his window, the homeowner would have had a window and a picture frame. In the second scenario, he has only a window. Here is the unseen counter stimulus, as it were. The repair of the window is what is seen and leads poor logicians to conclude that the breaking of the window was actually a boon. The lack of a picture frame by the very fact that the frame is never purchased is not seen but is no less a consequence of the breaking of the window. But since one is seen and one is not seen, the broken window fallacy has proven very difficult to bury once and for all. Well, the same kind of analysis can be truthfully applied to the case of war. The jobs created in the production of weapons and military equipment as well as the men and women who serve in the armed forces themselves are paid for by taxing the private economy, which is devoted to the production of consumer goods that cater to the well-being of all Americans.

1:00:08In addition, in order to provide goods and manpower for the military, manpower and capital goods are withdrawn from the private economy where they would have served to meet consumer needs. So the results are twofold. 1. The taxation necessary to fund wartime production and the armed forces diminishes private income and thus the ability of ordinary Americans to purchase the goods they need. And 2. Because people and goods are now tied up in producing jeeps, missiles and other military equipment as well as serving in the armed forces, fewer people and goods are available for the production of goods that satisfy consumer needs. So in short, Americans have less money with which to buy fewer goods. How can this be anything other than economic retrogression? There are countless other damaging effects as well.

1:00:54In extreme cases, government needs to ration certain crucial goods in order to ensure adequate supplies for the military. No definition of prosperity includes restricting the civilian population's ability to acquire goods. But even when outright rationing is not undertaken, government purchases nevertheless distort the economy. Large government purchases of steel and similar goods lead to an increase in the prices of those goods, and other goods, thereby making it more difficult for private businesses that use those goods in their own production processes to meet their competition in the global market. Such purchases also lead more people to enter those industries and abandon other ones, thus further skewing the economy in favor of the government's preferences over those of the consumer. Some will object that the production of military equipment is fundamentally different from other goods the government might undertake to produce, since military equipment is necessary to protect the population against foreign enemies.

1:01:46Well, let's assume for argument's sake that this claim is true, and that the United States was in fact terribly threatened by the likes of Iraq, Serbia, Somalia and Haiti. Be that as it may, the point is that however necessary such expenditure may be thought to be, it does not in and of itself lead to prosperity, as the myth alleges. The mere fighting of a war does not make the American people more prosperous than they would otherwise have been. Whether a particular war was justified or necessary is an entirely separate issue. The point is that all war leads to the destruction of wealth, the distortion of the economy, and a decline in consumer well-being. And incidentally, we've just recently found out this current war is now equaling and surpassing the expenditures that were laid out for the Korean War in real terms.

1:02:34So I was just talking about this to somebody the other day. So it's getting, at the time I wrote these remarks down a while ago, it was only up to the American share of World War I, which was $199 billion, and now that's going to look like nothing, you know, and unbelievable. Well, part of the reason that this myth of World War II getting us out of the Depression, part of the reason it persists, you know, is that people have basically been taught this, and there's a lot of anecdotal evidence to this effect, that, you know, that we were very prosperous and this and that. We have to look at this more carefully and assess anecdotal evidence scientifically. Historians have made much of the substantial production figures that were attained during the war and triumphantly pointed to the great stimulus to the economy that this war production brought about.

1:03:20But most of this increase is due to the construction of armaments and military equipment and payments to military personnel. This production is not geared toward producing things that ordinary people needed. So from a purely economic point of view, which is what we're considering here, It made consumers worse off by diverting capital and other resources away from civilian production and toward the production of goods that no consumer would wish to purchase. Again, I was in a debate with a gentleman, some media thing, and he was saying, well, what about FDR? Look at all these great production figures from 1938 to 1943. Look at how great things were. I said, well, I mean, you're including a couple of years of World War II in those statistics, aren't you? And these statistics are totally unreliable because they're not in any way measuring consumer well-being.

1:04:09Between 1943 and 1945, some two-fifths of the labor force, including members of the armed forces, civilian employees of the armed forces, people who worked in the military supply industries and the unemployed, are employed with not producing consumer goods or capital goods that are geared toward the production of consumer goods. And that was not all, of course. The tax monies of the remaining 60% of the population went to fund the activities of the 40% who were not producing things consumers needed. So this is obviously a dramatic loss of material wealth. Now it's true, if you just look at the unemployment figures, it looks very impressive, but it disappeared primarily because 11 million people were added to the armed forces, Higgs himself says, during the war, the government pulled the equivalent of 22% of the pre-war labor force into the armed forces.

1:04:57Voila, the unemployment rate dropped to a very low level. No one needs a macroeconomic model to understand this event. In the healthy economy of the unhampered market, there is never a shortage of jobs, since human wants are unlimited. And so there is always a desire for more labor to produce more labor. Since human wants are unlimited and so there is always a desire for more labor to produce more goods. But the sick economy of the New Deal could make a dent in the unemployment problem only by conscripting over a fifth of the labor force into the military. Meanwhile, the average work week in manufacturing increased by seven hours between 1940 and 1944 and by a full 50% in bituminous coal mining. And it was more difficult and sometimes even impossible to acquire the goods people needed.

1:05:42No one during the war could buy a new car, house or major appliance since the government had forbidden their production entirely. Great many other goods were either unavailable or very difficult to obtain, from chocolate bars and sugar to meat, gasoline and rubber tires. George Reisman says this. People believed they were prosperous in World War II because they were piling up large amounts of unspendable income in the form of paper money and government bonds. They confused this accumulation of paper assets with real wealth. Incredibly, most economic statisticians and historians make the same error when they measure the standard of living of World War II by the largely unspendable national income of the period. My last point is just, in fact, elaborating on this.

1:06:29And also from an article from Bob Higgs, you can do a Google search on it. I think the article is called From Central Planning to the Market from 1999. in 1999, and it's available on the Independent Institute's website, and it appeared in the Journal of Economic History, I believe, in 1999. And I just want to make note of his argument, because Higgs, earlier on, we saw that he said that one of the contributors to the depressed condition of the 30s was regime uncertainty. and then conversely, he says, that one of the contributing factors to the recovery after the war concluded was the resumption of regime certainty. And he goes on and then defends this position.

1:07:14He says, the upper reaches of the wartime command economy came under the control of men sympathetic to business even before the United States became a declared belligerent. By the manner in which they exercised their power, these men, thousands of whom were themselves and the people who helped businessmen on leave from their firms, transformed the climate in which investors and businessmen formed their expectations about post-war political and economic conditions. Therefore, even though the wartime administrators imposed extraordinarily pervasive and forceful controls on the economy, investors and businessmen confidently regarded those controls as temporary. The speed with which the controls were removed, most of them in 1945 and most of the rest in 1946, validated that confidence to ask investors and businessmen to act, for the first time since the early 1930s, as if their property rights in their capital and the income it generated would remain reasonably secure.

1:08:05Without that outlook, which elsewhere I've called regime certainty, the other measures tending to make the transition a success from central planning to the market would have availed relatively little. And then he says, restoring the regime certainty of investors and business people was a necessary condition for the transition to a prosperous post-war economy. To sum up, he says, the success of the transition hinged on the expeditious abandonment of the government's command and control apparatus and the return to resource allocation via the price system. It required sufficient confidence in the future security of private property rights that investors would once again place high volumes of resources at risk in long-term projects.

1:08:54Such a transition could go forward successfully only under a regime far more dedicated to the market system than the dominant faction of the latter half of the 1930s had been. Ironically, the war had brought into power a coalition much more congenial to the market and many of the most zealous New Deal planners had been pushed onto the periphery or completely out of the government. Though the post-war regime was by no means devoted to laissez-faire and the economy remained subject to a host of government restrictions, participants in the post-war market economy had enough confidence in the security of their property rights and enough room to maneuver that they could succeed in reinvigorating the private economy for the first time since the 1920s. So this has basically been like a totally revisionist understanding of the state of the economy from the 20s to the 40s that I've given you.

1:09:43I do feel it sort of incumbent on me to make at least some concluding reference to a debate that I was in about six or seven months ago with a professor, I think he's from American University, named Alan Lichtman. Anybody know Alan Lichtman? Okay, a few people. And so we were debating the New Deal, and was it a good or a bad thing? And he couldn't believe, he said, oh, come on, you're just repeating the old arguments we've heard for years. And all right, well, they could be right, the correct arguments, but I thought I had some fresh arguments that I didn't think he'd heard before. But Lichtman made this point. He said that, and this much is true, he said that during the Depression, 1937 to 38, you have like a depression within the Depression.

1:10:29All of a sudden, the bottom falls out again. I mean, just when it looks like things might be getting a little bit better, the bottom falls out again. You get unemployment soaring back up again. And so you get, in effect, a depression within the Depression, 1937 to 38. And he accounts for that. He says that Roosevelt had cut the budget somewhat and government spending going down led to this collapse. So I guess the argument being that we need government spending to keep the economy humming. I said that sounded like a Keynesian argument and he just scoffed at me. I think that is kind of a Keynesian type argument. So my response was, if that's true, if what you're saying is true, that if government spending is cut, and it would have been cut marginally at that point, if it's cut then we go into a terrible depression, then surely after World War II we should have been in the greatest depression in the history of mankind, when you go from the enormous budgets of World War II and then you slash that budget going into 1946, there should have been a huge depression in 1946.

1:11:36So how do you account for that? And then we ended up getting onto the fact that Roosevelt made it easier to join labor unions in the 30s and we never get back to this point. But that labor union point is actually closer to the point than I think Lichtman realized because one of the things that veteran Galloway point out in their book is that one of the contributing factors they say contributed to this depression, within the depression, is in fact the labor costs associated with this labor legislation that really began to go into effect around 1937, right around this time. So there seem to be a great many other explanatory factors in the point of view of government intervention that can account for this, rather than saying that in fact it was caused by too little government intervention. All right, well I think that's enough speaking on my part for today, so at this point I will happily entertain comments and questions.

1:12:27Yes, sir?

1:12:57The government was dumping large quantities of free grain out of Port of Berbera, and the food source was in the southern part of the country, and this is the northern part of the country, and they're giving away free food. The farmers who were producing food in the northern part of Somalia had no markets for their grain, and they went out of business and they just started hating Americans because of the socialism that we were imposing on Somalia. And this is usually what our aid packages are like all over the world. We're creating socialism other places, because these people who are trying to do subsistence farming and have a little bit extra to sell to their neighbor can't, because who would buy it if the U.S. government is giving away free food? Exactly, exactly. The gentleman was talking about an example in which by dumping food on Somalia, the problem was that it was totally disrupting the agricultural sector there I just couldn't help that you have a set of these economies, errors keep going again and again.

1:13:58And another one that I've heard so much is last year, is those three things that you're talking about. You haven't said these economy errors keep going again and again, and another one that I've heard so much is last year, is those three big hurricanes that hit Florida. Oh my gosh, I know it. At least this has created so many jobs. I know it, hurricanes creating jobs, I know it. And it's not that hard a point to grasp, is it? The broken window fallacy that hit every single time. I mean, I just get the feeling that I'm going to be virtually on my deathbed, and like the last thing I hear before I expire will be, the secretary of something today announced that at least the tornadoes, or at least the nuclear blast, you know, is going to have some kind of good effect on people.

1:14:53Yes? Well, I was just thinking, you know, about the, you were talking about the production companies, it sounds like, you know, the Soviet Union or something, you know, where, you know, they would, they could make a lot of stuff. We made all this steel. We made Russia industrialize. Who the hell cares if your people are starving? You managed to build factories in Siberia. Congratulations, they don't really produce anything worthwhile. I was just thinking that's sort of the same thing with all the production during World War II.

1:15:34by the 1970s, if you're still saying, hey comrades, look at how much concrete we can produce and by the 1980s, you're still saying, look at how much steel we're producing given the fact that everyone else is producing computer chips at that time, it's not really that impressive and in fact, by the 1980s, there were 25 million personal computers in the U.S. and there were 150,000 in the Soviet Union so there you go, it's wonderful you're still producing a lot of concrete, that's great, good for you I was just going to ask about the issue of Somalia. I don't know much about it, so I'm just asking a question. What was the reason why we weren't taking food over there? Could the people not afford to buy it for themselves, even if the farmers were producing it? How much would the farmers charge for it? Could the people afford it? That's the question I have to ask. Is that an issue at hand, or could they have actually afforded to buy the food?

1:16:31The decision was made to go in there, I think, while George Bush was a lame duck president. Is that not correct? Basically, on his way out, he made the decision to go in. And the impression that I had was that all the internal fighting was making society just so disorderly. I was assuming that production and distribution were impaired and impeded to the degree that the idea was that the U.S. would bring them the food that they couldn't otherwise get. Yeah, first of all, they had a transportation problem in Somalia, getting rain from the north to the south. There was no problem in production. They had a food store in the south part of the country. But what does the U.S. government do? They go to Port of Berbera. Berbera is in north of Somalia, not to Mogadishu.

1:17:17They ended up in rain in the north where they had plenty of food, and they're not getting the food back to the south. How the Foreign Agricultural Service used to maintain getting products to places is like we dump it on the country and then they'll go and determine, get it down to where they need it. Well Berber was a major port the Soviets built for the Soviets left. So there was a port that could receive large rain ships. So that's why the U.S. government was told to give grain, food grain to Somalia. They dumped it in an area where they really didn't need it. right okay okay and and and even even even even food aid I mean you know obviously private organizations helping people is something to be applauded but so often the state causes problems with this and I have a chapter on foreign aid in my book the church in the market they should all rush out and make sure and get all right I haven't been a total jerk at any time the whole week so I

1:18:14had to do it at least once okay Kevin and then we'll go one two and then over I remember when I first started learning about this and I had a discussion with my father. He says, well, when I was very young, being in World War II, hearing what he was talking about, the impression, what I hear of Roosevelt was because they were just sort of languishing in poverty. And then the WPA comes out and gets in the own roads and stuff that's, you know, still around. Council of Los Angeles, which is where they grew up. And I understood that the court was sort of, you know, they're sort of languishing in it, and what it really was was like that the government had a kind of, put a kind of energy, it sort of got them off their ducks, you know. Now, if you don't omit the fact that the government had made it impossible for them to do a whole lot of other things in a whole variety of ways, but it does raise a kind of issue, which is that, you know, we get to these questions.

1:19:04There's debates a lot, being libertarians, where you see the market, what they care about, and it's not obvious to some people. They're saying, well, what if the future sits there? What if they don't do anything? And it's always weird to respond to it, because you say, well, historically they always have. But that's no guarantee that they will in the future. I mean, maybe people won't do anything. What do you do with a counter factor like that? And what do you do with that? Well, maybe they won't, or what if they don't? I mean, it's not like you can make an argument.

1:20:01I'll jump off a cliff and hope that I invent a parachute on the way down. I think sometimes an argument like this may just be a personality type. If you're the Julian Simon type, you just have this natural optimism about the way life is. There are other people who just... Unless you have absolute guarantees... The market thing is something that you either see or you don't, I think. After a lot of reading and studying it, it just becomes part of the sinews of yourself. I don't really exactly know how to answer that other than to, as you say, try to give specific historical episodes and say, here's how normal people operating freely with their resources have produced all this wonderful stuff in the past and in all these different trying circumstances.

1:20:54Or maybe you could think of examples where it was against incredible odds that people produced wonderful things and all that. Well, here's how I respond. Oh, let's hear. Let's hear. I'd love to hear. It was that, you know, a lot of people make this distinction between the way they think about different institutional structures, when they think of some of them in terms of, well, let me give you the example. People will say things like, well, the market may or may not respond. And what I sort of said was, well, maybe the government will or will not respond in certain circumstances. I mean, it's just people from another institution. The thing is people tend to think of governments as rational deliberative groups, people that respond and think responsibly and follow norms very clearly, and then they analyze markets in terms of like sort of anything goes, maybe, maybe not. And the whole question that I try to pose at this point is, well where does this distinction come from?

1:21:41I mean, what's the basis of thinking that the government's going to engage in deliberative action, that it's always going to follow the rules it sets up for itself, that there are guarantees in government, that there aren't guarantees in the market? I mean, ultimately, it's a comparison between, well, who's more likely to respond?

1:22:11Laws are guaranteed, and they don't think institutional incentives are guaranteed. It's the whole rationale behind all kinds of things going on.

1:22:35You're talking about public and human certainty. I was trying to find out how the government is restraining trade on the trade of businesses and how they sort of got there with certainty to their profits by having the government involved. And it seems like ultimately the government's involvement can't affect their profits. and ultimately there's various plans for what socialist dictatorship or whatever will enact and so it will favor some over the others even if they do have to come to the government.

1:23:31For that sort of thing to work, you need a certain type of person in government. And I think they're coming to that conclusion. But also, business needs a regime that is not sort of weirdly changing all the time, where the tax laws are going to be different every three seconds. This is not the kind of climate they envision. They envision a kind of a partnership between government and business, I was reading a few years ago about the debate between Ricardo and Mollusk that took place in their letters regarding the issue of natural disasters or war and consumption in Russia.

1:24:26Ricardo was, he believed in Say's Law, so he understood the problem with under-consumption theories and said to Malthus, if what you're saying is true, then it would be a benefit to the national product if my house were swallowed by an earthquake. And Malthus said, no, no, no, you're not understanding what I'm saying. Ricardo said, well, I do understand what you're saying, you're just wrong. And it reminds me of Rothbard saying sometimes that you can't caricature some positions because you make fun of them you draw other logical consequences if this is true that earthquakes are good for the economy and they'll just accept that I know it I know it you have to yeah the reductio ad absurdum argument in when you're living in an absurd age is a very dangerous very dangerous method to use yes

1:25:25______ structure could be any less under war time production than under say increase in the money supply. So why do you think that we didn't have an Austrian style business bust after World War II? Yeah, that's a good question. I mean, I think, I know I will have to roll that around in my head a little bit, and plus look at the Higgs article with you, and I'd like to see what Bob has to say on that question. Okay, yes, and then we'll see if we have time for the gentleman in the back here. And I just had a comment on this particular section of the lecture. I really think that the depression in World War II era is a sort of a special sort of pace in that people are so emotionally tied to the events that the kind of criticism that you have offered up will not really resonate with people of some kind because they are so attached to the Tom Brokaw generation.

1:26:18My grandfather was a veteran of the Second World War. I'm very happy that you're working on these problems and other people are, but I think it's something that really won't make any ground for number 23.

1:26:48It's difficult to call out cold logic and say let's throw some cold water on this and look at the actual facts. People aren't going to want to listen to that, they're not going to be interested in that. Also it's why it's difficult talking about the justice or injustice of certain wars with someone who fought in them. There are exceptions. Some people are just so exceptionally geared toward wanting to know the truth that it doesn't matter what their own experiences have been, but that's really rare, and so you're right. In the short run, there are so many people who have lived through this that it would be difficult to make headway on this, and that's true in a lot of areas. I mean, that's true in some matters pertaining even to the Catholic Church, where with me, I'm so frustrated about the new liturgy, but there are bishops who made their whole careers out of developing this new liturgy.

1:27:44So there's no way I'm going to persuade them that we should have the old, so you have to just sort of sit and wait. That's kind of morbid sounding. I don't mean we're waiting for all you folks to drop dead, but I am saying that it is difficult to deal with matters that are emotional. At the same time, we shouldn't underestimate the number of people who were bitterly opposed to Roosevelt, even though he did keep getting elected. He had people who were just as bitterly opposed to Roosevelt as the bitterness against Clinton was. And, I mean, I remember PJ O'Rourke went on, I don't know, I think Jay Leno or something, and he was saying that one of his older family members, when they came out with a Franklin Roosevelt postage stamp, she didn't know which side she should spit on. So anyway, all right, I think that's all the time, all the time we have, so thanks.