Morality and Controls
Milton Friedman
Dr.
Friedman, Professor of Economics, University of Chicago, needs no
introduction to FREEMAN readers. This article was first published in two
parts in The New York Times on October 28 and 29, 1971. © 1971 by The
New York Times Company. Reprinted by permission.
Most
discussion of the wage price freeze and the coming Phase II controls
has been strictly economic and operational: were they needed, will they
work, how will they operate. I have recorded my own opposition to them
in three columns in Newsweek.
There
has been essentially no discussion of a much more fundamental issue.
The controls are deeply and inherently immoral. By substituting the rule
of men for the rule of law and for voluntary cooperation in the
marketplace, the controls threaten the very foundations of a free
society. By encouraging men to spy and report on one another, by making
it in the private interest of large numbers of citizens to evade the
controls, and by making actions illegal that are in the public interest,
the controls undermine individual morality.
One
of the proudest achievements of Western civilization was the
substitution of the rule of law for the rule of men. The ideal is that
government restrictions on our behavior shall take the form of
impersonal rules, applicable to all alike, and interpreted and
adjudicated by an independent judiciary rather than of specific orders
by a government official to named individuals. In principle, under the
rule of law, each of us can know what he may or may not do by consulting
the law and determining how it applies to his own circumstances.
The rule of law does not guarantee
freedom, since general laws as well as personal edicts can be
tyrannical. But increasing reliance on the rule of law clearly played a
major role in transforming Western society from a world in which the
ordinary citizen was literally subject to the arbitrary will of his
master to a world in which the ordinary citizen could regard himself as
his own master.
Contract or Status?
The
ideal was, of course, never fully attained. More important, we have
been eroding the rule of law slowly and steadily for decades, as
government has become more and more a participant in economic affairs
rather than primarily a rulemaker, referee, and enforcer of private
contracts. It was, after all, the development of the private market that
made possible the original movement from a world of status to a world
of voluntary contract. As government has tried to replace the market in
one area after another, it has inevitably been driven to restore a world
of status.
The
freeze and even more the pay board and price board of the Phase II
controls are clearly another massive step away from the rule of law and
back toward the rule of men. True, the rule of men will be under law but
that is a far cry from the rule of law — Stalin,
Hitler, Mussolini, and now Kosygin, Mao, and Franco all rule under law.
The
price that you and I may charge for our goods or our labor or that we
may pay others for their goods or their labor will now be determined,
not by any set of legislated standards applying to all alike, but by
specific orders by a small number of men appointed by the President. And
if governmental edict is to replace market contract, there is no
alternative. There are millions of prices, millions of wage rates
arrived at by voluntary agreements among millions of people. The
collectivistic countries have been unable in decades to find simple
rules enabling prices and wages to be established by any alternative
impersonal mechanism.
Politics and Patriotism
We
are not likely to succeed. And we are not trying. Instead, the appeal
is to the patriotism, civic responsibility, and judgment of political
appointees, must of whom represent vested interests. How do patriotism
and judgment determine that the price of a widget may rise 2.8 per cent
but the price of a wadget, only 0.3 per cent; the wage of a widgeteer by
2 per cent but of a wadgeteer, by 10 per cent? Clearly they do not.
Arbitrary judgment, political power, visibility — these are what will matter.
The
tendency for such an approach to violate human freedom is even more
clearly exemplified by the present situation with respect to dividends.
The President has requested firms not to raise dividends — he has
no legal power to do more. The request has been accompanied by
surveillance, a calling down to Washington and public lambasting of the
handful of corporations that did not conform, and a clear, implied
threat to use extralegal powers. These measures have no legal basis at
all. Yet I know of only one small company that has had the courage to
refuse to cooperate on grounds of principle.
The
full logic of the system will not work itself out this time. Our strong
tradition of freedom, the ineffectiveness of the controls, the
ingenuity of the people in finding ways around them — these will lead to
the collapse of the controls rather than to their hardening into a
full-fledged straitjacket. But nonetheless, it is disheartening to see
us take this further long step on the road to tyranny so lightheartedly,
so utterly unaware that we are doing something fundamentally in
conflict with the basic principles on which this country is founded. The
first time, we may venture only a small way. But the next time, and the
next time?
A Nation of Informers
Enforcement
of the price and wage controls, as of the freeze, must depend heavily
on encouraging ordinary citizens to be informers — to report
"violations" to government officials.
When
you and I make a private deal, both of us benefit — otherwise we do not
have to make it. We are partners, cooperating voluntarily with one
another. The terms, so long as they are mutually agreeable, should be
our business. But not any longer. Big Brother is looking over our
shoulders. And if the terms do not correspond with what he says is O.K.,
one of us is encouraged to turn in the other. And to turn him in for
doing something few people have ever regarded and do not now regard as
in any sense morally wrong; on the contrary, for doing something that
each of us regards, when it affects us, as our basic right. Am I not
entitled to sell my goods or my labor for what I consider them worth as
long as I do not coerce anyone to buy? Is it morally wrong for Chile to
expropriate the property of Anaconda Copper — i.e., to force it to sell
its copper mines for a price less than its value; but morally right for
the U.S. government to force the worker to sell his labor for less than
its value to him and to his employer?
By
any standards, the edicts of the pay board and the price board, like
the initial freeze, will be full of inequities and will be judged to be
by ever increasing numbers of people. You believe that you are entitled
to a pay raise, your employer agrees and wishes to give you one, yet the
pay board says no. Will there not be a great temptation to find a way
around the ruling? By a promotion unaccompanied by any change in duties
but to a job title carrying a higher permitted pay. Or by your employer
providing you with amenities you formerly paid for. Or by one or another
of the innumerable stratagems — legal, quasilegal, or illegal — that
ingenious men devise to protect themselves from snooping bureaucrats.
Two Wrongs = Two Wrongs
In
general, I have little sympathy with trade unions. They have done
immense harm by restricting access to jobs, denying excluded workers the
opportunity to make the most of their abilities, and forcing them to
take less satisfactory jobs. Yet surely in the present instance they are
right that it is inequitable for the government retroactively to void
contracts freely arrived at. The way to reduce the monopoly power of
unions is to remove the special legal immunities they are now granted,
not to replace one concentrated power by another.
When
men do not regard governmental measures as just and right they will
find a way around them. The effects extend beyond the original source,
generate widespread disrespect for the law, and promote corruption and
violence. We found this out to our cost in the 1920′s with Prohibition;
in World War II with price control and rationing; today with drug laws.
We shall experience it yet again with price and wage controls if they
are ever more than a paper facade.
One
feature of price and wage controls makes their effect on individual
morality especially vicious. Because these controls distort the use of
resources, the evader benefits not only himself but society. The more
rigorously the controls are enforced, the more harm they do. They render
behavior which is immoral from one point of view socially beneficial.
They thus introduce the kind of fundamental moral conflict that is
utterly destructive of social cohesion.
Our
markets are far from completely free. Monopoly power of labor and
business means that prices and wages are not wholly a product of
voluntary contract. Yet these blemishes, real and important though they
are, are minor compared to replacing market agreements by government
edict, compared to giving arbitrary power to a small number of appointed
officials, compared to inculcating in the public contempt for the law.
The
excuse for the destruction of liberty is always the plea of necessity —
that there is no alternative. If indeed, the economy were in a state of
crisis, of a life and death emergency, and if controls promised a sure
way out, all their evil social and moral effects might be a price that
would have to be paid for survival. But not even the gloomiest observer
of the economic scene would describe it in any such terms. Prices rising
at 4 per cent a year, unemployment at a level of 6 per cent —these are
higher than we would like to have or than we need to have, but they are
very far indeed from crisis levels. On the contrary, they are rather
moderate by historical standard. And there is far from uniform agreement
that wage and price controls will improve matters. I happen to believe
that they will make matters worse after an initial deceptive period of
apparent success. Others disagree. But even their warmest defenders
recognize that they impose costs, produce distortions in the use of
resources, and may fail to reduce inflation. Under such circumstances,
the moral case surely deserves at least some attention.
***
The Abolition of Private Property
A
government that sets out to abolish market prices is inevitably driven
towards the abolition of private property; it has to recognize that
there is no middle way between the system of private property in the
means of production combined with free contract, and the system of
common ownership of the means of production, or Socialism. It is
gradually forced towards compulsory production, universal obligation to
labor, rationing of consumption, and, finally, official regulation of
the whole of production and consumption.
LUDWIG VON MISES, The Theory of Money and Credit
January 1972 • Volume: 22 • Issue: 1
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