Monday, June 23, 2008

The Freeman Essays--VII The Merciful Scale

This is the last of the essays that I submitted to the Freeman Magazine that I will publish here. I actually submitted one entitled, "On Frowning in Pocatello" that I have lost. I plan to publish later essays on P.G. Wodehouse, Rafael Sabatini, Agatha Christie and G. A. Henty but those need considerable work yet.

This essay contains an obvious flaw (and undoubtedly many others not obvious to me) for someone who claims to believe in Austrian economics, which I did not catch at the time I submitted it. I hope to rework this essay later using Portia's "Quality of Mercy" monologue as a springboard.

The Merciful Scale--On the Impossibility of Corporate Compassion

Occasionally one of our judges, wishing to see his or her name in the paper, I suppose, makes a plea to the other judges in the district to be more merciful. Why this should invariably make the news is beyond me. What is even more baffling, is the fact that a person as learned as a judge should be, cannot see the utter impossibility of a judge, in his official capacity, of being merciful. Of course, if the judge means that judges have lots of extra time and money and that they should be more generous with their personal means, I can have no quarrel, but that is never what they mean.

Even a few minutes of thought shows how impossible it is for a judge to be merciful. In my younger days, justice was frequently represented as a blindfolded lady with an old fashioned set of balance scales in one hand and a sword in the other. The sword, of course, represented the executive, i.e. the police. The balance, the judicial, and the legislative was represented by the weights used in the balance. A judge can no more be merciful than can a balance scale. A scale is either accurate or inaccurate. A judge is either just or unjust.

If a fellow weighing three hundred pounds steps onto a scale and the scale reads one hundred twenty five, some may say that the scale is merciful. In reality, of course, it is merely inaccurate. The sad thing is that the inaccuracy may have tragic consequences. If the heavy chap really believes the reading on the scale he may set aside his resolve to get more exercise and eat fewer fattening foods, feeling that since he weighs so little he can afford, indeed, he may feel he should, put on more weight. Likewise, a judge who gives a very light sentence for a very serious crime, frequently congratulates herself (and is congratulated) with being merciful, when, in fact, she is simply being unjust. The felon, feeling, based upon the reading of the scales of justice, that he has hardly done anything wrong, sets aside any real resolve to reform and hence, quickly finds himself hoping again for a judge who is as "merciful" as the last.

I have often pondered why such injustices, so clear to almost everyone, should be so impenetrable to those on the bench. And yet, we all know that such things are common in modern jurisprudence. We read almost daily of people with injuries who receive millions of dollars in return. In effect, the ancient system of the equivalent of an eye for an eye, has been replaced by a system in which a person is rewarded with the equivalent of many lives for an eye--and all in the name of mercy. The person without the eye, appears in court, while the hundreds and even, thousands of people who must sacrifice the equivalent of a finger, or a toe, not only do not, cannot, appear in court, their claims are simply ignored.

At least part of the reason for all this, I believe, is that our people in general, and those of our people involved in law, in particular, have come to believe in, not only the possibility but even the value of, corporate mercy or compassion. I think it would be helpful to examine an example of what we often see as corporate or group compassion in order to see why they are really not corporate compassion at all, but are really examples of either individual compassion somehow organized, or are really examples of injustice disguised.

The most obvious example of corporate compassion is organized charity. But the very name tells us what it really is. It is individual compassion organized for a definite purpose. If I, for example, decide, upon hearing of starvation in some remote corner of the earth, that I have $10 to spare to help alleviate that suffering, I would quickly find, that by myself, I would be hard pressed to get so much as a slice of bread to those starving people with my $10. If I could convince a thousand other people of the need and they also would each contribute $10, I could hire a shipping company to send a load of groceries to those people. Of course, in getting a thousand people to contribute $10, I have given considerably more than my initial contribution in terms of time and effort. Before I make such an effort a second time, I may decide that I need to be reimbursed for that effort. If I accept in return for my effort exactly what I could get working in some other endeavor, I have merely converted from one job to another. I am no longer being merciful in my work for the starving people in that far-away place, but I am being just. If, however, I take more than I could receive for other work, I am being much less than compassionate, and probably even less than just. Likewise, if I take the money contributed to help the starving people and buy textbooks for illiterate people, I am committing fraud. There is no corporate charity here, that as the director or president of the corporation, I am entitled to use in any way I see as being compassionate. It is a group of individual mercies organized for a very specific purpose to help those mercies become more effective.

Likewise, when the president of a large corporation decides to use some of the profits of the corporation in order to benefit a personal favorite charity, he is not being somehow corporately compassionate. Of course, if he is using money that the board of directors has given him as salary or recompense, he is being privately charitable. But to take corporate funds and donate them to charity is an act of stealing or fraud. It happens and is not prosecuted largely because the tax laws have turned it, in many instances, into a wise business move. Between the tax write-off and the favorable publicity, it is not really charity at all, but merely another act of business. If done entirely as a tax benefit, it is merely another form of government "compassion".
A more difficult situation arises when a corporation is compassionate with their own employees. The most obvious example is health benefits, or indeed, "benefits" in general. These were originally not given as compassion at all, but were given as a means of competing in the labor market when salaries and wages were tightly regulated. When a dispassionate historical analysis of our time is written, I believe, that in these acts of corporate compassion we will find the greatest injustice. All of us who have worked for a large corporation that is proud of its many "benefits" know that there are people in the corporation who have little use for them, and others that abuse them. It is certainly an open question as to whether the wide spread extending of health insurance by our corporations has resulted in any real improvement in health, any more than the use of socialized medicine in foreign lands, and the consequent availability of "free" medical care, has resulted in any real improvement in the health of those peoples.

Of course, the ultimate giver of corporate compassion is the government. Bastiat showed long ago that the only way a government can be seen as being compassionate, is by focusing on the short term immediate appearances and ignoring the long-term more diffused results. A government can be seen as producing compassion only in the same way as a lottery can be seen as producing wealth.

Another way to recognize the impossibility of corporate compassion is to focus on the definition of mercy and what is required to produce it. One of the advantages of the use of money is that it enables us to better understand what mercy or compassion is. Generally, we think of mercy as the giving of something for which nothing--or at least nothing of the same kind of thing--is expected in return. Because we all have very different desires, ambitions, and needs--or, at least, perceived needs--we all have very different ideas of what exactly constitutes justice, and consequently, mercy, in every human transaction. One of the values of a money system is that it makes the understanding of the limits of justice and the beginning of mercy more universal. If I give you two nickels for a dime, my act, in our society, is almost universally perceived as being just. Someone looking at it from another society may view it as being very merciful because I have given you two large coins in exchange for one very small coin. The reason that I and almost everyone I know and associate with on a daily basis can view this exchange as being perfectly just is that all of these people, on the question of the relative value of a nickel and a dime, are "of one mind".
That is possible largely because when I exchange two nickels for a dime I have not, in any meaningful way changed my condition. Of course, if I desperately want something from a vending machine that accepts only nickels, I may be willing to give more than their worth for nickels, but, in 99% of the exchanges in our society, two nickels is exactly the same as a dime. The reason is that money is not something we exchange at all ultimately. It is a device invented by man to make exchange more convenient,i.e. we speak of it as a medium of exchange. Ultimately, we exchange what we ourselves have produced, or what we have acquired by exchange, by inheritance, or by force or fraud.

It should be clear that it is really not possible to speak of being merciful or compassionate with something we have obtained by force or fraud. It is really possible to be compassionate only with something I have produced directly, or with something I have acquired by exchanging something I have produced, or finally, by something that someone has given to me. In addition, it is also possible to be merciful only with what I have in surplus. If I give of my means to charity and must, as a result, resort to charity myself, or worse, use force or fraud to maintain myself, I have not shown mercy at all, I have merely been the means of redirecting charity, or if I resort to force or fraud, to the redirecting of resources.

And herein lies the reason that corporate compassion is impossible--because corporations do not produce surpluses. For a corporation to really produce a surplus all parties to the creation of the output of the corporation must agree to the fact that part of it is surplus. They must be as much "of one mind" of the surplus, as the person exchanging two nickels for a dime. In theory, this might be possible, but in practice it is rare, if not impossible. What is not rare, what happens all of the time, is for some small minority of the parties involved in the production of the corporate output to decide that part of it is surplus. Usually, it is the party or party whose own share of the output is undiminished in the declaration of part of the output to be surplus. And, of course, just as there are always neighbors, friends, miscellaneous onlookers, and, above all, politicians, who are ready to declare that certain individuals have "more than they need", there are also observers a plenty who are ready declare that corporations have surpluses or "excess profits" that should be applied to their own favorite charities.

If a corporation, private or government, is lucky enough to have produced, or obtained by exchange or contract, more than its contracted obligations, it must in justice, distribute that uncontracted portion to those who helped produce it. The reason is that the production of that "surplus" or extra, could only happen because the individuals involved in its production, have also given more than they were contracted to give. It has been shown over and over again, that the quickest way to destroy a corporation or even to bring an entire society to its knees, is for those involved in the corporation, or the society, to refuse to do anything that they have not been specifically contracted to do. If, therefore, material above and beyond that contracted for is available, it is only because effort above and beyond that required has gone into its production. For the leaders of a group, to simply ignore that and declare the extra a "surplus" to meted out as compassion, is to commit an injustice. Those men, whether they are the city council, the state legislature, the Federal congress, or the board of directors of a large corporation, like the judge in the courtroom, have only a balance when it comes to the distribution of the proceeds of the corporation. That balance of itself can never be merciful, it can only be accurate or inaccurate. Likewise, a corporation can distribute what it receives justly or unjustly, but, in practice, never compassionately.

Thursday, June 12, 2008

The Freeman Essays--VI--Dickens' Scrooge and the Modern Counterpart

I have always been amazed at the remarkable popularity of Charles Dickens' Christmas Story, "A Christmas Carol". Almost every year sees a new version either on television or in the movies. Many of these hang around for several years so we normally have the choice of at least 3 or 4 versions on television. In addition several of the local theaters do their own versions of the story.
One reason for the popularity of Scrooge, I believe, is that almost everyone can enjoy feeling superior to him. Few American are misers in exactly the sense that Scrooge was. That is, few Americans seek to build ever larger stockpiles of money which they hide physically under a mattress or in a box buried in the ground. Of course, stashing away real money,e.g. gold coins, was, until fairly recently, illegal, and stashing away the coin and currency of the realm has in all my lifetime, the lifetime of my father, and most of the lifetime of my grandfather, made no sense whatsoever because of inflation.
In the typical production of Scrooge, we see him returning home to a ramshackle apartment, eating dry bread and thin soup, and dressed worse than any of the beggars to whom he returns only his famous "bah humbug" in exchange for their pleas for assistance. In a word, he leads a miserly existence--an existence that makes even less sense to most of us than it did to Scrooge's nephew, Fred, who in Dicken's story delights in pointing out to his friends that Scrooge gets no real enjoyment from his money. Of course, there are people like Scrooge, but, in today's world, I suspect, they are rare. We, like Scrooge's nephew are determined to use whatever we can lay hold of to live "the good life". But I believe that the motivation that prompted such miserliness is still there--if anything, stronger today than in Scrooge's day. To understand why we must ask ourselves why Scrooge was such a miser at all.
In the various plays I have seen of Scrooge, the impression is given that the "new and reborn" Scrooge has given up nothing by exchanging his old miserly self for his new person. If, of course, his new-found generosity and geniality results in an increase of business for his loan company, this will possibly be true. But what Scrooge perceived he would be giving up was income and security. Giving generously from his private stock of capital left him less money for making loans and also because his reserves would be reduced he would be more vulnerable to the vicissitudes of the future.
In the reluctance to let go of that security, Scrooge is not far behind most of us. Most of his contemporaries simply could not stockpile the amount of capital necessary to hedge against every possible trouble, so they relied heavily on the more informal network of support--friends and family, and ultimately, private charity, especially, the Church. I am sure however, that many of them, just as many of us, had Scrooge-like tendencies in some of their dealings. This includes Dickens himself, who, according to his biographers, could be as tight-fisted with his publishers and other business associates as ever Scrooge was with his clients.
But Dickens was very generous with friends and family and in charitable works. Part of this was, no doubt, his nature, but much came from the observation that those who are generous in times of success are more readily helped in times of trouble. This was almost the universal feeling of Dickens' day and accounts, I believe, for the great appeal of his story upon its first appearance.
In our own day, however, men have turned away, by and large from friends, family, and small local charities such as the local parish as a source of security and now look to large collectives--insurance companies, corporate annuities, and, above all else, the government. This frees us to be--or at least to appear to be--much less the misers. Most Americans live like Scrooge's nephew, Fred. Scrooge looked on Fred's lifestyle as irresponsible because he was making no hard cash provision for his future. Modern American audiences identify with Fred because almost no one in America does either. We are hopeful that it will be unnecessary to do so. At the same time, most Americans make little "friends and family" provision for their futures, either.
Whatever can be brought against the miserly Scrooge, it must be said in his favor that he was making provision for himself. Of course, the new, reformed Scrooge was a much better man, but a great deal of that stems from the fact that he gave up some of his trust in hard cash and placed a great deal more of his fate into the hands of friends, family, and ultimately, God. To really identify with the "reborn" Scrooge, a person would have to do the same. Instead, most of us who enjoy viewing his change continue to spend our cash on the "good life", confident, if some uncertainty lays us low that we deserve to be taken care by government.
The other thing that can be said for Scrooge, the reason I find myself sympathizing with him on occasion, is that, although not inclined toward charity himself, we do not find him suggesting that others should be forced to be charitable. His uncharity ended with himself. There are, in our society, a growing number of what I call, the "new Scrooges". I was reminded of this the other day when I was looking through some old magazine articles I had clipped. I am going to use the example below, not because I think the Alan Blinder is the archetype "new Scrooge"--they are legion--but he certainly belongs to their number. Principally, I chose him because he so clearly put his "Scrooginess" in print, but he did it enough years ago that the issues of a specific political campaign have ceased to be strongly emotional.
In an election year article in Business Week, Mr. Blinder, a Princeton economist and guest columnist for that magazine, suggested that everyone should vote for Michael Dukakis. To support his reasoning he used the example of the problem of homelessness. This is a problem of sufficient magnitude that Mr. Blinder felt it was somewhat beyond solution with his resources alone. He felt, however, that he would be willing to put $100 toward that end. He felt confident that if everyone else in America were also so generous, that the problem would be solved. His great concern was that his neighbors might not be so generous unless forced to contribute their fair share. Mr. Dukakis, he felt would be more likely to force everyone to pay his $100 share.
Let us put this argument in terms of Scrooge's day. Considering that Mr. Scrooge's hard-pressed clerk, Bob Crachit, had an annual salary of about 750 shillings, one hundred dollars is to Mr. Blinder--assuming an annual salary of between $38,000 and $75,000--the "Crachit equivalent" of a shilling or two. Since Scrooge clearly shows contempt for Bob Crachit's salary, it would be safe to assume that $100 for Alan Blinder is the equivalent to Scrooge of 3 or 4 pence or pennies. Scrooge could easily have said, "I will gladly contribute a few pennies if my even stingier neighbors are forced to contribute their pennies first."
I suspect that Mr. Blinder would counter that Scrooge would say something like that as a mere ploy to get out of paying his fair share, while he, on the other hand, had worked very hard to see to it that everyone was indeed forced to pay that fair share. In his mind, I am sure, not only is he no Scrooge, but he is doing all in his power to see to it that everyone else is "unscrooged" too.
What Mr. Blinder and the army of fellow "new Scrooges" always fail (or refuse) to recognize is that not everyone's perception of the problem is the same. This is particularly true when it gets down to calculating the "fair share". And , unfortunately, it is the very people who are best able to pay their "fair share" who are most inclined to use every means, fair and foul, to see to it that they don't have to. In fact, Mr. Blinder, in a highly amusing article written around April 15, essentially admits that he is among their number. In that article, he informs us that he wishes to take advantage of a new tax law to provide himself with the best advantage possible, but that the form for doing so is so difficult to understand that in spite of three degrees in economics, he is having a hard time. While those in the "lower middle class" and below will take their lumps with the 1040, Mr. Blinder makes it clear that, with his three degrees and an extended summer vacation, he plans to grasp every advantage the tax laws allow.
And thus we see why the "new Scrooges" are so very much worse than the original. For while the new Scrooges loudly and fervently demand that everyone be forced to pay his "fair share"in all kinds of charitable works, it is typically the Bob Crachits of the world that end up paying it. The tragedy is, of course, that just as $100 to Mr. Blinder or a few pennies to Scrooge is of little consequence, to Bob Crachit it is a real sacrifice. Being forced to pay a few shillings for the homeless, may bring him and his family dangerously close to that condition themselves.
I suppose the sum of the matter is that as we witness Scrooge repent again for the umpteenth time, that we remember that for him to have a really joyous Christmas, he must increase in faith what he has given up in cash. And if that is not possible for us, we should at least with all our mights, struggle against the temptation to become "scroogier" than Scrooge by suggesting that people be forced to be charitable.
1. Blinder, Alan "An Issueless Campaign? Take a Closer Look" Business Week, Oct. 24, 1988 Pg. 18.
2. Blinder, Alan "Could the New Tax Forms be as Bad as Everyone Says? Trust Me" Business Week, April 11, 1988 Pg. 22.

Monday, June 2, 2008

The Freeman Essays--V Bernarr MacFadden teaches us how to live, and eat well, on 4 cents a day

Most of these articles deal with some form of literature. As mentioned in the article I wrote below, if we think of Bernarr MacFadden at all, we associate his name with the very cheapest of literature, if indeed, we can call it literature at all. But his Physical Culture magazines are a really fun read, and they did encourage several writers who later became quite popular. But his chief contribution--and I believe it to be substantial, is detailed in the following article.

Bernarr MacFadden Teaches Us How to Live, and Eat, Well on 4 Cents a Day.

Among the many things that is distressing about our country at this time is the obvious fact that a large percentage of its citizens are unhealthy, by anyone’s standards. This fact has led increasingly to the call for the implementation and extension of various government programs, in spite of the fact, that the government regulation, control, subsidy, promotion, and direction of the nation’s food, medicine, and medical care has led to a good deal, if not most of, the problem in the first place. In that light, it is interesting and, I believe, instructive, to speculate what the state of our nation’s health might have become had Bernarr MacFadden realized his ambition to be elected to the Senate, or even as President.

MacFadden is best remembered, if he is remembered at all, as the founder of a large publishing enterprise specializing in the "True Story" magazine genre. Many of these still carry his name in the fine print of the publishing and editorial credits. He, however, always thought of himself as a health reformer. Indeed, the idea for the "True Story" magazines had its origin in that fact that in running promotions for his health magazine, Physical Culture, he asked people to send in their stories on how they became strong, or healthy, or how they overcame physical problems. The response to these was large and interesting enough that he decided to publish a magazine devoted entirely to such stories, but the main point for him was always health.

There are at least two biographies of him that I am aware of. The earlier, and "authorized" biography, was written by his chief editor and associate, Fulton Oursler, who went on to achieve wider fame as an editor of Reader’s Digest and the author of The Greatest Story Ever Told. This biography of MacFadden, predictably, emphasizes his strengths. The other, Weakness is a Crime by Robert Ernst, follows the popular "expose" pattern with emphasis on his eccentricities and weaknesses. But with respect to his self-appointed mission to build health and strength in himself and others, both books tell the same story.

His early life is a reminder that it is sometimes better--even for children--to provide the opportunities of freedom over the security of government protection. His was not a happy childhood. Abandoned by his mother at about age eight, he stayed with and worked for abusive guardians hoping his mother would return and reclaim him. Always sickly, his guardians apparently planned to get what work they could out of him until his body was "used up" by consumption. As soon as he discovered that his mother had died, he fled his guardians and hit the road. He began working for a farm couple, who, while little better than the previous guardians, did allow him enough time off the farm to attend a local school. Once he had learned to read, his imagination was fired by the books he found at the farm. The work on the farm had improved his health to the point that he became excited at the possibility of enjoying physical health and strength. He found a book on how to build a strong body. In finding that book, he found his life’s work. From that time forward, still in his early teens, he was essentially his own man.

After years of wandering from job to job, he returned, in his late teens, to live with an uncle and aunt, whose care for him left him time to develop athletic ability. He developed this so rapidly that he was soon able to perform feats of strength impressive enough to attract audiences. This began a practice of performing public feats of physical strength and agility, beginning as a young man with wrestling and gymnastic contests and culminating in his 80's in parachuting stunts as a part of his campaign for the U.S. Senate.

He was an entrepreneur almost from his youth. His first real business venture was a linen-cleaning establishment, but he quickly decided that, having built superb health in his own body, he wanted to dedicate his life to helping others do likewise. Like most successful entrepreneurs, he also launched the careers of several others. Paul Bragg, the pioneer in the use of radio and television in promoting "Health Crusades", and Herbert Shelton, the founder of the Natural Hygiene health movement, both got their starts working for MacFadden. Charles Atlas, who won two of MacFadden’s "Strongest-Man-in-the-World" contests, used that distinction to launch a career teaching "90 lb weaklings" who had to bear the humiliation of having sand kicked in their faces and their dates taken away by muscle-bound bullies, how to build a body that would allow them to return the humiliation.

In addition to his publishing business, he started health schools, retreats, and even, a short-lived community devoted to healthful living. But my personal favorite of his enterprises came about as a challenge from his critics. He was criticized his whole life, because of his unflinching opposition to a health bureaucracy of any kind. He hated the AMA, not because he didn’t believe that doctors could, and occasionally did, do some good. He actually collaborated with medical doctors on some of his publications and invited, and used, their contributions to his Physical Culture Magazine. His hatred sprang from the fact that the AMA was using the power of government to eliminate competition. Similar attempts to bureaucratize healthcare, particularly by the Roosevelt administration also aroused his ire. But long before Roosevelt came to power; in fact, during the administration of the first Roosevelt (Teddy), he was roundly criticized for the claim that the poor would be better off if they did as he did and live off food costing only pennies a day. Since by this time he was quite wealthy, his critics claimed that this was only so much hot air. In response, he published a list of everything he ate for 3 weeks and the amount he had paid for all of the items. The total came to 84¢, or about 4¢ a day.

When the scepticism continued, he met the challenge by saying that not only could he personally live from food costing just pennies a day, but that he could feed others for that amount, pay his workers to provide the food, and still break even. To prove his point he started a restaurant in which everything on the menu was only 1¢. For a mere penny you could buy a large plate of beans, or a generous portion of cabbage salad or several other choices. In this restaurant 2¢ provided an adequate meal, 4¢ a feast. It is doubtful that MacFadden would have succeeded in this boast to break even with this restaurant, had he not used his knowledge of the human ego (he had a rather large one to assist in the study). This one-penny restaurant was placed in the basement of his building. On the main floor he had another restaurant. This one had exactly the same menu as the one in the basement, and that was made clear. The only difference was that the restaurant on the main floor had what we might call "decor". The food was served on expensive china; the utensils were real silverware; the napkins were cloth;etc. In this restaurant, the menu items that could be had for 1¢ in the basement, cost 5¢. This dual one-cent/five-cent restaurant was very popular, and to everyone’s surprise, including MacFadden’s, quite profitable; so much so, in fact, that a number of them were built. By the time of the pre-Depression depression of 1907, there were 20 of these "One-Cent" restaurants in operation. Many of them lasted until the prosperity of the 1920's made either healthful or inexpensive eating (or possibly both) unpopular.
During the Depression, MacFadden revived this experiment, but found that, despite the much-publicized bread lines and soup kitchens, people were simply not interested in inexpensive meals. They wanted government aid.

MacFadden was fanatical in his belief that health is primarily a do-it-yourself project. He acknowledged the occasional need for help from experts, but he felt strongly that it should be openly given and received without bureaucratic interference. It is interesting to speculate what might have been had his philosophy been incorporated into public policy. My own conviction is that we would probably be healthier, richer, and certainly, much freer.