Al Lax’s Consumers’ Capitalism and the Immutable Laws of Economics (Charles Hallberg & Co., $5.95) is an adventure in shirtsleeve economics. What it tries to do—and succeeds very well in accomplishing—is to put the concept of marginal utility (a rather forbidding phrase) into easily comprehensible terms. This is "Austrian economics" in homespun, or Menger-for-the-Masses, which eschews all talk about "monopsony," or "oligopoly," or any of the manifold verbal barbarisms that the professional economists use as shorthand. It is the work of a good simplifier who knows how to be clear without becoming superficial.
If it is Menger-for-the-Masses, an exposition of how the subjective desires of individuals resultin personal lists of preferences regarding the utility of any and all the items that are offered in trade, it is also Mises-for-the-Multitudes. Like Ludwig von Mises, Mr. Lax is struck by the fact that "planning" on the Soviet model would be impossible if no free market system existed anywhere in the world to establish the proper relationship between hard metallic money and goods. The utter dependence of socialist "planners" on what happens in an "unplanned" market is a subject for cosmic irony. Nobody knows how to set prices that will "clear the market" unless there is, somewhere in the world, a free system which will let individuals judge what they want in relation to what they have to pay for it. Socialism and "bureaucratic planning" come to grief on the measurement problem: they need a "market" to give them signals about the point where the weakest desire is willing to fork up something for the last item that a producer is able to put up for sale without going broke.
Millions of Planners
The dependence of "planners" on evidence gathered from "unplanned" systems leads Mr. Lax to transvalue the usual terms of discourse. It is not really true, he says, that "invisible hand" capitalism is an "unplanned" affair. Under unfettered capitalism it is the individual consumer who does the "planning." He tells the producer what is wanted, and in what proportions. It may seem strange that a city like New York, with eight million people, gets its morning coffee without any "conning tower" consideration of how many coffee trees should be planted in Colombia and Brazil, or how many coffee roasting establishments should be financed, or how many ships should be dispatched to Sao Paulo. Actually, however, a couple of million housewives, each planning for an individual family, add up to a total "plan" for coffee delivery in the New York marketplace. No bureaucrat could do as well as the "invisible hand" that takes its orders from two million "planning" housewives.
Under "consumers’ capitalism," energy goes to where it is needed most. In countries where "bureaucratic capitalism (or state socialism) reign more or less supreme, the disposal of energy must be allotted in accordance with the prejudices and the guesses of the commissars. In the "mixed economies," where there is some freedom and some of what might be called "planning-by-guess," energy moves into action in distorted ways. Most of the nations of the world have "conglomerate" systems. But the ones that do the least "planning by-guess" have the highest standards of living, other things (such as soil endowments, the availability of water, and so on) being equal. Even in places like Japan, where land is at a premium and most raw materials must be brought in from overseas, freedom can create a prosperity that is the envy of bureaucratic economies that are better endowed with such things as coal and iron in the ground and wider horizons for the growing of corn and wheat and cattle.
Resort to the Rule of Force
Since bureaucrats resist letting the "market" decide, they are thrown back upon the rule of force. The "planners" have to make use of the secret police and the torture chamber to push production into the channels they have arbitrarily chosen. The "bureaucratic capitalist" nations become "giant tribes," in Mr. Lax’s appropriate description. They trade with each other by barter ("if at all"), and every competing tribe is suspect. And, to keep people from emigrating to places where individuals do their own "planning," the "giant tribes" ring themselves with land mines and ugly walls, "with police dogs patrolling the exits."
Periodically, in the "bureaucratic capitalist" systems, the inefficiency becomes so notorious that the "planners" feel they must experiment with an "as if" market system. So we have the spectacle of a Yevsy Liberman in Soviet Russia saying publicly that the communist system must find some way of reintroducing the concept of profit. Without profit, so Liberman told the commissars, there was no way of gauging efficiency. But how do you create the atmosphere for a profit system without such things as individual ownership, access to a free capital market, and competition for raw material and labor? Liberman has never been able to answer this in a country which insists on bureaucratic allocation of capital and access to raw material sources. Since the Russians have no way of objectively determining optimum shoe production, for example, they don’t know when to stop making shoes and start making something else. Their only reference points for calculation come from the world market for such things as leather, the material needed for shoe lasts, and so on. Without the capitalistic West to copy, the Soviet "planners" would, as Mr. Lax expresses it, "be helplessly lost in a maze with no beginning nor end."
Freedom or Coercion
Mr. Lax denies that one can have "the best of both worlds" by saddling a free system with "bureaucratic planning," or "interventionism." You cannot "plan" without taking resources from those who, if the market were left to judge, would place them where they could be used in the most efficient manner. Laws and decrees cannot create prosperity. If a minimum wage will supposedly give everyone a minimum subsistence standard, why not go the whole hog and make everybody rich by setting the minimum wage at $25 an hour? The answer is that all any minimum can do is to exclude from the labor market any person who can’t make money for an employer at the government-dictated wage rate. The minimum wage "intervention" must approximate a good guess at the natural market price for unskilled labor if it is not to result in unemployed men and a reduced amount of goods for sale. But if the minimum wage does approximate a good guess at what the natural price for labor would be without any political ukase, it is obvious that no intervention was necessary in the first place.
Mr. Lax’s treatment of tariffs is particularly refreshing. The standard argument for tariffs is that they are needed to protect Americans from the low-wage competition of nasty foreigners. But the attempt to keep workers and capital employed in naturally inefficient industries actually restricts the energy that might be applied in places where a nation has a real comparative advantage. Says Mr. Lax, "in spite of the belief that tariffs protect Americans from cheap foreign labor, tariffs (in the long run) inhibit the shift of workers into higher-paying jobs." The U.S., so Mr. Lax argues, should forget about competing with Japan or Hong Kong in making artificial plastic flowers or inexpensive clothing and put its bet on airplanes and electronic computer systems, where it has a great advantage over the so-called "developing" nations.
The "planners" world always results in "problems," such as the "farm problem," or the "housing problem." Where the economy remains free, there is no such thing as an "automobile problem," or a "shoe problem." The attempt to "plan" production allocates capital (seized by taxation) to the creation, of surpluses which, by definition, are what nobody wants. The surpluses, says Mr. Lax, "are the twentieth century pyramids."
Mr. Lax’s book is edited by Edmund A. Opitz, who also wrote the Introduction. The Preface is contributed by Leonard E. Read.