Dr. Shumiatcher is a prominent lawyer in Regina, Saskatchewan, well known as a lecturer, writer, defender of freedom.
An irony of our times is the unwelcome discovery that our pursuit of economic security has led us down the road to insecurity. The greater our concern for safety, the more vulnerable we have become to the forces that are capable of destroying our freedom and dissolving our economic independence. Our preoccupation with the building of dykes against the flood has only raised the level of the waters beyond, and so augmented rather than allayed our apprehensions.
Before even the unconditional surrender of Britain’s enemies in 1945, Lord Beveridge was advancing plans for a new kind of society in which, from the cradle to the grave, everyone’s security would be underwritten by the state. Fear of the future would be forever banished.
Individual egalitarianism and economic security became the popular slogans of the day.
They were echoed in all parts of the post-war world. Socialist and welfare oriented governments sprang up everywhere. Superficially, the slogans seemed as attractive as the promises of the new society in which not only war, but poverty itself would be abolished.
But after thirty years of euphoric eloquence, the welfare state realized none of the sanguine hopes or extravagant promises of its political progenitors. Economic security once seemed a simple matter to achieve by the rational planning of governmental experts and the central computerized controls of professional bureaucrats. The power to build a fortress against poverty and exploitation seemed unquestionably Parliament’s. The good that would flow from banishing the common enemy of poverty and insecurity seemed self-evident. To achieve this felicitous result was a desire shared by almost everyone. Why could the vehicle of the law not be employed by governments to give effect to these inspired impulses?
The objective appeared so patently desirable and its realization so simple, why should the program for economic security that had so zealously been pursued after World War II prove to be as elusive as the military security that the French had sought to achieve with their Maginot line before the outbreak of hostilities in 1939? The answers are not dissimilar.
The French military planners between 1929 and 1939 viewed national security as a state of being in which the relationships between themselves and the forces and concepts of their likely enemy could remain fixed. They believed that behind the stone and steel of the Maginot’s physical fortress, the life and liberty of France could somehow be preserved against assault. They ignored or discounted the simple fact that in war as in peace, the chief component of survival derives from a mystical, undefinable, ever-shifting historic force that emanates from the human spirit; that while the will to freedom may be a national treasure it is neither a museum piece nor a cloistered virtue. It exists only where it is beleaguered and challenged; it flourishes only when it is cherished and defended. A nation’s will to live can no more thrive behind stone walls than an enemy’s will to destroy it can be repulsed by those walls.
Like national security, a nation’s economic base cannot draw its strength from roots buried in the sterile soil of economic laws that are merely accorded a legislative existence. Legal-economic juggling is no substitute for production or trade and while it may provide a series of diverting and entertaining performances, it is unlikely to bake more bread or build more houses or brighten any of the world’s dark places. These achievements flow from the energies of individuals who, acting alone or in concert with others, apply their ingenuity and skills to improve their personal lives and in some significant way to assert a claim that each is different from the other; that while the state might treat everyone as a statistic in a plan, projected or realized, no citizen will consciously agree that his own plans and dreams, his work and achievements, can be reduced to the simplistic formulae of the apparatus of the state.
Our Love-Hate Affair with Inflation
There is scarcely a politician or economist today who does not proclaim that the most fearsome specter that now haunts the people of the industrialized countries is inflation — the sense that there is no longer any security to be found in the elaborate plans and promises of the architects of the great welfare society. The supply of paper money and credit has so outrun the supply of the things that money and credit are supposed to move from the producer to the market, and from the market to the consumer, that the price of all things today has ballooned and tomorrow the balloon may rise still higher. No one knows or can guess how much money it will take tomorrow to buy a meal, a shirt or a house. All of the elaborate welfare fences and hedges that were meant to provide economic security are sinking into insignificance as their value declines, and like the Maginot Line, they are skirted by the enemy and reduced to impotence.
What is equally disturbing is that it is not only the paper thin welfare schemes that are vulnerable. The pension plans to which the most provident contributed upon the basis of sound actuarial data are shrinking even faster. Inthe result the whole chimerical scheme of social welfare has not only failed to reach the objectives it so idealistically set out to achieve, but it is jeopardizing the personal security that most people assumed that as reasonable men and women and as good citizens they were duty-bound to plan for their families and provide for themselves.
The reason for this failure is obvious. Welfarism has always been concerned only with the distribution of wealth. It has consistently ignored the necessity of generating new wealth and of regenerating the individuals who are capable of producing such wealth. It claims to be concerned with preserving the natural resources of the nation for the benefit of future generations, but it has consistently ignored the need to preserve the most important natural resource of all in this generation: the energy and enterprise of the people of the country who are productive, inventive, innovative and energetic. As the numbers of such persons decline, as assuredly they are declining in the face of heavy taxation and confiscatory laws, the wealth-generating capacity of the nation also declines.
The funds that ought to be saved and invested in new, productive machinery and equipment and in research and exploration and scientific development to increase our wealth and enhance our national well-being, are being used by governments to feed the voracious appetite for power of burgeoning bureaucracies whose principal function it is to control, to regulate, to inhibit and ultimately to strangle the innovative impulses and creative energies of the people. The growth of government payrolls is sought to be justified on the ground that full employment is a legitimate government objective and that if private organizations cannot provide it because they find it unprofitable to do so, the state will create jobs — real or unreal, productive or unproductive — to give at least the illusion that everyone (if not usefully employed) at least can draw the pay of a real job.
The pity is that no one is saying that if the job is a make-believe job, its wages can ultimately only be paid in stage money. And since productive people receive the same kind of paper bills and notes as the non-productive, the value of everyone’s dollar declines. As the proportion of unproductive state-subsidized job-holders (as compared with the productive privately-employed people) increases, the value of all money decreases. And, as a result, of course, the standard of living of all persons except the non-productive, declines. Money and credit paid to construct a mill that will produce new wealth and provide gainful employment enhances the value of the investment and produces for the nation a return on capital that ultimately benefits all citizens. But money paid to perpetuate idleness or to "create jobs" that are meaningless and simply subsidize the game of "make-believe" is an economically negative expenditure. In reducing the value of everyone’s dollar it degrades the economically worthwhile pursuits of those whose honest toil produces a valuable asset or service. Not only does the useless job creation process debase the currency; it disillusions and embitters the conscientious worker who grows cynical, or despairing, ultimately joins the non-productive job holder. "After all," he reasons, "why should I work so hard when doing nothing gets you just as much?"
If it were only that the make-believe/make-job policy of government is nonproductive, our economy might be capable of supporting the increased costs of those proliferating and prospering in the public purse. But the cost of such a policy is compounded many times by the irritating and irresistible penchant of public servants to meddle in the affairs of those citizens who must replenish that purse — citizens whom governments seek to control, direct, regulate, restrain and dominate not only in respect of their economic and social affairs, but in almost every facet of their fiscally fractured personal lives.
In the result, the country has become burdened by a new parasitic class of baronial busybodies who "toil not, neither do they spin: and yet even Solomon in all his glory was not arrayed like one of these."
The welfare state discounted the role played by the scale of rewards and penalties that is the natural discipline to which individuals living in a free society are subject. The rewards of productivity and inventiveness have traditionally been personal prosperity and plenty; the penalties of ineptitude and incompetence have usually been poverty and privation. In their zeal to apply the concept of egalitarianism to all, the welfarists determined to guarantee to the indolent, the ignorant and the nonproductive, the same rewards as are enjoyed by builders, innovators and producers of wealth. This could be accomplished only by taking from the productive the fruits of their industry through inordinately high taxation and, where considered expedient, through nationalization. The welfare stateaccords security not to the individual but to the state. Its beneficiaries are neither its citizens, its workers nor its tax payers; nor will they ever be. For we are sheep, and the progenitors of the welfare state have a lion’s appetite for mutton.
Taxes Fuel Inflation
Taxation as an instrument of redistributing wealth and engineering a new social order has produced a revolution in the west as far-reaching in its consequences as the Russian revolution of 1917. It has resulted in the use of the vast tax revenues — greater by far than a treasurer’s most extravagant dreams of avarice — to expand an already swollen army of civil servants and so create a new class of permanently socialized citizens dependent upon the state. Thus, there has come into being an infinite indolence of individuals occupying new workless jobs and engaging in gainless employment.
Governments at all levels are grabbing the glutton’s slice of the citizen’s income and property (about 45 per cent and fast increasing) not because of public need, but because of political greed. Governments have determined to meddle, to buy and sell and wheel and deal — and above all to control the economy — not to assist the productive citizen but to compete with him — and not to benefit the unproductive, but to so thoroughly convince him of his dependence upon the public largesse as to render him incapable of ever standing on his own feet. Governments no longer serve to ennoble the citizen; the citizen has become the servant and guinea pig of the state.
So long as politicians in pursuit of popularity pay lip service to a policy that pretends to be capable of providing all good things for all citizens regardless of the effort expended to produce them, the volume and value of production will continue to decline, the cost of what is produced will continue to rise, and the obvious effect will be that the rate of inflation will continue to accelerate.
Many years ago an observant economist stated what has become known as Gresham’s Law. It is that "bad money drives good money out of the market place." That is why we no longer see or hear any silver coins tinkling in our pockets: nickel and tin have taken over.
Upon that same principle, I advance Shumiatcher’s simple law that in a welfare state the idle drive the industrious out of the economy. The two corollaries that flow from that law, of course, are first: as more money is paid by the state for nothing, everything costs more; and secondly, the more people who get money for nothing, the fewer will do something for anything.
There is nothing more unsettling to a society (with the exception of war) than the ravages that inflation inflicts upon the stable middle class of a community. As prices rise, the goods that were once within the citizen’s reach are, in effect, placed beyond his grasp as though they were no longer on the shopkeeper’s shelves. The personal security that individuals spent a lifetime working to attain suddenly disappears in a rising tide of prices that take his savings, dissolve his pension and leave him defenseless. Egalitarianism is indeed produced — but it is the egalitarianism not of affluence but of poverty.
Governments: Prime Profiteers
The startling fact is that it is only the government (at all levels) that profits from the national malaise of inflation. Its injection of more money into the economic stream than is generated by economically useful activities has poisoned the waters by which we all must live.
For this there are several reasons. Apart from printing money, the government has only two sources from which to find the money it spends. It may secure it from the taxpayers who have no choice but to yield up and deliver what is demanded; or, it may get money from lenders who purchase government bonds at a rate of interest that governments fix. In fixing the rates of return on its borrowings, a government effectively determines what is likely to be the lowest rate of interest that money will yield in the national market place at any given time, on the theory that the government is the most trustworthy borrower in the country and other less reliable debtors will have to pay more.
The second reason that governments have a vested interest in inflation arises from their taxing policies. Inflation produces greater tax yields and so enables them to claim that continually expanding benefits will be paid out to those who are the objects of their welfare-oriented largesse. I am thinking now not so much of the retail sales tax bites — a five to eight per cent direct levy on all retail sales that increases with prices and sales volume. Such revenues do provide greater money returns to the state, but they are of no more benefit to a government than a retailer’s enhanced prices that must go to defray the higher costs of replenishing his stock and paying his rising overhead.
I am thinking rather of the "progressive system" of taxation upon the income of individuals and companies that siphons off materially higher revenues from the citizen to the coffers of the state in a period of inflation than in a period of economic price stability. Again, the reason is obvious. The percentage of income that governments claim rises directly and steeply with the amount of the taxpayer’s annual dollar income.
Receiving more dollars automatically moves you into a higher tax bracket: you receive more money in wages or profits because inflation has made each dollar worth less than before. You may have more money in your pocket but, like Alice in Wonderland, you now find you must run faster just to stay in the same place. Unfortunately, more dollars cannot keep Alice or even the Mad Hatter in the same place when the bite of "progressive taxation" takes so much greater a percentage of your income.
The principal inflators of the economy have been governments. They justify their policies by claiming that their duty is to guarantee full employment and "to create jobs" even though these jobs may be little more than slots to be filled with a payee to whom is delivered a monthly subsidy check. Ingenious programs are created for the purpose of assuming the responsibility to care for the careless, think for the thoughtless and animate the comatose.
The Injustice of the "Just Society"
The economic disorder of our times derives in large measure from the belief that distributing more of the dollars earned by those who work and save, to scatter them among those who are unwilling to do so can create a prosperous and just society. The result is likely to be precisely the opposite. The new society will be poor and not prosperous, because the penalties of working and saving have now grown so heavy that few are willing to work and none will have either the incentive or the ability to save. The new society is not a just society because justice demands that each man’s work and accomplishments be recognized and valued for what they are in the market place where the public’s demand will fix a value on their true worth. A just society cannot be created by acts of Parliament, but only by the actions of the people — positive, productive, profitable.
How is the true worth of any man’s product valued in the free marketplace? His milk and meat and vegetables? The fence he mends, the house he builds, the roof he paints, the water pipe he repairs, the cyst he removes, the tooth he fills, the books of account he enters, the mail he carries, the suit he sews, the citizen he defends in court? How are these goods and services valued by the people who buy them or use them?
Mid-westerners who passed through the drought ridden hungry 30′s when money was as scarce as rain but individual ingenuity was as common as the grasshopper, remember that food and clothing and fuel that were wanted were often bartered for services that were needed. Chickens and eggs and butter went to the storekeeper who had shoes and shirts he could not sell, and the services of carpenters and plumbers and doctors and lawyers were bought with turkeys and ducks and cream and carrots and the odd calf. Government played little or no part in the trading or the production of these times. One very good reason why the presence of government officials was a rarity was because the people of the west were perfectly aware that there was no useful service bureaucrats could provide.
Even if they had existed at the time, what was the farmer or the town or city wage earner prepared to pay to an army of social workers or assessment commissioners or labor inspectors or occupational health officers or cooperative consulting coordinators or assistant deputy administrative directors or swine or beef or sheep or wool specialists or poultry administrators or agricultural machinery officers or farm development coordinators or communications directors or artificial insemination supervisors or consumer complaint investigators and research and liaison directors, or information services officers or deputy ministers of human resources development or human rights officers or directors of employment practices services units or commissioners of land banks or executive assistants to deputy ministers of northern areas or educational psychologist consultants or directors of hearing aid plans or welfare training coorordinators or chiefs of special services for adults and chiefs of special services to youth and families of Welfare Departments, or nursing consultants and medical consultants and standards consultants and research and statistics directors or coordinators of special placements or coordinators of adoption services, or coordinators for the status of woman, or commissioners on aging—all for the welfare of the public; or property capital officers of tourism and renewable resources, or firearms safety supervisors, or interpretive services supervisors or museum services supervisors or parks directors or regional administrative directors or urban advising commissioners or workmen’s advocates or ombudsmen?
How many people, in the days when cash was as scarce as pin feathers on a bullfrog, were willing to trade a cabbage or a cauliflower — let alone a chicken or a duck (even a lame one) — for the services that any such aggregation of high functionaries might be capable of performing for their benefit?
No Choice But to Pay
Of course, today, the public grudgingly pays for the services of all of these officials and a great many more besides, because taxes are compulsorily exacted and the citizen has no alternative but to pay. But if the vast army of bureaucrats and their minions were required to collect directly from those they purport to serve, money or money’s worth, for what their services are considered to be worth, the national tax bite at all levels would decline from the present 40 to 45 per cent of the national gross product to one-quarter of that amount. The vast army of the public service across the country would be demobilized and its veterans would at last be free to engage in activities that might be productive and useful and that, in the eyes of their fellow citizens, would command a payment in money or money’s worth for the goods they hopefully would come to produce or the services they might possibly learn to perform.
In a just society, each individual should be rewarded for his energy, his talents, his productivity and his service. He ought not to be rewarded because of his privileged position as an official of the state. Neither should he be penalized, as he so often is today, by the state because he puts in a better than average performance at what he knows or does best. Justice requires that each man be free to prove his excellence and to enjoy the rewards of his efforts as they are accorded him by those who pay for them and are therefore best able to judge their value.
It is well that we remember that who robs another of his reward, diminishes not only his own status, but deprives all of society of the benefits it might otherwise gain from the energies and productivity of every citizen.
The government that robs its citizens of their reward, upon whatever pretext, diminishes not only the stature of its citizens, but condemns the nation to a future of poverty and despair.