Public Medicine
TWELVE MONTHS before the next election, the media is already saturated with political commentary. The polls show, we see, that a majority of the people would like to have health care nationalized, and even to pay as much as $150 a month to enjoy it.

One has to wonder what they have in mind. Presumably, they do not imagine that every doctor would cost the same amount; the ones who have been lucky recently, and had very few patients expire, would have long lines of would-be patients waiting to be seen.

If good doctors charge more than poor ones, then all doctors will be more or less equally busy, but some people will be spending much more than others: one would suppose that women of child-bearing age will be far more concerned to keep healthy than would grandmothers.

One solution to this variation in demand is familiar; it is the catastrophic medical insurance policy, which covers the expense of treatments that only a small proportion of the population will ever require.

However, the medical profession perceive that this is a misconceived solution. The best strategy is to spend money on prevention, rather than treatment; almost, if not quite, everyone would benefit by having advice and, perhaps, certain procedures before they ever suffer any symptoms.

Once we think in terms of health, rather than sickness, the problem becomes soluble. What we ought to do is to pay, not for the expense of treatment, but for the benefit of being well. Thus one should join a genuine health maintenance organization - one in which you paid a fee every day you were well, and stopped paying when you were sick. The organization would have a strong incentive to get you better quickly; its treatments would have a kill-or-cure character. Young wives and athletes would join expensive HMOs, retired persons would gravitate to cheaper ones - there might even be some, run by teaching hospitals, which charged only a token fee (and gave only token treatments.)

This is, obviously, an example of paying for results, not for expenses - something which is all too scarce in these United States. Masses of workers are paid for the time they put in, not the product they put out: one of the few exceptions is that drivers are paid so much for every sixty seconds' worth of distance run. But it should not be new and strange -- we remember the “Apollo” astronaut who was asked what he thought about when he was in orbit, and replied, “I reflect that to get down again I rely upon a thousand systems, and every one was made by the lowest bidder.” (Or perhaps not all of us do remember that thought: I just looked in Wikipedia for “Apollo,” and this anecdote was not included.)

Senator Charles Schumer, R., New York

APPARENTLY, the Democratic grip on the Senate is weaker than we supposed. The senior senator from New York has embraced the traditional theory of the Republicans since 1860, “protection for American industry.”

Roughly a century and a half ago, the idea of “protection” was exposed as a fallacy by an English Jew named David Ricardo; his thinking has not been refuted by any of his successors.

Suppose that an American worker can make a car in one day and a house in five days, whereas a Mexican worker needs four days and seven days respectively. Then if each worker makes one car and one house, the American would work for six days and the poor Mexican for eleven - total, seventeen. Now imagine that the American makes two cars and the Mexican two houses; the American would have to work for only two days, the Mexican for eight - total, only ten.

Specialization makes both parties better off, they have either more goods or more free time, four days for the American and three for the Mexican - and the more efficient one gets the bigger benefit. The very essence of competition is to show who is more and who is less efficient. The rich get richer, indeed, but not by “exploiting” the poor.

This Law of Comparative Advantage proves that specialization makes both workers, or both businesses, or both countries, better off unless the comparative costs of their various products are the same for both: unless two neighboring countries are both still in the crop-growing stage of development, and have the same soils and pests and climates, it is hard to imagine two countries not profiting by free trade. Free trade accentuates the difference in productivity, what is called “fair trade” camouflages it.

How can this fundamental argument have escaped someone as well connected and - presumably ¬- well advised as the senior senator from the state named for the center of the world's commerce? Obviously, I can't read his mind, but I suspect that members of Congress have a predilection towards addressing every issue by resort to power - to put it bluntly, by violence.

What, I suspect, has deceived our legislator is that, while international trade has expanded, his devoted followers have not found themselves better off. However, one does not have to be very clever to understand why. Ricardo, and every other reasonable man, imagined that the importing nation would actually pay for its goods. Therefore, there would be less money in circulation; prices would go down, the goods the workers produced would cost less, and - presumably - more of the goods would be exported.

Have you noticed prices going down? Yes, if you are in the housing market, you have; but the prices of buildings are always volatile, because if demand goes up, it takes a long time to erect new buildings, and if demand goes down, it takes an even longer time to wear out the existing houses. Apart from housing, no, prices have not gone down. Why not? Perhaps, because a very substantial portion of the population are not paid what they are actually worth, but what some legislature chooses to pay them: if prices go down, police and prison guards and probation officers are able to buy a greater portion of the products. And many other “workers,” such as public school teachers, are “organized” so that their pay is not determined by competition in the market place. Thus an increase in imports does not actually result in a decrease in costs and therefore an increase in exports.

But, you will object, that is impossible: if goods have been imported, people here cannot still have as much money as before. However, one has to draw a distinction. There is more than one kind of money: there is specie, namely coins which are only as valuable as the metal they contain, and there is currency, which is valuable because governments, and perhaps other creditors, accept it instead of specie. (In the United States, specie coins are either gold or the standard silver dollar.) If the foreign nation accepts currency in payment for our imports, the departure of that currency does not bring our prices down; the bank is only too pleased to print some more currency and lend it out at interest.

Anyone with any sense at all clings to hir specie and spends hir currency. If se puts the specie in a bank, the bank will keep the specie in the vault and lend out currency: in fact, it will lend out even more currency than the specie in the vault, on the theory that all the depositors will not want all their money back on the same day. But if the banks are adding to the currency, prices must increase. Then, something else increases: money-lenders realize that the money they lend this year will be worth less when they get it back next year, so they increase interest rates.

So that all prices are going up, even though there is no drought or holocaust or earthquake or flood or other contingency. Yet another thing also increases - namely, tax revenues. And in a jurisdiction where there is progressive taxation, taxes increase faster than everything else. Governments appreciate this.

However, there is a fly in the ointment. Profit-and-loss is measured by striking a balance on January the first, striking another 365 - or 366 - days later, and comparing the two figures. The accounts have to include the value of the inventory at the beginning and the end, and the loss to depreciation. Plainly, you cannot measure these two items unless you have a dollar that is the same from one year to the next. If the same things are priced higher in December than in January, you may think you have made a profit and thus contributed to the general welfare, but in fact you have degraded it.

This is the reason - or, at least, one reason - why the States determined to use no thing but gold and silver coin as a tender in payment of debts: gold and silver are notoriously hard to find. But, for some mysterious reason, only Colorado, Missouri and Nevada have adopted specie coin as their legal money (and even those States do not enforce their statutes!)

If you cannot tell whether you are making a profit or a loss each year, you cannot really expect to find yourself better off as the years go by. If you feel you are not doing as well as you would wish, the first thing to do is to find out why. And a good place to look for a reason would be the U. S. Congress, which makes no secret of its belief that it can make better use of your money than you can.

And, even as Senator Schumer deplores his constituents spending their own money overseas, he and his colleagues are giving away our money to other nations. I very much wonder why, because the other nations do not vote in our elections (one would suppose.) I must be relatively stupid, because I am continually seeing allusions to an American Empire: but when I read the Gospels, or the history books, I see that in the Greek and Roman and Spanish empires, silver or gold was sent from the ends of the earth to the center. If, today, dollars are going from the U.S. to all the other nations, then either there is no American Empire, or the dollars are not money . . . .

The Oil Situation

EVERYONE AND HIS ASSISTANT are warning us of an imminent shortage of energy, because oil is becoming more expensive. I find myself unconvinced. Presumably, the people in the Middle East have not suddenly decided to start drinking their oil. Are the wells actually dry, or is pumping just getting more expensive? Have the oil-owners really looked around – for instance, in wells that they abandoned a few years, or decades, ago? Have they thought of looking further – perhaps, in the sea off our coasts, or in all those parks full of spotted woodpeckers? Presumably, a subterranean lake of oil can be under water just as easily as under dry land – and under public property just as much as private property.
Also, has anything been done to avoid wasting oil? One use for oil is as motor vehicle fuel, and vehicle fuel is taxed. Therefore we see governments everywhere striving to force fuel consumption up. There are exhaust emission limits which exclude efficient, high-compression engines. Quite often, you will see a highway where most of the traffic is going in one direction, but the number of lanes in that direction is the same as in the other direction.
The fuel tax has a strong tendency to gravitate to the lowest level, the Congress, which is utterly unscrupulous in diverting it to purposes other than maintaining the highways. The fuel tax does not serve the – justifiable – purpose of balancing supply and demand; tolls could well do this, if the drivers knew they could count on the toll being raised or lowered to keep the traffic running fast. The 24/7 tolls which we see today net only trivial sums of money, but create extravagant delays.
Again, it is the rule rather than the exception for states to sell very expensive license plates which give access to any highway at any time – whereas privately-owned car parks charge so much per hour (if the highway did the same, there would be an incentive to save, not waste, time.) Consequently, the state and inter-state highways regularly run freely out in the country, but slow down to their minimum speeds and stall within cities. But intra-city traffic could quite well be sold plates restricted to local, “surface” streets – if county and state governments were prepared to sacrifice part of their revenues from fuel and license taxes.
Nowadays, a great deal of oil is burned in the heating systems of buildings; if the vehicle fuel tax were eliminated, the vehicle operators could quickly bid the oil away from the building occupants – who could easily burn low-density propane or another natural gas. Once again, it is government policies which are creating the appearance of a scarcity.
This conclusion should not be news to any American. For what purpose did the states create the Congress, the president? To protect them from “invasion” – a word which, once upon a time, implied armed forces, not unemployed individuals – and “domestic violence.” These are missions that need only an army and a navy – and for which the citizens can well be expected to pay taxes. Yes, the Congress was allowed to claim the territory beyond the boundaries of the several states for itself – but no-one would ever have expected a “popular” government, one which can act by mere majority, to be competent to manage property; any owner of land quickly seeks to share its crops with a farmer.
The historian John Lukacs pointed out, in The Hitler of History, that the very nations that defeated Hitler have now adopted his Fascism, private ownership but public management. (It is, I trust, obvious that this is just the opposite of a system that will actually work, profitably; it is management that is expected to watch what happens every day, and take care to respond quickly and appropriately.)

The Great Greenspan

THE ERSTWHILE CHAIRMAN of the Federal Reserve Bank – which seems to be more national than federal – was interviewed on television recently. Alan Greenspan appears to have benefited very little from his association with Ayn Rand, the philosopher of Objectivism: he seems to think that it is a matter for concern that the rich are many times richer than the poor. Why is it so? How does it matter to me whether Bill Gates is a thousand or a million times better off than I am? That datum is not objective, it is subjective.
What might be worth discussing is, whether you, or he, or I, can rival Bill Gates. Once upon a time, the answer was plain: Henry Ford I started with nothing and ended as the richest man in the world – simply by having Better Ideas. Today, it would be difficult to emulate him.
If you start by working for someone else (as Ford did) you find that wages do not increase sharply with experience and skill, because wages are not determined afresh every day by competition; they are negotiated by labor unions. Because the unions are “democratic,” in the sense of choosing their officers by majority vote, they tend to institute wages that are too high for the many at entry level, too low for the few most competent. Government organizations have the same characteristic, but no-one expects to get rich in government service (at least, so we hope!)
If you try to succeed as a professional, you find that there are paper hoops through which you must jump, often at great expense in money and delay. If you try to make it on your own, you quickly find that you are not on your own at all: you are working for the city, county, state and union tax collectors (if your state does tax transactions, such as incomes or sales.)
In the United States, as constituted, taxes are apportioned according to property (meaning, that if Congress lays a tax on [horseless] carriages, and there is one car[riage] per person in Nevada but one per ten persons in Rhode Island, then the tax on each car[riage] will be ten times higher in Rhode Island than in Nevada.) This means that the people in the poor states would object to taxes just as much as the people in the rich states: it also means that anyone who owns a car[riage] has to see that it makes a profit, or else lose it.
Were it not for taxes on transactions, and all these arbitrary obstacles, a man, or woman, with ability and ambition would be able to storm up the social order, toppling the old fools who are resting on their laurels. If you find that you cannot do that, you need not blame yourself (still less Bill Gates,) you should blame the persons you, or your parents, or your grand-parents, allowed to hold public offices.
Greenspan, who claims to be widely read, made another pathetic blunder: he suggested that the never-sufficiently-to-be-dreaded global warming could be delayed by a “carbon tax” on combustibles. Does he spend his life entirely in his library? Any ordinary man (or, of course, woman) can see the results of today’s taxes on motor vehicle fuel: the highways are managed, and indeed designed, to waste expensive fuel. You see highways where the traffic cannot distribute itself to fill all lanes equally; you see tolls which are the same at peak and off-peak times; you see STOP signs instead of YIELD signs; you see double yellow lines painted so as to keep all vehicles out of some lanes; you see stop-on-red instead of go-on-green signals; in New York, you find that drivers who do not have EZ-pass (commuter) subscriptions are excluded at off-peak times.
And what, may we ask, is done with the money collected in fuel taxes? Seemingly, it is not expended on keeping the bridges in good repair. Or does the ineffable Greenspan not watch television?

WHAT, we may well wonder, does the Federal Reserve Bank imagine it is doing? What we have seen it do was reduce significantly the cost of borrowing currency; this can only mean that more people will borrow more from their banks, there will be more currency in circulation, and prices will go up.
Higher prices, particularly the price of labor, seem to be a Good Thing, perhaps – except that they result in higher taxes. But there is a serious snag. Every business, if not every person, keeps accounts, so as to know whether it is making a profit or a loss. If prices go up between January 1st. and December 31st., then the value of the inventory is over-estimated and the expense of depreciation is under-estimated: the accounts are flattering, businesses that should have been closed remain open. The very point of keeping accounts is to be sure you are not losing money!
One would expect that, after money has been in use for millennia – the Gospels are full of references to money, and paying taxes – problems like this would have been solved. And so they have been! The Constitution, in Article I, Section 10, requires that “No State shall . . . make any thing but gold and silver coin a tender in payment of debts.” If some of the States are keeping accounts in gold, and others in silver, then if new deposits of either metal are discovered and mined and coined, then some of the States will seem to be thriving and others seem to be struggling: people will realize that something unusual is happening.
The States are usually all too eager to tell their citizens what to do with their own land, or buildings, or automobiles, or firearms, but, strange to relate, only three States, Colorado, Missouri, and Nevada, have exercised this power (and they have abused it, by admitting both silver and gold coins!) The result has been “stagflation;” the accounts show profits, but people do not find themselves better off.
` Sooner or later, more and more and more people will realize that the Federal Reserve Accounting Unit Dollar is only currency, and neither a store of value nor a money of account. Thus we must expect that it will follow the example of all other currencies, and degenerate faster and faster and faster . . . .
The price of silver today is $13.80 per ounce, ten times what the fractional silver coins are worth: it can hardly be hoped that Colorado or the other States will, after 150 years, begin to enforce their legal money statutes. However, there is one measure the Congress could take to avoid the utter collapse of the social order; I call it “Currency as Seigniorage.”
The “Double Eagle,” the $20 gold coin, contains 20/20.67 ounces of gold. If Congress mandated that the Treasury deliver a Double Eagle to whomsoever brings into the Mint 20/20.67 ounces of gold and twenty Federal Reserve Accounting Unit Dollars, then today, with gold at $720 per ounce, the seigniorage (the fee claimed by the Mint) would be 20/(720x20/20.67) = 3%. This is just slightly higher than the seigniorage on foreign coins, such as the Krugerrand, but American people would undoubtedly want U. S. coins for presentations and curiosities. However, when gold reaches $1000/oz., the seigniorage would be under 2%, less than that of all other gold coins, and gold from all over the world would come to our Mint. And as gold rises to $2000, $5000, $10,000 . . . there would always be at least one use for Federal Reserve Accounting Unit Dollars; they would never become “not worth a Continental.”
Incidentally, this is not a new idea: I proposed it to the Commission on the Role of Gold in the Monetary System twenty-five years ago. Congress did nothing then, and is doing the same thing now . . . .