Commentary

Economic Freedom Falls Victim to Terrorism

Since the terrorist attacks on New York and Washington, the American people have distinguished themselves in many ways. The courage of firefighters, policemen and the passengers on the hijacked planes is well known. We have also been mindful of civil liberties as we prepare for war. Groups from the left and the right have urged caution on civil liberties to make sure that the Constitution does not sustain collateral damage in the battles to come.

We are forgetting, however, another aspect of our liberty. As Adam Smith noted, human nature includes a “certain propensity to truck, barter, and exchange one thing for another.” The freedom to act on that drive and thereby to establish markets free of government control is a fundamental value for Americans. Yet no one is suggesting we should be mindful of threats to economic freedom at this moment in our history.

Yet consider the past. During World War I, the economist Robert Higgs notes, the government took over the ocean shipping, railroad, telephone and telegraph industries. Congress created the U.S. Shipping Board with the power to regulate rates and practices in that industry. By 1918, a contemporary economist concluded, “government control of merchant shipping was absolute.”

The Lever Act empowered the president to license everyone importing, manufacturing, storing, mining, or distributing foods, feeds, fuels, and the equipment used to produce them. The U.S. Grain Corporation manipulated the price of wheat; the Sugar Equalization Board controlled the price of that commodity. The U.S. Food Administration fixed prices and told Americans to have “wheatless Mondays and meatless Tuesdays.” The United States Fuel Administration set the price of coal and commandeered its supply. Finally, the War Industries Board fixed prices and, in the words of its head, Bernard Baruch, decided “how our [i.e. everybody’s] resources would be employed.”

The nationalization of the economy did not end on Armistice Day. The railroads remained public in all but name. The Shipping Board continued on for over a decade. The War Finance Corporation turned to subsidizing exports to Europe and ended up providing credit to American farmers before going out of business in 1925.

The Second World War brought more controls. The scholar Edwin Corwin noted that the war led the federal government to do the following:

  • assume the right to condemn property for its own wartime uses
  • make manufacturers fulfill mandatory orders
  • commandeer any private plant deemed essential for war
  • fix the prices paid for its products
  • absorb “excess” profits by taxation
  • control the flow of raw materials to manufacturers
  • set hours of work
  • fix wages
  • establish working conditions
  • withhold manpower from a plant
  • mandate maximum prices and rents through the Office of Price Administration.

Much of “war socialism” ended along with victory over Japan. But not all of it. Current rent controls in New York City are a legacy of that era. More important was the lesson learned by elites. Big government had won the Big One. Why shouldn’t government reassert control over the economy in the interests of justice and prosperity? The authors of the New Frontier and the Great Society learned to love collective coercion at the Office of Price Administration.

We can hope that the coming war on terrorism will not be like past wars, that our liberties won’t be sacrificed in the drive to victory. But some signs are not good. The bailout of the airlines could lead to public control or ownership of that industry. The new federal Office of Homeland Security, to counter terrorism in America, will expand as time goes on. It will never be dismantled. The federal government, in many ways, will balloon as this war goes on.

If sacrifices of our liberties are demanded, we should ask whether they are absolutely necessary. Americans can support a just war against terrorism and still have jealous regard for hard-won liberties.

The terrorists struck at two symbols of America: 1) its military might, and 2) its economic freedom and prosperity. We are now called upon to make war on the terrorists. If this war leads to an expansion of government control over the economy, the terrorists will have won by making us betray our deepest values. We should not forget that we are fighting this war to protect America in all its aspects: political, civil and economic.

John Samples is director of the Center for Representative Government at the Cato Institute.