Whatever Happened to Free Enterprise?
by Ronald Reagan
Editor’s Note: Ronald Reagan delivered this speech as the Ludwig Von Mises Memorial Lecture at Hillsdale College on November, 10, 1977, at Hillsdale College in Hillsdale, Michigan.
President George C. Roche III: As you know, it’s the intention of the Ludwig Von Mises Memorial Lecture Series to honor the idea of a free market economy, as was reflected in the work of that distinguished Austrian School economist. Normally, the people who appear in such a series are distinguished academics, defenders of the free market—in that area. Earlier this week, as you know, we had a Nobel Laureate here on campus in economics, Friedrich Von Hayek. Tonight’s situation is a special case. We have with us a man of affairs, a man who has had the personal experience of exploring the whole question of economics and our social structure and our institutional ideas and where we indeed should go from here. He’s had the responsibility of making some hard decisions in that area. So he brings a special kind of expert knowledge to us. I scarcely need to introduce our speaker this evening, so let me take the advantage of a captive audience to tell you a story which I trust will be apropos.
I know a lady, who, twice in her life, has lost her country. She lost it the first time as a very young woman when, in Czarist Russia, the Bolshevik Revolution occurred and she barely escaped with her life. She came to Cuba, started again from scratch, once again built up a very successful competence, was doing very well. And this time, as an elderly woman, again, she lost her country at the time Castro took over. Now, losing one’s country once would be enough for most of use, I suppose. Losing one’s country twice would be enough for the toughest person in the house—but not for this very indomitable lady. She came to the United States where again she started from scratch, and again built up a very successful competence. And now as a very elderly person, I’ve heard her tell this story on more than one occasion and invariably someone in the audience, when she is finished, will say: “You poor, unlucky woman. How you have suffered. What an ordeal you have been through.” And her answer is always the same: “I, unlucky? Ah, no. I am one of the luckiest women who ever lived. Twice I have lost my country. Twice I have had a country to which I can go. When you Americans lose your country, where will you go?” I’ve heard her ask the question more than once. I’ve never heard a convincing answer.
If you look around the rest of the world, you’ll see that in terms of what we hope for for our children, in terms of economic opportunity, in terms of the dignity of individual personality, that this is a world that doesn’t value such things very highly just now. If it can’t be done here in this country, it won’t be done. And, in fact, more and more Americans have come to realize that, and as that realization has grown, we’ve done what all people should do in that case—we’ve looked around for leader, someone in whom we repose the kind of confidence necessary to lead us back to taking over our country once again. And, of course, we’ve found that man. And for millions of Americans, that one man demonstrated in elected office what he could do, and more important he demonstrated in principle and integrity and in courage what real leadership can mean. He epitomizes for us exactly the effort to take this country back, to give our children the chance for the kind prosperity and the kind dignity that used to be associated with being “typically American.” Those values and those institutions are very much worthy of defense and we have with us their outstanding defender. The battle isn’t over yet, but he remains our leader, as we get on with the task of taking our country back.
Ladies and gentlemen, I give you Governor Ronald Reagan.
Governor Reagan: Oh, thank you. You’ve done that once. Thank you very much. Thank you, President Roche—and I hope that the people of Michigan are as intelligent as I believe they are—one day, Senator Roche. I told some of the Press this afternoon I was torn with mixed emotions on that. I know what we means in the battle, the very important battle of preserving independent education in the United States. But I think, perhaps, he could continue doing that on a wider stage and fight for some other causes as well—you, ladies and gentlemen, students of Hillsdale, the friends of the College, I’m delighted to be here, first time, although I’ve been well-acquainted for a long time with what Hillsdale means. And John, you’ve paved the way a little bit here—your most gracious remarks. I didn’t deserve all of them. But they eased my feeling about being here, speaking under these exact circumstances.
You know, every speaker hopes that his remarks will be well-chosen, well-suited to the occasion. And every speaker has had the experience of not having that true. We had a fellow in Hollywood once, for many years, he’s an actor. He was working because his first love, really, was opera. And when he has saved enough money to study opera, he journeyed to Milan, Italy, studied opera, and after a period there was invited to sing at La Scala, the very spiritual fountainhead of opera. And they were doing Pagliacci and he sang the beautiful aria, “Veste la Juba.” And when he’d finished the applause from the balcony of the orchestra seats, the galleries, were so sustained, so thunderous that the opera couldn’t continue until he stepped back and repeated the aria as an encore. And again, same sustained, thunderous applause. And again, he sang Veste la Juba. And this went on until finally he motioned for quiet and he tried to tell them on this, his first appearance, what a dream come true this was—to be greeted in this warm way. But he said, “I have sung Veste la Juba, now, nine times. My voice is gone. I cannot do it again.” And a voice from the balcony said, “You’ll do it till you get it right.”
You know, I say I’m delighted to be here and yet I have an uncomfortable feeling that I’m saving souls in heaven. You don’t need the convincing that I usually try to do when I—when I’m speaking on this subject. But maybe I can talk to you about the need for communication. One of the most recent things that I heard, of course, was that now, like so many other schools, you have a Young American[s] For Freedom chapter on the campus, and I’m delighted to hear that because I’ve been a beneficiary of their support and help on a number of occasion, and I wish your new chapter well.
But this thing of communication is more important than a willing speaker and a willing listener. It requires imparting some information, but also it’s based on the manner in which it’s done. And I had the real meaning of communication explained to me once by a fellow named Danny Villanueva, who used to place-kick for the Los Angeles Rams and later the Dallas Cowboys, and then he became a sports announcer in Los Angeles.
And he told me he was having dinner one night over at the home of young ballplayer with the Dodgers. (You remember the Dodgers.) And they were talking sports. The young wife was bustling about getting the dinner ready, and the baby started to cry. And over her shoulder she said to her husband, “Change the baby.” And he was a young fellow; he was embarrassed, and he looked at Danny and back at her and he said, “What do you mean change the baby?” I’m a ballplayer; that’s not my line of work. And she turned around, put her hands on her hips, and she communicated. She said, “Look buster, you lay the diaper out like a diamond. You put second base on home plate, put the baby’s bottom on pitchers mound, hook up first and third, slide home underneath, and if it starts to rain the game ain’t called—you start all over again.”
But, if I can’t save your souls, at least, perhaps, I might impart some information here that’ll be helpful to you in the communication that has to take place. In the campaign last year, there was a great deal of talk about the seeming inability of an economic system that has provided more for more people than anything we’ve ever known to solve the problems of unemployment and inflation. Issues such as taxes and government power and cost were discussed. But always these things were discussed in the context of: “What did government intend to do about them.” Well may I suggest for your consideration that government has already done too much about them—that, indeed, by government going outside its proper province has caused many, if not most, the problems that vex us.
There are a few of us old enough to remember that the only experience you ever had with the federal government was to go downtown to the post office and buy a stamp. They were two cents each for twice-a-day delivery. Now they’re thirteen cents for once-a-day delivery—to the wrong address. My friend Dewey Bartlett, the Senator from Oklahoma, says that last three cents on the price is for storage. And he’s—he has is—he’s suggested that we can improve the service is we just started paying the postal employees by mail.
But how much are we to blame for what has happened? Beginning with the traumatic experience of the Great Depression, we the people have turned more and more to government for answers that government has neither the right nor the capacity to provide. But government, as an institution, always tends to increase in size and power, not just this government—any government. It’s built-in. And so government attempted to provide the answers.
The result is a fourth branch added to the traditional three of executive, legislative, and judicial: a vast federal bureaucracy that’s now being imitated in too many states and too many cities, a bureaucracy of enormous power, which determines policy to a greater extent than any of us realize, very possibly to a greater extent than our own elected representatives. And it can’t be removed from office by our votes.
To give you an illustration using another country, England, in 1803 created a new civil service position. It called for a man to stand on the cliffs of Dover with a spy glass and ring a bell if he saw Napoleon coming. They didn’t eliminate that job until 1945. In our own country, there are only two government programs that we have totally wiped out and abolished: The government stopped making rum on the Virgin Islands, and we’ve stopped breeding horses for the cavalry.
We bear a greater tax burden to support that permanent structure than any of us would have believed possible just a few decades ago. When I was where you are, in college, governments federal, state and local, were taking a dime out of every dollar earned and less than a third of that paid for the federal establishment. Today, governments—federal, state, and local—are taking forty-four cents out of every dollar earned, and two-thirds of that supports Washington. It is the fastest growing item in the average family budget, and yet it is not one of the factors used in computing the cost of living index. It is the biggest single cost item in the family budget; it is bigger than food, shelter, and clothing all put together.
When government tells us, as it did a few weeks ago, that in the last year the people of America have increased their earnings nine per cent, and since the inflation was six per cent, well we’re still three percentage points better off—richer than we were the year before—government is being deceitful. That was before taxes. After taxes, the people of America are three percentage points worse off, poorer than they were before they got the nine per cent raise. Government profits by inflation.
At the economic conference in London several months ago, one of our American representatives there was talking to the press. And he said, “You have to recognize that inflation doesn’t have any single cause. It’s caused by a number of things, and therefore there is no single answer.” Well, if he believed that, he had no business being at an economic conference. Inflation is caused by one thing, and it has one answer. It’s caused by government spending more than government takes in, and it will go away when government stops doing that, and not before.
I could give a figure that I think would explain it because government has been trying to make all of us believe that somehow inflation is like a plague, or the drought, or the locusts coming, that no one has any control over it and we just have to bear it when it comes along and hope it will go away. No, it’s simpler than that. From 1933 until the now, our country has doubled the amount of goods and purchases that are available for purchase—goods and services. In that same period we have multiplied the money supply by twenty-three times. So eleven and a half dollars are now chasing what one dollar used to chase. And that’s all that inflation is: a depreciation of the value of money.
I know that his is called the Ludwig von Mises series. But do you know that before I knew that I had a line that I intended to give you. It’s a quote of his if you haven’t heard it. Ludwig von Mises said that, “Government is the only agency that can take a perfectly useful commodity like paper, smear it with some ink, and render it absolutely useless.”
Sometimes I think that government fits that old-fashioned definition of a baby: An alimentary canal with an appetite at one end and no sense of responsibility at the other.
There are seventy-three million of us working and earning in the private sector. We support ourselves and our dependents. We support, in addition, eighty-one million other Americans, totally dependent on tax dollars for their year-round living. Now it’s true that fifteen million of those are public employees and they also pay taxes, but their taxes are simply a return to government of dollars that first had to be taken from the seventy-three million. I say this to emphasize that the people working and earning in the private sector are the only resource that government has.
Political demagogues aided by spokesmen for a variety of causes, some worthy in themselves but questionable as to whether they’re a proper concern of government, have created a political and economic mythology widely believed by too many people. This is why we need the communications. This, more than anything else, has increased government’s ability to interfere, as it does, in the marketplace. “Profit” is a dirty word, blamed for most of our social ills. In the interest of something called “consumerism,” free enterprise is becoming far less free. Property rights are being reduced and even eliminated in the name of environmental protection. It is time that a voice be raised on behalf of the seventy-three million, pointing out that profit, property rights, and freedom are inseparable and you cannot have the third unless you continue to be entitled to have the first two.
And yet—And yet even among us who perhaps believe that way, we have fallen into the habit of when something goes wrong—that saying, “They’re ought to be a law.” Sometimes I think there ought to be a law against saying “there ought to be a law.” A German statesman, Bismarck, said, “If you like sausages and laws, you should never watch either one of them being made.”
It’s difficult to understand the ever-increasing number of intellectuals and the goals of academia, present company excepted, who contend that our system could be improved by the adoption of some of the features of socialism. It isn’t that these eminent scholars are ignorant; it’s just that they know a number of things that aren’t true. In any comparison between the free market system and socialism, nowhere is the miracle of capitalism more evident than in the production and distribution of food. We eat better for a lower percentage of earnings than any other people on earth. It averages about seventeen per cent of the average family income after taxes. The American farmer is producing two and half times as much as he did sixty years ago, with 1/3 the man-hours on 1/2 the land. And if his counterparts worldwide could reach his level of skill, we could feed the entire world population on 1/10 of the land that is now being farmed worldwide.
The biggest example, I think, of course, comes when you compare the two superpowers. I’m sure that most of you are aware that some years ago the Soviet Union had such a morale problem with the workers on their collective farms that they finally gave each one of those workers a little plot of ground and told him he could farm it for himself. And, if he wanted to, he could sell on the open market what he raised. Today, less than four per cent of Russia’s agricultural land is privately farmed in that way. And on that four per cent is raised forty per cent of all of Russia’s vegetables and sixty per cent of all the meat.
Some of our scholars did some research on comparative food prices. They had to take the prices in the Russian stores and our own stores and translate them into minutes and hours of labor at the average income of each country. And, with one exception, they found that Russians have to work two to ten times as long to buy the various food items than do their counterparts here in America. The one exception was potatoes. There, the price on their potato bins worked out to less work time for them than it did for us. There was one hitch though: They didn’t have any potatoes.
And yet, in spite of all the evidence that points to the free market as the most efficient system, we continue down a road that is bearing out the prophecy of the Frenchman who came here 130 years ago—de Tocqueville. He was attracted by the miracle that was America. Think of it, our country was only seventy years old and already we had achieved such a miracle of standard of living and of productivity and prosperity that the rest of the world was amazed. So he came here and he looked at everything he could see in our country, trying to find the secret of our success and then went back and wrote a book about it. But even then, 130 years ago, he saw signs that prompted him to warn us, that if we weren’t constantly on guard we would find ourselves covered by a network of regulations controlling every activity. And he said, if that came to pass we would one day find ourselves a nation of timid animals, with government the shepherd.
Well we are covered by tens and tens of thousands of regulations to which we add about 25,000 new ones each year. One of the newer agencies, the Occupational Safety and Health Administration(OSHA), has touched virtually everyone’s life. There’s a fellow in Indiana with a shop. He’s got seven employees. At the front and back of his tiny shop there was a twelve foot door—each end. OSHA has just told him he has to install exit signs in the event that a new employee might become confused in case of fire and not be able to find his way out. He asked a pretty logical question. He said if he can’t see a twelve foot door, how’s he going to see that exit sign?
Now, I’m sure that everyone in this room, at some time of other, has had an occasion to climb a ladder. Simple wooden ladder. You put it up and climb it. How in the world did we ever accomplish that without OSHA’s 144 rules and regulations with regard to climbing a ladder, they’ve now written? The first of which is that to climb a ladder you begin by facing it. And then, of course—I don’t know whether you know about their discovery of the hazards of farm life—they wrote quite a manual on that to save the farmer from accident. One of them said that in walking about the farm one should keep his eyes on the ground because here and there, there might be a slippery substance which, if you step in it, could cause a nasty fall. You know no farmer would have thought of that by himself.
Well now, they’ve discovered deep sea divers. There are 600 of them in the whole United States. It’s a hazardous profession and their pay reflects it. They get from fifty to a hundred thousand dollars a year. But it isn’t going to be as dangerous if OSHA has its way. They’ve got a whole manual, now: rules, regulations and required equipment. They haven’t implemented that program as yet because the United States Navy also has divers. And it has informed OSHA that if they implement their [OSHA’s] program henceforth each diver will go beneath the waves weighing 1000 pounds. The General Accounting Office, which is responsible for public employee safety has just recently inspected the building in Washington where OSHA is headquartered. The have found it in violation of 300 of OSHA’s safety rules.
But all of this becomes deadly serious when you think about the expense. A study of 700 of the largest corporations has found that if we could eliminate unnecessary regulation of business and industry, we would instantly reduce the inflation rate by half. Other economists have found that over-regulation of business and industry amounts to a hidden five-cent sales tax for every consumer. The misdirection of capital investment costs us a quarter of a million jobs. That’s half as many as the President wants to create by spending thirty-two billion dollars over the next two years. And with all of this comes the burden of government-required paperwork.
It affects education. All of you here are aware of the problems of financing education, particularly at the private educational institutions. I had the president of a university tell me the other day that government-required paperwork on his campus alone has raised the administrative costs from 65,000 dollars to 600,000 dollars. That would underwrite a pretty good [faculty] chair. Now, the president of the Eli Lilly drug company says their drug company spends more man-hours on government-required paperwork than they do today on heart and cancer research combined. He told of submitting one ton of paper, 120,000 pages of scientific data most of which he said were absolutely worthless for FDA’s purposes, in triplicate, in order to get a license to market an arthritis medicine. So, the United States is no longer first in the development of new health-giving drugs and medicines. We’re producing sixty per cent fewer than we were fifteen years ago.
As late as 1962, the average cost of developing and testing a new medicine was about 1,000,000 dollars, and it took about two to four years. Now, it is 40,000,000 dollars and it takes anywhere from seven and a half to twenty years.