A Better Way for America
Thomas B. Curtis
[Reprinted from the Henry George News,
Thomas B. Curtis served in the U.S.
House of Representatives representing St. Louis County,
Missouri. He was a member of the Ways and Means Committee and
the Joint Economic Committee. This is a partial text of an
address delivered at the annual conference of the Henry George
School in July, 1966 in St. Louis.
THERE is a better way for America that is not a radical break with
American attitudes and traditions, it requires an understanding of two
vital prerequisites for progress - the free enterprise system, and
simple honesty in public life.
The essence of the free enterprise system is the market mechanism -
the final arbiter of what goods and services will be produced, how,
and for whom. Economic theorists as far back as Adam Smith have taught
that if all markets for goods and productive services were perfectly
free, the society would reach the point of maximum benefit from a
given amount of resources, if every individual and firm were
interested solely in individual benefit or profit. As the Soviet
leaders have found to their dismay, efficient operation of any economy
requires a market mechanism in which prices indicate the scarcity
values of the various goods and services to be produced. Yet while the
USSR is reluctantly acknowledging the benefits a market system can
provide, the United States government is encouraging a massive retreat
from such a price system.
Profit is the disciplinarian of the free enterprise system. If a firm
cannot earn a sufficient return on its investment because its product
is unwanted or overpriced, that firm will go out of business, and the
people in the firm will move to more productive and more desirable
areas of economic activity. If profits in a particular industry are
too high, other businessmen will enter that industry to produce the
product where such large profits are being made. As supply increases,
the price of the product will have to drop, unless demand also
increases. A properly functioning market system will keep the level of
profits in an industry just high enough to encourage sufficient
production in that industry to_ meet the demand for its product.
A profit system provides other valuable incentives as well. It is the
only system I know which will encourage a man to do that which he has
to do if working by himself, namely, to save for future contingencies,
expansion and innovation. The incentive to save and invest is vitally
needed to create new wealth and purchasing power and keep the economy
growing. We must not forget that scientific and technical advances are
useless unless they are embodied in new machines and instruments, or
in the skills of the labor force. Without incentives to save and
invest, no one would bother to build the new machines or spend the
money to keep educating himself and others to operate the new
What should the role of government be in a free market economy? Its
primary role must be to maintain the essentials of a competitive
system - enforcing fair weights and measures, providing services that
cannot be provided through the market system (such as defense), and
breaking up through antitrust actions those concentrations of economic
power which could afford to ignore the discipline of the marketplace.
The centralization of economic power in one industry-wide labor union,
as the recent airline strike indicates, is a danger to the public
interest just as great as the business trusts which led to the Sherman
Antitrust Act in 1890. Now is the time for the same or similar
restrictions to be placed upon the arbitrary exercise of labor's power
as were rightfully placed on business' power.
The sad fact is that the present Administration has subverted the
proper role of government in the economy. Their concern is not how to
improve the workings of the market system, but how to restrict its
operation. When excessive federal spending creates inflationary forces
in the economy, this Administration uses all the vast powers of the
federal bureaucracy (including some powers actually prohibited by law)
to keep prices from responding to the forces of excess demand. It has
used threats of stockpile dumping and antitrust suits to keep the
prices of copper, aluminum, steel and most recently, molybdenum, from
rising. But when a commodity is in short supply, its price should rise
to give the limited supplies to those who need it most (and hence are
willing to pay the higher price), and encourage other users to find
substitutes for the commodity in question.
One aspect of the better way for America, then, has to be an
affirmation of the free enterprise system as a desirable and efficient
way of organizing economic activity. The proper role of government is
to assist the market mechanism, not to obstruct its operation. We
should not forget this principle when we approach the complicated
problem of choosing the best methods of taxation. Taxes should be
designed to interfere with market incentives as little as possible.
What we hear in Washington these days is that the federal government
should give part of its revenues back to the states in the form of
untied grants, because state and local communities lack the fiscal
resources to support needed education and welfare programs. Yet I ask
you - which has more effect on incentives, the income tax, the federal
government's primary revenue source; or the property tax, the
financial mainstay of state and local governments?
When income tax rates are as high as they are today there can be no
doubt that the incentive to engage in economic activity of any sort is
weakened. I am confident that a cut in tax rates would simulate enough
additional economic activity to increase the total revenue collected.
An income tax cut at this time is impossible, due to the excessive
level of federal expenditures, but we should not forget about the
possibilities of a tax cut when the inflationary pressures in the
economy are eased. The property tax, on the other hand, properly
designed and administered, can strongly encourage property owners to
put their property to productive use in order to earn a return on it.
Whenever federal-state tax-sharing/plans are presented as the final
answer to revenue problems of state and local governments, I hope we
will remember the relative effects on incentives of the property vs.
the income tax, and reject these ill-advised proposals accordingly.
Even when exercising its taxing power, the proper role of government
is to disturb market incentives as little as possible.
There would be much less of a problem in this regard if the
bureaucrats were willing to state publicly their views on the market
system. But accompanying the retreat from the private enterprise
system has been a decline in political honesty in our society. I
happen to think that the two are related - that honesty about goals
and methods would doom any attempt by the bureaucrats to substitute
their wisdom for free markets in deciding what, how, and for whom
goods should be produced. I also believe that a "truth in
political labeling" bill is the most important "truth"
bill that needs to be before the political leaders and the people
today. If this bill were observed as law, most of what is contained in
the so-called truth-in-lending and truth-in-packaging bills would have
to be jettisoned, particularly their titles.
One thing that I am sure we can agree on is that there is a better
way for America. I happen to think that the better way lies in a
return to the free enterprise system and a revival of the high
standards of official conduct which prevailed in this country not
forty years ago. It is my hope that some of you will agree with me.