The law I refer to throughout this article is not the criminal law, not the law of trespass or property or divorce, and not the law of torts. The law referred to here is a law such as that requiring a motor to be of a specified efficiency. It is a law saying that a doctor must have a license before practicing. It is a law against cannabis consumption, or a law stating how large a gauge should be. In most instances, these are not laws against crimes or laws that deal with dispute resolution. They are laws that restrict, control, or regulate a wide variety of production and consumption activity. They are laws that trench upon economic activities. They are economic regulations.
Why law kayos markets
A law (or regulation) has many attractions to the uneducated, the naïve, the thoughtless, to those who are innocent of economics, and to those under the influence of false conceptions. It’s simple. It’s clear. It’s direct. It’s identifiable. Problems demand solutions; they demand action. The law is visible action. We can read about the law being made. We can hear and see the lawmakers in their work. We participate in the process if we have a mind to. After the final votes are cast, the newspapers, talk shows, blogs, and periodicals tell us what it means. We know something has been done, and we think this is good even if the law is imperfect. A law makes us feel sure that the problem has been addressed. We feel sure of results. By its nature, the law identifies itself with progressiveness, with action, and with getting things done.
How frightful our ignorance is! How horrified we would be if we knew that the laws we support make our problems worse. How dismayed we would be if we discovered that time, patience, and doing nothing but allowing individuals to work by themselves on the problems would have alleviated them.
But no. Instead we see that the law invokes power, and power makes things happen. If we want energy efficiency, pass a law and mandate it. Manufacturers will have to make their engines more efficient. If we want less energy loss, pass a law and mandate tighter windows or more insulation or more efficient furnaces. Builders will have to obey. Sure, prices may rise, we will have to pay, but we will save energy. The law solves our problems. We can see that it does. If new problems should arise, pass new laws. What’s to stop us? We feel good. We are doing something, and we do not want to hear anything that might disturb us in the comfort of our belief.
If a law should have problems, this does not disturb our sleep. It’s part of the game, isn’t it? Is there any perfect process? Are we not making progress, and are we not passing more and more laws?
By such logic and belief, the law is become mankind’s main tool of progress. Our wise laws are what drive progress onwards. So we think, and so we err. Our machines have advanced faster than our thinking has.
The free market has no such obvious attractions, it being a hidden, almost underground set of decisions and exchanges that mostly go unreported and unnoticed. What is the free market anyway? It’s basically anarchy, people deciding for themselves. What could such an unplanned process produce except a stack of problems that require sorting out, that beg for a rational plan? Why would anyone favor chaos over a plan or a law? Where’s the blueprint? Where’s the direction? What say do we have over the results? How can we be sure the results will be what we want? Why should we trust manufacturers to do the right thing? Don’t they exploit workers? Don’t they pollute? Don’t they produce defective and unsafe products? Aren’t they run by greedy wealthy people who only want more and more?
The market is diffuse: hundreds and thousands of decentralized decisions with no apparent plan and no apparent goal. We feel powerless and uncertain of what is happening. Where’s the action? Are we to sit around like passive dolts? Where is our control over the market? Where is our assurance?
The law is an easier sell. One can quickly make a plausible positive case. The market is a harder sell. One must make a defensive case against the legion of critics who hate it. Then, on to the positive case, which is tough, especially when the prospect is sold on the effectiveness of laws. Reading I, Pencil is not enough. "Well, that’s all well and good for pencils, but not for energy efficiency. That’s too important to be left to oil companies. We need to do something!" For many people, general principles simply do not exist or they take a back seat to strong emotion. Feelings come first, but even emotional people can dredge up objections to markets. They see an infinite number of special cases. We do not have an infinite amount of time to persuade them.
Do laws create inventions?
If we were all transported back to the year 1600, we would not be so anxious to pass laws to solve problems. We would find out how hard life is without the machines we now take for granted. In 1600 the machine that drove the Industrial Revolution, the steam engine, didn’t exist. In 1600, would we turn to lawyers to give comfort to our lives, or would we be financing inventors of new machines? We owe a great deal to inventors whose aptitudes and drives often surfaced before the age of 10. In the case of James Watt (1736-1819), he was 6, and he had little formal education. Why do we turn to lawyers today as much as we do? Have we gone mad?
In 1878, Robert Henry Thurston published the first edition of A History of the Growth of the Steam-Engine. His 1902 edition begins with Hero of Alexandria (ca. 200 B.C.) whose book "Pneumatics" treats of earlier discoveries plus his own. Hero was a pupil of Ctesibus, an engineer who invented a keyboard instrument called a Hydraulis, the precursor to the organ. Hero’s book shows clear knowledge of steam driven devices and other machines, 78 of them.
In the 1600’s a number of inventors (Edward Somerset, Samuel Morland, Thomas Savery, and John Desaguliers) advanced the knowledge of the principles underlying what would become the steam engine, and they built various devices, usually unsafe and of very high cost. Somerset, the second Marquis of Worcester, expended his personal fortune in building a steam engine and seeking a commercial success that he failed to attain. He died poor. King Charles II (1630-1685), having a great interest in science, underwrote a laboratory whose Master Mechanic was Sir Samuel Morland. Morland, who also spent his own money, took up where Worcester had left off. Meanwhile English miners were encountering water that needed to be drained by some means. "They were, therefore, by their necessities stimulated to watch for, and to be prepared promptly to take advantage of, such an invention when it should be offered them." Thomas Savery invented an arrangement of paddlewheels to drive vessels. It was rejected by the British Admiralty and the Navy Board who wrote: "What have interloping people, that have no concern with us, to do to pretend to contrive or invent things for us?" Savery went on to build and advertise a steam-engine. He knew of the need for such a machine in the mines. "Savery spent considerable time in planning his engine and perfecting it, and states that he expended large sums of money upon it." His engines, although small, uneconomical, and rather unsafe (they lacked a safety valve), were used in mines. Desaguliers, an associate and supporter of Newton, added the safety valve. Thereafter, a number of figures sought to improve Savery’s design. However, none succeeded in anything beyond a small scale and none developed a true engine that took a force at one end and transmitted it to a resistance at the other end.
The efforts made in the 1600’s led to real commercial success early in the 1700’s. "The man who finally effected a combination of the elements of the modern steam-engine, and produced a machine which is unmistakably a true engine…was THOMAS NEWCOMEN, an u2018iron-monger’ and blacksmith of Dartmouth, England." Newcomen is described as follows: "His position in life was humble and the inventor was not then looked upon as an individual of even possible importance in the community. He was considered as one of an eccentric class of schemers, and of an order which, concerning itself with mechanical matters, held the lowest position in the class."
Improvements came quickly. An early model was "only capable of 6, 8, or 10 strokes in a minute, till a boy, named Humphrey Potter, in 1713, who attended the engine, added (what he called a scoggan) a catch, that the beam always opened, and then it would go 15 or 16 strokes a minute…Potter’s rude valve-gear was soon improved by Henry Beighton…" By 1769 another engineer, John Smeaton, had determined better proportions for the Newcomen engine which had come into wide use to drain mines. A small engine with a 10-inch diameter cylinder and a 3-foot stroke could do the work of lifting almost 3 million pounds of water one foot using a bag of coal weighing 84 pounds. Later in the century larger engines were used in waterworks, mills, blast furnaces, and draining in the Netherlands.
James Watt, whose mechanical interests took him in the direction of the steam engine, began working on improving it in 1764 at the University of Glasgow. "Perceiving that steam, weight for weight even, was a vastly greater absorbent and reservoir of heat than water, Watt saw plainly the importance of taking greater care to economize it than had previously been customary." To improve the engine’s efficiency, he conducted a range of controlled scientific experiments on heat loss, discovering that three-fourths of the steam was wasted. Then, in the words of Watts, "I had gone to take a walk on a fine Sabbath afternoon…I was thinking upon the engine at the time…when the idea came into my mind that, as steam was an elastic body, it would rush into a vacuum, and, if a communication were made between the cylinder and an exhausted vessel, it would rush into it, and might there be condensed without cooling the cylinder." Keeping the cylinder hot increased the engine’s efficiency.
It would take years more, until the years 1775—1785, for Watt to perfect the engine, and only with the help of financing by several partners, the last being a manufacturer named Matthew Boulton, known as an "ingenious, honest, and rich man." Boulton contributed directly in many significant ways to the success of the enterprise.
In the 1800’s, many inventors applied the steam engine to transportation: carriages, trains, and ships. More than a few steam-carriages plied the roads of England. Although commercial success was not marked, they survived and seemed destined for wide use. In the 1830’s, steam carriages ran a number of routes between cities and within cities. Several factors doomed them: "Hostile legislation procured by opposing interests, and the rapid progress of steam-locomotion on railroads, caused this result." Thurston’s account of the inventions and development of steam-locomotives and trains between 1800 and 1840 makes no mention of a government role except to say that there were so many private ventures in England that the government began some authorization. Rail development was market-driven in this era.
John Fitch in 1785 sought financing for a steamboat from Congress and was turned down. After New Jersey granted him sole rights for steam navigation on its waterways, he formed a company and raised money. He succeeded in building several boats that carried passenger traffic several thousand miles between Philadelphia and Trenton without accident. As with rail and steam-carriages, many individual inventors created new and various designs, often seeking patents for them. Henry Bell built a working craft and then applied to the British Admiralty in 1800 and 1803 for aid; he was unable to convince the Admiralty of the practicability and utility of steam vessels. Undeterred by early heavy losses, by 1815 he was operating a successful passenger venture with several boats.
Robert Fulton’s early experiments and trials occurred in France. He achieved some success in 1803 with a boat on the Seine. "The experiment was successful, but it attracted little attention, notwithstanding the fact that its success had been witnessed by the committee of the Academy…and by officers on Napoleon’s staff." Later "Fulton endeavored to secure the pecuniary aid and the countenance of the First Consul, but in vain." After securing a long-term monopoly right to New York waterways, later broken by the free market competition of Cornelius Vanderbilt, Fulton used the Boulton-Watt steam-engine to build and launch a successful craft (133 feet long) in 1807 that ran from New York City to Albany, 150 miles in 32 hours. In 1814 Congress bought a steam-vessel for the Navy.
Subsequently, it was John Stephens and especially his son Robert L. Stevens who "made many extended and most valuable, as well as interesting, experiments on ship-propulsion, expending much time and large sums of money on them…" These brought in the standard American river-boat. Robert "began working in his father’s machine-shop in 1804 or 1805, when a mere boy…" He was 17, and in 1807 he and his father built the Phoenix, the first steamship to navigate the ocean. By 1838, the Sirius and the Great Western, owned and operated by the British American Steam Navigation Company and the Great Western Steamship Company, respectively, crossed the Atlantic in 15 days at average speeds of 8.03 and 8.66 knots.
In much of history, pure free markets do not prevail. Various governments and laws intervene. The history of the invention and development of the steam engine is no exception, but, Thurston’s history reveals that the drive and dedication to invent arose from inventors, not from edicts of the state commanding that machines be invented with greater efficiency or from research and development funds coerced from taxpayers. The inventors typically devoted their lives and often their fortunes to their inventions. At times they were rebuffed in efforts to secure government support. Numerous private companies formed and sought commercial success without government subsidy, direction, or regulation. Numerous unheralded advances were made by mechanics, engineers, boys and young men who worked with these machines on a daily basis. The market produced more and more efficient engines.
The market also produced more and more safe steam-engines. One study reports: "Yet the reality remained that steamboats were a comparatively safe mode of transportation. In 1838, the worst year for steamboat explosions (relative to the amount of tonnage in service), 342 people died in twelve explosions, a far cry from the more than 1,000 fatalities on American sailing vessels lost at sea in 1839."
Appearances are deceiving. The world appears flat, but it’s round. The sun seems to orbit the earth, but the earth goes around the sun. Mandated gun locks decrease safety, not increase it. Highway safety laws decrease safety, not increase it. (In 1966 Congress passed a law to increase highway safety. It created the National Highway Traffic Safety Administration. This was at a time when America had the safest roads in the world. In 2003 America ranked ninth among 30 OECD countries.) Laws to increase drug safety take more lives than they save by delaying the approval of sound drugs or preventing their use altogether. Laws passed to liberate Iraqis lead to the deaths of half a million of them.
The anarchic free markets chug along. No laws exist to feed New York, London, and Paris, but they get fed. No law mandates that gasoline stations appear in convenient locations, but they do. No law mandates that computers provide more and more efficient information storage at lower and lower cost, but they do. No law stipulates that supermarkets stock fast foods, flowers, ice cream, cheeses from all over the world, and drug pharmacies, but many do. No law says that fish frys shall appear on Fridays or that they shall be served with cole slaw, but they do; and in places far, far from oceans. No law says that the DVD shall replace the videotape, but it does. No law mandates the electric breadmaker made in Korea, but it appears anyway.
Congress has decided that progress is defined by energy efficiency. Washington mandates that all appliances shall henceforth have more efficient motors. This can be done. It will be done. Engineers can do it. But at what cost? Lawyers don’t know the costs, and they can’t judge the costs if they tried. They can’t tell how greatly the increased costs impair the values of the goods to us the consumers. They can’t tell how the manufacturers will respond to the increased costs by cheapening other aspects of the product. They can’t tell how many fewer items will be produced when the prices rise.
Lawmakers are insulated. If they blunder, who is going to know? Who is going to call them on it? It may take months or years before the ill-effects become clearly visible, and even then they can deflect criticism from themselves and blame others. During their term of office, a great deal will happen. Who is going to pin the blame on them for some particular law they passed? Who is going to trace down the manifold consequences of their laws? If they throw sand in the gears of progress, who will hold them responsible?
Lawyers and lawmakers are not manufacturers. They are not in the business of satisfying our wants and needs. They are clueless when it comes to the goods we are buying. They take up space in an office and write laws. They don’t produce anything. They don’t respond to the ever-changing realities of the marketplace. They gum up the works.
Appearances deceive. Laws impede progress, while free markets boost progress. Laws are authority in action, and authority’s aim is not the satisfaction of the needs of the general public. They usually aim to shift wealth to a favored few. We can have more and more laws or we can have progress, but we can’t have both. We especially cannot have progress when lawmakers decide for us what progress is and pass laws to get it.
The One Hundred Second Congress of the United States of America at the second session begun and held at City of Washington on Friday, the third day of January, one thousand nine hundred and ninety-two gave us "An Act to provide for improved energy efficiency."
The word "provide" means supply or furnish what is desired or needed. The Act did not purport to supply any needs. Only free markets can do that. It purported to "provide for" a need, namely, higher energy efficiency. It claimed to set forth actions that, if followed, would accomplish this goal. Why? Why would it do this when history shows that the people unaided by such direction are perfectly capable of determining their own desired levels of energy efficiency and of supplying their own energy requirements?
And why would Congress decide that the people of the United States must be forced to withdraw resources from activities of their own choice and devote them instead to another set, one that would supposedly raise energy efficiency? How could Congress possibly determine that such massive interferences with the liberty and property of Americans were in any sense "good"? How could such an obviously communistic or socialistic scheme be enacted by the leader of the "free" world?
And even if every provision of the Act were dutifully carried out, would the result actually be of any value? The Act declined to define "energy efficiency," but the provisions aim at energy efficiency in purely technical terms, that is, a lower input of resources while achieving the same level of services or outputs. But such a definition is senseless because it makes no reference to financial criteria such as the costs of the more efficient technologies. How can Congress legislate for the General Welfare without considering financial criteria? What sense does such an energy law striving for technical efficiency even make? If we have to pay an extra $1,000 for a furnace with 10 percent greater efficiency, is it worth it to us? We might be better off investing in Toyota stock, and the energy savings made by that company might be far greater than what the Department of Energy is dictating.
If the goal was to decrease the dependency of the U.S. on foreign imports of oil, why was this the goal? Does that goal make any sense? Why can’t individual consumers and businesses gauge the risks of being dependent on foreign sources of supply and act accordingly? Why can’t they develop alternative supply sources and networks? And has this legislation succeeded? Aren’t imports even larger today than 15 years ago? Whatever happened to nuclear power?
What we are observing in these United States is a blinded behemoth of a state that lurches from one supposed crisis to the next while trampling underfoot the people under its aegis. Crises are imagined or manufactured. They are advertised and disseminated. Drastic solutions are proposed and enacted. We seem to have lost touch with reality, to have gone mad.
Paradoxically, the ungoverned and anarchic free market is a far more sane institution, rooted firmly in the reality of value, cost, price, and profit; more firmly and quickly cognizant of any development anywhere in the world that might affect sales; more responsive to consumer demand and welfare than any government ever has been or can be.
Washington and the people seem to have abandoned sense and logic, to have given themselves up to abiding fears, and to be thrashing around mindlessly. One looks in vain for any semblance of calmness, maturity, cool-headedness, good judgment, restraint, and patience. When it seems to surface, it dissipates as quickly as hearing the bearers open their mouths and speak their minds. Out come the same tired and worn out nostrums and slogans that got us into our current predicaments: more laws, more programs, more fixes, and less progress.
One gets the feeling that Washington has swallowed a bottle of amphetamines. I keep waiting for this hyped-up episode of lawmaking to cease. I have been waiting patiently since the 1960’s when, in my adult life, the nation began seriously to run off the rails. It hasn’t got back on track yet.
I wait for the day that our speechifying officials speak the word "Repeal." Repeal anything, ladies and gentlemen, but repeal. Start somewhere and repeal. Begin the journey back to progress. Repeal. Repeal. Repeal.
Michael S. Rozeff [send him mail] is the Louis M. Jacobs Professor of Finance at University at Buffalo.