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Volume 8, Issue 27: July 3, 2006

  1. DEPRESSION, WAR, AND COLD WAR -- New Book by Robert Higgs Dispels Persistent Myths of U.S. Political Economy
  2. Eminent Domain One Year after Kelo
  3. The Grandchildren of Islam
  4. Terrorism Financing and the Press

1) DEPRESSION, WAR, AND COLD WAR -- New Book by Robert Higgs Dispels Persistent Myths of U.S. Political Economy

Robert Higgs, the Independent Institute's Senior Fellow in Political Economy and editor of THE INDEPENDENT REVIEW, has done it again. He's written another book that dispels persistent myths surrounding the biggest events of 20th-century America. In DEPRESSION, WAR, AND COLD WAR, Higgs shows how the Great Depression, the Second World War, and the Cold War dramatically changed the American political economy and sheds light on the economic and institutional context in which the policymakers of today operate.

The book proceeds chronologically: Higgs explains how investors' uncertainty about the security of property rights prolonged the Great Depression; how a little-known change in weapons procurement policy in 1940-41 transformed the role of defense contractors in the political economy; how and why the U.S. civilian economy foundered during the Second World War; and how historians and economists have neglected to examine the rapid postwar transition to a U.S. civilian economy. Then Higgs discusses the political economy of the Cold War, including the role of various "crises" in sustaining the U.S.-Soviet arms race; how members of Congress have used the defense budget to get re-elected, at the expense of programs the armed services deemed more important; and how defense contractors have made out like bandits, their stocks significantly outperforming the Standard & Poor's 500 -- while taxpayers have shouldered much of their risk.

Here are just a few of the book's findings:

* Contrary to popular legend, President Franklin D. Roosevelt’s policies and appointees didn’t end America’s Great Depression -- they prolonged it: Contemporaneous evidence from corporate bond markets and opinion polls indicates that by shaking investors’ confidence in the security of property rights, the New Deal discouraged the long-term private investment needed to revive the economy.

* World War II did not create prosperity. Although defense-related industries did well during the war years, few consumer durables (e.g., cars and houses) and non-defense capital goods were produced. The virtual elimination of unemployment then was due to the draft, which forced 22% of the prewar labor force into the military at below-market wages.

* From 1949 to 1989, the top defense firms outperformed the stock market by a huge margin. An investor who held a portfolio of top defense stocks during those four decades would have earned 2.4 times more than one who invested an equal amount in a diversified portfolio.

"DEPRESSION, WAR, AND COLD WAR marks Higgs as one of the most important and original political analysts of our time. An intellectual tour de force!”

-- Jonathan Bean (Southern Illinois University)

For the table of contents and to order the book, see

For a detailed summary, see

CRISIS AND LEVIATHAN: Critical Episodes in the Growth of American Government, by Robert Higgs

AGAINST LEVIATHAN: Government Power and a Free Society, by Robert Higgs


2) Eminent Domain One Year after Kelo

Independent Institute Research Fellow Edward J. Lopez shows how the U.S. Supreme Court's decision in Kelo v. City of New London, Conn., has emboldened numerous city governments to transfer land from one private owner to another.

"The city of Long Beach condemned the Filipino Baptist Fellowship church to let developers build condos. In Daytona Beach, the city is taking three beach front properties to make way for a retail complex, and the city attorney said broader powers under Kelo factored into the decision," writes Lopez in a recent op-ed. "In Memphis, planners put their cross hairs on some choice riverfront property to hand over to private developers. The head planner there said Kelo 'definitely gives the city more tools in its tool box for dealing with the legal issues surrounding that piece of property.'”

The Kelo decision has also inaugurated a grassroots backlash: "In California, eminent domain restrictions are on seven legislative bills, four constitutional amendment proposals, and at least one referendum likely for the November ballot.... So far 18 states have passed laws restricting eminent domain, and in six others new legislation awaits governor signature. Some of these laws may turn out to be more symbolic than real, making it all the more important to ban development takings altogether. We need state laws that take the eminent domain out of economic development."

See "Kelo: Taking the E.D. out of Economic Development," by Edward J. Lopez (NORTH COUNTY TIMES, 6/23/06)

"El fallo en el caso Kelo: Alejando al dominio eminente del desarrollo económico"

For more about eminent domain and land use, see


3) The Grandchildren of Islam

If the Muslim world is to recapture its former glory, it must first reexamine the reasons it was eclipsed by European (and North American) civilization, according to Alvaro Vargas Llosa, director of the Independent Institute's Center on Global Prosperity, whose recent travels to Lebanon, Syria, Jordan, and Israel introduced him to the views of a diverse mix of Middle Easterners.

Vargas Llosa writes: "The evils of Western intrusion -- which has been abundant -- do not explain the backwardness of the Middle East (and, in cases such as Lebanon, the interruption of what not long ago looked like unstoppable development). And yet, with many enlightened exceptions, the dominant view is that exploitation by the West has robbed Islam of its glory. Muslims, the reasoning goes, have strayed from the ways of Allah and have been punished -- thence the need to return to fundamental Islam."

"The lesson fundamentalists should draw is not the easy one -- i.e. that God punished them by letting the West plunder everything. It should be that the kinds of freedoms that certain Muslim dynasties allowed their citizens -- i.e. the values of self-reliance and responsibility -- are the way to move forward."

See "The Grandchildren of Islam," by Alvaro Vargas Llosa (6/28/06)
"Los nietos del islam"

Center on Global Prosperity (Alvaro Vargas Llosa, director)

LIBERTY FOR LATIN AMERICA: How to Undo Five Hundred Years of State Oppression


El Independent: El Blog del Centro Para la Prosperidad Global de The Independent Institute


4) Terrorism Financing and the Press

Last week's disclosure, in the NEW YORK TIMES and elsewhere, about the federal government's Terrorist Financing Tracking Program prompted stinging criticism from the Bush administration and the House Republicans.

But "the news that the U.S. government was snooping into international electronic banking transactions was less of a shock to the enemy being monitored than to the American people," writes Ivan Eland, director of the Independent Institute's Center on Peace & Freedom, in his latest op-ed. "Because terrorists have been aware of such surveillance by governments, they had long ago started using the more informal Middle Eastern system of financial transactions -- called hawala -- involving couriers and money transfer facilitators. Even the public should have been aware of such government activities, given the Bush administration's constant bragging about tracking the financial flows to terrorist groups."

What should be done? "If the government employees who leaked the classified information can be identified, they should be prosecuted. They signed an oath agreeing not to disclose government secrets. But members of the press made no such pledge. If the government is incompetent in keeping secrets, the media, in a free society, should not be prosecuted for publishing them. It is much less damaging to an open society to try to prevent government employees from leaking than it is to prevent the press from publishing the leaks."

See Politicians Should Exhibit Prior Restraint, Not the Media," Ivan Eland (7/3/06)

"Los políticos, no los medios de comunicación, deberían exhibir moderación previa"

THE EMPIRE HAS NO CLOTHES: U.S. Foreign Policy Exposed, by Ivan Eland

RESURGENCE OF THE WARFARE STATE: The Crisis Since 9/11, by Robert Higgs

Center on Peace & Liberty (Ivan Eland, director)


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