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Crisis and the State

Each new crisis in a nation's history seems to bring with it an expansion of the civil government. The crisis may be war, economic catastrophe, a natural disaster, or some other emergency. At the time, most people seem to see the increased power granted to the state as reasonable, even unavoidable.

  • Timothy D. Terrell,
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Each new crisis in a nation's history seems to bring with it an expansion of the civil government. The crisis may be war, economic catastrophe, a natural disaster, or some other emergency. At the time, most people seem to see the increased power granted to the state as reasonable, even unavoidable. Yet a grave danger is embedded in each new transfer of authority to the state. Basic freedoms that are curtailed as "emergency measures" may never be regained. In the long run, the loss of liberty can prove far worse than the initial emergency.

As Genesis 41:33-57 and 47:13-26 tell us, the patriarch Joseph dealt with the seven-year Egyptian famine by confiscating grain during the years of plenty and then selling it back to the Egyptian people. When they ran out of money, they sold their livestock to Pharaoh. As the famine continued, the Egyptians sold their land to Pharaoh, then sold themselves into slavery to him. At the end of the famine, Joseph instituted a permanent 20 percent tax on harvests. The famine left Pharaoh greatly enriched, with the people of the land utterly enslaved to him.

The Opportunities of Crisis
Crisis presents an opportunity for the state — an opportunity to appear on the scene of the disaster as protector and savior. In some cases, as with an unprovoked attack by a foreign foe, some involvement by the civil government is justified. Yet even here, the state often takes far more power than is necessary to deal with the emergency. The state exploits crises, feeds on them, grows through them. In some cases, it may even cultivate a crisis if one is not forthcoming.

World War I, for example, provided a new opportunity for the expansion of the federal government. As a result of the war, the brand-new income tax exploded in size and importance. Until wartime, the tax had been relatively unimportant compared with the tariff included in the original Constitution. Yet between fiscal 1917 and fiscal 1919, Federal revenues rose by nearly 400 percent. In addition, the national debt grew to over 21 times its prewar level — from $1.2 billion in 1916 to $25.5 billion in 1919.

Frequently, the state is reluctant to relinquish emergency powers once it has enjoyed their use. As Robert Higgs explains in his book Crisis and Leviathan, the government activity that accompanies a crisis rarely disappears entirely after the crisis has abated. Rather, the state continues on at a new and increased size. Higgs has called this the "ratchet effect."

The Ratchet Effect
There are several examples of the ratchet effect from the last century. The Great Depression accompanied one of the greatest peacetime expansions of the federal government in American history. Herbert Hoover began the process with public works projects, but Franklin D. Roosevelt dwarfed his predecessor's efforts with a mountain of government intervention. Roosevelt's famous Hundred Days after his inauguration in 1933 produced massive employment programs, sweeping banking and investment regulations, moratoriums on foreclosures, and much more. Roosevelt used emergency powers freely, assisted by a fawning Congress and a desperate citizenry. Washington, D.C. boomed with the New Deal bureaucracies. Ironically, the intervention prolonged the crisis it was supposed to resolve.

Roosevelt's gold-confiscation scheme was one emergency measure with long-term negative consequences. In March, 1933, Roosevelt took control of all banking and financial transactions. Soon afterward, people who held gold for monetary purposes were required to exchange it for paper certificates. Within a year, it became illegal for private citizens to hold monetary gold (it remained illegal until 1974). All gold was turned over to the Federal Reserve, then to the federal government.

These actions were based upon the declaration of a national emergency. The Depression was a plausible excuse, but what would happen when it was over? World War II made for an extension of the emergency, but for decades after the war the "emergency" was perpetuated in some form.

World War II was the greatest crisis America had seen in seventy-five years. Like the War Between the States, it too marked a surge in the size and importance of the federal government. Federal revenues increased from $7 billion to $50 billion between 1940 and 1945, and the publicly held national debt more than quintupled. The IRS began income tax withholding in 1943, and taxes at all levels increased. The bottom tax bracket saw an increase from 4.4 percent to 23 percent during the war, and the top bracket was paying an incomprehensible 94 percent by 1945. And, consistent with Higgs's "ratchet effect," the government did not shrink to its prewar size after the war, much less the pre-Depression size. The federal government consumed about 2.6 percent of gross national product in 1929. In 1940, when the United States was gearing up for war and employment was higher, the federal government was consuming about 8.2 percent. In 1944, the last full calendar year of the war, an astounding 52.3 percent of production of goods and services went to the federal government. In 1950, five years after the end of the war, the percentage was lower — but at 14.5 percent the government was spending far more than before the war. By comparison, the pre-Depression federal government was small potatoes.

By 1950, Washington, D.C. was addicted to "national emergency." And so the remainder of the twentieth century — and the beginning of the twenty-first — would be an era of continuous emergency. If not a depression or an expansionistic Germany, it would be the Cold War, the War on Poverty, the War on Drugs, or the War on Terrorism. Continued government expansion came to rely on crisis, because Americans had come to rely on the state in time of crisis. The church and the family, sources of refuge, comfort, and sustenance in earlier days, lost ground in America. The state metastasized, rapidly extending its reach with each new calamity (real or imagined). With each increase in the size of government, a new constituency of government bureaucrats and hangers-on was created to oppose any shrinkage of the state.

Higgs has pointed out that, in national emergencies, the Constitution is likely to be read very differently, and the freedoms it protects are likely to be significantly curtailed. The "Crisis Constitution," as he puts it, takes precedence as a fearful population grants immense powers to all branches of government. Higgs writes that "the great danger is that in an age of permanent emergencythe age we live in, the age we are likely to go on living in — the Crisis Constitution will simply swallow up the Normal Constitution, depriving us at all times of the very rights the original Constitution was created to protect at all times."1

Today we face new crises. The threat of more terrorism, and the crises with Iraq and North Korea, are perhaps most significant in the public view. To politicians with a lust for more power, the war on terrorism must seem particularly promising, as it will be next to impossible to ever declare a "victory." Even the seemingly interminable Cold War had its end when the Soviet Union crumbled. Countless billions of dollars may be expended on combating terrorism, and draconian powers tendered to the state — and few will complain. Yet greater threats than al-Qaeda and Saddam Hussein exist in the world. Sacrificing the basic Biblical freedoms that made America great, in order to protect us against terrorism, would expose each American to the nascent tyrannies of our own government. We would do well to remember the words of Justice Frank Murphy, one of FDR's appointees to the Supreme Court: "Few indeed have been the invasions upon essential liberties which have not been accompanied by pleas of urgent necessity advanced in good faith by responsible men...."



  • Timothy D. Terrell

Timothy Terrell is associate professor of economics at Wofford College in Spartanburg, South Carolina. He is assistant editor of the Quarterly Journal of Austrian Economics and is an Associated Scholar with the Mises Institute.

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