Charles Koch did not just become a convert to the ultra-capitalist radical right. He is the sole reason why this movement may yet alter the trajectory of the United States in ways that would be profoundly disturbing even to the somewhat undemocratic James Madison, I believe—and would unquestionably take the “demos” out of American democratic governance. How Koch came to know libertarianism is easy to answer: at his father’s dinner table. Less obvious is why he continued to pour untold millions of dollars into this cause, even as he later acknowledged that for some three decades it produced few results. He made clear he was looking for something, but what that something was, beyond a “technology” of revolution, remained unclear.1 When and where he found it is not: in the ideas of James Buchanan. In the eventual merger of Koch’s money and managerial talent and the Buchanan team’s decades of work monomaniacally identifying how the populace became more powerful than the propertied, a fifth column movement would come into being, the likes of which no nation has ever seen.
At first it seems hard to imagine why a man who had so much would become consumed with a need to take down those who just wanted “some more” for themselves (in the immortal words of Oliver Twist). The answer, to the extent that one can be found in the mysteries of individual human personality, lies in a childhood in which fighting was a leitmotif and government was always the enemy.
Charles G. (de Ganahl) Koch was the second of four sons of Fred Chase Koch, a man who made his millions running an oil-refining business. Through much of his youth, Charles and his brothers watched their father fight round after round of what no doubt seemed to the family, despite its wealth, a David-and-Goliath-style legal battle. It lasted twenty-three years. On one side was a behemoth known as Universal Oil Products, which was owned by a group of major corporations, including what remained of John D. Rockefeller’s Standard Oil, and which had monopolistic tendencies. On the other was Fred Koch.2
As the plaintiff, Universal Oil claimed that the innovative technical process that had already made Fred Koch a wealthy man violated its patent rights. Koch was up against an adversary that had unlimited funds and therefore access to the best lawyers. They won virtually every lawsuit they filed for patent violations against new competitors. But Koch did not buckle. His attorney argued that his accusers kept control of the industry through a kind of government-backed blackmail, such that “a small refiner . . . is told that if he does not take a license [from the patent-owning company] he will suffer the penalty.” At trial, Koch lost. His appeals failed as well. But later he learned, as the investigative reporter Daniel Schulman has put it, that “the ruling that had sealed his company’s fate had been bought and paid for” by the company that sued him. It took two decades and the exposure of that corruption, but Koch ultimately prevailed.3
Universal Oil Products engaged in what Buchanan’s coauthor Gordon Tullock would later define as (and an adult Charles Koch would revile as) “rent-seeking behavior.” It referred to all attempts to extract benefits (financial or otherwise) through manipulation of the political or legal system that exceeded what those seeking these advantages would have been able to earn through their own productive activity.4 Of course, what happened to Fred Koch wasn’t rent-seeking behavior; it was criminal behavior. If Universal’s lawyers felt confident that the courts would have sustained their claims, then Universal would not have resorted to bribery. One can only wonder if the course of both Fred’s and Charles’s lives might have been somehow different had the judge in the case refused the bribe and heard the case on its merits.5
Then again, there is no gainsaying the fact that Fred Koch did not need a lawsuit to lead him to the right. When asked to describe his father, Charles called him “a John Wayne–type figure, charismatic and forceful,” someone who taught his boys to love liberty, venerate hard work, and passionately hate collectivism. “He was constantly speaking to us children about what was wrong with government,” recalled David Koch, one of Charles’s two younger brothers. But he was even more derogatory about those who turned to government for help, expressing his utter contempt for those who had a “dependence on government” or were even temporarily “feeding at the public trough.”6
Making and enjoying money was never enough for Fred Koch, as it would not be enough for the son he groomed to be his successor. He had to have things his way. In 1958, after his victory against Universal Oil, Fred co-led a referendum drive to alter the state constitution in order to make it harder for unions to take root in Kansas. Fred was a passionate advocate of so-called right-to-work laws. But what he is most remembered for is his cofounding of the John Birch Society earlier the same year, declaring that he was “thoroughly disgusted with the Eisenhower variety of Republicanism.”7
Charles was in graduate school at MIT at the time his father helped launch the society, and was keeping his distance from the stern hand of the family patriarch. By all accounts, Charles continued to be more interested in things—above all, how they worked and how to make them work more efficiently—than in philosophy; he earned three engineering degrees before departing from MIT. He liked living in Cambridge and chose to remain in the Boston area in a consulting job after graduation, beyond the reach of the man who had been so bent on hardening him that he had sent Charles, against his will, to a string of boarding schools as a preadolescent and then to an Indiana military academy far from home for high school.8
But Charles was raised to respect his parents. So when Fred Koch, ailing, called upon him to help with the family business—or see it sold off—the prodigal son returned to Wichita.
The company he gradually took over had, at the time he returned, annual revenues of $70 million. In 1967, after two heart attacks felled Fred Koch, Charles, then still only thirty-two, succeeded his father. Through the aggressive pursuit of any promising technological breakthrough, and the determined application of it no matter how long it took to yield results, combined with shrewd market and managerial strategy, he would turn Koch Industries into the second-largest privately held company in America—with yearly revenues of more than $115 billion (well over a thousandfold increase from what it was when he took over) and some sixty-seven thousand employees in almost sixty nations.9 Indeed, within a decade of his assuming leadership, and at a time when America had only five billionaire families (four of whose fortunes went back to the Gilded Age), the Kochs had already reached the top twenty in wealth through Charles’s deft navigation of the family’s original industry, crude oil marketing, and smart expansion into other domains.10 Keeping the company private, he also maintained control.
Koch’s competitors learned never to underestimate his determination, his skill at seeing many moves beyond them, and his virtually infinite patience. Playing the long game is his forte, something other Americans are just beginning to understand.
• • •
As smart as Charles Koch was as an engineer and entrepreneur, socially he was not very adept; he would not marry until he was forty-one years old. With the business booming and nothing much else to take up his time other than what he called a “compulsion” to learn how the world worked, he devoted more and more of his time to reading books and articles that would enhance his “understanding [of] the principles that lead to prosperity and societal progress.” He restricted his study in only one way: to thinkers who believed as he did that the foundation upon which prosperity and social progress had to be built was unhampered capitalism. One work particularly influenced him: F. A. Harper’s Why Wages Rise, a free-market primer published in 1957.11
“Baldy” Harper is one of the least known names in the pantheon of radical right thinkers. But he was a founding member of the all-important Mont Pelerin Society and was Charles’s cherished mentor. An agricultural economist by training, Harper was especially concerned with how collective organization among workers affected wages and the “cost of being governed.” For the worse, he concluded. Harper compared the impact of unions to that of “a bank robber.” They enabled, he sought to show, “a few persons, through power and special privilege” to “gain some short-term advantages at the expense of others who work.” In a true, undistorted market society, wages should rise only with increases in productivity. Harper also declaimed against the “little corporate welfare states” created by union contracts that included such fringe benefits as health insurance, pensions, and others. “A small welfare state is perhaps better than a large one, of course,” he said, but “it is still an evil,” as it is “the essence of communism-socialism.” For another thing, such benefits “tend to freeze a worker in his job,” thereby “compris[ing] a serious threat to our progress” by inhibiting movement from one job to another. The right way to do things was to put individuals back in charge of negotiating and spending their earnings, and let them purchase what services they needed as individuals in the market, not look to the political system to supply them.12
Baldy Harper also hated the idea of “government schools.” He fulminated against “financial need” as a criterion for college scholarships as a “Marxian concept,” warning, “‘Need’ grows without bounds whenever it is severed from a responsibility for acquiring satisfaction through one’s own endeavors.”13 Harper also worried about moral deterioration in modern society. He claimed to have evidence in his files showing “that the shorter work week is an important source of crime,” and that “compulsory unemployment devices, such as child labor laws,” and mandatory schooling “during teen-age years, are important causes of juvenile delinquency.” By the same token, he argued that so-called government “help” in times of economic depression, such as the 1930s, was “dangerous.” The economy would quickly recover, Harper assured, if each individual were “free to continue to work at the best price a free market will offer him.” However low that wage might be, allowing the market to right itself would lead to restored prosperity; the key was never to allow wages to stick at too high a level, as with minimum wage laws or union contracts. Such true freedom, with relations between individual employees and employers undistorted by group power or government action, Harper rhapsodized, “would be as near a utopia as can be hoped for in economic affairs this side of heaven.”14
Harper’s thought moved Charles Koch deeply. It echoed his father’s core teaching, yet was free of the embarrassing baggage of the John Birch Society, such as the founders’ suggestion that President Dwight Eisenhower might be part of the Communist conspiracy. Harper also conveyed ethical urgency about acting on libertarian values, among them emancipation from taxation. “Government in the United States is now taking from persons’ incomes an amount equivalent to the complete enslavement of 42 million persons,” Harper wrote in another work. “Compare that figure, and the concern about it, with the figure of 4 million privately-owned slaves in the United States at the outbreak of the War Between the States!” Why did so few see the outrage of it? “The power to tax is the power to destroy,” he wrote, borrowing words from Daniel Webster and Justice John Marshall in McCullough v. Madison, and taking them to ends such early Americans could scarcely imagine. Democratic government was, Harper argued, increasing “the power of certain persons to destroy other persons.” It was time to fight such “special privilege,” stop “slavery,” and “restore liberty.”15
Harper described the world as Koch understood it, a world in which entrepreneurs were drastically underappreciated and overcontrolled. And he drew a vision of what a society might become if the entrepreneurs were freed from both interference and government-granted favors: a paradise of individual freedom, world peace, and social progress. “Goodness in man can only grow in a climate of liberty” was the message Charles Koch took from his “beloved” teacher: only if one were totally free of coercion and fully self-responsible could one make truly ethical choices. Not surprisingly, Koch credited Harper with the “life-changing” teaching that made the quest for economic liberty the passionate mission of his life.16
From Baldy Harper, Koch found his way to Robert LeFevre, a fiercely libertarian onetime businessman who had founded what he named the Freedom School in rural Colorado in the late 1950s to teach an antigovernment, property-supremacist vision of liberty. LeFevre was one of the northerners excited by Virginia’s turn to private schools, and was certain that the South’s angry whites could be won over to the libertarian cause. He promised Jack Kilpatrick to help by spreading the case that “our government schools have failed us.” Americans, he would teach, needed “private and independent schools, completely free from government domination.” LeFevre’s broader “Platform for a Free America” blamed the Wagner Act for having “enslaved millions” to “Labor Bosses,” denounced Social Security as “unsound” and “immoral,” and called for “constitutional limits . . . both on taxing and spending.”17 LeFevre’s vision, notes one inside history of the libertarian movement, “was like catnip to a certain class of businessmen.” Charles Koch was among them. He was so keen on the Freedom School that he persuaded his younger, less political brother David to accompany him on a two-week session at the school; Charles went on to join the board of trustees.18
Not surprisingly, then, Koch’s first major philanthropic cause was the Wichita-based Center for Independent Education, which pushed private schooling and voucher programs nationwide. It grew out of the Wichita Collegiate School, conceived by his father and Robert Love, his father’s partner in the local John Birch Society, to provide a liberty-minded alternative to state-run schools in the wake of Brown v. Board of Education. The school’s motto was “Proba te Dignum”—“Prove Yourself Worthy”—that running theme employed by Jack Kilpatrick for why the federal government had no business helping African Americans: because they should “earn” any improved standing.19
In 1965, Koch, having become convinced that finding new thinkers and leaders for the fight for economic liberty was the most pressing need, began contributing substantial amounts to Baldy Harper’s organization, the Institute for Humane Studies (IHS), to locate and cultivate these much-needed thinkers and leaders. It was the direct successor to the William Volker Fund, which had brought so many American scholars into the Mont Pelerin orbit, Buchanan among them. (In a fit of the kind of imperiousness to which libertarians seemed especially prone, Volker’s president “blew the whole damned thing up,” according to one longtime staff member. The IHS took over its mission and attracted its former supporters.)20
After joining its board the next year, Koch never left. He devoted not only millions of dollars to the IHS but also the scarcest arrow in a CEO’s quiver—his time and his focused attention, even serving a term as president after Harper’s death. IHS remained the organization closest to his heart, and he its main benefactor. Koch believed that, as the institute expressed it, “ideas” are “the greatest power.” The mission of IHS was, through “basic research,” to “search for important truths” to guide the pursuit of liberty. It would do that by “the training in depth of highly talented persons” with “the greatest promise of leadership.” That would take time, Koch and Harper knew, because “ideas do not bear fruit immediately.” One had only to look at Marxism, decades in development before it bore its “bitter fruit.”21
It was around this time—1970, to be exact—that Koch was admitted to the Mont Pelerin Society. It was not an easy society to join, even for a man with his wealth and views. Its bylaws specified that any candidate must be nominated by two members and approved by four-fifths of the sitting directors of the association. The new prospect must wait a year for admission, during which time there must be “sufficient enquiry, including where possible among his fellow nationals” to confirm his “suitability.” (Virtually all the members were men, so the pronoun is apt.) Dues were modest for a pro-enterprise cause: $20 a year in 1976, about $125 in today’s dollars. Once Charles Koch joined, the groups he funded made regular use of the society’s newsletter to advertise their events, publications, and employment opportunities.22
Urging Koch on in his chosen vocation was something else as well: his belief that his own growing financial success as one of the richest men in the world already justified his slowly taking over the libertarian cause and shaping it to his will. For in his own mind his success confirmed the quality of his intelligence and his fitness as a leader. From Ludwig von Mises, Koch had learned that entrepreneurs were the unsung geniuses of human history, deserving of a kind of reverence reminiscent of the old Puritan doctrine that equated earthly success with divine favor.23
Perhaps this arch sense of his own achievement also helped explain the lack of charity (or what most would call compassion) for nearly everyone else—not just wage earners but also businessmen who did not see things as he did. He came to disdain those who ran publicly traded corporations. Such people mistakenly imagined that because they possessed elegant high-rise corner offices, they were his equals, especially the moderate managers who then played an important role in the Republican Party. By his lights, they were just hired hands, beholden to shareholders and lacking in appreciation of true liberty. No, the real heroes were men like himself, from the Midwest, the West, and the South, who had built their own businesses, kept them private, and were not inclined to compromise.24
He was even more contemptuous of businesses that failed, arguing that this meant the market was working efficiently, clearing out those who had misgauged the buyer—or their own abilities relative to their competitors. Koch believed that what the famed economist Joseph Schumpeter called “creative destruction” was so critical to the health of the capitalist system that empathy was an obstacle to acceptance of the world that must be brought into being. “Envision what could be,” Koch urges; act with “urgency” and “discipline” to “drive creative destruction.”25 A businessman who did not have the savvy to serve the customer “should be a janitor or a worker.” In Koch’s view of the world, that is what a lifelong wage earner was: the less able or the one sentenced to a form of serfdom by his or her own failures.26
Indeed, these notions of what made for superior and inferior people became so intrinsic to his character and sense of the world that when he finally married, he insisted that his wife be similarly indoctrinated into these ideas, lest their marriage lack harmony of purpose, until he was satisfied that the “intense training” had succeeded. (It had. Elizabeth “Liz” Koch complains that America has become “a country of non-risk-takers,” of people “who just want to be coddled, and taken care of.” Most of her fellow citizens, she says, never stop to think “that they might be able to do it themselves and do it better.” Government should not interfere with profit making, she says, because “greed is a return on investment, the risk you took.”)27
• • •
That sense of intellectual and even ethical superiority to others may help explain why Charles Koch bypassed Milton Friedman to make common cause with the more uncompromising James Buchanan. Koch referred to Friedman and the rest of the post–Hayek Chicago school of economics he led, as well as to Alan Greenspan, as “sellouts to the system.” Why? Because they sought “to make government work more efficiently when the true libertarian should be tearing it out at the root.” They actually tried to help government deliver better results, which could only prolong the disease. Koch believed that only in its “radical, pure form,” without compromise, would the ideas “appeal to the brightest, most enthusiastic, most capable people.”28 (Is it any wonder, then, that his allies would now rather bring down the government than improve it?)
In the beginning, though, it was difficult to find bright and capable people who believed as he did. When “I started [bankrolling the cause],” Koch marveled, “we’d be lucky if we could get a half dozen professors or scholars.”29 Still, he continued to invest, undaunted by the eccentricities of the human raw material at hand. At one 1975 gathering of Institute for Humane Studies members in Hartford to promote Koch’s favored Austrian economics, one participant remembered “a real team-building afternoon” when the group went on a bus tour. As the young female tour guide drew their attention to the many lovely buildings they were passing, “when it was a government building we all booed deeply and when it was private we all cheered,” delighting in the fact that the young woman, not grasping the correlation, was “totally unnerved” by the men’s yelling. Apparently, only one attendee of several dozen was “shocked and disgusted” by the boorishness. He was not American.30
The next such IHS gathering was held at Windsor Castle, inside the walls of the royal palace used on weekends by Queen Elizabeth, but now with fewer than two dozen participants. They were “booster meetings” to bond new talent with “heroes.” Charles and Liz Koch brought so many pieces of matching luggage, the organizer recalled, that an additional big car had to be hired to port it all. It was, he reminisced, like the “forming of a clan.”31
It is hard to imagine such a clan upending the known world within a few decades, but chance won them a wider hearing. It came with the troubling economic events of the mid-1970s, which undercut the credibility of the prevailing approach to political economy. The worst and longest recession since the Great Depression, followed by a mystifying period of stagflation and compounded by new competition from abroad, enabled the wider right to draw more and more corporate leaders into action. They wanted not just to rein in regulation and taxation, but also to dethrone the dominant paradigm of Keynesian economics that was at the core of the midcentury social contract.32
Although deeply interested in this very project, Koch remained on the sidelines of the energetic corporate mobilization then under way. He simply did not trust the big blue-chip, publicly traded companies and established business associations that took the lead to stand on principle (which, in fact, they did not, always making exceptions for themselves), so Koch kept his contributions separate. He would not intermix his money with that of the ideologically impure, those who seemed likely to quit or cut a side deal before the long game was won. As they did.33
As important, because he had assured himself that his actions were solely motivated by principle, by allegiance to a set of ideas that would create a better society, he remained religious about the need to discipline CEOs as well as social movements and others who looked to government. “How discrediting it is for us to request [corporate] welfare for ourselves,” Charles Koch chided his fellow businessmen in 1978, “while attacking it for the poor.” No wonder the enemies of free enterprise called company attacks on big government hypocritical. “We must practice what we preach,” he intoned, and cease seeking special privileges and subsidies.34
Given the interest of James Buchanan’s team in what they called rent-seeking and in new legal rules that might prevent it, the man who jokingly referred to himself as an “adopted Austrian,” and who privately speculated about the benefits to the Virginia school of his “assuming the role of the American ‘Hayek,’” found himself drawing closer to the people representing Koch’s political interests. And when Charles Koch set up his own eponymous foundation in 1974, Buchanan was invited to be the featured dinner speaker for “our first formal activity.” Held in Charlottesville, where kindred economists and law school faculty were now working so well together at the University of Virginia, it was the first of a series of gatherings that were not merely for the like-minded to get acquainted. They featured intense deliberations on topics ranging from “The New Monetary Theory” to “The Austrian View of Social Cost.”35
Koch’s team knew of James Buchanan not least because the libertarian milieu was still so small. Earlier, they had welcomed the economist’s argument against “appeasement” of campus protests, publishing a pamphlet-size version of Academia in Anarchy to reach a broader audience than the book had. Indeed, more than anything else, it was Buchanan’s and Koch’s shared commitment to school privatization at every level that started a collaboration that deepened over the next two decades.36
• • •
Being an insatiable reader and an exacting thinker, Koch was made to partner with a man like Buchanan. His questions at the early Charles Koch Foundation seminars were as probing as any of those asked by the invited academics—indeed, with a sharper sense of the ultimate stakes, we can see in hindsight, because he was deadly serious about implementing the views of Austrian thinkers on matters from labor management to monetary policy. Before long, Koch was writing to Buchanan to share his excitement “about developments in the economics profession” and thank the scholar for his leadership “in bringing them about.” The two were also drawing closer through joint work to build up the Institute for Humane Studies, which carried forward “the battle of ideas” on campuses by “building a critical mass of freedom-friendly professors.”37
When William E. Simon, by 1978 president of the Olin Foundation, urged corporate leaders to “rush [funds] by the multimillions to the aid of liberty,” Charles Koch needed little convincing—he was already writing checks.38 And he was writing them not simply from a desire to broaden public debate. He was seeking the alchemy that might help him take what was then a quirky backwater of a movement and turn it into a rushing river powerful enough to smash through the dam of the twentieth-century state.
Which explains his interest in Murray Rothbard, one of the intellectuals Koch first subsidized. It was Rothbard who explained to him how small numbers could effect big changes. Rothbard suggested that Koch study Lenin.39
“I grew up in a Communist culture,” Rothbard later said of the extended “family, friends, [and] neighbors” in the New York City milieu he rebelled against. Even as he despised their goals, he took from their heated discussions in the 1930s and 1940s, as well as his own wide reading in the original sources, a deep appreciation of the strategic and tactical genius of Vladimir Lenin, who led a revolution in a place where others said it simply could not be done. A champion of “uncompromising libertarianism,” Rothbard, like Lenin, believed that government was “our enemy.” He admired Lenin’s daring leadership, but most of all he saw that some of his techniques could serve a wholly opposite purpose: namely, to establish a kind of capitalism purer and less restrained than the world had ever known.40
In 1976, over a weekend of discussion as Koch’s guest in Vail, Colorado, Rothbard explained to his host how a Lenin-like libertarian strategy might work. The Russian revolutionary had once said of the ranks of the revolutionary party, “Better fewer, but better.” To create a sound, disciplined movement, Rothbard explained, preparing a “cadre” must be the top priority. What his admiring biographer, a foot soldier himself, summed up as “the general flakiness and counterculturalism” of so many libertarians had had its day, Rothbard told Koch. The survivalist-like stocking up on beans and science fiction novels to last years of exile, with backpacks at the ready to rush for the hills if the statists came, the visions of colonizing remote islands or even of other planets: all that had to go. A new seriousness was needed. It was time for the revolutionary cause to orient itself to Middle America.41
In a protracted fight to win, it would be crucial to stay on top of “nourishing, maintaining, and extending the libertarian cadre itself,” something Koch’s bottomless bank accounts would enable.42 It was not hard to persuade the midwestern multinational capitalist that the many weirdos were not bringing success any closer. Liking what he’d heard, Charles Koch shushed the older advisers he had on retainer and bet on the brash visitor, who seemed so sure of what was to be done.43 Not long after that, in one of the publications whose creation Rothbard had recommended as organizing tools, Koch wrote that over his own fifteen years of active involvement, “our biggest problem has been the shortage of talent.” To become “an effective force for social change,” the CEO intoned, “we need a movement.” And to create a sound, disciplined movement, preparing a “cadre” must be the top priority.44
The new urgency called for a think tank to be created to serve as a training and reinforcement institution for the cadre. To lead it, both men had their eyes on a steely fellow already in the ranks: Edward Crane III.45 Crane had served as a precinct captain for Barry Goldwater in 1964, but he was disgusted by “how quickly Goldwater ran away from the issue of privatizing Social Security.” Blaming Goldwater’s retreat on his effort to win over the majority of voters (and recoiling, too, from the senator’s military adventurism), Crane went on to join the Libertarian Party, which had been summoned into being in a Denver living room in December 1971. Its founders sought a world in which liberty was preserved by the total absence of government coercion in any form. That entailed the end of public education, Social Security, Medicare, the U.S. Postal Service, minimum wage laws, prohibitions against child labor, foreign aid, the Environmental Protection Agency, prosecution for drug use or voluntary prostitution—and, in time, the end of taxes and government regulations of any kind.46 And those were just the marquee targets.
Crane was as insistent as Rothbard and Koch about the need for a libertarian revolution against the statist world system of the twentieth century. “The Establishment” had to be overthrown—its conservative wing along with its liberal wing. Both suffered “intellectual bankruptcy,” the conservatives for their “militarism” and the liberals for their “false goals of equality.” The future belonged to the only “truly radical vision”: “repudiating state power” altogether.47
Once Crane agreed to lead the training institute, all that was lacking was a name, which Rothbard eventually supplied: it would be called the Cato Institute. The name was a wink to insiders: while seeming to gesture toward the Cato’s Letters of the American Revolution, thus performing an appealing patriotism, it also alluded to Cato the Elder, the Roman leader famed for his declaration that “Carthage must be destroyed!” For this new Cato’s mission was also one of demolition: it sought nothing less than the annihilation of statism in America.48
There was no mistaking libertarianism for conservatism at Cato’s 1977 founding. Indeed, Rothbard announced in its first publication, that this label should be “despised.” “In its contemporary American form,” Rothbard explained, conservatism “embodied the death throes of an ineluctably moribund, fundamentalist, rural, small-town white Anglo-Saxon America.” The future belonged not to it, but to the secular libertarian movement, “the party of revolution.”49
Rothbard’s “book-length memo” outlining the Cato Institute’s goals and plan of action, titled Toward a Strategy for Libertarian Social Change, quoted so liberally from Lenin and so avidly scoured previous revolutions and authoritarian regimes for methods that it was deemed too “hot” for release beyond the inner circle. As the Bolshevik leader taught, the “cadre” was to play the vital role: its full-time devotion to the cause, as a militant minority of foot-soldier ideologues, would assure purity and continuity while building the ranks and expanding the cadre’s influence on others.50
You cannot understand the influence of the stealth movement that is transforming America today without understanding this critical turning point. “We came to realize,” Rothbard later reminisced, “that, as the Marxian groups had discovered in the past, a cadre with no organization and with no continuous program of ‘internal education’ and reinforcement is bound to defect and melt away in the course of working with far stronger allies.” Training was crucial so that the cadre’s members could “make strong and fruitful alliances” with partners who might at the time of the alliance be stronger than the cadre without fear of the cadre’s going over to the temporary ally.51
The Republican Party’s officialdom after 2008 could stand as Exhibit A of Koch’s success with this model. The venerable major party’s leaders did not turn the heads of the cadre, despite their apparently greater authority and power; instead, the disciplined cadre turned them.
The mission of the cadre was, quite literally, revolutionary, although a cause with so much money would not need violence. “The ruling class” to be overthrown consisted of the leaders of labor unions, those corporations and business associations that continued to seek special benefits through lobbying, and the intellectuals who supported government action. The task facing the libertarian cadre who would staff the Cato Institute and related efforts would be to drive home to the populace the parasitic nature of all three groups, exposing every practical instance of it to help larger numbers see the evil of statist corruption—and what must be done to vanquish it.52
With a permanent staff and a stable of rotating scholar visitors, Cato could generate nonstop propaganda against this ruling class. Buchanan played a crucial role in such propaganda, for Cato’s arguments generally followed analyses provided by his team. Koch, meanwhile, provided new resources as the cadre brought in recruits with ideas for new ways to advance the cause. They would then be indoctrinated in the core ideas to assure their radical rigor, all of this held together with the gravy train opportunities Koch’s money made available as they pushed their case into the media and public life. The libertarian vanguard, Rothbard taught, could “guide the peoples to the proper path.”53
With enough gestures to the nation’s founding fathers, even Leninist libertarianism could be made to look appealingly all-American, like a restoration rather than the revolution it was. But Cato would be unbending in its advocacy, whether for taking an axe to taxes, revoking government regulation, ending social insurance, or presenting unfettered personal liberty as the answer to all problems. In that early purity, Cato often shocked the nation’s conservatives, as when it criticized American military intervention in other countries and called for legalizing drugs, prostitution, and other consensual sex. That unique stance, its first president said, made it “the think tank for yuppies”—those who liked social freedom with their economic liberty, and never caught on to where all this was headed.54
Cato had no need to compromise because it was funded by one of the richest men in the world. Indeed, compromise, Koch had made clear, was the kiss of death. And when their patron spoke, the grantees listened. “It could seem almost comic, this sudden injection of enormous wealth into a small movement,” recalled one participant, “this bizarre gravitational shifting as Planet Koch adjusted everyone’s orbits.”55 Apparently no one confronted the import of the incentive structure at the outset, for libertarians steadfastly refused to acknowledge wealth as a form of power, but the sheer amount of money Charles Koch was giving would affect all the players in time. “Employees of single-donor nonprofits,” said a disenchanted one who left, “follow the moods and movements of their benefactor like flowers in the field, their faces turned toward the sun.”56
In the same year he attended the founding seminar of what became the Cato Institute, James Buchanan published an article called “The Samaritan’s Dilemma,” a piece that has been used by the right ever since to show, in effect, that the ethics of Jesus as reported in the Gospel of Luke produced perverse results in the modern world. Buchanan summarized this piece of what he termed “prescriptive diagnosis” thus: “We may simply be too compassionate for our own well-being or for that of an orderly and productive free society.” He then applied a game-theory thought experiment—never, of course, empirical research, which he spurned—to make the argument. His “hypothesis” was “that modern man has become incapable of making the choices that are required to prevent his exploitation by predators of his own species, whether the predation be conscious or unconscious.” Predators of his own species? It was a perverse appropriation of the parable of the Good Samaritan, in which a kind resident of Samaria comes to the aid of a Jewish traveler who has been stripped, robbed, beaten, and left to die—a victim of predators, in other words—in the story Jesus used to show his followers that one should love his neighbor as himself, even when the suffering neighbor was a member of a despised out-group, as Jews were to Samaritans.57
In the view of the libertarian economist, Jesus was mistaken. Conscripting the Good Samaritan story, Buchanan made his case that “modern man [had] ‘gone soft’”: he lacked the “strategic courage” needed to restore the market to its proper ordering. By this logic, what seemed to be the ethical thing to do—help someone in need—was not, after all, the correct thing to do, because the assistance would encourage the recipient to “exploit” the giver rather than to solve his own problems. Buchanan used as an analogy the spanking of children by parents: it might hurt, but it taught “the fear of punishment that will inhibit future misbehavior.”58
Similarly, “the potential parasite” needed curbing to prevent efforts to “deliberately exploit” society’s “producers.” More than any other piece, this article captured the stark morality of libertarianism, offering, as it were, the cause’s prescription for how America’s third century could reverse the “soft” errors of its second. The trick, though, was to figure out how to bind the foolish Samaritan, qua government, from giving out perverse incentives—how to shackle the Samaritan, so to speak. As Buchanan noted in conclusion, “welfare reform” was “only one of many applications, and by no means the most important.”59 It was true: his eyes were set on much bigger game.
While Cato advocated a wide-ranging libertarian policy agenda in the late 1970s, another Koch-supported think tank, the Reason Foundation, concentrated on making the case for selling off public property and outsourcing public services to private corporations. The effort built on the popularity of a countercultural libertarian magazine called Reason that was started in 1968 by an Ayn Rand devotee in a dorm room with a ditto machine.60 It was then taken over by Robert W. Poole Jr., an MIT-trained engineer of a cohort after Koch’s who learned of libertarianism in high school. In college, he joined Young Americans for Freedom and went door-to-door for Barry Goldwater in 1964 as he “devoured Atlas Shrugged” and converted to radical libertarianism. He moved to Santa Barbara, California, and took a job “with a local ‘think tank,’” the phrase being new enough in 1972 to merit quotation marks. For years he published Reason out of his home as a hobby.61
But as stagflation set in at mid-decade, Poole grew more serious about influencing public policy. He published a practical how-to pamphlet in 1976 called Cut Local Taxes—Without Reducing Essential Services. It took dead aim at the growth of public sector employment as a cause of increasing taxes and spending, and called for contracting out to private companies to contain costs.62 Ron Paul, a Libertarian Party member of Congress, recommended Poole’s approach as wiser than the old “ideological purity” that simply called taxation “theft.” To make the appeal nonpartisan, Poole also secured a blurb from U.S. senator William Proxmire, who called the piece “must reading” for public officials. The Wisconsin Democrat had just begun giving Golden Fleece Awards each month to embarrass government agencies for foolish spending.63
In the wake of the pamphlet’s success, Poole began reading about the Fabian Society in Edwardian England, whose public-debate-changing members included H. G. Wells, George Bernard Shaw, and Virginia Woolf. Poole was taken with the Fabian strategy of effecting small changes that would in time lead to socialism, but he gave the idea a Buchanan-like spin to the right. “I figured that if you could gradually build up to socialism, you could probably undo it, dismantling the state step by step,” he later told an interviewer. You could hack away at government, that is, “by privatizing one function after the other, selling each move as justified for its own sake rather than waiting until the majority of the population is convinced of the case for a libertarian utopia.”64 “Selling” was perhaps the key word.
Why wait for popular opinion to catch up when you could portray as “reform” what was really slow-motion demolition through privatization? On the tenth anniversary of Reason, in 1978, Poole convened a strategy session. Every man in the room looked to Charles Koch when talk turned to funding an infrastructure of “professional libertarians,” for who else could? The Wichita CEO was willing to commit the resources needed, he said, but with one condition: “that libertarians must remain uncompromisingly radical.” They had to forswear “the temptation” to “compromise” with those currently in positions of power. Any such conciliation, Koch warned, would “destroy the movement.”65
With Koch’s backing, Poole “started working full-time for the cause,” enlisting “economic reasoning and evidence.”66 Poole recruited an advisory board of some two dozen libertarian scholars, including F. A. Hayek, and set to work to advance privatization. The advocacy was no-holds-barred, as Koch had demanded: a sample press release was headlined “Abolish—Don’t Reform—Regulatory Agencies.” The enterprise’s biggest splash was a full-length 1980 book by Poole called Cutting Back City Hall, which recommended outsourcing to private corporations and imposing new user charges for access to public goods such as parks. The Reason Foundation was emerging as the nation’s premier voice for privatization, not only of public education, through voucher plans like Virginia’s, but also for every conceivable public service, from sanitation to toll roads.67
• • •
Meanwhile, as the Cato Institute and the Reason Foundation set to work, Buchanan was hired by yet another Koch-backed organization, the Liberty Fund, to run what became annual summer conferences for the recruitment and training of young talent (defined as under age thirty-five, later upped to forty) in the social sciences. In essence, he was being asked to identify and begin preparing the intellectual cadre that Koch now believed was so critical to the cause’s success.68
Buchanan relished the role of gatekeeper. The evaluations he submitted for who had promise and who did not were highly detailed. One participant was “a highly articulate speaker, with basic instincts you and I share,” he reported, although “a bit ‘slick’” for “the country boys.” Another, despite a “poor expository style” and annoying “soft-left” reflexes, was still “interesting” and worth watching. The rankings were blunt: the judge divided the prospects into “Very Strong, Medium, [and] Weak.” At the best sessions, he could boast new “camaraderie” and “no misfits.”69 Like Koch, Buchanan was not squeamish about throwing flotsam overboard. Anyone unsound in doctrine or lacking in promise was unlikely to be invited back. He tried to “insure that no bad apples get into the barrel, for such can spoil the whole thing.” He required “explicit recommendation by those we trust for potential participants.” And he rewarded himself and his recruits in high style. The man who still called himself a country boy and railed against liberal “elitists” did not stint on frills, personally preselecting wines such as a 1966 Château Lafite-Rothschild that today would retail between $300 and $1,000 per bottle.70
Even as Charles Koch was assembling scholars and underwriting think tanks on two coasts, he was also testing electoral politics. Neither of the two main parties was demolition-minded enough for his tastes. He seemed to hold the Republican Party in greater contempt, though, because of what he took to be its leaders’ dishonesty. Their claim to stand for free markets was manifest fraud: the GOP was the party “of business accommodation and partnership with government,” sneered Koch. “If this is our only hope then we are doomed.”71
And so he backed the nascent Libertarian Party instead. Its numbers were tiny, and it was less a real party than a protest party, one being kept in the ring by a cluster of quirky characters. But it had chugged through the decade in a way that impressed Koch enough that he decided to invest in the 1978 Golden State gubernatorial race of Ed Clark, associate counsel for an oil company and “a long time dedicated libertarian.”72
The race excited Koch, he said, “because California is the center of libertarian activity, with the potential for explosive growth.” He contributed $5,000 and urged friends to do so, too. Ed Clark, Koch advised, was “ideal because he will not compromise our principles but, at the same time, projects a mature, responsible image,” and he “comes across as attractive and articulate on TV,” by now such a prime platform. Clark had also pledged to Koch that he would highlight “the need for and benefits of private education,” so as to capitalize on the spreading “discontent with public schools.”73
Koch knew the party had no hope of becoming “a political force.” Still he explained, “I didn’t see any [other] mechanism to get these ideas out in political discussion.” Clark drew more than 5 percent of the state’s vote, helped along, no doubt, by another measure on California ballots that year, Proposition 13, the first loud shout of revolt against rising taxes, which he vocally backed. Nationwide, Libertarian Party candidates, who got on the ballot in thirty states, attracted 1.2 million votes.74 The excitement was palpable: was California’s election an augury of a new age of liberty in America?
The faithful went all in to back a run by Ed Clark for president in 1980, against California’s own Ronald Reagan and Jimmy Carter—at a much greater cost. Since they could do the math on how a party with fewer than five thousand members would fare in a presidential contest, the strategists sought a way to get around campaign finance laws. They found one: because candidates faced no limits on how much they could contribute to their own races, they could run David Koch for vice president on the ticket with Clark. In the end, Koch contributed $2 million to the $3.5 million campaign. The ticket drew more than nine hundred thousand votes, 1 percent of the overall turnout, much better than any libertarian electoral effort had ever achieved.75
But even that small success at the polls came at a troubling cost. Clark so compromised libertarian principle to win votes that he split the fledgling party. Murray Rothbard, as usual the most scathing guardian of orthodoxy, condemned the candidate’s campaign promises as “treacle.” His ceaseless carping so irritated Charles Koch, who was becoming more pragmatic about tactics if not about his endgame, that Rothbard found himself fired from Cato. He fumed at a libertarian institution being run “like a corporation, where orders are given, dissidents are fired, etc.” Never having held a normal job in his lifetime of advocating unalloyed capitalism, he seemed gobsmacked by the experience of being treated as just another hired hand who could be let go at the whim of his boss. Rothbard’s pleas went unheeded. And, after the Kochs withdrew their backing, the Libertarian Party all but crashed. How could a party grow with neither masses nor money?76
• • •
While Charles Koch and his younger brother were experimenting politically, James Buchanan wasted no time on a quixotic third party. Sequestering himself in the mountains of southwestern Virginia, he produced The Limits of Liberty, the book he would later describe as the single best statement of his intellectual vision. It was his magnum opus for the cause, the summation of his distinctive revolutionary vision for “America’s third century.”77 More a work of political philosophy than of economics, it searched for a balance, as the subtitle expressed it, “between anarchy and Leviathan.”
Because “both markets and governments fail,” the challenge was how to sort out what each arena did best, to find some middle ground in theory between pure laissez-faire (what he called anarchy) and dreaded socialism. Wrestling with the reality that a modern world required some form of state power to apply rules and adjudicate claims, Buchanan sought to limn out a political order in which no state could impinge more than absolutely necessary upon individuals’ “freedom from the coercion of others.”78
He rued that the cause might already be doomed: the “failures in political and institutional structure” that had so eviscerated liberty might be irreversible by conventional means. He blamed the Great Depression for the rise of unacceptable intrusions on liberty; it had ended what he called the “fortuitous circumstances” that had produced a sixty-year reign of economic freedom, between the end of Reconstruction and the Great Depression. At no point did he address the possibility that if economic inequality had not been so extreme in that era and if the stock market had been regulated, the Depression might not have been so devastating. (Such considerations would lead in the dangerous direction of Keynes.) But Buchanan did observe that the developments of the Depression era might have made it virtually impossible to change direction through the electoral process.79
One has to wonder if the seeds of the final addition to his program were taking root in his mind at this moment—the search for unconventional means to achieve the desired reversal. Could a way be found to upend the normal order long enough to rewrite the governing rules of democracy, to separate it from the commitment to majority rule?
Indeed, that was exactly where he was going. But he would take his time getting there, and move from intellectual argument to emotional appeal to reach that destination. Initially, he seemed to be shooting for small changes. He told his readers that the challenge ahead was to develop strategies for “keeping collective action within limits”—not, as one might expect from his previous history, for eliminating collective action. He went on to explain that as an economist, he believed the expanding public sector to be unsustainable.80 Yet he wanted to address the reader at the level of ethics, too, and so he turned to semi-emotional argument.
As a philosopher, he told his readers, he believed that what was required to support an expansive public sector was profoundly unjust: a system of progressive taxation that would ask more of the wealthy. Buchanan’s early work was in public finance, and his first book addressed the growth of public debt. But his concern grew as the baby boom generation moved through its life cycle. With school populations growing and retired people organizing, and calls mounting for new government support and action of all kinds in the 1970s, public coffers became strained, with no relief in sight.
To be fair, Buchanan wasn’t the only one worried about this problem. One 1973 book, James O’Connor’s The Fiscal Crisis of the State, noted that the capitalist system, in order to survive, had to tack between the economic need for corporations to profit and reinvest to remain competitive in a changing market and the political need to rein in that accumulation so as to keep the system from losing legitimacy. Leftists like the author saw an emerging legitimation crisis, as some defined it. A case in point: By 1975, New York City had lost its equilibrium. Spending more than it took in through taxes, the city faced the prospect of default—but cutting services to the people set off revolt. Nationally, too, deficits were mounting. All Americans liked at least some government programs, yet few seemed eager to pay the higher taxes needed to keep the growing number of programs in the black.81 The pattern was hard to ignore. In fact, some members of the liberal establishment founded the Trilateral Commission in 1973, in part from concern that democracies around the world were becoming too demanding and unruly.82
But for Buchanan, once again the issue was personal. “Why must the rich be made to suffer?” he asked pointedly.83 If “simple majority voting” allowed the government to impose higher taxes on a dissenting individual in the minority—“the citizen who finds that he must, on fear of punishment, pay taxes for public goods in excess of the amounts that he might voluntarily contribute”—what distinguished that from “the thug who takes his wallet in Central Park?” Why should the well-off, he was asking, be forced to pay for those people, as the popular euphemism put it? “So long as unanimity is violated,” was government action, in fact, truly “legitimate,” even if the people’s representatives were duly elected? Might “the confiscation through taxation of goods” from an unwilling person not be seen as “criminal”?84
The problem was not, Buchanan took pains to clarify, one of bad or misguided people in power, but of the normal functioning of institutions without built-in guardrails, whichever party was in charge. It was not even a matter of one ideology versus another. The George Wallace voter who complained about his tax rate refused to give up his own “special benefits” (things like government-funded highways and unemployment benefits when out of work, a more empirically minded reader could add). So, too, Buchanan pointed to “the suburbanite who is most vehement in his opposition to cross-city bussing of his children,” yet never thinks about whether it is fair to “levy taxes, coercively, on all families to finance the schooling of children for some families.”85
The West’s current operating rules exacerbated the trouble, Buchanan argued, by failing to establish ironclad rules for “curbing the appetites of majority coalitions.” The Limits of Liberty never provided actual examples. But like-minded readers could infer these coalitions from the daily news: unionized public school teachers or health care workers, say, joining with school parents or health care recipients to demand better services and higher taxes to fund them. Buchanan often noted that public employees could enlist the political process to their advantage; this really bothered him. In fact, he concluded, “there are relatively few effective limits on the fiscal exploitation of minorities through orderly democratic procedures in the United States.”86
Yet even as the theorist projected exploitive motives onto others, it was Buchanan’s own understanding of his fellow humans and their relations in society that was truly predatory. “Each person seeks mastery over a world of slaves,” he intoned, clarifying that in his view every man desired maximum individual personal freedom of action for himself—and controls “on the behavior of others so as to force adherence with his own desires.” As the political theorist S. M. Amadae has painstakingly and luminously shown, Buchanan was breaking with the most basic ethical principles of the classical liberalism he claimed to revere, of the market order as a quest for mutual advantage based on mutual respect. Instead, he was mapping a social contract based on “unremitting coercive bargaining” in which individuals treated one another as instruments toward their own ends, not fellow beings of intrinsic value. He was outlining a world in which the chronic domination of the wealthiest and most powerful over all others appeared the ultimate desideratum, a state of affairs to be enabled by his understanding of the ideal constitution.87
The remedy flowed from the diagnosis, ominously. “Democracy may become its own Leviathan,” Buchanan warned darkly, “unless constitutional limits are imposed and enforced.”88 The hope he had held in his early career, expressed in The Calculus of Consent, that deliberations among citizens of good faith could produce rules for a political economy that all would find acceptable, now appeared naive.
There seemed no way to reconcile robust individual property rights with universal voting rights. For how could the cause ever persuade a majority to agree to rules that might radically disadvantage its members in a society fast growing more unequal? Buchanan implored his readers to face facts: “how can the rich man (or the libertarian philosopher) expect the poor man to accept any new constitutional order that severely restricts the scope for fiscal transfers among groups?” What poor man in his right mind would ever consent to rules that would keep him poor?89
But if not by willing consent, then how could the cause stop citizens from turning to government? Buchanan wanted to see, somehow, a “generalized rewriting of the social contract.” America needed “a new structure of checks and balances,” well beyond that provided for in its founding Constitution, itself already a very pro-property-rights rulebook, as he well knew. He advised “changes that are sufficiently dramatic to warrant the label ‘revolutionary.’” The time when it seemed as if normal adjustments might be enough had passed. Buchanan closed with “a counsel of despair” that troubled him. “Despotism may be the only organizational alternative to the political structure that we observe.”90
There was no sense glossing over it anymore: democracy was inimical to economic liberty.
One reviewer, a historian of economic thought, sounded an alarm about where Buchanan was heading. “His analysis strikes at the heart of self-government,” said Warren J. Samuels. He granted that Buchanan was an original thinker and that the book contained some dazzling points. But in its overall case, The Limits of Liberty constituted an “extreme and antidemocratic” departure from the constitutional thought of James Madison and Alexander Hamilton, who had, after all, built in plenty of safeguards against possible tyranny by the majority. Buchanan’s scheme, by contrast, would empower “a private governing elite” of corporate power freed from public accountability. “I shudder at the uses to which his ideas are capable of being put,” Samuels concluded, with unknowing prescience.91
Some of Buchanan’s and Koch’s fellow Mont Pelerin Society members agreed with the book’s foreboding analysis and reached conclusions that would have shocked their fellow citizens—if they had been shared widely. Henry Manne thought the book’s message so important that he invited Buchanan to give seven distinguished lectures at his center, which awarded the book a law-and-economics prize.92 The society’s then president, George Stigler, the venerable University of Chicago economist, pushed the matter into discussion at the 1978 invitation-only Mont Pelerin meeting in Hong Kong. Facing the reality that he and his assembled allies were destined to remain “a permanent minority” whose ideas were “widely . . . rejected,” Stigler pushed on to an “uncomfortable” question: “If in fact we seek what many do not wish, will we not be more successful if we take this into account and seek political institutions and policies that allow us to pursue our goals?” He did not equivocate, adding that this might mean “non-democratic” institutions and policies. One “possible route” Stigler suggested for achieving the desired future was “the restriction of the franchise to property owners, educated classes, employed persons, or some such group.”93
Willy-nilly, faced with the inescapable reality that they could not win by persuasion, these globetrotting scholars were sounding more and more like the southern oligarchy that had authorized Buchanan’s first program.
There is a photograph of Jim Buchanan from the late 1970s that he was said to like. It shows him at his mountain farm, Dry Run, in a fenced ring alongside two animals in a peculiar pose: a dog is riding a donkey, looking scared. The founder of the Virginia school of political economy walks alongside them, riding crop in hand, training the animals to perform this utterly unnatural act. Sometimes, as the old saying goes, a picture is worth a thousand words. Where persuasion failed, the lash might work.