Stalenin suffers a debilitating stroke, forcing Peter to act quickly to
ensure his safety. He opens the safe and pulls out envelope X which
contains a record that Peter and Adams rush to the Central Broadcasting
Station where it is played over the airwaves. The recording of
Stalenin’s voice says that he will no longer make public appearances but
instead will work quietly by himself to make the state more prosperous.
He says that Peter will act as his deputy in his absence. This keeps
Bolshekov out of power, and Peter and Adams are safe at least for the
time being. Bolshekov is named to be head of the Army and Navy, but
Peter takes the Air Force for himself so that number 2 will not control
all of the powerful military forces.
tries to convince Peter to have Bolshekov killed so that Peter does not
have to fear for his own life. Peter declines to take that brutal and
degraded action. He says that it is not worth living in a society that
is based on violence. Bolshekov decides to hold a parade in order to
showcase his military power. Just before the parade, an announcement is
made on the radio that Stalenin has made Peter number 1-A and that he
would rank just below number 1. The announcer adds that this man has the
wholehearted endorsement of number 2, Comrade Bolshekov. Of course,
Bolshekov is infuriated when he hears the news.
Part Two of the book, called “Groping,” consists of many dialogues and
debates between Peter and Adams as they attempt to figure out and
correct the problems of communism and to implement economic
improvements. These discussions and attempts carry over into the third
section of the book, entitled “Discovery.” Peter and Adams increase
their understanding as they see their errors, in addition to learning
from unanticipated results as the reforms elicit emergent behaviors in
the population. Adams is Peter’s sounding board and makes sure that
Peter thinks things through before any decisions are made.
Peter and Adams discuss how coordination and synchronization failures
result from a centralized planning system. They deduce that a centrally
directed economy cannot solve the problems of economic calculation and
that without private property, free markets, and freedom of consumer
choice, no solution to the problem of economic calculation is possible.
They conclude that it is impossible for anyone to manage everything
effectively and efficiently. No single person or board can have
knowledge of what is concurrently going on everywhere in the economy. In
a centrally-planned system, it is impossible to measure the real costs
of things and the extent of wasted resources.
They discuss the benefits of having a legal system that is separated
from executive power and how a person should be considered innocent
until proven guilty. Peter wants to introduce a new system to put an end
to oppression and fear. They consider the necessity of the rule of law,
where the law must be general and abstract, known and certain, and
equally applicable to all people. Under the rule of law, everyone would
be bound by the rules, including the government. They reason that the
existence of general rules plus the functional distribution of state
power would lead to a smoothly functioning social order. Peter and Adams
examine the advantages of majority rule, democracy, and periodic free
elections. As an experiment, they hold small free elections in France,
but the voters are suspicious and tend to vote for who they think the
government officials support.
Peter and Adams agree that the key to a better society is freedom,
including freedom of choice for workers and consumers, freedom of the
press, and freedom even to criticize the government. Under the current
system, anyone who opposes or criticizes the government is dealt with
immediately and harshly. Peter wants people to be free so that they will
have more initiative to be productive at work. He wants people to have
options to choose which goods, and how much of each good, they will
acquire. He realizes that freedom brings out the best in people.
Peter says that in agriculture, workers should be able to enjoy profit
from the surplus that they produce. He also notes that people are issued
ration coupons that allow them to purchase specific amounts of
particular goods. He decides to implement a new ration coupon plan in
which every individual is permitted to trade coupons with others to meet
their own needs and wants. Markets shortly appear as Peter’s
coupon-trading scheme creates the phenomenon of market prices. People
are better off and happier as a result. Peter has sown the seed for what
will become money in the future.
Peter and Adams learn that a market economy evolves as a voluntary
association of property owners when people are free to trade to their
mutual advantage. They view the market as an effective communicator of
data and prices as transmitters of knowledge that economize the amount
of information required to produce a given economic result. Prices are a
mechanism for carrying out the rationing function and are a fast,
effective conveyor of information in a society in which fragmented
knowledge must be coordinated.
They envision the market as a social process that derives from
conscious, cooperative, and purposeful individual exchanges of people’s
ration tickets. Through trial and error, competitively determined market
prices permit individuals to assess the relative value of scarce means
and alternative uses in competing applications and alternative uses of
goods and services. The pricing process, a social process, is
accomplished through the interaction of all valuers within the society.
The social function of the price system is to promote the use of
knowledge in society by making calculation possible. Calculation is
necessary for a person to determine the best allocation of his scarce
resources. Peter and Adams conclude that private property, the market,
and money are prerequisites for the mental tool of rational economic
calculation. Prices are expressed through the common denominator of
Peter and Adams reason that rational central planning under socialism is
impossible. Without market-based prices, decision making by central
planners is irrational and arbitrary. A centrally planned economy is
unable to allocate resources rationally. Socialism destroys the
incentive of profits and losses, private ownership of property, and the
benefits of competition. They also figure out that Marx’s labor theory
of roles was mistaken. Marx held that the value of commodities is solely
determined by the amount of physical labor used in making them. He
thought that only labor produces the surplus over costs from which
capitalist profits derive. Our heroes conclude that others, such as
owners and managers, also contribute toward the generation of profits.
Peter and Adams dismantle controls step by step and slowly, gradually,
and incrementally move Wonworld toward having a free-market economy.
Bolshekov is not at all pleased by what is happening. He sends an
assassin who kills Stalenin. Peter and Adams quickly broadcast a message
recorded on record Z making Peter the next dictator. The angered
Bolshekov attempts to kill them and they escape to America with the help
of the Air Force. There, Peter has the opportunity to implement his
economic ideas in a new country called Freeworld.
Peter becomes the leader of Freeworld and establishes private ownership
of the means of production with ownership of companies evidenced by what
came to be known as shares—this leads to the establishment of markets
for shares of stock. Peter sees that private property is essential for
the preservation of individual freedom. When property rights are
respected and protected, a person is able to keep and enjoy the product
of his labor. Corporations evolve as voluntary associations and as
private property. People come to understand that men have an inherent
right to form a corporation by contract.
Peter and Adams had already learned back in Wonworld that it is prices,
articulated through the common denominator of money, that make economic
calculation possible. In Freeworld, they observe money, in the form of
gold, emerge from the domain of directly exchanged commodities. Money
originates on the free market when a specific commodity is no longer
valued only as a consumer good or a producer good but also as a medium
of exchange. Gold becomes currency because it is stable, nonperishable,
and noninflationary. Gold, as a measure of price, becomes the commodity
by which all other commodities can be valued without using roundabout
procedures. After a certain time period, money certificates become money
substitutes (i.e., claims to a definite amount of money payable and
redeemable on demand that circulate indefinitely).
A market system soon evolves. Freeworld develops a market economy as a
voluntary association of property owners for the purpose of trading to
their mutual advantage. Peter and Adams understand that a market
economy is a necessary condition for a free society. People who become
known as enterprisers begin to create new products and services, new
businesses, new production methods, and so on. The market process
becomes a competitive process through which profit incentives induce
competing producers to find better ways of serving customers. People
start to lend money, thus earning interest, to risk-taking enterprisers
so that they can create in the hope of making profits. Some people come
to envy and resent the enterprisers. Our heroes observe that it is
simply a fact of human existence that some individuals are more capable
than others, that some individuals work harder than others, and that
some individuals are better at creating wealth than others. This is not
a matter of injustice.
Peter even reinvents Adam Smith’s term, the “invisible hand,” to explain
how things work in a free economy. He and Adams marvel at how
competitors compel each other to cooperate more effectively with the
buying public. Successful competitors are those who best cooperate with,
or satisfy, others in society. They understand that profits indicate
that a person has served his fellow men by using resources to produce a
product or service at costs below the value people place upon the
product or service. They also realize that losses indicate that a person
has failed to serve his fellow man effectively and efficiently. Profit
provides risk-takers with incentives, serves as a guide for allocating
resources, supplies a reward for serving other people, and serves as a
measure of effectiveness in the use of resources to satisfy customers.
Peter and Adams eventually learn the fate of Edith and John Maxwell. In
one of his speeches, Bolshekov tells of the execution of two traitors
who had committed acts of sabotage and treason at the direct order of
arch traitor, Peter Uldanov.
Going back to their discussions, Peter and Adams discover the nature of
interest. They note that creditors don’t force loans on borrowers, who
instead pay interest voluntarily. They conclude that interest is the
economic expression of positive time preference (i.e., that people
prefer to have something sooner rather than later).
The years pass and a state of war still exists between Wonworld and
Freeworld. However, it is a war of propaganda rather than a war of
battles and bloodshed. Adams exhorts Peter to attack Wonworld before
Bolshekov attacks Freeworld but Peter hopes to convince Wonworld that
Freeworld’s system is the better system.
Peter and Adams continue to debate topics such as selfishness, altruism,
charity, generosity, competition, etc. They are against state charity
because the only way the state can “help” people is to give them wealth
taken from someone else. Only people who are allowed to keep what they
have earned have the means to be benevolent, compassionate, and
charitable. The obligation for charity is that the benefactor owes it to
himself, not to the recipients. Freely given charity may be considered
as perfective of a person’s capacity for cooperation and an embodiment
of that capacity.
After five years, Bolshekov decides to attack Freeworld. During the
first strike, Peter is injured and spends many weeks in the hospital.
Edith Robinson is the nurse who takes care of him after he is injured in
the attack on the White House. Eventually they fall in love and marry.
While Peter is in the hospital, Adams brilliantly conducts the military
operation of the war, but he does not fare as well in the economic
sphere. Adams calls in all of the gold coins and replaces them with
warehouse receipts promising to pay actual gold on demand. Then, to
finance the high cost of the war, Adams issues more engraved warehouse
receipts for gold even though there is no additional gold to back such
issuances. Inflation results. Peter explains that instead of printing
additional money, Adams should have allowed the system time to adjust.
Adams had also tried to remedy the inflation by fixing prices, another
Peter explains that inflation, a monetary phenomenon, consists of
expanding a nation’s money supply by adding something other than real
money (i.e., gold). Fiat money, backed only by government decree,
produces general price increases. Such an increase in the money supply
necessarily dilutes the purchasing power of money. He also notes that
price controls in the form of price ceilings end up producing shortages
of products. The nature of price controls (i.e., maximum or minimum
prices) is to control and force people to do what the government wants
them to do. Prices maintained by artificial mechanisms necessarily
contain misinformation, inhibit the feedback that permits transactors to
communicate, and create market distortions that harm producers and
Freeworld is incomparably superior to Wonworld with respect to war
production. As a result, Wonworld surrenders and the war is over. A
constitution is written and a democracy is created. Peter decides not to
run for election and appoints Adams to assume the leadership of the
Freedom Party. For a while it looks like an eloquent candidate, who
proposed a “Third Way” between capitalism and socialism, might win. In
the end Adams’s party wins and he asks Parliament to name Peter as the
Time Will Run Back
has been out of print for a long time, but it is now available online
and in printed form. Reading this tale of political intrigue in a grim,
socialistic future is a fine way for people to learn the principles
underpinning a free-market society.