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 ex
plains 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
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