[CTRL] [1] American Enterprise - Free and Not So Free

[Kris Millegan]

-Caveat Lector-   <A HREF="http://www.ctrl.org/">
</A> -Cui Bono?-

an excerpt from:
 American Enterprise - Free and Not So Free
Clarence H. Cramer©1972
Little & Brown and Company
ISBN 0-316-16000-8
728pps.  -  First Edition -


I
"The Business of Government Is Business"

CALVIN COOLIDGE never lived down his simplistic statement that "the business
of government is business." A generation later, with generous governmental
support of everything from proliferating turnpikes to growing cotton to
teeming bumper crops of military hardware, it was not inaccurate to say that
"the business of business is government." Curiously Karl Marx, who also had a
strong tendency to oversimplify, would have agreed with Coolidge. Both
understood that the success or failure of a nation's business enterprises has
a major influence on the character of its culture. Both apprehended that
political policy would be determined, in large part, by the pride or
disillusionment which a body politic has in its business accomplishment — and
in the economic theories and plans supporting it.

Throughout the ages economic ideas and systems have had compulsive and
strategic influence, consciously or subliminally, on every citizen from peon
to plutocrat. In this volume, which will stress direct narrative history rathe
r than complex economic theory, frequent mention will necessarily be made of
economic scholars from Adam Smith to John Maynard Keynes to Gerard Piel.
There will be continuing reference to ideas and battle cries important in
their own heyday and later: the importance of gold and a favorable balance of
trade (mercantilism), laissez-faire (Adam Smith), the iron law of wages
(David Ricardo), the population problem (Thomas Malthus), socialism (Karl
Marx), conspicuous consumption (Thorstein Veblen), unearned increment (Henry
George), the multiplier (John Maynard Keynes), and the military-industrial
complex (Gerard Piel). In 1969 the ideological warfare between economic ideas
was so strong that many insisted that U.S. voyagers to the moon should take
along an American flag only, and so they did — omitting the emblem of the
United Nations which some favored. This was reminiscent of Nikita
Khrushchev's childish glee, a decade earlier, when he learned that a Soviet
rocket had deposited a Russian pennant on the moon — as though that
achievement proved something about the relative advantages of socialism and
capitalism. In any case, the following narrative will introduce a few of the
germinal economic ideas and theories that have had such profound impact over
the centuries.

Mercantilism arose out of the Commercial Revolution (circa 1500), but derived
its name centuries later from Adam Smith, who was instrumental in
substituting his own idea of laissez-faire for the mercantilist philosophy
which had been the dominant economic philosophy in the Western world for
almost three hundred years. Mercantilism was to be a prime cause of the
American Revolution, and was revived in the twentieth century as the
corporate state in Hitler's Germany, Mussolini's Italy, Franco's Spain, and
Salazar's Portugal. Writing at the close of the eighteenth century Smith
devoted about one quarter of his opus, The Wealth of Nations, to a relentless
criticism of what he called the "commercial or mercantile system."

With the decline of feudalism, the increasing importance of merchants was
accompanied by the rise of nationalism — and of national sovereigns who
needed money desperately to pay for the growing cost of civil government in a
period when commercial and religious wars were numerous and exhausting. It is
not surprising, therefore, that mercantilism presented decided contrasts to
the medieval period which preceded it. Whereas the medieval conception, based
on local politics, was that the primary object of human effort was to insure
a life in Heaven for the whole of society -the mercantilist saw in the
subjects of the national state a means to an earthly end — and that end was
the power of the state itself. Furthermore, a sovereign state no longer
showed an), interest in society as a whole; its concern was in its own
advancement, usually at the expense of rival states. This objective required
both military might and the subjection of citizens to the will of the
sovereign. Philosophically, mercantilism replaced medieval religion, and the
morals that went with it, with a fatalistic belief in unalterable laws of
social causation. In his desire to subject the individual to the state, the
mercantilist adopted an attitude toward life that was nonmoral and
nonhumanitarian — whether the era was that of Henry VIII in England or Adolf
Hitler in Germany.

In economics the mercantilist conception of what was good for a country
centered on three closely allied aspects of economic life: the supply of
money, commodities, and labor. To the mercantilist the wealth of a nation
consisted of money, chiefly gold bullion. Mercantilism appeared at  a time
when coin was scarcer than commodities, and when specie (coin) was required
not only to make up the adverse balance of trade for the luxuries of the
Orient, but to provide the wherewithal with which kings hired their mercenary
armies — and in time their navies. The mercantilist hoarded money, in decided
contrast to the Middle Ages when the wealth of society was in the other
world, and to Adam Smith (in the nineteenth century) for whom the wealth of
nations was the production which resulted from labor and natural resources.
Whatever the theories, bullion was all-important to the mercantilists, so
much so that some of them forgot its purpose and became mere collectors.
Moderns have sometimes wondered, in the same fashion, about the gold which
the U.S. government has deposited at Fort Knox. The mercantilist also
differed from the medievalist in regard to commodities. In the medieval
period the prevalent idea was that a local community should secure plenty of
food, clothing, and shelter. In order to do so imports were encouraged and
obstacles were placed against exports, which were wanted for local
consumption. In the feudal period, therefore, the objective was to import
more than was exported. The ideal of the mercantilist was the reverse; he
wanted a favorable balance of trade — to export more than he imported — so
that gold would flow into the country in payment. The mercantilist went
further. He came to look upon a plentiful supply of commodities within a
country with just as much disfavor as the medievalist had regarded it with
approbation. The mercantilist idea was to get rid of commodities — not to use
them. In this sense the term mercantilism is apt, since it implies that the
best policy for a nation is the same as that for an individual merchant, who
seeks to take in more by selling than he pays out in buying -and thus builds
a cash balance for his firm. As far as workingmen were concerned the
mercantilist wanted an abundance of cheap labor in order to increase his
ability to compete in price with other nations. As a consequence he was in
favor of an increase in population, child labor, and employment of women.
What would later be called the "iron law of wages" kept compensation at the
subsistence level; it also kept workers so poverty-stricken that in Britain
the terms "workers" and "the poor" were synonymous until late in the
nineteenth century. Some, like Malthus later, would worry about the increase
in population. Not so the mercantilists; they figured that if the population
became too large the surplus could be sent to the colonies or allowed to die.

By this time it is apparent to even the casual reader that a number of faults
were inherent in the mercantilist system. Politically, the creed led to wars
because the mercantilist could not see that the gain of one country was not
necessarily the loss of others, or that the whole family of nations -by
sharing knowledge and products -might enjoy common security and a rising
standard of living. Economically, it is obvious that it is impossible for all
nations to have a favorable balance of trade, and that a continual influx of
bullion will bring inflation, high prices, and the ultimate loss of one's
export market. Philosophically, it is shockingly evident that the ideas of
the mercantilists ran counter to the Judeo-Christian ethic in which the
Western world professed to take pride.

The Industrial Revolution, which occurred first in England in the century
after 1750, introduced new sources of mechanical power, new products, and new
types of transportation. The new mechanical power, in turn, was generated by
a new technological development, the application of steam produced first by
coal and later by gas, oil, and atomic energy. This development resulted in a
phenomenal increase in energy. Ancient Athens at her richest had provided,
for the average member of a citizen's family, no more than the muscular power
provided by five slaves. In 1962 every man, woman, and child in the United
States commanded the mechanical energy generated by ten tons of coal: the equi
valent of a hundred slaves. Some now consider automation the Second
Industrial Revolution because this new development provides a substitute, not
for human muscle but for the human nervous system. The new automational tools
are expected to behave like a sensing, thinking man.

The new products of the First Industrial Revolution were largely the result
of new materials used as substitutes for wood and stone. These products were
made from iron and steel, from baked clay through the art of ceramics (for
example, Wedgwood china), and from the plastics which came out of the
developing field of physical chemistry. The new types of transportation were
the steamship, which took the 'place of the' sailing vessel — and the train,
the airplane, and the automobile, which replaced the cart.

Actually the Industrial Revolution marked a slow transition from a stable
agricultural and commercial society to modern industry. It was an evolution,
not a revolution — and it was not restricted to England. The same
transformation occurred In other countries at other times. In the United
States the transition was intensified in the thirty years after the Civil
War. In Japan it occurred around 1900, in Russia after World War I, in China
and India after World War II. But no matter how slow and diverse the process
may have been, all economic thought since the eighteenth century has
represented an attempt to interpret the so-called Industrial Revolution-, in
actual fact the field of economics, as a major study, came into existence
with the Industrial Revolution. The first interpreters were later called
classical economists, and were so designated by Karl Marx, who refrained from
using the term derisively, as Adam Smith had done in reference to the
mercantilists. There were three classical economists of great prominence:
Smith, Ricardo, and Malthus.

Adam Smith, the father of classical economics, was one of the most
influential men who ever lived. This absentminded professor of moral
philosophy at Glasgow University certainly did not look his part; he was
troubled throughout life with a nervous affliction, his speech was odd and
stumbling, and his head shook. He was a perfect exemplar of the aphorism
accredited to John Stuart Mill: "One person with a belief is a force equal to
ninety-nine who have only interests." Once he was invited by Prime .Minister
Pitt (the Younger) to attend a conference. As the old philosopher entered the
chamber everyone rose, but Smith told them to be seated. "No," replied the
prime minister, "we will stand until you are first seated, for we are all
your scholars." Before Smith's death, his Wealth of Nations had been
translated into Danish, French, German, Italian, and Spanish. There were
interesting coincidences relating to both the time and the place of its
writing. It appeared in 1776, along with the American Declaration of
Independence. As Robert Heilbroner has observed (in his brilliantly written Th
e Worldly Philosophers), there were two revolutionary events in that one
fateful year — a political democracy was born on one side of the ocean and an
economic blueprint was unfolded on the other. There is some evidence to
indicate that Smith's influence was the greater; only a part of Europe became
democratic, but the entire Western world was to follow the principles of
laissez-faire. Smith wrote his work at Glasgow, where he was a friend of
James Watt who was an instrument maker attached to the university because the
local trade union would not permit him to open a workshop in the city. Watt
was the founder of modern scientific industrial technique. It was a strange
coincidence that these two men, working at the same time and place, produced
work that revolutionized both economic thought and the technique of
production.

Smith was a seminal thinker, and among the many academic seeds which he
planted the following may be selected for special observation: a new
definition of the wealth of nations, the self-interest of the individual in
the marketplace, competition as the "invisible hand," and the concept of
laissez-faire. In the feudal period the wealth of society had been in another
world; to the mercantilist the worth of a nation was measured in bullion. To
Smith the wealth of nations consisted of the commodities that resulted from
the proper use of both labor and resources in increasing production. Smith
saw that mercantilism could not survive the glut of "Things" brought about by
the Industrial Revolution. There simply was not enough gold to buy the
Things; in time a substitute money (in the form of paper credit) had to be
created, with a quantity as variable as the supply of commodities. Credit
destroyed the basic principle on which mercantilism was based — the idea of
the scarcity of money. As far as the self-interest of the individual was
concerned, Smith pondered the problem of how a society manages to get tasks
done which are necessary for its survival. It was apparent that the people of
a country must perform some work, or the society would perish. Where was the
motivation for work? Smith found that this impetus to work, in past
centuries, had been supplied either by tradition or authority. In primitive
societies sons had inherited tasks from fathers, and the work had gone on. In
totalitarian regimes the whip of autocratic rule had been used, for example,
to complete the pyramids — and in recent times the Autobahn in Germany and
the Five-Year Plan in Russia. Smith rejected both tradition and authority; he
found the solution in the market system. In the free market, he believed, men
would be motivated by the desire for monetary gain — by a quest for profit —
and would need neither tradition nor authority as a spur. The lure for gain,
he thought, would supply all the impetus that was needed.

There was an obvious danger of anarchy in a system in which each individual
went his own way, following only his own self-interest. What was needed was a
"governor" — a "regulator" — an "invisible hand" that would guide selfish
individuals to a goal which served all of society. Smith found his "invisible
hand" in competition, which would keep any one person or group from becoming
too powerful, and would bind the whole of society together in such a
beneficent way that social good would actually result from individual
selfishness. But if the marketplace and individual self-interest and
competition were to function at all, it was Smith's judgment that the
government must keep hands off. In actual fact he disliked political men, and
once wrote contemptuously of that "insidious and crafty animal, vulgarly
called a politician." He believed that government should "let do" and "let
go," that is, follow a policy of laissez-faire, laissez-aller. Actually he
appropriated these phrases from a group of French economic theorists called
the Physiocrats. They believed that land was the source of all wealth, that
the mercantilist French state was interfering too much and should keep hands
off. The founder of the physiocratic school was Francois Quesnay, economist
and court physician of Louis XV. Asked by the dauphin what he would do if he
were king, Quesnay is reported to have replied, "Nothing." Whatever the
source of the phrase "laissez-faire," Smith's concern for the rights of the in
dividual in this world was a far cry from the philosophy of the mercantilist
who believed only in the welfare of the state, or from the religion of the
medievalist who put his faith in another world. His philosophy, in time to be
identified with conservatism, became the credo for businessmen, politicians,
and ministers throughout U.S. history.

David Ricardo, a British economist of Dutch-Jewish parentage, was the
systematizer of classical economics — a cold theorist who defined prices,
rents, wages, and profits from a capitalist point of view. A brilliant
entrepreneur himself, he was able to retire at twenty-five from the proceeds
of his brokerage business; thereafter he devoted himself to study, to
writing, and to Anglican country affairs save for a brief period in
Parliament at the end of his life. He is probably best known for his "iron
law of wages," with its cheerless dogma that wages cannot rise above the
lowest level necessary for subsistence. Under this relentless dictate, which
Ricardo enshrined as an immutable law of social causation, massive privation
and inequality forecast for the working class enduring peril and hopelessness.

The third of the founding fathers, Thomas Malthus, was not only an English
clergyman but an economist, sociologist, and pioneer in population study as
well. In his Essay on the Principle of Population (1798) it was his
contention that poverty and distress were inevitable because population
increased geometrically while the food supply was augmented in a much more
leisurely arithmetric ratio. With his theological approach Malthus could see
no checks on population growth except the natural and grisly ones of war,
famine, and disease. Later he concluded there might be a rational check in
"moral restraint" from copulation, but this solution presented obvious
difficulties because he saw sexual coitus as the privilege of the rich who
could afford children. It was the poor, who were least likely to listen, who
were advised to abstain. His predictions were so gloomy, and his solutions so
unsatisfactory, that it was the reading of Malthus (along with that of
Ricardo) that caused Thomas Carlyle to dub the two of them the "respectable
Professors of the Dismal Science."

Smith, Ricardo, and Malthus had based their ideas on a "natural order" that
could not be changed. Under their philosophy, as the social-gospel clergyman
Washington Gladden would observe, economics became the not too gentle art of
"grinding the faces of the poor" — indeed a dismal science "because of the
selfishness of its maxims and the inhumanity of its conclusions." About the
middle of the nineteenth century, as John Kenneth Galbraith sees it, economic
theory came to a "great divide" between the classical economists and those
who thought something could be done about the "natural order," even if it had
to be destroyed. In the period from 1850 to 1929 the problem was one of
scarcity, and writers like Karl Marx, Henry George, and Thorstein Veblen
wanted to do something about the inequitable distribution of that scarcity.
Since 1929 the problem has been one of abundance rather than scarcity, and
theorists like John Maynard Keynes and Gerard Piel have speculated on what
can be done to bring about a more equitable distribution of that abundance.

The inequitable distribution of scarcity, about which Marx and George and
Veblen would write, was historically necessary during the Industrial
Revolution in every country in which it occurred. In this so-called period of
"carboniferous capitalism" money had to be provided for the increase of
production, and this meant vast sums indeed. Where did this capital come
from? It could be obtained in several ways. It could be stolen or borrowed
from someone else who had it, or it could be accumulated slowly by producing
wore than one consumed -and saving the difference. The British, who first ran
into the problem on a large scale, did all three. They stole from Spanish and
Portuguese merchants and freebooters. They borrowed from their aristocrats.
They resorted to forced saving, engaging for a century in what Marx called pri
mitive capital accumulation — or as most contemporary economists know it,
forced saving from labor. Laborers were compelled, for survival, to work
twelve to fourteen hours a day in factories and coal mines -boys and girls of
eight to ten along with their parents — while all of them lived on a bare
subsistence level in squalor and destitution. It was their conditions,
graphically described by Hardy and Dickens, that moved Marx to remark about
workers and their chains. For three or four generations the British produced
a great deal and consumed just as little as possible; the difference went to
pay for the railroads, mines, factories, and ships that formed the skeleton
of British industrial power. The story has been the same in each industrial
revolution that has followed. In the United States historians continue to
celebrate the frontier, but it was 3 5 million steerage immigrants — a flood
of humanity equal to the nation's population at the end of the Civil War —
who furnished the primary capital for the Industrial Revolution that got
underway in the United States at the middle of the nineteenth century.

In 1968, the 150th anniversary of the birth of Karl Marx was celebrated in
various parts of the world. By that time, in terms of his Impact on the
twentieth century, he was regarded by many as the most influential thinker
who ever lived. Communist-ruled countries with populations totaling a billion
people now hail him as the founder of their fundamental ideology. Even
non-Marxist historians and economists agree that his ideas have had a
profound effect on the development of the modern world and have exerted a
strong influence on much of the academic thinking about it. During his
lifetime (1818-1883), however, he was considered a relatively minor figure
and he lived most of his adult life in abject poverty. In the modern era his D
as Kapital, a three-volume work devoted to the theory and practice of the
exploitive nature of capitalism, has been compared with the Gospels and the
Koran as an evangelistic document. In his own time the work was considered so
boring and difficult, to read that the Russian censors approved a translation
for publication on the ground that so few people could understand the book
that it would pose no threat to the czarist regime. Ironically Marx, the man
who scoffed at moralists, who said that what counts is the evolution of
material forces and not the abstract ideals in men's minds, turned out to be
the most powerful moral teacher of his time.

He was a German born at Trier who was thrown out of his native land after
earning his Ph.D. in philosophy at Jena; he lived most of his life in London,
where he is buried in Highgate Cemetery. It seems surprising that a future
agnostic and Communist should emerge from his origins, which were traditional
and respectably middle class. His religious background was orthodox in two fai
ths-, his family produced a long line of rabbis in Trier, but he and his
immediate family were baptized as Christians (Karl was six) because his
father was a lawyer and Jews could not be admitted to the bar at that time.
In the twentieth century the term "alienation" has become a favorite, and
some explain Marx's reaction to society by pointing to the tension between
his Jewish heritage and his Lutheran upbringing. They say his problem was one
of reconciling the Jewish desire for a collective meaning in history with the
Lutheran emphasis on individual man, alone and naked before God, Whatever the
explanation, the Marx family was distinctly bourgeois, and the famous son
married the daughter (Baroness Jenny von Westphalen) of a landed aristocrat.
In exile in London, however, his poverty was so acute and the family was in
such desperate straits that three of his six children died from diseases
probably aggravated by malnutrition, a grievous blow because Marx was
passionately fond of them. One does not wonder that his mother was reported
to have said that she wished her son would spend less time writing about, and
more effort in making, Das Kapital. In England his only regular income was
his pay for articles sent to Horace Greeley's New York Tribune as its
European correspondent. This pittance was later augmented by family legacies,
and generous loans and gifts from his colleague Friedrich Engels, whose
wealthy father owned an interest in a Manchester cotton mill. It is ironic
that Das Kapital, certainly a revolutionary work, should have been financed
by profits derived from a British cotton mill supported by German funds.

In his criticism of classical economics Marx made three major points:

THE ECONOMIC INTERPRETATION OF HISTORY. In Marxian language this was
dialectical materialism, a phrase which was the inverse of the German
philosopher Hegel's dialectical idealism. To Marx, social and economic
changes were the result of materialistic forces only. This meant that the
entire course of history, in all its manifestations, had been determined by
economic conditions only, and that important historical change took place
only where strategic alterations occurred in methods of producing or
exchanging goods — such as happened at the time of the Commercial and
Industrial Revolutions. Intellectuals might believe there were historical
factors other than economic ones — ideas centering around race, religion,
culture, and fatherland-but all these were to Marx evanescent "ideological
veils" which obscured the real economic forces behind them. For him
dialectical materialism was the "one pass-key" that would unlock all historic
secrets.

THE SURPLUS VALUE THEORY OF LABOR. To Marx labor, not bullion or commodities,
was the source of all value; in fact he believed a commodity to be a mass of
congealed labor-time. The tragedy, in his analysis, was that the laborer did
not receive full value. Only a portion of the workday was expended in
producing what the laborer actually got in wages; what he produced during the
remainder of the day — "surplus value" — was siphoned off by capitalists in
the form of profits. To Marx wages were, for the laborer, an illusion that he
was paid for a full day's work; because of this situation the rich would
become more wealthy as the poverty of the poor increased. The resultant and
mounting misery would produce another sequence, namely —

THE CLASS STRUGGLE, THE DICTATORSHIP OF THE PROLETARIAT, AND A CLASSLESS
SOCIETY. Marx believed that every ruling class would be replaced, until a
classless society emerged — for example, from feudal lords to merchants to
capitalists to the proletariat. The difference was that, after the
dictatorship of the proletariat, class distinctions would ultimately
disappear and the oppressive state -the instrument of the dominant class
-would fade away.

There have been so many variants of Marxism that Marx himself is reputed to
have said, "Thank God I am not a Marxist!" But as far as one can study Das Kap
ital a century after it appeared, two of his conclusions have been proved
wrong:

The State has not withered away, and there has been no dictatorship of the
proletariat. In the non-Communist world the State has begun to represent
labor along with owners and other groups in society. The State has not
withered away in the Communist countries either; in practice the dictatorship
has been that of the Party — the political and managerial bureaucracy — or of
a Stalin. In order to get capital, through forced saving, Russian workers
have been forced to work long and hard, while consuming very little-to pay
for FiveYear Plans and military defense. In this as in other respects,
Communist states—not withered but strong—have exploited their populations as
Marx bemoaned the treatment of workers by capitalists.

Labor has not developed a revolutionary, but a trade-union point of view. It
has steadfastly declined to enter management, and has tried only to get for
workers-through wages, pensions, and fringe benefits-the largest practicable
share of national income. In the achievement of these, in highly
industrialized states, it has been quite successful. Curiously Marx deserves
as much credit as any man for having stimulated the reforms that have kept
capitalism from destroying itself.

Marx would have destroyed the "natural order" of the classical economists.
Henry George and Thorstein Veblen proposed not to annihilate, but to reform
the capitalist system.

George was the single-taxer who wrote Progress and Poverty — of which more
copies have been circulated than of any other economic work. The volume
became the economic Bible of an able and articulate group of men — both
abroad and in the United States. George had a profound influence on Leo
Tolstoy, Sun Yat-sen, and George Bernard Shaw, who said, "Henry George set me
on the economic trail, the trail of political science." In the United States,
Joseph Fels — the millionaire manufacturer of Fels-Naptha Soap — founded a
Single-Tax Commission, and financed it with more than a million dollars. C.
H. Ingersoll, the wealthy watchmaker, contributed to the commission, and the
well-known journalist Lincoln Steffens accepted a position on it. In
Cleveland, Ohio, the famous reform mayor, Tom Johnson, himself a millionaire,
became a convert to the single-tax philosophy, tried unsuccessfully to
introduce it into Ohio, and at his death was buried near George in Brooklyn,
New York.

The economic basis for George's perverse view of progress — Progress and
Poverty — was really a legacy from Ricardo, who had pointed out that labor
and capital increased in productivity, but that land Supply remained constant
in quality and extent. As a result, land rents increased disproportionately;
this development made landlords the undeserving beneficiaries of progress. In
England John Stuart Mill once remarked, "Landlords grow rich in their sleep."
In the United States the first Marshall Field, who made a large part of his
$100 million in Chicago land speculation, would say, "Land is not just a good
way to make money . . . it is the only way to make money."

As Ricardo saw it, this was all part of the "natural order," and nothing
could be done about it. George disagreed. He claimed that most of the
increase in the value of land was due not to the owner, but to the growth of
the surrounding community. This was true in George's time and it is true
today. The Verrazano-Narrows Bridge, completed in 1964, connecting Staten
Island with Brooklyn, doubled the Island's population in less than five years
— with land values increasing at a minimum Of 400 percent. The taxpayers of
New York State spent almost half a billion dollars to build the New York
Thruway, and the immediate effect was to add much more than that to land
prices along the route. The federal government has Played a similar role. The
great boom in western land after the Civil War (which brought immense profits
to some land speculators) was a direct consequence of the subsidization, by
all American taxpayers, of the transcontinental railroad. Today the
government's space program at Cape Kennedy, New Orleans, and Houston, has
increased land values on the thousand-mile crescent which stretches from
Florida's Atlantic coast to the Texas panhandle. George believed that labor
and capital were productive, but that rent was an unearned increment which
reduced wages (for labor) and interest (on capital) by its total amount. To
him, the entrepreneur and the laborer were praiseworthy; the landlord was
wicked. He said to a symbolic landlord:

"You may sit down and smoke your pipe; ... you may go up in a balloon or down
a hole in the ground; and without doing one stroke of work, without adding
one iota of wealth to the community, in ten years you will be rich! In the
new city you may have a luxurious mansion, but among its public buildings
will be an almshouse."

George thus equated rent with sin, and progress with poverty. He believed
that unearned increment should be confiscated in the form of a single tax for
the benefit of all. This unique tax would amount to all, or practically all,
of economic rent; all other forms of direct and indirect taxation would be
abolished.

It was a difficult theory to carry into practice, but Progress and Poverty
was, in its day, and still is, widely read. The book "caught on" for a
variety of reasons. For one thing George was optimistic. Smith, Ricardo,
Malthus, and Marx were convinced that nothing could be done to reform the
system. George believed progress possible because economic systems were the
creations of the minds of men. In addition, George was eloquent and wrote
with tremendous conviction. This was partly due to a religious background —
his father was a vestryman in the Episcopal Church — but chiefly because of
George's own poverty when he lived in California. After his second child was
born, the doctor said that mother and child were starving. George stopped the
first well-dressed man he met on the street and asked him for five dollars.
He said later that if the stranger had not been moved by his story and had
not produced the money, he was prepared to knock him down and take it. These
desperate years gave him a personal knowledge of poverty which was reflected
in everything he wrote.

Is George's proposal still pertinent in the present era? One real-estate
authority, Daniel M. Friedenberg, has noted that the single tax would be
discriminatory for an important class of investors in an economy where
leasehold arrangements, long-term tenant commitments on fixed rentals, and
heavy mortgages are quite common. He believes, however, that a modified
single-tax policy would receive widespread support if it had two features:
(I) an increase in the assessment on land to be paid by the owner as its
value is augmented by extraneous factors, such as improvements in
transportation, and (2) taxation of land in relation to its potential value
when fully used rather than on its unimproved market value; that is, a higher
levy based on the value of improved land in full use rather than the lower
tax actually assessed when it stands idle. In the first case, the entire
taxpaying public subsidizes the increase in value, but local individuals and
speculators reap great profits although they expend little effort or energy
to make them possible. Friedenberg notes that if the system were changed so
that those who get unexpected "windfalls" were to bear some part of the
public subsidy that made them possible, they would still come out ahead and
the community would have less of a tax burden. On the second point, models
exist for the taxation of land on the basis of use; Australia has provided
the most impressive ones. In Sydney land is taxed as though it was improved;
this has driven out both land speculators and slum owners, neither of whom
can afford to pay the full-use tax. Brisbane forbids taxes on improvements
but has a uniform 9 percent tax on land regardless of what is constructed on
it. In Denmark both land and improvements are taxed, but land at a steeper
rate. One American city, Pittsburgh. has adopted a similar formula; it taxes
land at full-use value while improvements are taxed at half value. This has
forced the improvement of land and has encouraged growth, as the significant
building activity in that city attests. Elsewhere in the United States,
however, tax policy is both discriminatory and inequitable. Those who improve
the land — owners of homes, apartment buildings, and commercial property —
pay higher taxes than the land speculator who simply waits for the entire
community to increase the price of his land. In the late 1960's land constitut
ed one-third of our total national wealth but carried only 5 percent of the
total tax load. To Friedenberg, continuation of such an inequity could bring
real trouble. He observes that "from an historical view it can be said that
it was the narrow feudal policy of East European capitalists — holding land
and refusing to permit its development — that helped to create an environment
hospitable to the Communist take-over. This is even more true in Latin
America today."

Thorstein Veblen (1857-1929) was born of Norwegian parentage on a Wisconsin
farm, spent the first seventeen years of his life in Norwegian rural
communities, and had to learn English as a foreign language. He was educated
at Carleton, Johns Hopkins, and Yale, achieved a gargantuan and varied
learning (among other things he translated sagas from the Icelandic), and was
sometimes known as the "last man who knew everything."

As an eccentric he always remained aloof from society and traditional
manners. He had the appearance of a Norwegian peasant, dressed in a thick and
unpressed suit, and wore on his vest a large safety pin on which he moored
his watch. He was never very popular with students because he gave them all
the same grade of C, mumbled intricate sentences, and was given to sarcasm.
He also experienced difficulty with university administrators, in part
because of numerous liaisons with a variety of women; Veblen's explanation
was in the form of a question, "What are you going to do if the woman moves
in on you? " President Abbott Lawrence Lowell is supposed to have said at a
faculty dinner for Harvard professors and their wives that if Veblen was
interested in teaching at Cambridge he must promise to leave faculty wives
strictly alone. As the story goes Veblen looked carefully around the room at
the professorial consorts, and then assured Lowell there was nothing to worry
about.

In spite of these eccentricities Veblen made a signal contribution to the
development of economic thought because of his introduction of psychology
into economic interpretation and his theory of a new "leisure" class. He was
able to analyze social and economic institutions from a psychological base,
and for this reason he is known as the founder of institutional economics.
His most famous book was The Theory of the Leisure Class (1899). Here he drew
a distinction between technology (the making of goods), which was a
constructive force, and business (the making of money), which was purely
predatory. Technology could produce abundance for all, but this abundance was
not properly distributed because of monopolistic practices. To Veblen a
modern business was open to the same censure as that applied to a barbaric
chieftain. Neither had an abiding concern for the welfare and happiness of
contemporaries; both were chiefly interested in a dubious personal status
which was achieved through vulgar ostentation to advertise their power and
wealth.

During the early stages of the Industrial Revolution — the stages which
Walter Rostow called the "take-off" and the drive to maturity — the purpose
was to maximize production and to minimize consumption. The first portent
that there was too much production, and too little consumption, came in 1929.
We were then confronted by the paradox of poverty in the midst of plenty.
Since World War II this problem of abundance has become more acute because of
the progress of technology, particularly the introduction of electronics and
automation. Since 1929, therefore, some economists have attacked the problem,
that of the equitable distribution of abundance. Keynes has done so through
his "Investment subterfuge." Gerard Piel and John Kenneth Galbraith have made
their contributions through their insistence on investment in the public
rather than in the private sector.

John Maynard Keynes, the first baron of Tilton (1883-1946), was educated at
Cambridge where he studied mathematics and philosophy as well as economics.
As a young official of the treasury he was largely responsible for handling
Britain's financial dealings with the United States during World War I. He
attended the Versailles Peace Conference and damned the treaty in a book (Econ
omic Consequences of the Peace) which plunged him into a sea of controversy
that continued until his death almost three decades later. He denounced the
treaty and said it wouldn't work, particularly the reparations payments
imposed on Germany. In the 1920's his opposition to Britain's reestablishment
of the gold standard was so vigorous that his pamphlet on the subject was
called The Economic Consequences of Mr. Churchill. During the Great
Depression his theories on deficit spending influenced the governments of
many nations, including that of the United States. During World War II he was
again an important figure in the British treasury, and was one of the leading
spirits at Bretton Woods in 1944, out of which came the establishment of the
World Bank and the International Monetary Fund.

He believed in capitalism via the road of governmental assistance for
investment. His studies convinced him that the "invisible hand" of Adam Smith
did not always function, particularly in connection with the decision to save
and the impetus to invest. Investors were lavish with savings when times were
good, and the economy didn't need them; they withheld funds for investment
when economic conditions were less optimistic, and when the economy sorely
needed the stimulus of new investment. Keynes did not believe the economy was
a seesaw that would automatically right itself. It was more like an elevator
that might be going up or down or standing still. Most disconcerting of all
was the realization that the elevator might be standing still at the bottom
of the economic shaft, and would stay there indefinitely because of the
disinclination of individuals to invest. In such situations (the Great
Depression) governmental inducements were essential to move the elevator (the
economy). This impetus was provided by governmental investment; the money
would be derived initially by placing the heaviest taxes on people with the
largest incomes — the very people who had withheld the funds from private
investments. If the money from taxation was not sufficient, the government
should borrow, through deficit financing, to meet its needs.

With this governmental stimulus to investment through taxation and, if
necessary, borrowing — Keynes believed that the rest of the economy could and
should be left to private initiative. He believed in capitalism provided it
was prodded judiciously and in timely fashion when private initiative failed.
Keynes has been called everything from Socialist to subversive; actually, as
Robert Heilbroner has pointed out, he placed his faith in a capitalism
viable. Marx had believed in capitalism doomed. Marx believed that the
capitalist system did not and could not function; Keynes analyzed the reasons
why it did not, but believed it could be made to work. The greatest tribute
to the comparative conservatism of Keynes is that both the Republican party
and the Democratic party in the United States, in spite of windy
protestations to the contrary, are prepared to follow his precepts when the
economic elevator stands at the bottom of the shaft.

Keynes was most perceptive because he realized that there was a valid reason
for the reluctance of private investors to venture their funds in the 1930's.
In earlier times capital for investment had been short, and was actually
provided through an inequitable distribution of scarcity — laborers
contributed through low wages, and capitalists were expected to plow a large
part of their profits back into the plant and production. The purpose of
Keynes's "investment subterfuge," in an economy which had the problem of
abundance rather than scarcity, was to increase consumption without
increasing production. The Keynesian theory called for an increase in the
current rate of investment — but investment on roads, buildings, and relief
in what John Kenneth Galbraith would call the public sector. This type of
investment created consumers, but no addition to the consumable surplus.

Gerard Piel, the discerning economist who doubles as publisher of Scientific A
merican, has observed that since World War II the new problem of abundance
has been solved in part by what President Eisenhower referred to as the
military-industrial complex, by spending in the public sector on armaments.
This device helped solve the problem of abundance in two ways: it provided
purchasing power through paychecks to soldiers and to workers in armament
industries, and it avoided any increase in the consumable surplus by
producing armaments which could not be consumed-except in the event of war.
Apart from the morality or immorality of such a policy, Piel pointed out that
spending in the public sector for armaments had not solved the problem of
abundance, and was not likely to do so — unless the nation was willing to go
to war. The peacetime year of 1962 was typical — idle plants and rotting
surpluses and high unemployment existed in spite of a 25 percent increase in
military expenditures. Furthermore, outlays on armaments were beginning to
yield a diminishing economic stimulus because of what has been called the
"miniaturization of violence" — the technological steps from A- to H-bombs,
from manned aircraft to missiles. We were already armed with the equivalent
of ten tons of TNT for every man, woman, and child on earth; little could be
gained, economically or militarily, by raising that figure to twenty tons.

Piel thinks we have reached a fork in the road, a fork which will confront us
with a central question -"Can We Afford Disarmament? " We can, says Piel, if
in the public sector — comprising federal, state, and local governments —
expenditures are such that increased purchasing power will be provided to
consume the ever-growing surplus of goods. The funds released by disarmament,
and more, would be invested in the enrichment of land and people — in
education, mass transportation, conservation of natural resources, pollution
control (both air and water), urban renewal, and problems of health. There is
no economic barrier to the achievement of these goals. The chief obstacles
are political. In the international sphere the major nations, including the
United States, must be convinced that disarmament is desirable. In the domesti
c sphere the people of the United States, and their representatives in
Congress, must believe that expenditures for civilian purposes in the public
sector are more valid than expenditures for military purposes in the same
public sector. This requires a political decision; on the economic side the
choice is merely one of selecting the methods of solving the problem of
abundance. Unfortunately the political obstacle is an annoying and
exasperating one, and has been for a long time. After World War I the famed
muckraker Lincoln Steffens would say about the fiasco at Versailles, "We do
not want war; nobody in the world wants war. But some of us do want the
things we can't have without war."

A half century later Senator Fred Harris of Oklahoma observed, "We always
hear the farthest rumble of a distant drum but not the voice of a hungry
child." In 1969 an $80 billion defense budget in which business, labor, and
the Pentagon all had a direct stake, constituted a political juggernaut in
search of a military mission. This was, in essence, the military-industrial
complex (really the military-industrial-labor complex) against which
President Eisenhower had warned when he left the White House in 1961. To many
it seemed that national priorities were out of kilter.*

*In 1969 Senator William Proxmire of Wisconsin was disturbed by the easy
movement of high-ranking military officers into jobs with major defense
contractors, and the reverse movement of top defense contractors into high
Pentagon jobs; both provided solid evidence of the military-industrial
complex in operation. Proxmire issued a report showing that the number of
retired officers working for the defense industry had tripled in the past ten
years. A list prepared in 1959 for Paul H. Douglas, then a Democratic senator
from Illinois, counted 721 retired military officers of the rank of colonel
or navy captain and above working in the 88 defense industries. Proxmire's
study, made with the cooperation of industry and the Pentagon in 1969, showed
that 2,072 retired military officers of the rank of colonel or navy captain
and above were employed by the leading military contractors. He saw this as a
real threat to the public interest because it increased the chances for abuse
through not-so-subtle bribery, particularly when coupled with a system of
military procurement which permitted almost go percent of all military
contracts to be negotiated rather than being awarded on the basis of
competitive bidding. Proxmire did not believe that officers, looking forward
to jobs in defense plants after retirement from the military, would drive
very hard bargains-in the public interest-with those same industries. He
listed the ten defense contractors which had the largest number of former
military officers in their employ, as follows: General Dynamics (113),
Lockheed (210), GE (19), United Aircraft (48), McDonnell Douglas (141), AT&T
(9), Boeing (16q), Ling-Temco-Vought (69), North American Rockwell (104), and
GM (17).

pps. 3-19
-----
Aloha, He'Ping,
Om, Shalom, Salaam.
Em Hotep, Peace Be,
All My Relations.
Omnia Bona Bonis,
Adieu, Adios, Aloha.
Amen.
Roads End

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