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American Political Economics: An Emerging Consensus

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American Political Economics: An Emerging Consensus

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Content This dissertation has been microfilmed exactly as received 68— 1186 COWNIE, John Bowler, 1940- AMERICAN POLITICAL ECONOMICS: AN EMERGING CONSENSUS. University of Southern California, Ph.D., 1967 Economics, general University Microfilms, Inc., Ann Arbor, Michigan ©Copyright by John Bowler Cownie 1968 AMERICAN POLITICAL ECONOMICS: AN EMERGING CONSENSUS by John Bowler Cownie A Dissertation Presented to the FACULTY OF THE GRADUATE SCHOOL UNIVERSITY OF SOUTHERN CALIFORNIA In Partial Fulfillment of the Requirements for the Degree DOCTOR OF PHILOSOPHY (Economics) September 1967 UNIVERSITY O F S O U T H E R N CA LIFO RN IA TH E GRADUATE SCHOOL UNIVERSITY PARK LOS ANGELES. CALIFORNIA 9 0 0 0 7 This dissertation, written by ...........JQM.. b ...c p; ^ i e ............... under the direction of h.Xs..Dissertation Com mittee, and approved by all its members, has been presented to and accepted by the Graduate School, in partial fulfillment of requirements for the degree of D O C T O R OF P H IL O S O P H Y G . . Dean Date Septemb^r^.?^?. DISSERTATION COMMITTEE .... Chairman TABLE OF CONTENTS Chapter Page 1 I. INTRODUCTION The Problem Statement of the problem Importance of the problem The Approach of this Dissertation Purpose Scope Hypothesis Methodology and Definitions Methodology Definitions Organization of the Remainder of this Dissertation A Survey of the Literature Background Plato Aristotle Hobbes and Locke Recent Democratic Theory Democracy as "rule by the people" Democracy as a decision making process Preconditions for democratic government A modern argument for democracy Democracy as a Process in Modern America The need for modern democratic theory Democracy and uncertainty Processes of change within a democracy The Background: Early Liberalism The "psychological creed" of classical liberalism The "laws of the market" and the role of the state "Social Darwinism" and economic individualism II. THE POLITICAL ASPECT 18 III. ECONOMICS ON THE RIGHT 51 ii Chapter Page Modern "Conservative" Economics Modern liberalism and modern conservatism Friedrich A. Hayek Milton Friedman The Conservative Business Ideology The perspective of the N.A.M. The restriction of government activity The "American business creed" IV. ECONOMICS ON THE L E F T ................ 94 The Background: Marxism Marxism as a theory of capitalism The Marxian theory of social change The future of capitalism Modern American Socialism The adequacy of Marx' analysis Marxism and "monopoly" capitalism C. Wright Mills: the American elite Non-Marxian American socialists The "new radicals" V. ECONOMICS TO THE RIGHT OF CENTER........... 124 Philosophical Perspectives John Maurice Clark Henry Wallich Practical Economics Raymond Saulnier Arthur F. Burns The "Liberal-Conservative" Business Ideology The Committee for Economic Development The 'taanagerial revolution" VI. ECONOMICS TO THE LEFT OF CENTER.......... 168 The Keynesian Analytical Tools Keynes' critique of classical economics The interpretation of Keynesian economics The popularization of Keynesian economics Economics in the Kennedy-Johnson Adminis tration Background iii Chapter Page Specific problems and the instruments of policy Government policy and the economic profession New Problems and New Approaches Social reform liberalism John Kenneth Galbraith Further considerations The Decline of Ideology Classical liberalism and Marxian socialism Modified capitalism Economic problems and the democratic process Twentieth-century American liberalism Practical Solutions to Practical Problems Changes in economic controversy Modern capitalism and democratic socialism An Emerging Consensus Aggregate economic problems "Specific" economic problems The "welfare state" Conclusion Historical Perspectives "Stages" of economic development The frustrations of abundance Economic Techniques in an Affluent De mocracy Planning in an affluent economy Democratic control of economic power The guaranteed income Human Values in an Affluent Democracy The need for positive freedom Cybernation and human values International considerations VII. THE MAINSTREAM 215 VIII. THE FUTURE 252 IX. SUMMARY AND CONCLUSION 297 Summary of the Argument Conclusion BIBLIOGRAPHY 311 iv CHAPTER I INTRODUCTION A. The Problem Statement of the Problem This dissertation will attempt to define a "con sensus" or "mainstream" of opinion in recent American poli tical economics. Even casual observation is sufficient to demonstrate that the spectrum of thought in American poli tical economics is very broad, and that among the various schools of thought there are sharp differences of opinion both with respect to the present nature of the American system and with respect to the course of development which the system should follow in the future. In particular, there are sharp differences over the proper role of the government in the American political-economic system. This study attempts to identify those elements of political- economic thought which are accepted by an increasing per centage of Americans, and which therefore form the basis of an emerging consensus in American political-economic thought. The study also serves to make clear the nature of those matters about which there is no consensus opinion, and which, therefore, are the subject of continued debate. Importance of the Problem It is important that areas of agreement and areas of disagreement in American political-economics be accu rately identified insofar as possible, for only then can economic problems be discussed and solved efficiently and rationally. For reasons which will become clearer as the study proceeds, this dissertation will be structured pri marily around a single issue, that of the proper economic role of the government. This issue has assumed increasing importance in the years since World War II, because eco nomic realities have pushed the government steadily toward more "active" or "positive" participation in the economic sphere. It is quite generally agreed that the American economy has undergone important developmental changes in the post World War II era. Many of these are intertwined with the extensive modifications which have taken place in the relationships between the public and the private sec tors of the economy; "the role of the government" is a favorite topic both for dispassionate discussion and for impassioned oratory. Moreover, whatever their personal feelings, few economists doubt that this role will continue to be a most active one for the foreseeable future. With the Employment Act of 1946, the United States Congress wrote into law the duty of the government to en sure its citizens the opportunity to earn a living within a reasonably stable economic framework. It is certain that its citizens have come to expect no less. Paul A. Samuel- son, one of the best known contemporary American econo mists, has put the matter as follows: The Employment Act of 1946 stated that the govern ment felt a responsibility to help keep employment high and moderate cyclical instability, and many have suggested that it be amended to mention ex plicitly a similar government concern for reasonable stability of the price level. Even if there were no such legislative proclamations, it is a fact all over the world that the populace of modern mixed economies require that their representative govern ments pursue economic policies that attempt to keep employment high, growth strong, and prices stable.l However, it is also true that there persists in America a strong tradition of "non-interference" in eco nomic matters by the government. Many American economists today, clinging to this tradition, protest against the more active part the government is now playing. And others, although resigned to the need for greater governmental par ticipation in the economy, are nevertheless troubled by the apparent conflict with the ideology of America's past. It is surely arguable that the American government has never been as passive as these groups would claim, but it is be yond debate that the supposed tradition of governmental ^■Paul A. Samuelson, Economics (6th ed.; New York: McGraw-Hill Book Company, 19(>4) , p. 360. economic inactivity exercises a strong influence in any current debate over the proper role and functions of gov ernment. In view of the importance of the government in any modern industrial economy, it becomes especially im portant that Americans put aside myths concerning the role of their government, identify those areas in which there is wide general agreement concerning the role of their govern ment, and confine their disagreements, as far as possible, to those areas in which their differences can be resolved by careful experimentation rather than exacerbated by im passioned rhetoric. B. The Approach of this Dissertation Purpose This dissertation will examine the varieties of opinion which have constituted the dialogue in recent Amer ican political economy. The aim will be to sift through the divergent schools of thought in order to separate out those elements which are forming the basis of an emerging consensus. It is hoped that this study will thereby serve to increase understanding of the American consensus as it exists today, and to provide a background against which the tendencies shaping the future course of this development can be understood. Scope This dissertation is written under the assumption that it is fruitful to consider American economic thought in a framework broader than that of "pure economics"; on the other hand, it makes no claim to be a completely gen eral treatment of American social processes. It might well be termed a "middle-range" study, which undertakes to ana lyze American economics in the context of American demo cratic politics. This point can be best illustrated by comparison of the present work with two others. Each of these is in one sense more general than this dissertation, because neither is restricted as regards time or place of application. However, this is not the aspect which is of interest here. What is relevant is that one furnishes an example of an attempt at a broader theory of the social system, while the other, although integrating the political system into a theory of economic activity, does so from a viewpoint fundamentally less general than our own. The former allusion is to the work of Talcott Parsons and Neil J. Smelser, Economy and Society. The authors are concerned to place economics within the frame work of sociological theory. They identify economics as a "differentiated sub-system" of the total system of rela tionships within a society. "The specifically economic aspect of the theory of social systems, therefore, is a special case of the general theory of the social system."3 This means that Parsons and Smelser will proceed to dissect economics in sociological terms. They show that economics is both a social system and a subsystem; that is, "the economy" in a modern society performs functions within it self which specify it as a social system— it provides for the attainment of goals, for adaptation to changing condi tions, for the perpetuation of itself; on the other hand, it is one of the subsystems through which the society as a whole performs analogous functions.3 Parsons and Smelser provide a useful perspective on the way in which an economy operates within a society; this dissertation will focus on the interaction of the economic and the political subsys tems within American society. The 'less general" blend of the political system with the economic is that of Anthony Downs in An Economic Theory of Democracy. Downs feels, no doubt rightly, that to simply accept governmental activity as an exogenous fac tor in the building of theoretical economic models is not desirable. What he proposes to do is make governmental activity endpgenous by providing a "behavior rule for them (democratic governments) comparable to the rules it (demo- 2 Talcott Parsons and Neil J. Smelser, Economy and Society (New York: The Free Press, 1956), p. 360. 3Ibid., pp. 39-54. cratic theory) uses to predict the actions of consumers and firms."4 More will be said about Downs' work as a theory of democracy in Chapter II. The point here is that Downs attempts to integrate the political with the economic by making the government a special sort of rational economic actor. The limitation to this approach is that while it predicts what democratic governments will do if they act rationally to maximize the votes they get from voters who are rational economic men, it does not provide for more . . f» • - V flexible interplay between economic and political consider ations. In this dissertation the emphasis is on interpre tive description of the developing relationship between politics and economics in America. It is hoped that, while lacking an axiomatic basis, it may nonetheless yield plau sible explanations of complex phenomena. The scope and the limitations of this study will become clearer when the sources of reference material are detailed in the final section of this chapter. However, a final point to be noted here is that the political aspect will be dealt with much more briefly than the economic; in the consideration of the latter, the entire range of current opinion will be surveyed, while in the treatment of the former, concentra tion will be primarily on the "democracy-as-a-process" 4Anthony Downs, An Economic Theory of Democracy (New York: Harper & Row, 195V), p. 20. theory to be explained below. 8 Hypothesis The hypothesis of this dissertation is that the "mainstream" of present-day American economics is very much geared to the practical solution of specific economic prob lems. (This does not imply agreement about which problems are most pressing or about which methods of solution are appropriate to particular problems. These matters will be discussed in considerable detail in later chapters.) It is further maintained that this sort of economic thinking is the logical concomitant of that school of modern political theory which views democracy as a process of government through which problems are solved in a certain way, rather than as a system of government in which the various actors play fixed roles. Dividing the spectrum of economic thought into "schools" is difficult, and any classificatory system cho sen is bound to appear somewhat arbitrary. For the pur poses of this dissertation, trouble can be minimized by keeping the number of "groups" relatively small (four) and allowing for sizable in-group differences (rather than by making the number very large so as to keep the groups homo geneous) . Groups will be defined at each extreme of a "left-right" spectrum, and on each side "somewhat off cen ter." The claim will be that while the former pair account for quite a lot of rhetoric, it is out of the opinions and practices of the latter pair that a sort of economic con sensus is emerging. C. Methodology and Definitions Methodology There are various schema within which the groups of American economists identified in this dissertation might be analyzed. For example, Robert Dahl and Charles Lindblom feel that their book Politics, Economics, and Welfare de serves the subtitle "Planning and Politico-Economic Systems Resolved into Basic Social Processes." In principle, this is just the sort of breakdown which should be useful here. In the first place, the authors are emphatic in stressing_ that it is only in conjunction with socio-political pro cesses that economic systems can be studied and classified, 5 a point of view which is surely congenial to this study. Moreover, a reduction of all viewpoints studied to the "basic” processes which would be required to implement them could facilitate the identification of the "consensus" ele ments which hopefully are to emerge. However, the disad vantages of employing the Dahl-Lindblom (or any other) C Robert A. Dahl and Charles E. Lindblom, Politics, Economics, and Welfare (New Yorks Harper & Row, 1953) , Preface, pp. xxi-xxii. 10 classificatory system throughout outweigh the advantages. The main concern here is to give the widest possible lati tude for the inclusion of very diverse contributions to American political economy, and it is virtually impossible to rank the entire spectrum of such contributions within any single rigid schema. However, some further discussion of the Dahl-Lindblom analysis will be found in later chap ters. In brief, it may be said that the contributions of the various authors surveyed here are analyzed in the spirit in which they are written. Some will be attempts to describe the operation of the American political-economic system as a whole, but others will focus more sharply on one or a few special aspects. The only analytical pattern necessary is one that details the broad functions which should be performed by an economic system: resource allo cation, distribution of income, the maintenance of economic stability at reasonable employment levels, and the provi sion for economic growth.® Commentaries on political econ omy in general, and the American situation in particular, may then be examined in terms both of their relative empha sis upon the various functions and of the means which they espouse to perform these functions. Where even this frame- 6John E. Elliott, 'Capitalism, Marxism, Socialism" (unpublished manuscript), Ch. 1, pp. 2-6. 11 work proves too restrictive, there will be no hesitancy in moving the analysis outside of it. Definitions It is realized that some terms have been used in this introduction without precise definition. In particu lar, the words "right," "center," and "left" have been so used. However, it is doubtful that exact definitions of these words are either feasible or desirable at this point. "The Right" may be approximately identified with the wish for an absolute minimum of governmental economic activity, "the Left" with the desire for comprehensive collectivist control of the economic system; "the Center" for America today may be assumed to lie somewhere between the economic policies of the Kennedy-Johnson administration (on the left) and those which a moderate Republican administration might be conjectured to pursue (on the right). A major task of this dissertation will be to develop a genuine "feel" for what these terms mean at present in American political- economic thought. In later chapters of this study, the terms "liberal" and "conservative" are used. Although common usage gener ally identifies liberals and conservatives with the Left and Right, respectively, this identification is imprecise and can be misleading. "Liberal" and "conservative" are 12 words which have been used to mean different things in dif ferent contexts; when the words are used in this disserta tion, care will be taken to make their intended meaning unequivocal. D. Organization of the Remainder of this Dissertation A skeletal outline of the dissertation will be helpful in structuring the review of relevant literature, which is to follow. The remaining chapters of this study will be organized as follows: Chapter II: The Political Aspect A. Background B. Recent Democratic Theory C. Democracy as a Process in Modern America Chapter III: Economics on the Right A. The Background: Early Liberalism B. Modern ''Conservative" economics C. The Conservative Business Ideology Chapter IV: Economics on the Left A. The Background: Marxism B. Modern American Socialists Chapter V: Economics to the Right of Center A. Philosophical Perspectives B. Practical Economics C. The "Liberal-Conservative" Business Ideology Chapter VI: Economics to the Left of Center A. The Keynesian Analytic Tools B. Economics in the Kennedy-Johnson Administra tions C. New Problems and New Approaches Chapter VII: The Mainstream A. The Decline of Ideology B. Practical Solutions to Practical Problems C. An Emerging Consensus Chapter VIII: The Future A. Historical Perspectives B. Economic Techniques in an Affluent Democracy C. Human Values in an Affluent Democracy Chapter IX: Summary and Conclusion A. Summary B. Conclusion The major divisions of chapters which are indicated in the above outline will be referred to in the text of this study as "sections." Many of these sections are fur ther divided into units which will be referred to as "sub sections ." E. A Survey of the Literature It is clear that the amount of published material bearing some general relevance to this study is enormous. Therefore no attempt will be made either to survey it ex haustively here or to take account of all of it in the main body of the study. Rather the emphasis will be on select ing works and authors representative of the important points of view; some of those most prominent in what fol lows will be mentioned in this survey. In the area of political theory, work of several different types is of interest. For understanding the ex tensive background of political theory which has been cru cial in bringing democratic theory to its present state, such books as George Sabine's A History of Political Theory, William Ebenstein's Great Political Thinkers and the interpretive summary of Jacobson's Development of American Political Thought by Thornton Anderson are useful. Books which deal with the prerequisites and purposes of demo cratic government include Henry Mayo's An Introduction to Democratic Theory, Thomas Thorson's The Logic of Democracy and Seymour Lipset's Political Man. Finally there are works which emphasize the need of a society for a cohesive political system suitable to the pursuit of its varied goals, and works which discuss the American situation in this context. Among these are Sheldon Wolin's Politics and Vision, Hannah Arendt's Between Past and Future, John Herz' Political Realism and Political Idealism and Charles Frankel's The Democratic Prospect. The discussion of "Economics on the Right" will focus around the "individualistic liberalism" of Friedrich Hayek, the conservative economics of Milton Friedman, and the National Association of Manufacturers' presentation of the ideology of the more conservative elements of the Amer ican business community. Works of interest include Hayek's The Road to Serfdom and The Constitution of Liberty, Friedman's Capitalism and Freedom, Essays on Positive Eco nomics , and A Program for Monetary Stability, and the N.A.M.'s The American Individual Enterprise System. "Economics on the Left" will deal with certain American economists who have endeavored to explain the re 15 cent experiences of the American system within the theoret ical framework of Marxist economics. Included will be Paul Baran and Paul Sweezy, authors, respectively, of The Poli tical Economy of Growth and The Theory of Capitalist Devel opment, and coauthors of Monopoly Capital. "Economics to the Right of Center" will encompass the work of such academic economists as Arthur F. Burns and Raymond Saulnier (whose prescriptions for practical prob lems are of the sort to be acceptable to a moderate Repub lican administration), as well as the expressions of the more liberal American business ideology as typified by the publications of the Committee for Economic Development. Additional perspective will be furnished by books such as Henry Wallich's The Cost of Freedom and John Maurice Clark's Alternative to Serfdom, which attempt to provide a philo sophical basis for the position of the moderate conserva tive. "Economics to the Left of Center" will include books which explain and "popularize" the basic analytic conclusions of Keynesian economics, books which describe the role of the economist in applying Keynesian and post- Keynesian techniques to American economic problems, and books which attempt to provide bases for development in particular directions as the American economy attacks its immediate problems. In the first group would be Alvin Han 16 sen's A Guide to Keynes and Monetary Theory and Fiscal Policyf and Robert Heilbroner and Peter Bernstein's A Primer on Government Spending. The second group includes Walter Heller's New Dimensions of Political Economy, James Tobin's National Economic Policy, Seymour Harris' The Econ omics of the Kennedy Years, and Hansen's Economic Issues of the 1960's. Finally, in the third group are works such as John Kenneth Galbraith's The Affluent Society, David Baselon's The Paper Economy, Thomas Petit's Freedom in the American Economy, Michael Harrington's The Other America and Bernstein's The Price of Prosperity. The "mainstream" of American political economics can be drawn out of the material cited above. Also rele vant however is the literature which stresses that terms such as liberalism, capitalism and socialism no longer carry the meanings and connotations which they once did, and that a capitalism modified to include some of the (wrongly- labeled) "socialist" measures of economic coordination may be the system best equipped to deal with modern economic problems. Important here are Overton Taylor's Classical Liberalism, Marxism and the Twentieth Century, Spencer Pollard's How Capitalism Can Succeed, Calvin Hoover's The Economy, Liberty and the State, Andrew Shonfield's Modern Capitalism and Harry Girvetz' The Evolution of Liberalism. In the not-too-distant future, the main problem of 17 the American economic system could well be the management of abundance. Gunnar Myrdal's The Challenge of Affluence. W. W. Rostow's The Stages of Economic Growth, Reinhold Niebuhr's The Irony of American History and Heilbroner's The Future as History emphasize that such abundance fur nishes not only great opportunities, but also severe frus trations and potentially serious dangers. Techniques which may be appropriate to the solution of the economic problems of abundance are examined in Michael Reagan's The Managed Economy. Neil Chamberlain's Private and Public Planning and Robert T. Theobald's Free Men and Free Markets. Many so cial theorists have pointed out the need to safeguard human values and human beings in an era of technological revolu tion; among the works to be considered here are Erich Fromm's Escape from Freedom and The Sane Society and Norbert Weiner's The Human Use of Human Beings. CHAPTER II THE POLITICAL ASPECT The purpose of this chapter is to provide an out line of the background and the development of democratic political theory, and to examine its relevance to contempo rary American political-economic thought. The first sec tion examines the treatment of democracy in Greek political philosophy, and introduces the concept of "individualism" which played a major role in the structuring of early Amer ican political thought. The second section identifies some of the contributions of modern democratic theorists, and the final section attempts to define the role of political theory in shaping current American politics. A. Background Plato Despite the well-known success which democracy en joyed in Athens during the fifth century B.C., neither Plato nor Aristotle was especially well disposed to demo cratic government. Plato describes in The Republic his conception of the perfect form of government for a Greek city-state. Such a government would bear scant resemblance 18 to the democracy of Athens. Plato saw hope for perfection in political life only in a carefully structured society, in which the ruling guardian class was to combine the true wisdom of philosophers with the practical authority of kings. Auxiliaries, workers and (probably) slaves would each have their functions, and would be induced by various means to see that their own best interests lay in the sat isfactory performance of these functions. Even if such a society could be established, however, there was no guaran tee that it would endure. Plato described the process by which the rule of wisdom-loving philosophers might degen erate, step by step, first into timocracy (the rule of the glory-seeking warrior class), then to oligarchy (the rule of the rich few), then to democracy (the rule of the people) and finally to despotism (the rule of the tyrant). To Plato, only despotism was to be worse than democracy.1 What did democracy mean to Plato, and why did he see so little good in it? Plato took democracy to be that form of government in which all male citizens played a di rect role in the conduct of civic affairs. He had in mind, of course, the Athenian case; it has been estimated that in the great days of Athens' democracy, perhaps one-sixth of the citizens would hold some office or other in the civil William Ebenstein, Great Political Thinkers (3d ed.; New York; Holt, Rinehart and Winston, 196S) , p. 11. 20 government in any given year, and the glory of an Athenian's life lay precisely in his active citizenship. Even at its best, this form of rule was not acceptable to Plato, and the reason is to be found in his epistemology. Plato be lieved that ultimate truth, real knowledge, was to be had only by those men who were able to transcend the "shadow world" of appearances and perceive final realities, that is essences. These men were, by definition, the philosophers, and it seemed only too clear to Plato that civil society would never be rightly ordered until such men achieved the power to run it.3 In this context, it becomes quite clear why the give and take of democratic politics had no appeal to Plato. The democratic dialogue was simply not a good way to dis cover absolute truth; it was rather a sort of anarchy in which men by nature very unequal were taught to think of themselves as equal, and in which the inferior were thus encouraged to debate with those whose wisdom they should have gratefully accepted. Plato thus raised very early in the history of political theory a point which to this day enthusiastic democrats have not been able to discount ^George H. Sabine, A History of Political Theory (3d ed.; New Yorks Holt, Rinehart and Winston, 1961), pp. 12-13. 3William T. Bluhm, Theories of the Political System (Englewood Cliffs, N.J.: Prentice-Hall, 1965), pp. 12, 13. 21 entirely. A democracy is not worthy of its name if the great majority of citizens can be induced to follow blindly the lead of a few; on the other hand, it is undeniable that in any society men of exceptional ability exist, and it is generally necessary for both internal and external security that the talents of such men be effectively used. Finding the correct compromise is a problem which any democracy must face.* Plato had in mind, however, a more fundamental ob jection than the mere failure of democracies to recognize men of somewhat lesser wisdom; as noted above, he felt that there was in fact a realm of absolute knowledge open to a few men and only a few. Insofar as this is true, and if the problem of identifying such men can be overcome, Plato's anti-democratic position becomes unassailable. The modern democrat might well retort either that such ultimate truth is not to be known with certainty, or, at the very least, that there is no satisfactory way for the body poli tic as a whole to discern which of the various claims to such truth may be valid. It then becomes appropriate to debate political issues in an "open" fashion, and Plato can be labeled the "enemy" of such a society.^ Further dis- 4 Ebenstein, 0£. cit., p. 12. ^Karl B. Popper, The Open Society and Its Enemies (New Yorks Harper & Row, 19€>3), Vol. I, Ch. 10. 22 cussion of this point is deferred to the final section of this chapter. It would be unfair to give the impression that Plato had no reservations concerning the feasibility of his "Republic's" actually being established. In later writings (which followed unhappy political experiences), Plato seemed ready to settle for a "second-best" or "best attain able" form of government. This would be some mixture of monarchy and democracy; that is, the laws of the city would grant some privileges to those who by virtue of experience, birth, wealth or whatever might be presumed to have some claim on the wisdom of philosopher-kings, but at the same time concessions would be made to the large numbers of the 6 common people. The concept of mixed government will be explored in more detail in the thought of Aristotle, where it occupies a more prominent position than it does in that of Plato. i Aristotle Aristotle laid stress upon the study of the great variety among states which had actually existed. This study led him to the very pragmatic conclusion that the se cret of stable and enduring government lay in the balancing 6Sabine, o£. cit., pp. 78, 79. 23 of the assorted claims which might be made to political power. There was no government more sure of a violent and short life than one set up to represent some one interest in society to the exclusion of all others. The form of state best able to attain the required balance Aristotle calls the polity, which he envisions as a "mean" between democracy and oligarchy. Such a state will combine the best features of the rule by the many and rule by the rich. \ Not surprisingly, Aristotle sees the polity functioning best in a society where neither the poor nor the rich are too numerous; the key to stability is a dominant middle class, which can be counted upon to evidence many virtues not to be found in either the very rich or the very poor.^ This does not imply a rejection of the virtues which might be thought to be reserved to the few. In fact, the middle-class state is specifically designed to balance the political forces which Aristotle describes as quantity and quality. Nevertheless, the best situation is one in which the elements of quality are spread widely through a large middle class; in some cases it may be necessary to set the interests of the many against the wisdom of the few, but a far better government can result if the two can be made in some degree to coincide. It is obvious that in specifying 7 Bluhm, op. cit., pp. 126-128. 24 the demands of the various classes in the polity, Aristotle has identified many of the diverse interests with which a modern democracy must contend. He did not, however, at tempt to cope with the problems of large-scale political units. Although such powers as Macedon and Persia existed in his own time, Aristotle unfortunately had little to say about the additional questions which become important when Q direct democracy is physically impossible. Aristotle was by no means a radical; his thinking has been characterized as being somewhat conservative, even for the time in which he wrote. But even though his great emphasis was on stability rather than rapid development in political matters, he nevertheless injected a strong note of liberal tolerance toward new ideas. Aristotle was a practical man of moderate outlook. He did not concede to any group the ultimate political wisdom which Plato be queathed the philosopher kings, and he saw clearly that, in an imperfect society, "laws rather than men" should de fine justice where possible. While not an avowed demo cratic, he exemplified the open-minded approach to politi cal matters which is so urgently needed in modern democ- 9 racy. O °Sabine, o£. cit., pp. 112-115. 9 Ebenstein, o£. cit., pp. 74, 75. Hobbes and Locke No attempt will be made here to trace such refer ences as were made to democracy by political theorists from the times of the Roman Empire down through the Middle Ages. The point to be stressed is that at least some of the ad vantages of democracy, as well as many of its serious prob lems, were recognized virtually with the beginning of sys tematic political theorizing. Attention will now shift to those individualist theoreticians whose work in the seven teenth and eighteenth centuries did so much to shape early American political thought. Thomas Hobbes lived at a time when the prpgress and achievements of political philosophy seemed to contrast especially unfavorably with those of the physical sciences. It was understandable that he came to feel that order and progress in political theory awaited the introduction of the "exact" methods and procedures of the natural sciences. The atomic theories of the day recommended to Hobbes the assumption of a political state of nature in which the fundamental units of interaction were "atomistic" individ uals. Hobbes' solution to the problem of authority in such a world is well known, but in any case it need not be re called here. What is important is that in reducing politi cal theory to a logical-analytical exercise, Hobbes ren dered it inadequate to deal with many of the ordinary 26 problems of men living in community with one another.*® John Locke attempted to fill the breach by developing a theory in which social relationships, carefully distin guished from the political, were to play the lead role. The relevance of Locke's thinking to the course of political thought in America can hardly be overstated. Locke and his fellow liberals produced a political philos ophy of individualism, while at the same time downgrading the importance of political philosophy by relegating poli tics to a minor role in society. Political rulers were charged only to maintain the domestic tranquility within which the really important aspects of life could then flourish. Classical liberalism was not, however, the strictly rational doctrine of overall optimism about the human prognosis that it is sometimes pictured to be. Lib erals typically viewed human actions as rational attempts to satisfy basic but irrational human impulses, and such economic theories as those of diminishing marginal returns and of the tendency of wages to subsistence levels preclude any thought that the liberals looked to a millennium as inevitable.11 In short, the combination of democratic theory and liberal social philosophy with a spirit of *®Sheldon S. Wolin, Politics and Vision (Boston: Little, Brown and Company, 1960), Ch. 8. 11Ibid., Ch. 9. 27 exuberant optimism was achieved primarily in the setting of the New World. Thomas Jefferson's substitution of "life, liberty and the pursuit of happiness" for Locke's "life, liberty and property" may or may not have been of substan tive importance in Jefferson's own mind. But "it indicates a personal, psychological, and dynamic orientation in Amer ica that contrasted with the Englishman's social, legal, and complacent attitude."12 It is not the intention to review here the details or the diversity of the thinking of the American revolu tionary period. The Revolution itself was the result of a conjunction of causes, and was supported by men with such diverse ideas on the proper role of government as Jefferson and Alexander Hamilton. Political thought in the early United States both reflected and modified the various strands of thought current in Europe at the time. Through out the nineteenth century, American theorists were more concerned with such practical matters as the slavery ques tion and the problems specific to federalism than with 13 elaborating theories of democracy for their own sake. The thinking of this period will be discussed in succeeding 12 Thornton Anderson, Jacobsen's Development of American Political Thought.(New York: Appleton-Century- Crofts, 1961), pp. 127, 128. 13Ibid., Chs. 13-15, 18-21. 28 chapters as it related to the development of American eco nomic thought. At this point, attention will turn to those twentieth century theorists who, for reasons to be ex plained, have once again come to inquire into the nature of democracy. B. Recent Democratic Theory Democracy as "Rule by the People * * Athenian democracy and Greek political philosophy relevant to democracy have been briefly described above both because "Greeks were the first to give a democratic answer to the question of how to organize a political sys tem. Or, at the very least, it is the Athenian example which is best known and has chiefly influenced political thought"?^ and because "the Athenian arguments pro and con are often misleading if used to judge modern democracies."^ It is obvious that only the most general arguments for (or against) democracy could conceivably be relevant both to ancient Athens and to twentieth century America. Athens was a small city-state in which political activity was con sidered a virtue appropriate to every citizen; America is a Henry B. Mayo, An Introduction to Democratic The ory (New York: Oxford University Press, i960), p. 35. 15Ibid., p. 54. 29 large nation in which direct political decision-making (except in very special circumstances) is reserved to elected and appointed officials, a small minority of the total citizenry. Equally great differences exist in so cial, cultural, religious and economic areas. Therefore, if Americans are to take comfort from the fact that "demo cratic" ideas were cherished thousands of years before the Declaration of Independence, it is important to connect these ideas somehow with the realities of American life. Democracy has been exalted as "rule by the people." To the Athenians, rule by the people was appropriate be cause it was through "ruling," through taking an active part as a citizen in the conduct of political affairs that a man achieved his highest dignity as a person.^® It is fair to say that to a great many eighteenth century Ameri cans, rule by the people meant something much different. In an intellectual climate strongly influenced by Lockean individualism, it implied strongly the freedom of the peo ple from rule by anyone else. In some cases this resulted in strong enthusiasm for purely local government, but sel dom for active government on a national scale. Americans did not see all aspects of their lives integrated within the political as the Athenians had. They were content to 16Ibid., Ch. 3. 30 follow Locke in putting many of the important problems of society outside the realm of politics. A theory adequate to describe American democracy must penetrate far beyond the "rule by the people" concept. It must somehow describe how it is that the people rule, for this is not obvious, and it should point up the values which make this sort of democratic system seem to be a "good" one. Democracy as a Decision Making Process Joseph Schumpeter suggests that it is helpful in formulating a modern theory of democracy to take as a starting point what he calls the "classical doctrine of democracy." What Schumpeter means by this term is not the Athenian concept of democratic government, but rather that type of "eighteenth century" theory which attempts to adopt many of the Athenian ideas to the government of a sizable nation by making democracy representative rather than di rect. The representatives in such a system do not really make the fundamental decisions; they simply implement the wishes of the people. Democracy then is the "institutional arrangement for arriving at political decisions which real izes the common good by making the people itself decide issues through the election of individuals who are to assemble in order to; carry out its will."!? in fact, there are many objections to this definition, not the least of which are the suppositions that there exists a "common good" which individual citizens can perceive when "deciding issues," and that representatives can be effectively con trolled once elected so that the common good will result from their actions. In Schumpeter's view, it is much more realistic to define the selection of representatives rather than the power to decide issues as the fundamental right of individual citizens in a democracy. Democracy now becomes the "institutional arrangement for arriving at political decisions in which individuals acquire the power to decide 1 8 by means of a competitive struggle for the people's vote " Schumpeter's two definitions of democracy (and the differences between them) identify the problem faced by a number of political philosophers in theorizing about demo cratic systems: how is it that the ordinary citizens liv- ing in a "democratic" country are to maintain a degree of control over a government which must cope with complex questions in areas in which few citizens are both competent and interested? Schumpeter's second definition suggests the form of answer most satisfactory to many contemporary 17Joseph Schumpeter, Capitalism, Socialism and De mocracy (New York: Harper & Row, 1^62), p. 25o. 18Ibid., p. 269. 32 theorists, and Schumpeter's own elaboration of his defini tion is perfectly adequate. More useful here, however, will be the formulation offered by Henry B. Mayo in An In troduction to Democratic Theory. Mayo enumerates four "distinguishing principles" in his "simplified, formal, abstract sketch of a democratic political system." These are (1) popular control of policy-makers, (2) political equality of citizens, (3) po litical freedoms which guarantee the effectiveness of popu lar control, and (4) the principle of majority rule, to be respected when the representatives of the people are di vided on particular issues. Some eleaboration on each of the four is necessary. Popular control in modern democracies is generally dependent upon the fact that citizens choose policy-makers at elections held fairly regularly. This does not give the citizens direct control over policy, but it does give them a sizable amount of indirect control, and it results in the weight of public opinion exerting a measure of influence in the times between elections. Political equality is a principle espoused in one sense or another in virtually all democracies. However, the equality is among citizens, and the requirements for citizenship vary. Probably a system is "most" democratic in this respect when every adult is a citizen, when each 33 citizen has one (and only one) vote, weighted equally with that of each other citizen, and when there is proportional representation in the various legislatures. Political freedoms must be such as to guarantee citizens a genuine choice of alternatives when casting their votes. This implies certain procedural features; voting must be free from coercion, preferably by secret ballot, and potential representatives must be free to speak, to organize, to assemble gatherings on their own behalf. Or, to put the matter another way, candidates must be free to compete for the votes of citizens and citizens must be free to vote for the candidates which have won out in the competition for their votes. Majority rule in a democratic system must connote several things; First, while it gives the majority of the people's representatives the right to decide disputed ques tions, this majority must not obstruct the rights of minor ities to criticize the majority, dissent openly from major ity opinions, and seek to gain additional support within the electorate for the minority position. Second, minori ties, while dissenting actively, must remain within the law and confine their attempts to upset the majority to peace ful, legal measures. And third, if and when a new election reveals that a new group or coalition has become the ma jority, the roles within government must be peacefully 34 interchanged.^ Preconditions for Democratic Government The "distinguishing principles" of democratic gov ernment discussed above quite clearly cannot be produced in any given society simply by calling it a democracy, or even by presenting it with a written "democratic" constitution. A great deal of empirical work has been done by democratic theorists in recent years in the attempt to find out just what characteristics render a society capable of operating under a democratic political system. One of the best known works in this field is Political Man, by Seymour M. Lipset. Lipset identifies a list of "necessities" for democracy which is approximately equivalent to Mayo's group of dis tinguishing principles. He then attempts to show that the effectiveness of a democratic society can be estimated in terms of two parameters which measure implicitly the degree to which the given society is in full possession of these necessities. (It is assumed that the society possesses the outward forms of democracy.) These parameters Lipset calls "legitimacy" and "cleavage." The former is an index of the extent to which the members of society recognize and ap prove the rules of democratic conduct; the latter provides IQ *Mayo, 0£. cit., Ch. 4. 35 a measure of the degree of honest contention among compet ing points of view. Legitimacy and cleavage, in turn, are evaluated in terms of the more basic sociological traits of the group under study.2® Robert Dahl and Charles Lindblom attempt to define a set of preconditions applicable to any socio-political process in which "non-leaders" are to retain a significant measure of control over "leaders." Dahl and Lindblom call such a process "polyarchy," that is, control by the many (non-leaders) of the few (leaders). The process of poly archy in the Dahl-Lindblom schema is therefore quite simi lar to the process of democracy as defined above, and the Dahl-Lindblom analysis represents a second attempt to iden tify the prerequisites for a viable democratic system. Dahl and Lindblom identify six separate (although admittedly interdependent) preconditions for polyarchy. First, polyarchy requires the indoctrination of both leaders and non-leaders to the advantages and the feasi bility of a polyarchical system. Second, there must be sufficient agreement among citizens on "basic values" (such as individual freedoms) so that competition among leaders may remain peaceful, and the right of non-leaders to switch their allegiances will not be questioned. Third, there 20Seymour Martin Lipset, Political Man (Garden City, New York: Doubleday and Company, ld(>0), Pt. I. 36 must be a diversity of social organizations to provide the pluralism which will enable men to limit the scope and the ferocity of political comeptition. Fourth, there must be sufficient participation of non-leaders in the governmental process so that leaders are competing for the support of a representative cross-section of the population. Fifth, access to positions of leadership must be recognized to be open to all candidates who can gain the support of a suf ficient number of citizens. And finally, as sort of "pre conditions to preconditions," Dahl and Lindblom suggest such things as psychological security, limitations on dis parities in the distribution of income and wealth, and 21 widespread education. The details of studies such as the above are not of concern here. What is important is the realization that in the setting out of rules for the operation of democratic politics, necessary but not sufficient conditions for the realization of a democratic order have been specified. Quantitative investigation of sociological factors is one important type of work geared to identifying the additional requirements of democracy. A second approach is to analyze the political value systems which can and have "made democ- ^Robert A. Dahl and Charles E. Lindblom, Politics, Economics, and Welfare (New Yorks Harper & Row, 1953), Ch. 11. 37 cracy work." One example of this approach will be examined. Mayo suggests that a peoples are the more likely to accept democratic processes the more important they con sider certain values and certain purposes of government. The relevant values include the peaceful adjustment of con flicts and the provision for peaceful change in a changing society, the orderly succession of ruling groups, the limi tation of the use of force to an absolute minimum in en forcing political decisions, the promotion of diversity and variety in society and the consequent encouragement of in tellectual and scientific activity, the guarantee of free doms and equal justice to all citizens, and, finally, the exclusion of the prospect of some less desirable political system achieving dominance. Among the purposes which a democratic government is sometimes held best able to fulfill are the maintenance of a free economy, the preservation of individual rights and the building of a certain (presumably "good") character among its citizens. No judgment need be made about the efficacy of democracy in promoting these values and purposes in order to appreciate the point which Mayo is trying to make. Since such values and purposes are widely- thought to be best compatible with a democratic sys tem, they encourage those who seek them to search within a 38 22 framework of democracy. A Modern Argument for Democracy In The Logic of Democracy, Thomas L. Thorson asks squarely the question which the above analysis suggests. Is there available any single justification of democracy which should be generally acceptable? Or must it be ad mitted that the acceptance of democracy hinges either upon some particular metaphysic or upon the fact that in a given 23 set of circumstances it may be the best system available? Thorson claims greater generality for his argument than it in fact possesses, but he demonstrates that a case can be built for democracy, based upon a minimum of assumptions, and he phrases his thinking so as to make it compatible with the contemporary philosophy of science. Thorson divides the "traditional" advocates of de mocracy into two schools, the "absolutists" and the "rela tivists." The two have one serious, fault in common. Each has accepted the premise that in order to establish democ racy as the ideal form of government, its superiority must be demonstrated by one of the two classical methods of proof, that is either by deduction or by induction. The absolutist 22iiayo, 0£. cit., Chs. 9, 10. ^^Thomas Landon Thorson, The Logic of Democracy (New York: Holt, Rinehart and Winston, 19^2), Ch. 1. 39 democrats would require the acceptance of a metaphysics from which they can deduce the desirability of democracy; the relativist democrats would claim that while democracy is strongly indicated in certain cases, there can be no general sanction for it.24 Thorson feels that the "traditional" advocates of democracy create troubles for themselves by clinging to notions now largely regarded as naive by philosophers of science. He feels that political scientists must recognize that there is a rational justification for democracy which is not a "proof" in either the deductive or the inductive sense. Such a justification could yet be "scientific" in the most modern sense of the word, for contemporary philos ophers of science have quite effectively dispelled the no tion that science itself is either deductive or inductive. Rather it can be characterized as "recommendatory." By this Thorson means that what natural science in fact does is to recommend that the world be viewed in a certain way, because such a view provides the best understanding of the world attainable at the time. It is fundamental to such an approach that absolute truth is never claimed for any par ticular theories or hypotheses; there is then one general recommendation which Thorson identifies as the ultimate 24Ibid., Chs. 2-5. 40 "must" of science: "Do not block the way of inquiry." The general attitude of mind which accompanies the modern no- 9 5 tion of scientific method is given the name "fallibilism." Thorson claims that the application of fallibilism to political philosophy yields a valid argument for the espousal of democratic principles. If it can never be known for certain that ultimate truth has been discovered in the socio-political realm, and if political philosophy, like science, is to continually provide a better, if always imperfect, understanding of the world, then the ultimate "must" of political philosophy becomes: "Do not block the possibility of change with respect to social goals." This "must" in turn implies to Thorson the acceptance of the basic tenets of democracy such as majority rule, preserva tion of minority rights and so forth. He reasons that be cause social goals and policies (which must remain subject to change) "involve matters of preference, the ultimate rightness of which cannot be demonstrated, then what ra tional justification can there be for including as a matter of principle the preferences of some while excluding the preferences of others?" And, finally, the guarantee of fair representation to all individual preferences can only 26 be realized within a democracy. 25Ibid., Ch. 6. 26Ibid., Ch. 8. 41 Thorson's case for democracy falls short of what he would claim for it. Throson explicitly acknowledges that his argument is geared to providing a "scientific" justifi cation for democracy. It cannot therefore be invoked at all in disputes with those who would either accept or re ject democracy on the basis of some claim to absolute truth. A more basic problem which Thorson does not ac knowledge is the following: in reasoning that his "must" for political philosophy yields a clear mandate for the adoption of democratic institutions, Thorson reflects an a priori commitment to a particular concept of the social nature of man. It would be at least plausible to claim that an educated elite would be better able to examine pro posed changes in social goals (and implement such changes when needed) than is the electorate as a whole. Thorson is able to put aside such objections only because of his strong preconception that men are in some sense equal, that is equal in their rights to seek their own preferences. It would seem that what Thorson demonstrates, par tially unintentionally, is that democracy is the form of government suitable to a people who recognize their "falli bility" in socio-political affairs and who for one reason or a combination of reasons believe in the political equal ity of all citizens. The two conditions are independent, and must be satisfied separately. 42 This section has indicated lines of thought cur rently being pursued by democratic political theorists. It has attempted to show that many contemporary theorists have come to think of democracy as a process for solving politi cal problems. Their work indicates the description of democratic systems as they appear to function, the analysis of the conditions under which such systems can function and the attempt to provide reasons why such systems ought to be allowed to function. In the following section, attention shifts to the way in which the concept of "democracy as a process" is relevant to modern American political activity. C. Democracy as a Process in Modern America The Need for Modern Democratic Theory It is appropriate at this point to ask just why it is that various theories of democracy have commanded so much recent intellectual attention. The most immediate answer is probably that contemporary social scientists typ ically look to theory to help explain and order the facts of life in society, and that such maxims as "democracy means rule by the people" were not completely adequate to the task. A second kind of answer, however, is provided by those social philosophers who claim to have discovered strains of self-doubt in the thinking of democratic peoples. 43 To them, recent interest in democratic theory is symptom atic of qualms concerning the merits, or at least the per fectibility, of the democratic system of government. Each type of answer can help to provide an understanding of why the conception of "democracy as a process" fits both the facts and the needs of America today. Sheldon S. Wolin suggests that it is useful to re strict the term "political" to the description of matters which are the common concern of all members (of the "gen eral constituency") of a given community or society. His purpose in proposing this definition is not to downgrade the importance of other problems; indeed in a pluralistic society, "non-political" matters may seem of much greater urgency to most citizens than do "political." What Wolin wishes to emphasize is that there are vitally important questions which are the concern of all citizens as citizens, i and that the failure to recognize this fact is sure to pre- 27 elude any correct means of addressing such questions. Once the existence of a political realm is explicitly ad mitted, then a society which is to be "democratic" in any meaningful sense must define and use a mechanism which en ables its citizens to play a proper role in this area. Furthermore, if popular confidence in democracy is to be ^Ibid., pp. 433, 434. 44 i maintained, the citizens must comprehend the mechanism and their role in it. Charles Frankel suggests that it is perhaps the latter consideration which is of greater need of attention in the United States today. Fair progress has been made in realizing such practical democratic ideals as consent of the governed, minority rights, personal freedoms and the preservation of a government responsible to the people. However, none of these has been perfectly attained, and Frankel traces the disillusionment often expressed or felt about modern democracy, the democratic "malaise," to the feelings of guilt and frustration which the remaining im perfections inspire. Because democracy in the United States exists among "modern" men, that is men who see their environment as something over which they should be able to exercise important forms of control, it cannot be regarded as successful by its constituents unless it is progressing toward fuller realization of its i d e a l s . whether Ameri can democracy at present satisfies this criterion might be debatable, Frankel would admit, but he would argue that it need not remain so if the kind of reasonable democratic optimism which characterized the early American experience could be recovered and reshaped for a different era. This 28 Charles Frankel, The Democratic Prospect (New York: Harper & Row, 1962), Chs. 2, 3. 45 would urge that democrats frankly evaluate the progress they have made as well as the new problems they have en countered, and that they recognize that the resources which they have available to deal with such problems are enor- 29 mous. Democracy and Uncertainty Additional perspective on the psychology of modern man is provided by Hannah Arendt. She sees as a logical consequence of the scientific revolution the fact that Western man has abandoned the tradition of political phi losophy traceable from Plato, wherein an attempt was made to discover eternal truths which men had no power to change. Those who have pursued the scientific approach to its ulti mate conclusions now see man himself constructing the best available description of reality through science, and in so doing defining as he goes the highest truths which are ;knowable. Truth is not an absolute to be apprehended, but rather a functional thing which man makes for himself as he 30 proceeds. Furthermore, in the unending attempt to make for himself ever higher truths, man does not have the con solation of functioning with either fixed values or certain 29Ibid., Chs. 4-8. 30 Hannah Arendt, Between Past and Future (Cleve land: The World Publishing Company, 1963), Ch. 1. 46 methods. Neither can he perform any single act, which would have a closed set of foreseeable results. Man can only act in such a way as to initiate sequences of events. It has been the great success of natural scientists that they have been able to organize the knowledge of various types of sequences and dependably predict their courses. On the other hand, it is the tremendous uncertainty of con trol over social sequences which produces many of the frus trations of political decision-making, for lacking eternal standards which would identify individual acts as right or wrong, modern men are forced to estimate the probable di- 31 rections of sequences they would initiate. Furthermore, it will be shown that this element of uncertainty is criti cal in determining the kind of political activities appro priate to democratic politics. In the final analysis, Frankel proposes, democracy is the form of government which best serves men who believe that "the answers are not all in." He concurs with Thor- son's reasoning in observing: Democracy gives political form to the principle that also regulates the scientific community— the prin ciple that inquiry must be kept open, that there are no sacred books, that no conclusion that men have ever reached can be taken to be the necessary final word.32 31Ibid., Ch. 2. 32 Frankel, o£. cit., p. 174. 47 An important consequence of such a principle is a "recom mendation" only slightly less general: it is almost never desirable to democratic political life for leaders to im pose or advocate large scale and rapid changes within the society in order that it might conform with some particular vision of what society should be. With ultimate truth un known, and with even the course of political sequences most difficult to predict, the appropriate model for democratic action is usually the restrained pursuit of political ends. This does not imply the opposition of democracy to change; rather it sets the attitude within which change is to come about. Processes of Change Within a Democracy Robert Dahl and Charles Lindblom have perhaps cap tured the essence of this attitude in advocating the tech nique of "incrementalism," which they themselves liken to Karl Popper's "piecemeal social engineering." Incremen talism is a method designed to cope with the uncertainties of social action. It dictates that where existing reality seems imperfect, it is to be compared with closely related alternatives by making relatively small adjustments (be lieved a priori to be in the desirable direction) and ob serving the results of such adjustments. It is then, hope fully, possible to tell whether reality has been nudged in 48 the right direction and to predict with greater certainty what the effects of additional related activities might be. If desired results have not been obtained, or if unantici pated costs outweigh anticipated benefits, then the se quence may usually be halted or reversed with little harm done. Two qualifications are necessary. Incrementalism is not to be equated with slow change; it indicates a disposi tion rather than a preferred rate, and would not preclude rapid change in a situation where goals were clear and the consequences of fairly large increments reasonably predict able. In addition, there are times when incrementalism is simply inappropriate; if present conditions are untenable, small increments insufficient and large ones uncertain, then it may simply be necessary to take on a larger element of risk. However, even in its rejection, the concept of incrementalism will perform a service if it forces explicit recognition of the greater risk element.33 John Herz arrives at a concept in many ways analo gous to incrementalism in trying to steer a way between "Political Realism" and "Political Idealism." Neither of these is of itself acceptable in a democratic context; the former errs by cynicism and lack of vision in stressing the description of political reality "as is," while the latter 33 Dahl and Lindblom, o£. cit., pp. 82-85. 49 is prone to define ideal situations without taking fair account of the problems of realizing them. Herz calls for a "Realistic Liberalism" which would, in effect, combine the best of the other two approaches. The most complete and accurate understanding of reality which is feasible should provide a starting point for change in the direction of goals or ideals tentatively believed to represent a more desirable condition. But the changes are to be brought about in a "liberal" fashion; individual rights and free doms are to be protected, and grandiose schemes are not to be imposed from above.34 Two important conclusions emerge from the preceding analysis. First, theories which stress that democracy is to be defined as a particular process by which political decisions are made have emerged as genuine attempts to de scribe the way in which modern democracies actually func tion. Second, and equally important, the democratic pro cess is identified by normative theory as the political system which is appropriate to men who live with the intel lectual freedoms (and the resultant anxieties) fostered by the scientific revolution. Wolin has stressed the need for any society to bring to bear "vision," the speculative 34John H. Herz, Political Realism and Political Idealism (Chicago: The University of Chicago Press, 1951), Ch. 4. 50 component of human reason, upon the problems of the polit- 35 ical order. Such vision indicates that democracy is the system best suited to the governing of modern men, pre cisely because it allows these men the greatest opportunity for responsible and continued use of their individual and collective vision. ■^Wolin, o£. cit., pp. 17-21. CHAPTER III ECONOMICS ON THE RIGHT Chapter III attempts to place in perspective the thoroughly "conservative" elements in current American eco nomic thought. The first section briefly summarizes the doctrines of the classical liberalism from which modern conservatism has developed. The second section examines the thinking of Friedrich A. Hayek and Milton Friedman, two of the best known among "conservative" academic economists. Finally, the third section of the chapter details the way in which certain segments of the American business commu nity have adopted the conservative ideology as a justifica tion for the way in which the "American individual enter prise system" works in practice. A. The Background: Early Liberalism Liberalism is, for two reasons, a difficult word to define. In the first place, liberalism has denoted and connoted different things in different times and places. Furthermore, however, even for a particular time and place, liberalism has generally had broad implications sweeping across various fields of study, including politics, eco- 51 52 nomics and psychology. The first problem can be disposed of easily enough; the liberalism which is of interest here is the "classical liberalism" which developed, primarily in England and America, in the eighteenth and nineteenth cen turies. The term "classical liberalism" will be used throughout when referring to this version of liberalism. The second difficulty will be solved by adopting the usage of Harry Girvetz; classical liberalism will be considered as a "social philosophy," and its foundations and implica tions for various areas of thought will be examined.^ Girvetz sees the formulation of classical liberal ism as profoundly influenced by two factors: "the impact of the physical sciences on the thinking of the seventeenth and eighteenth centuries, and the aspirations of the new capitalist class." Social scientists in this period made great attempts to match the large strides being made in the natural (or "physical") sciences by adopting the methods of the latter. (This point was made in Chapter II in connec tion with the political philosophy of Thomas Hobbes. See above, pp. 25-26.) However, what the social scientists tended to do in fact was to adopt the deductive approach of mathematics and to exclude the experimental component of ^arry K. Girvetz, The Evolution of Liberalism (New York: Collier Books, 1963), p. 23. 2Ibid. the method of the natural scientists. This had the unfor tunate result of giving unqualified acceptance to theories deduced from untested assumptions. Emerging middle-class capitalists were as energetic in advancing the practical side of classical liberalism as social scientists were in defining the theoretical aspect. They were understandably anxious to promote a social philosophy which emphasized that a major function of government was to eliminate strife and disorder, which demanded that production and trade be freed of arbitrary restriction by state or church, which would limit the power of government to confiscate the prof its of their enterprise, and, perhaps most important, which elevated doing business for profit from the marginal repu tability which the Middle Ages had granted it to the status of an expression of civic and moral virtue. The way in which classical liberalism so admirably fulfilled these functions will become clear in what follows. The "Psychological Creed"of Classical Liberalism Girvetz suggests that the "psychological creed" of classical liberalism may be summarized in four postulates about the basic nature of man; man is assumed to be egois tic, rational, quietistic and atomistic. Psychological 3Ibid., pp. 23-26. 54 egoism, as postulated by Hobbes, implies that man is by nature self-seeking, and that he will act only in what he conceives to be his own self-interest. (Psychological he donism, a variant introduced much later by Jeremy Bentham, equates self-interest with pleasure.) The rationality of classical liberalism does not make of man an unemotional or unfeeling being, for some of his most basic "interests" or pleasures stem from urges over which he has no control; but men are assumed to be rational insofar as they can system atically weigh the various alternatives open to them, and deliberately choose those which seem to best suit their de sires. Psychological quietism simply indicates that self- interest is not only a sufficient but also a necessary con dition of purposeful activity; in order to voluntarily em bark on any activity whatsoever, a man must see in it a potential gratification of his selfish desires. Psycho logical atomism has been mentioned in Chapter II above; it postulates that the fundamental units of society are inde pendent, "atomistic" individuals, and that these units are not essentially changed when bound together into the acci dental union of a society. Given such a conception of man's nature, the impor tant practical prescriptions of the classical liberals for solving the problem of "motivation" become readily under standable. Perhaps most important of all was that private 55 property be protected from encroachment by other individ uals or by the state; an egoistic, quietistic man would only be stimulated to maximum productive effort if he could feel assured that he himself would be allowed to enjoy the fruits of his labors. A second tenet of the classical lib eral philosophy was that men should be free to choose the jobs at which they were to work, for only thus would they be likely to work to the limits of their ability. Classi cal liberals, however, stressed only freedom from any poli tical, legal or traditional compulsions to work at an un wanted or unsuitable job; they did not decry the economic compulsion which might prevent a man from giving up a job he despised. Moreover, they were generally quite specific in insisting that those who did not work when they were able should not be paid; the threat of deprivation was es sential if the disagreeable business of "work" was to get done. The "Laws of the Market1 1 and the Role of the State In the economic sphere, classical liberalism stressed that the result of each individual's pursuing his own self-interest rationally would be the greatest good for society as a whole. There existed am underlying "harmony of interests," so that even if in the short run certain in dividuals appeared to be deprived and destitute, this was a 56 necessary cost to be born for the sake of the long-run good. Specific mechanisms which were especially important in classical liberal economics were the division of labor (which would enable specialization among workers) and sub sequent exchange of mass produced goods, and the working of the competitive market (which would allocate resources ef ficiently and distribute the end products among the various 4 agents involved in producing them). Implicit in the psychological creed and economic theory of classical liberalism is that the proper functions of the state are sharply limited. In brief, the state is to confine itself to maintaining a framework within which the classical liberal man can energetically pursue his own self-interest. Its proper activities include maintaining law and order, protecting competition by preventing unfair \ business practices, enforcing lawful contracts, and pro moting exchange by means such as providing a stable mone tary system and maintaining convenient avenues of transpor tation. in addition, most pf the classical liberals ex pected the state to provide a minimum of support to those who were unable to work and who could look to no one else for help. It is worth emphasizing at this point that the 4Ibid., Chs. 1, 2, 4, 6. 57 classical liberals were not doctrinaire advocates of laissez-faire. Jacob Viner has analyzed extensively the passages in the writings of Adam Smith which confront di rectly the question of governmental activity in the eco nomic sphere, and Viner concludes quite definitely that Smith's works were grounded too much in common sense to permit any single generalization to characterize Smith's doctrines about the proper activities of government. Thus Smith recognized that if the state is to provide a frame work within which all citizens may pursue a measure of self-interest, it may well be required to place some re strictions on the efforts of some individuals to exert eco nomic power over others. It is true that Smith felt there was a strong pre sumption against governmental regulations beyond those needed to preserve peace and domestic justice. However, this presumption was largely the result of Smith's observa tions of the attempts at regulation by the governments of his time. Outside of "peace and justice'' operations, Smith saw the economic activities of such governments as con sisting chiefly in the perpetuation of mercantilistic prac tices, settlement and apprenticeship laws, and legal monop olies. Smith had specific and pragmatic objections to such activities, and he could not place much confidence in the economic judgment of such governments. Where Smith ob- 58 served more enlightened governments pursuing what he re garded as sensible economic policies, he was willing to condone somewhat more latitude in the range of their con cerns . Smith's pragmatism resulted, in the final analysis, in a certain ambivalence in his attitude toward government. He saw that government had to be trusted to perform certain tasks which individuals could not or would not perform acceptably, and he realized that it was sometimes necessary to restrain or to channel private interests for the good of the general public. Yet, especially in considering the governments with which he was most familiar, Smith could not be happy about placing too much economic responsibility with them. It will be shown in later chapters that Smith's basic outlook is a thoroughly sensible one with which to approach the problem of deciding the proper functions of government in modern times. There are today a number of worthwhile economic tasks which will remain undone if left to individuals; the critical question is then whether the relevant governments possess the competence and the means to perform them at a net gain to the community. As a pragmatic thinker, Adam Smith realized that the "laws of the market" did not operate in such a way as to produce perfect harmony with society; yet Smith did es pouse the idea that the market could be counted upon to 59 produce a certain broad pattern of appropriate economic relationships. The "invisible hand" did not eliminate all economic problems, and still less did it guarantee social justice, but it did guide men toward the rational patterns of barter and exchange so necessary in the classical lib erals' notion of a rational and well-ordered economy.^ Thus Smith (and the classical liberals generally) saw the economic role of the government as arising primarily from the facts that in some areas the laws of the market could not operate and that in other cases individuals could de liberately obstruct the workings of the market for personal gain. However, it is also possible to argue that the es pousal of "the market system" as the fundamental organizing mechanism within society is misguided, and that the attempt to organize societies to suit the market mechanism is it self the fundamental cause of trouble. Within this frame work, it can plausibly be claimed that the persistent ten dency of the government to "meddle" in the functioning of the market system is in reality the attempt of a society as a whole to prevent complete domination and perversion by the dictates of the market. Karl Polanyi has made a pow erful argument along precisely these lines. 5Jacob Viner, "Adam Smith and Laissez Faire," in Joseph J. Spengler and William R. Allen (eds.), Essays in Economic Thought: Aristotle to Marshall (Chicago! Rand McNally, , pp. 316-32$. 60 Polanyi claims specifically that the broad accep tance of the classical liberal creed in Western democracies necessitated that the concept of "market" be given an en tirely new interpretation. No longer were there to be various and varied "markets” which performed the useful functions of facilitating the exchange of material goods produced by different individuals in different times and places. Rather, within a single "market system" the pro duction and distribution of virtually all "goods and ser vices" were to be organized. Perhaps the most far-reaching implication of this fact was that, if the system were to work properly, all resources involved in this production and distribution had to themselves become commodities sub ject to the "laws" of the market. In particular, Polanyi points out, land, human labor and money were converted into such commodities. Three "institutions" which had always "performed" within a broad context of social and human needs and values were to be forced to conform to organization within the system of *he market. Attempts to produce such distortions were bound to lead to fantastic strains within society, and it is Polanyi*s view that such strains have accounted in great part for the political and economic turmoils of the twen tieth century. (The Great Depression and the rise of fas cism are examples.) In any case, Polanyi's framework 61 suggests a plausible explanation for the eventual distor tion of classical liberalism into the doctrinaire version of laissez-faire which was so common in the nineteenth and early twentieth centuries. If Polanyi's reasoning is cor rect, the functioning of the market system is simply not consistent with the more-or-less humanitarian, common-sense outlook which pervaded much of the classical liberals' writing. As the market began to dictate unflinchingly the uses to which men and land were to be put, humanitarianism and common sense began to dictate that the market system be restricted in more and more ways. Something had to give, and it would be Polanyi's view the market had acquired suf ficient prestige that for a while its dictates were in large measure sacrosanct. When the practical implications of the market system rendered it indefensible within the spirit of classical liberalism, it was defended instead by such dogmatisms as "social Darwinism," of which more will be said below.® At this point, attention returns to the summary of the tenets of classical liberalism. It would have been completely contrary to the spirit of classical liberalism to expect that the powers of the state could long be limited simply through self-restraint on the part, of its leaders. Rather, many devices and ®Karl Polanyi, The Great Transformation (Boston: Beacon Press, .1957) , Part II. 62 procedures were instituted to keep the state within its appointed bounds. "Constitutionalisms" stressed that the powers, rights and duties of government were restricted, and it insisted on a fairly specific understanding of just what these powers, rights and duties were. The doctrine of "natural law" was often invoked to bestow upon citizens certain rights which were beyond the power of any state to (morally) take away. Where possible, the powers of govern ment were to be divided to check the influence of individ ual leaders. Citizens frequently were granted the privi lege to choose (and to censure) their leaders by means of the ballot, and some theorists explicitly noted that in case of serious transgressions by the government the ulti- mate (and rightful) retort of the people was revolution. It is clear that this summary of classical liberal ism has been achieved only with the help of some heroic simplifications. No attempt has been made to take account of disagreements among the various formulators of the so cial philosophy of classical liberalism, and very little has been done to identify their individual contributions. Still, a picture has been painted that is both broad and fairly precise. Probably none of the great figures of classical liberalism said or believed exactly what has been 7 . Girvetz, cit., Ch. 5. 63 presented above as "their" position. But these men— Thomas Hobbes, John Locke, Adam Smith, David Ricardo, John Stuart Hill, Jeremy Bentham and others— together produced the so cial philosophy which has been depicted here. And this somewhat simplified summary forms an adequate background to the description of the course which liberal thought has taken in the United States. There is no doubt that sharp disagreements about the proper scope of government activity existed among the framers of the United States Constitution. Alexander Hamilton and other Federalists saw a proper role for gov ernment in the protection and encouragement of the new na tion's manufacturing industries, and in general favored the cause of a relatively strong central government. Thomas Jefferson and the Republicans idealized the concept of a nation of small and independent farmers, and, at least in theory, were opposed to any very active central government. Jefferson's thinking, however, remained well within the fairly moderate spirit of classical liberalism as it has been described above. It remained for a later generation of American social scientists to enthrone the most severe version of laissez-faire as the ideal to which good govern ment must conform.® Q Thornton Anderson, Jacobsen's Development of American Political Thought (New York: Appleton-Century- Crofts, 106iy; Chs. 13, 14. "Social Darwinism" and Economic Individualism It is not possible to say with certainty how and why laissez-faire individualism came to displace classical liberalism as the dominant social philosophy in the United States. What is certain is that in late nineteenth century America, that aspect of classical liberalism which empha- t sized the "natural order" of social phenomena had survived and developed, while that aspect which dictated a pragmatic approach to the determination of governmental functions had largely vanished. A plausible explanation for this fact has been cited above in the description of Polanyi's work, although no claim is made that Polanyi's thesis is the only plausible one. In any case, it is necessary at this point to describe in more detail the doctrines of social Darwin ism and economic individualism. Herbert Spencer, writing in England in the middle years of the nineteenth century, espoused laissez-faire in its most doctrinaire form. The sole legitimate function of the state is said to be the protection of its citizens from external agression and internal violence, and a state which attempts to do more than this automatically becomes oppres sive. Any regulation of commerce is decried as meddling with the processes of nature, and accordingly is roundly condemned. Spencer started from the same premises as his 65 predecessors and contemporaries in the classical liberal school, but he was exceptional in that he allowed no com passion or sympathy for the unfortunate to disturb the cold logic with which these premises were pursued. He saw in the social relationships of society but another instance of the competition for survival that the biologist Charles Darwin had suggested extended to all living species. The natural order could only survive if the unfit were allowed to perish in the competition just as the fit were allowed to enjoy the fruits of their success. Social Darwinism with its vehement denunication of any attempts at social welfare legislation enjoyed considerable influence for a time in England, and was later popularized in the United States, where its leading exponent was William Graham Sumner.® Sumner also invoked the "authority" of Darwin's bi ological theories to justify a doctrine of minimum govern ment activity and maximum freedom of individual economic enterprise. His writings were especially important in America because they provided for his time (the late nine teenth and early twentieth centuries) a continuing ration alization for laissez-faire in a period when it was becoming increasingly incompatible with some of the other ideals of 9Girvetz, op. ait., pp. 75-76, 144. 66 American democracy. In particular, the laissez-faire strand in the thought of Jeffersonians had been intertwined with strong feelings that individuals should have the op portunity to make themselves economically independent by working energetically on small farms or in other small- scale enterprises. In Sumner's day, the hard realities of a growing industrial society were shrinking these opportu nities and suppressing the egualitarian and humanitarian facets of the democratic creed. It remained for men of Sumner's persuasion to keep alive the ideal of economic in dividualism at a time when this ideal was extracting an even higher cost in terms of other democratic values.^ It is not surprising that a Constitution acceptable to the different schools of opinion which existed among its formulators was susceptible to varying interpretations in subsequent years. In the period prior to the Civil War, the Supreme Court generally interpreted the Constitution in such a way as to permit a gradual increase in the scope of activity of the federal government. Between the Civil War and 1885, the Court continued to do little to check the expanding activities of both state and federal governments, and it specifically refused to use the Fourteenth Amendment to outlaw the regulation of grain elevators and railroads. 10David.W. Minar, Ideas and Politics (Homewood, 111.: The Dorsey Press, 1&(>4) , pp. 30i-3(J5. However, for the half century between 1885 and the Court "reform" of Franklin Delano Roosevelt, the Supreme Court became the bulwark of economic individualism.*^ The Four teenth Amendment, seemingly added to the Constitution to safeguard the rights of newly freed Negroes in the South, forbade states to "deprive any person of life, liberty, or property without due process of law" or to "deny to any person within its jurisdiction the equal protection of the Laws." Relying upon the definition of corporations as "persons" entitled to equal protection by the law, and con struing the "due process" clause as very restrictive indeed, the Supreme Court cited the Fourteenth Amendment often in striking down legislation which would have increased either the active or the regulatory role of government in the eco nomic sphere. In the years since the mid-1930's, the disposition of the Court has changed, and economic individualism is no longer a concept adequate to thwart the efforts of state and national legislatures trying to deal with pressing political and social problems. Nevertheless, economic in dividualism remains an influential force in shaping the thinking of many Americans, and it retains the enthusiastic ^Girvetz, 0£. cit., pp. 86-89. 12Minar, oja. cit., pp. 305-307. 68 backing of the conservative element among contemporary American economists. B. Modern "Conservative" Economics Modern Liberalism and Modern Conservatism The term "liberal" when applied to a present-day political-economist denotes something considerably differ ent from the classical liberalism described above. Modern American "liberalism" will be treated in later chapters, but a brief remark is in order here. The early American liberalism of Thomas Jefferson hinged upon two postulates about the relationship between politics and economics. First, as noted above, a truly democratic order was to be best realized in a nation composed largely of small farms, augmented by the necessary number of small businesses; in other words, democracy required an economy built upon a very large number of small and independent units of produc tion. Second, the chief threat to the realization of such a system came from the advocates of big industry, and these advocates, such as Alexander Hamilton, were known to favor governmental intervention to help the "infant industries" of America in getting established. Thus the rhetoric of Jeffersonian democracy coupled together the cause of the "small" economic man with antagonism toward governmental 69 intervention in the workings of the economy. However ap propriate in Jefferson's day, there was strong evidence a century later that the linkage was no longer sensible. In fact, it seemed apparent to many that the rights of indi viduals in the economic sphere could only be protected if the government would take firm steps to limit the influence of the large-scale economic power blocs which had arisen. This latter school of thought, which has come to support a variety of governmental economic activities, encompasses what will be called here "modern liberalism," or simply "liberalism." The school of thought which has continued to maintain that the chief threat to democratic capitalism is unwarranted governmental intervention in the economy will be called "modern conservatism," or simply "conservatism." However, some of the reservations of "conservatives" to this usage are noted below. The remainder of this section deals primarily with the economic philosophy of Friedrich A. Hayek and Milton Friedman. Both men will be labeled as conservatives, for they are among the most prominent and the most vehement objectors to increased participation of the government in economic affairs. Hayek himself defines conservatism in a more sophisticated way, and argues compellingly that he is not a conservative in his sense of the term. To Hayek, conservatism is essentially a pessimistic outlook, opposed 70 to change as such, and willing to submit to a substantial degree of authoritarianism if the status quo can thereby be preserved. His own attitude differs on all three counts. However, Hayek no longer feels comfortable in calling him self a liberal because of the assorted connotation which that term now carries. What Hayek seeks is a name for that group which favors the spontaneous evolution of the social system as it encounters new situations, which espouses growth and development of new institutions without either undue worship of the past or any pretenses as to a single grand design for the future; but Hayek does not succeed in his search for such a name.-^ It is important to emphasize that proceeding to refer to Hayek and Friedman as conservatives does not con stitute an accusation that they are "really" conservatives in Hayek's sense. It means rather that for the purposes of this study it is crucial to distinguish among political economists just as sharply in terms of the means they find acceptable as in terras of the ends which they pursue, and that the terms conservative and liberal are defined here to identify means rather than ends. Those economists defined here as conservative might well have ideas quite similar to those of the economists defined as liberal, with respect to ^ F r i e d r i c h a. Hayek, The Constitution of Liberty (Chicago: The University of Chicago Press, 1960), pp. 397- 408. 71 the ultimate ends to be promoted in a modern capitalist economy; they might conceivably have similar ideas about the social changes required to effectively promote these ends. However, they are distinguished here in terms of their considerably different views on the proper role for the government to play in the achievement of such ends. Economists who are in greater or less degree con servative then occupy positions somewhere to "the Right" of center on a spectrum of political-economic thought. Lib eral economics is defined to mean that school of economic thought which provides that government activity in the eco nomic sphere may be desirable over and above the extent to which it is absolutely necessary. Economists who are in greater or less degree liberal then occupy positions some where to "the Left" of center on the same spectrum. The position on the far Left is assigned to Marxism, although some qualifications to this designation will be noted in Chapter IV. Much of the opposition of the classical liberals to governmental "interference" in the economic system was based upon the concept of a natural order which would en sure the efficient and/or just allocation of resources, distribution of income, employment of manpower and provi sion for economic growth— if only it were allowed to oper ate unobstructed. On the other hand, the classical liberals 72 also were acutely aware of the relationship between eco nomic and political freedoms, and believed that the latter could be secure only if the former were also. Each of these lines of argument has its counterpart in the thinking of modern conservatism. Friedrich A. Hayek Hayek's argument that political freedom is impos sible without economic freedom reflects clearly two twen tieth century developments— the achievement of relative affluence in many of the Western democracies and the direct challenge which democratic socialism has posed in these nations to democratic capitalism. The former implies to Hayek, as to many liberal economists, that there is no longer any reason why a society should not, if it so de sires , guarantee a certain minimum income to each of its citizens.^4 On the other hand, it is the latter which leads him to be extremely apprehensive on the long-term consequences of many of the services ("welfare" and other wise) which modern democracies have attempted to provide. It is Hayek's strong feeling that the survival of a demo cratic political system requires that economic decisions must be so far as possible left to individuals. Even more 14Ibid., pp. 257-258. 73 important, however, is that the constraints which society must place upon individual economic decisions are embodied in "rules of law" which are knowable to all citizens and which are applied equally to all citizens. The troubles for democratic society begin with the delusion that it is possible for society to collectivize economic decisions of the type that individuals are capable of making (either acting in isolation or "together" through the mechanism of the competitive market). Hayek sees the inevitable result of such collectivization to be the ability of the few to tyrannize over the many. Those with the responsibility for decision-making will necessarily have preferences of their own, and these preferences rather than the impersonal mar ket mechanism, will dictate the nature of the choices made. It is a further delusion, Hayek would argue, to think that collective decisions can be consistently imple mented through any means except force. It is always pos sible that a collective decision will approximate the deci sion which a free market would have made, or that in the short run collectivist leaders will be persuasive enough to secure voluntary acquiescence, but in general the power to make collective decisions implies the power to enforce them 15 upon the people. When a democratic society feels that it 15Friedrich A. Hayek, The Road to Serfdom (Chicago: The University of Chicago Press, 1944), Chs. III-IV. 74 must modify the results of the free market, or when it feels that the market is not operating freely, it should proceed by enacting a "rule" of the type described above. If it does so, the law enacted will necessarily restrict the individual freedom of at least some of the society's citizens; furthermore, it is almost certain that the prac tical effects of the rule of law will not weigh equally heavily upon all citizens. However, by embodying its modi fications of the market system into laws promulgated in advance and knowable to all, the society preserves the freedom of individuals to assess the possibilities open to them, and to choose courses of action accordingly. If, on the other hand, the society vests discretionary economic authority in administrative personnel, it gives government specific power to enforce subjective decisions upon indi vidual citizens, and it sharply limits the extent to which individual citizens can make rational choices in planning their economic activities. Administrators will necessarily incorporate their own (changing) impressions of the general welfare into their decisions, and they will almost inevi tably impose more detailed restriction upon individual citizens than most situations warrant. To pursue the earlier example, it might be noted that Hayek would find nothing wrong in guaranteeing to each present-day American citizen an annual per capita income 75 of, say, fifteen hundred dollars, if Americans indicated their willingness to be taxed appropriately to finance the program. The decision to pay such a tax is one that by its very nature the people (or their representatives) must take collectively. What would be wrong, however, would be to think- it appropriate for the government then to set up elaborate and almost inherently discretionary rules dic tating what potential recipients must do to qualify for assistance, or what recipients must do with assistance after they receive it. (An especially onerous example of the latter is the granting of aid in the form of services rather than "general purchasing power," that is money.) Such restrictions are bound to limit and to erode economic freedom, and, since they imply powers of compulsion, poli- 16 tical freedom also. The threat of "democratic" socialism as a complete system is similar in form, but even more frightening be cause of the comprehensive nature of its demands. The logic of collectivization indicates to Hayek that socialism is necessarily anti-democratic. Countries which hope to reach a "higher state" of political life via the socialistic route are condemned to disappointment, unless the "higher" state is one in which a great deal of freedom has been 16 Hayek, The Constitution of Liberty, op. cit., Ch. 17. 76 exhanged for an indeterminate amount of paternalistic protection. To Hayek, "democratic" socialism can only end in the long run in a totalitarian system; the path to so cialism inevitably becomes "the road to serfdom." Hayek contends, furthermore, that to launch a democratic capital ist country on a program of "social reform" is to virtually guarantee its eventual deterioration into totalitarianism. Once the government is allowed to tamper with the processes of the market system, it will find that ever greater tam pering is necessary to compel individuals toward ends which they are not given to seek in self-interest. The "need" for moderate social reform becomes a "need" for comprehen sive socialist collectivization and finally a "need" for totalitarian control, as leaders find that initial reforms have unintended effects which must be corrected. Hayek is able to accept the slogan of many planners that political freedom without economic freedom is not worth having, but Hayek sees the meaningful interpretation of this slogan to be just about the opposite of that given to it by the advocates of centralized planning. The latter would insist that men can be politically.free only in an economic system which guarantees them the economic "freedom" of a sufficient income. Hayek feels that men can be poli tically free only in an economic system which in no way restricts their choices of occupation, their decisions of 77 what to produce, and so forth. Any government which under takes to guarantee the economic "freedom" of all, in the sense in which the planners define such freedom, would eventually be forced to drastically restrict all the free doms of individuals. As was noted above, Hayek is not op posed to establishing a minimum income which would secure all citizens against physical privation; but he would in sist that efforts to guarantee incomes sufficient to remove all economic insecurity would necessarily remove individual 17 economic freedoms as well. Milton Friedman Milton Friedman would substantially concur in those conclusions of Hayek's cited above, and he has explicitly espoused the principles (1) that giving economic power even to a "democratic" government is to invite the use of coer cion in social affairs and (2) that the proper functions of government in the economic realm are very largely confined to the making (and enforcement) of impersonal rules which allow economic affairs to be organized through exchange in free markets. Any time that a government is given power to do more than establish and arbitrate the "rules of the game," individual liberties will necessarily be restricted. Sometimes this is unavoidable; provision and maintenance ^Hayek, The Road to Serfdom, op. cit., Chs. II-IX. 78 of a given level of national defense are examples of activ ities which a society must undertake collectively if it is to undertake them at all. However, it is crucial not to expand the list of collective activities beyond those which are both necessary and necessarily collective. Friedman reasons that the fundamental threat to human freedom is the power of coercion; the market system performs the dual function of dispersing economic power widely and of keeping economic power separate from political power. The latter is especially crucial to Friedman because he considers political power to be almost inherently centralized and concentrated. Political power over economic activities then becomes almost a sure guarantee of coercion, for eco nomic decisions will inevitably be colored by the political 18 authorities' notions of what people "ought" to want. Perhaps what is most striking in Friedman's thought is that even many functions which "everybody" would concede to be proper to government for one reason or another he specifically singles out as being proper activities for private enterprise. Such things as publicly operated toll roads, the federal national park system and the government monopoly on postal service Friedman cannot justify to him 18Milton Friedman, Capitalism and Freedom (Chicago: The University of Chicago Press, ld^^), pp. 15-16, 22-27. 79 self. (He also is critical of such more obvious targets as the detailed regulation of private business by various government agencies.) His objections rest upon two sepa rate considerations. In the first place, . he considers many of these functions to be activities which could safely be left to private enterprise to perform if in fact enough individuals are interested in having them performed. Thus, Friedman would argue that it is simply not true that a sys tem of national parks must be maintained by the government; the effect of assigning such an activity to the government is that individuals who do not wish or use such a system are coerced to help pay for it. In the second place, the establishment of government monopolies leads to economic inefficiencies almost as certainly as to economic coercion. When an operation such as the post office is run with no real need either to meet costs or to match the service of a competitor, efficient performance is hardly to be expected. Friedman argues that the very least which the government should do is to refrain from making public enterprises legal monopolies; preferably, most public enterprises could 19 be eliminated altogether. Friedman's best known contributions to academic economics are probably those in the field of monetary the ory and policy. Here his skills as an analyst have led him 19Ibid., pp. 27-36. 80 to believe that the discretionary monetary policies of the Federal Reserve System, which he would dislike on principle, suffer also from being ineffective in practice. Governmental intervention in monetary matters, far from providing the stable monetary framework for a free market that is its ultimate justification, has proved a potent source of instability.20 What is required is that the "monetary framework should op erate under the 'rule of law' rather than the discretionary authority of administrators." ^ Friedman, like Hayek, favors a redistribution of market-determined incomes in favor of the poor, but he is perhaps even more specific in proposing "proper" ways to do so. Friedman would insist on two things. Measures de<~ signed to alleviate poverty must be directed carefully at the poor as such, not at some particular group which may contain many poor members. And these measures should so far as possible operate through the competitive market without impeding or distorting it. (Such measures as agri cultural price supports, old-age benefits, minimum-wage laws and tariffs each fail to satisfy one or both of these criteria.) Friedman would consider much more acceptable a 20 Milton Friedman, A Program for Monetary Stability (New Yorks Fordham University Press, 1959), p. 23. 21 Milton Friedman, "A Monetary and Fiscal Framework for Economic Stability," in Essays in Positive Economics by Milton Friedman (Chicago: The University of Chicago Press, 1953), p. 134. 81 negative income tax, that is a subsidy, to be paid to those whose income falls below a predetermined amount. He claims for such an instrument that it satisfies his two basic con ditions, that it would be much easier to administer than the myriad of current welfare programs, and that it would greatly increase the "freedom" enjoyed by the aid recipi- 4- 2 2 ents. In summary, it can be said that Hayek and Friedman both feel that governmental activity in a free economy must be sharply limited, not only to preserve political and eco nomic freedoms, but also to ensure that the system operates with maximum economic efficiency. Insofar as possible, government will be restricted to maintaining a "rule of law" framework within which the free market can operate. In the final section of this chapter, the attitudes of the "academic" conservatives Hayek and Friedman are compared with those of the more conservative segment of American businessmen. C. The Conservative Business Ideology The Perspective of the N.A.M. The point of view of a segment of American business opinion which is relatively conservative (in the sense 22Friedman, Capitalism and Freedom, op. cit., pp. 191-192. 82 defined above) will now be examined through published works of the National Association of Manufacturers. Two strands of thought are especially important in the formulation of what is called here the "ideology" of the conservative busi nessman. First is the obvious debt to the classical lib erals of the past and to the modern conservatives of recent times. A pronounced similarity among the three is the in sistence that the role of government in the operation of the economy be carefully limited, and the work of such authors as Friedrich Hayek are quoted as authoritative doc trine in N.A.M. publications. The second element, on the other hand, distinguishes the business ideology from the other two schools of thought, and this element is what might be called a practical ("businesslike") approach to the whole matter of social philosophy. The consequences of this approach will be evident in the remainder of this sec tion. Two among them are particularly important; in the first place, the American system and its problems are de scribed by the N.A.M. in terms which leave little doubt about the business orientation of the authors; and secondly, the practical aspect of this business orientation makes the N.A.M. somewhat reluctant to criticize established features of the economic system on ideological grounds alone. It is likely to be adamant against the prospect of any increased "encroachment" by the government, but it is sometimes 83 disposed to accept resignedly those governmental measures to which the business community has successfully adjusted. The comprehensive statement of the N.A.M. on the United States economy is The American Individual Enterprise System, published in 1946 under the auspices of the Associ ation's Economic Principles Commission. Although perhaps somewhat "dated" in its treatment of specific economic problems, on matters of general economic philosophy it is widely quoted in the more current N.A.M. literature. The term "individual enterprise system" is chosen to describe the American economy (a) to recognize that goods and ser vices are typically produced and distributed "by private individuals or privately owned organizations operating un der rules and regulations designed to realize the basic ideals and objectives of the people," (b) to emphasize that the property involved in this production and distribution is generally under the ownership and control of private or corporate persons "and that these persons are responsible for the use of this property and may enjoy the benefits of gains or suffer the losses resulting from their operations" and (c) to imply that the role of government in this pro duction and distribution is "limited, as determined by in dividuals through their freely selected representatives, to those fields in which such government activity is essential 84 for the accomplishment of public p o l i c y . " ^ It is perhaps not obvious that the term "individual enterprise system" should carry all of these connotations, but it is helpful to know that it was selected for the pur pose of doing so. Additional insight is furnished by the N.A.M.'s rejection of several other phrases commonly used as descriptive of the American system. "Free enterprise" could be misinterpreted to imply a system in which individ uals or groups were "free to exchange goods and services without significant let or hindrance from the law. Such complete freedom, of course, is not possible under modern industrial conditions." Furthermore, no one would advocate such a system, because, no matter what his political or economic beliefs, everyone "now recognizes that in certain phases of our economic system it is not only desirable, but is absolutely essential, for certain standards and rules to be set by law." "Private enterprise" is also a misnomer, both because in America many services in the economy are performed by public enterprise, and because even those en terprises which are private are subject to extensive legal regulations. Finally, "competitive enerprise" is not de scriptive of the American economy because technical and/or 23 National Association of Manufacturers (Economic Principles Commission), The American Individual Enterprise System (New York: McGraw-Hill Book Company, 1946), Vol. I, p. 2• 85 legal monopolies have removed many enterprises from the competitive realm.24 The Restriction of Government Activity Whatever the candor of the N.A.M. in admitting that the government does and must continue to do many things in the "individual enterprise system," the Association is equally frank in stating its opposition to most proposals to broaden the scope of governmental economic action. The liberal test of all collective action is whether such action contributes in the long run to the de velopment of individual potentialities. . . . The extension of governmental power must always be viewed with suspicion.25 Furthermore, by 1960, the N.A.M. was finding that its worst fears of the prospects of increased "centralism" for the post-World War II era were being confirmed. The Government Economy Committee was moved to state emphatically that even if the government structure were to expand no further, un der 'the doctrine of centralism" the government had already become too big to be competently managed, too powerful for the best interests of the people, and too grasping to allow the private sector to perform its rightful functions. ("Centralism" is by definition the doctrine of "extreme re liance" on the federal government.) In insisting that the 24Ibid., pp. 2-4. 25Ibid., pp. 696-697. 86 government do more and more for the people, centralists ignore the menace of the governmental authority which is bound to accompany governmental beneficence. Only if the trend toward centralism is reversed can the individual 26 worth and freedom of American citizens be guaranteed. Specifically included in the list of unacceptable centralist measures are many of those designed to promote substantially full employment by stabilizing the business cycle. Deficit spending by the federal government may well result in a rising price level and diminished confidence in the economy, without producing anything close to full em ployment. In particular, the Keynesian multiplier analysis is not to be relied upon as a tool of practical economic policy. "Pull employment" is at any rate a nebulous con cept at best; truly full employment would require a sub stantial degree of central planning, and a corresponding diminution of the freedom of consumers, investor, employers and workers. Even the lesser goal of "maximum" employment, if pursued by centralists with such centralist weapons as monetary and fiscal policy, is distasteful to the N.A.M. The proper role of government in promoting employment lies ^National Association of Manufacturers (Government Economy Committee), "The 'Primrose Path' of Centralism" (September, 1960), reprinted in part in the N.A.M. (Public Affairs Division) series, The Economic Background of Poli tics (May, 1961), Part IV, "Bringing Government Back Home," pp. 4-20. 87 in maintaining an environment within which the private sec- 27 tor of the economy can operate vigorously. Some of the implications of this statement are explored below. Perhaps nowhere are the priorities of the N.A.M. made as clear as in the identification by its Research De partment of "the three leading economic problems of the 1960's." These are seen to be the threat of rising unit labor costs (with resultant difficulties in maintaining high levels of economic activity and employment), the shortage of new capital (which places severe limitations on the prospects for economic growth), and the growing eco nomic strength of other industrial nations (which will be increasingly able to furnish competition for American manu factures) . The third "problem" is honestly welcomed as a sign that the world economy as a whole is emerging from the aftermath of World War II, and in any case foreign competi tion will not be a serious problem for the United States if it can resolve the other two difficulties. Here the gov ernment might well play constructive roles of both a posi- 28 tive and a negative sort. In brief, unit labor costs can be controlled if the government will take responsible steps to curtail the monopoly power of unions, as it has in the 27 Ibid., Part VIII, "Maximum Employment and Price Stability.1 1 2ft Ibid., Part VII, "Inflation and Deflation" and Part VIII, Maximum Employment and Price Stability.” 88 past curtailed the monopoly power of business; and abundant amounts of capital would be available for economic growth if the government could simply stop its pursuit of infla tionary spending policies and reduce the levels of taxa- tion-on-profits which pose such a disincentive to invest- 29 ment. The N.A.M., and conservative businessmen generally, take the position that the American economy has resources abundant to cope with the problems it faces if the govern ment can be limited to its proper function of providing a congenial framework for the operation of private enterprise. In performing this function, the government need not re strict itself to activities which would be acceptable to a conservative "purist” such as Milton Friedman. The N.A.M. tends to take a relatively sanguine view of many types of government enterprise and regulation. Measures which tend to involve central planning, or central control of the level of aggregate economic activity, on the other hand, are anathema, and are thought to pose a long-run danger to the continued existence of the "individual enterprise sys tem. " The "American Business Creed" In The American Business Creed, coauthors Francis Ibid., Part VI, "Venture Capital and Tax Rate Reform." 89 Sutton, Seymour Harris, Carl Kaysen and James Tobin have described and analyzed the ideology of the American busi ness community. The purpose of their book is to study the creed in such a way as to explain not only what American businessmen think and claim with respect to their places in American society, but also the sociological factors which have influenced their beliefs. The authors are careful to point out that "the" business creed in America is anything but monolithic. There are, of course, inevitable differ ences of opinion among individual businessmen on specific matters; more fundamental, however, is the divergence be tween the "classical" and the "managerial" strands of the ideology. The classical strand corresponds approximately to what is identified in this study as the conservative busi ness ideology. (The N.A.M. is identified as a principal spokesman for the classical version of the creed.) The classical view stresses that the American economy is basi cally a competitive capitalist system, in which the forces of supply and demand, working through the market mechanism, regulate the aggregate and the individual behavior of eco nomic actors. The classical strand minimizes the impor tance of such concentrations of economic power as do exist, claiming that in general they do not cause the economy to deviate greatly from the pattern of behavior it would 90 establish under conditions of perfect competition; it is thus not surprising that the classical (or conservative) strand sees little need for active participation of the government in economic affairs, and remains extremely hos tile to most proposals which would broaden the economic role of the government. The managerial strand, on the other hand, corre sponds roughly to what is presented in this study as the "liberal-conservative" business ideology (in Chapter V, below). The critical aspect of the managerial version, from the point of view of the creed, is that it places strong emphasis on the role of professional managers, who consciously use the concentrated economic power at their disposal to direct economic forces for the "common good." It would be possible for the managerialists to perceive the importance of the conscious use of economic power, and yet remain adamant against the government "seizing" and exerting such power; but it is not surprising that, in fact, the managerial (or liberal-conservative) strand has recognized that there are some areas in which the only efficient pro fessional manager is the government. The liberal-conserva tive business ideology belongs to the right-of-center eco nomics of Chapter V. However, what is said in the remain der of this sub-section about the business creed as an 91 idelogy is applicable to both strands equally.3® The distinctive feature of The American Business Creed is its attempt to explain the creed as an ideology. The term "ideology" is defined to mean "any system of be liefs publicly expressed with the manifest purpose of in- 31 fluencing the sentiments and actions of others." Thus defined, the word need not have the undesirable connota tions which the word often carries; however, even though explicitly used as a "neutral" term, ideology will be seen to imply to Sutton, et al. many of the characteristics which account for the pejorative sense in which it is used elsewhere in this study. Specifically, the authors impute to all ideologies certain common features; ideologies are selective in their choice of subject matter and their use of empirical evidence and logical argumentation, they are overly simplistic in their discussions of complicated prob lems, they tend to appeal to the emotions at least as strongly as to the reason of their constituents, and they tend to limit their content to pronouncements acceptable to the general public. The American Business Creed seeks to demonstrate that in its selectivity, its oversimplifica tions, its emotional appeals and its concerns for public •^Francis x. Sutton, et al., The American Business Creed (New York: Shocken BooJcs,~T962), pp. 9, 53-36. 31Ibid., p. 2. 92 acceptability, business ideology is shaped by American cul ture and institutions, and by the motivations which control the behavior of American businessmen. In particular, the creed is depicted as emerging out of the intellectual tradition of classical liberalism, and such social traditions as popular government and insti tutional pluralism; the distinctive traits of the business ideology remain to be explained by the motivational stimuli which operate upon the American businessman. According to the authors, the American business creed is an understand able defense of businessmen against the strains to which they are subjected in American society. They face the need to reassure themselves and to convince others that the business creed is to be preferred to doctrines of social reform, and they need to feel that their own intellectual positions and physical prosperity are defensible despite the fact that many complicated social problems continue to exist. This the classical strand of the creed accomplishes admirably by insisting that the good of all requires that each individual seek his own economic self-interest, and that the social problems which plague capitalism are traceable in large part to the efforts of those who insist upon tampering with the market mechanism. On the other hand, the managerial strand has at tempted to take account of some of the realitiies which the 93 classical strand ignores, but it has done so at the expense of a clear-cut logical justification for the position, ac tivities and influence of the business community. It will be argued below that once the creed has been modified to such an extent, there is a tendency for it to discard the oversimplicity of an ideology, and to cope with complex problems on a pragmatic basis. It is perhaps a dread of this tendency which keeps a certain segment of American business loyal to the conservative business ideology in its 32 more extreme forms. The businessman has strong motivational disposition to any ideological explanation which fortifies his defenses against moral responsibilities and effec tive ties and at the same time exonerates him of social irresponsibility and indifference. This is the accomplishment of the classical doctrine— no wonder it persists.33 32Ibid., Chs. 13-17. 33Ibid., p. 358. CHAPTER IV ECONOMICS ON THE LEFT In this chapter, attention shifts to the opposite extreme of the spectrum of political-economic thought. "Economics on the Left" is an attempt to describe the role (in the American dialogue) of those economists who feel that a large measure of central control of a modern indus trial economy is desirable and/or inevitable. (The term "socialist" will be used in a fairly restricted sense to describe just such economists; the unqualified term "so cialist" will not be used to describe various modern econ omists who may advocate one or more of the traditional goals of socialism, while at the same time rejecting more or less comprehensive central control of the economic sys tem.) As a background to the consideration of contemporary American socialism, the first section of this chapter will examine briefly the economic and political philosophy of Karl Marx. Marxism has never been a widely held theory in the United States, and it can even be argued that many con temporary American socialists owe much more to other of their predecessors than they do to Marx. However, emphasis on Marxism here seems justified because as an "alien" 94 95 philosophy it has influenced American thought out of all proportion to the number of adherents which it can claim within the United States, and because contemporary Marxists do remain "socialists" in the sense described above. The various social theorists who espouse some aspects of so cialism while rejecting others are relegated to the "left of center" economics of Chapter VI, and to the discussion in Chapter VIII of the future of the American economy. A. The Background: Marxism Marxism as a Theory of Capitalism A potential objection to Marxism as the basis for a treatment of the economics of the left should be acknowl edged at the outset. As will be shown below, the Marxian vision of the long-run fate of industrialized economies was not a vision of highly centralized control. Rather, Marx forecast the day when economic relationships would be re duced to purely cooperative interactions among individuals subject to no coercion from either the market or the state. However, Marx made no attempt to describe in any detail how such a "communist" system might function, and this points up the fact which is so important in determining the role of Marxism in the present study; Marxism is not so much a theory of how a communist or a socialist economy should 96 operate, as it is a theory of how capitalist economic sys tems should inevitably "develop" into socialist systems.1 It is as such that Marxism has provided such an important intellectual stimulus to the defenders of capitalism. And it is because in the course of this "development" Marx would have capitalism pass into a stage of substantial cen tral economic control that Marxism is generally identified as "far left" on the spectrum of contemporary American eco nomic thought. "Marxism" is a broad term used here to designate the social philosophy and the social science of Karl Marx and his followers. Marx wrote in the middle and later years of the nineteenth century, chiefly in England, and to a great extent his work reflects the conditions of the time and the place in which he wrote. He developed a theory of history within which the period of capitalism was for any society but one stage; however, the majority of Marx' own writing concerned itself with the processes by which a society passed into, through, and out of this stage of capitalism. It is not desirable within the perspective of this study to attempt even a summary of the many facets of ^ohn E. Elliott, "Capitalism, Marxism, Socialism" (Unpublished manuscript, Department of Economics, Univer sity of Southern California, n.d.), Ch. 8. 97 Marx' thought, or to detail in analytical terms the Marxian 2 theory of capitalism. What is important is to sketch the path along which Marx predicted capitalist systems must proceed; it will then be possible to evaluate the American economic system in Marxist terms. The following treatment of Marxian economics is taken in large part from a short essay on the subject by the American Marxist, Paul Sweezy. The Marxian Theory of Social Change Marxian economics must be studied as a part of Marx' more general theory of society. This general theory rests upon the conception, derived from Marx' historical studies, that human societies are in a constant state of flux and development. This process of change, which pro ceeds more rapidly at some times than at others, depends largely upon the activities of a great many individuals. These individuals, however, do not act arbitrarily, or as independent ("atomistic") units. Rather their actions are largely conditioned by the circumstances within which they live, and individuals who at a given time and place find themselves in similar circumstances tend to adopt common fronts of action against those whose circumstances are 2 For more complete treatments of Marx' thought, see Paul M. Sweezy, The Theory of Capitalist Development (New York: Monthly Review Press, 1956), and Elliott, op. cit., Chs. 5, 8. 98 substantially different. ("Circumstances which are espe cially important to an individual are his physical environ ment , the means he has available to control or manipulate this environment, and the nature of his relationships with other individuals and groups of individuals.) Groups of similarly circumstanced individuals Marx calls classes, and conflicts which arise between two such groups are examples of the "class struggle." It is largely through the dy namics of such class struggles that the development of a society proceeds, and it is only with a knowledge of the 3 class struggles that the development can be understood. The Marxian philosophy of history is sometimes termed historical materialism, and represents the applica tion to history of the Marxian philosophy of dialectical materialism. The latter sees changes in all of nature to be the result of a continuous interaction among various conflicting forces, and stresses that any fruitful study of nature must represent an attempt to understand and inter- 4 pret the processes by which these changes take place. The moral for the historian is clear. To compre hend the course of events in a given historical setting, '■'Paul M. Sweezy, "Marxian and Orthodox Economics," in Sweezy, The Present as History (New York: Monthly Re view Press, 1953), pp. 3o5-306. *Paul M. Sweezy, Socialism (New York: McGraw-Hill Book Company, 1949), p. l3T^ 99 one must first study the circumstances which confronted the individuals involved and which determined the way in which these individuals were grouped into classes. It is then possible to formulate a theory to describe the way in which the particular society functioned; such a theory would de scribe on the one hand the way in which the fundamental economic problems of production and distribution are solved in the given circumstances, and would indicate on the other hand the nature of the social institutions to which these circumstances would give rise. In Marxian terminology it could be said that the theory described the economic condi tions and relationships which constituted the "structure" of society and also that it explained the relationships of politics, law, religion, ethics, culture and so forth which made up the society's "superstructure." Change will tend to take place relatively slowly when it is simply the re sult of contentions among the classes within the framework of the superstructure. However, when "circumstances" alter, when shifts occur in the structure of a society, when the superstructure becomes incompatible with the structure, rapid change is bound to occur. The researcher with an adequate grasp of a society's circumstances and the changes therein will have no trouble ordering and understanding the events of history. Marx was not, however, concerned solely or even 100 primarily with historical explanation. He sought to apply his method of analysis to the present in an attempt to de termine its relationship to the future. It is in this ap plication that Marx' writings are able to acquire a kind of missionary zeal. It is all well and good to understand the past, but if one can determine the "proper" relation ship between present and future, then one can do much more than explain and understand; he can both predict and pre scribe. It is perhaps unfair to Marx that he is often pic tured as a kind of determinist, who, lacking confidence in his predictions, felt compelled to help make them happen. A more sympathetic interpretation would be that Marx felt he saw where the logic of circumstances must lead capital ism in the long run, and that it would all be so much to the better if the inevitable (and desirable) development of capitalism into socialism could be expedited in those coun tries where "circumstances" warranted. In any case, at this point it is appropriate to turn to Marx' analysis of the capitalist system, and to his prognosis for its future. The Future of Capitalism The structure of capitalist society is character ized by three circumstances which largely govern the ways in which economic goods are produced and distributed. In the first place, production is generally organized by pri vate individuals who plan to sell at least most of their 101 output rather than use it themselves. The second crucial fact is that the means of production (such as natural re sources and capital goods) are monopolized by a small ni- nority of the population ("capitalists"). The third char acteristic, derivable from the first two, is that the vast majority of the population ("workers") must work for the minority in order to gain access to the economic necessi ties of life. The only thing which a worker is capable of furnishing for sale (or exchange) is his own "labor-power." He must sell this labor power to a capitalist, who in nor mal circumstances will pay him only a subsistence wage. The capitalist combines labor power with the means of pro duction which he owns to produce economic goods that have a certain market value. The difference between this value and the wages which must be paid the workers is "surplus value"; it goes to capitalists in the form of profits, rent and interest. The capitalist occupies a key organizing position in this economic system, and both his own psycho logical drives and the competition to which he is subject impel him to pursue his occupation with great vigor. He acquires surplus value by any avenue of business open to him; some of it of course is used for his own necessities and pleasures, but a great deal of it is invested in addi tional capital which broadens the range of his operations further. Thus Marx identifies capitalism as a highly dy 102 namic system which has been responsible for tremendous ad vances in technique and increases in production. Granting this as capitalism's due does not prevent Marx from forecasting its ultimate demise, however. Within the logic of the capitalist economic system, Marx finds a series of "contradictions," and these contradictions imply the eventual downfall of the system itself. Sweezy identi fies the four most important of the contradictions to be the following. First, when the capitalists attempt to in crease surplus value by implementing technological change, they create unemployment which in turn holds down wages and restricts the power of workers to consume the output of the capitalists' businesses. Second, as more and more capital accumulates, the rate of profit in any given society begins to fall; when capitalists respond by interrupting the pro cesses of production and accumulation economic crises and depressions result. Third, as a capitalist country grows wealthier it devotes an even greater share of its resources to increasing its productive powers; because the ability of the workers to purchase consumption goods decreases or in creases rapidly, and because the willingness of capitalists to consume is limited, eventually the means of production are left to lie idle and stagnation replaces economic ex pansion. Fourth, technological change, capital accumula tion and recurrent crises combine to virtually guarantee 103 the growth of the scale of production and the ever-increas ing concentration of capital under the control of trusts and monopolies. In their attempt to combat these contradictions, the capitalists make use of the political power of the state, over which they have final control. Workers may be either repressed or granted minor concessions, as particu lar situations seem to indicate. But the states become even more important in the attempts of national groups of capitalists to maintain and improve their own positions at the expense of all other countries. In their zeal to pre serve their own small segment of world capitalism, the capitalists of a given nation are generally willing to ex ploit all other nations, capitalist and non-capitalist alike. There are certain short-run advantages in concen trating on the latter, for they are less likely to fight back, and wars can be both destructive and dangerous to capitalists. In the long run, however, empire-building can also lead to war, for the interests of the various imperi alist powers are bound to come into conflict with each other.5 Marx is not specific about just which of mature capitalism's specific problems is most likely to trigger c Sweezy, "Marxism and Orthodox Economics," op. cit., pp. 306-310. 104 its final downfall, but he need not be. If his prognoses are correct, if workers are to become more miserable, busi ness cycles more severe, capital more concentrated, imperi alism and wars the accepted forms of conducting inter national affairs, then the final destruction of capitalism is assured even if the exact form is not specified.® The most important aspect of this destruction would be the as cendance of the industrial proletariat, the working class, to the dominant position in the new society. A new struc ture would emerge embodying techniques and relationships of production and distribution appropriate to the circum stances of an advanced industrialized society, and upon this structure a new superstructure would develop. It hardly need be said that capitalism has not sat isfied all of the predictions which Marx made for it. On the other hand, it is undeniable that the Marxian analysis has yielded some insights into the workings of' the capital ist system, and some form or other of "Marxism" is at pres ent the official political-economic ideology of well over a billion human beings. In the second section of this chap ter, Marxism is viewed from the vantage point of contempo rary American socialists. They provide extensions of Marxian theory, as well as analyses of its areas of success ^Elliott, 0£. cit., Ch. 5, pp. 47-48. 105 and failure, and they help to establish the present posi tion of socialism on the left extreme of the current spec trum of American social thought. B. Modern American Socialism The Adequacy of Marx' Analysis To many anti-Marxists, it seems a damming criticism of Marx that capitalist countries have not in fact devel oped into socialist countries in the manner he forecast. The nations in which Marxism is today official ideology are not nations which progressed from feudalism through capi talism into socialism. Rather, they are countries which have attempted (or are attempting) to "telescope" the pro cess of social evolution, to pass directly from a "tradi tional" or feudal society into an advanced socialist soci ety. The debate as to whether such attempts can be "truly" Marxian is not relevant here. What is important is that many such countries claim to espouse Marxism in some form, whereas there exists as yet no instance of an advanced capitalist country following the Marxian route to socialism. Marxists tend to adopt two lines of defense against this criticism. One argues that, while capitalism has shown greater flexibility than Marx anticipated in devising stopgap measures to prolong its lifetime, its inherent con tradictions will eventually spell its doom; the final end of capitalism may have been forestalled, and it may not take exactly the form which Marx indicated, but it is bound to occur eventually in a way not fundamentally incompatible with Marxian principles. Some examples of this type of analysis will be examined below. The second kind of de fense argues that it is unfair to ignore the many predic tions of Marx which have been substantially fulfilled in order to concentrate on just one (albeit an important one) which has not been satisfied as yet. Thus Sweezy, writing for the one hundredth anniversary of the publication of The Communist Manifesto, claims that the document has stood up "amazingly well" through its first century. "The theory of history, the analysis of capitalism, the prognosis of so cialism, have all been brilliantly confirmed." It is therefore unfair to blame the authors (Marx and Friedrich Engels) for a single mistake which, moreover, was easily understandable given the conditions of time and place (1848 in England) in which they wrote. "Only in one respect— the view that socialism would come first in the most advanced capitalist countries— has the Manifesto been proved mis taken by experience." Sweezy's lament is that history has chosen the most difficult path for the world socialist revolution; the process could have been far "more rapid and less painful" had it proceeded along the lines which Marx and Engels had predicted. Even in the middle of the 107 twentieth century, those who have absorbed the real message of the Manifesto realize that "the clock cannot be turned back, that capitalism is surely doomed, and that the only hope of mankind lies in completing the journey to socialism n with maximum speed and minimum violence." Clearly the two "defenses" attributed to Marxists in the preceding paragraph are interwoven in actual argu mentation, even if they are analytically separable. In the passage cited, Sweezy begins by asking that Marx be allowed his single "mistake" and ends by emphasizing that, in the long run, that mistake will prove to be one of rela tive timing only. On the other hand, a large amount of the contemporary Marxian literature is devoted to explaining those special circumstances and developments which have en abled capitalism to last so long, even though its eventual demise remains assured; such explanations then constitute an implicit justification of Marx by pointing out that in large part his analysis has been proved correct and that it can be extended and amended to cover the single discrepancy concerning the form of the coming of socialism. Paul Baran has attempted to describe within a single analytical framework the nature of economic progress in both the developed and the underdeveloped countries. Zpaul M. Sweezy, "The Communist Manifesto After 100 Years," in The Present as History, op. cit., pp. 27-29. 108 The key to his analysis is the concept of the "economic surplus," by which he means simply the difference between a society's total output and the amount of this output which is either consumed or used to replace productive fa cilities worn out in producing the total output. The most important factors in determining the nature and the pace of a society's economic development are the size of the cur rently generated economic surplus and the way in which this surplus is used. Baran feels that so-called "pure" eco nomics is incapable of explaining these facts; for an ex planation we must look beyond economics to the "political o economy of growth." The problem of the advanced capitalist countries is that they have acquired the potential to produce an enor mous economic surplus, without having developed the neces sary mechanisms to ensure that the potential surplus is in fact realized, and that it is then utilized rationally. The irrationalities that Baran identifies correspond closely to the contradictions which Marx saw in capitalism. Potential output and the potential surplus are seldom real ized because the volume of net investment is limited not by productive abilities but by what businessmen think to be profitable, and a systematic expansion of consumption is ®Paul A. Baran, The Political Economy of Growth (New York: Monthly Review Press, 1966), Ch. 1. 109 also precluded because of conflict with the profit motive. Thus the "stability” of the capitalist system becomes in creasingly fragile. Baran sees capitalist governments (and in particular the United States government) as forced to rely mainly on military spending to maintain the profits, prosperity and high employment upon which they rely for popular support. Such spending of course channels enormous amounts of a nation's economic surplus into projects which do not increase the real income of the people. Furthermore, it is doubtful whether massive military spending can con tinue indefinitely in times of peace, and the prospect of nuclear war is generally unacceptable to capitalists as both unprofitable and potentially fatal. Baran concludes that capitalism is not likely to last. If the major capi talist powers do not succeed in annihilating themselves and others in a full-scale war, eventually the contradictions of the system should bring to power a government deter mined and able to remedy the abuses of capitalism in the only possible way, by rejecting the system itself in favor of socialism.^ Although it is not directly relevant here, Baran's analysis of economic growth in the underdeveloped countries lends perspective to the above. In brief, the problem is 9Ibid., pp. 129-133. 110 that for many years the imperialist capitalist countries have had the power to decide how the economic surpluses of the underdeveloped countries should be utilized. Therefore, two "uses" have predominated in the disposition of these surpluses. The first is simply the appropriation or ex traction of raw materials and the other goods for the bene fit of the colonists and imperialists. (Capitalism's life has been prolonged, in the Marxist view, because exploita tion of colonial peoples has enabled capitalists to grant concessions to workers "at home" in the capitalist coun tries.) The second is investment in the colonies for the purposes of the colonial powers. The latter may have even greater long-run effects in retarding the underdeveloped countries than the former, because it has so greatly dis torted the functioning and the growth of their economies. (Examples include systems of rail and road transportation designed primarily to get goods out of the countries rather then to develop their economies as coherent units.) Thus the "political economy of growth," through the concept of the economic surplus, explains to Baran the experience of 10 the underdeveloped as well as the developed countries. Marxism and "Monopoly" Capitalism In Monopoly Capital, Baran and Sweezy attempt to 10Ibid., Chs. 5-7. define explicitly the peculiar characteristics and problems of a capitalist society in which large and powerful concen trations of capital are the rule rather than the exception. ("Monopoly” is defined by Baran and Sweezy to include both monopoly in the strict sense and oligopoly. The United States is identified as the most advanced case of monopoly capitalism.) Marx had forecast increasing concentration of capital, but he had made it a point to show in his work that "even" a competitive capitalist system contained with in itself the contradictions that eventually would destroy it. The point was that while increased monopolization might well be one of the means through which capitalism proceeded to its doom, it was not the cause of that doom, and the elimination of monopoly would not enable capitalism to survive. Thus to Marx, the monopoly of capital seemed likely to aggravate capitalism's problems without funda mentally altering them.^ Baran and Sweezy, however, ob serve that in fact "monopoly capitalism" differs from com petitive capitalism in fairly important ways. Furthermore, while some of competitive capitalism's problems are aggra vated by monopoly, others are actually made more manage able.^ ■^Elliott, 0£. cit., Ch. 5, pp. 3-4. 12 *Paul A. Baran and Paul M. Sweezy, Monopoly Capi tal (New Yorks Monthly Review Press, 1966), Ch. 1. 112 Capitalism is once again analyzed through the con cept of the economic surplus. In monopoly capitalism, the tendency of this surplus to rise is perhaps even more pro nounced then in competitive capitalism. Baran and Sweezy claim that in the study of monopoly capitalism, "the law of rising surplus" must be assigned the role which Marx gave to "the law of falling profit" in his study of competitive capitalism. In other words, it is primarily in terms of reactions which attempt to cope with the rising economic surplus that the basic dynamics of monopoly capitalism are 13 to be understood. There are various ways in which the rising surplus can be absorbed. The consumption of capitalists is likely to increase in absolute terms but decline in relative terms as the surplus increases. The amount of the surplus which can be invested profitably is also likely to increase, but not at the rate at which the potential surplus rises; this will remain true despite a gigantic sales effort which makes investment more profitable while it itself "helps" by using up large amounts of the surplus. The potential for government spending on useful civilian projects is enormous, but Baran and Sweezy maintain that the political realities of a capitalist system place sharp limits on what is ac- •^Ibid. y pp. 67-72. 113 tually possible. Thus a heavy burden of surplus absorption falls upon the pursuit of militarism and imperialism, two causes which Baran and Sweezy feel capitalist countries can be counted upon to espouse enthusiastically. ^ The risks and limitations of military expenditures are discussed in Monopoly Capital in much the same tone as in the work of Baran described above. What is new in the former is an emphasis upon the psychological effects which the authors feel the irrational system of monopoly capital ism is producing in its subjects. Deprived of any reason able sense of direction by the need to somehow justify life as they live it and by the propaganda to which they are constantly subjected for just that purpose, typical Ameri cans are pictured as becoming even more frequently studies in alienation, frustration and sheer boredom. Again as suming that it manages to avoid triggering a nuclear war, the capitalist system may eventually find itself paralyzed by the cumulative inertia of its citizens. At such a time, the introduction of a rational socialist order would be both necessary and inevitable.*^ The type of analysis which Baran and Sweezy make in Monopoly, Capital is especially significant, because it rep resents a candid admission on the part of two prominent 14Ibid., Chs. 4-7. 15Ibid., Ch. 11. 114 Marxian theorists that capitalism has changed fundamentally from the system which Marx studied and criticized. The authors explicitly criticize the non-Marxian social scien tists of the United States for persisting in the attempt to study "social reality" in "comparmentalized” special dis ciplines. They emphasize the necessity for employing, in the Hegelian-Marxian tradition, techniques suitable to the analysis of the social system as a whole; only thus, Baran and Sweezy claim, can the essential "irrationality" of the system of monopoly capitalism be exposed. On the other hand, the focus of their own study constitutes a frank ad mission that American Marxists have not been any more suc cessful than the non-Marxists in describing the American social system. The Marxists have shown themselves gener ally unwilling to adapt their theorizing to the changing institutions and conditions of American society, and the Baran-Sweezy study is an attempt to remedy this defect.^® As shown above, Baran and Sweezy are able to find "contradictions" within monopolistic capitalism which seem to imply its doom just as surely as Marx' analysis implied the downfall of competitive capitalism. However, Baran and Sweezy feel that perhaps more important than specific con tradictions is the fact that "bourgeois ideology" has 16Ibid., pp. 1-7. 115 deteriorated in an important way. Whatever its deficien cies, the bourgeois outlook at one time represented a par ticular world view, an attempt to discern in the existing chaos a certain order which would emerge clearly when the twin goals of material progress and individual freedom had been pursued far enough. In the view of Baran and Sweezy, this outlook has now degenerated into little more than an elaborate set of rationalizations for preserving the privi leged positions of privileged classes in privileged nations; the crisis of confidence faced by many of its apologists is evidenced by the fact that they spend more time in denounc ing socialism than in attempting a rational defense of 17 monopoly capitalism. What is lacking in the United States, claim Baran and Sweezy, is the sense of historical perspective which would enable Americans to see the system of monopoly capi talism as a passing phase in human history. Were they to recognize the system as such, they would be capable of perceiving its irrationalities, and they would presumably cease their efforts to preserve the system beyond its "natural" lifetime.18 17Ibid., p. 340 18Ibid., p. 367. 116 C. Wright Mills: The American Elite Whatever arguments Marxists may invoke to excuse the fact capitalism has lasted this long (while simulta neously demonstrating that it cannot last forever)f these arguments must allow either implicitly or explicitly for the flexibility the system has shown in at least postponing its demise. It was largely because he saw no such flexi bility in the system that Marx miscalculated its likely lifespan. A specific example is suggested by C. Wright Mills' The Power Elite. Whereas a dogmatic Marxist would have capitalists as a class "fail alone" in their bid to maintain control over the American social system, Mills suggests that capitalists have managed to form a dominant elite in company with political and military leaders. Nor is this simply a case of the capitalists controlling the apparatus of the state and the military. Rather it repre sents a concession of all three groups to the realities of power in the United States. A Marxist could surely deplore the existence of such an elite as a means to the subjuga tion of the interests of the common people, but he could ill-afford not to recognize it as a means whereby capital ists have consolidated their power. Mills' analysis is, in a certain sense, similar to that of Baran and Sweezy; it emphasizes the importance of 117 concentrations of power in American society. Mills' per spective, however, is somewhat broader. Whereas in Monop oly Capital the authors are concerned primarily with demon strating that a capitalist society in which economic power is concentrated is basically different from one in which it is not, Mills seeks to show that the concentrations of various kinds of power in the United States have tended to complement (rather than compete with) one another. Mills explains the coalescence of the American power elite in terms of three significant "structural clues" The political factor is the decline of American politics as a real and public debate on significant issues; no longer are there national parties with coherent policies which offer genuine choices to the voters. The military ascen dancy is due to the psychology produced in America by the continuing existence of an external military threat; Ameri can democratic institutions and traditions have been geared principally to domestic politics and military leaders have been able to greatly increase their normal peacetime influ ence by stepping into the power vacuum created by the Cold War. Finally, the leaders in American business have ad justed adeptly to the operation of what is "at once a per manent-war economy and a private-corporation economy"; the "corporate chieftains" have found it a positive advantage to be able to shape their needs and aims to coincide with 118 the needs and aims of a sympathetic group of military leaders. Clearly Americans are affected unequally by the emergence of the power elite. Mills claims that, first of all, the effects are almost entirely undesirable as far as those who are not within the elite are concerned; further more, however, Mills stresses that the effects have been very different upon the different groups which comprise the elite itself. Taking the second point first, Mills feels that the greatest relative gains through the consolidation of power have accrued to the military. Military leaders now exercise strong influence both within government and in the affairs of most big corporations. The major losers among former leaders have been the genuine democratic poli ticians, for Mills sees the political leaders of today to be largely at the mercy of corporate and military inter- 1 Q ests. The true losers, however, are the masses of Ameri cans now left largely without leadership which is respon sible to them in any meaningful sense. Mills claims that for these Americans, that is, most Americans, political democracy means nothing more than certain formal privileges. Such men are given no real "say," either direct or indi rect, in the determination of the most important decisions ■^C. Wright Mills, The Power Elite (New York; Ox ford University Press, .1959), pp. 274-278. 119 which their society makes, and, for the present, they have been effectively prevented from bringing to bear real pres sure for change. Whether they can be maintained in such a 20 position indefinitely, however, seems doubtful. Non-Marxian American Socialists American socialist thought has by no means been confined to the Marxian variety in the past, nor is it at present. However, the influence of non-Marxian American socialists has been felt far more in terms of pressure for practical reforms of a capitalist society than in sugges tions for a fundamental restructuring of that society along what have been defined here as "socialist” lines. The most prominent brand of American "socialism" historically has been the moderate reform element led first by Eugene Debs and later by Norman Thomas. This "socialism" was of such a nature as to blend in easily with the popu list and progressive reform movements in its earlier days; at present, it holds considerable common ground with the modern American liberals. It is undoubtedly true that such "socialism" has been important in shaping social change in America, for many of the modifications in the "free market" system which the major political parties have justified in 20Ibid., Ch. 13. 120 pragmatic terms were originally proposed by the reform socialists on humanitarian grounds. However, in terms of both their goals and their methods, the reform socialists of the present day belong in the group of political econo mists described as "to the left of center" in Chapter VI. (It must be noted that the definitions "socialist" and "so cialism" used in this study were adopted because they make a distinction which is convenient for the purpose at hand. Placing the terms in quotation marks when applying them to such men as Debs and Thomas is in no way intended to imply that these men were not "really socialists"; it is done only to emphasize that as used here the words generally carry a special connotation.) Because of its orientation toward pragmatic social reform, the' moderate socialism of Debs and Thomas has com manded greatest popular support in times of domestic unrest. Debs himself was active in the populist movement in its earlier days; his presidential campaigns of the period 1904-1920 were built upon a combination of support from some former populists and the acceptance of a fair-sized segment of American labor. Thomas' greatest support was among Americans disenchanted by the years of depression capitalism. The influence of this type of socialism in shaping the development of American politics is difficult to assess. 121 Typically, the ideas of the moderate socialists which have "caught on" have been taken over and sponsored by one or both of the major political parties, as suggested above. (This mechanism has often been important in draining off the support of groups aspiring to form a third major party in America.) On the other hand, many of these ideas were not solely the province of socialist thinkers; they were promoted by other reform groups as well, and it is not pos sible to estimate the exact contribution of socialism it self to their eventual broad acceptance. Debs1 socialism has been compared to British Fabian socialism— gradualist, committed to political action within the law, and based in the last analysis on a moral espousal of some form of "equality." It saw comprehensive socialist welfare programs and the nationalization of enterprise as sensible means to achieve American and Christian ideals in the long run, but its immediate objectives were far more modest. Employing a piecemeal approach to economic reor ganization, it emphasized such proximate goals as social regulation of utilities and railroads, freedom for labor to organize and bargain, and welfare programs to guarantee a 21 minimum of security to working-class citizens. A perennial task in recent years for American 21 xDavid W. Minar, Ideas and Politics (Homewood, 111.: The Dorsey Press, 19^4), pp. 334-3^7. 122 socialists of moderate persuasion has been to disavow them selves of Marxian socialism and of the various forms of communism which they regard as perversions of the latter. While Marxist-Communist theory has undoubtedly prodded many Americans to reexamine their own system thoughtfully, it has also provoked almost wholly irrational reactions by many others to anything which can be labeled "socialistic." It is perhaps for this reason as much as any that the Socialist party has found it opportune to concentrate its current efforts on promoting practical reform measures rather than on campaigning extensively for candidates of its own, and to move to a position somewhat right of "the Left" in American political-economics.^ The "New Radicals" Many of the younger "radicals" in the United'States have become convinced that moderate socialism (and modern liberalism) are now incapable of inspiring any meaningful or far-reaching changes in American life. In the view of these "new radicals," the moderate socialist spirit of so cial reform was absorbed into a liberalism which has since degenerated into mere rhetoric. Liberals are seen as 22Norman Thomas, Socialism Re-examined (New York: W. W. Norton and Company, 1&33), Ch. VII-VIII. See also H. Wayne Morgan (ed.), American Socialism 1900-1960 (Engle wood Cliffs, N.J.: Prentice-Hall, 1$£4), Ch. VIII. 123 guilty of repeating incessantly the slogans of progressive democracy, while in fact working to perpetuate the status quo within the United States, and to support almost any political leaders abroad as long as they are avowedly anti communist. The "causes" of the new radicals are many, but probably most important are the civil rights movement and the protest against the Vietnamese war. There is wide diversity among the individuals and groups which comprise the new-radical movement; indeed it is perhaps misleading to speak of the new radicalism as a single movement. In any event, it is much too soon to predict the long-run effects of these radicals upon American society. They may unite to form a coherent political pressure group, but at the present time this seems problematical. The various groups may largely go their separate ways in the pursuit of individual ends. And it may once again happen that the cries of radicals for social reforms are eventually incor porated within the programs of the major American political parties.^3 2 *~Tor an analysis of the various groups which make up "the movement," see Paul Jacobs and Sol Landau, The New Radicals (New York: Vintage Books, 1966). CHAPTER V ECONOMICS TO THE RIGHT OF CENTER In Chapter Vr an attempt will be made to analyze representative elements of "right of center" American eco nomics. In contrast to the subject matter of Chapter III, which was confined to the rather narrow range at the far right of the political-economic spectrum, the material proper to this chapter covers a broad area of that spectrum. It includes the works of those modern American economists who have come to recognize, more or less grudgingly, that it is well for government to play a somewhat broader and more active role in the operation of the economic system than it would be assigned by the intellectual successors of the classical liberals. It is clear that such a loose definition will encompass fairly wide differences of opin ion, and it is conceivable that this chapter could be di vided into sections which would describe groups of econo mists from the "almost-right" at one extreme to the "al- most-center" at the other. For two reasons, however, no such division will be made: first, because it is really ideas about specific issues rather than individual econo mists which can be so grouped, and a given thinker might 124 125 be much further right on some issues than others; and sec ond, because in the near-endless diversity of theorists and theories it would be much too easy to lose track of the strand of thought wtfich serves to unify these theorists. The point to be made here is, fundamentally, a simple one. There is a large segment of opinion in American political- economics which admits the need for an expanded govern mental role without welcoming it, and which, perhaps even more significantly, admits that the exact size and nature of this role must be determined on practical rather than on ideological grounds. Chapter V is structured to illustrate this theme from three separate viewpoints, rather than to examine the possible variations on the theme itself. The first section presents two attempts to provide philosophical perspective on the problems which confront economists who cherish many of the values of the competitive free market system, but who also see the need to rethink its premises within a twentieth century framework. The second section describes the way in which certain economists of this persuasion re act to the task of shaping national economic policy to cope with the practical problems of the American economy. The final section, through the published works of the Committee for Economic Development, examines the attitudes of a rela tively liberal shade of American business opinion, and, 126 through the writings of Adolf Berle and others, examines the theory of managerial capitalism. A. Philosophical Perspectives John Maurice Clark John Maurice Clark has suggested in Alternative to Serfdom that it is possible for an economic society to re strict the workings of the competitive market in important ways without necessarily embarking down Hayek's "road to serfdom." Writing for the expressed purpose of furnishing an alternative to Hayek's analysis, Clark stresses the "positive need" to fill the "gaps" left by the free market and the obvious necessity of assimilating the economic role of group organizations into economic thought and economic activity. Furthermore, he emphasizes that these purposes must be accomplished without compromising the "essential freedoms" of American life.1 Clark adopts as the central theme of his work "the principle that the price of freedom is its responsible exercise." Freedom can only be preserved when those who possess it use it in a manner consistent with the interests ^ohn Maurice Clark, Alternative to Serfdom (2d ed.; New York: Vintage Books, 1960), pp. vii-viii. 2Ibid., p. 4. 127 and freedoms of others; were irrepressible self-interest the driving force that some theorists would have it, no economic system could function coherently without brutal coercion. Americans have in the past shown a strong pref erence for voluntary action rather than government restric tions to control such self-interest. If these preferences are to be preserved in an age of large-scale economic or ganizations, they must be accompanied by the kind of re sponsible cooperation among these organizations that have heretofore generally characterized individual economic re lationships. This in turn implies that Americans recognize the nature and the interests of the community of which they are a part. The notion of an all-powerful state may be ab horrent, but the postulate that individuals are completely autonomous is unrealistic. The key to achieving a "bal anced society" lies in creating a community in which the legitimate interests of various groups are recognized, while at the same time individual freedoms both in and out of such groups are preserved as far as possible. The state will remain the one supreme representative of the entire community, but the more (community) responsibility groups and individuals exhibit in the exercise of their freedoms, the less cause will there be for the state to interfere with these freedoms. The state also bears the ultimate obligation to provide that a minimum standard of economic 128 well-being is available to all individuals; however, in general the community as a whole should relieve the state of this obligation by ensuring to all individuals the op portunity to achieve economic security through their own 3 productive efforts. Clark suggests that one of the reasons economic theory has failed to take account of the complex structure of modern society is that it has all too often failed to take account of the complex nature of man himself. As mod ern psychiatry has shown, the traditional view of "economic man" as a rational, calculating creature equating "marginal utilities" is inadequate in many ways and misleading in others. There is a need to provide a place in political economics for the consideration of many characteristics of human beings which have not previously been incorporated into "economic man," characteristics which inevitably in tertwine economic problems with the many other problems of men living together in society. In particular, heavy reli ance upon the concept of economic men satisfying their wants through the marketplace has put undue emphasis upon the gratification of individual and quantifiable wants, at the expense of those which are communal and/or non-quanti- fiable. When man is properly understood as a complicated 3Ibid., Ch. I. 129 social being, then the competitive free market can be prop erly understood as an appropriate means by which some of his activities may be channeled and some of his needs sat- 4 isfied. Competition and economic security are not di rectly antithetical, and in fact it can be argued that certain types of economic security are dependent upon the existence of the competitive market. However, the need for economic security is rightly acknowledged in many in stances as a sufficient reason for limiting competition. Clark argues that, while the state must often assume defi nite functions in guaranteeing economic security to its citizens, the best kind of "security" for a free society is that which comes from an underlying confidence that all in dividuals and groups will show a reasonable mutual consid eration of interests in times of change or difficulty.^ Clark sees the work of Keynes as a valuable con tribution to economic theory, but still as only relevant to a certain portion of the economic problems a society faces. Keynes' most useful service was to identify clearly the nature of the unemployment problems to which a modern capi talist society is susceptible. The effectiveness of his prescriptions must remain in doubt, however, in an impor tant sense; Clark emphasizes strongly that full employment 4Ibid., Ch. II. 5Ibid., pp. 64-87. 130 and economic prosperity cannot be guaranteed by any mechan ical formulas, Keynesian or otherwise. A "free, orderly, and democratic economic community" can be achieved and maintained only by a society which is willing and able to g work together toward that end. In summary it might be said that Clark's book con stitutes an admission that many of the objections raised by modern liberals against modern conservatives have merit, together with a plea that these objections be answered by more or less conservative means. Clark would cope with the complex problems of modern political economy, which to present-day liberals seem to cry out for a sizably in creased economic role for government, principally through the efforts of responsible individuals and responsible groups in an enlightened community. The best hope of pre serving a maximum of individual and group freedom is seen to lie in such efforts, for Clark realizes that the prob lems must somehow be solved. Anyone who pleads for exces sive freedom in the short run is asking unwittingly for drastic curtailments of freedom sooner or later. The amount of freedom available in a modern economic community is not unlimited, and even what is available must be earned through responsibility.7 6Ibid., Ch. IV. 7Ibid., Ch. V. 131 In Guideposts in Time of Change, Clark has written in greater detail of the mutual responsibility of business and government to cooperate in the search for a balanced society. Economic power, whether residing in business or government, must be used responsibly, but it is not appro priate for either business or government to set up stand ards of perfection to be followed only by the other. Per fection is not possible in the economic affairs of a changing, developing society, and it is essential that the various groups within society foster mutual cooperation g rather than mutual recriminations. In particular, Clark recognizes that the government of a modern capitalist society will find it necessary to manipulate the level of aggregate demand. By doing so, it can help to stabilize business fluctuations, and it can also assist business in maintaining high average levels of production and employment. However, as business leaders often point out, no government policies can promote sta bility or full employment in the absence of what is vaguely defined as a "favorable economic climate." Clark wishes to emphasize that the provision of such a climate is a job in which business and government have "balanced" responsibili ties. Too often businessmen argue that the only proper 8John York: Harper j, pp. 50-65 Time of Change (New 132 function of the government is to conduct its affairs so as to keep businessmen cheerful. Clark's criticism of this attitude is worth quoting at some length: The climate government sets for business is not the only important climatic condition for the economy. Government, as well as business, has a necessary and delicately difficult job to do in promoting a stable economy. It needs a favorable climate to succeed; and a major part of such a climate con sists of the attitudes of business toward the poli cies government is forced to follow, including some that have an experimental quality that might well cause uneasiness, unless business has an underlying confidence, both in government and in its own capac ity to adjust to novel policies. Business is not called on to forego the right of vigorous criticism of unsound policies, but it is called on to recog nize the necessity of policies that explore outside the beaten tracks, and to do its best to meet such policies halfway.9 Implicit in the above is a position Clark has stated explicitly elsewhere— that no rational defense of economic liberty can be couched as an argument for "pre serving the existing system" or for perpetuating any par ticular set of institutional arrangements. Systems change, whether the changes are induced intentionally or not, and citizens of a society bent upon preserving political and economic freedoms must concentrate upon channeling such changes rather than opposing them.10 In the final analysis, 9 Ibid., pp. 196-197. See also John Clark, Economic Institutions and Human Welfare (New York: Alfred A. Knopf, IMTT, PP. 258-263.------------ 10 Clark, Economic Institutions and Human Welfare, op. cit., pp. lOO-lOl. 133 Clark concludes, it all comes down to the fact that the United States would like to solve its problems democrati cally, and that if it is to do so, it needs to realize that "democratic solutions must grow, not be imposed." Clark sees a democracy as a process for dealing with changing sets of problems; no solutions which the process develops will be perfect or final. If the process is used with reasonable care by democratic citizens, they are likely to find that "what is gained is chiefly a chance to go on working at the next set of problems." Their reward is sim ply the privilege of continuing to enjoy political and eco nomic freedom in a sound, workable economic community. Henry Wallich Henry Wallich is a second prominent economist who has made the concept of "freedom" the focal point in a de fense of moderately conservative economic principles. Per haps significantly, he, like Clark, admits that even under the best of conditions, a price must be paid for the eco nomic and political freedom afforded by modern capitalism. However, whereas Clark is concerned with the restraints to be observed in the exercise of freedom itself, Wallich stresses what might be called the "opportunity cost" of freedom. ^Clark, Guideposts in Time of Change, op. cit., pp. 202-204. 134 In The Cost of Freedom, Wallich's contention is that freedom may very well be one of those things in life which can only be had at the cost of something else. At first glance, this assertion seems so plausible as to per haps be trivial, but a comparison with the claims made on behalf of freedom by both classical liberals and modern conservatives shows that it is not. The latter groups have often claimed that individual economic freedom was not only something desirable in itself, but also something which could be counted upon to help achieve the various explicit goals of a modern economic system. Wallich's treatment is significant in that it explicitly recognizes that politi cal-economic freedom must be justified in terms of its own intrinsic worth; its effects on the pursuit of other eco nomic goals are mixed, and they cannot be put forth as an 12 unqualified "pro-freedom" argument. The very meaning of "freedom" has become, to Wallich, a legitimate subject for investigation. He finds the "present" meaning of freedom to lie somewhere between the "old" freedom "from" arbitrary coercion by government and the "new" freedom "to" enjoy the security of a maximum economic standard. What is critical is that a large ele ment of choice remain for the individual as the old freedom 12 x‘Henry C. Wallich, The Cost of Freedom (New York; Collier Books, 1962), pp. 20-21. 135 is modified by the new. To include a measure of material security in the requirements for individual freedom is surely an advance, but to define freedom as enforced secu rity in a particular economic and political classification would be a perversion of the word. Wallich stresses that no formula exists which would decide automatically the legitimate economic activities of a democratic government. He includes as definitely acceptable the maintenance of competition and free markets, the stabilization of the business cycle and the provision of some measure of social security against personal disaster. However, the general rule should be that the government do only those things which it can do much more efficiently than the private sec tor. Some relative inefficiency can be tolerated for the sake of the freedom which dispersion of economic power helps to guarantee.^ If a "free" and decentralized economy is to func tion smoothly, it is vital that an adequate system of in centives be maintained so that individual initiative may be encouraged. Wallich specifically disavows the concept of "economic man" as the means to explain economic activity, and he acknowledges that a great variety of material and non-material rewards are important in spurring the efforts 13Ibid., Ch. 2. 136 of various individuals. Furthermore, he does not see the dangers to the American incentive system as lying in the often-decried progressive features of the tax system. What America must guard against is the tendency of some of its citizens to feel that it is somehow not fashionable to ex cel, and that a kind of guaranteed mediocrity is to be preferred to any element of economic or social risk-taking. What is required is that America preserve but perfect the type of incentive system which most observers feel that it now has: fairly generous social and economic rewards for successful initiative, with the protection of society af forded to those who take risks but lose.^ Inequalities of income need not be a serious problem, and in fact they are one of the unavoidable "costs of freedom." But it is im portant that they be accompanied by substantial equality of economic opportunity. Less successful men may be expected to remain content with lesser incomes in a society in which these incomes are high in absolute terms, and in which all men are free to better themselves if able. But there can be no place in a free economy for inequalities traceable to racial discrimination, or to inadequate educational oppor tunities, and there is surely no denying that much work in these areas remains to be done in America.^ ^*Ibid., Ch. 3. ^Ibid./ pp# 129-134. 137 Two contemporary economic issues are identified by Wallich as of special interest to conservative economists because they present challenging questions which must be faced honestly if the conservative position is to be main tained convincingly. They are the questions of whether the government should assume increased economic responsibili ties (a) to accelerate the growth of the economy and/or (b) to provide additional "needed services" in place of some of the "unnecessary gadgets" which are presently pro duced and consumed. Wallich is opposed to any large expan sion of the government for either purpose. He reasons that in each area the present record is a relatively good one, and that the scale of intervention required to produce worthwhile improvement would extract an unacceptable price in terms of political-economic freedom. As America becomes even more wealthy in material goods and services, her citi zens should become .ever more willing to accept lesser ad vances in material welfare rather than sacrifice the free dom to enjoy their affluence as they please.^ Clark and Wallich present broad general arguments which show that conservatives of a moderate persuasion well recognize both the limits within which freedom must be ex ercised and the costs which must be paid for freedom itself. The second section of this chapter considers some of the 16Ibid., Ch. 5. 138 goals and instruments of practical policy which other mod erately conservative economists have thought to be consis tent with political-economic freedom. B. Practical Economics The economists whose work is cited here to demon strate the conservative approach to the making of national economic policy are Raymond Saulnier and Arthur F. Burns. Each served on the Council of Economic Advisers during the Eisenhower Administration, and each has continued in more recent years to work and to write in the area of "policy" economics. There are of course some differences of empha sis in the works of the two men, and other conservatives would differ in varying degrees with both of them. However, it is possible to discern in the writings of Saulnier and Burns the general nature and tone of practical conservative economics. Raymond Saulnier In The Strategy of Economic Policy, Saulnier stresses that the economic policies of the federal govern ment will have far-reaching effects on various aspects of American life, and that such policies therefore must not be selected on purely economic grounds. In particular, Saulnier defines the "national purpose" to be the provision of "the greatest possible opportunity for self-directed 139 personal development and fulfillment consistent with the parallel rights of others.1,17 This purpose can be best achieved by giving "every possible encouragement to private 18 production and consumption." The point is not that the consumption (or production) of goods is an end to be pur sued strictly for its own sake. Rather Saulnier sees the essence of the American system to lie in the liberty which individuals have to produce and consume as they choose; by contrast, "collectivist" systems place severe restrictions upon this liberty, and would therefore be undesirable even if they could operate with a high degree of economic effi ciency.1^ Saulnier sees the Employment Act of 1946 as a man date for the government to do certain things, but perhaps even more as a commitment to do these things in a particu lar way. The Act directs the government, among other things, to strongly encourage free competitive enterprise, and Saulnier would insist the "other things" (maximum em ployment and production, the moderation of business cycles, etc.) be pursued through free competitive enterprise rather than along with it. This dictates that the government limit its "policy" activities almost exclusively to improv- 17Raymond J. Saulnier, The Strategy of Economic Policy (New Yorks Fordham University Press, 1962), p. 2. 18Ibid., pp. 9-19. 19Ibid., pp. 4-5. 140 ing the climate for private investment, rather than supple- 20 menting private investment with public. Saulnier feels, therefore, that a viable economic strategy must serve to implement what he regards as the three "imperatives" for a healthy business atmosphere. The first of these is a def inite commitment of the government to "anti-inflationism"; without such a commitment, vigorous growth cannot, in Saulnier's view, be sustained. The second is a specific requirement derivative from the first; with the various in flationary pressures present in the America of the 1960's, Saulnier sees no alternative to the adoption by the federal government of a budget policy which is "essentially con servative." And finally, government, business and labor must together find a way to maintain per-unit labor costs at a reasonably stable level.21 Saulnier suggests that a particularly frustrating aspect of recent economic policy-making has been that the tools of monetary policy have often been (of necessity) em ployed at cross purposes with those of fiscal policy. Be cause the United States has been running a large deficit in its international balance of payments, it has made at tempts to improve this balance through monetary measures which have had contractionary effects on the domestic econ omy. This has placed an increased burden on supposedly 2°Ibid., pp. 12-17. 21Ibid., Ch. 2. 141 expansionary fiscal policies; Saulnier's view is that such fiscal policies cannot work adequately as long as they en tail increasing government activity, increasing budget deficits and continuing inflation. One element of a sound economic strategy is therefore a concerted attack upon the balance of payments problem in order that monetary and fis cal policies may be made to work together, and in order that the latter, therefore, need not be overextended. The balance of payments problem is complex, and political as well as economic policies are involved in any potential solution; however, the problem could be greatly alleviated if inflation were halted. To attack the problem of inflation while encour aging increased output and employment, Saulnier introduces three other elements of economic strategy. The first is rigorous control of expenditures by the government, both to limit new activities to those which are absolutely neces sary and to cut back on current projects where possible. This self-restraint would enable the government to gradu ally reduce its budget deficits while at the same time it pursues a second strategic goal— the reduction of tax rates on corporate profits and on the higher and intermediate ranges of personal income. To Saulnier, such reductions seem necessary to stimulate investment by the private sec tor of the economy; with the increases in employment and 142 Income which follow, tax receipts may increase even though tax rates have been lowered. (The "Kennedy-Johnson" tax cut of 1964, enacted after the work of Saulnier cited here was written, was in some ways similar to what Saulnier pro posed, and achieved some of the results he desired. How ever, it was motivated by somewhat different reasoning, and will be discussed in more detail in Chapter VI.) A "Saulnier" tax cut is designed specifically to leave potential investors, both corporations and individ uals, with more after-tax profits to invest and with the prospects of being able to earn higher after-tax profits on current investments. Thus the tax cut will be to no avail if rising costs of various kinds are allowed to erode away the portion of profits which is no longer taken by taxa tion. Saulnier sees the chief danger to be rising per-unit labor costs. He would use whatever means necessary to achieve the final strategic economic end— the restriction of wage increases to, or preferably below, the increases in the productivity of labor. It is Saulnier's contention that by pursuing the sort of economic policy he outlines, America stands its best chance of fulfilling its specific economic goal of increased individual well-being without compormising its broader "national purpose." This national purpose, the provision of the freedom within which individuals may 143 develop themselves, remains more important than the choice of any particular economic strategies or policies; but the national purpose of America and the economic well-being of her citizens are interrelated, and must be pursued by means 22 which are consistent rather than mutually contradictory. Arthur F. Burns The position of Arthur F. Burns in matters of national economic policy is, like that of Saulnier, moder ately conservative, or somewhat to the right of center. However, Burns is in most matters more liberal, or closer to center, than is Saulnier. Burns' attitude toward eco nomic problems is also more balanced; while he is defi nitely anti-inflation, he does not give the same relative importance to the battle against inflation that Saulnier does, and he is much more ready than Saulnier to assign the government a positive role in moderating the business cycle. Burns argued persuasively in 1960 that perhaps no economic development of the present generation is more im portant than the tremendous softening of the impact which the business cycle has on the lives and fortunes of indi viduals. Because of various institutional changes in the American economy, personal income and consumption no longer decline as sharply in a recession as does production, and 22Ibid., Chs. 3-4. in a short and mild recession they may not decline at all. And although employment still varies directly with the volume of production, it is far more stable than at any time since the economy became predominantly industrialized. Part of the credit for the stabilization of the cycle must go to such "institutions" as social security, unemployment compensation, and graduated taxation of income; all of these "automatic" stabilizers help to ensure that dispos able personal income does not fall as fast in a recession as does physical production. On the other hand, Burns readily admits that an important factor in choking off re cessions in the post-World War II American economy has been and will continue to be countercyclical activity on the part of the federal government. Discretionary monetary and fiscal policies have in general been at least partially successful, and they are likely to be both more reliable and more useful as the government becomes more practiced in their application.2^ Writing in 1965, Burns went even further in ac knowledging the role of the Kennedy-Johnson Administration in producing the longest recorded period of peacetime ex pansion in American economic history. (This expansion i 23Arthur F. Burns, "Progress Toward Economic Sta bility," in Arthur L. Grey, Jr. and John E. Elliott (eds.), Economic Issues and Policies (2d ed.; New York: Houghton Mifflin, 1965), Ch. 16. 145 continued on in 1967, although the scale of the Vietnamese War now perhaps precludes calling it a strictly "peacetime" movement.) Even allowing that the start of "recovery" in February of 1961 may have been a "natural" upturn rather than an optimistic response to President Kennedy's promise to get the economy "moving," Burns would insist that the willingness of the government to pursue liberal fiscal and monetary policies has been a vital factor in sustaining the expansion to its record length. (Burns notes that while the international balance of payments problem forced the government to be "restrictive" in some aspects of its mone- i tary policy, it managed to produce an overall climate of monetary ease by keeping long-term interest rates down and by assuring that both bank credit and the money supply con tinued to grow "briskly.") However, Burns would also in sist that the activity of government can be no more than part of the explanation. Important also have been the in creasing confidence of the business community, especially as fiscal policy took the form of tax concessions and re ductions, and the fact that the economy started in 1961 from a position of considerable slack. As the expansion proceeds and the economy begins to operate near optimal capacity, two new problems must be faced: the threat of relatively serious inflation, and the type of unemployment 146 which persists even in the face of adequate aggregate de mand. 2^ Burns had emphasized prior to 1964 that no level of aggregate demand could guarantee really "full" employment if there persist in the economy structural obstacles which prevent available workers from filling available positions. Burns' suggestion is that the level of aggregate demand be considered adequate to provide "full" employment when the number of vacant jobs is at least equal to the number of unemployed workers. If there remain large numbers of workers who cannot get jobs at this point, then it becomes necessary to look beyond the analysis of aggregate demand for the solution to the problem. Such workers are "struc turally" unemployed; that is, they are unable to obtain jobs because for one reason or another the jobs which are "open" are not open to them. The reasons which may be relevant here include lack of training or education on the part of workers, discrimination in hiring by employers, and the failure of potential employers in one geographic area to communicate effectively with potential workers in an other. Structural unemployment has become widely recog nized as a serious problem in the middle 1960's. It is not, however, a new problem. Rather it is a problem which was 2^Arthur F. Burns, The Management of Prosperity (New Yorks Columbia University Press, 1966), Ch. I. 147 obscured from the view of many economists as long as there also existed a deficiency of aggregate demand. It was an achievement of Burns (as well as some others) to be able to identify a serious problem before it became completely obvious.^ A close link exists between the structural unem ployment problem and the danger of relatively severe infla tion. Burns has long claimed that no one "cure" could stop or prevent inflation without endangering a recession; in order to enjoy "prosperity without inflation," he saw that America must make price stability one goal, among others, and that these goals as a group must be pursued with all 26 available policy measures. In 1965, Burns was able to observe that "the relative stability of costs and prices (had) favored quietly and unobtrusively the continuance of the (current) expansion."2^ On the other hand, he also noted that because of the existence of structural unemploy ment, the threat of inflation would be increasingly severe 2^Arthur F. Burns, "Economics and Our Public Policy of Full Employment," in Edgar 0. Edwards (ed.), The Na tion's Economic Objectives (Chicago: The University of Chicago Press, 19<>4), pp. 55-71. See also Burns, The Management of Prosperity, op. cit., Ch. II. 26 Arthur F. Burns, Prosperity Without Inflation (New York: Fordham University Press, 1957), Chs. 1-4. 27 'Burns, The Management of Prosperity, op. cit., p. 25. 148 as the economy neared operation at optimal capacity. This would be the case even though there remained a considerable number of unemployed workers, for the majority of these would be structurally unemployed; attempts to create jobs for such workers by bolstering aggregate demand would re sult chiefly in inflationary bidding for the services of the more qualified workers. Burns' most urgent message is probably that there is room for some confidence in the ability of a democratic government to moderate the excesses of the business cycle, but that there is no room for complacency. In particular it would be disastrous to conclude that fiscal and monetary policies alone (the "new economics") can guarantee con tinued prosperity. When expansionist policies have suc ceeded in removing the majority of "slack" from the economy, it becomes necessary to solve other problems if prosperity is to be maintained. In addition to inflation and struc tural unemployment, these include also balance of payments difficulties and the need to strengthen long-run economic incentives through gradual reduction of tax rates. Burns notes especially that if gross national product and tax revenues continue to grow in absolute terms, the reduction of tax rates should be a sound possibility. In the final analysis, Burns concludes, an economic system must be judged on whether it contributes to the 149 betterment of the lives of those who live under it. Human betterment involves individual freedom and security as well as material wealth, and Burns feels that by and large the American economy must be judged favorably for its perfor mance in recent years. Things will continue to improve as long as the American people are able to receive new eco nomic ideas openly, but to apply them only while bearing in mind the need to preserve the institutions of political and 28 economic freedom. C. The "Liberal-Conservative" Business Ideology The Committee for Economic Development The Committee for Economic Development is composed of two hundred businessmen and educators, and represents an attempt to develop a business-academic partnership capable of sponsoring economic research which is both pragmatic and scholarly. The C.E.D. is devoted to two basic objec tives: first, to develop recommendations for business and public policy which will preserve the freedoms of American society, while simultaneously promoting such economic goals as high employment, increased productivity, higher living standards, stabilization of prices and the business cycle, and broader economic opportunities for all citizens; and second, to explain to the American public both that these 150 goals are important and that the means to achieve them are available. The C.E.D.'s work is "nonpartisan and nonpoli tical ," and is supported by contributions from business and industry. It is the announced attitude of the C.E.D. that business can maintain the respect of society only if busi nessmen demonstrate a deep and genuine concern for the gen eral welfare, and that this respect must be maintained if the American capitalist system is to function effectively.^ The commitment of the C.E.D to a kind of progres sive conservatism is apparent in the specific proposals of its Research and Policy Committee, which endorse a position on government economic activity not unlike that attributed in the preceding section to Arthur F. Burns. However, what is even more important to the argument here is that the ex istence of the C.E.D. represents a candid admission on the part of its members that the fortunes of American business are to a great extent dependent upon the responsible exer cise of governmental power, and that this exercise must in volve much more than simply passive activities. Further more, the C.E.D. acknowledges that the business community shares with other Americans the responsibility for solving 29The preceding summary of C.E.D. objectives is taken from the statement reproduced on the back cover of all recent C.E.D. statements on national policy. For ex ample, see the publications referenced in the notes 33-37 to this chapter. 151 broad political-economic problems, and that in fact the position, influence and wealth of private business in Amer ica imposes upon it special obligations in this regard. The remainder of this section will describe some of the ways in which "liberal-conservative" American businessmen 30 have responded to these obligations. The C.E.D. recognized before the end of World War II that when peace came, the government of the United States would find it necessary to participate actively in the operations of the peacetime economy. The traditions of "free enterprise" in America could be maintained only so long as that term was understood to include public enter prise where private enterprise was unable to perform neces sary functions equitably and efficiently. Government would need to develop effective tools, including fiscal and mone tary policies, to cope with both inflation and depression. Public employment and deficit spending should be standard weapons in combating the latter. And, perhaps most impor tant, the democratic political system must provide the means whereby a balance could be found between economic 3^This section deals only with publications of the C.E.D. itself. However, a fairly comprehensive statement on national goals and policies, similar in general tone to that which is implied here, is furnished by the C.E.D.'s fairly autonomous Commission on Money and Credit. See The Commission on Money and credit, Money and Credit (Engle wood Cliffs, N.J.: Prentice-Hall, 1961. 152 31 opportunity and economic security. Speaking to a C.E.D. symposium in 1966, Walter Heller paid tribute to the organization's efforts in making the "new economics" acceptable to a large portion of the American business community. Noting especially that the C.E.D. had recognized the need for modern fiscal and mone tary policies much earlier than many others, Heller cred ited the Committee with a large role in making such poli cies fashionable even in many "conservative" quarters. "Conservative" businessmen have been shown that a certain amount of "management" of a prosperous free economy is ne cessary, and that government managers must be no less in ventive than private managers in carrying out this function. Heller emphasized that, while differences between modern liberals (such as himself) and "new" conservatives would continue to exist, they need no longer be the result of either side clinging to a doctrinaire position; such dif ferences would be much more Over matters of specific tac- 32 tics than over matters of fundamental principle. It is perhaps useful to think of the "educational" 31 William Benton, The Economics of a Free Society, Supplementary Paper No. 1 of the C.E.D. (New York: C.E.D., 1944), pp. 5-7. ^Walter W. Heller, "Adjusting the 'New Economics' to High-Pressure Prosperity," in the report on the C.E.D. Symposium Managing a Full Employment Economy (New York: c .e .d ., 19^5*5^5*— 153 efforts of the C.E.D.'s Research and Policy Committee as composed of two broad types of work: attempts to analyze the goals and the tools of government economic policy, and attempts to furnish information and advice on broader eco nomic questions confronting the society as a whole. Ex amples of the former include such studies as Fiscal and Monetary Policy for High Employment, A Better Balance in Federal Taxes or Business, and Budgeting for National Ob jectives. Examples of the latter include Modernizing Local Government and Economic Literacy for Americans. Short sketches of the purposes and conclusions of these projects will furnish a general picture of the range and nature of the C.E.D.'s interests. In Fiscal and Monetary Policy for High Employment, the C.E.D. argues that the real "problem of policy" is to achieve high levels of employment while at the same time advancing the achievement of such other economic goals as a rising per capita income, the allocation of resources to produce the goods and services most desired by Americans, the preservation of economic freedom and the maintenance of a stable price level and a "sound dollar." This study of the C.E.D. reflects the 1961 perspective from which it was written; the preceding four years had been disturbing not only in that recessions alternated with prosperity, but especially in that even in the "prosperity" phases unem- 154 ployment had continued high. Therefore, the need for more effective policy seemed obvious, but it also was clear that no combination of fiscal and monetary policies would con stitute a cure-all. If fiscal and monetary policies were to be effective tools in promoting high employment, it would be necessary to restrain somewhat the rate at which average wages had been rising and to attack specifically the causes of structural unemployment. It would then seem possible, argued the C.E.D., that intelligent taxing, ex penditure and monetary procedures could both reduce the number and severity of recessions and reduce unemployment over the entire business cycle; price stability need not be 33 compromised. A Better Balance in Federal Taxes on Business is an example of a C.E.D. study devoted to a very specific (1966) question of economic policy. It is an attempt to suggest means whereby the government could finance increased mili tary expenditures in Vietnam in a non-inflationary way, while compromising the long-run prospects for a "Great So ciety" as little as possible. The C.E.D. realizes that the current need for revenue will necessitate a higher level of taxation on American business; however, it is prepared to ^c.E.D., Fiscal and Monetary Policy for High Em ployment, A Statement on National Policy by the Research and Policy Committee (New York: C.E.D., 1961), pp. 7, 13-21. 155 argue that the tax rate on corporate profits is already so high as to be a disincentive to investment, and that such disincentives are a threat to growth prospects (and hence welfare programs) in the long run. The really significant point is that the C.E.D.'s response is not a polemic against taxes on American business, but rather a concrete suggestion concerning ways to make such taxes more effi cient and, perhaps, more equitable. The specific proposal is to introduce a value-added tax on business to help meet current revenue needs, and to retain this tax but reduce the corporate profits tax when revenue needs subside. There would remain the problem of making certain that this new form of "business" tax was not immediately passed on to consumers, but it is at least arguable that consumers would not be made any more responsible for business taxes than they are at present. In the long run, the C.E.D. feels, a shift to partial reliance on the value-added tax would in crease investment incentives and foster more rapid economic growth, thus helping to ensure both high employment and progress toward other goals of the "Great Society."34 In Budgeting for National Objectives, the C.E.D. has offered broad recommendations on the uses, functions 34C.E.D., A Better Balance in Federal Taxes on Business, A Statement on National Policy by the Research and Policy Committee (New York: C.E.D., 1966), pp. 9-10. 156 and administration of the federal government budget. The C.E.D. found that the national budget is by no means the effective tool which it might be for rational policy-making and for the management of government operations. The budgeting process has largely ignored long-run planning, the "broad picture" of American society, and the considera tion of the functions of government; it has concentrated instead on year-to-year spending, attention to great masses of detail, and the allocation of funds among various agen cies rather than among various functional goals. Further more, the executive branch of the government is in many areas structured to meet problems which are no longer of paramount importance. The C.E.D. proposes that the gov ernment is long overdue for a large injection of the meth ods of modern management. The government must develop a method of identifying the broad goals of its activities so that the budget may be structured to show the allocation of resources among these goals, and so that the opportunity costs of pursuing any one goal may be evaluated in terms of the others. (President Johnson's attempt to implement the so-called "planning-programing-budgeting system," or "PPBS," throughout the government is hailed as a large first step in the right direction.) The C.E.D., perhaps in this study more explicitly than anywhere else, reflects the "liberal- conservative" attitude that government is not something 157 which can be safely pushed aside in the hope that it will then not "obstruct" free enterprise; rather the government of a modern capitalist democracy must perform increasingly complex functions if "free enterprise" is to operate at all. The important thing is that these functions be clearly un derstood and rationally executed.^ The above should not be interpreted as implying C.E.D. approval for an indefinite expansion of the power of the federal government, for such expansion would, in its view be incompatible with the political and economic free doms which Americans presumably are determined to preserve. The C.E.D. feels that an important element in shortening the list of things which the federal government will be called upon to do should be a strengthening and an updating of the institutions of local government. Modernizing Local Government advocates a better "balanced federalism" than the United States seems to be headed for at this time. On the other hand, it emphasizes that the imbalances in Ameri can federalism are due more to the ineffectiveness of local governments than to any real desire of the federal govern ment to "do everything." What is needed is a drastic streamlining of the cumbersome and overlapping layers of 35 C.E.D., Budgeting for National Objectives, A Statement on National Policy by the Research and Policy Committee (New York: C.E.D., 1966), pp. 9-15. 158 local government which exist in most states. Local units must be constituted in sizes appropriate to the most pres sing local problems, and then given the resources and the authority to solve these problems. It may be that federal aid will still be necessary and desirable for many purposes, but federal aid need not mean federal control if local gov ernments are equipped to confront problems themselves when resources are made available. The final C.E.D. "project" to be mentioned here is the organization's attempt to promote the education of the American people as a whole in the principles of the "new economics." Economic Literacy for Americans underscores the various obstacles which have kept so many Americans il literate in the subject of economics. The C.E.D. advances specific recommendations for coping with the situation, but more important is the fact that it explicitly and em phatically defines the need for widespread education in economics. The American political-economic system will not be able to meet democratically the challenges which domestic and foreign issues pose for it if it cannot build a degree of understanding of these issues among its citizens. Ei ther such challenges will be met by government agencies C.E.D., Modernizing Local Government, A Statement on National Policy by the Research and Policy Committee (New York; C.E.D., 1966), Ch. 1. 159 over which citizens feel they have no control, in measures which the people do not understand, or else the challenges will not be met at all. If the American system is to re main both viable and, at least in some imperfect sense, democratic, it has no choice but to give its citizens a "feel" for the economic and political problems which the system must solve. Furthermore, along with a knowledge of what the problems are should come the realization that the problems are not simple, and that they must be attacked with all appropriate methods. Some methods may be rejected as inconsistent with American ideals of freedom and indi vidual rights, but it is vital that useful methods not be rejected simply on the basis of irrational prejudice. The dedication of the C.E.D. to the goal of "economic literacy" is a further acknowledgment that the duties of the progres sive American businessman are by no means limited to simply 37 "turning a profit." ' And the temperate "liberal-conserva- tism" of the C.E.D. makes a large contribution to the all- important public discussion of the future of the American economy. The "Managerial Revolution" In examining the analysis of The American Business 3?c .E.D., Economic Literacy for Americans, A State ment on National Policy by the Research and Policy Commit tee (New York: C.E.D., 1962), Chs. 1-4. 160 Creed, it was noted that the classical version of the creed is seen as competing with the newer managerial strand. (See above, pp. 88-91.) The expositors of the latter rec ognize that the classical model of competitive, decentral ized capitalism scarcely describes the American economy of the 1960's. The twentieth century has witnessed a more-or- less steady emergence of the large corporation as the domi nant form of American business enterprise, and the theory of managerial capitalism has arisen as an attempt to take account of the emergence and development of the American corporate structure. Managerial capitalism will first be explained through the writings of Adolf Berle, a leading theorist and apologist of the managerial revolution; then the theory will be criticized briefly. Berle describes in detail the process by which the "personal" capitalism of the nineteenth century has evolved into the corporate capitalism of today. The first stage in this process was the incorporation of most large American businesses. The immediate effects of incorporation were limited, because the individuals or families who had owned the businesses outright generally retained at least a ma jority of the corporation stock, and they continued to con trol the affairs of the enterprise much as before. However, within a generation most corporations passed to a second stage. Shareholdings became much more widely dispersed, 161 although effective control remained with one or a very few large shareholders. These latter did not own a majority of voting stock, but they owned enough to persuade the very many smaller holders that it was useless or undesirable to challenge their leadership. Such shareholders, possessing "working control," were able to dominate the corporation through the board of directors. The majority of large American corporations have now reached a third stage, in which stock ownership is so diffuse that no individual stockholders can bring any sig nificant pressure to bear upon the board of directors. The board of directors is able to perpetuate its own control by naming the slate of candidates who will succeed the present board (and most directors are renominated indefinitely); the proxy voting which follows is seldom anything but a formality. Real control now rests with the board of direc tors, and with' the officers of the corporation, who are appointed by the board. These are the "professional mana gers" of managerial capitalism, and it is "their" system which is evaluated below. It is worth noting here, however^ that Berle sees the possibility that corporate capitalism will reach yet a fourth stage, in which ownership and the real control of large corporations are reunited in large financial institutions. Thus far, such institutions have shown no interest in using their stockholdings to influence 162 corporate management, but if their holdings continue to increase, there is no particular reason to think that this attitude will be maintained.®® The first three stages of the corporate revolution have completed the separation of the two traditional com ponents of property rights. Historically, holders of prop erty have "owned" it (and therefore been entitled to its economic fruits in the form of rent, interest or profits) and they have "controlled" it (and thus been able to decide how it would be used). Managerial capitalism separates the components? ownership rests with stockholders, but the power of control has passed to corporate management. It is natural to question whether the power of the managers is truly "legitimate," and to ask what checks there are upon its use. Berle argues that the power of managers is legiti mate, because they have gained it in a way consistent with the laws and rituals of society. It is checked from with out both by public opinion and (more significantly) by the regulation of government, and it is checked from within by the broad sense of "social responsibility" which the mana gers have developed. In general, the activity of govern ment is "negative" in nature; that is it consists in 3 8 "Adolf A. Berle, Power Without Property (New York; Harvest Books, 1959), pp. 69-76. 163 placing appropriate restrictions upon private enterprise rather than in competing with it directly. ^ This does not imply that the role of the government has been unimportant; on the contrary, Berle asserts that the present American "economic republic" would never have emerged were it not for "the really remarkable capacity of the American politi cal state to enter and deal with the economic field with a remarkable combination of courage and restraint.40 The concept of an "economic republic" is central to Berle's justification of the system of managerial capital ism, for it is through this concept that the great concen trations of economic power, both in government and in pri vate corporations, are thought to operate in the interests of the American people as a whole. It is not new that pub lic officials be identified, in principle, as servants of the citizenry, but the idea of a broad social orientation for the leaders of private enterprise is one of the dis tinctive innovations of the theory of managerial capitalism. As Berle puts it, the relatively small number of men who administer the important economic affairs in society "re semble a professional civil service far more than a group 39Ibid., pp. 93-110. 40 Adolf A. Berle, The American Economic Republic (New Yorks Harvest Books, i9(>§), p. 15. 164 of property owning and property-minded entrepreneurs."4^ It is essential that this attitude be preserved, because Berle claims that, in the near future increasingly, reliance must be placed on a variety of economic organization [sic], capable of holding and using power legitimately, of restraining its abuse or illegitimate use, and of assuming respon sibility for meeting social, community and individ ual needs. This is the justification for the . . . (term) "The Economic R e p u b l i c . The needs which economic managers are assumed to supply thus range not only beyond the concerns of the firm to those of the entire economy, but also beyond the con cerns of the economy to such things as leadership in civic activities and the endowment of philanthropic foundations. This would seem to make somewhat hollow Berle's insistence that the economic republic is not responsible for the value system in which it operates; more will be said of this be low. However, it enables Berle to explain the growth and development of the American economy according to the theory of the "transcendental margin." This margin is that part of a country's gross national produce which its citizens are induced to produce, mobilize and utilize for purposes other than personal or immediate-family use. This margin may be, and generally is, provided partially by the private **Berle, Power Without Property, op. cit., p. 118. 42Ibid. 165 sector, and partially by the citizens' acquiescence in cer tain forms of public expenditures. According to Berle, such a margin can be substantial only when a country is motivated by some "transcendent" ethic which provides the incentive to work for goals which are "not related to di rect individual advantage on this earth." The Protestant ethic of hard work and careful saving was and is an impor tant element in inducing individuals to contribute directly to the margin; however, in the corporate capitalism of the twentieth century, Berle sees the margin as increasingly dependent upon the sense of social responsibility of the managers. Berle makes no claim that the American system had fulfilled American ideals. Time and again he stresses that the system remains imperfect, and that the economic repub lic is necessarily only a part of a broader social system. However, he is equally persistent in noting that the eco nomic republic has produced a tremendous capacity for phys ical output, and that this capacity could be an enormous help toward "the good life" if Americans could define more 44 explicitly their values and priorities. What seems a 43Berle, The American Economic Republic, op. cit.. Ch. 13. 44 Ibid., pp. 5-7, 218; Power Without Property, op. cit., pp. 118, 134-140; and The 20th Century Capitalist Revolution (New York: Harvest Books, 1954}, Ch. V. 166 little strange is that Berle does not assign some responsi bility to the economic republic for the broader social value system within which it operates. This is the more surprising in view of the very broad areas in which corpo rate managers are presumed to exercise their social re sponsibility. The economic republic does not alone deter mine the system of American social values, but it would seem to be one of the more important determinants. Those who criticize the system frequently make precisely this complaint, and Berle does not offer much by way of a speci fic answer. An extended critique of managerial capitalism is provided by Michael Reagan in The Managed Economy. Reagan claims that, as a means of achieving a rational social sys tem in a big-business economy, reliance on the social re sponsibility of corporate managers cannot, does not, and should not work. It cannot work because in the final anal ysis corporations succeed or fail according to their rate of profit, and social duties will always be neglected where they are regarded as entailing real financial loss. It does not work; witness the price-fixing scandal involving, among other corporations, General Electric, one of the most outspoken advocates of social responsibility. And finally, according to Reagan, managerialism should not be allowed to work; if it functioned even as its greatest admirers de- 167 scribe it, it would operate as an anti-democratic paternal ism run by a business elite.Reagan's "solutions" will be considered in Chapter VIII. There is no doubt that the theory o£ managerial capitalism is open to objection on various grounds. Still, it has represented a strong attempt to come to grips with the problem of describing the phenomenon of American capi talism as it exists in the mid-twentieth century. It has displaced at least partially the much less realistic theory of classical competitive capitalism, and it has called needed attention to the problems of administering and con trolling concentrations of economic power. Enthusiastic managerialists (such as Berle) rationalize solutions for these problems which accept a somewhat more active role for government as a necessary concomitant for the preservation of the system of managerial corporate capitalism. The pro posals of theorists who would be willing to change the sys tem somewhat more drastically are discussed in later chap ters. ^Michael g . Reagan, The Managed Economy (New York: Oxford University Press, 1963), pp. 135-156. CHAPTER VI ECONOMICS TO THE LEFT OF CENTER In the years since the depression of the 1930's, Americans have come to accept the necessity of their gov ernment bearing some responsibility for the behavior of the economy. Chapter V described the attitudes of those poli tical economists who have come to this acceptance "from the right." In general, such economists have a strong predis position in favor of restricting governmental economic ac tivity as much as feasible, but at the same time they have come to realize that a modern capitalist economy cannot operate tolerably unless a coherent framework of government policy is established. In this chapter, attention shifts to economists who are more congenial to the prospects of governmental activity. Some are simply more enthusiastic supporters of tools such as fiscal and monetary policies which are acceptable also to the right-of-center groups; it is largely the argumentation and the prodding of these men which have drawn the "center" in American political economics somewhat leftward in recent years. Others advo cate that the United States government assume responsibili ties considerably broader than what is now acceptable to 168 the consensus of public opinion; if this group is success ful, the leftward drift of the "center" will continue for some time to come. The first section of this chapter describes the background and the basic analytical contributions of the economics of John Maynard Keynes; Keynesian analysis forms the theoretical basis for the so-called "new economics." The second section examines the ways in which the economics of the Kennedy-Johnson administrations has reflected the work of Keynes and his followers. The third section con siders specific questions and problems which yet confront Americans even when the new economics is being applied with reasonable success. A. The Keynesian Analytical Tools Keynes' Critique of Classical Economics A fundamental tenet of the orthodox version of the classical economics was that total employment was deter mined by the intersection of the demand-for-labor function and the labor-supply function. This, by definition, elimi nated the possibility of involuntary unemployment existing while an economy was "in equilibrium." If at a given time workers willing to work would decrease and the demands of employers for labor would increase, until an equilibrium point was reached at which all workers willing to work at 170 the given wage rate were employed. Any potential workers who did not have jobs were then unwilling to work at that wage rate, and their unemployment was therefore "voluntary." Whatever the merits of the classical model, it clearly did not provide a basis for attacking the economic hardships which accompanied the depression of the 1930's. This depression made it all too apparent that advanced capitalist economics could "sustain" extremely high rates of involuntary unemployment over periods of several years. Classical theorists might argue that, technically, "equi librium" had not been reached; if this claim were granted, it simply served to make economic theory completely irrele vant as a guide to public policy, for if "non-equilibrium" states are to persist for extended periods, a theory which dismisses them lightly is of little practical use. Since classical theory had so little to say about the "real world" of the time, it was not surprising that the 1930's produced a new formulation of economic theory which was de signed precisely to cope with real-world situations. The General Theory of Employment, Interest and Money appeared in 1936, the work of the late English econo mist, John Maynard Keynes.'*’ Keynes regarded his General Theory as nothing less than a fundamental rethinking of the Ijohn Maynard Keynes, The General Theory of Employ- ment, Interest and Money (New Yorks Harcourt, Brace and World", 1936)7-------- 171 principles which supposedly explain the workings of a capi talist economic system. Keynes' claim was that classical economic theory was adequate to this purpose only under certain special conditions, specifically under those condi tions when there was no involuntary unemployment. The mis take of the classical economists was in supposing full em ployment to be a logical necessity "in equilibrium." Keynes succeeded in defining a system in which "equilib rium" might occur either at or below full employment, and which included the classical theory as a special case. Un fortunately for the classical theory, the characteristics which must be postulated in order to guarantee this special case "happen not to be those of the economic society in which we actually live, with the result that its teaching is misleading and disastrous if we attempt to apply it to the facts of experience."2 Where did the classical theorists go wrong? Ac cording to Keynes, they made an unwarranted assumption about the mechanism by which an economy's savings are chan neled into productive investment. They tended to presup pose, either implicitly or explicitly, that when individ uals "created" savings by consuming only a part of their total incomes, these savings would be put to work in the form of net investment. It is crucial that savings be in- 2Ibid., p. 3. 172 vested, because investment together with consumption con stitutes the total national income (in the simplest Keynes ian model). if investors do not borrow and invest the part of national income which is saved, then national income will decline. And Keynes pointed out that in a modern economy, saving and investment are separate functions car ried out by separate groups of people; there is nothing to guarantee that investors will desire to invest an amount which matches what savers would like to save if their total income were to correspond to a full employment condition for the economy. If these independent sets of desires are not mutually compatible, the capitalist economic system will still produce an ex post equality between saving and investment for any given time period, but not at the full employment level. Worse yet, according to Keynes, if an economy once falls below the full employment level of national income, there is no automatic mechanism which will guarantee its return to that level. It may operate indefinitely in an equilibrium in which low investment equals low saving. In vestment remains low because businessmen are pessimistic about the state of the economy, and can see no reason to expand their new commitments; at the resultant low level of national income, saving is also low. It is in the emphasis on this final point that Keynes differs most sharply from 173 the classical theorist; the latter had thought that any time investment slipped below a full employment level, ex cess savings would become available for loans at a lower rate of interest, and that businessmen would be enticed to increase their investments. Keynes saw that such excess savings need not appear, because a fall in investment would result in a decrease in national income, and hence would produce a fall in savings also. The economics of J. M. Keynes and his followers has become standard textbook material.^ No attempt will be made to present here a complete formulation of the analy tics of the Keynesian system. As a point of fact, it should be noted that the controversy over whether Keynesian theory is a "revolutionary" development (or merely a sen sible extension of classical economics) is by no means set tled among economic theorists.^ However, it is undeniable that Keynesian economics has completely transformed the role of the economist in a capitalist society, for it has 3 Robert L. Heilbroner, The Worldly Philosophers (rev. ed.; New York: Simon and Schuster, 1961), pp. 229- 239. 4 One example (out of an almost unlimited number) is the text of Gardner Ackley, Macroeconomic Theory (New York: The Macmillan Co., 1961). ^Examples of various points of view are given in the collection of Robert Lekachman (ed.), Keynes and the Classics (Boston: D. C. Heath and Company, 1$64). 174 focused the attention of at least some economists upon the urgent problems of modern capitalism. Furthermore, the widespread acceptance of Keynesian analysis has produced in many quarters a new understanding of the part which govern ment must play if a capitalist economy is to function tol erably. Despite the fact that the "new economics" now in fashion in advanced capitalist countries can be traced di rectly to Keynes, it is obvious to anyone who reads the General Theory that in itself it is not a guide for practi cal politicians. The explanation, popularization and ex tension of Keynes' work have occupied the attention of many first-rate economists. The remainder of this section dis cusses some of the contributions of prominent American Keynesians to this effort. The Interpretation of Keynesian Economics It is often noted that Keynes, in his General The ory, was often neither as precise nor as unambiguous as a reader might desire. One analyst claims that it "is a verbal thicket, in many places incoherent, ambiguous and obscure. Keynes enjoyed the privileges of a pathfinder, leaving it to others to tidy up after him."6 It may be 6Allen M. Sievers, Revolution, Evolution and the Economic Order (Englewood Cliffs, N.J.: Prentice-Hall, 1 9 6 2 ) , p . 12. 175 that Keynes himself would have returned to this "tidying" had he not been under continuous pressure (from the time of its publication until his death ten years later) from the variety of tasks he performed as adviser to the English government. In any case, it fell to first generation Keynesians to try to present the essentials of Keynes' argument in a style and a form more congenial to the aver age social scientist than those of the General Theory it self. Two works of American Keynesians in this area are especially noteworthy: The Economics of John Maynard Keynes by Dudley Dillard and A Guide to Keynes by Alvin 7 Hansen. These books made the Keynesian analysis intelli gible at least to interested economists, and they also where necessary extended the analysis into a more complete logical system. Both Dillard and Hansen made widespread use of graphical techniques to describe the functioning of Keynes' model, inviting the question of why Keynes himself did not do so. The answer may be that to Keynes the matter was all perfectly clear without the aid of such techniques. However, it is almost certain that without the efforts of Dillar, Hansen and others in this area, Keynesian theory 7 Dudley Dillard, The Economics of John Maynard Keynes (Englewood Cliffs, N.J.: Prentice-Hall, 1948); Alvin H. Hansen, A Guide to Keynes (New York: McGraw-Hill, 1953). 176 would never have reached on through the journals of profes sional economists to the elementary textbooks and popular literature of economics. The reason that this spread of Keynesian thinking has been so significant is that as noted above, those who have accepted the Keynesian message see the economic role of government in a capitalist economy in a much different way from those who have not. To under stand why this is so, it is necessary to expand somewhat on the account given previously of the roles of savers and in vestors in determining the equilibrium level of national income and employment. Keynesian theory points out that if the desires of investor are not sufficiently vigorous to match the full employment level of private saving with private investment, it is within the power of the government to take steps which will nevertheless produce full employment by ensuring that the full employment level of saving within the economy is somehow matched by investment. Either "monetary" or "fiscal" policies or a combination may be used. The gov ernment can within certain limits, use monetary measures to increase the supply of money and lower the rate of interest on the loans which savers make (directly or indirectly) to investors; then desired investment will rise, the full em ployment saving level will fall somewhat, and national in come will increase to or toward full employment. It is 177 fundamental to the Keynesian analysis, however, that mone tary policy need not be sufficient to bring about full em ployment. It may be that no matter how much the supply of money is increased, the rate of interest will not fall low enough to equate investment and saving at a full employment level. An alternative way of saying the same thing is that no matter how much the supply of money is increased, the desires of investors may not become sufficiently strong to use up the full amount of savings which would be provided out of the full employment level of national income. The aggregate demand of the economy, equal to consumption plus investment, would then fall short of potential aggregate supply, equal to consumption plus full employment saving, and a full employment level of national income could not be sustained.** In this situation the government must make use of fiscal policy; that is, it must act directly to bolster the level of aggregate demand. It may do this either by in creasing government expenditures or by decreasing taxes. Government expenditures may be considered as a third ele ment of aggregate demand, or simply as a part of investment over which the government has direct control; similarly, taxes may be considered as a third element of aggregate Q Alvin H. Hansen, Monetary Theory and Fiscal Policy (New York: W. W. Norton and Co., 1964), Ch. 3. 178 supply or as the government-controlled component of saving. It is convenient here to choose the latter wording in each case, because then the problem of reaching full employment remains that of equating investment with full employment saving. The difference is that "investment" is now private investment plus government investment, and "saving" is pri vate saving plus government saving. It can be shown fairly simply that, if the Keynesian model is an adequate repre sentation of our economic system, the government can manip ulate its expenditures and its taxation revenue so that 9 full employment will be achieved. However, it may well be that in order to achieve this level of employment and na tional income, the government will be forced to spend more than it collects in revenues, incur operating deficits, and increase the "national debt" by borrowing from its citi zens. At this point many ordinary American citizens, and some relatively conservative economists who nevertheless accept a great deal of Keynes' analysis, object strongly. Are not such deficits signs of irresponsibility in govern ment (?), do they not lead to eventual national bankruptcy (?), and so on. It is here that many (but not all) right-of-center economists break with the more liberal Keynesian theorists. Q * Alvin H. Hansen, The Postwar American Economy (New York: Harper & Row, 1<?<>4) , 6h. 4. 179 Keynes' analysis is often presented, as it has been here, as strictly a diagnosis of what may cause insufficiencies of aggregate demand, and hence the danger of recession and depression; this mirrors the spirit in which Keynes wrote, for a prolonged depression was the immediate problem which he faced. However, the Keynesian analytical tools are re versible, and can be applied equally well in situations where excessive aggregate demand threatens continuing in flation. In general, the more conservative modern econo mists tend to look unhappily upon government coordination ("planning") of any sort; yet they may accept a certain amount of Keynes' theory while rejecting his policy recom mendations, and they even embrace Keynesian weapons to com bat inflation while rejecting them when the need is to stimulate aggregate demand. A kind of "moderate-conserva- tive-Keynesian" position may be to accept the need for fed eral deficits in times of recession while insisting that these be offset by budget surpluses in the expansionary phase of the business cycle. However, liberal conserva tives (for example, CED) as well as the left-of center Keynesians have come to see deficit financing as being a sensible weapon of modern economic policy rather than a questionable technique to be used apologetically. And the latter group, at least, welcome the fact that the American government is coming to play an increasingly active and 180 sophisticated part in the coordination of the economic sys tem. The Popularization of Keynesian Economics As deficit spending and a rising national debt have become more and more the rule rather than the exception in the United States, the understanding of their function has filtered downward from economic theorists to political economists and students of economics. However, just as men such as Dillard and Hansen rendered Keynes intelligible to these latter groups, now a second generation of Keynesian educators has concerned itself with making the "new eco nomics" acceptable and understandable to intelligent lay men. The importance of this job is immense, for no "ex perts" can coordinate the American economy both success fully and democratically unless they build a broad base of popular support and understanding. An example of the sort of economic writing which has been directed successfully at non-economists is the book A Primer on Government Spending by Robert Heilbroner and Peter Bernstein. The authors present a carefully rea soned attempt to set aside the fears of many Americans about the long-run effects of government spending and gov ernment deficits. The simple fact of the matter is that government borrows only because private investors do not 181 wish to borrow as much as private savers wish to save. If the frugality of individual savers is to be an advantage rather than a curse to the nation as a whole, it is abso lutely essential that their savings be borrowed by someone and put to productive use, because only thus will aggregate demand remain high enough to support a vigorous and growing economy. Heilbroner and Bernstein estimate that private demand would have to grow at approximately 4.5 per cent per year at least through the 1970's to support full employment in the absence of governmental deficits. If private demand were to grow at such a rate, which would require enormous boom over a long period in both investment and consumer buying, then all well and good. If not, the government must use both monetary and fiscal policies, including con tinued deficits, if the American economy is to come close to its growth potential and its goal of full employment. What are the effects of the debt itself? Funda mentally, argue Heilbroner and Bernstein, they are not too different from the effects of the growing volume of debt enjoyed by almost any expanding and prospering corporation. Such corporations have scored a great semantic coup in ar ranging that references be made to their rising "credit" rather than to increasing "debt." Unfortunately, perhaps, the government has not been able to secure the application of this usage to its own operations, but the principle in 182 volved is similar; a growing volume of credit, willingly extended against a growing volume of assets and the sound reputation of the borrower, is used to finance the vital operations of the unit concerned. The chief differences in the two cases are that the government borrows money almost entirely from its own citizens and then uses the money largely for their benefit, and that the government if ne cessary could tax the very people from whom it has borrowed in order to pay off its debts. If American citizens as a group show a desire to maintain a level of aggregate demand above that which would support full employment, then it is appropriate for the government to run a surplus, and per haps to use this surplus to reduce its outstanding debt. And it should be consoling to know that the taxing power of the federal government stands behind its debt, should it ever be necessary and desirable to pay it off. But when private demand is not sufficient to guarantee full employ ment, to further reduce this demand by generating budget surpluses would be nonsensical, for it would amount to re turning past savings to a people already willing to save more than they were willing to invest. Government spending and the management of the na tional debt are not activities to be carried on in a doc trinaire fashion with no thoughts of secondary reprecus- sions or possible long-run effects. Like most tools of 183 modern economics they can be used well, but they can also be misused. The "new economists" who have followed Keynes have forced Americans to recognize that to refuse to con sider such tools is scarcely the way to "safeguard" the American political-economic system. Rather, it is almost surely the way to guarantee that eventually it will be overwhelmed by its problems.*® B. Economics in the Kennedy-Johnson Administrations Background John F. Kennedy had campaigned for the office of President of the United States with a promise to "get the country moving" again. In doing so, he appealed to fairly widespread feeling that the Eisenhower Administration was not giving the American economy the leadership or the stimulation it required to meet the "economic challenge" of Communism. The eight years of a Republican presidency had not produced any massive retreat from the social legis lation of the New Deal and the Fair Deal, but had instead been treated as a time of adjustment, retrenchment and "good feeling." The predominant goal of the administra- *®Robert L. Heilbroner and Peter L. Bernstein, A Primer on Government Spending (New York: Vintage Books, 1963), Ch. I-XII. 184 tion's economic policy had been the control of inflation, and many other things were sacrificed to guarantee moderate progress toward this end. While no prolonged depressions occurred, there were several serious recessions, and even in the periods of "prosperity" unemployment often continued near the 5 per cent level. The matter of greatest concern to the public as a whole, however, was the question of America's ability to grow economically at a rate at least comparable to that of the Communist bloc. The American annual growth rate had averaged approximately 2.5 per cent under President Eisenhower; meanwhile estimates of the an nual growth of the Russian economy ran upwards from 5 per ^ 11 cent. The reliability of the various estimates of Soviet growth was surely questionable. Furthermore, whatever the Soviet growth rate, the level of the Soviet gross national produce was far below that of the United States, and it seemed reasonable to ask if Russia could sustain her ac celerated growth pace long enough to put any real dent in the American lead. Nevertheless, for various reasons "the growth question" demanded serious attention. The spectacu lar successes of the Russian space program and the obvious ability and willingness of the Russians to continue massive ^Seymour E. Harris, Economics of the Kennedy Years (New York: Harper and Row, 1964), Ch. 4. 185 military expenditures seemed to lend credence to their economic claims. No matter what the current level of So viet economic activity, Americans did not like the feeling that the Communists were "catching up." And perhaps most troublesome to American policy-makers, Communists' claims of superior growth-potential for their system were being studied attentively by the increasing number of underdevel oped countries which were becoming actively interested in 12 promoting economic growth of their own. The purpose of this rather elaborate introduction is to make the point that the Kennedy Administration came into power committed to taking an active role in economic affairs, and that for various reasons it enjoyed consider able popular support in doing so. Various elements of the business community were skeptical as always about possible governmental interference, but Kennedy realized the need for a confident business attitude, and sought whenever pos- 13 sible to cultivate this confidence. The President's cause was helped by the fact that he came to office with clear ideas about what the nation's economic problems were, ^Jeunes Tobin, National Economic Policy (New Haven: Yale University Press, 196(5), ch. 9. Tobin comments at length about the dangers as well as the advantages of growth, the formal independence of growth from such other goals as full employment, and the importance of considering growth paths as well as growth targets. ^Harris, oj>. cit., Ch. 6. 186 but with an open mind on the methods to be used in solving them. In particular, Kennedy was not a doctrinaire Keynes ian. His Council of Economic Advisers was dominated by Keynesian economists such as Walter Heller, James Tobin, and Kermit Gordon, but economic policy was also strongly influenced by the more conservative Secretary of the Trea sury Douglas Dillon. Dillon in fact played a dual role: he often "toned down" the advice of the Council before it was translated into specific policy proposals; on the other hand, he himself maintained an open mind, and when he be came convinced of the correctness of a given Council recom mendation, he was often instrumental in making it accept able to the more conservative elements of the financial 14 community. Specific Problems and the Instruments of Policy It can safely be said that Presidents Kennedy and Johnson have been able to bring into the federal govern ment unprecedented numbers of skilled analytical economists, and that they have made good use of these men. They have been fortunate in being able to do so, for, while the United States in the 1960's has faced an imposing complex of economic problems, the tools and skills of modern 14Ibid., Ch. 3. 187 economics have been rapidly developed into a functional policy science. It is difficult to decide exactly what a list of America's economic problems should include, for these problems are generally interrelated, and can be iden tified either under very general or quite specific headings. However, the objects of governmental economic policy since 1960 might be defined as: a high rate of growth, to be achieved through a high level of employment, the elimina tion of cyclical instabilities in growth and employment, and increases in productivity; a reasonably stable price level, to be achieved by influencing in various ways both the costs of and the demands for goods and services; a so lution to the balance of payments problem; finding effec tive means of redistributing incomes in a way which will relieve domestic poverty in the short run, and enable "the poor" to earn better incomes for themselves eventually; and providing aid to underdeveloped countries in forms which will relieve international poverty eventually while allevi ating suffering immediately.15 In devising a national eco nomic strategy to deal with these problems, the government has had to coordinate a wide variety of policy instruments. It was emphasized in Chapter V that many of the problems mentioned here were recognized by the economists 15 Alvin H. Hansen, Economic Issues of the 1960's (New York: McGraw-Hill, 1960), Parts I-III. 188 of the Elsenhower Administration, or at least by the more liberal of such economists. Furthermore, men like Arthur F. Burns were forthright in acknowledging that government had a large part to play in solving these problems, and that government would need to make use of various "Keynes ian" remedies in the search for solutions. Therefore, the efforts of the Kennedy-Johnson Administrations to cope with "the problems of the sixties" are noteworthy, not so much because the problems were wholly new or the proposed solutions previously unheard of, but because an attempt is being made to coordinate the various tools of economic strategy into a national economic policy. (This attempt is producing predictable outcries from the far right against "big government," "centralization," "socialism," and so forth, and some comments on these charges will be made in the final section of this chapter.) Rapid growth, high employment and cyclical stabil ity might easily be termed separate goals of economic pol icy. Within the context of the early 1960's, however, it was natural for the Kennedy Administration to view them as merely different aspects of the needed "vigor" which the American economy seemed to lack. The first choice of the President for dealing with economic sluggishness might well have been an "easy money" policy to make borrowing for pri vate investment seem more attractive; while some efforts in 189 this direction were made, the balance of payments deficit placed sharp limitations on the use of monetary policy. Thus the thinking within the Administration came to focus upon fiscal policy as the weapon best suited to stimulating the economy as a whole. In early 1962, the "recovery" from recession headed into its second year, but at a discour aging pace; growth was slow, unemployment remained high, and the threat of a new recession was quite real. The first choice of many of the President's more liberal advisers for dealing with the situation would have been to launch as quickly as possible widespread increases in government spending. For various reasons, Kennedy con sidered such measures to be politically unacceptable; by mid-1962, however, the President began to think seriously of advocating a cut in tax rates while the economy was ad vancing and the government was already incurring a deficit. In January of 1963, the President took the unprecedented step, and the "new economics" had established a solid foot hold in American public policy. The tax cut, eventually enacted by Congress under President Johnson, played an essential role in maintaining the current expansion to its present lengths; consumers found themselves with additional purchasing power; businessmen found the prospects for in vestment brightening, and aggregate demand remained high.^® ^Harris, o£. cit., Chs. 7-8. 190 (Businessmen had been further encouraged by tax credits on investment and accelerated depreciation allowances.)^ Until the rapid escalation in 1965 of the American effort in Vietnam, the Kennedy-Johnson expansion was achieved together with a remarkable degree of stability in the price level. This stability was in part due to the existence of considerable slack in the economy throughout the years 1961 through 1964, but it was also produced in part by strong efforts on the part of the government. Both Kennedy and Johnson have used persuasion and pressure in attempts to prevent a "wage-price spiral" from developing. American labor has been strongly urged to keep its wage demands non-inflationary, that is, to ask for wage in creases only in line with corresponding increases in the productivity of labor. Business has been encouraged to "hold the line" on prices, and to seek increased profits only through increased efficiency and a rising volume of sales. The results of governmental urgings, accompanied by such devices as wage-price guidelines, have not been uni form; however, such measures were effective in dampening any inflationary psychology so long as aggregate demand was ip not greater than potential aggregate supply. The scale of present American expenditures on 17Tobin, o£. cit., Ch. 4. 18 Harris, oj>. cit., Ch. 14. 191 Vietnam guarantees, for the short run, at least, that in sufficiency of aggregate demand cannot be a problem for the American economy. However, a surplus of aggregate demand over any prolonged period may produce an intolerable rate of inflation. Thus far, the government has sought to con trol demand largely by urging voluntary consumer saving to reduce the "consumption" component. If the war continues on the present scale, it may well prove necessary to oper ate the new economics "in reverse" to restrain the level of aggregate demand, and control inflationary tendencies. The balance of payments problem has become both important and frustrating to American economists in recent years. No attempt will be made here to describe the wide range of proposals which have been advanced to deal with the gold-flow problem of the United States, the position of the American dollar as a reserve currency, and the more general question of providing adequate levels of interna tional liquidity. There is general agreement among econo mists that something should be done, but little agreement about what that "something" is. What is important here is that, as noted above, the need to consider balance of pay ments effects has frequently restricted the government in its use of monetary policy for domestic ends. (As was noted by Burns, the government has tried to circumvent the restriction insofar as possible. See p. 145, above.) Fur- 192 thermore, balance of payments considerations have been a factor in the increasing hostility to the United States foreign aid program among some segments of the Congress. At best, it has led to recommendations that much American aid be "tied" to purchases in the United States. (This tying also guarantees that such aid will bolster aggregate demand for American goods.) Underdeveloped countries are then not free to make what they feel is the best use of their aid, unless this best use coincides with American interests.^-9 It has recently become apparent that there is in the United States a "hard core" element of the poor and un employed who are not likely to be "reached" by any feasible increases of aggregate demand within the economy. These people were identified rather early by economists such as Burns as being unfit for the kinds of work which would be made available in the expansion of a modern capitalist economy. It is fair to say that many of the more enthusi astic Keynesian liberals did not take adequate note of structural unemployment so long as they could claim any de- i ficiency in aggregate demand as a possible cause of jobless ness. However, once convinced of the nature of the prob lem, administration economists have been energetic in IQ Walter W. Heller, New Dimensions of Political Economy (Cambridge, Mass.: Harvard University Press, 1966), p. 48. 193 support of a "war" on poverty designed to help many of those now considered unemployable. It is clear that the Kennedy-Johnson Administrations have brought an understanding of Keynesian economics to bear upon the problems of the American economy, and they have achieved remarkable success in making the "new eco nomics" at least partially acceptable politically. Perhaps the greatest test of American economic sophistication will occur when and if the Vietnamese War ceases to be a major demand upon the economy. Some relaxation of aggregate de mand will be desirable if inflation is still a problem at that time, but for the government to cut back sharply and permanently on expenditures could be disastrous. Hopefully, Americans will have learned that the economy can support a higher "peacetime" level of government expenditures than they had previously suspected; with the burden of military spending for Vietnam removed, greatly increased amounts could be spent on the alleviation of both domestic and in ternational poverty. In short, the ending of the Viet namese War should enable the United States to better achieve the objects of its national economic policy. The only possible "catch" would occur if Americans showed them selves unwilling to convert portions of the demand for war materials into demand for goods and services of other sorts. The post-Vietnam period may be a difficult and 194 turbulent one for the American economy, but there is no 20 reason why it cannot be one of opportunities as well. Government Policy and the Economic Profession Thus far, this section has focused upon the changes which modern economics is producing in the operations of the American economy. However, it is important to note at least briefly that the acceptance of the economist in inner circles of government has changed the nature of the eco nomics profession as well. Economics has become increas ingly a policy-oriented social science, rather than a purely theoretical one. The Council of Economic Advisers, established by the Employment Act of 1946, has become under ^ Presidents Kennedy and Johnson the source of some of the most important of all advice which reaches the President. And professional economists have come to occupy crucial po sition throughout the Executive Branch of the government. These men are not free to dispense cliches which depend for their validity on conditions unattainable in the real world of political economics. Rather they must do their best to deal with whole arrays of difficult problems which defy simple solutions. As Walter Heller points out, economists who refuse advice simply because questions of policy do not yield easy answers are of little value as presidential ad- 20Ibid. Ch. II. 195 visers. The responsibility of the economic adviser is not to await "perfect knowledge" of a situation before making his contribution to a policy dialogue; his responsibility is to make clear to himself and to others the limits of his knowledge, and the effects which these limits have upon the credence to be given his advice. Economists in government are bound to face the charge that their advice is "political" or "partisan," and reflects value judgments rather than sound economic reason ing. Their defense must be that practical economic advice should reflect both value judgments and economic analysis. Probably no economic adviser can be useful to an adminis tration if he does not share approximately the same set of social values and political preferences as the President; an adviser must be willing to commit himself wholeheartedly to the fundamental goals of the administration. However, this must not prevent his using the skills of an economist to evaluate the feasibility of these goals, and to estimate the costs of the various ways of achieving them. Finally, the academic economist who chooses the role of government adviser must remember that he is not putting aside his function as educator. Politicians are generally ill-disposed to accept advice which they cannot themselves understand; it is the responsibility of the pro fessional economist to translate highly technical matters 196 into moderately sophisticated terms, and to educate his 21 employers to the usage of the latter. C. New Problems and New Approaches The final section of this chapter attempts to take cognizance of left-of-center contributions to the American economic dialogue which are not simply extensions or appli cations of the "new economics" of John Maynard Keynes. To deal comprehensively with such a broad class of writings is impossible, and the works mentioned here are chosen simply as representative of important types of analysis. (It should be noted that many of the economic ideas associated with the more liberal members of the left-of-center group are considered in Chapter VIII when attention shifts to the economic problems of a future America.) Social Reform Liberalism An important group of American liberals feels that there is grave danger of America's slipping, into a mood of unwarranted complacency, after effecting only minimal re forms in its socio-economic structure. These "social re form liberals" emphasize that much remains to be done be fore America can claim to have modified its economic system to be consistent with democratic political and social 21Ibid., Ch. I; Tobin, 0£. cit., Ch. 18. 197 values. It is possible for the social reform liberals to argue that the reforms which have been made in the twen tieth century are essentially "conservative," in that they have allowed only the minimum amount of change necessary to preserve "the system." The acceptance of Keynesian eco nomics, for example, is regarded as a logical and necessary development, but also as a development which is only a prerequisite for more basic social reforms. It is impor tant to keep the American economic system functioning with out violent fluctuations, and near full employment, so that America will be able to concentrate upon (and to afford) the many other reforms which are desirable. Definitely to be included in the latter group are effective measures to redistribute wealth, income, and property on a more equal basis, because social reform liberals generally emphasize that such measures as the "progressive" income tax have 22 been largely unsuccessful in achieving this end. Girvetz stresses that the United States government has much to do in order to promote the truly general wel fare of its citizens. This means that the role of govern- i ment must extend beyond minimum efforts at stabilization of the business cycle, and encompass the explicit responsi- 22See, for example, the analysis of Gabriel Kolko, Wealth and Power in America (New York: Frederick A. Praeger, 1962). 198 bility for the promotion of optimum growth; and it means that there must be guidance of economic growth to meet the 23 crucial "unmet needs" of the American economy. It is one of the crucial tasks of modern American liberalism to pro vide the rationale and the "momentum" which will make such a program of guided growth a real possibility. Girvetz looks beyond the day when poverty is eliminated as a seri ous problem, and proposes that even at that time America will face such problems as the external challenges posed by the Soviet Union and the underdeveloped world, and the in ternal challenges offered by automation and by the urban crisis. Proposals for dealing with these specific problems will be discussed below, both in this chapter and in Chap ter VIII; here it is necessary to consider the difficulties of motivating Americans to take account of new and growing problems. Girvetz notes that America has passed through an important first stage of social reform. Unemployment com pensation, social security, and the like provide Americans with a measure of security which was unknown in the heyday of the laissez-faire ideology. Now Americans face serious new problems, and yet the movement for social reform seems to have lost the momentum which it possessed in the early ^Harry k . Girvetz, The Evolution of Liberalism (New York: Collier Books, 1$<>3). 199 New Deal years. There is a need, argues Girvetz, for Amer ica to "rededicate" itself. The difficulty is that a na tion or a society generally will make such a dedication only when its problems develop into crises too serious to be ignored. It should be the central concern of American liberals to furnish the leadership, the inspiration and the thoughtful analysis which will inspire the nation to con- 24 front its problems before they reach crisis proportions. Gunnar Myrdal has also stressed the need for Amer ica to shake its mood of economic complacency. Too many Americans manage to remain ignorant of the problems of the American poor, for example, and too many fail to appreciate the need to keep aggregate demand high and growing if the economy is to be healthy. In fact, notes Myrdal, "Never before in the history of America has there been a greater and more complete identity between the ideals of social 25 justice and the requirements of economic progress." There is a great coincidence of interests between those who want to maintain aggregate demand so that high employment and rapid growth may be achieved, and those who wish to attack such social evils as racial discrimination, exces sive inequalities in income distribution, and pollution of ^ Ibid., pp. 330-334. 25 Gunnar Myrdal, Challenge to Affluence (New Yorks Vintage Books, 1965), pp. 66-67. 200 the country's air and water. Often, however, this coinci dence is realized only vaguely, or is simply denied. Gov ernment proposals for ensuring that workers will be able to develop and use their productive abilities, or for mkaing American cities more livable, are characterized as waste ful, and the potential long-run benefits to the economy are too frequently ignored.^® Perhaps behind this distrust on the part of many Americans is the lingering suspicion that the federal government must not be allowed to do "too much" to influence the operation of the economy. By definition, the government must not, of course, do "too much," but there are many ways of arguing that the government of the United States can best preserve the economic freedom of its twentieth-century citizens by increasing its activities substantially. This matter is examined below through the writing of Thomas Petit and John Kenneth Galbraith. In Freedom in the American Economy, Petit examines the development of the American economy in the twentieth century against the background of American traditions of individualism and "economic freedom." Petit's basic con tention is that the changing nature of economic freedom in American does not necessarily imply that Americans as a group are losing this freedom. In fact, they may be ex panding it. 26ibid.f Ch. 4. 201 Specifically, Petit claims that the realities of economic life in a modern, industrialized capitalist soci ety imply a considerably different relationship between "freedom" and "order" than that postulated by the classical economists. In classical economic theory, it was assumed that if each individual were left "free" to pursue his own self-interest, the workings of the competitive market would guarantee that the economy as a whole would be "ordered" to produce goods and services efficiently and to distribute them fairly. Such a theory may or may not have adequately described the American economy in the eighteenth century, but Petit maintains that it by no means described the econ omy in the late nineteenth century. In that age of "gilded materialism," the American heritage of freedom was twisted so that it came to signify chiefly the "freedom" of capi talists to make money through the rapacious practices of big business. This not only subjugated many other tradi tionally valued "freedoms" to the single concept of eco nomic freedom; it also produced a society in which economic freedom no longer guaranteed economic order. The Great Depresssion made this fact obvious. In this context, it is natural for Petit to iden tify the New Deal as an attempt to restore both economic freedom and economic order to American society by defining a sensible relationship between the two. The New Deal was 202 not based upon any comprehensive theory of the economic system, but it implied an immediate rejection of the dis torted version of classical economics which was being em ployed to rationalize laissez-faire capitalism. It re mained for Keynes to provide an economic theory which jus tified many of the pragmatic initiatives of the New Deal.^ Petit explains that the basis for the reconstruc tion of freedom in the years since the New Deal has con sisted in two things. The first is the realization that in a modern capitalist economy, economic freedom does not automatically guarantee economic order; on the contrary, if individuals are to be reasonably free, it is necessary for the government to ensure economic order by pursuing the type of macro-economic policies which the Keynesian eco nomics indicates. The second is the return to a pluralis tic economic society; this has made the interests of Ameri can businessmen subject to restriction by other organized economic groups, and has removed the aura of sanctity with which big business had surrounded itself. America has thus been enabled to structure an industrial society in which all individuals possess a fair degree of freedom, and various groups a fair amount of influence, within a frame work of economic order provided by the government. In ^^Thomas A. Petit, Freedom in the American Economy (Homewood, 111.: Richard D. Irwin, 1964), ch. I. 203 choosing these means to cope with modern problems, Ameri cans have reasserted their preference for individual free dom over true collectivism, but they have also recognized the need to consciously guide the aggregate behavior of the 28 national economy. ° The claim of social reform liberals such as Myrdal and Girvetz is that America need not re strict the role of government in producing economic order to the making of macro-economic policy. Rather, government should be allowed (and required) to promote an economic order consistent not only with economic freedom for all citizens, but also with democratic ideals of security and equality. John Kenneth Galbraith While Petit specifically hails the fact that vari ous economic interest groups now compete successfully with American businessmen, the development of a complete theory of American capitalism based upon competition among power blocs is due to John Kenneth Galbraith. Galbraith's theory, in brief, is that any modern economy is bound to be charac terized by large-scale economic units of production which will represent considerable concentrations of economic power. The response of other elements of the economy must 28ibid., Ch. X. 204 be to organize into groups of comparable influence. A rough balance will be struck when the power of any one group is approximately "countervailed" by that of the oth ers, so that decisions about important economic issues are representative of the interests of all parties concerned. According to Galbraith's theory, it was only natural for powerful unions to come into existence to protect working men from the power of big business. Similarly, with busi ness and labor each representing a large concentration of power and influence, it was to be expected that government would become "bigger" both to adjudicate differences be tween the two, to protect "other" elements in society from exploitation by the organized interests, and to remain suf ficiently independent of the power blocs to perform the proper functions of government impartially.29 Galbraith is under no illusion that the rise of countervailing power has enabled American capitalism to solve all of its problems, however. In an economy struc tured upon concentrated blocs of economic power, it is not surprising that the government has not been able to perform completely the "balancing" function which Galbraith assigns to it. Galbraith feels that Americans have been led to 29John Kenneth Galbraith, American Capitalism (Boston: Houghton-Mifflin, 1952), Ch. IX. 205 squander much of their wealth, simply because the American economic system is geared so much to the private production of goods for individual consumption. In The Affluent Soci ety. Galbraith details many areas in which he feels Ameri cans could profitably rethink their positions, but probably no other proposal which the book makes has received the amount of attention given to the plea for what Galbraith terms social balance. According to Galbraith, the American market system works tolerably well in determining the kinds of goods and services to be produced by the private sector of the economy, and in allocating resources to make this production possible. However, the system consistently dis criminates against the production of public goods and ser vices as opposed to private. Thus, for example, no one doubts that the American economy will produce an amount of gasoline compatible with the number of automobiles it puts into use, but whether it will "choose" to build an adequate number of roads and highways is an open question. Galbraith identifies the problem to be the American tradition of preferring individual to collective economic activity, coupled with the way the two types of goods (pub lic and private) are paid for. Public goods generally are financed through taxation; this may be an advantage to pub lic activities once they are initiated, for there is a cer tain momentum about taxes once they are imposed; however, 206 it is an even greater disadvantage to proposals for new public undertakings, for regardless of individual merit, these proposals become subject to a sort of general lamen tation over the prospect of increased taxes. Taxpayers simply do not compare costs with benefits in the same fash ion when considering highways, parks and schools as they do when debating the purchase of a new automobile or tele vision set. (For one thing, there are seldom well-financed advertising campaigns to urge the former upon them.) Social imbalance, in Galbraith's view, can in the long run be just as serious a matter as imbalances which would be considered intolerable within the private sector. Nevertheless, the public sector may never claim its legiti mate share of the gross national product if Americans do not abandon old prejudices and develop means for allocating resources rationally between the public sector and the pri vate. As a society grows increasingly affluent, it is at least arguable that it will need proportionally more public goods and services; certainly it is better able to afford these goods and services, and it is foolish if it does not devise ways of evaluating them objectively.^® Despite the fact that he proposes basic and far- reaching shifts in the priorities of the American socio- ^®John Kenneth Galbraith, The Affluent Society (New York: Mentor Books, 1958), Chs. XVIII, XXII. 207 r economic system, and that many of these shifts are "liberal" in nature, Galbraith has not been grouped as a social re form liberal with such men as Girvetz and Myrdal. There are important differences which separate Galbraith's think ing from that of the consensus of social reform liberalism. In the first place, Galbraith argues in The Affluent Soci ety as if the important problems in America are almost ex clusively those of an affluent population which has been dissuaded from using its material wealth to best serve its own interests; this means that Galbraith has little atten tion for the problems of the many poor people who continue 31 to exist within the affluence of American society. Fur thermore, Galbraith challenges the assumption that substan tial increases in social reform measures and public-sector projects can only be financed out of the proceeds of eco nomic growth. While Girvetz and Myrdal, for example, stress the necessity of maintaining a high rate of growth in order to make possible additional governmental activi ties, Galbraith would rely more heavily upon a reallocation of existing capabilities, and he calls for the greater ef forts to be made toward this end. Finally, Galbraith is much more concerned than most liberals with inflation, relative to the other problems which confront the American 31Ibid., Ch. VII. 208 economy. He feels that inflation is important because it further "distorts" the economy in the direction of private- sector activities, for which incentives are able to reflect more quickly a changing price level.32 It must be empha sized that it is necessary to point up Galbraith's differ ences with the social reform liberals only because there are so many important points of similarity. Galbraith is an eloquent advocate of important measures of "social re form" for the American political-economic system, but he speaks for a rather unique combination of such measures. Further Contributions Much has been said above about "structural unem ployment" as an analytical phenomena, that is, as the kind of unemployment which is not eliminated simply by adequate levels of aggregate demand. This type of unemployment is closely linked to the problem of poverty in the United States, and it is desirable to discuss the two at this point beOause they fit rather well into an extension of Galbraith's argument. It is always possible that a given case of structural unemployment will be "an individual matter," an instance in which for some special reasons a given man or woman will not be "employable" in the ordinary 32Ibid., Ch. XII. 209 sense. Far more often, however, structural unemployment is to be explained in terms of group-memberships; typically those who are structurally unemployed belong to a race which has suffered discrimination in formal education and in job-training, or to an occupational group for which the economy no longer has a need. These groups have one thing in common-; they have been unable to organize in a way adequate to guarantee themselves a sufficient share of the increasing gross na tional product of America. The argument may be extended to groups which in many ways are even more to be pitied, those which work hard at jobs which often are physically punish ing, but who have been unable to achieve anything more than subsistence pay for their work. Such groups have failed to organize, or been prevented from doing so, and in general have received too little help from the government. As Michael Harrington has observed in The Other America, "the poor are politically invisible."33 And as Harrington points out, poverty within present-day America is a dis grace rather than merely something to be deplored, because the society as a whole enjoys an unprecedented standard of living. The problem is at least partially that once pov erty came to be the state of only a relatively small 3^Michael Harrington, The Other America (Baltimore: Penguin Books, 1963), p. 13. 210 minority, it ceased to be a popular political cause; ironi cally, this happened at the very time when the virtual elimination of poverty became a practical possibility.34 There is no implication intended here that each group of the American poor can resolve all of its difficul ties if its members will only organize. In fact, the logic perhaps is considerably different; it may well be that those groups which as a whole remain poor in a rich America are poor precisely because they are inherently difficult to structure into economic power blocs. If so, it becomes the explicit duty of the government to exercise its counter vailing power on their behalf. In very recent years, au thors such as Harrington have brought American poverty once more to the attention of the American public, and President Johnson's declared "War on Poverty" represents a formal commitment of the United States government to the struggle for a decent standard of living for all. It remains to be seen whether the people and their government will be will ing to devote sufficient resources and energy to bring the "War" to a successful conclusion. Many social theorists who fall to the left-of-cen- ter stress that America must put aside various economic myths if it is to achieve its full productive potential. A 34Ibid., Ch. 9. 211 majority of Keynesian economists acknowledge that the hos tility of tradition has been as great an enemy of the new economics as any solid disagreements over its principles. The two works which are singled out in what follows have a special significance in this area only because they each identify some form of "economic superstition" as the stum bling block to abundance in America. David Bazelon, in The Paper Economyy insists that the growth of the gross national product to the United States is stymied simply because output is determined by the holders of existing property rights, and because these holders are interested chiefly in "turning a profit" so as to increase their holdings of property rights. Bazelon maintains that under these conditions no thought is given to maximizing output merely for the sake of distributing it as equitably as possible to all citizens, for that would not always be profitable in terms of the "paper" (money and property) relationships of the society. In a sense Bazelon is paraphrasing Keynes in making a plea that productive facilities should not be left idle simply because it does not at the moment seem profitable to businessmen to put them to use. But Bazelon's justifica tion probably goes beyond Keynes', for he is not content to rely on such pragmatic grounds as the need for economic efficiency, or the necessity of avoiding severe depressions 212 if capitalism is to survive; rather Bazelon's reasoning is that the major holders of property in the United States ex ercise considerable power over other citizens, and "Where- ever there is power over people, the people under it are entitled to have a political relation to it."^ The point, to Bazelon, is that in the United States both the "public government" (the government, in the ordinary sense of the term) and the "private government" (the property-holders as a group) are possessed of great power. It would be com pletely unacceptable to the citizens of a democracy if they were to be denied ultimate control of the former; on the other hand, they have been conditioned to almost a complete lack of control over the latter. Even this would not be intolerable if the interests of the property-holders corre sponded even approximately to the interests of the people as a whole, but in a "monetary," industrialized economy the gulf seems to widen steadily. Bazelon does not propose that private property be eliminated, but only that it be recognized for what it is— a source of power. Such recognition would strip property of the mystique which has heretofore precluded any attempts to control it rationally. Subject to a measure of popular control, the productive powers of the economy would pre- 35pavid T. Bazelon, The Paper Economy (New York: Vintage Books, 1965), p. 382. 213 sumably be directed so as to maximize output rather than 36 profit. Finding suitable mechanisms for such control is a problem in itself, however, and will be discussed in some detail in Chapter VIII. In The Price of Prosperity, Peter Bernstein exam ines carefully the optimistic calculations which 'demon straten that affluence is within the reach of American society. He agrees that the potential aggregate supply of the economy would be more than adequate to furnish afflu ence for all i£ that potential supply can be realized. The key question, to Bernstein, is whether an adequate level of aggregate demand can be maintained; in this respect his analysis is straightforward Keynesian economics. However, Bernstein is concerned here, especially, with the role of public attitudes in ensuring that such a level of demand is maintained. Even the explanation of Keynesian analysis may not be sufficient in the long run unless the enthusiasm which many Americans have previously reserved for describ ing the "free enterprise system" can be transferred to a mixed economic system in which the government plays a sub stantial part. The techniques of Keynesian analysis pro vide all of the necessary tools for the government to per form its functions in the operation of such an economy; 36Ibid., Chs. 1,2,15,16. 214 still, this economy can operate smoothly only so long as it retains the confidence and the support of businessmen and consumers alike. Bernstein's message, then, is that real "prosperity" i£ attainable in the United States, if Ameri cans are willing to pay the "price." This price is nothing more (or less) than the willingness to abandon an outdated economic ideology, and to replace it with a confident un derstanding of the potential of the American economic sys tem. ^ The function of left-of-center social theorists in America has generally been to call attention to old prob lems which were being glossed over by society and to point up new problems likely to arise in the future course of events. In Chapter VII, the influence of modern liberals in the formation of the "consensus" approach to current problems will be examined. Chapter VIII discusses some of the potential problems of America's future, and poses pos sible solutions. 37 Peter L. Bernstein, The Price of Prosperity (New York: Vintage Books, 1966), Chs. I, VI. CHAPTER VII THE MAINSTREAM In order to identify a mainstream of political- economic thought in the United States, it is necessary to make some fairly broad generalizations and some quite he roic assumptions. It is not possible to make an actual count of the number of political-economists on the various sides of any given issue, and statements which claim that "a majority" now support this or that must be frankly ac knowledged in advance to be impressionistic. Such qualifi cations are important, because the analysis of this chapter does attempt to define a trend in American political-eco- nomics. This trend is not identified in an arbitrary man ner; a number of sources are cited to support the argument which is made, and a much greater number could be cited. However, it might well be possible to build an impressive case for a quite different argument if one were so disposed, and the fact must be admitted at the outset. The point of view advanced here is that American political-economics in recent years has become far less a- matter of ideological polemic and far more a search for techniques suited to solving pressing economic problems. 215 216 It is true that economists of the right continue to make dire predictions about the dangers of deviating from the classical-liberal model of capitalism, and that economists of the left continue to discern "contradictions" within the American economic system. Nevertheless, it seems that the mainstream of social thought flows at considerable dis tances both from the far right and the far left. Given the background of past American opinion, this means that the mainstream has moved toward the left, and it is likely that this leftward drift will continue for the foreseeable fu ture. However, it is doubtful that this movement will be as rapid as the left would like and the right would fear; rather it will take the form of continued gradual adjust ment to the problems which America must confront. The first section of this chapter is an attempt to develop and document the claim that the role of ideology in American political-economic discussion is declining, and that therefore the tone of this discussion is becoming in creasingly rational. The second section demonstrates that this increased rationality has led the mainstream of Amer ican thinkers to approach the solution of practical prob lems in practical (rather than dogmatic) fashion. The final section will try to identify a consensus of opinion on what the legitimate and pressing concerns of American national economic policy are, and on what instruments are appropriate to cope with them. 217 A. The Decline of Ideology Classical Liberalism and Marxian Socialism The thesis of this section is that American politi cal -economists as a group are becoming progressively less inclined to insist that particular economic problems be solved in accord with some grand schema of what American society should be like. (It follows that these problems must be solved on some other basis, a point which will be discussed later.) This of course does not mean that ideol ogy is completely dead, either on the right or on the left, but it does mean that increasing percentages of Americans are prone to discuss practical problems in a practical way. While it has been claimed explicitly that ideology is de clining both on the left and on the right, it has also been noted that the American "mainstream" would seem to be shifting toward the left. This follows simply from the fact that American thinking was at one time dominated by an ideology derived from classical liberalism, whereas leftist ideologies derived from Marxism or other sources were never more than blueprints for comprehensive "reforms." Because of this history, the remainder of the argument here will be phrased in terms of the movement away from the ideology 218 inspired by the economic theories of the classical liberals. Overton H. Taylor pinpoints an important reason for the decline of ideological argumentation in the preface to his book The Classical Liberalism. Marxism, and the Twen tieth Century. He notes that while the two clashing philosophies originally took shape respectively in the eighteenth and nineteenth centuries and still bear the marks of those periods, the climactic struggle between them is occurring in the twentieth century, in the context of partly new conditions and problems to which neither philosophy in its traditional form is entirely relevant; and that there may be a need "on our side" to combine with "defense" of all that is of enduring value in our traditional American and Western (the classical eighteenth and nineteenth century) Liberalism, ef forts toward a rational revision or modernization of that body of politico-economic thought or doctrine.1 Taylor's reference to a "climactic struggle" calls attention to the role which "international Communism" has played in shaping American opposition to socialism in all forms. It is arguable that Communism as it exists today is nowhere the kind of system which Marx predicted would suc ceed capitalism, and it is definitely true that many so cialists are not Marxists at all. Yet Communist govern ments have consistently claimed to be Marxist-socialist states; for undetermined reasons, Americans have in this instance generally accepted the claim of the Communists at Overton H. Taylor, The Classical Liberalism, Marx ism and the Twentieth Century (Cambridge, Mass.? Harvard University Press, 1962), pp.vi-vii. 219 face value, and they have also rather generally assumed that all socialists were to be suspected of being Commu nists. This paper will not enter into the broad question of whether the realities of industrialization and modern technology tend to produce a kind of convergence between the authoritarian-socialist economies of the developed Com munist countries, on the one hand, and the modified-capital ist economies of the Western democracies, on the other. But it is important to note that the association of all so- cialims with Communism has been widely, if improperly, made by Americans; hence hostility to Communism has been an im portant factor in generating hostility to socialism. On the other hand, in very recent years, some Americans have begun to view Communism in a more pragmatic fashion, and there is little doubt that this change of emphasis has pro duced some softening in opposition to "socialist" economic measures in general. It is the resultant convergence be tween democratic capitalism and democratic socialism which will be of interest here. It must be emphasized that the opposition of clas sical liberalism to "active government" pre-dated Marxism, and is by no means to be attributed to Communism. The point is that the early liberal theorists defined limita tions on government activity which were at least approxi- 220 mately appropriate to their time. It was only much later that these limitations came to be applied as a justifica tion for a doctrinaire form of laissez-faire government. (See above, pp. 63-64.) And it has been later still that anti-Communist sentiment has played an important role in perpetuating a measure of devotion to the increasingly anachronistic classical liberal ideology. The claims of many socialist theoreticians that socialism need not be authoritarian (and in principle could be compatible with a democratic political system) have therefore been rejected by many without critical consideration; the warnings of classical liberalism against big government and the exam ples of authoritarian socialism in Communist countries have been thought sufficient reasons for such rejections.^ More objective analyses which have tried to examine the claims of democratic socialists dispassionately have been the ex ception rather than the rule. (In one of these "exceptions," Joseph Schumpeter, an avowed conservative, concluded that there was no fundamental reason why a socialist democracy could not function tolerably. It is significant that this and other similar concessions to the logic of socialist claims made Schumpeter himself "suspect" to some, although 2 One good exposition of the case for democratic socialism is that of the British socialist Douglas Jay, Socialism in the New Society (New York: St. Martin's Press, 1963). See especially Part I, "What Socialism Means." 221 he was vehement in stating his preference for capitalism rather than socialism.)-* Modified Capitalism Against this background, it is easy to appreciate that the willingness to consider various economic instru ments on their merits, rather than merely labeling them as capitalist (good) or socialist (bad), represents a consid erable advance. Many theorists point out that recent de velopments in formerly capitalist countries have so modi fied their social structures that it is misleading to con tinue to refer to them simply as capitalist? they can be properly described only as employing some kind of "modern" or "mixed" or "socio-" capitalist system.^ Such theorists give a great deal of the credit for capitalism's survival and health to the flexibility it has demonstrated in post depression years. Andrew Shonfield, for example, asks: "What was it that converted capitalism from the cataclysmic failure which it appeared to be in the 1930's into the great engine of prosperity of the postwar Western world?" Shonfield answers this rhetorical question by noting that ^Joseph Schumpeter, Capitalism, Socialism and Democracy (New York: Harper & Row, l4si), p. xi and Pt. IV. 4 The case of Great Britain is described in such terms by C. A. R. Crosland, The Future of Socialism (rev. ed.; New York: Shocken Books, 19(>3), Ch. II. 222 the "economic order under which we now live and the social structure which goes with it are so different from what preceded them" that it is debatable whether the term "capi- 5 talist" is still appropriate. Other authors make no apologies for the continued use of the term "capitalism" to describe Western economic systems, but note nevertheless that capitalism's success and prosperity hinge upon its ability to make necessary modifications from within. Spencer Pollard, for example, postulates that "complete" capitalism requires five ele ments, only two of which, competition and a prosperity ethic, were adequately explained by classical liberalism; capitalism has preserved its viability by assimilating and rationalizing the elements of innovation, full employment policy and countervailing power.6 Having made these suc cessive adaptations to the realities of modern industriali zation, capitalism, in theory and in practice, is now seen to have a "qualified good hope" of succeeding and of spreading its success.^ Shonfield furthermore claims that the various ^Andrew Shonfield, Modern Capitalism (New York: Oxford University Press, 1965), p. 3. 6Spencer D. Pollard, How Capitalism Can Succeed (Harrisburg, Pa.: Stackpole Books, 1$66), Chs. 2-6. 7Ibid., p. 245. 223 systems of modified capitalism which exist in the West, whatever they may be called, have much more in common than might appear at first glance. Noting that there remain many differences between economic institutions and methods from one country to the next, he nevertheless detects "a certain uniformity" in the various societies. "In terms of what they do, rather than of what they say about it, and even more markedly in terms of the pattern of their behav- 8 • ior over a period of years, the similarities are striking." To the considerable extent to which he documents this con tention, Shonfield lends credence to the claim that practi cal, rather than ideological, considerations are coming to dominate the conduct of economic affairs. Economic Problems and the Democratic Process s The preceding sentence recalls attention to the question raised at the beginning of this sections if eco nomic problems are not to be solved on ideological grounds, upon what basis are they to be solved? In saying that "practical" criteria are to be used, is there an implica tion that only immediate economic ends are to be weighed in deciding upon which policy instruments are to be used, and how to use them? The answer to the latter question is 8 Shonfield, o£. cit., p. 6. 224 definitely "no." There is no intent that the word "prac tical" carry connotations of short-term expediency. On the contrary, the argument here is that a resort to the ideol ogy derived from classical liberalism, or to any other ide ology, is an unacceptable way to resolve genuine questions of economic policy precisely because such a resort is only an expedient, in offering an easy criterion by which to judge the "morality" of governmental economic activity, for example, an economic ideology directly controverts the rationale for the democratic process which was developed in Chapter II. Democracy was identified as the form of government suited to men who believe that the answers to many politi cal questions must always be tentative, precisely because democracy is the form of government which gives these men the chance to answer such questions as best they can. (See above, pp. 48-50.) It is implicit that democrats will each possess some concept of human nature that makes such a way of solving problems reasonable, but it is not necessary that all democrats share exactly the same concept. In se lecting economic processes suited to their needs, demo cratic men of the sort postulated will not be guided only by economic factors. They will be intent upon shaping an economic system which might overwhelm the democratic pro cess and subvert the individual freedoms that they consider 225 so important. This means that it should be completely unaccept able to any democrat that a particular set of economic "dogmas" be allowed to dictate political-economic decisions. Taking refuge behind such dogmas is often justified as a resort to "principle," whereas it really constitutes a complete abandonment of democratic principles as they have been defined above. If a given set of dpgmas are a fairly accurate representation of reality at a given time, then they will "decide" economic questions in approximately the same way as would careful and reasoned analysis, and in fact they may form the basis for such analysis. It is arguable that for a time in the eighteenth and nineteenth centuries the postulates of classical liberal economics gave a more-or-less realistic description of the American economy, and that therefore the answers which classical economics could provide were reasonably accurate ones. Un fortunately, classical economic theory hardened into dogmas which were maintained with ideological fervor long after the theory ceased to describe economic reality. When ap plied to specific problems, these dogmas then indicated solutions which were neither appropriate to the immediate situations nor in the spirit of the original classical liberal thinkers. 226 Twentieth-Century American Liberaliim Harry Girvetz sees the liberalism of the twentieth century as a return to the pursuit of many of the values cherished by classical liberalism. In each of its forms, he sees liberalism as a protest against entrenched interest groups determined that their own powers will not be re stricted for the good of the majority. Classical liberal ism was a protest "directed against a profligate and de cadent feudal aristocracy," and as such it came to be closely intertwined with the rising capitalist economic system. The unfortunate result was that "classical liber alism fell into an ambivalence, on the one hand clinging to its initial inspiration, on the other, uncritically pro claiming the virtues of the profit system as such." And this ambivalence then approached schizophrenia as the 9 "creative youth" of capitalism receded into the background. Furthermore, while liberalism remained tied to capitalism, capitalism to a great extent abandoned the early liberal ideals, and liberals found themselves, as apologists for this capitalism, making accusations which bordered on the irrational. As Erich Fromm has put it: Even many Liberals . . . believe that "Marxism" is a system based on the idea that the interest in g ^Harry K. Girvetz, The Evolution of Liberalism (New York: Collier Books, 1963), p. 385. 227 material gain is the most active power in man. . . . If we only remind ourselves that the main argument in favor of Capitalism is the idea that interest in material gain is the main incentive for work, it can easily be seen that the very materialism which is ascribed to Socialism is the most characteristic feature of Capitalism, and if anyone takes the trouble to study the socialist writers with a modicum of objectivity, he will find that their orientation is exactly the oppo site, that they criticize Capitalism for its materialism, for its crippling effect on the genuinely human powers in man.^® Fromm is not writing to describe the development of liberalism, but rather to build an indictment of capitalism. Nevertheless he has spotlighted the barren nature of lib eral rhetoric in the late nineteenth and early twentieth centuries. It is Girvetz' position that Fromm's description would not fit a high percentage of liberals today. Girvetz credits twentieth century liberals with protesting vigor ously against the remnants of "predatory capitalism," and of rediscovering the original concern of the classical lib erals with individual rights and freedoms. However (per haps learning from the protests of democratic socialists), contemporary liberals have come to realize that in modern times individual rights cannot be exercised independently of the society in which the individual finds himself. In order to guarantee economic rights of all, these "new lib erals prescribe a mixed economic system, one which will 10Erich Fromm, The Sane Society (New York: Holt, Rinehart and Winston, 1$55), p. 247. 228 combine private initiative with collective intelligence, to preserve economic freedoms as it diffuses economic power. Such an economic system would seem to be the one compatible with political democracy.^ In tracing the development of American liberalism, the above analysis has made no mention of the "conserva tive" reaction to the shifting nature of American capital ism. A few explanations will be made here. To the extent that "conservative" means "unreconstructed classical lib eral," the above argument does not apply; such thinkers re main on the right of the political-economic spectrum, by- and-large outside of the mainstream. Where recent politi cal labeling practices have led certain right-of-center economists to designate themselves as "conservatives," it can be said that "conservative" and "liberal" are not mu tually exclusive terms, and that the broad concept of American liberalism as Girvetz has conceived it may encom pass thinkers of this general persuasion. Finally, there are American writers who support the majority of the prac tical policy proposals of the liberals, but who do so, they insist, from a basically different point of view. Such men claim that a truly liberal thinker is generally overzealous for change for its own sake, whereas they, as genuine con- 11Girvetz, o£. cit., pp. 385-387. 229 servatives, are concerned that change be only undertaken for specified and well-understood purposes. Peter Viereck is a "conservative" of this sort, and from a philosophical perspective, his point is well taken. However, because Viereck identifies such recent American leaders as John F. Kennedy and Adlai Stevenson as "conservative" in his sense of the term, it is plainly somewhat difficult to apply his distinctions in the political-economic sphere. The fact that the left (as well as the right) is excluded from the mainstream would be congenial to Viereck's point of view, and it would seem that cultural-historical conservatism of Viereck's type would not be inconsistent with "liberalism" 12 as Girvetz uses the term. Thus broadly understood, American liberalism (as opposed to any given group which might be designated as "American liberals") can be identified as the mainstream of American political-economics. Arthur Schlesinger, Jr., also emphasizes that Amer ican liberalism must provide "the vital center" between left and right extremes on the political-economic spectrum. If it is to do so successfully, it is essential that it remain forever flexible, sensitive to changing times and changing needs. Schlesinger observes, "If liberalism 12 * Peter Viereck, Conservatism Revisited (New York: Collier Books, 1962), Book II. 230 should ever harden into ideology, then, like all ideolo gies, it would be overwhelmed by the turbulence and unpre dictability of history . . ."13 The argument above has been that at least a major segment of American liberalism did for a time "harden into ideology," and that as an ide ology it was in fact "overwhelmed" by a changing social context in much the manner that Schlesinger specifies. However, this argument, if correct, would mean only that the type of hardening of which Schlesinger speaks need not be permanent. The analysis here shares with Schlesinger the conclusion that American liberalism in the years since World War II has exhibited the flexibility which is so vital to its purpose. A vital element in the flexibility of American lib eralism must be a willingness to avoid resort to dogmatic solutions. This point was made in the preceding section, but it is appropriate to note here Schlesinger's comment on the subject, "By tradition American liberalism is humane, experimental and pragmatic; it has no sense of messianic mission and no faith that all problems have final solu tions."^ Furthermore, it is precisely its "empirical tem per" which Schlesinger credits with preserving the American 1 3 Arthur M. Schlesinger, Jr., The Vital Center (Boston: Houghton Mifflin Company, 1962), p. ix. 14Ibid., p. xv. 231 liberal center from the "millennial nostalgia" which he 15 sees as afflicting both right and left. Clinton Rossiter uses the words "liberal" and "con servative" in approximately the sense that the terms "mod ern liberal" and "moderate conservative" are used in this analysis. Rossiter points out that in a healthy democratic society, these groups will occupy the positions just to the left and just to the right, respectively, of the political center. Neither liberals nor conservatives are opposed to change as such. Thus "the center" does not represent the position of those neutral toward change, with advocates to the left and opponents to the right. Rather "the center" is characterized by an attitude toward change (and the de sirable rate of social change) which is less optimistic than the liberal, less cautious than the conservative. The liberal does not favor sweeping modification of the social order, but he is inclined to look favorably upon the pros pects for reform, and to feel that in cases of doubt, pro posed changes are likely to be worth a try. The conserva tive, on the other hand, is disposed to be less enthusias tic about change, and, in doubtful cases, would generally prefer the preservation of the existing social order. In stressing that the essential difference between 15Ibid., p. xvi. 232 liberals and conservatives is one of "mood," Rossiter's analysis is reminiscent of the distinction attributed above to Peter Viereck. However, Rossiter's usage is specifi cally oriented to political-economic, rather than cultural- historical, attitudes, and so his classifications of indi vidual American leaders tend to conform more closely to common usage. Rossiter notes that the health of a demo cratic system can be estimated quite accurately according to the percentage of its citizens that fall within the broad intellectual center of liberalism and conservatism combined. A democracy is not likely to remain viable if large fractions of its citizenry desert the center for the positions of the far right and the far left. Where "lib erals" and "conservatives" (in the sense of Rossiter's usage) dominate a society, they are free to complement each other in pursuing a course of orderly change which tempers optimism with caution.^® It is this type of "American lib eralism" which is characterized above (p. 229) as the main stream of American political-economics. B. Practical Solutions to Practical Problems Changes in Economic Controversy John Kenneth Galbraith has long claimed that post- *®Clinton Rossiter, Conservatism in America (New York: Vintage Books, 1962), pp. 12-15. 233 War economic controversy in the United States was far more a matter of oratory than of substance. He notes that, while opposition from the extremes keeps alive a spirited public dialogue, the two major political parties and most of the important interest groups in America have reached general agreement on many matters which in the past have been subjects of really serious contention. Among the mat ters to which Galbraith refers is the question of whether or not the government has a part to play in guiding the national economy through a coherent macroeconomic policy. He argues that the broad center of American opinion had definitely rejected the ”automaticity" of the market sys tem, and has come to expect that the government should do "something" about regulating the business cycle. It is, therefore, "evident that a controversy which once involved a major strategic principle has now become a secondary con flict over tactics.Galbraith cautions that disputes over methods and timing in government economic management may be quite severe; yet these are precisely the sort of practical questions over which reasonable men should dis agree, and the vehemence with which such men argue should 18 not conceal their fundamental basis of agreement. ■^John Kenneth Galbraith, Economics and the Art of Controversy (New Yorks Vintage Books, 1959), p. 70. 18Ibid., pp. 70-71. 234 A second argument which Galbraith identifies as clearly "in decline" is that over the concept of a Welfare State which assumes certain responsibilities in performing social welfare functions. It is surely true that debate proceeds briskly over just which functions the state can and should provide, but it is no longer possible to find any substantial body of opinion which would hold that the state has no welfare responsibilities. An area of contro versy which once involved a dispute over "principle" has become merely a large set of relatively small arguments over pragmatic matters.19 Gunnar Myrdal also notes that the heat generated in economic argumentation can sometimes obscure the fact that the matter "at issue" has long since been resolved. He cites as an example the debate which has long raged in Western democracies over the question of "free" versus "planned" economies, and he characterizes this debate as "shallow, unrealistic, sterile." The point is that plan ning of some sort or another has been and is a fact of life in the developed Western countries, and many economists, at least, are coming to recognize it as such. In the future, it is to be hoped, polemics for and against planning" will become increasingly rare as attention shifts to the study 19Ibid., p. 87. 235 of various forms of planning, and the practical advantages 20 and disadvantages of each. (Planning will be discussed further in Chapter VIII, where it is considered specifi cally as an economic technique.) Closely allied to the widespread fear of "planning" which has long prevailed in the United States is the fear of excessive power, political or economic, falling into the hands of the government. Here Schlesinger notes that it is the responsibility of American liberalism to provide ra tional leadership. Irresponsible power in the hands of government may be a source of considerable oppression, but that does not mean that the situation will be improved if government abdicates economic power entirely. Were it to do so, were it to be characterized in economic and social matters by "irresponsible impotence," then there could be no effective check upon the power of American business. And it is surely clear that virtually unlimited business power, giving businessmen the ultimate right to make public policy, is unacceptable both to the majority of the Ameri can people and to the true spirit of American liberalism. Schlesinger calls for emphasis on responsible use of public power for purposes sanctioned by the electorate. Such pub lic power need not be "small"; what is important is that it 20 Gunnar Myrdal, Beyond the Welfare State (New Haven, Conn.i Yale University Press, 1966), p. 15. 236 be limited, and that its temporary holders remain ulti- 21 mately accountable to the people. An important reason that many economic problems are no longer matters of ideological confrontation is that the two major political parties no longer take opposite sides of the issue. (This point was made above in connec tion with Galbraith's argument.) To be more precise, it might be better to say that those dissidents who remain outside of the mainstream on major political-economic issues are generally split between the major parties, and that the parties generally find it advantageous to select leaders who are somewhere close to "center." This has led to some feeling that the Republican and Democratic parties are too much alike. By mobilizing the far right and the more conservative right-of-center elements to this view and by promising "a choice, not an echo," Senator Barry Gold- water succeeded in capturing the Republican nomination for the Presidency in 1964. However, the choice which Gold- water offered was a rejection of many of those mainstream elemens which a great majority of the voters no longer even thought controversial, and this factor alone does much to explain his resounding defeat. An interesting contrast to the Goldwater experi ence is that of General Eisenhower. During the Fair Deal 21 Schlesinger, o£. cit., pp. 34, 170-171. 237 Administration of President Truman, "economic legislation which had been initiated by President Roosevelt and which was partially in abeyance during World War II gave evidence of having become an integral part of the American economic 22 system." Still, many items were yet in doubt, and when General Eisenhower was elected President in 1952 while brandishing the "time for a change" slogan, it was uncer tain just what might be changed in the economic sphere. In fact very little changed; governmental spending was some what curtailed, expansion of governmental activities halted temporarily, and so forth. But there was virtually no evi dence of a return to an "individualistic free-enterprise" economic system; rather the shift toward a more "organiza tional" system continued. Furthermore, the enormous and continuing popularity of President Eisenhower is probably proof that this consolidation-without-retreat was at least approximately what the country wanted. The acquiescence of Eisenhower Republicanism in various of the New Deal reforms lent support to the claim that such reforms were not just a matter of political ex pediency, but rather a necessary adaptation to the changed conditions of modern capitalism. The Eisenhower Adminis tration may not have pursued progressive economic change 22 ‘Calvin B. Hoover, The Economy, Liberty and the State (Garden City, New York's Anchor Books, l96l), p. 231. 238 with any discernible vigor, but the economic policies which it pursued constituted a de facto acceptance of the changed 23 economic system. If Senator Goldwater's nomination can be regarded as something of an abberration, it is reason able to suppose that most of the crucial elements of "mod ern" capitalism have won the permanent approval of both major parties. Modern Capitalism and Democratic Socialism Right-wing critics of modern capitalism often claim that the various social reforms and institutional changes in capitalism, when considered together, clearly show up as little more than a "sell-out" to socialism. It is useful to examine this claim within the framework of this section. The first thing that must be noted is that such criticisms are seldom precise about just what constitutes socialism. Insofar as they would identify modern modified capitalism with the "traditional" nineteenth century Marxist vision of socialism, these criticisms are plainly misguided; insofar as they imply that modern capitalism has much in common with modern democratic socialism, they bear close examina tion . One way of making this examination would be through 23Ibid., pp. 268-270. 239 the type of analysis suggested by the work of Robert Dahl and Charles Lindblom mentioned in Chapter 1. (See above, pp. 9-10). In Politics, Economics, and Welfare, Dahl and Lindblom purport to resolve planning and politico-economic systems into the "basic" social processes of which they are composed, if it were possible to agree on representative formulations of modern capitalism and democratic socialism, these could be "resolved" as Dahl and Lindblom suggest, and then subsequently compared with some degree of precision. This resolution-comparison, however, would be a task great enough for a separate study. Here it will suffice to note the sentiments of Dahl and Lindblom themselves: that the "grand alternatives" of classical capitalism and Marxist socialism are no longer meaningful, that there is no funda mental difference between the modern versions of capitalism and democratic socialism in terms of the "basic" processes employed, and that in fact "socialism has failed to main tain its character (as a distinctive body of thought) be- 24 cause it and other movements have largely converged." A more straightforward comparison of "managed, so cially-reformed" capitalism and democratic socialism is offered by John Elliott. Elliott concludes that managed capitalism has incorporated many of the major elements of 23Robert A. Dahl, and Charles E. Lindblom, Politics Economics, and Welfare (New York: Harper & Row, 1953), pp. 3-6, 51T-5T6.----- socialism, including a measure of public control over in dustry, an increase of social action in pursuit of social goals, increases in the power and influence of workers' organizations, a redistribution of income in favor of the working classes, and fairly widespread use of measures to consciously coordinate and control national economic pol- 25 icy. Furthermore, "In practice, (European) democratic socialism . . . (has) been for some time more-or-less syn onymous with the social democratic reform of capitalism."^6 There should be no reason for surprise at this con vergence, when it is realized that democratic socialists have been released from doctrinaire ideology to an extent comparable to that of the release of their capitalist coun terparts. Neither, side, of course, is free of tradition, and it is to be expected their rationalizations for similar activities may sometimes be quite different. (In American political-economics, certainly, it will be a long time, if ever, before any reform measures are adopted under the ban ner of democratic socialism.) However, it is also to be expected that democratic men seeking pragmatic solutions to similar real problems will arrive at fairly similar answers; 25 John E. Elliott, 'Capitalism, Marxism, Socialism" (Unpublished manuscript, University of Southern California, n.d.), ch. 12, p. 25. 26Ibid., Ch. 14, p. 38. 241 the differences occasioned by national traditions and na tional circumstances are likely to be marginal. Elliott has summarized the matter this way: If democratic socialism means the flexible and pragmatic interblending of the public and private sectors of the economy, and of government planning and the price system, in the pursuit of the imme diate objective of the social control of the na tional economy and the broader social purposes of freedom, equality, full employment, price stability, growth, and efficiency, then there is little to distinguish it clearly and fundamentally from lib eral social reform of capitalism. Both involve an interblending of elements traditionally associated with both capitalism and socialism . . .27 C. An Emerging Consensus Chapters V and VI of this study have provided con siderable documentation for the claim that there exists today in America a fair amount of agreement among most poli- tical-economists about both problems and potential solu tions. Many differences of opinion exist about the rela tive priorities to be assigned to the various problems, and also about the relative merits of the potential solu tions. But there is strong evidence that both problems and policies are being considered today in a much more pragmatic fashion than in times past. This of course does not relieve policy makers from the task of making value judgments. However, it forces them to recognize such 27Ibid 242 judgments for what they are, and it prevents their being covered with dogmatic assertions given the dubious backing of "natural" or "moral" law. This section attempts to draw together the elements of the consensus which exists across the broad center of American political-economic thought. It therefore relies heavily upon the analysis of the two preceding chapters, although cross-references to specific pages are avoided. The argument is to be seen here as a whole, and therefore attention is concentrated upon areas of agreement rather than upon the differences of emphasis which continue to exist; it was the function of previous chapters to explore these differences. The final qualifi cation which must be made regards the extremes of opinion, both left and right, which have more-or-less been "defined out" of the American consensus: there is no implication that groups or individuals to which one or more "extreme" positions have been assigned therefore reject other as pects of the consensus, or that such groups and individuals have no influence upon the discussions which yet go on "near the center"? however, it is implicit here that any views propounded with doctrinaire certainty are coming to be more suspected than revered. Certainly the most basic and most significant point of agreement in the "emerging consensus” is that the United States government must assume a much more active role in 243 the economy than the nineteenth century liberal ideology would allow. The functions which the government must per form in this role can be separated conceptually, if not always in practice, into two distinct types. The govern ment must bear the responsibility for maintaining an over all climate within which the national economy can function effectively, and it must also take an active part in the solution of the increasing number of specific socio economic problems which are the by-product of the develop ment and industrialization of capitalist society. Insofar as the private sector deals effectively with the latter, the government can and should "keep out"; but a great num ber of such problems, by their very nature, are of the sort which defy "marketplace" solutions, and which require con certed social action. Aggregate Economic Problems In attacking its aggregate economic problems, the government has an increasing number of policy instruments at its disposal, and these will no doubt be used more con fidently and more effectively as experience adds further empirical knowledge to what is known (and/or believed) about them at present. However, the government also must face an array of problems and goals which, if not expanding, is certainly growing no smaller. Thus, fiscal and monetary policies are generally accepted as legitimate measures to 244 maintain aggregate demand at whatever level is "required," but the exact way in which such weapons will be used de pends upon many other considerations, both economic and political. If, for example, it is agreed that aggregate demand should be bolstered by government action, and even if in a given case it is agreed that fiscal policy is the desired means, there remains a choice to be made between reducing taxes and increasing government expenditures. Or, it may be that there are persuasive reasons for considering monetary ease rather than fiscal measures. To a certain extent the choices of a given economic adviser in such mat ters are bound to reflect his personal preferences and judgments about the nature and dependability of the instru ments involved. However, such choices are greatly re stricted by the fact that the adviser must bear in mind simultaneously numerous legitimate goals of national eco nomic policy, and must try to estimate the effects which the instrument he selects may exert in the pursuit of each. Among those goals which are generally conceded to be the legitimate concern of the government are "substan tially" full employment, "reasonably" stable prices, a "healthy" growth rate for the gross national product, "mod eration" if not elimination of recessions, an "equitable" distribution of income, a "favorable" balance of payments and, perhaps, one or two others. Yet the deliberately 245 vague adjectives used in the preceding sentence are repre sentative of those generally used when such goals are dis cussed, or at any rate, they are those most often used to express unanimous conclusions. In designing a coherent national economic policy, it is necessary to attempt to quantify such adjectives, to determine what the necessary "trade-offs" may be in the achievement of one goal relative to others, and to formulate that mix of economic tactics and instruments which would seem capable of doing the best job. At every step of this process, there is room for a great deal of debate even among men committed to all of the same general goals, For example, it is not entirely clear just how far unemployment can be lowered by measures de signed primarily to augment aggregate demand. Furthermore, it is clear that beyond a certain point increases in aggre gate demand mean increased pressure on the price level; this implies that the possible trade-offs between employ ment and price stability must be estimated, and that a de cision must be made about which combination is "most desir able." Then the tactics suited to this particular combina tion must be implemented. In practice, of course, the matter is not even this simple, because far more than two goals are involved, and very seldom is any one of them independent of the rest. The reason for detailing here these considerations, many of 246 which have been implied or explicitly mentioned earlier, is to stress that they are not the kind of controversies which disappear because a rough consensus has been achieved. Rather, the sort of consensus postulated in this study is necessary in order that such legitimate pragmatic questions may be discussed in terms of political and economic reali ties. In previous times,' a great deal more energy was ex pended on ideological polemics, although the latter cer tainly have not subsided altogether. Before turning to specific problems with which government economic policy must deal, it should be noted that monetary and fiscal poli cies have been cited above simply because they are the most widely accepted instruments for dealing with the consensus- accepted goals which have been enumerated. Other instru ments which the Kennedy-Johnson Administrations have seen fit to employ include moral suasion and wage-price guide lines against inflation, and various kinds of stop-gap measures to combat the balance of payments problem. How ever, it is safe to say that these do not command the fairly general approbation accorded monetary and fiscal policies. "Specific" Economic Problems Government policy to deal with specific socio-eco nomic problems would seem to be subject to more violent objections than policy to deal with aggregate problems, be- 247 cause in handling the former the government cannot make any pretense that it is not significantly "intervening" in the economy, or that it is simply "providing a framework" with in which a sort of market equilibrium can then be worked out. On the other hand, specific problems have, histori cally, had certain advantages in acquiring government at tention; they have not generally raised the specter of "central planning," and some of them have had sanction through the classical liberals1 identification of certain services to be performed by the state. In any event, it is undeniable that a pragmatic approach to political economics i should enable the government to deal with increased effect with a greater number of socio-economic problems. No at tempt will be made here to list such problems exhaustively; rather attention will be focused on a few of those which have commanded considerable recent attention. Perhaps the most pressing of these problems is that of structural unemployment. Recent sustained operation of the economy at "full-employment" levels of aggregate demand has made plain just how prevalent such unemployment is, and unrest among segments of the unemployed has underlined the need for action. Structural unemployment is, of course, closely connected to the more general problem of poverty, and especially to the poverty in large urban areas. It is at least a reasonable hope that any sizable de-escalation 248 o£ the Vietnamese war will bring a corresponding step-up of the war on poverty. Particular aspects of the latter (!) war have been criticized as inefficient and wasteful, but there remains the general opinion among economists that the government must play a leading role in the attempt to re duce structural unemployment. Another area in which the need for increased gov ernment action is becoming dbvious is that of conservation; the government has long been involved with the conservation of "rural" resources, but it is evident that a systematic program to protect such'"urban" resources as city air and water is also needed. The generally worsening conditions in many of America's major .cities are also a valid cause of concern, although there may be no general agreement about whether this need pose a problem for the federal govern ment . Both right-of-center and left-of-center economists have noted explicitly that a modern economy is in fact or ganized to a large extent around large-scale blocs of eco nomic power, both public and private. Therefore, it fol lows that the government has two functions; it must attempt to exert some measure of control over these blocs (and their interrelationships) in the interests of society as a whole, and it must ensure that the interests of thoee citi zens who find it difficult or impossible to exert group 249 pressure are protected. The "Welfare State1 1 Although the term "welfare state" has not been used in this section, it is appropriate to indicate how the con cept of the welfare state is related to the present discus sion. in the context of this study, a modern democratic "welfare state" may be defined as a society in which the government, subject to popular control, plays an active, positive, but nevertheless limited role in the promotion of the "welfare" of all of its citizens. This role may in clude such traditional "welfare" measures as unemployment compensation, old-age insurance, public assistance to the poor, and so forth, but it need not be limited to these. In contemporary America, "welfare" activities include both aggregate and specific measures, as noted above. Thus, within the mainstream of American political-economic thought, the term "welfare state" is used to call attention to the various activities of government in American society. The difficulty is that "welfare state" sometimes connotes specific government services, national health service, for example, which may or may not be necessary in a particular country. The emphasis here is that America has moved to a realization that there are certain socio-economic problems with which the government should and must be concerned. No attempt is made to enumerate all of these, or to decide if 250 America has, or ever will have, the "right" ones to qualify as a "welfare state" in all of the plausible senses of that term. Conclusion Finally, there are somewhat less tangible functions which the government must perform. It must, for example, cultivate a healthy "business attitude" toward the economy, without which no objective conditions are likely to produce steady economic growth. And, more generally, the govern ment must cooperate in the effort of educating its citizens (businessmen definitely included) to their roles and to its role in the operation of an industrialized mixed-capitalist system. Only such education can guarantee the basic and continuing examination of the nation's objectives which is so necessary to the formation of sensible long-run goals and policies. (More will be said about this in Chapter VIII.) The analysis here has made little mention of the role of state and local governments in attacking the prob lems of the national economy. It would not be accurate to imply that any consensus exists about the proper division of "government's" specific socio-economic problems among federal, state and local governments; however, economists both left and right of center have recognized that a work able division of some sort is essential if the problems 251 are to be solved and a genuine federalism preserved. In conclusion, it should be noted that no respon sible political-economist is unaware that the increased role for government prescribed here carries with it new dangers for individual freedom and democratic pluralism. Right-of-center economists (and of course far right econo mists) are generally more prone to worry excessively over this matter. Left-of-center thinkers tend to acknowledge the problem, but to point out emphatically that some de crease in political freedom would not be too high a price to pay for sufficiently great increases in economic freedom and efficiency; they feel, furthermore, that modern liber alism represents in the long run the best hope for meaning ful political and economic freedom for all individuals within a democratic society. There can be no doubt that a measure of the concern of right-of-center thinkers is jus tified. It will be one of the significant tasks of Ameri can leaders of the near future to shape a political-eco nomic decision-making apparatus, suitable to modern capi talism, into a form consistent with political democracy; then the optimism of the left-of-center thinkers will be vindicated also. 28 In addition to the study of the C.E.D. cited above, pp. 157-158, see Walter W. Heller, New Dimensions of Political Economy (Cambridge, Mass.: Harvard University Press, 1$6S), Ch. III. CHAPTER VIII THE FUTURE On the basis of the preceding analysis, it is rea sonable to conclude that the American economy can be ex pected to grow fairly steadily in the immediate future. Economic analysis of the sort suggested by Keynesian theory is becoming more sophisticated and more dependable, and moderate economists both left and right of center are coming to accept such analysis as an important tool in im plementing any macroeconomic strategy. Furthermore, it would seem that the limitations of the "modern" economics are also becoming better understood, and that supplementary policies to deal with problems such as structural unemploy ment and poverty will be more adequate in the future than in the past. The point to be made in this chapter, however, is that even if the United States succeeds in solving those economic problems which at the present seem pressing, the country will still be confronted with the important and un resolved socio-economic questions associated with the eco nomics of abundance. Economists differ in their definitions of just what constitutes "affluence" or "abundance" for a society, and 252 253 so they differ also as to whether the United States is al ready "affluent" or whether it is merely approaching such a state. No attempt will be made here to sort out the vari ous definitions, or to identify the precise date at which the United States became or is likely to become affluent. What is important is that within the twentieth century many of the developed countries of the world, certainly includ ing America, should reach a level of economic prosperity at which it is easily possible to provide every citizen with all of the material requisites for a decent life. It is therefore necessary to consider the problems which may accompany this prosperity, and the ways in which America may hope to resolve them. In the first section of this chapter, an attempt is made to place the affluent condition within historical per spective, and to show that economic prosperity can yield to a nation both great opportunity and potential frustration. The second section describes methods for dealing with those economic problems which will remain (or arise) in an afflu ent society. The final section suggests that as economic privation becomes a thing of the past, both nations and individuals will need to devote increasing amounts of time and energy to the non-material problems of the human con dition. 254 A. Historical Perspectives "Stages1 1 of Economic Development The number of theories which have been advanced in recent years to explain the phenomenon of economic develop ment is very large— far too large to allow for a systematic survey here. This section will begin with a brief summary of one such theory, a so-called "stage theory" of economic growth advanced by W. W. Rostow; however, it must be stressed that this theory is selected simply because it il lustrates certain points in the argument being developed. Specifically, it defines the position of the "mature" econ omy against the broad background of its development, and indicates at least a plausible way in which an economy's immediate goals may shift in the course of this development. According to Rostow's theory, societies begin eco nomic life in the "traditional" stage, which is character ized by what Rostow calls a pre-Newtonian world view. Although the first stage, thus defined, embraces widely di vergent levels of social, intellectual and cultural activ ity, from an economic point of view it is a useful analyti cal construct, because societies which have not accepted the possibility of consciously manipulating the physical world have never enjoyed sustained economic growth. Rather 255 the majority o£ men in such societies have remained depen dent from year to year on good weather (and hence good har vest) simply to survive, and whatever wealth existed among the upper classes was "bought" with the poverty of the masses. An economy may enter Rostow's second stage, that in which the "preconditions" for "take-off" are created, quite easily; all that need happen is that the orientation of its leaders shift toward a conscious effort at economic growth. However, to begin the second stage is one thing and to ac complish its tasks quite another. These include an accumu lation of "social overhead" capital in the transport and communication sectors of the economy, a revolution in agri culture which will enable the economy to feed a growing number of urban industrial workers, and the development of export industries sufficient to finance the import of those items (chiefly capital goods) which the economy requires but is unable to produce for itself. In this stage, empha sis is on restricting consumption to a reasonable minimum, for even when this is done the amount available for invest ment will not be large. A country in which the appropriate preconditions have been established is ready to be launched (often by some sort of exogenous shock) into its third, or take-off, stage. Whatever the initiating factor, the economy will 256 within two or three decades, increase investment sharply as one or more leading sectors emerge and national income rises. Furthermore, this stage should be characterized by a broad popularization of the "modern" attitude toward growth and development which in the second stage was per haps restricted to a leadership elite. Rostow considers the take-off stage to be the most crucial for an underdeveloped country. After it success fully negotiates its take-off, a country can look forward with some confidence to a long and sustained "drive to maturity." During this fourth stage, growth is self-rein- forcing as increased activity in one area of the economy serves as a stimulus to corresponding increases elsewhere. As the original leading sectors mature and their expansion begins to level off, new "leaders" will arise, sectors which reflect the needs of an increasingly urbanized popu lation enjoying a rising per capita income. The concern of economists during this stage should be that the long-run pattern of economic growth is not upset very often or very severely by downturns or recessions, and that potential "bottlenecks" which might restrict growth are anticipated and avoided where possible. Finally, an economy arrives at the "mature" fifth stage, which Rostow calls the "age of high mass consump tion." The gross national product has risen sufficiently 257 so that there is potentially "plenty for everybody," and such poverty as does remain can be eliminated either by a concerted attack on its causes or by a redistribution of income, it is in the fifth stage that a country finds it self, for the first time, in the enviable position of being able to choose among things which are properly regarded as luxury items from an economic standpoint. Rostow argues that in general the economies which have thus far entered the fifth stage have selected as luxuries the pursuit of increased national power and external influence, the expan sion of domestic government expenditures for welfare pur poses and for other group objectives, and the private con sumption of great varieties of goods and services over and above what might be regarded in any sense as necessities of life.1 Rostow's theory has been subjected to detailed ex amination and criticism in various economic literature. On the one hand, some critics contend that stage theories of growth are in principle misleading because development is a continuous process, and that attempts to identify stages in concrete cases lead inevitably to equivocation and confu sion. On the other hand, there are critics who agree that economic development generally involves definite discrete 1W. W. Rostow, The Stages of Economic Growth (Cambridge, England: Cambridge University Press, i960), Chs. 2-6. 258 phases, but that these vary much more from one case to the next than the Rostow schema would admit. In fact, there is some merit in Rostow's model, and there is some merit in what most of his critics say. The latter can rightfully say that more generality and more concreteness than it possesses are sometimes claimed for the Rostow model. But nevertheless, the Rostow theory does provide a useful way of viewing many of the "facts" in many of the cases of eco nomic development, Specifically, Rostow's framework is most helpful in showing how the basic nature of a society's economic problems shifts as the society progresses from the more primitive to the more advanced stages, and it is not important to the argument here whether this shift takes place continuously or in discrete steps. The Frustrations of Abundance Until the achievement of maturity (or abundance), an economy is always confronted with crucial problems of scarcity; sometime after maturity has been reached, the economy should have solved the most fundamental and press ing problems of scarcity, both for society as a whole and for the individuals within it. This does not mean that there will no longer be any goods or services which are "scarce" in the technical economic sense; there may well always be many things which would be scarce relative to the 259 demand if they were available at a price of zero. And therefore, it may always be a proper and necessary function of the political-economic system to distribute the rights to such technically "scarce" goods among potential users. However, the distribution of income is not likely to remain so vital a subject of concern when the scarce goods are items of gross luxury as opposed to items which are in some sense necessary. Or, in other words, it may be true that potential human wants are virtually unlimited if created as well as spontaneous wants are counted; but, after some point, the created wants prove to be a good deal less ur gent than the spontaneous ones. When a society has passed "that point" at which the relatively urgent material wants of all of its citizens are satisfied, it is then "free" to devote a significant portion of its resources to other ends. Reinhold Niebuhr and Robert Heilbroner each imply that simply approaching this "freedom" has been and will contine to be a source of frustration to many Americans. The frustrations have set in because the great success of the American economy in producing aggregate wealth has not enabled the country to cope equally successfully with other problems. (The reason the reference above was made to "approaching" such freedom is that the American economy has yet to satisfy the "urgent needs" of all of its citizens. However, it has achieved an aggregate gross national prod uct sufficient to do so. Furthermore, the problem of indi vidual and group poverty, as opposed to aggregate poverty, has been discussed previously, and is separable from the problem to be considered here. Therefore, in what follows it will generally be assumed that the poverty problem "has been solved"; references will be made to America as if the nation were truly "free" in the sense defined above, al though at present the description should properly be lim ited to the portion of the population which has achieved a measure of affluence. It is a hopeful possibility that the problem of domestic poverty will be solved in the rela tively short run; at that point all Americans will be "free" to engage the problem of frustration which is de scribed in the remainder of this section.) Niebuhr emphasizes that there is a strong element of irony in the present American situation. The intellec tual history of the United States has been characterized, according to Niebuhr, by a sort of (classical) "liberal optimism" regarding the abilities of mankind to shape human society the world over according to the principles of demo cratic liberalism. The advantages of democracy and indi vidual rights have been held to be so obvious that liberal institutions would inevitably be welcomed once they were understood. There should be no need to make use of politi- 261 cal or military power to £orce these institutions on anyone; power was thought to be required only on occasions when foreign leaders, acting against the best interests of their own citizens, chose to make war on the democratic way of life. In practice, American leaders have never found the situation as uncomplicated as the classical liberal theo rists would have had it, and they have often used their power in ways which the latter would not prescribe. The irony is that failure to recognize explicitly the complica tions of reality has made America less effective than she could have been in spreading any kind of liberal idealism. Furthermore, failure to use power rationally has often re sulted in the long run in a forced reliance on excessive power.2 Niebuhr writes as a Christian theologian with a deep concern for matters of politics and political morality. His orientation toward the political problems of "good" men trying to steer a moral course in dealing with "the world" O has been compared with that of St. Augustine. Yet it is Niebuhr's conclusion rather than his starting point which is important here. His conclusion is that the United States confronts a world in which most nations, for a great 2 Reinhold Niebuhr, The Irony of American History (New York: Charles Scribner's Sons, 1952), Chs. I-IV. 3William T. Bluhm, Theories of the Political System (Englewood Cliffs, N.J.: Prentice-Hall, 1965), pp. 1^7-187. 262 many reasons, are not going to adopt anything like the American political system in the foreseeable future. It may be a great aggravation to some Americans that the suc cesses of their system do not lead to its universal adop tion, but the most important concern to Niebuhr is that these Americans do not lose faith in the value of the demo- 4 cratic system for themselves. "The recognition of histor ical limits must not, however, lead to a betrayal of cher- e ished values and historical attainments." It is in stressing that America can cope with the future only by understanding both her achievements and her limitations as a phrt of "history" that Niebuhr shares common ground with Robert Heilbroner. Heilbroner contends that the early experience of America as a nation tended to blind her to her position in the course of human history. Her optimistic expectations about the future were confirmed so consistently that the illusion of a complete mastery over "destiny" became preva lent. During the twentieth century, however, despite achieving an unprecedented level of material welfare, Amer icans have found that "History less and less presents itself as something we make, and more and more as something we ^Niebuhr, 0£. cit., Chs. VII-VIII. 5Ibid., p. 143. 263 find made for us."*’ America's national course seems to be increasingly constrained by matters over which she has very little control. Heilbroner cites such examples as the threat of nuclear war, the emergence of aroused but dis organized nations in the underdeveloped world, the ideolog ical confrontation with Communism, the sharply increased pressures for changes within American society. In fact, however, all of these examples are identified by Heilbroner as the products of historical trends, trends which hereto fore have remained largely unnoticed because they favored the results indicated by American optimism. The idea that the course of history may very well be largely outside of American control is not congenial to most American citizens. ("If there are 'forces' in history, we prefer not to think about them; and if we must think about them, we assume that they will be, as they always 7 have been, on our side.") If the United States is to function successfully within history, it is essential that an attempt be made to understand the limitations which history imposes, and to appreciate that "the future" must be anticipated as a continuation of the historical pro cess.** 8Robert Heilbroner, The Future as History (New York: Grove Press, 1961), p. 55. 7Ibid., p. 57. 8Ibid., pp. 55-58. 264 Once it is appreciated that the future will even tually be history, it becomes possible to consider it with a measure of "historical" detachment. Just as it is pos sible to recognize in past events both elements of neces sity and elements of choice, it is possible to realize that future events will also contain such elements. It becomes clear that to get along in such a future, it is imperative to identify insofar as possible the historical trends which are largely "necessary," and to shape them where possible by conscious and intelligent choice. Furthermore, this middle course is the only one that holds out much hope for the long run? attempts to restructure future events en tirely cannot succeed, and will only exhaust those who make them, while a blind fatalism about the future is no more realistic than a blind optimism. The crux of the matter for the United States is that increases in American wealth and power have been more than offset by the shifting of what Americans perceive as their self-interest so that it runs counter to some his torical trends. (American desire for stability in the emerging world of the underdeveloped countries is perhaps the most conspicuous example.) Thus the nation can expend a tremendous amount of effort without appreciable benefit, effort which if properly channeled to the areas of "choice" could do considerable good. The result, of course, is 265 frustration, too often accompanied either by greater ef forts in the same direction or by a quiet withdrawal to isolation. There is no way "out" of history. Living with in it of necessity, America has the power to choose between defiance and reasoned cooperation; the nature of this choice will largely determine what influence her wealth and power are to exert. This choice is therefore crucial to America, but it is crucial also to other nations; although no nation can hope to control history, no nation can match America's "freedom" to help shape it.9 (In particular, the behavior of America toward the underdeveloped world could not possibly reverse the thrust of the new nations toward independence; but it could easily determine the pace and even the result of their struggle for economic development.) It is obvious that the frustrations described above will be aggravated if the United States economy proves less flexible in handling "ordinary" economic problems than has been supposed. Gunnar Myrdal has noted that domestic eco nomic stagnation in America can be reflected abroad in political (as well as economic) terms. Concurring in the analyses of Niebuhr and Heilbroner he observes that "pres ent international developments are of a nature to cause 9Ibid., pp. 181-190, 204-209. 266 strong feelings of frustration, even apart from economic reasons."*® However, Myrdal is more confident than Heil broner that the United States will deal effectively with the world situation provided that it can sustain a healthy economic climate domestically. His fear is primarily that if such a climate is not preserved, domestic weakness will result in the irrational conduct of international affairs. The aspect of Myrdal's reasoning which is most important to the argument being made here is that simple affluence is not enough to guarantee the required domestic "health."1* ' Economic affluence has been shown above to present the United States with unique opportunities and problems in its relationships, as a country, with a world of sovereign nations. However, affluence will also present American society with a unique "internal" situation. With the United States economy more than capable of satisfying the pressing wants of all Americans, there will be increased internal discontent if American society does not use its "spare time" to solve the many non-economic problems which confront it. Such matters as racial discrimination and prejudice, in which a clear gap exists between the American rhetoric and the thinking and behavior of many American 1®Gunnar Myrdal, Challenge to Affluence (New York; Vintage Books, 1965), p. 106. H lbid., pp. 105-107. 267 citizens, will seem ever more urgent in an era in which economic problems have been substantially alleviated. Americans will be forced to recognize that many important problems will not yield simply to a rising level of material wealth. Rather affluence must be used in a manner consis tent with the political-economic realities of the present and future. Economic techniques suited to the present have been discussed in preceding chapters. The next section, will consider economic techniques which may be appropriate to conditions of increasing affluence. B. Economic Techniques in an Affluent Democracy The set of economic techniques appropriate to the American future must guarantee two separate but related goals. One important goal is the efficient management of production so that the potential aggregate abundance of the future is continuously realized. The second is an equitable distribution of this output among individuals, a task that will pose new questions in an age in which in creased reliance on automatic machines will fundamentally alter the character of the work force. Planning in an Affluent Economy It seems almost certain that the future will bring some increases in measures to facilitate central coordina- tion of the American economy. For one thing, a highly automated economy of the future will probably contain sec tors even more interdependent than those which characterize the industrialized economy of the present, and shortages and bottlenecks in particular areas might well become in creasingly costly. Further, fortunately, the ability to collect and assemble various kinds of information about the economy should continue to improve rapidly. Thus there will be a rising "demand" for some types of central coordi nation at the same time that the potential "supply" of such coordination increases, and increased quantities of coordi nation are the predictable result. In the United States, the implementation of central planning techniques has lagged behind that in several of the western European de mocracies because of traditional and ideological bias against such planning.^ However, even if the United States continues to feature a relatively small role for central planning, this role should continue to expand some what in an era of abundance. Neil Chamberlain has provided a useful framework for the explanation of the need for a measure of govern mental planning in a predominantly "free-enterprise" econ omy. Chamberlain defines economic planning in a very broad ^Andrew shonfield, Modern Capitalism (New Yorks Oxford University Press, 1965), pp. 335-341. 269 way: "Planning is the systematic management of assets. This is a generic definition, applying to any economic unit from the individual to international 'communities' or asso ciations."1- * Chamberlain finds an advantage in such a definition because it enables him to demonstrate a logical need for national economic planning in certain areas. An analogy is drawn between the planning which a business firm must do if it is to rationally "manage its assets." and the planning which a nation must do to achieve the same end. Suppose initially that the business firm is taken to be the "planning unit." Then the top executives of the firm are responsible for deciding what the objective of the firm's activity is to be; it may be to maximize profit, or to pursue the greatest possible share of a particular mar ket, or to promote growth of the firm, or, more likely, a combination of these and other related goals. Once the ob jective is identified, two further aspects of the planning process remain. The executives must consider both the technical and economic aspect, which defines the most ef ficient means by which the firm could hope to pursue its objective, and the organizational and political aspect, which determines how the subsystems within the firm are to 13Neil W. Chamberlain, Private and Public Planning (New York: McGraw-Hill, 1965), p. 4. \ 270 be structured and manipulated to best approximate this efficiency. It is most important that this latter function of planners not be regarded too lightly, for the subsystems within a firm may very well have objectives of their own. These objectives need not ever be directly opposed to the objective of the firm, but on the other hand it would be most unusual were they all to be identical with it. The subsystems within the firm must be induced to define their own objectives in ways which are complementary to each other and, when considered together, conducive to the at tainment of the firm's objectives. (There may be sub subsystems, of course, and so on, down to the level of the individual worker; he, too, is a subsystem which plans, and as such he is subject to the lpgic of. the argument. Each subsystem which has subsystems must organize them so as to achieve its objective.) Furthermore, a rational management of the firm's assets would indicate that this coordinating function be performed at the lowest possible cost; presum ably, this would generally imply that the cooperation of subsystems should be obtained through means which induce largely voluntary compliance. Chamberlain's contention,is that for certain pur poses the national economy of a country must be regarded as the "planning unit," or system. If there are legitimate 271 national objectives which command wide political support, then it is only sensible that the government should manage the nation's assets so as to achieve these objectives.^4 (The present legitimate objectives of a national economic policy for America have been discussed in preceding chap ters, and some of the possible objectives for future policy will be mentioned later in this chapter. To pursue the main line of Chamberlain's argument, it is necessary to assume only that some such objectives will exist in the future.) The assets of a nation are of four major types: its natural resources, together with the institutions which have been devised to ensure the orderly use and development of these resources? its population, which must be evaluated in terms of education, training, age-structure and so forth, as well as in terms of size? the privately owned "produc tive" facilities within the economy? and the socially owned "productive" facilities of the economy. It must be noted that the use of the word "productive" is not intended to connote that some facilities are productive whereas others are not, but rather to emphasize that all facilities, pub lic and private, which contribute goods or services to the economy, are in fact productive. Recognition of the national economy as a system 14Ibid., pp. 9-15. 272 made up of subsystems leads naturally to the conclusion that the "executives" of the nation face problems analogous to those of the executives who plan for business firms. A national economy, of course, contains many more subsystems than any of its business firms, for each business firm is a subsystem of the national economy, and there are others as well. Nevertheless, the problem of planning is formally similar. There are national objectives which presumably are more important than the many objectives of the economy's subsystems. It is therefore desirable to structure the activities of subsystems so that in the aggregate they as sure the achievement of national objectives.^5 On the other hand, one of the attributes tradition ally most valued in Western democratic societies in general, and in American society in particular, has been the freedom of the individuals and subsystems generally to plan and act free of government control. The tradition of freedom from government has been noted as powerful in slowing the imple mentation of such planning instruments as monetary and fiscal policies, and in exalting reliance on the market system for allocation of the nation's assets. It is a great virtue of much recent economic thought that the mar ket system is regarded in a pragmatic manner, and is found to be a tool to be relied upon more fully in some circum- ^5Ibid., pp. 80-84. 273 stances than in others.^ As Americans proceed into an age of affluence, they may well find that, as Galbraith sug gests, many desirable goods and services are neglected by excessive reliance on the market principle. (See pp. 205- 206, above.) This, coupled with the availability of im proved forecasting techniques, is almost certain to lead to some increases in central economic coordination. In the fairly near future, for example, it is quite plausible that the elaborate "input-output” statistics which are now available, and which detail intersectoral re lations in the American economy, may come to be used in some sort of "indicative planning" procedure. In the indi cative planning process, national policy makers attempt to combine what is known about the present structure of an economy with what seem to be reasonable growth targets; the object is to provide estimates of the way in which the various sectors of the economy must grow if aggregate tar gets are to be realized. Indicative planning specifically excludes any practice of compulsion by the government; the assumption is that the mere announcement of a coherent sec toral growth plan will be a powerful force in inducing the various economic actors to behave so that plan goals are *®See, for example, Harry G. Johnson, "Planning and the Market in Economic Development," in Comparative Eco nomic Systems, Morris Bornstein (ed.) (Homewood, 111.: Richard D. Irwin, 1965), Ch. 22. 274 approximately met. Closely related both to any indicative planning procedure and to any serious attack upon struc tural unemployment will be some form of "manpower planning" process. Even at present, considerable work is being done to evaluate both the probable supply and the likely demand for various labor skills in the near future. It would therefore be a natural step to couple "indications" of future production of goods and services with indications of the amounts and types of labor required for this production and with job training programs which would assure that needed labor skills were available. It is interesting that even at present American public opinion accepts manpower planning as a "good thing," although it has withheld any such approval from indicative planning techniques.^ Democratic Control of Economic Power Some social analysts who admit the need for addi tional government planning emphasize that such planning can be effective only if it retains the support of at least a large segment of American business. They stress that what Chamberlain has called the "organizational and political" aspect of planning would entail an intolerable burden under, any other circumstances. However, there are other advocates 17 Shonfield, oj>. cit., pp. 338-341. 275 of national planning who are in no way apologetic about its possible effect upon the freedoms of American business; many of this latter group see as one of the recommending features of planning the fact that it brings with it the possibility of some measure of genuine public control over the large corporations which are so prominent in the Ameri’ - 1 can economy. Michael Reagan is one member of this group. Reagan traces the history of power in American political-economics as a running interplay between "prop erty power" and "popular power." Property power, based in the economic advantage of wealth and property ownership, has generally been a fundamental force for inequality in American society. However, it has been offset in greater or lesser degree by the equalitarian force of political democracy, the base of popular power. At the present time, the development of a single institution, the modern indus trial corporation, has weighted the balance in favor of property power. Reagan sees no point in protesting against the "inevitable" modern reality of concentrated economic power; rather the present need is to develop institutions which will enable popular power to concentrate also, and 18 thus restore a balance between the two. *®Michael D. Reagan, The Managed Economy (New York; Oxford University Press, 1963), Pt. I. See also pp. 166- 167 above. 276 Reagan sees for the future three possible lines of development for the power and social accountability of the modern corporation: power may fail to decrease while so cial control lessens, resulting in a system analogous to fascism, featuring the rule of an industrial elite; corpo rate power may diminish, especially in the social and poli tical spheres, with a corresponding decrease in the need for additional public control; or the corporation may con tinue to extend its power in social, political and economic activities, but to find that popular control has been in stituted, and that public accountability for these activi ties has been established. Reagan's position is that the second alternative is both the most desirable and the least likely, so that it is to be hoped that the egalitarian element in American tradition will guarantee that the third alternative prevails over the first. Reagan makes several concrete proposals for means to establish the public accountability of big business. The largest corporations, perhaps two hundred or so, whose activities are almost invariably spread through many states, could be required to obtain federal charters in order to operate. Charters could be used to restrict the number of markets in which any one firm might hold a dominant posi tion, and might also specify some form of public review board which could ensure proper conduct of the corporation 277 toward the individuals who operate within it. Various limitations appropriate to a particular type of enterprise could be written into individual charters, or where the limitations are appropriate to all firms operating within a certain market, they could be specified by general legis lation. Social and political activities of all corpora tions should be drastically limited, at least until both stockholders and employees are given an effective voice in choosing the causes to be supported and the positions to be taken. Finally, even in purely economic matters, in the spheres in which they are chartered to operate, the largest corporations cannot be permitted to make vital decisions which are beyond the power of the public to review. Wheth er this review takes place through boards specifically es tablished for the purpose, through regulatory commissions newly invigorated with freedom from the dominance of those they are charged with regulating, or through some other means, it must take place. The largest "private" firms in the economy make decisions which are unquestionably "pub lic" in nature, and they must be made responsible to the public for them. (Recall the arguments of Bazelon, above, pp. 211-212.) Public control of property power could, of course, be worse than nothing if the government does not exercise this control within an overall framework of coherent eco 278 nomic policies. It is through this "back door" that Reagan argues to the need for increased central planning by the national government. Within the executive branch, the im mediate need is to give the President the power to coordi nate those sources of economic policies which are at pres ent fragmented. The President should have an "Office of Policy Planning," or some such device, probably built around the present Council of Economic Advisers, and de signed specifically to make sure that such executive groups as the Council, the Bureau of the Budget, and the Treasury Department plan coherently when they do plan. Furthermore, the President should seek from Congress the authority ne cessary to make sure that the various "independent" agen cies, including especially the Federal Reserve Board, can be brought within the coherence of the plan. Reagan proposes that the legislative branch facili tate the President's economic tasks by granting to him con siderable discretionary authority (to be exercised within fixed limits) in fiscal matters, and by streamling the procedures of the Congress so that presidential programs can only be stymied when in fact a majority of at least one house is against them. By and large, the exaggerated sepa ration of powers which seemed so vital in the eighteenth century does not seem vital to Reagan for the present or for the future; rather he sees presidential direction of a 279 democratic planning process as the "visible hand" which can guarantee a measure of economic freedom for all citizens, and can preserve the economy from domination by the corpo- 19 rate elite. The Guaranteed Income Thus far, this section has dealt primarily with the economic behavior of the nation as a whole, and of certain economic power blocs, under conditions of increasing wealth and income. It is also important to consider the effects which increasing national affluence may have upon "ordinary" individuals within society. The background against which these effects are discussed here is the proposal of a guar anteed annual income for all members of society; this pro posal has many important ramifications for "human values," and these will be examined in the next section. Here the concern is the guaranteed income's possible economic impact. In Free Men and Free Markets, Robert Theobald ar gues that a minimum income, guaranteed to every citizen as a matter of constitutional right, is the only way in which a democratic American government can hope to cope success fully with material abundance. In the very near future, cybernation will greatly increase the potential supply of 19Ibid., Chs. 11-12. 280 the American economy; however, what is now known suggests that new jobs could not be created fast enough to furnish corresponding increases in aggregate demand, even if the creation of jobs of doubtful usefulness were made a speci fic aim. Why, asks Theobold, should such a ridiculous aim even be considered? It is considered only because our thinking is still bogged down in conventions which were appropriate when economics was truly a study of scarcity. Theobald argues that the only sensible way to match aggregate demand to potential aggregate supply is to sever the necessary connection between jobs and income. Individ uals would be free to accept jobs which were available to them, and thus to earn incomes higher than the guaranteed minimum, but there would be no compulsion to accept any work whatsoever in order to earn the right to the minimum income.^0 At this point, it is of course relevant to ask whether all incentives to work might not be destroyed if incomes and jobs were separated. This question will be answered in more detail in the next section, but in brief it may be said that the proponents of a guaranteed income give a fairly behement "no" answer. They point out that, for one thing, men of the highly skilled sort which will be required for most jobs in an automated society generally 20 ^Robert Theobald, Free Men and Free Markets (Gar den City, New York; Anchor Books, 1965), pp. 113-114. 281 are motivated to work by many things, income being but one of them; and, furthermore, there is no reason to think that men able to substantially increase their incomes by accept ing jobs will fail to do so. The guaranteed income pro posal is important precisely because it seems to be an ef fective means of transferring purchasing power to those who want jobs but are unable to get them. Theobald takes note of the fact that the guaranteed income principle has attracted support from such a conser vative economist as Milton Friedman, who views it as a method for providing a minimum of social welfare services while eliminating a large measure of government interfer ence in the lives of individuals. (See above, pp. 80-81.) Theobald also feels that the need to preserve individual economic freedom is a strong argument for the guaranteed income. However, he sharply disagrees with Friedman's claim that the guaranteed income should pave the way for a virtual withdrawal of further societal concern for individ ual welfare; rather he stresses that it should signal the advance "into a new societal order" in which the increasing concern of society for the individual would be manifested in the recognition that each individual has a right to a minimal share in the society's production. Moreover, as has been noted, the realities of abundance may make it 282 essential even from society's point of view that this right be recognized soon.2^ It should be noted that there are many political economists who do not feel that a guaranteed income for all citizens will be possible in the near future. They gener ally stress that automation does not reduce employment so much as it alters the types of work men must do, and they emphasize that it is much more important to educate men for the new work than to prepare them for unlimited leisure. Furthermore, those unenthusiastic about guaranteed income proposals doubt that a guaranteed income would be desirable, even if it were technically and economically possible. They question whether men who have been guaranteed an in come will be either productive or happy. Special problems may arise in connection with low-income groups, presumably poorly educated, who would receive virtually as much for not working as they could earn at jobs open to them. Fi nally, it is questionable whether the citizens of America and other advanced countries can or should "retire" from the battle against scarcity while the majority of the earth's people continue to suffer privation. If the guar anteed income were to be postponed until the world as a whole reaches affluence, the debate over its desirability 21Robert Theobald (ed.), The Guaranteed Income (Garden City, New York: Anchor Books, 1967), Introduction, pp. 17-19. 283 22 loses all relevance for the foreseeable future. The debate over the guaranteed Income cannot be re solved definitively at the present time. There are counter-arguments to each of the objections to the guaran teed income posed above, and it will not be until the guar anteed income concept is put into practice (if then) that the relevant questions will be answered. However, with regard to the argument concerning the poverty of the under developed countries, one point must be noted. While it will in fact be argued in the next section that the United States can and should be more generous in its aid to under developed peoples than it is at present, it is by no means certain that the establishment of a guaranteed income would prevent this. The argument that Americans should continue to "work hard" as long as any nations remain poor is per haps valid enough if the fruits of the work can be trans ferred to those who are poor. But whether a guaranteed in come would result in Americans giving to the underdeveloped countries more or less help of the kinds they really need is an open question. A guaranteed income could, for ex ample, conceivably free many Americans to work in the un derdeveloped countries if they so desired. ^^spencer D. Pollard, How Capitalism Can Succeed (Harrisburg, Pa.: Stackpole Books, 1966), Ch. 8. 284 C. Human Values in an Affluent Democracy The phenomenon of affluence can be counted upon to exert a vast Influence upon many aspects of human life. The preceding section has described some of the political- economic effects of affluence and suggested techniques for dealing with these effects. In this section, an attempt will be made to indicate some of the ways in which afflu ence can further affect human life, and to stress that the manner in which affluence is used will be important in de termining whether these effects are "humanizing" or"de humanizing. " The Need for Positive Freedom Many social theorists have claimed that within mod ern society there are powerful forces which tend to "alien ate" human beings both from their fellow men and from them selves. The writings of Karl Marx, for example, identify 2 3 in the logic of the capitalist system many such forces. Marx, however, was concerned with a capitalism in which scarcity was the general condition rather than the excep tion, and in which capital was wholly controlled by men seeking only to make the greatest possible profit from its use. Some authors writing more recently have continued to ^3john e . Elliott, "Capitalism, Marxism, Socialism" (Unpublished manuscript, University of Southern California, Los Angeles, n.d.), Ch. 8, pp. 1-2. 285 see alienation as an important human problem, even though many of the particular causes advanced by Marx have either disappeared or been greatly transformed. Erich Fromm is one of the most influential members of this group. Fromm traces the alienation of modern man from the so-called "freedom" which Western men gained as individuals following the break-up of medieval society. Whereas during the Middle Ages, there was no individual freedom in the modern sense of the term, neither was any individual alone or isolated. Rather he "was chained to his role in the social order.1,24 The freedom of modern man has an ambigu ous meaning: "On the one hand the growing independence of man from external authorities, on the other hand his grow ing isolation and the resulting feeling of individual in significance and powerlessness."^5 Fromm claims that many "normal" people in a society will for a long time cover over the frustrations which mod ern economic and political realities produce; thus "having fun," "going places," and "making contacts” compensate (for a while) for the awareness that one is only a small cog in a vast economic system, and for the feeling that one has no actual say in government, even in a constitutional democ- 24Erich Fromm, Escape from Freedom (New York: Holt, Rinehart and Winston, 1941), p. 4l. 25Ibid., p. 38. 286 racy. Eventually, however, men become conscious of the fear and bewilderment which characterize the negative side of'modern freedom. If they are unable to progress to a genuine positive freedom, they will try to escape from the psycholpgical burdens of freedom completely; the most used avenues of escape are submission to an authoritarian poli tical system, and compulsive conformation to a certain so cial system. It is the latter which is relevant to Fromm's analysis of the United States. Fromm argues that the positive freedom which man so desperately needs "consists in the spontaneous activity of 27 the total, integrated personality." ' It is precisely this type of activity which Western democratic societies seem to thwart at every turn. In the first place, pressures to conform are such that spontaneous activity is confined to individuals who are suspect by society (such as artists and small children), and to the fleeting moments in the lives of "normal, mature" persons in which they are able to em brace their environments (without having their emotions dominated by socially conditioned responses). Secondly, the nature of life in a technological world is such that it is most difficult for a man to form a truly integrated per sonality; the typical person performs a variety of social 26Ibid., p. 134. 27Ibid., p. 258. 287 roles and these are disjoint to the extent that often he himself does not know who "the real man" is; furthermore, his communication with the outside world is very largely through media which mix facts about all sorts of varied phenomena, providing little ground for original thoughts or opinions. Man can achieve true freedom, coupled with se curity, only by positively affirming his unique individual ity, while at the same time relating himself genuinely and spontaneously to the world in which he lives. He will do this only in pursuit of genuine ideals, those which further the growth and freedom of the self, and he must therefore specifically reject such false ideals as submission and conformity. False ideals are attractive as an escape from the troublesome aspect of freedom, but they can never lead to the fulfillment of a completely human life. Fromm's analysis is important here because it makes clear the relationship between economic abundance and the betterment of human life generally. Capitalism has largely solved the problem of production, and has thus established for the first time in human history the material basis for genuine individualism. It is now important to make certain 28 that this basis is properly used. Whatever the correct use of abundance may be, one thing it is not is simply an increase of consumption. Fromm sees "consumption” as a 28Ibid., pp. 258-271. 288 most apt word for describing the way in which most modern men treat material belongings, and, viewed in this light, consumption is seen as one of the ways in which compulsive conformation is practiced. In former times, men often had a sort of love for the material things they possessed, used them long and carefully, and felt a certain remorse when they could be used no longer. Modern consumption Fromm regards as a process by which men divert themselves tempo rarily by buying, receiving and using up material goods; no true affection for the goods is ever developed, and in fact, it is often a delight when the time comes to move on to things which are presumably bigger and better, and in any event are new. When a majority within a given society live at or near the subsistence level, increasing consumption (where the word no longer carries derogatory connotations) is of course a desirable goal. In this context, the possession and use of more material goods are means to a more human existence; the goods provide the reasonable standards of health, comfort and enjoyment which make positive freedom possible. The danger is that in trying to escape from freedom, rather than advance to a genuine positive freedom, men will learn to conform through rituals of ever-increas- 2 9 ing consumption. * 29Erich Fromm, The Sane Society (New York: Holt, Rinehart and Winston, 1955), pp. 134-X*5. 289 Fromm feels that any real improvement of economic habits necessitates a thorough revision of American atti tudes toward economic planning. Planning should be ac cepted wholeheartedly as the means whereby society can con sciously create the conditions necessary for the widespread achievement of positive freedom. If it is so accepted, centralized economic planning can be subjugated to politi cal democracy in such a way that each individual can ac tively participate in the planning and control of his own activities. If it is not so accepted, centralized planning either will not succeed or will "succeed" only in forming an authoritarian structure; in neither case will positive freedom become more likely.30 It is not necessary to be as enthusiastic as Fromm about the future of planning in order to realize that some important increases in the scope of planning may take place in the fairly near future. That point, in fact, was made on purely economic grounds in the first section of this chapter. Fromm's contribution to the line of argument here is to demonstrate that planning may be valued for non economic (as well as economic) reasons and to point out that planning is a vital tool of mankind in the attempt to become increasingly "human" in an increasingly mechanized world. 30Fromm, oj>. cit., pp. 271-276. Cybernation and Human Values Rapid advances in cybernation since World War II have made all the more urgent some parts of the message which Fromm delivered in the early 1940's. The noted math ematician Norbert Wiener was among the first to take ex plicit note of the possible effects of widespread cyberna tion upon the human condition. Wiener characterized the advent of cybernation as a "second industrial revolution," and he expected that its repercussions might well be as great as that of the first. The nature of the repercus sions, however, will be determined by man himself. The new technology of computers and automatic machines may be used for the benefit of mankind, or it may result in social as 31 well as economic chaos. Wiener's conclusion is that, al though many dangers remain, there is real hope that cyber nation will be "used for the benefit of man, for increasing his leisure and enriching his spiritual life, rather than merely for profits and the worship of the machine as a new brazen c a l f . " 32 In the preceding section, economic arguments for and. against the guaranteed income were discussed. Closely re lated to the economic considerations are the possible ef- 31 Norbert Wiener, The Human Use of Human Beings (Garden City, New York: Anchor Books, 1954), pp. 133-162. 32Ibid., p. 162. 291 fects of a guaranteed income from individual and group values within society. Those who oppose the guaranteed in come fear that the assurance of pay without work may lead only to the creation of unemployed and alienated masses, ready at any time to revolt against the society which sub sidizes them without genuinely incorporating them.^ On the other hand, many of those who advocate a guaranteed annual income feel that it could well be an important step both in subjugating the machine to the interests of mankind and in opening the way for many to the enjoyment of some thing like Fromm's "positive" freedom. Fromm himself men tions this possibility, although he does not favor the ir revocable "lifetime guarantee" which men such as Robert Theobald would insist upon. The reason is perhaps that Fromm is more optimistic than some about the possibilities for making work once more an expression of positive freedom rather than a source of alienation. In any case, Fromm would agree that whatever work-for-pay cannot be made ap pealing to a worker who knows that he can live reasonably 34 without that pay, would better be done by machine. If this leaves some men with no prospect of a pay ing job, then the creative potential of mankind will be put 33 Pollard, 0£. cit., p. 157. 34Fromm, The Sane Society, op. cit., pp. 299-338. to a severe test. Fromm is surely right that meaningful work is one means by which men can avoid alienation and become truly free. But it may be that in the economy of the future, most of the creative work of the average indi vidual will not be work which he does for pay. A person of "average" talent could well find himself living on a guar anteed income; insofar as he is capable and willing he may augment this income by performing those jobs which are yet socially or economically necessary. By and large, however, his time will be his own. He will have greatly increased amounts of leisure. If he is not to resign himself to a life of restless boredom, he must find ways to work and think in this leisure time so as to exert himself as an integrated human personality. He may, in short, be forced to revert to a kind of leisure more in keeping with that which Aristotle thought to be so necessary to the citizens of a well-governed state. As one commentator has observed: It is worth remarking that leisure did not connote (to Aristotle) idle play, a principal meaning in today's usage. The intelligent man devoted his leisure to self-improvement, essentially by read ing and discussion. Many moderns would prefer work to Aristotle's leisure.35 This quotation pinpoints the problem. The moderns who prefer a "work" which offers a kind of automatic con 35 Robert Lekachman, A History of Economic Ideas (New York: Harper & Brothers, 145$), p. 9. 293 formity as an escape from individual freedom will find soon that such work is no longer available. They will be forced back upon their own resources, either to escape freedom in some other way or to turn it into a positive force for humanization. The need to do one or the other will be im perative, for, as Fromm has put it: A further effect, of a guaranteed income, coupled with greatly diminished working hours for all, would be that the spiritual and religious problems of.hu man existence would become real and imperative. Until now man has been occupied with work (or has been too tired after work) to be too seriously con cerned with such problems. . . . If he ceases to be mainly occupied by work, he will either be free to confront these problems seriously, or he will become half mad from direct or compensated b o r e d o m .36 It is sometimes objected that if a guaranteed mini mum income were established, even the most necessary (and presumably creative) work in society might not be performed. The answer to this objection is two-fold. On the more-or- less theoretical level, it can be noted that even today the men who do the creative work in society seem to be moti vated by a desire to earn more than a minimum income and/or 37 by factors which are non-economic. On a more pragmatic level, it should be remembered that the supply of creative workers could probably always be equated to the need simply 36 Erich Fromm, "The Psychological Aspects of the Guaranteed Income," in Robert Theobald (ed.), The Guaran teed Income (Garden City, New York: Anchor Books, 1^67), p. 185. 37Ibid., pp. 185-186. 294 by manipulating the values of wages-relative to the minimum income figure. International Considerations There is one assumption which has been made throughout this chapter without having been explicitly stated. It is that the technologically advanced countries will not mutilate the future beyond recognition (or termi nate it entirely) by engaging in thermonuclear war. The matter of whether the assumption is a realistic one is cer tainly debatable, and although it will not be debated in this paper, three points are raised for consideration. First, the increasing rationality of the "capitalism versus socialism" debate (as noted in Chapter VII) is a hopeful sign. Second, the chances for avoiding a world war depend to a considerable extent on whether the parties to the Cold War succeed in viewing both the present and the future as a part of history, as Heilbroner suggests they be viewed. Finally, as the British economist Barbara Ward points out, this is the first time in history that the working out of sensible relationships between East and West is of extreme urgency to both sides.88 Whether this should be a cause for optimism is uncertain. 88Barbara Ward, The Interplay of East and West (New Yorks W. W. Norton and Co., 1962), p. ll. 295 In coming years, relationships with countries now underdeveloped will become even more important than they are today. No attempt will be made here to explore the de tails of the various relationships which could conceivably arise, but one thing must be noted. If the United States is to be an integral part of the world community, she must commit herself irrevocably and permanently to the cause of economic development in the poorer countries, and she must allow such development to proceed along lines chosen by the countries themselves. It is easy to overrate the power of the United States, and those who repeatedly stress that the United States does not have the resources to "develop the world” singlehandedly are correct. But it is also correct to say that, thus far, America has not by any means done as much as she could. If this deficiency persists in the long run, if Americans do not become more willing (and more adept) in communication with the peoples of the less developed na tions, the inevitable result will be a national alienation from any possible world community. The potential solution is analogous to that discussed above for alienation on an individual level. The United States must discover ways of acting creatively in the international sphere, making full use of the positive freedom which abundance places within her grasp. And no use of this aspect of freedom could fail 296 to be directed toward the promotion of such freedom for other nations. Furthermore, the development of the national conscience in this area cannot be separated from the psy chological fates of individual Americans, for the positive freedom of individuals is limited ultimately by that of the society in which they live. It has been noted above that an individual in exercising true freedom must pursue genu ine ideals by relating himself to his environment in a complete and spontaneous way. This "environment" may ini tially consist only in immediate surroundings, but growth in positive freedom will eventually extend it to all of the world in which men live. CHAPTER IX SUMMARY AND CONCLUSION This chapter will summarize the analysis of this study, and attempt to draw a few tentative conclusions about the future of the American political-economic con sensus. A. Summary of the Argument The fundamental line of argument which runs through this paper is that American political-economic thought is developing in the way most consistent with the conception of democracy as a process of government. Chapter II estab lished a background for the main body of the study by sketching some of the more important elements in the devel opment of democratic theory. Chapters III-VI described the various broad groupings of political-economists which span the spectrum of recent American thinking about the conduct of economic affairs within a democracy. Chapter VII at tempted to define a mainstream.of opinion which would en compass a broad range through the middle of this spectrum. And Chapter VIII considered some of the ways in which this mainstream may be challenged by the problems of the future. 297 298 The remainder of this section summarizes these chapters in somewhat greater detail. Chapter II traced the development of democratic theory from the Greek philosophers Plato and Aristotle. Despite the fact that Athens, in the fifth century B.C., enjoyed well-publicized success with its version of democ racy, neither Plato nor Aristotle considered democracy to be the ideal form of government. Plato's epistemology led him to advocate rule by "philosopher kings," who alone would possess ultimate truth and knowledge; Aristotle fa vored a "balanced" government, in which the interests of the upper classes as well as the interests of the common people would be represented. It is arguable that American democracy in many ways approximates the balanced government which Aristotle recommended more closely than it does the "democracy" which he did not, for the latter connoted to Aristotle a kind of strictly popular rule in which there was little portection for the interests of special groups within society. The immediate intellectual predecessors of early American democrats were the British political theo rists Thomas Hobbes and, especially, John Locke. The lat ter developed a theory of society in which the role of politics and the power of government were limited, and in which the great majority of important social relationships were kept outside of the political sphere. (The roles of Lockean individualism and classical liberalism in the de velopment of American political-economic thought were con sidered later in the analysis.) The view that modern de mocracy is best defined as a process by which political decisions are made, rather than as a system in which there is some sort of "rule by the people," was found to be roughly applicable to democracy as it exists in the United States. Furthermore, the process of democracy thus defined was shown to be the form of government best suited to "mod ern" men, that is, to men who believe that political ques tions must always be decided in a tentative way, subject to review and if necessary to modification or change. The kind of social process for change best suited to such a system is that which proceeds by steps for which results are relatively predictable, and which can be reversed should unforeseen results make the change seem undesirable. Chapter ill attempted to account for the various lines of thought which form "the Right" on the American political-economic spectrum. Classical liberalism was de scribed in some detail, and the process by which classical liberalism was distorted to form the laissez-faire "liber alism" of late-nineteenth and early-twentieth century American thought was examined. These kinds of liberalism were seen to have been important in the formation of what was defined in this paper to be the "modern conservative" 300 position in American political economics. (It was recog nized that thus defined the "modern conservative" label is assigned to a variety of thinkers, some of whom would def initely not refer to themselves as conservatives.) Modern conservatives have in common a position of staunch opposi tion to further extension of the government's role in the American economy; this position was examined from the view points of conservative academic economists and of conserva tive American businessmen. Chapter IV identified "the Left" in American political-economics as composed principally of American Marxist-socialists. Non-Marxian American socialists have largely ceased to advocate a distinctive plan for central ized control of the economy; rather, many of the original socialist ideals have been incorporated into the programs of more moderate left-of-center reforms, and the non-Marxian socialists themselves are generally indistinguishable (in terms of their practical goals) from the more liberal mem bers of that group. Marxist economics was described briefly as a background for the analysis of the problems of modern capitalism by contemporary American Marxists; it was noted that American Marxists are seen as a more important group than their numbers alone would warrant because of the existence of the avowedly Marxist and presumably hostile bloc of Communist countries. 301 In Chapter V, the broad range of thought which falls between "right" and "center" on the American spectrum was examined. It was noted that the thinkers who fall within this range generally accept that government in a modern America must perform certain positive functions not specifically enumerated by the classical liberals, but noted also that these functions must be carefully delimited in the interests of preserving individual freedom. While it would in principle have been possible to separate the right-of-center group into subgroups ranging from the "almost-right" to the "almost-center," it was found more fruitful to consider the right-of-center position from three different viewpoints. Thus right-of-center economics was seen in broad philosophical perspective, in application to the practical problems confronting government economic advisers, and from the vantage point of the "liberal-con servative" segment of the American business community. Chapter VI described the range of American politi cal thought which falls somewhere between "center" and "left." Thinkers within this range share with their right- of- center counterparts the acceptance of an increased gov ernment role in the modern American economy; they are less likely to share all of the latter's reservations about this role, and many left-of-center theorists advocate a larger role for the government than any right-of-center theorist 302 would accept. Again the possibility of splitting a broad group into subgroups was discarded in favor of ordering the chapter along more functional lines. The first section de scribed the basic economics of John Maynard Keynes which provides the theoretical justification for much of the eco nomic activity of the government. The following section detailed the application of Keynesian economics to practi cal economic problems by the economic advisers of the Kennedy-Johnson administrations. The final section of the chapter illustrated that many left-of-center thinkers feel that government must do much more than simply maintain aggregate demand if the United States economy is to serve all the needs of American citizens tolerably. Chapter VII attempted to draw out of the preceding analysis those elements which constitute the "mainstream" of American political-economic thought in the 1960's. It was shown that the role of the ideology of laissez-faire conservatism in the American political-economic dialogue has declined, and that it has been largely replaced by the pragmatic outlook of liberal-conservatives and modern liberals. Because at one time the American consensus was so strongly influenced by the laissez-faire ideology of the right, the shift toward a more pragmatic approach to political-economic problems has meant a shift of the Amer ican mainstream toward the left. This movement seems likely to continue at least for the immediate future. It was noted that "modern liberalism," which has been the principal force in producing the drift leftward, is in many ways nothing but the legitimate pursuit of the values of classical liberalism in the context of modern capitalist society. The "emerging consensus" in American political economics was defined. This consensus contains as its basic point of agreement the realization that the United States government can and must assume a more active role in the operation of the economy than the ideology of laissez- faire liberalism would allow. The precise nature and ex tent of this role are matters of legitimate practical de bate, but it is generally agreed that the government is properly concerned with the macroeconomic goals of full em ployment, price stability, rapid growth, stabilization of the business cycle, the equitable distribution of national income and the solution of the balance of payments problem, and with certain more specialized socio-economic problems as well. To cope with these problems, the government will be expected to make use of fiscal and monetary policies, and such other instruments of policy as it can develop into reliable tools. Chapter VIII considered the nature of the problems which may confront America as she moves into a future of economic affluence. The affluence which many of the industrialized nations can anticipate enjoying in the near future was recognized to constitute a potential "first" in the history of a world in which scarcity has generally been the rule. Even if human wants in fact prove to expand vir tually without limit, it is most likely that attitudes to ward the satisfaction of "marginal" wants will change as these wants shift to things which can only be considered luxuries. At least three types of problems will confront the affluent United States of the future. The country will find it necessary to adjust to certain historical trends which it will not necessarily approve, and within which it may not be comfortable. Furthermore, it will be necessary to devise economic techniques specifically geared to the problems which will accompany affluence. And, when the provision of the necessities of life no longer requires a major share of men's time, both the nation and its citizens will be faced with the job of defining new priorities for human activities. It was suggested that neither America nor Americans will be able to preserve dignity or self- respect unless the nation and its citizens enter whole heartedly into the struggles of others for economic devel opment. B. Conclusion In bringing to a close a study of the type pre sented here, it is appropriate to reemphasize the basic 305 purpose and spirit of the analysis. (The conventional "conclusions" of the main body of the study have been pre sented in Chapter VII, and are summarized in the preceding section.) In The Meaning of the 20th Century. Kenneth Boulding has attempted to identify the causes of "the great transition" which, in his view, the civilized world is un dergoing. This transition is seen to be the product of particular "methods of reality testing applied to our im ages of nature."^ That is, man has been able to progress beyond the early stages of civilized society, in which want, hunger and poverty were the lot of most human beings, precisely because he has developed the critical faculties necessary to analyze and control the forces of nature. The key to progress in the struggle for this mastery has been man's ability to continually revise and restructure his im age, in the quest for still greater knowledge. This inter play and comparison between image and reality constitute the methods of testing to which Boulding refers in the phrase quoted above. The process could also be described as the formulation, testing and reformulation of hypotheses and theories; however, the process is, or can be, applied in areas broader than the traditional spheres of science, ^Kenneth E. Boulding, The Meaning of the 20th Century (New Yorks Harper & Row, 19(55) , p. 191. 306 and such scientific jargon may tend to obscure this fact. Boulding himself sees a great need to apply the types of rational consideration which have been fruitful in the sciences to the broader problems of human relation ships: "If we are to ride out the transition successfully we must apply these or similar methods for reality testing 2 to our images of man and his society." It is because de mocracy would seem the system best able to allow "modern men" to attack political and social problems with just such methods that democracy was presented above as the political system best suited to a society of modern men. It may well be that in a future society economic challenges as they are now known will disappear almost completely. If this ac tually takes place, man will be "forced" to find new out lets for talents and energies if he is not to atrophy from boredom and inactivity. Boulding concurs with Erick Fromm (above, p. 293) that such "outlets" could hopefully be found in a deepening and broadening of the spiritual and reflective aspects of man's existence.3 This need to adopt methods and resources which have been so successful in mass-mechanization to a sort of "mass-spiritualization" will not be met easily, for non-material wants cannot be satisfied by mass production. However, it should be 2Ibid., p. 191. 3Ibid., pp. 147, 155. 307 possible, using methods of "reality testing" which confront images with facts, for a democratic society to develop into a form in which individuals are given every opportunity for self-realization. It must be emphasized that to say that political democracy is suited to a society of abundance as well as to a society of scarcity is not to imply that society will turn from one set of fixed goals to another as abundance becomes a reality. The recommendation of democracy is based upon its suitability to the pursuit of practical ends which are in a continuous process of change, and such change will continue even after the shift from scarcity to abundance is more-or-less completed. Arthur Schlesinger, Jr., has put the matter this way: Democracy requires unremitting action on many fronts. It is, in other words, a process, not a conclusion. However painful the thought, it must be recognized that its commitments are unending.4 The hope is not that democracy can lead human society to the millennium, but rather that democracy will enable man to deal successfully with the changing set of obstacles which confront him. Finally, it is appropriate to ask whether a paper such as this one is properly concerned with matters beyond 4 Arthur M. Schlesinger, Jr., The Vital Center (Boston: Houghton Mifflin Company, 1962), p. 254. the very near future. It can be plausibly argued that, while a consensus of opinion in American political-economics may be discernible, an attempt to project the path of this consensus in dealing with future problems is over-ambitious. The contention here is that, while it is most important to analyze the current problems, practices and opinions of American economic thought, it is important also to consider the American situation against the perspective of past and future "history.” In discussing the solution of immediate difficulties, it is crucial to bear in mind the limitations imposed by the American political-economic system as it exists today. But on the other hand, it is dangerous to allow the pressing problems of the short run to obscure all vision of long-run development. Robert Heilbroner has un derscored this point in The Limits of American Capitalism.^ The fact that long-run projections are necessarily more vague and more general than the conclusions concerning the immediate future does not make such projections less useful or less necessary. Thus it should be feasible to explore the limits of capitalism in America not alone (in terms of the short-run limits) . . . but also in terms of those forces that are carrying capitalism, like feudalism in an earlier day, in directions that will eventually alter its social and economic structure beyond any- Robert Heilbroner, The Limits of American Capital ism (New York: Harper & Row, 19&6), pp. 66-^9. 309 6 thing that would today be possible to achieve. This study has been an attempt to explain the political-economic thought of present-day America in terms of past influences and present realities, and to suggest in a very broad way the types of problems which will shape the evolution of this body of thought in the future. It is perhaps reasonable to summarize the relationship between reality, theory and developmental change in the following way. In the short run, the reality of the American politi cal-economic system limits the scope of change which is possible; the role of theory is then to explain reality, including its serious problems, and to suggest and rational ize necessary changes. In the long run, the realities of "history" (as manifested in technological change, popula tion shifts, the emergence of the underdeveloped nations, and other such "trends") make a certain magnitude of change inevitable; the role of social theorists is then to attempt to discern the general course which history is pursuing, and to suggest those ways in which it may be channeled in accordance with human values. The democratic process is considered to be the form of government which best enables political-economists to perform their necessary functions both in prescribing short-run changes and in shaping long- run development. 6Ibid., p. 69. B I B L I O G R A P H Y 310 BIBLIOGRAPHY Books Ackley, Gardner. Macroeconomic Theory. 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The Meaning of the 20th Century. New York: Harper & Row, 1965. 312 Burns, Arthur P. The Management of-Prosperity. New York: Columbia University Press, 1^66. ________ . Prosperity Without Inflation. New Yorks Fordham University Press, 1957. Chamberlain, Neil W. Private and Public Planning. New Yorks McGraw-Hill Book Co., Inc., 1965. Clark, John Maurice. Alternative to Serfdom. 2d ed. New Yorks Vintage Books, 1960. ________ . Economic Institutions and Human Welfare. New YorJcl Alfred A. Knopf, 1957. ________ . Guideposts in Time of Change. New Yorks Harper & Brothers, 1949. Crosland, C. A. R. The Future of Socialism. Rev. ed. New Yorks Shocken Books, 1$$3. Dahl, Robert A., and Lindblom, Charles E. Politics, Eco- nomics, and Welfare. New Yorks Harper & Row, 1953. Dillard, Dudley. The Economics of John Maynard Keynes. Englewood Cliffs, N.J.s Prentice-Hall, 1965. Downs, Anthony. An Economic Theory of Democracy. New Yorks Harper & Row, 1957. Ebenstein, William. Great Political Thinkers. 3d ed. New Yorks Holt, Rinehart and Winston, 1965. Edwards, Edgar O. (ed.). The Nation1s Economic Objective. Chicagos The University of Chicago Press, 1964. i Frankel, Charles. The Democratic Prospect. New Yorks Harper & Row, 1962. Friedman, Milton. Capitalism and Freedom. Chicago: The University of Chicago Press, 1962. ________ . Essays in Positive Economics. Chicago: The University of Chicago Press, 1953. ________ . A Program for Monetary Stability. New York: Fordham University Press, 195£. 313 Fromm, Erich. Escape from Freedom. New York: Holt, Rinehart ana Winston, 1941. ________ . The Sane Society. New York: Holt, Rinehart and Winston, 1955. Galbraith, John Kenneth. The Affluent Society. New York: Mentor Books, 1958. ________ . American Capitalism. Boston: Houghton-Mifflin, ________ . Economics and the Art of Controversy. New York: Vintage Books, 1459. Girvetz, Harry K. The Evolution of Liberalism. New York: Collier Books, 1963. Grey, Arthur L., Jr., and Elliott, Hohn E. (eds.). Economic Issues and Policies. 2d ed. New York: Houghton-Mifflin, 1965. Hansen, Alvin H. Economic Issues of the 1960's. New York: McGraw-Hill, 1960. ________ . A Guide to Keynes. New York: McGraw-Hill, 1953. . Monetary Theory and Fiscal Policy. New York: -------- McGraw-Hill, 1549: --------------- ________ . The Postwar American Economy. New York: W. W. Norton and Co., 1964. Harrington, Michael. The Other America. Baltimore: Penguin Books, 1963. Harris, Seymour E. Economics of the Kennedy Years. New York: Harper & Row, 1964. Hayek, Friedrich A. The Constitution of Liberty. Chicago: The University of Chicago Press, 1960. ________ . The Road to Serfdom. Chicago: The University of Chicago Press, 1944. Heilbroner, Robert. The Future as History. New York: Grove Press, 196l. ________ . The Limits of American Capitalism. New York: Harper & Row, 1966. 314 Heilbroner, Robert. The Worldly Philosophers. Rev. ed. New York: Simon and Scnuster, 19(51. ________ , and Bernstein, Peter. A Primer on Government Spending. New York: Vintage Books, 1963. Heller, Walter W. New Dimensions of Political Economy. Cambridge, Mass.: Harvard University Press, 1966. Herz, John H. Political Realism and Political Idealism. Chicago1 The University of Chicago Press, 1951. Hoover, Calvin B. The Economy, Liberty and the State. Garden City, N.Y.: Anchor Books, 1961. Jacobs, Paul, and Landau, Saul. The New Radicals. New Yqrk: Vintage Books, 196<T! Jay, Douglas. Socialism in tJie New Society. New Yorks St. Martin's Press, 1$63. Keynes, John Maynard. The General Theory of Employment, Interest and Money. New York: Harcourt, Brace and World, 1936. Kolko, Gabriel. Wealth and Power in America. New York: Frederick A. Praeger, 1962. Krinsky, Fred, and Rigby, Gerald. Theory and Practice of American Democracy" Belmont, California: Dickenson Publishing Co., ls*67. Lekachman, Robert. A History of Economic Ideas. New York: Harper and Brothers, 1$5$. ________ led.). Keynes and the Classics. Boston: D. C. Heath and Company, 1964. Lipset, Seymour Martin. Political Man. Garden City, N.Y.: Doubleday and Company, 1960. Mayo, Henry B. An Introduction to Democratic Theory. New York! Oxford University Press) i960. Mills, C. Wright. The Power Elite. New York: Oxford University Press, 1959. Minar, David W. Ideas and Politics. Homewood, 111.: The Dorsey Press, 1964. 315 Morgan, H. Wayne (ed.). American Socialism 1900-1960. Englewood Cliffs, N.J.: Prentice-Hall, 1964. Myrdal, Gunnar. Beyond the Welfare State. New Haven, Conn.: Yale University Press, 1960. ________ . Challenge to Affluence. New Yorks Vintage Books, 1965. National Association of Manufacturers (Economics Principles Commission). The American Individual Enterprise System. New York: McGraw-Hill Book Company, 1946. Niebuhr, Reinhold. The Irony of American History. New Yorks Charles Scribner's Sons, 1952. Parsons, Talcott, and Smelser, Neil J. Economy and Society. New York: The Free Press, 1956. Petit, Thomas A. Freedom in the' American Economy. Home wood, 111.! Richard D. Irwin, 1964. Polyanyi, Karl. The Great Transformation. Boston: Beacon Press, 1957! Pollard, Spencer D. How Capitalism Can Succeed. Harris burg, Pa.: Stackpole Books, 1966. Popper, Karl R. The Open Society and Its Enemies. New York: Harper & Row, 1963. Reagan, Michael D. The Managed Economy. New York: Oxford University Press, 1963. Rossiter, Clinton. Conservatism in America. New York: Vintage Books, 1962. Rostow, W. W. The Stages of Economic Growth. Cambridge, England! Cambridge University Press, 1960. Sabine, George H. A History of Political Theory. 3d ed. New York: Holt, Rinehart and Winston, 1961. Samuelson, Paul A. Economics. 6th ed. New York: McGraw- Hill Book Co., 1964. Saulnier, Raymond J. The Strategy of Economic Policy. New York: Fordham University Press, 1962. 316 Schlesinger, Arthur M., Jr. The Vital Center. Boston: Houghton Mifflin Company, ldf>£. Schumpeter, Joseph. Capitalism, Socialism and Democracy. New York: Harper & Row, 1962. Shonfield, Andrew. Modern Capitalism. New York: Oxford University Press, 1965. Sievers, Allen M. Revolution, Evolution and the Economic Order. Englewood Cliffs. N.J.: Prentice-Hall. TM77 Spengler, Joseph J., and Allen, William R. (eds.). Essays in Economic Thought: Aristotle to Marshall. Chicago: Rand McNally, 1960. Sutton, Francis X. et al. The American Business Creed. New York: sKoclcen Books, 1962. Sweezy, Paul M. The Present as History. New York: Monthly Review Press, 1953. Socialism. New York: McGraw-Hill Book Co., 19471 ________ . The Theory of Capitalist Development. New York: Monthly Review Press, 1956. Taylor, Overton H. The Classical Liberalism, Marxism and the Twentieth Century. ' Cambridge, Mass.: Harvard University Press, 1962. Theobald, Robert. Free Men and Free Markets. Garden City, N.Y.: Anchor Books, 1965. ________ (ed.). The Guaranteed Income. Garden City, N.Y.: Anchor Books, 1967. Thomas, Norman. Socialism Re-examined. New York: w. W. Norton and Co., 1963. : Thorson, Thomas Landon. The Logic of Democracy. New York: Holt, Rinehart and Winston, 1962. Tobin, James. National Economic Policy. New Haven, Conn.: Yale University Press, 1966. Viereck, Peter. Conservatism Revisited. New York: Col lier Books, 1962. 317 Wallich, Henry C. The Cost of Freedom. New Yorks Collier Books, 1962. Ward, Barbara. The Interplay of East and West. New York: W. W. Norton and Co., 1962. Wiener, Norbert. The Human Use of Human Beings. Garden City, N. y7! Anchor Books, 1954. Wolin, Sheldon S. Politics and Vision. Boston: Little, Brown and Company, I960. Reports Benton, william. The Economics of a Free Society. Sup- plemenatary Paper No. 1 of the Commission for Economic Development. New York: C.E.D., 1944. Commission for Economic Development. A Better Balance in Federal Taxes on Business. A Statement on National Policy by.the Research and Policy Committee. New York: C.E.D., 1966. ________. Budgeting for National Objectives. A Statement on National Policy by the Research and Policy Committee. New York: C.E.D., 1966. ________. Economic Literacy for Americans. A Statement on National Policy oy the Research and Policy Com mittee. New York: C.E.D., 1962. ________. Fiscal and Monetary Policy for High Employment. A Statement on National Policy by the Research and Policy Committee. New York: C.E.D., 1961. ________. Modernizing Local Government. A Statement on National Policy by the Research and Policy Com mittee. New York: C.E.D., 1966. ________. Money^and Credit. A Report by the Commission on Money and Credit. Englewood Cliffs, N.J.: Prentice-Hall, 1961. Heller, Walter W. "Adjusting the 'New Economics' to High- Pressure Prosperity," in the Report on the C.E.D. Symposium, Managing a Full Employment Economy. New York: C.E.D., 1966. 318 Unpublished Material Elliott, John E. "Capitalism, Marxism, Socialism." Unpub lished manuscript, University of Southern Califor nia, Los Angeles, n.d.

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Creator Cownie, John Bowler (author)

Core Title American Political Economics: An Emerging Consensus

Degree Doctor of Philosophy

Degree Program Economics

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag economics, general,OAI-PMH Harvest

Language English

Contributor Digitized by ProQuest (provenance)

Advisor Elliott, John E. (committee chair), Krinsky, Fred (committee member), Pollard, Spencer D. (committee member)

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c18-582224

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