The Greatest Test in Our History


By J. MELBOURNE SHORTLIFFE, Professor of Economics, Colgate University

Radio Talk, W. G. Y., "Farm Forum", August 22, 1941

Vital Speeches of the Day, Vol. VII, pp. 755-756.

THIS brief talk will undertake to give a simple, general description of "The American economic way," as it has been, in peacetime, and to suggest a problem that will require our best thought and attitude and effort when the present emergency shall have passed. It will not deal with the present wartime situation.

Until the latter part of the nineteenth century, the American economic way was that of free private enterprise. There were exceptions; but, characteristically, reliance was upon private incentive, private initiative, and private decisions concerning what to produce and how much, with prices determined by the forces in the market place. It was a system of individual freedom, with control by the forces of the market, known as economic laws.

That, in general, was the American economic way under which our vast national development took place during the nineteenth century. The emphasis was upon the development of our resources and the production of more goods to raise the standard of living of our people. In general, we were not afraid of producing too much. The problem was to produce enough. Even critics admit that, under this system, we achieved marked progress, not only in material standards of living, but also in education and the amenities of life.

Recently, the picture has changed, materially. Though private ownership of business is still the rule, there has been a marked increase in government ownership, especially by the national government; and, what to many persons is an alarming increase in the regulation of private business. Large volumes have been written describing the extent and character of these two types of governmental economic activity in our day.

The national government owns and operates railroads, inland water transportation systems, and a merchant marine; it owns and operates power plants, and distributes power; it is in the banking business and the insurance business; it is in housing, and many other industries.

In the case of government regulation of private business, the instances are numerous and well known. Time does not even permit enumeration.

What does seem to require attention, not only at this moment, but in the time to come, are the purpose and the theory of much—though not all—of this increasing program of regulation. Some of these regulations, for example, those concerning the issue and marketing of corporate securities, are such as to establish standards for competition, and so to enable it to work, rather than to prevent it. They do not aim nor operate to produce scarcity nor to fix prices.

But much of the current regulation is in direct conflict with the object and theory of free private enterprise. The present object is not to encourage, nor to make possible, the fullest use of our resources, nor maximum production of goods and services at lowest possible costs and prices, but, rather, to decrease production and the offering of goods in the market, and, in some cases, to subsidize inefficient production, and, in both kinds of cases, to make prices high. The government determines the amount of production, and, directly or indirectly, fixes the prices at which the products shall be offered to consumers. This is done for the benefit of special groups of producers.

The "new" thing about this rule by special groups for special groups, by the use of political power, is the extensive increase in its application. It is not now in use, in purpose,nor in theory. The object now, as in the past, is to enable selected special groups of producers, by the aid of political power, to obtain a larger share of the national income than they could get under the forces of the marketplace. It represents now, as formerly, a revolt against competition and the operation of free private enterprise. It represents now, as it did then, the theory that our people are better off with fewer goods and higher prices than with more goods and lower prices. In theory, purpose, and effect it is now, as it always has been, the antithesis of free private enterprise. The new thing about it is that it has become a major feature of our system, rather than a minor exception, and that the former policy of favors to business is now extended to labor and agriculture.

This situation is alarming to those who wish to preserve, or to restore, the substance of the system of free private enterprise. They recognize that serious and intolerable situations have developed within the system; but believe that these situations have been the result, in part, of incidental weaknesses of the system, which might be mitigated or removed, and, in part, the result of abuses by special-interest groups, with or without aid of government, rather than the result of inherent weakness of the system. They think that competition is the remedy for the one admitted inherent weakness, namely, the tendency of individuals, in some cases, to seek their own benefit in ways injurious to the general welfare.

These people believe that it is the function of government, in the economic field, to see that the conditions favorable to competition are maintained, in all but the so-called natural monopolies—the public utilities; to regulate the public utility monopolies; and to supplement private industry with government industry in fields that are socially desirable but not financially profitable, such as education. They hold that limiting production, fixing prices, and subsidizing inefficiency are not adequate as a permanent policy, whatever may be said for it as a temporary make-shift. Indeed, they hold that the more successful the policy of scarcity and high prices the worse off is the community. On the other hand, they hold, the more successful the system of competitive free private enterprise the better off is the community, because its results are maximum production and lowest costs and prices. They, therefore, believe that this system should beencouraged and every effort made to retain it, so far as practicable, instead of assisting those interests which momentarily profit by making goods scarce and prices high.

What of the future? It is the opinion of informed and thoughtful persons that combinations and pressure groups, operating against the general welfare, are doomed to go. Such persons believe that combinations and pressure groups, with or without the aid of government, have already substantially restricted democracy and free private enterprise in this country. They fear that, if this trend continues, we shall have a situation, such as has appeared in other countries, in which democracy cannot function because of internal conflicts; and that, here, as elsewhere, such a situation will give rise to dictatorship.

It is not a pleasing prospect, for those who have faith in the principles and the objectives of democracy and free private enterprise. It subjects us to the greatest test in our history—whether we shall prove capable of making a success of our experiment with democracy and freedom and the incentive of the individual, under control by his fellows, to render his maximum service in return for a like service from his fellows. Shall we honor and justify the "faith of our fathers"? Or are we destined, even by use of our democratic political machinery to wreck our magnificent experiment on the hard rocks of uncontrolled but controlling groups concerned only with getting what they can while it lasts?

The answer rests with our people. If they are misguided and misunderstand the inner nature of our system, and blame it for ills for which it is not itself to blame, they are likely to run after doctrines and policies and programs opposed to "The American Way" as of yesterday, as, indeed, some of them have done already.

Our people need to be educated in the real possibilities of democracy and free enterprise, and in the very real dangers of the alternative systems. Only then, perhaps, will our people permit the democratic political machinery to be used to permit and enable free private enterprise to work according to its own principles. Without that, "The American Way" of the future is quite likely to be the antithesis of "The American Way" of the past.

Important as it is that Hitler be defeated in this war, from the point of view of "The American Way" to conquer Hitler will not be enough. We must conquer ourselves.