I
The current types of economic opinion in this country all have a common origin. The men who express them are but a scant generation or two removed from the country or the small town. The opinions are so many variants of a stream of thought which goes back to a mid-19th century America of small towns and open country. This primitive economic opinion was formed out of the dust of the ground in the likeness of an exploitative America. The conditions which shaped it might be set forth in two lines of a school history thus: First, abundant natural resources; second, a scanty population; and third, the principle of letting the individual alone.
It was a chance at an economic opportunity which made America of the 19th century the “land of promise.” The raw materials of personal wealth were here in soil, stream, and mine. The equipment necessary to the crude exploitative farming of the time was easy to possess. Since there was an abundance, the resources essential to a chance at a living were to be had for the asking. One with enterprise enough to “go it alone” lived upon what he himself and his wealth in wife and children produced. He did not have to drive a shrewd bargain for the sale of his labour nor purchase the wherewithal to be fed and clothed in a market. There was no confusing scheme of prices to break the connection between effort and reward; opportunity and responsibility went hand in hand; success or failure was of one’s own fashioning. Where nature does most, man claims all; and in rural America men were quite disposed to claim personal credit for nature’s accomplishments. Since ample resources smothered even mediocre effort in plenty, the voice of chronic failure which blamed circumstance, fate, or “the system” was unheard. A freedom to have and to hold economic resources plentiful enough to supply all was the condition of material prosperity.
Even when the lure of natural resources drew men from agriculture to industrial exploitation conditions did not change materially. The population of the new towns for a while kept at least one foot upon the soil. When at last the city possessed its people, aliens came out of Southeastern Europe to do the “dirty work,” and the native born passed up into administrative, clerical, or professional positions. The alternative of farm employment and the rapid expansion of industry fixed a rough minimum beneath which wages could not fall. The expanding machine technique with large scale production by quantity methods turned out an abundance of goods evidenced alike in lower prices and in higher standards of living. The “captains of industry” were regarded by the community as the creators of the jobs which they dispensed and as the efficient cause of the prosperity of the neighbourhood. The trickle of immigration that swelled to a “stream” and rose to a “tide” is an eloquent testimonial of the time paid by the peasantry of Europe to the success of the American system of letting the individual alone in his business.
These conditions brought forth the lay economic theory acceptable to the national community. Its precepts came from experience, rather than from books; by intuition, rather than by reason. The welfare of the individual and the wealth of the nation were alike due to free institutions. In business and industry the individual was to be free to do as he pleased unless specifically forbidden by the State. The State was powerless to interfere with the individual unless granted specific “constitutional” authority to do so. Each knew what he wanted and was able to take care of himself. The interests of all were an aggregate of the interests of individuals. The prevailing scheme of institutions was accepted as a part of the immutable world of nature. Private property, if defended at all, was good because it gave the individual security and enabled him to enjoy the fruits of his own labour. The right of contract, exercised in a market characterized by “higgling,” gave one an occasional adventure beyond the horizon of a household economy. If perchance the individual stumbled into a bad bargain occasionally, so much the better. The mistake was a useful exercise in the development of the cardinal virtue of self-reliance. When the coming of industrialism made contract the basis of all industrial relations, the older justification was still used. Competition, with which it was always associated, was regarded as the prime agency in the organization of industry. It forced the elements of production into order and exercised a moral restraint over them. Under its régime men were rewarded in accordance with their deserts. In general, it was true beyond peradventure that “opportunity” knocked once “at every gate”; that there was “plenty of room at the top”; that each built the ladder by which he rose; and that even the humblest was “master of his fate.”
Out of such raw materials there was fashioned a body of professional economic theory. In a sense it was an imported product; for its earlier statement was that of English “classical” economics. But in reality it was the return of an earlier export, for accepted theory had been made from crude individualistic notions which England had got from America. In addition, at the hands of American economists it received a far more elaborate and articulate statement than had been given it overseas. These theorists used subtle analysis, ponderous logic, and circumlocution; but their decorous processes brought them to much the same conclusions that practical men gained from their limited experiences. Its strength and its acceptability were wholly due to the precision and verbiage with which it reduced to formal terms the common-sense economics of the day.
In its terms the economic order is made up of individuals. Each of these is actuated by the motive of self-interest. Each has for disposal personal services, goods, or property rights. Each must live upon goods and services purchased from others. Each must compete with his fellows in the sale of his wares and the purchase of his articles of livelihood. Because of the competition of sellers the wages of labour, the profits of capital, and the prices of goods cannot be forced to untoward heights. Because of the competition of buyers they cannot be driven too low. The equilibrium of this double competitive process assures to each a return which represents the just value of the service, the property right, or the good. Prices, by moving up and down in response to changing conditions, stimulate and retard consumption and production. Their very movement constantly reallocates resources to the production of a variety of goods and services in just the proportion which the consumers demand. In this theory the institutions which comprise the framework of the economic order are taken for granted. It has no place for an interference by the State with “private business.” It regards monopoly as a thing to be abjured, whether appearing as a capitalistic combine or as a union of workingmen. In the Eden of free enterprise the community’s resources yield all they have and competition rewards justly all the faithful who by serving themselves serve society. It is small wonder that sermons were preached upon “The Relation of Political Economy to Natural Theology.”