Economics Volume II: Modern Economic Problems

by Frank A. Fetter

§ 11. #Limitation of competition by custom.#[8] The relatively large influence of competition in present society appears more plainly in comparing the present system with that of an earlier state of society or with that of a present savage tribe. A member of the lowest human societies is subject to law; tho he is a savage he is not "untutored." On the contrary he is bound in many ways to follow customary lines of conduct, and a large part of his time is given to learning the traditions and then to observing the ceremonials of the tribe. Primitive customs always take on a religious sanction, and every member of the tribe is piously bound to do as his fathers have done and as his neighbors are doing. This limitation applies to the choice of food to eat, clothes to wear, time to hunt, plant, and harvest, weapons and tools to use, where and how to trade, how much to give or take, and to countless other details of economic choice. So, in early society, economic relations were complex and but slowly changing from generation to generation. Custom, rather than competition, ruled in manifold ways the economic actions of men.

Custom continued to rule a large share of the individual life of the peoples of northern Europe through barbarian and feudal times. Its force has gradually decreased, but even yet is not entirely set aside. Political and economic interests were not clearly distinct in the Middle Ages. Land was the all-important kind of wealth. Military and other public services were performed by the higher landlords (as vassals of their overlords) who in this way paid at the same time what we to-day would call rent and taxes. The landlord in turn received from his underlings services and goods in kind (food and supplies) and so (in modern eyes) was both a collector of taxes and a receiver of rent. The rent, however, was not a competitive price, but consisted of the dues and services which the forefathers had been accustomed to pay. In many ways also in the towns, close organizations of craftsmen and of merchants regulated prices and kept others out of their industries. Industrial privilege pervaded the life of that time.

Yet through all the Middle Ages ran the forces of competition. The inefficiency of customary services and the high prices charged by selfish privilege were constant invitations to men to become competitors. Men strove to break over the barriers of custom and of prejudice. Their efforts to attain freedom to compete was the vital force of the time. The industrial history of the Middle Ages was largely the story of the struggle of the forces of competition against the bonds of custom and privilege.

§ 12. #Effect of modern forces upon custom#. The industrial events following the discovery of America strengthened the forces making for economic freedom. Discoveries in the Western hemisphere opened up a wide field for the adventure and enterprise of Europe. Commerce is the strongest enemy of custom, and new opportunities gave a rude shock to the conservatism both of the manor and of the village. With the rapid growth of industry and manufactures, old methods broke down. In an open market custom declines; it flourishes best in sheltered places. Further, the movement of thought in the Reformation, and the spirit of the times which expressed the principle of personal liberty and allowed the individual to follow his own opinions and take the consequences, were favorable to competition. Despite these facts, the restraints of the national governments on trade continued great, in some respects increasing during the seventeenth and eighteenth centuries, in France, Holland, and England. The regulation before attempted by towns and villages was employed on a larger scale by national governments with their industrial systems. The colonies in America were used for the economic ends of the "mother country" and for the selfish interests of the home merchants in Europe. The American Revolution was one of the bitter fruits of the English policy of trade restriction.

§ 13. #Adam Smith's influence#. "The Wealth of Nations," the first great work on political economy, was published in the year 1776. That was the "psychological moment" for its appearance, as public thought was so prepared for it that it had its maximum possible influence. The year of the American Declaration of Independence gave the most striking object lesson on the evils of a selfish colonial policy that interfered on a grand scale with economic freedom. The old customs had become ill fitted to life, ill adapted to the rapid industrial changes that were going on. What was needed in many directions, both in politics and in industry, was merely negative action by the government, the repeal of the old laws, the overthrow of old abuses. The French Revolution, following a few years later, emphasized this thought in the political field. The philosophers of the time believed in a "natural law" in industry and politics. The reformers of the time wished to throw off the trammels of the past and to give men opportunity to exert themselves "naturally." In America the old abuses never had taken deep root, as the conditions of a new continent were not favorable to monopoly and privilege. Altho the movement for the repeal of medieval laws has continued in Europe from 1776 till the present time, yet custom still is stronger to-day in Europe than in America. Serfdom was not abolished until the first half of the nineteenth century in Austria and southeastern Europe, and not until the last half in Russia. Many economic and cultured forces furthered this movement, but the most powerful intellectual force in its favor was the work of Adam Smith. So strong an impression did Smith's book make, that in the minds of men "free trade" became almost identical in thought with political economy, whereas that was but the temporary economic problem of the eighteenth century.

Many men then thought that in "free and unlimited competition" had been found a solution of all economic problems for all time. But soon, it was apparent that it was no such simple and absolute solution. Indeed many of the present economic problems—in one sense all of them—center around this one: to determine the proper forms and limits of competition. The varied aspects that this problem takes will appear in every portion of the following pages.

§ 14. #The wage-system.# Viewed in another aspect the present economic and social order is called the wage-system.[9] The wage-contract, like the use of money, is not essential to the existence of a system of private property. Communities such as the American colonies and as many of the newly settled states, may consist almost entirely of self-employed owners of land. Bulgaria, before the Balkan wars called the peasant state, presented this organization (tho of course with some wage-payment), as did also its neighbor Serbia. But given the institution of private property with competition (freedom to buy and sell), let manufactures and commerce develop to any extent, and inequalities of fortunes increase while an increasing number of persons work for wages. It is noteworthy that as this goes on (as it has done in America at an increasing rate since the middle of the nineteenth century) it is the agricultural and rural hand industries that continue to be mainly worked by owner-managers and workers, while it is the manufacturing, transporting, and large commercial enterprises in which the labor is done for wages. The acceptance of the wage-system thus far has been the inevitable price to be paid for manufacturing and industrial development; and one of our economic problems is to determine whether this must continue, and if so, whether in the same measure as in the past.

[Footnote 1: The exceptions are probably unstated amounts of exempt real estate (owned by municipalities, state, and nation), some of the irrigation plants, part of the canals, and that part of the gold and silver which is in the public treasury.]

[Footnote 2: See Vol. I, pp. 264-267. The law makes between property rights and equitable rights some subtle distinctions, which have their reason in the history, if not in the logic, of the law but which are not essential to economic discussion. In some states this distinction has been in large measure abolished. What interests us are the rights (claims) that men have to the control of wealth and services, whether by technical law these are called legal or equitable, and this right is what is meant by "property" in our discussion of it.]

[Footnote: 3 This confusion has had important practical consequences in the field of taxation. See Vol. I, pp. 265-267, and below, ch. 17.]