A Reviewer’s Notebook – 1959/12

The farmer in America has al­ways been a member of a favored class. He was favored in the be­ginning by nature: there was free land in the colonies virtually for the taking. He was favored in Jef­fersonian times by the simple fact that he constituted a majority (a century ago our population was 80 per cent rural, and it took one farmer to feed himself and three others). The political bias in fa­vor of the farmer was written in­to the Constitution itself, with its provision for two senators—no more, no less—from each state re­gardless of population densities. With the Constitution as his shield and buckler, the farmer—by way of Farm Bloc “logrolling” trades with the industrial states—has al­ways had his political way.

He has, of course, had to reckon with the shade of Alexander Hamilton, who went “one up” on Thomas Jefferson and his ag­rarian supporters by putting over the idea that industry deserved its subsidy in the form of the protec­tive tariff. I blush to recall that I once cited the tariff as a justifica­tion for the counter-subsidizing of the farmer through the AAA. Superficially considered, it seemed plausible to assert that one good bit of graft deserved another.

But, in retrospect, one wonders just how much the farmer actually suffered from the tariff. The argu­ment used to be that he sold his crops at free world market prices and then had the devil’s own time trying to stretch his income so that he might meet the protected prices of industry. What he spent his big sums of money on, how­ever, was machinery—and our mass production machine-making industry (cars, tractors, and so on) has never been particularly favored by the protectionists. As for the farmer’s food and housing, they ordinarily came cheap—far cheaper, indeed, than the city man’s food and rent. Besides, in the period after the Civil War, the farmer could get a quarter section of land in the West merely by complying with the easy terms of the Homestead Act. Railroads, of course, got a comparable land sub­sidy—but other industries had to pay for their real estate.

Special Treatment Forever?

Since the American farmer, his­torically, has been a very decent member of society, no one be­grudges him his original free land. But does the fact that he was originally favored by the emptiness of the North American continent give him a claim to spe­cial treatment forever? In his The Great Farm Problem (Regnery, 235 pp., $5.00), William H. Peter­son, associate professor of econ­omics at New York University, says “no.” Farming may be a way of life, but it is a way that loses all its historic virtues of inde­pendence and democratic free­masonry once it is made the ob­ject of a “charity” that is not forthcoming in proportionate amounts to other ways of life. Blacksmithing and carriage mak­ing were once “ways of life,” too—but the village smith of Long-fellow’s poem never was suffi­ciently numerous to get a pressure group going for him in the U.S. Senate, so he had to transform himself into a die maker or an automobile mechanic to live. The farmer, on the other hand, has been able to get his fabled “inde­pendence” underwritten at the automobile mechanic’s expense—and in getting something for nothing he has become hypocriti­cal.

Professor Peterson goes deep into the colonial origins of agrari­anism. The historical sections of his book present a succinct re­cital of the problems, mainly re­volving around the currency ques­tion, of a century and a half of political agitation. Classically, the West and South wanted cheap money—whether in the form of greenbacks or the free coinage of silver at a sixteen-to-one ratio to gold. The argument was that it was not Christian to squeeze a debtor to favor an abstraction such as “Wall Street.” But this was to assume that the creditor had originally made his money in some easy, not quite legitimate way, and that he “owed” it to so­ciety to lose it. In any case, the stereotype of the virtuous debtor and the wicked “Wall Street” moneylender has been called into question by recent scholarship.

It turns out on investigation that big eastern bankers lent very little to western farmers: as Allan G. Bogue has shown in his Money at Interest (Cornell University Press), it was more often the small mortgage company, often situated in the Mississippi Valley, which helped the farmer get cash when he needed it. Since it took only about a thousand dollars in cash plus a government grant in land to get a Nebraska farmer and his family started in life in the eighteen eighties, it is hard to justify the argument that “bank­ers” were the root cause of the Populist and Bryanite agrarian “crusades.” It was nature—in the form of the drought cycle—that was to blame. And it would have taken more than greenbacks or free silver to save the farmer who had moved too far out on the high plains from the consequences of his mistaken judgment about cli­mate.

Wartime Land Boom

Professor Peterson makes it in­dubitably plain that the twentieth century farmer got into trouble when he was caught up in World War I hysteria. During the years when the European farmer’s acres were being trampled by armies, the international price of Ameri­can foodstuffs naturally rocketed. Anyone with half an eye could have foreseen that the high prices were destined to be short-lived. Yet farmers went greedily into long-term debt to take advantage of what was bound to be a short-term advantage. Naturally, they were stuck with their mortgages when peace brought an end to $3.40 wheat and $2.00 corn. More­over, many of the mortgages had been taken out on submarginal land which could hardly support even debt-free production in times of world plenty.

Since the farmer had always been pampered politically, he thought it incumbent on the rest of the population to bail him out for his unfortunate World War I gamble. Accordingly, scheme after scheme was offered in Congress to give the farmer the benefit of such things as the McNary­-Haugen “two-price system.” To his credit, Calvin Coolidge vetoed the McNary-Haugen scheme for subsidizing farm exports on two separate occasions. “It cannot be sound,” he said, “for all of the peo­ple to hire some of the people to produce a crop which neither the producers nor the rest of the peo­ple want.” The Republicans later gave way to the idea of price-propping and created the Farm Board. And when the New Deal came into office, “farm laws,” as Professor Peterson says, “came fast.”

The Failure of “Planning”

The real dynamite of Professor Peterson’s book is packed into the final chapter, “Analysis,” which takes up fully a third of the author’s space. What Professor Peterson proves, essentially, is that any and all attempts by the government to solve the farm problem by intervention must end by defeating the intentions of the “planners.” Ever since 1933 the individual farmer has always been able to outwit the planner. Money paid to farmers for limiting their planting has been spent on fer­tilizers and tools that have re­sulted in bigger surpluses from fewer acres. Land taken out of corn has been put into other crops that have also proved to be re­dundant. The point has been reached where every family in the United States is taxed $100 a year (on the average) in order to pay farmers a total of $6 billion a year for withheld production. Yet the surpluses have increased in spite of such gimmicks as the Soil Bank. Dumped abroad or stuck away in caves and warehouses to decay, the surpluses have not re­sulted in lower prices to the American city consumer. This consumer pays his taxes to give farmers in the United States an average annual subsidy of $1,300 per farm. And then the consumer pays twice over in higher food prices as the government takes the still ever-mounting food sur­pluses off the local market by such devices as “nonrecourse” loans.

Welfare for the Wealthy

The irony of the whole per­formance is that most of the sub­sidy money has gone to the richer farmers, the productive two mil­lion who do not need help to sus­tain them in their “way of life.” The remaining two-and-one-half million farmers who might argue that they need a subsidy to stay on the land actually get very little money from the government. (Pro­fessor Peterson’s figures show that the small farmer, with less than $2,500 market sales a year, gets a mere $109 in price support and stabilization costs where the big farmer with sales of $5,000 or more gets $1,993.) In consequence of the disparity in supports, the small farmer has been giving up his “way of life.” Despite all the crocodile tears shed by the farm interventionists, there has been a drop of 28 per cent in total farm workers since the beginning of World War II. In 1940 there were 1,600,000 cotton farmers; today there are only 850,000. The farm­ers who have been pushed out into city life are not needed on the farm, for in the past two decades the remaining farmers have in­creased total U. S. agricultural production by some 35 per cent. By the same token, however, the remaining farmers are not the ones for whom the interventionist theorists used to weep.

Professor Peterson, following Henry Hazlitt, has a solution for the “great farm problem.” He would cut subsidies to nothing within a given period of time.

This would bring supply and de­mand—and future plantings—in­to a natural balance; and the good farmer would find himself a free man once more. As for the un­economic farmer, he must accom­modate himself to the fact of change. It is not a happy circum­stance to give up a cherished “way of life,” but his sons are quitting the farm anyway. It is best for him and for the nation to face reality.

Business Cycles and Their Causes By Wesley C. Mitchell. Berke­ley: The University of Cali­fornia Press. 226 pp. $1.50.

American Business Cycles, 1865-1897 By Rendigs Fels. Chapel Hill: The University of North Caro­lina Press. 244 pp. $6.00.

The student of economics is in­variably taught a certain myth­ology about the history of the study of business cycles. That mythology holds (a) that before 1913, nobody realized that there are cycles of prosperity and de­pression in the economy—instead, everyone thought only of isolated crises or panics, and (b) that this all changed with the advent of Wesley Mitchell’s Business Cycles in 1913. Mitchell’s supposed achievement was to see that there are booms and then depressions, and that these cycles of activity stem from mysterious processes deep within the capitalist system. It is Part III of this work (the other parts being out-dated histori­cal and statistical material) that is here reprinted for the second time, this time in paperback.

It is certainly true that the late Wesley Mitchell had an enormous influence on all later studies of the business cycle and that he revolu­tionized that branch of economics. But the true nature of this revo­lution is almost unknown. For there had been great economists who were not only aware of, but also discovered theories to explain, the dread phenomena of boom and bust. They did this much before Mitchell’s time, and went far be­yond him. For one thing, Mitchell and his followers have never tried to explain the business cycle; they have been content to record the facts, and record them again and again. Mitchell’s famous “theoret­ical” work is only a descriptive summary. Secondly, these same economists were discovering a great truth that escaped Mitchell and has continued to escape econ­omists ever since: that boom and bust cycles are caused—not by the mysterious workings of the capi­talist system—but by govern­mental interventions in that sys­tem.

The real founders of business cycle theory were not Mitchell but the British classical economists: Ricardo and the Currency School, whose doctrines have unaccount­ably been shunted by historians into the pigeonhole of the “theory of international trade.” They first realized that boom-bust cycles are caused by disturbances of the free market economy by inflationary in­jections of bank credit, propelled by government. These booms them­selves bring about a later depres­sion, which is really an adjustment of the economy to correct the in­terferences of the boom. The sketchy theory of the classicists was elaborated during the nine­teenth century; later, the impor­tant role of the interest rate was explained by the Swede, Knut Wicksell; and finally, the full-grown theory of the business cycle was developed by the great Aus­trian economist, Ludwig von Mises.

Mises’ theory shows the com­plete workings of the boom-bust cycle: the inflationary injection of bank credit, fostered by govern­ment; a boom marked by malin­vestments caused by inflation’s tampering with the signals of the free market; the end of inflation revealing these unfortunate malin­vestments; and finally, the depres­sion as the correction by the free market of the wastes and distor­tions of the boom. Ironically, the work where Mises first outlined his theory appeared about the same time as Mitchell’s.

The classical, and now the Mises, theories have been generally scorned by modern writers, and mainly for this reason: that Mises locates the cause of business cycles in interference with the free mar­ket, while all other writers, follow­ing Mitchell, cherish the idea that business cycles come from deep within the capitalist system, that they are, in short, a sickness of the free market. The founder of this idea, by the way, was not Wesley Mitchell, but Karl Marx.

The Mises theory, then, is uni­versally dismissed as “too simple.” Professor Rendigs Fels’ new book is a typical example of current work on business cycles. Fels deals with the cycles of late nineteenth-century America, and he certainly reveals a great many valuable facts of the hitherto neglected cycles of that era. But how does he explain these cycles? Here he tries to syn­thesize the most fashionable of current theories, with most em­phasis on the theory of the late Professor Schumpeter. Almost every theory is incorporated in some way, except that of Dr. Mises. Oddly enough, whenever Fels does mention monetary fac­tors, or the “shortage of capital” aspect of Mises’ theory (which he discusses fleetingly and misleadingly, and without mentioning Mises’ central role), he has to ac­knowledge that it fits the facts neatly. But then he is quickly off again, in pursuit of more and better fallacies.

Schumpeter’s theory, alone of all theories aside from Mises’, has one great merit: it attempts to in­tegrate an explanation of business cycles with general economic theory. Other economists are con­tent to fragment business cycles as if general theory simply does not exist, or is irrelevant to the “real world.” But Schumpeter’s theory is simply wrong, as can be seen by his conjuring up a large number of “cycles,” nearly one for each industry, which are supposed to interact to form the total eco­nomic picture. An economist should realize that industries in the market economy are bound up together, so that basically the economy is in the throes of only one cycle at a time.

The reader will gain little en­lightenment, therefore, from these works on business cycles. From Mitchell he will obtain only a de­scriptive summary of a typical cycle; from Fels he will find many important facts, but all distorted by erroneous attempts at expla­nation. Both authors virtually ig­nore what we can call the “mone­tary malinvestment” theory of Mises and his classical forebears.

It is true that, in recent years, the so-called “Chicago School” has been placing more emphasis on monetary causes of the cycle. But these economists have only thought of money as acting on the general price level and still do not realize that monetary inflation creates maladjustments in the economy that require subsequent recession. As a result, the Chicago School still believes that government can eliminate business cycles by juggling the monetary system, by pumping money in and out of the economy. The Misesian, on the other hand, sees government as having one and only one proper role in the economy: to keep its hands off and to avoid any further inflation. This is the only “cure” that government can bring to us.
MURRAY N. ROTHBARD

 Two Concepts of Liberty By Isaiah Berlin. London: Oxford University Press. 57 pp. 80¢.

This little book is a brilliant argu­ment for what the author calls “negative” liberty—freedom from, as opposed to the prevailing idea of “positive” liberty—freedom for or to. Champions of the former, aware of the propensity to en­croach which power invariably dis­plays, want to curb political au­thority. Keeping government shackled is their means; the end is to stake out an area of freedom within which each person may have scope to exercise his facul­ties, grow, and achieve the goals he deems good, right, or sacred. Proponents of the “positive” theory, on the other hand, do not distrust the political authority—provided they are at the controls. Freedom, as they understand it, is equivalent to participation in rule, or the exercise of power.

This book invites comparison with Mill’s essay, On Liberty. Berlin does, in fact, pick up where Mill leaves off, first stopping to patch up several loopholes in Mill’s argument. He finds, for instance, that Mill overstates the concept of individualism and, in addition, blurs the real distinction between individual liberty and majority rule. Mill and his followers tend to neglect the social components which are blended into every per­son’s makeup. The spheres of in­dividual and social life are not as mutually exclusive nor separated by as hard and fast a dividing line as they seem to think. Seldom is any individual’s course of action without consequences which might affect other people for good or ill.

Man is not disembodied reason, nor is the individual a solitary Crusoe; human lives mesh in intri­cate and subtle ways. To some de­gree, each person’s image and esti­mate of himself is framed in the light of what his fellows think and feel him to be. Asked who he is, he explains his uniqueness in terms of his involvement with his family, his community, his pro­fession, his nation, his club, his church, his party, the philosophi­cal school to which he belongs, and so on. And he makes this explana­tion in a language which is a com­mon possession. This is part of what it means to be a person, and this is the creature who needs liberty to meet the total demands of his nature.

The proponents of “positive” liberty, on the other hand, are victims of their own semantic con­fusion, pinning the label “liberty” arbitrarily on various other values. But, as the author says, “Every­thing is what it is: liberty is liberty, not equality or fairness or justice or human happiness or a quiet conscience…. and it is noth­ing but a confusion of values to say that although my ‘liberal,’ in­dividual freedom may go by the board, some other kind of freedom—’social’ or ‘economic’—is in­creased.”

 Almost every moralist in his­tory, Professor Berlin points out, has praised liberty, but the term is so porous that more than two hundred senses of the word have been recorded. This confusion is due in part to the nature of the subject matter—human, civic, and social relationships of almost in­finite complexity. Some philoso­phers, “intoxicated by their mag­nificent achievements in more ab­stract realms… neglect the field of political thought, because its unstable subject-matter, with its blurred edges, is not caught by the fixed concepts, abstract models, and fine instruments suitable to logic or to linguistic analysis.” But “to demand a unity of method in philosophy and reject whatever the method cannot successfully manage is merely to allow oneself to remain at the mercy of primi­tive and uncriticized political be­liefs.” Witness the clash of ide­ologies that currently rocks the world!

***

Isaiah Berlin is no “single for­mula” man; the facts of life, as they appear to him, are too various to fit neatly into a single, all-em­bracing system. No man knows enough to try to trim others to fit his blueprint, according to “the a priori barbarities of Procrus­tes,” nor does any combination of men. No individual is to be sacri­ficed to “the belief that somewhere, in the past or in the future, in divine revelation, or in the mind of an individual thinker, in the pro­nouncements of history or science, or in the simple heart of an un­corrupted good man, there is a final solution.” In the recognition of how little we know, liberty takes root.   

EDMUND A. OPITZ