All Commentary
Thursday, March 1, 1962

A Reviewer’s Notebook – 1962/3

When Claude Robinson died last summer, he left a host of friends. He also left two thriving busi­nesses, the Opinion Research Cor­poration and a second research company, the renowned polling firm of Gallup and Robinson. The friends will, in due course, die in their own turn, and the business firms will move to the touch of other directing hands. But when­ever a student of economics is seeking light on that most contro­versial of economic concepts, the concept of profit, he will, inevitably, find himself compelled to reckon with the book, Understanding Profits (Van Nostrand, $13.75), which Claude Robinson completed just before his untimely end. This is worldly immortality enough for any man.

Understanding Profits is a first-rate job for many reasons, not the least of which is that it deliber­ately avoids the polemic note. The mark of Dr. Robinson’s researcher calling is on the opening chapters, for the book begins by interrogat­ing the public, including the labor leaders, in order to define the pop­ular “image” of profit and the profit-seeker. The result of Dr. Robinson’s public opinion survey offers a weird commentary on the average American’s ability to cor­rect his semantics by the applica­tion of simple arithmetic.

On the one hand, the public’s “guess” is that profits on sales are some four times what they actually are. On the other hand, this same public responds in craz­ily inconsistent terms to different arithmetical ways of posing an identical question about profits. A given company earned $18 million profit, net after taxes. Another company earned 6 per cent after taxes on $300 million sales. Ob­viously, 6 per cent of $300 million is $18 million. Yet 38 per cent of the people in a given public opin­ion sample told Dr. Robinson’s in­terviewers that $18 million repre­sented “too much” profit, whereas only 19 per cent regarded “6 per cent on $300 million sales as ‘too much.’” Fourteen per cent thought $18 million profit a “rea­sonable” amount—but when the question was posed in terms of “6 per cent on $300 million sales,” 69 per cent were willing to grant the reasonableness of the figure.

Patient Explanations

An H. L. Mencken, at this point, would have murmured something about boobs and dropped the whole struggle to correct popular misap­prehensions. But Claude Robinson was not a despairing man. Pa­tiently addressing himself to arithmetical delinquents, he offered charts and clear expository language to break through the mathematical fog. Any reasonably attentive reader of his book can hardly fail to go away from it with the idea that capitalistic profits, over the years, have been reasonable enough. The average factory worker, as Dr. Robinson c. says, gets 84 per cent of the money paid out either to em­ployees or credited to stockholders as profits. Manufacturing com­panies “crossed the finish” line on December 31 of 1958 with an ag­gregate profit of 3.9 cents per dollar of sales and 8.6 cents per dollar of investment for the decade that ended on that date.

Dr. Robinson suggests that these are hardly “lush” figures. An even more sobering statistic is that some 45 per cent of the cor­porations reporting to the U. S. Treasury during the “roaring” dec­ade of the twenties lost money in the big boom years. After World War II, in the middle of another boom, the number of companies reporting losses hit 40 per cent. For every dollar gained in the 1920-40 period, forty-five cents were lost. So we have, not a profit system, but a profit-and-loss sys­tem.

Dr. Robinson shows in patient detail what companies have to overcome in order to make a profit. He also demonstrates the futility of trying to “redivide” a pie which already yields 84 per cent of its substance to the worker. The com­panies that make the best profit usually pay the best wages, charge the lowest prices, and offer the most superlative quality to the consumer. If workers were ra­tional, then, they would cheer big­ger profits for their employers.

The Social Functions Performed by Profits

Far from being selfish, profits have social functions. One social function of profits, as Dr. Robin­son explains, is to direct capital investment to where it is most needed or most effective. Another is to provide incentive to risk-takers. Still another is to give the workman the most efficient tools.

If there were no such thing as profit, the economic system would be at sea without a rudder. As for the “social control” of profits, that is provided by competition. Dr. Robinson offers a qualified judg­ment on “legislation” as a “social control.” He tends to look with favor on antitrust legislation pro­vided that it is in “harmony” with economic realities—i.e., set up to curb departures from “workable competition.”

As for social control as applied by “fair trade” laws, government price fixing, the imposition of quotas, and the attempt to tax away “super-profits,” Dr. Robin­son looks on all these with a com­pletely skeptical eye. Even in war­time they do not work as they are supposed to work. In the case of “natural monopolies”—electric power, the telephone system—Dr. Robinson presents the case for government regulation of rates. But he notes to what absurdities “regulation” can go when a sup­posed “natural monopoly,” such as the railroads, suddenly becomes a competitive business. When trucks started thundering over the high­ways and airplanes began moving through the air, the Interstate Commerce Commission should have shut up shop, for it was no longer the warden of anything that could properly be described as a “monopoly.”

“Administered Prices”

Some of the best pages in Dr. Robinson’s book are devoted to the cloudy subject of the “admin­istered” price. When a given mar­ket is dominated by a few “oligop­olists,” which is the fancy word used to describe a Big Three or a Big Four, writers like John K. Galbraith blithely assume that the “big fellows” can choose “profita­ble and comfortable stagnation.” Well, they might hope to be left in peace to make routine profits. But those who put their trust in sheer market dominance are generally marked for a fall. The growing popularity of the compact car is proof enough that “oligopoly” cannot afford to think the con­sumer has been nailed down for­ever to one standard of product.

As a matter of fact, our “oligop­olists” have been far less slothful than many businessmen who oper­ate in the sphere of what has been called “perfect” competition. Take aluminum, for an extreme ex­ample. Even when there was only one big aluminum company, Alcoa, the volume rose, the uses of the product proliferated, and the price dropped and dropped again. In 1900 five million pounds of alumi­num were produced; by 1959 pro­duction had risen to thirty-nine hundred million pounds.

Aluminum had to strive com­petitively every step of the way. It fought copper for the empire of electrical transmission. When aluminum was used primarily for kitchen utensils, there was brass, iron, and glass to contend with. Now that it is going into door and window frames and roofs and sidings—and even into an all-alu­minum house—aluminum has to battle it out with wood, plastics, stainless steel, cement blocks, and a whole host of traditional build­ing materials. Never any rest —and now that there are three big aluminum companies, Alcoa, Rey­nolds, and Kaiser, all busy fight­ing each other for the market, the temptation to sloth would be ab­solutely fatal.

Dr. Robinson offers the Du Pont Company as another example of the “oligopolist” that has had ceaselessly to innovate in order to remain a profit-maker. The Du Pont Company might have sought “profitable and comfortable stag­nation” when it developed nylon and cellophane. But it realized that if it trusted to its patents in these two products, other com­panies might come up with better fabrics and wrapping materials deriving from entirely different patented processes. So it chose to forego expansion of its nylon and cellophane manufacturing facili­ties. Licensing Chemstrand to pro­duce nylon and Olin Mathieson to make cellophane, Du Pont put its development capital into other promising ventures, such as orlon and delrin. By keeping its eggs distributed in several baskets, Du Pont thus insured itself against decline in any single line. Does this sound like “profitable and comfortable stagnation”?

“Profit-Sharing” Plans

Dr. Robinson offers a chapter on profit-sharing schemes, which he thinks work best for small, closely-held companies which have reason to prefer the contingent costs of deferred profit sharing to the fixed costs of orthodox pension plans. He has another first-rate chapter on the ethics of profit making. The morality of profits should be apparent to anyone who thinks it important to give more rather than fewer souls a chance to live above the poverty line. Where there are no profits, there is no growth—and every child in excess of two-per-family must, by definition, be “surplus” life.

There are pages of appendix material—charts, detailed reports on the sales and profit perform­ances of 600 leading companies —in the back of Dr. Robinson’s book. It is unfortunate that the cost of including all this material has run the retail price of the volume up to $13.75. Perhaps some foundation which believes in the profit system will subsidize its distribution at a lesser price. Our economic “heathen” need it. Even good Christians will be helped by its salutary demonstration that profits have their place in any “social gospel” thinking that pre­tends to be interested in the Christian desire to make room on this earth for more human souls.

Creativity And Its Culti­vation edited by Harold H. Anderson.

(Harper and Brothers. 293 pp. $5.00.)

Reviewed by Stephen B. Miles, Jr.

One of the future’s most fruitful fields for the freedom philosophy may well be psychology. Long dom­inated by the stimulus-response jargon of the behaviorists, offshoot of the same materialism that pro­duced communism and the welfare state, and by the contorted obses­sion with sex of the Freudians, psychologists are now pointing to “The Miracle of Individual Re­sponsibility”—as Carlton Williams put it in a recent FREEMAN—even when still far from facing its im­plications in economics and gov­ernment.

This freshening of psychological thought is seen to good advantage in Creativity and Its Cultivation, edited by Harold H. Anderson. Of the 14 essayists, eight are psychol­ogists—nine if we include Edmund W. Sinnott of Yale, who calls him­self a biologist but who finds in all life qualities usually conceded only to the mind of man.

“The creative process,” says Carl R. Rogers of the University of Wisconsin, “is the emergence in action of a novel relational product growing out of the uniqueness of the individual on the one hand and the materials, events, people, or circumstances of his life on the other.” He further says: “Many, perhaps most, of the creations and discoveries which have proved to have great social value have been motivated by purposes having more to do with personal interests than with social value, while on the other hand history records a somewhat sorry outcome for many of the cre­ations [various utopias, Prohibi­tion, etc.] which had as their avowed purpose the achievement of the social good. No, we must face the fact that the individual creates primarily because it is satisfying to him, because this behavior is felt to be self-actualizing….”

Elsewhere in his essay, Dr. Rog­ers speaks of the necessity of “psy­chological freedom” for creativity, and describes it as “permission to be free [italics his], which also means that one is responsible. The individual is as free to be afraid of a new venture as to be eager for it; free to bear the consequences of his mistakes as well as of his achievements. It is this type of freedom responsibly to be oneself which fosters the development of a secure locus of evaluation within oneself, and hence tends to bring about the inner conditions of con­structive creativity.”

“Now,” this reviewer thought, “the professor will certainly have to say a few words about how a coercive government suppresses freedom, and how the welfare state destroys individual responsi­bility”—especially since he was addressing himself to the problem, “How can we establish the external conditions which will foster and nourish the internal conditions de­scribed above?” But does he? No. To be sure, Dr. Rogers’ field is psy­chology, not political science or eco­nomics. But he does feel free to es­say a brief criticism of business: “In industry, creation is reserved for the few—the manager, the de­signer, the head of the research de­partment—whereas for the many life is devoid of original or crea­tive endeavor.”

Repeatedly throughout this and other articles, the psychologists tended to approach the libertarian point of view. When they came up to it, they didn’t exactly back off, but neither did they follow through. However, such comments as these and Dr. Anderson’s contrast be­tween “social development” and “socialization” augur well for a carry-over in the future. “Social development,” Anderson says, re­lates “to the mutual discovery of common purposes” without “coer­cion, threat, or guilt,” while so­cialization “can be achieved with­out regard for the individual and without regard for the dignity of the person,” and he points out that “in the socializing process the child’s differentiation or creativ­ity” is confined within narrow lim­its.

While the psychologists (and lone biologist) tend to emphasize the close relationship between cre­ativity and the freedom of the in­dividual, other contributors to this volume seem mainly bent on sharp­ening the clichés of socialism, or other axes, on the grindstone of creativity. Dean Stoddard of the School of Education at New York University endorses progressive education and expresses his pref­erence for world government. Har­old D. Lasswell, professor of law and political science at Yale, sets up a division of creativity, “recog­nition of innovation,” which could serve as a potent weapon of social reform. For instance, he applies the adjective “creative” to “cul­tural expansion,” and then asks: “To what extent has business failed to recognize creative cultural ex­pansion?” Rollo May, a psycholo­gist in private practice, criticizes the older depth-psychological and psychoanalytic theories of creativity which use that magic term to substantiate a preconceived doc­trine, attempt to reduce creativity to some other process, or discredit it by calling it neurotic.

In another recent book, Profes­sional Creativity (Prentice Hall, 260 pp.), the author, Eugene Von Fange, an engineer at General Electric, somehow leaves the im­pression that creativity in busi­ness is the monopoly of the engi­neer and the scientist, and that managers are “uncreative.”

While the bulk of the Von Fange book consists of helpful hints to technical people on human rela­tions, planning and scheduling, specification writing (“In writing specifications we should avoid wording that is misleading, ambig­uous, or subject to any misunder­standing”), trouble-shooting, the art of talking to a manager, and other vicissitudes of an engineer, the early chapters contain a num­ber of valuable insights, notably in connection with his definition: “All thinking is mentally directed cre­ativity.” Much more meaning would attach itself to the concept of “thinking” if Von Fange’s ob­servation that “we think only when we wish to achieve a conclusion that, by implication, did not exist before” were widely accepted. He presents a quotation from the Abbe de Condillac that could well be studied by some of the intellectu­als in the Anderson book and by New Deal-Fair Deal-New Frontier “liberals” who want to brush up on their creativity:

“There is but one remedy by which order can be restored to the faculty of thinking; this is, to for­get all that we have learned, to trace back our ideas to the source, to follow the train in which they rise and… frame the human un­derstanding anew.

“This remedy becomes the more difficult in proportion as we think ourselves the more learned.”

Letters Of H. L. Mencken, selected and annotated by Guy J. Forgue.

(New York: Alfred A. Knopf. 506 pp. $7.95.)

Reviewed by Robert M. Thornton

Reading old letters to and about authors long since dead might sound like a chore, but any such notion is quickly banished from the mind once the reader succumbs to the irresistible charm of their au­thor. For 506 pages this reviewer reveled in the magnificent prose style of one Henry Louis Mencken. This is the first collection of Mencken’s letters to be published, and one hopes most fervently that it will not be the last.

Faced with the task of selecting from many thousands of letters, Mr. Guy J. Forgue, editor of this volume, has “chosen to restrict this selection to the best of Mencken’s literary letters, along with a number of others that best ex­press his personality and give the most vivid and lifelike picture of the man and his literary activi­ties.” This is but one of H. L. M.’s facets. Maybe next Mr. Forgue might put together a collection of letters that best express H. L. M.’s ideas on politics and politi­cians.

Henry Mencken would be called an extreme libertarian today—to the right of Goldwater! “I be­lieve,” he said (to Hamilton Owens), “in only one thing and that thing is human liberty. If ever a man is to achieve anything like dignity, it can happen only if superior men are given absolute freedom to think what they want to think and say what they want to say. I am against any man and any organization which seeks to limit or deny that freedom.” When Owens asked if he would limit freedom to superior men, Mencken replied that “the superior man can be sure of freedom only if it is given to all men.” Thus Menck­en was strongly opposed to Com­stockery, to all government censor­ship of literary works, and he fought long and hard for the right of authors to write as they pleased and about what they pleased.

When one recalls how many literary figures and artists in all fields became enamored of social­ism, communism, and the like in the nineteen twenties and thirties, it is a distinct pleasure to note that Mencken was never taken in. He recognized the enemies of liberty, no matter what their guise. In a letter dated May 2, 1936, to Upton Sinclair he writes:

I am against the violation of civil rights by Hitler and Mussolini as much as you are, and well you know it. But I am also against the whole­sale murders, confiscations, and other outrages that have gone on in Russia. I think it is fair to say that you pseudo-communists are far from con­sistent here. You protest, and with justice, every time Hitler jails an op­ponent, but you forget that Stalin and Company have jailed and murdered a thousand times as many.

All in all, these letters—over four hundred of them—reveal to the reader the Mencken whom Albert Jay Nock knew and ad­mired:

There is no better companion in the world than Henry; I admire him, and have the warmest affection for him. I was impressed afresh by his superb character—immensely able, unself­conscious, sincere, erudite, simple-hearted, kindly, generous, really a noble fellow if ever there was one in the world.

To give proper credit one must add that part of the enjoyment derived from this book came from the fact that it is one fine job of bookmaking.

  • John Chamberlain (1903-1995) was an American journalist, business and economic historian, and author of number of works including The Roots of Capitalism (1959). Chamberlain also served as a founding editor of The Freeman magazine.