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The Liberal Way

Mr. Stone writes the Monthly Investment Let­ter of Hayden, Stone & Co. This article is from the September 1962 Letter.

The claim is now being pushed by the "liberals" that the Ameri­can economy stands at a crossroad of choice between capitalist reces­sion and socialist expansion and that the American "passion for social justice" requires govern­ment domination of our tradition­ally free society.

The argument runs that the big increase in the working-age popu­lation in the present decade will result either in massive unem­ployment or in production far in excess of consumption, with a consequent severe depression. As­suming approximate continuance of present trends in the working population, in working hours per week, and in productivity per worker, the gross national prod­uct can be projected at about $800 billion in 1970, against $500 bil­lion in 1960. Government pur­chases of goods and services (fed­eral, state, and local, excluding transfer payments such as inter­est on debt, social security bene­fits, etc.) took 20 per cent of the

gross national product in 1960; the "liberal" thesis holds that un­less this 20 per cent ratio is sub­stantially increased over the pres­ent decade, there will be a sub­stantial surplus of unwanted pro­duction because neither consumer demand nor business investment can be expected to increase at a rate sufficient to buy the flood of goods and services that will be put on the market. Clearly, the reasoning goes, there is a "neces­sity" to change our traditional free enterprise society into a gov­ernment dominated state in which the gap between production and purchasing power will be filled by government spending at all levels for social needs.

Perhaps the most shocking thing about this thesis is that in­stead of abhorring such a develop­ment like the plague, the "lib­erals" actually advocate it, to the despair of those who are dedi­cated to the achievement of growth without inflation and without a further centralization of power in the federal govern­ment. To some extent the "liberal" argument represents only the psychological dissatisfaction of the intellectuals, so well described by Dr. Ludwig von Mises, the emi­nent Austrian economist, in his book, The Anti-Capitalistic Men­tality (Van Nostrand, 1956). The intellectuals in this country, lib­erals and conservatives, have never enjoyed the degree of pres­tige that they deserve and that rightfully prevails in Europe, and they never achieved sufficient fi­nancial status in the roaring "fast buck" capitalism that character­ized the country’s growth up to the 1920′s. In the price inflation of the past thirty years, for which the "liberal" intellectuals are partly responsible, the salaried teaching class has fallen even further behind, unfortunately, and a good part of the present anti­capitalist slant may reflect only a natural resentment.

More important than the psy­chological slant, however, is the continued misunderstanding of this country’s economic and politi­cal history. We don’t think that a "passion for social justice" ever characterized either the Founding Fathers or the subsequent build­ers of this country. The passion was for individual justice, not "so­cial justice," and all the emphasis was on protecting the individual from a dominant state and on the insuring of equal opportunity. There was always, in all of theearly American ideology, a sharp insistence on individual reward for individual effort and an avoid­ance of anything but charity for those who were unwilling or un­able to compete. The emergence of a less severe economic attitude, with a trend toward smoothing out the cruel inequities of a hotly competitive system, reflects only the latter day humanitarianism of a rich society rather than any traditional American economic concept.

The purely economic side of the "liberal" argument—the essen­tially Marxian theory about a gap between production and demand—seems logical, but it isn’t. A good philosopher can prove or disprove practically anything in theory but he knows that purely inductive reasoning without regard for the facts will lead into all kinds of Aristotelian error. Capitalism can’t work, but it does. Commu­nism should work, but it doesn’t. The arguments cited above about a tremendous increase in the labor force and a likely shortage of con­sumer demand could have been cited in 1860 just as logically as in 1962, and the subsequent facts would have made monkeys out of any brilliant theorists who might have come up with similar induc­tive reasoning. Starting from a 31.5 million base in 1860, the country’s population increased 25 per cent in every decade through 1890, 20 per cent through 1900 and again through 1910, and 15 per cent through 1920 and through 1930. Moreover, the working pop­ulation in the cities was swelled by tremendous immigration totals, ranging from 500,000 to 1,000,000 a year, and it was further in­creased by gradual mechanization on the farm and by a continuing rise in the percentage of women workers. The rate of increase in the labor force in the 60 years from 1860 through 1920 was prob­ably almost double, in every dec­ade, the projected 18 per cent in­crease from 1960 to 1970.

One of the myths that confuses economic "liberals" today is the theory that the opening of the continually expanding Western frontier provided an outlet for our "surplus" production that is lack­ing today. The facts belie the theory. The frontier that absorbed the bounding energies of the new labor force was not in the West—it was in the huge industrial com­plex that was built in the Ohio Valley, out of coal and iron and steel. The West was not a market for the East; on the contrary, the gradual improvement in living standards of the eastern masses provided a market for the wheat and cattle of the western plains and forced their profitable devel­opment by the wheat growers and the cattle raisers. In other words, the economy fed on itself, just as it always has when price and profit relationships provided an ample incentive for the entrepre­neur, and it needed no artificial stimulus from a new frontier, or from war, or from paternalistic government.

Today we have a vast "new frontier," if we choose to think of it that way instead of listening to professorial mumblings about a "mature economy." Today’s frontier is the vast amount of work that needs to be done if we are to make our production and transportation system truly com­petitive—two-thirds of it is out of date and needs replacement or rebuilding. The railroads alone present a challenge that can ab­sorb billions of dollars and mil­lions of man-hours if only the dead hand of excessive regulation and make-work unionism can be lifted. Another frontier lies in new products—if the "liberal" economists who prate about a shortage of demand could sit down with the planning staffs of Amer­ican Telephone, General Electric, and du Pont, they would learn that a whole new world is in the making, and perhaps they would then throw out their dire statisti­cal projections about the end of capitalism and the "necessity" for increased government spending.

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