The Spiritual Strength of The American System

Dr. DeGraff, formerly Babcock Professor of Food Economics at Cornell University, recently joined the executive staff of the American Meat Institute in Chicago. This article is re­printed by permission from a symposium on The Spiritual and Moral Significance of Free Enterprise, sponsored by the National Associ­ation of Manufacturers, December 6, 1961.

The popular image of the businessman seldom casts him in the role of a spiritual being. Nor in my acquaintanceship with him have I found that the business­man, more than rarely, regards himself in this light.

A generalization of history in­dicates that the articulate world seems always to have been in­volved in greater or lesser de­grees of ideological controversy. On several occasions this has reached the intensity and propor­tions of Great Reformations, a word that, in this sense, carries no connotation of either good or bad. Examples include the life and teachings of Christ, and the im­pact on the world over all the cen­turies since; in like but lesser manner, of the life of Mohammed; similarly, the Reformation and Counter Reformation within the Christian Church; and finally, I must list the current deadly serious ideological upheaval be­tween the West and atheistic com­munism.

I submit that we who are one side of this struggle— a struggle not of our choosing— face such a time as comes rarely to men when they must reassess and reaffirm their own philosophical and spir­itual values.

The ultimate tribute to West­ern philosophy and institutions is the dedication of our ideological opposition to destroy them. This determination alone suggests that there must be, within our philoso­phy of society and what we have built from it, a sum of values and attainments too great for an op­posing philosophy to tolerate as a yardstick against itself.

I am indebted to Professor Gerhart Niemeyer of Notre Dame for a most lucid analysis of the differences in the way the com­munists and the West regard the present struggle. The West tends to treat it basically as a clash of interests between two great pow­ers. Such a concept leads to an ex­pectation— futile in this case—that skillful negotiation by diplo­mats can settle the differences.

It is a futile approach because to the opposition this is by no means a mere balance-of-power affair. Rather they believe in, and it is their purpose to bring about, what they consider a new age in human society, the emergence of which requires only the destruc­tion of the philosophy and institu­tions of the prevailing social or­der.

To this end they are engaged in a total, unceasing struggle on many fronts and by many meth­ods— with success a long-range objective, and with strategic re­treat whenever necessary to pro­gress toward ultimate victory. Their strategy is not so much the acquisition of territory as it is the weakening of the philosophical ce­ment that holds together the es­tablished order of the Western World. Their aim is people, in­dividuals and groups, stripped of old-order purposes and thus de­livered by the default of any higher spiritual values into the “new light” of atheistic authori­tarianism.

A Guilt Complex

So often those who have more recently arrived among us can see and interpret our circumstances more clearly than we do ourselves. Listen for a moment to another great intellect. He is Dr. Charles Malik, Professor of Philosophy at the American University in Beirut in his native Lebanon, onetime President of the United Nations General Assembly, and now teach­ing at American University in Washington. Writing in the De­cember issue of The Rotarian, he says:

“Morally and spiritually the communists put free men on the defensive; they make us feel guilty; they talk in terms of `capitalism,’ `imperialism,’ `coloni­alism,’ `monopolies,’ `profits,’ `ex­ploitation,’ `means of production’… And how do we take up the debate? We usually answer that the exploiting capitalism of the nineteenth century no longer exists, that imperialism has been liqui­dated, that monopolies are now owned by the people, and that, as to profits, everybody now shares them. There is about this response a pathetic air of apology, a sickly note of timidity, and those who make it suffer from a guilty con­science. When we thus accept to be drawn into debate with the communists on their own terms, we confirm them in the feeling that they are right. It is as though we were telling them: `You are right in your attack; we are sorry for our past ways; but, behold, we have now corrected them.’

“This will not do. The commu­nists should be answered, not apologetically, not as though they were right, but in… human, moral, and spiritual terms.”

Every businessman should read the whole of Dr. Malik’s chal­lenging article. Let me quote one more sentence: “The present mo­ment in history requires, more than any other moment in the past, that those who know and be­lieve in man, freedom, truth, and God, pass to the offensive on every front.”

Dr. Malik calls for a spiritual awakening in the West. Nor is his by any means a lone voice. The struggle is only incidentally in military terms. It is warfare in our time, and perhaps in our chil­dren’s children’s time, on philo­sophical, moral, and spiritual grounds.

How did we get to be a world power? How did we attain the capacity for such great material output? From whence did we de­velop such a potent philosophical and spiritual force that the now opposing ideology feels compelled to destroy it?

And perhaps another question is just as pertinent. We are yet a young nation, as time is measured in national history. But have we come so far and changed so much that we no longer hold in full measure the humanistic and spir­itual values that the opposing forces would destroy? Have we weakened the philosophical foun­dations of our own society? And if we have, with what do we now oppose the ideology that rises against us?

How much are we devoted to individual freedom of action? How inviolate is the institution of private property? How much do we respect the market as the de­terminant of production and dis­tribution? How much do we be­lieve in preserving competition—or have we switched to a status-quo concept of preserving competi­tors? How much do we understand and how much are we devoted to the profit system— or, more ac­curately, the profit and loss sys­tem? How readily do we accept the responsibilities without which the rights of citizenship in a dem­ocratic society become a mere li­cense to be a predator on other citizens?

A Significant Breakthrough

The United States was the first nation, at least in modern times, to establish a form of government, and legal, social, and economic institutions, solely of its own choos­ing. No heavy hand of history stood in the way. No dead weight of institutional rubble blocked the erection of a wholly new struc­ture.

Most writings of American his­tory have been wholly inadequate in treating the timing of our na­tional origins. America was dis­covered (more accurately, redis­covered) in the period of explora­tion that coincided with the weak­ening and downfall of European feudalism. The fourteenth century renaissance of learning stirred a great yeast pot that by the mid-sixteenth century led to marked changes in religious philosophy, and most notably in Christian ethics. In earlier monastic ideal­ism, the Christian man was almost called upon to retire from the workaday world. The sixteenth century changes led to the rise of capitalism in the West. The Protestant Reformation usually has been credited with the moti­vating force— but this has not seemed to me a full or adequate explanation. I believe it impor­tantly overlooks the teachings of St. Ignatius.

Individual Responsibility

Let me illustrate: (1) The ear­lier teaching of the Church had been that the position in society into which one is born is an ex­pression of the Will of God, against which it was impious to rebel. The individual thus was called upon to be resigned to his lot, and the trials of this life were held to be of no significance against salvation in the next. (2) St. Ignatius must be credited with a fundamental change. He taught that proper individual action is to pray to God as though everything depends entirely upon God— and then to work and strive as though everything depends upon oneself. This modified the “Will of God” concept to include Reason and In­tellect. Responsibility came to rest upon the individual, for the glory of God, to develop his talents, and to follow the dictates of his en­lightened conscience. Rather than live in monastic withdrawal, the individual became materially re­sponsible to himself and morally responsible to God.

Add to this a second illustra­tion: (1) The earlier teaching of the Church had been that buying and selling, production for eco­nomic gain, trading in material goods— all this was avarice, and avarice is sin. (2) In the contrast­ing ethics taught by St. Ignatius, man became obligated to God to develop his capacities, to partici­pate in the affairs of the world, and to strive as though his entire well-being depended on his own efforts.

Self-Development

The parallel of this with the ethical teachings of Calvin is com­plete. Calvin taught that man is responsible to God for his self-development; that rather than live unquestioningly in the position in society to which he might be born, he has an obligation to choose his own calling, where he may exer­cise his talents. This he must do with a sense of religious responsi­bility— and he must then live piously and frugally, and morally responsible to God.

Thus, whether we see the six­teenth century as either Protes­tant or post-Ignatius Catholic, the economic consequences are the same. One could not abide by these revitalized ethical dictates with­out accumulating a bank account— in other words without becom­ing a capitalist. It was immedi­ately after these concepts had per­vaded European thought that the Colonists moved into Anglo­America. And here they lived these concepts, pursuing them with almost religious fervor, and in a manner that did not distin­guish one nationality background from another.

And in like manner to the six­teenth century re-evaluation of the Christian ethic, the eighteenth century in Europe was a time when the character and form of government was equally ques­tioned and philosophically recast. Again, the emerging nation here in America directly received the benefit.

Philosophers of Enlightenment

It is always difficult to pin down precisely the origins of ideas. The time we are discussing commonly is called The Period of Enlighten­ment— a time when the philosoph­ical justifications of the Absolutist (monolithic) State and the Divine Right of Kings were so effectively undermined as to weaken them for all time in Western thinking.

The philosophers of The En­lightenment were many, and for the most part deeply religious men. They polished brilliantly the concept of the equality of all men before God— together with the corollary of Reason and Con­science which God had given to men for their guidance. They studied the natural universe and inferred Natural Law from the behavior and responsibilities of mankind, In and through this Natural Law they developed the concepts of individual human rights, and of the freedoms and the responsibility of man, through his thought and his conduct, to bring the institutions by which man lives into harmony with God’s Natural Universe.

Speaking in terms representa­tive of his time and his group, Locke argued that all men being equal and independent before God, it followed that no person has any right to harm another in his life, his liberty, his welfare, or his pos­sessions. And liberty could not de­generate into mere license because of each man’s recognized responsi­bility to God for his actions.

This, I submit, is the exalted, the optimistic, the spiritual, the perfectionist concept of man as an individual being that blossomed from the seeds of the Renaissance, the revitalization of Christianity, and the notable period of The En­lightenment. This is the philos­ophy of human rights and respon­sibilities familiar to, and accepted by, that extraordinary group of men who drafted a Declaration of Independence and a Constitution for a new nation, at precisely the flowering time of these concepts in European philosophical thought.

Most notably from Locke and from Montesquieu, the founding fathers derived the concept of limited and divided governmental authority, of checks and balances among the various divisions of government, of governmental ac­tion only with the consent of the governed, and of freedom of in­dividual action retained by the citizen. And though the point hardly needs repeating, their in­stitutions of government were in­tended to function in a society ac­tively responsive to the moral principles of the revitalized Chris­tian ethic.

Look at the Record

If this, then, is the background of our social organization, of our institutions, indeed of those values that a wholly opposed ideology now would destroy, what has been the performance of these values and institutions in practice? The United States is 173 years old, figured from the adoption of its Constitution. At its birth date, the population was under 4 mil­lions. It is today 185 millions—living with material comforts and conveniences, both in total and in general distribution, that could not have been conceived by even the kings of earlier times. One need not dwell on material attain­ment. The more significant matter is how it was attained.

There were, of course, vast re­sources; there was “the continent to open”; there was the “manifest destiny” that America should ex­pand from ocean to ocean. But the development certainly was not based alone on resources and space. Other areas, other peoples, have had these and still have re­mained economically dormant. The distinctive difference is in our free economic institutions. Stripped of everything else that fails to explain the blossoming of America as an economic giant, how can we finally discount the in­stitution of private property; the freedom of individual choice and action; the free movement of trade within our boundaries; the right of the individual to strive and to enjoy the fruits of his labor?

Adam Smith’s Contribution

It was more than new concepts of government that this young na­tion acquired from the philoso­phers of The Enlightenment. The year 1776 witnessed not only the Declaration of Independence but also the publication of Adam Smith’s Wealth of Nations, often called the most important treatise on economics ever published. Listen again to this famous “in­visible hand” passage from his book:

“As every individual endeavors as much as he can to employ his capital in the support of industry and so to direct that industry that its products may be of the great­est value, every individual neces­sarily labors to render the annual revenue of society as great as he can. He generally, indeed, neither intends to promote the public in­terest or knows how much he is promoting it… He intends only his own gain, and he is in this led by an invisible hand to promote an end that is not part of his intention. Nor is it the worse for society that this is so. By pursu­ing his own interest he promotes that of society more effectively than he intends to promote it. I have never known much good to be done by those who affected to trade for the public good.”

Smith, with the other philoso­phers of his time, believed in priv­ate property, in its use by the private holder, and in the reten­tion of gain from its use by those who hold it. The sequence of logic based on Natural Law is that man has a right to life; therefore, the right to sustain it; therefore, the right to the fruits of his labor in­cluding the property derived there from. And never elsewhere have these rights, combined with freedom of action and with re­source potentials, so greatly un­locked the productive genius of mankind— for the benefit of both individuals and society, and in precisely the manner set forth by Adam Smith in his “invisible hand” passage.

The beginnings were modest, but material production in the American economy has risen at an increasing rate. Stimulated by private property, by the reward of economic gain and the fear of loss, American producers have been the greatest appliers of science and innovators of technology to be found in history. We borrowed science from all over the world and directed it toward an­swering production problems. Only recently have we turned sig­nificant attention to our own re­search potential in pure science, so that more knowledge may be available to apply to still more production problems.

Market Place Directives

We have, for the most part, kept the direction of our economic production and consumption in the market place— which is the surest of all ways of directing scarce re­sources into the uses that con­tribute the most to satisfying hu­man wants. The market place is where the total society, operating as a committee of the whole, ex­presses its aggregate wants in terms of relative marginal utili­ties. It is likewise where all supply flows, constantly changing and ad­justing, to serve the most pressing and the most rewarding of human wants. Thus have our economic activities been directed, not by the dictate of some arbitrary power, not by the authority of a central committee, but strictly ac­cording to the reward to be gained for anticipating and satisfying human needs and desires.

To be sure, our society has changed. The America of Wash­ington and Jefferson was 90 percent agrarian. We are today 90 per cent urban in our way of life Our society is now vastly more complex. Interdependence among the millions of divergent special­ized producers has displaced the relative independence of an ear­lier agrarianism. Numberless cir­cumstances that affect individual welfare are far less under individ­ual control than in a simpler day. Still further, the degree and the speed of technological change have progressed so rapidly that resul­tant social and economic changes have been endlessly pressed to keep pace.

All these changing circum­stances in our economy and society have been proceeding for decades. It is the degree of change, and the speed, and the breadth of its im­pact that now focus attention and concern on these matters far more than in earlier times. That is why individuals of like interests have been grouping themselves to­gether as never before, to pro­mote and protect their mutual con­cerns. We have become more a groupistic than a truly individual­istic society. This fact does not clash with free institutions as long as group membership is vol­untary and as long as the groups do not arrogate to themselves com­pulsory powers over individuals.

And it is these same circum­stances of change that have led to demands for what is broadly called social legislation. This is not be­cause Americans fail to appreciate the capacity and productivity of their economy— but rather, and especially since the 1930′s, because they fear the instability that re­putedly characterizes any highly advanced industrial economy based on free competition. This concern over instability is in part justified, but in far greater part is a carefully nurtured and end­lessly expounded view of persons who do not believe in free eco­nomic institutions and whose de­sire is to change them.

Welfare Activities

Welfare, social legislation, the care of those who have less by those who have more— all have become battle cries in our con­temporary public debate. Where do they fit in a society that would retain the free institutions that have served it so well? The an­swers are neither simple nor single. Let me make three points.

First, it appears that a prosper­ous and spiritually awakened peo­ple become generous toward the less fortunate about in proportion to the improvement and assurance of their own well-being. This is borne out by the enormous total of charitable contributions by the American people. In consequence I am far from sure that it is wise to institutionalize the whole gamut of welfare activities. Ob­viously, institutionalized, tax-sup­ported welfare greatly reduces the ability of the voluntary giver to do what he otherwise would do. More­over, institutionalized welfare re­duces the personal responsibility both of those who give and of those who receive.

Second, a very substantial bur­den of welfare cost can be borne by a productive economy, and can be carried indefinitely, if, in order to meet the burden, our funda­mental free economic institutions are not changed— and most spe­cifically if the direction of the economy is left in the market place. If, to meet welfare demands, the economic activities of the na­tion are centralized under public control, the capacity for economic progress— including the support of welfare— is inevitably lessened.

Third, there is the question of how far the welfare activities should be extended. Those who do not produce must be carried by those who do. If the load of wel­fare activities becomes sufficiently great on those who must carry the burden, a rational person might well conclude that “poverty is the best policy.” We must re­member that all the other de­mands on the public purse must also be carried entirely by those who do produce. And a free society cannot be maintained if many citizens have been forced to conclude that productive effort is not worthwhile.

It is within the framework of these three points that I believe our present complex welfare ques­tions must be answered.

The Importance of Capital

Looking forward, as a thought­ful people must always do— and desiring continued vitality and drive in our economic advance—some other factors seem clear. Most notable of these is that capi­tal must be accumulated and in­vested at risk in a truly enormous total quantity.

The labor forces continue to grow. This requires new jobs, new capital, new businesses, new en­terprise risks. Technology is mak­ing our industrial equipment ob­solescent even more rapidly than it is wearing out. A new tool to displace an old one, a new tech­nique better than one now in use, a new plant engineered to tomor­row’s needs— all these are vastly more costly than depreciation al­lowances will cover.

New capital arises only from earnings plowed back or from the current savings of the public. Sav­ing must be made attractive, and the future value of savings must be assured, or the capital we need will not be forthcoming. Business enterprise must not be denied its essential reward for service per­formed, or the capital that is saved will not be borrowed and allocated to productive expansion. A market-directed economy, if we will preserve it, is the surest first step in answering all these needs.

Perhaps much of the lack of un­derstanding of competitive enter­prise, its loss of prestige as indi­cated by Dr. Malik, the very ane­mia from which our free economic institutions seem to be suffering, is all traceable to the common tendency to criticize business profits. Most would agree that a businessman’s first responsibility is to protect and preserve the en­terprise that is in his stewardship. But if that is his first job, his parallel responsibility is to make a profit— in fact, the biggest profit possible in a competitive environ­ment.

Reconsider the origin of a profit in business. First, it must be de­rived from a good or a service that is wanted in the market place—otherwise there will be no custom­ers. Second, it must come from combining cost factors, skillfully enough to leave a margin between a competitively determined selling price and competitively determined costs for the production factors.

Resources to satisfy human wants are scarce. Service to so­ciety dictates that they be used efficiently, and for turning out the most desired goods. The skill to use resources— that is, the skill to organize and to manage— is a scarce talent. The more skillfully the management function is per­formed in fulfilling the wants of society as expressed in the market place, the more profitable a busi­ness will be.

The Profit and Loss System

Need I say that a profit is diffi­cult to come by? Need I empha­size that in a free and competitive market, the size of the profit de­rived is in direct proportion to the competitive service offered to so­ciety? Need then a businessman ever apologize for a profit? The question is rhetorical.

Profit is the life blood of a free economy. The opportunity to make a profit— or the corollary, the spur of ever possible loss— is the “in­visible hand” that provides our essentials and our comfort, com­pletely automatically, and in an economic system so vast and com­plex that no person can even de­scribe it, to say nothing of fully understanding or being able to direct it. In guiding the economy to the satisfaction of society’s re­quirements, the profit system does what no central authority is ca­pable of doing— even granting that the authority might be staffed by the most able managers among us. It is one thing to take a relatively primitive economy and direct its efforts toward a few types of output— say steel, or submarines, or rocketry. It is quite another thing to direct a more developed and vastly more complex economy, the purpose of which is to satisfy the whole infinite range of human goals and wants.

The profit system, working through free institutions, is the sparkplug of this second type of economic system— a sparkplug so dependable and effective that the ideological opposition we now face will do everything in their power to disparage it, to undermine it, to turn us away from it if they can, and to destroy it as com­pletely as possible.

All Progress Stems from the Profits of Enterprise

Just one more point. Every job and every home in the length and breadth of our nation is main­tained because the business proc­ess has functioned and made a profit— either a profit in the past or a profit now or the reasonable hope of a profit in the future. And any school has the same origin, or any church, or any charity, or any welfare payment— or, indeed, any government function. All of these— our personal welfare, our public welfare, our future welfare—stand on a single support: the profits of enterprise.

The distinction between our economy and the communist type is the profit system versus the Central Authority; the institution of private property versus owner­ship by the state, the freedom of individual choice and action ver­sus the denial of these rights. Let us keep these distinctions clear. Let us be proud of our heritage and of the stewardship with which we carry it forward in a free society.

There is no group in our coun­try upon whom this responsibility rests more squarely than on the managers of enterprise and of our capital assets. In efficient produc­tion, and in the further advance of widely distributed social benefits, we have the surest basis to cancel out an absolutist and atheistic ideology that would destroy us. We cannot do this by slavish, inept imitation of that alien code. The task demands the best we have to give, pursued with nothing short of spiritual dedication.⁴