Chapter 14: Economic Life
Some of the most urgent yet perennial problems for human conscience arise from the fact that the supply of most of the goods that people need or want is limited. It is therefore necessary to devise schemes for apportioning these limited goods among the people. Such allocation systems constitute the economic order of society.
In a plutocratic society the use and distribution of material goods, money, and labor is controlled by a special class of wealthy people. These privileged persons generally allocate a large share of the limited supply of goods to themselves, reserving for the much larger class of subordinate poor only enough goods to keep the latter in condition to perform services and to produce things for their overlords. In contrast to this type of social system, economic democracy aims at extending the control of goods and services to all the people. In a democracy the idea that a privileged class should determine the economic fate of all is rejected in favor of the principle that every person should have a voice in the allocation of the limited supply of goods.
In general, economic democracy is conceived on the basis of the desire motive. The fundamental assumption is made that each person wants to maximize his own share of the available goods -- that everyone pursues his own economic interest, seeking the largest possible gain to himself.
There are three principal types of system according to which the acquisitive game in the democracy of desire can be played. The first is the system of individual free enterprise. Under it every person is regarded as free to pursue his own profit and advantage without interference. Each competes with all others in an open market, where material goods, money, and labor are bought and sold at prices determined by the balance of supply and demand. The highest rewards go to those who are most able and most diligent in the pursuit of gain. The mechanism of the market automatically determines the distribution of goods and services in a manner that is presumed by its advocates to fulfill the demands of justice. One of the great appeals of the free enterprise system is this conviction that the free market in consumer commodities, capital goods, money, and labor as it were, miraculously harmonizes the pursuit of gain and the pursuit of justice; that is to say, in the economic realm it is assumed that the democracy of desire and the democracy of worth are one and the same. This is why champions of free enterprise regard the profit motive as a command of conscience and seek for economic advantage with moral zeal.
Free enterprise accords with the democratic ideal of equality in the sense that everyone is subject to the law of the marketplace. No one is given any special privilege over another; each must win his own way in competition with everyone else. Other than this, there is no equality, for persons differ in their abilities and in their industry, and these differences are reflected in economic rewards. Thus, free enterprise promotes individuality within the broad principle of equality of opportunity.
An important feature of the free enterprise system is the institution of private property. The goods that one acquires and holds through labor, foresight, skill, and saving (renunciation of present enjoyments for the sake of future satisfaction) are for one’s own use and disposition; no one else has a claim on them. Private property is the basis for one’s personal security and autonomy, the guarantee that what has been won by the worker will be his to use and to enjoy. Property rights include the rights of gift and bequest, which introduce special privileges and inequalities into the free enterprise system, in that rewards are no longer in proportion to ability and effort alone but are also determined by the accidents of birth. In this way unrestricted private property rights tend to generate undemocratic hereditary economic inequities. On the other hand, private property serves the essential social function of permitting the accumulation of capital, which is applied to productive use, so that all goods will not be consumed at once.
Under the individual free enterprise system there are always some persons who because of illness or other incompetence are unable to compete successfully in the market. It is assumed that these unfortunates will be cared for chiefly by the voluntary benevolence of those who do succeed in the competitive struggle. However, proponents of this position would warn against allowing philanthropy to blunt the incentives for work in those who receive it, and thus would maintain charitable contributions at a subsistence level and require regular proof of need.
Supporters of the free enterprise system are also in favor of keeping government at a minimum, particularly in the economic sphere. Police power and military defense are doubtless necessary governmental functions, they hold, and for their support some compulsory tax assessment is required. The only function of government in economic life is to police the market to maintain free competition and exchange. This requires action against monopolies, price fixing, and other impediments to free trading.
The second type of economic system in the acquisitive society may be called associated free enterprise. This system is a logical development in the free market economy. Individual property owners generally lack sufficient personal capital to establish really large-scale enterprises, in which maximum profits may be made. Hence they associate with others to provide the required resources. In this way partnerships and corporations come into being. Individuals invest savings in stocks and bonds, in return either for dividends based on profits made by the company or for a fixed rate of interest. These companies may further unite in trade associations and combines in order to secure a better competitive position in the market. Such combinations may have the effect of destroying weaker competitors and thus of undermining the free market.
The movement toward association is also evident among those who sell their labor. Worker associations are, in fact, necessary even when productive facilities are individually owned, because of the disparity between the bargaining powers of the individual worker and the owner. Labor unions are even more imperative when corporations are organized, if the assumption of a free market is to hold. Such a market presupposes substantial equality of bargaining position, in which personal skill and diligence count, rather than initial preponderance of power. If the workers are not satisfied with the wages offered, the owners can refrain from hiring them, thus curtailing production. In such a case the owners can live on accumulated wealth, but the workers have no such choice. Since they must work or become destitute, they are at a great disadvantage compared with the owners. To equalize the bargaining position of workers and owners, workers find it necessary to combine forces so as to match the associated strength of the owners and thus to re-establish to some extent the conditions of a free market.
A similar associative effort is sometimes made by consumers, in order to protect their interests against either or both of the other two groups (owners and workers). The consumer may be victimized by excessive prices or by inferior products, in a situation where the complexity of the economic system, the technical problems of quality evaluation, and the preoccupation of the average individual consumer with his own pursuits make the price and product controls of the free market system ineffective. Consumer cooperatives, like the other two forms of association, help to restore some measure of equality of bargaining power in the market, thus re-establishing the conditions presupposed by the free enterprise system.
The third type of system is the controlled economy, in which the theory of automatic economic regulation by the free market is abandoned in favor of deliberate social control of economic processes. The purpose of the controlled economy is to distribute goods and services more equally than under the free market system. In actual operation the free market turns out to be an unstable system, because it tends to magnify inequalities. The rich and powerful have an advantage over the poor and weak in bargaining and thus are able to increase their relative strength still further. Freedom then becomes license for exploitation. The rich become richer and the poor become poorer. Economic classes develop, and groups of owners, workers, and consumers each unite in battle against the other interests. In reaction to these consequences of the free market system, the powers of government are invoked to mediate conflicts and to counteract the inherent instability of the system of competitive bargaining.
Furthermore, a controlled economy makes it possible to care for persons who through the accidents of fortune are unable to compete successfully, without requiring them to depend on the charity of others. Besides these social welfare benefits, in a complicated modern society many public services and facilities are best provided by government rather than by private enterprisers, who would normally make them available only to persons who could purchase them.
Deliberate social control of economic processes is possible only by the modification or abrogation of private property rights. Even under the associated free enterprise system the management of property comes to be more important than the fact of ownership. Under a controlled economy, government takes the place of voluntary associations in the management of property, and both privacy and free enterprise decline or disappear. In a socialist or a communist state private ownership of the major means of production is abolished. In state capitalism ownership may still be nominally private, but the uses of productive property are determined by government. The really important question in the economic sphere is who has the power to decide how property will be used. To the degree that decisions are made by government, either directly or indirectly, the property is public rather than private.
The economy may be controlled in many different ways. The government may directly eliminate market control by fixing prices, wages, and rates of interest. It may exercise control through buying and selling commodities in the market or through limiting the sale and purchase of certain commodities and services under a rationing system. Worker mobility may be limited, and outright labor conscription may even be adopted. The purchase and sale of goods may further be influenced greatly by regulation of the credit system. The most important of all means of economic control is taxation. A tax is an obvious and direct abrogation of private ownership in property. Once the general principle of taxation is granted, the right of private property in effect disappears, since even the property that is not collected for public uses remains with the owner only by courtesy of the state. Thus, the complexion of economic life is in principle determined by the system of taxation. Any desired pattern of distribution of goods and services can be achieved by levying appropriate taxes and allocating their revenues in a particular way.
The American economy never has been and is not now purely any one of the three systems described above. It is a mixture of all three. To some extent the free market and private property prevail. Associated free enterprise also flourishes, within limits, and to an increasing extent government control is being exercised. Moreover, our economic system continues to be the subject of wide disagreement, acrimonious discussion, and vigorous contests of strength. These conflicts are reflected in education, as partisans for the several economic philosophies vie with one another for the minds and allegiances of the young.
Most participants in the struggle over an American economic ideology assume the standpoint of the democracy of desire. Advocates of free enterprise and proponents of government control both affirm the democratic ideal of economic opportunity and self-determination for all the people. They also agree in the belief that the aim of economic organization is to satisfy the demand for material gain. They differ only in their convictions about the nature of the social system which will assure the maximum profit to all. In addition, the pursuit of material gain has become so predominant and unquestioned a motive in our culture that the acquisitive spirit has become suffused throughout the whole of life, entering spheres that are not intrinsically or properly economic at all.
This implicit elevation of economic motives to the position of ultimate principles aligns the exponents of the democracy of desire with the communists, for whom the economic determination of history is a fundamental tenet. The communists frankly assert that the drive for material satisfaction is the basic motive of life, and they endeavor to reconstruct all of civilization in accordance with that belief. They do this by adopting the controlled economy in its most extreme form, with all production and distribution of goods and services strictly governed by the state. In aim they are in full agreement with the most ardent free enterprise capitalists, for whom economic considerations are also ultimate. The communists and the capitalists differ, however, in their beliefs about how the maximum production can be achieved and how the resulting material goods should be distributed.
Under existing conditions in the modern world -- with increasing populations, diminishing natural resources, and mounting specialization of function and complexity of social organization -- it appears likely that if maximum material satisfaction remains the goal of economic life, the communist system or some similar system of socialization by force will win out over free systems. The free play of acquisitive motives, without subordination to the demands of moral conscience, leads by its own inexorable logic to social conflict, to the sharpening of class lines, and to the steady intensification of government controls. When the struggle for economic advantage finally becomes too intense for a free democratic government to control, the free political system is displaced by an absolutist regime, and social order is maintained by dictators backed up by the police power. In an increasingly crowded world of acquisitive people competing for limited supplies of goods, the police state with completely centralized control of economic life appears to be the only basis for social peace and order, without which life is not tolerable nor cultural progress possible.
Must we, then, accept the ultimate fate of communization? Is political and economic absolutism the final answer to the problems of production and distribution? If men insist on being autonomous and on seeking their own profit, they will eventually have to surrender their freedom altogether to powerful men who can keep them from destroying one another in their greed. The alternative to such unhappy servitude is to turn from the way of desire to the life of devotion. Eventual subjugation to tyrants is the price that must be paid for persistent neglect of the leadings of conscience. In the final analysis the necessary conditions for freedom are respect for the right and willing obedience to it.
The fundamental moral principle in the economic realm is that material goods and personal services are instrumentalities for the good life. Their possession, use, and distribution should therefore be determined by their contribution to excellence. The acquisitive outlook is dominated by quantitative standards; success is measured by the amount of wealth one has amassed. In its place we require a qualitative approach to economic life, in which material goods are sought in response to the demands of conscience and for the service of the right and the common good.
What kind of economic system would best serve the good of the human community? The ideal would appear to be a mixed economy, with different bases of ownership and control corresponding to the various uses of property. Individual private ownership should apply to: goods of a personal nature (such as clothing, books, and appliances), residential property used by the owner, small business property directly and personally operated by the owner ("small" could be defined by setting an upper limit on the number of auxiliary employees and on gross sales), portable tools used in the performance of an occupation, and personal savings. A sphere of individual privacy in property is important to provide a material basis for personal individuality and freedom. Such property should be limited to what the individual can actually use. Since its only purpose is to insure the person’s own efficiency, it should not be allowed to expand into a means of controlling other people’s economic lives. It is for this reason that individual private ownership should not be extended to large business enterprises.
Beyond this limited sphere of individual productivity, business should be conducted by cooperative private enterprises capitalized by invested private savings drawing a moderate fixed rate of interest. The work of these cooperatives would be done by professional managers and skilled workers, and policy would be determined by boards including representation from the investors, supervisory and production personnel, and the consuming public. These cooperatives would differ fundamentally from the typical corporation of the present time, in that control would be vested not entirely in the owners but in a broadly representative body, and in that profits would go not to the enlargement of owners’ dividends but to capital improvements, higher quality products, and lower prices. Among the cooperatives would be every sort of enterprise, including retail stores, manufacturing establishments, professional consultants’ firms, and even private schools and colleges. The general adoption of such a cooperative enterprise system would amount essentially to the extension to all business and commerce of the principles governing existing nonprofit organizations which have vested control in widely representative boards.
One of the major purposes of the cooperative system would be to eliminate the split between labor and owners or managers by uniting them in a common undertaking for the general welfare. The motive of gain would be replaced by the professional pride in workmanship and the consciousness of being useful. Labor unions would no longer be necessary as a countervailing force against the concentrated economic resources of the owners, since the conditions of work would no longer be determined by an owner-controlled management with an eye to maximizing investors’ profits. Thus, the social energies that are now dissipated in destructive competition for group and class advantage would be turned to concerted efforts for the well-being of all.
In addition to the individual and cooperative private ownership and use of property, there should be provision for public ownership and operation of property which is for the welfare of all the people. Included in the basic public services would be at least the following:
1. A defense establishment to protect the security of the nation against external aggression.
2. Agencies for constructive political, economic, and cultural cooperation with other nations.
3. A police force to maintain domestic peace and order, and a system of courts to administer justice.
4. Facilities for transportation, communication, sanitation, and utilities (light, heat, power, and water). These public facilities might be supplemented by individually or cooperatively owned facilities, but such essential properties for serving all the people as railroads, telephone networks, and power plants ought to be owned and controlled by all the people, since upon them depends the very survival of the community; their failure would bring speedy social disaster.
5. Basic medical services, including diagnosis, treatment by physicians and dentists, hospitalization, and prescribed drugs. Here also the public provision might be supplemented by private medical services. The public medical care should be so administered as to preserve the maximum freedom in choice of doctors. The essential point is that no person should be deprived of essential medical care for economic reasons.
6. Ample public recreation facilities, including national, state, and local parks, forest preserves, and wildlife reservations, together with the requisite personnel and program to make them interesting and effective.
7. A comprehensive social security program to insure at least subsistence support for the unemployed or unemployable, widows and orphans, retired people, and persons with physical or mental disabilities -- these benefits to be available by right and not by charity. This broad program of social insurance might well be complemented by a wide variety of private individual and group insurance plans.
8. A public education system, with no tuition or with nominal tuition supplemented by scholarships for the needy students, extending from the nursery school through graduate school and even postdoctoral institutes, and including provision for education throughout life. These institutions of public education should be complemented by nonpublic schools of many kinds and at every level, to insure the freedom and variety of thought required for cultural vigor.
As mentioned earlier, a most important key to economic organization is the tax system. In a democracy built on the primacy of justice over profit, the following threefold tax structure would appear most equitable: (1) a progressive individual income tax; (2) a progressive tax on the net income of the cooperatives described above (which would be responsible for the major part of the society’s business and industry); (3) very high estate and gift taxes. The income taxes would be progressive in order to reduce economic inequalities and to secure a larger proportion of necessary government revenue from those better able to pay. The rates should be high enough to sustain a strong system of essential public services, yet low enough to permit ample private capital and savings accumulations. Extremely heavy taxes, which would leave individuals and cooperatives only enough income to pay current bills, would quickly undermine the growth of productive enterprises, and this would necessitate further government intervention in economic affairs, probably including even the take-over of industries by government. Democratic freedom and variety are better served by limiting the sphere of direct government ownership and control to those critical services essential to all the people; for this limitation to be sustained, tax rates must not be allowed to increase to crippling levels. The imposition of high estate and gift taxes would equalize economic opportunity and prevent the establishment of hereditary privileged classes, on the principle that no person has a right to great economic power simply as a result of the chances of birth and relationship.
A single income tax on individuals and cooperatives should replace the complex system now used. Income taxes can be administered so as to take account of the actual abilities and obligations of every person and organization. Property taxes, general sales taxes, and special excise taxes, on the other hand, have only the advantage that they are relatively easy to collect. In general, they are not levied in accordance with principles of justice: ability to pay depends on income from property, not on ownership of property in itself. In any case property assessments are notoriously difficult to make and maintain equitably. Sales and excise taxes are also unrelated to ability to pay and tend to impose the greatest proportionate burden upon the lower income groups. Furthermore, it would be far more efficient, more honest, and more consistent with dedication to the right if taxes were collected in one open assessment and through one channel rather than in many different and often concealed ways. The people ought to know exactly what they are asked to pay for their public services, and they should willingly and directly pay it, instead of confusing and deceiving themselves by tolerating or even inviting a system of multiple and hidden levies.
A final essential feature of the type of economic organization here advocated would be agencies for both private and governmental maintenance of ethical standards in economic affairs. For example, a cooperative should not be permitted to acquire capital through the sale of securities without approval by an independent body of experts capable of appraising the soundness and probable prospects of the enterprise. Business and financial organizations should be subject to periodic independent audits and should be required to publish intelligible reports, to help insure the honest conduct of their affairs. Advertising and other representations of goods and services should be guarded against falsification, both through voluntary and governmental watchdog agencies.
The rationale for the economic scheme described above is the subordination of economic advantage to considerations of justice, by relating the ownership and control of property to its proper use. There is no inherent natural right in property. Material goods should be regarded as a trust to be faithfully administered in accordance with equity for all. The extent to which the disposition of labor and materiel can be left to the free determination of individuals or associations through the institution of private property depends upon the degree of private responsibility taken for their right use. If the motive of gain predominates, the sphere of privacy has to be limited, and the distribution of labor and property needs to be effected through direct political determination. On the other hand, if loyalty to the right is the rule in a society, a large degree of privacy in property is desirable. Private property and the free market are self-defeating in an acquisitive society. In a democracy of worth they serve the admirable purpose of providing for the continuous registration of the values of society.
One of the crucial economic problems of contemporary society is to determine how large a proportion of our available manpower and materiel should be spent for formal educational purposes. Limited goods and services, including those of formal education, should be allocated according to principles of truth, creative excellence, and good conscience. That is to say, economics is rectified only by reference to standards of worth that transcend (but also include) economic considerations. Schools, therefore, should be devoted not to the economic advantage of educators, nor to the efficiency of the economic enterprise generally, but to goodness alone. From this vantage point the educational community may supply criticism, inspiration, and leadership in society.
The basic principle of subordinating economic interests to criteria of worth has a variety of applications in educational policy and practice. Ideals of economic equity certainly make it clear that schooling should be available to everyone without regard to financial status. Educational leaders should also resist and counteract economic pressures on the curriculum, by keeping matters of detailed curriculum planning in the hands of teachers and by working for broad representation on boards of control. Educational policy should not be fixed by boards weighted in favor of one economic group in society (usually persons in the higher economic classes), nor should control boards be guided in their planning mainly by budgetary considerations. Educational leaders can show the way toward a more ideal economic program for society as a whole by organizing their own institutions along democratic lines, with boards of control including representatives of taxpayers (in the case of public institutions) or private benefactors (in the case of private institutions), parents, alumni, teachers, administrators, and possibly even students.
In school instruction, free discussion of economic issues should be encouraged. Students should be required to analyze critically contemporary or historical economic ideas and practices, in order that they may not simply reflect unthinkingly the positions of their own families. In order to assure freedom both to analyze these important issues and to consider without fear alternatives to the economic status quo, it is essential that the employment and tenure of teachers not be subject to the will and caprice of individuals or groups representing particular economic interests or convictions. Teachers must be held accountable for professional competence, not for conformity with the economic beliefs of influential persons or groups within the community. Professional organizations must be strong enough to guard this academic integrity against those who would threaten or injure teachers who do not accept their economic doctrine. Young people will be ill-prepared to cope with the momentous challenges of the contemporary world if their teachers are prevented, by fear of reprisal, from raising questions about the justification for various economic beliefs and practices.
Teachers, guidance counselors, and officers for admissions and placement should work to counteract the acquisitive motive by placing emphasis on the intrinsic values in learning, on preparation for the good life, and on the opportunities to engage in useful and interesting work rather than on the cash value of more education. Figures are commonly quoted to show how much more money a person may expect, on the average, to make over a lifetime by continuing his education through high school or through college; and it is estimated that each additional year of schooling actually yields a substantial additional life income. Such propaganda intensifies the tendency to make financial gain the ruling principle of life. It is the duty of all professional educators and especially of parents, who have such decisive influence in these matters, by their word and example to turn the young away from the prime concern for gain toward the cultivation of a worthy life in which economic matters will be seen in proper perspective.
Finally, school curriculums should not be organized as they now largely are -- primarily with a vocational orientation, thus importing into the whole educational system the patterns of prestige and power that characterize the acquisitive culture. The course of study should be aimed at the nurture of loyalty to truth and goodness and should include specific occupational preparation only within this framework of growth in human excellence. The central core of education should be liberal humane studies, in which the student discovers his universal calling to be a man through knowing and serving the good. Occupational specialization can then be rightly ordered in a contributory fashion around the general studies in which the fundamental values of life are taught.