A Balanced Industrial System

Harry Gunnison Brown

[Comments on a paper, "Some Probable Results of a Balanced Industrial System," delivered by Thomas Nixon Carver, at the thirty-second annual meeting of the American Economic Association. Reprinted from the American Economic Review, Vol.10, No.1, March, 1920]

In discussing Professor Carver's paper, I am going to take upon myself the burden of voicing a vicarious protest. The protest to which I am about to give expression is made in behalf of those conservative economists who write most of our text books in the field of general or elementary economics and in the field of taxation. It is not unlikely that these economists fail to realize all the implications of Professor Carver's analysis and proposals. But if they should come to realize these implications, they could not, without inconsistency, do otherwise than protest.
.... The gist of Professor Carver's argument is that incomes from labor are unequal because some lines of activity are relatively under-provided with workers and some are relatively crowded. This means that at present we have not "a balanced economic system." And the suggested remedies include an educational program which will make it more easily possible for those who are in the so-called lower ranks of labor, or for their children, to be recruited into the so-called higher ranks.
.... It happens that there is a school of thinkers and writers on economic subjects, to whose economic philosophy that of Professor Carver approaches perilously close, who emphasize another aspect of the lack of balance of our economic system. They do not often complain that our system is out of balance because some get little for very hard work and others much for easy work. They point out, rather, that while the many work hard and get relatively little, there are some who get large incomes without doing for these incomes any work at all or rendering any service at all. I refer, in this connection, to the single taxers. Their view is that the rental yield of land is the result of natural advantages and of population growth, and that the individual recipient of this rental yield is in receipt of an income for which he is rendering and has rendered no service to those from whom such rental income is derived. Even though Smith, for example, has bought his land of Jones and paid for it in earned wealth, he has, in this view, merely purchased the privilege previously enjoyed by Jones, of getting something for nothing from the rest of the community. And it is Jones whom he has paid for this privilege, and not those whom he is about to exploit. So far as they are concerned, Smith's purchase from Jones involves but a change of parasites of which the landless exploited are the victims.
.... But the plan proposed by single taxers as a means of restoring the balance in this regard is not usually favored by the writers of elementary text books on economics or by writers of books on taxation. The principal objection felt and usually the principal objection stated is the objection of vested rights. The New Republic phrased the sentiment in an editorial article of June 7, 1919, in which opposition was expressed to the single tax as a means of destroying "existing values" and of "changing the rules of the game while the game is in progress." Influenced by a like feeling, most professional economists have, on this matter, contented themselves with advocating only the taxation of future increases in the value of land. Very few of the writers of our current textbooks urge doing more. To urge even this, however, is not consistent with objections to destroying "existing values," or with objections to "changing the rules of the game while the game is in progress." For the present value of a piece of land is the result of an estimate of its future yield. If its future yield is believed likely to be greater than its present yield, and if, therefore, its salable value is expected to be larger some years hence than now, its present salable value is also enhanced by virtue of this expectation. But to plan, as a new program, heavy taxation of the future increase is, in so far, to destroy the expectation and to do away with that part of the present value which is dependent upon it. A gradual increase in the rate of taxation on land values in general might conceivably lower present selling values of land no more than the prospect of heavy rates on future increases of rental yield. Opposition to reduction of present salable values as an unwarranted interference with vested rights can hardly, with consistency, therefore, be raised in the case of the one plan without being raised in the case of the other also. Let us now return to the theme of Professor Carver's paper from which we have more apparently than really wandered. Particularly let us note the suggestion of the extension of publicly provided education as a means of establishing "a balanced economic system." My contention is that Professor Carver's proposed policy, like the single tax on the rental value of land, would violate the principle of vested rights, would be a means of "changing the rules of the game while the game is in progress," and so can not consistently be supported either by conservative economists in general or by most of the writers of economic textbooks in particular.
.... That the further development of publicly supported education, not primarily to secure intelligent citizenship as such but for the express purpose of establishing "a balanced economic system" by more nearly equalizing opportunity, violates the principle of vested rights, is not difficult to show. Here, for example, is a man who has trained himself to be an electrical engineer. He may have been born in poverty. His opportunities for training had to be made use of by tremendous effort and at tremendous sacrifice. Lured on, however, by the prospect of large rewards in the engineering profession, he has made the effort and the sacrifice that many will not and that others cannot make and has prepared himself to enjoy these relatively high rewards. Had the prospective rewards been less high, he perhaps would not have been willing to undergo the incident sacrifices. He has married and has become a parent on the strength of the probability of his continuing to enjoy high rewards. Society has permitted him to think that he might enjoy them and in the faith that public policy in the matter would not change he has committed himself in the above-described and perhaps other ways. He is still young. Greatly increased competition will prevent his securing, in the future, the income on which he had confidently counted, for which he made the otherwise not-to-be-undergone sacrifices, on the expectation of which he is committed to marriage and parenthood. Now it is proposed that for the purpose of establishing "a balanced economic system," young men who would otherwise have been clerks, artisans, or unskilled laborers shall be trained for his kind of work at public expense, shall be made his competitors, shall reduce the amount that he can earn through all the remainder of his life. Is not this "changing the rules of the game while the game is in progress"? Is not this a violation of vested rights? Is not the change in policy parallel in this regard to the change in policy which is urged by single-taxers? It is true that there is no reduction in the value of a salable good, since a man's earning power is not ordinarily the subject of sale and purchase. But he does not thereby suffer a smaller injury. The difference, indeed, would seem to be a difference between tweedledee and tweedledum. He has not even the offsetting gain which the average landowner would have from an application of the single tax, of a reduction in his taxes other than on land.
.... The parallelism must be admitted. The typical writer of American textbooks on economics and taxation must, if consistent, refuse to indorse Professor Carver's paper. It will not do to argue that the proposal to equalize opportunity is likely to benefit the great majority. This is cogently argued by single taxers with regard to the increase of taxation of land values. If vested rights is a good enough argument in the latter case-and it is the argument which usually counts most, whatever else may be said against the proposal-it should be a good enough argument in the former case, and it should be a good enough argument for conservative economists to use against any proposed reform which seems likely to cause loss or decreased income to any group of persons.
.... I can hardly expect that these various considerations will be likely, in the minds of any considerable number of professional economists, to discredit the whole doctrine of vested rights. But if there be any economist present who has any suspicion that this doctrine ought to be pretty much discredited, I shall not endeavor to withhold from him my sincere sympathy nor shall I deny my personal acceptance of a like view.