Rude Awakenings
Chapter 5 (Part 3 of 4) of the book
The Discovery of First Principles, Volume 3
Edward J. Dodson
THE GREAT IDEAS: THE LONG ROAD BACK
Late in 1954, only months before his death at age 76, Albert Einstein
wrote to Joseph Lewis, "
dean of American freethinkers," of his grave concerns
over how little had been learned about justice in an age when the
communication of ideas and information had been more broadly
experienced than ever before in history:
In my younger years all of us intellectuals thought a
happier age for mankind would be ushered in when kings and emperors
who reigned "by the grace of God" were abolished. There is
no doubt that they did constitute a great evil. Well, they have
been rather radically abolished, but mankind does not seem to be
much better off. Demogogues and clever professional politicians soon
came to serve as effective substitutes.
Superstition and priest rule are grave evils, and it is good that
you are waging such a resolute and skillful campaign against them.
...True, this form of evil must and should be fought; but when
victory is at hand -- and it is certain in the long run -- it will
be more than ever apparent that the source of mankind's afflictions
is to be found in its own innate heritage.
Well, we must struggle and educate, even when the goal is believed
to be unrealizable; for without active resistance on the part of
those endowed with vision and relative freedom things would be far
worse.[83]
What about our "innate heritage" so bothered
Einstein? Georgist literature has frequently reprinted two statements
made by Einstein concerning the influence Henry George had on his
thinking. In 1935, Einstein wrote to one E. Paul DuPont: "I
have twice read, with admiration and approval, Henry George's book,
Progress and Poverty."[84] Given Einstein's commitment to
democratic socialism, one cannot but wonder whether Einstein found
George a heroic but naive figure, or was unwilling for some reason to
align himself with a community of transnationals so small and outside
the mainstream. The second statement is the more frequently reprinted;
however, its source is (to the extent I have been able to research)
undocumented:
I have already read Henry George's great book and really
learnt a great deal from it. Yesterday evening I read with
admiration -- the address about Moses. Men like Henry George are
rare, unfortunately. One cannot imagine a more beautiful combination
of intellectual keenness, artistic form and fervent love of justice.
Every line is written as if for our generation. The spreading of
these works is a really deserving cause, for our generation
especially has many and important things to learn from Henry
George.[85]
From these comments, one is able to conclude that Einstein looked
upon George as a guiding light not merely in political economy but in
the realm of socio-political philosophy as well. Francis Neilson
includes in his autobiography details of how his own acquaintance with
Einstein began, during a 1920 visit to Chicago by the world's most
celebrated physicist. "I tried to persuade him that the world
of political economy needed his mind as urgently as the world of
physics and mathematics," Neilson recalled. "He was
keenly interested in free trade because he regarded it as a peace
movement."[86] Einstein saw clearly the path of moral
relativism down which vested interests and ignorance were taking the
United States at this crucial period of awakening ethnic nationalism:
When I look at mankind today, nothing astonishes me
quite so much as the shortness of man's memory with regard to
political developments. Yesterday the Nuremberg trials, today the
all-out effort to rearm Germany. In seeking for some kind of
explanation, I cannot rid myself of the thought that this [United
States], the last of my fatherlands, has invented for its own use a
new kind of colonialism, one that is less conspicuous than the
colonialism of old Europe. It achieves domination of other countries
by investing American capital abroad, which makes those countries
firmly dependent on the United States. Anyone who opposes this
policy or its implications is treated as an enemy of the United
States. It is within this general context that I try to understand
the present-day policies of Europe, including England. I tend to
believe that these policies are less the result of a planned course
of action than the natural consequence of objective conditions.[87]
Einstein could also look around the globe and very easily make the
same connections made by Henry George about the causes of human
misery. Landed aristocracies had evolved into agrarian and industrial
landlords, in greater or lesser degrees wedded to the State by laws
that created monopoly privilege. State socialism removed any pretense
to equality of opportunity, instituting rigid and inherently corrupt
bureaucratic control over decision-making. Outside the one-party
States, internal tensions and dissent revolved around just how
participatory government would remain or become. Everywhere, the
practice of interventionism expanded the domain of government at the
expense of individual liberty but without effective corrective
treatment in the realm of economic licenses or penalties imposed to
thwart criminal behavior (particularly when this behavior was
perceived to be in the national interest or was accompanied by gifts
and contributions to elected and appointed government officials).
The world's empty spaces were also rapidly coming under cultivation
and settlement. Peasant farmers were repeatedly uprooted to
accommodate modernization schemes, the expansion of landed estates and
the nurturing of agribusiness built on the exporting of cash crops. A
report issued in 1956 by the United Nations indicated that access to
land for nearly two-thirds of the world's population had been affected
by shifting national boundaries, the emergence of new sovereign
nations, expropriation of landed estates and various efforts at what
conventional wisdom accepted as land reform. In some parts of
the globe, the State took control of most land. In other places,
multinational corporations were allowed to - or encouraged to -
extract resources with virtually no regard to ecosystems or the
well-being of indigenous populations.
I have earlier examined the contradictory results achieved by schemes
of land redistribution initiated in Japan and Formosa. On the African
and Asian continents, in the Central and Southern Americas, the
departure of Old World colonial administrations (with only rare
exceptions) did nothing to establish new societies built on
participatory socio-political arrangements. Where land was
redistributed, the recipients too often gained access to marginal,
ecologically-sensitive lands and received little or no education on
the best manner of cultivation. Assertions of sovereignty over
territory based on occupancy or control prior to the era of European
imperialism resulted in the eruption of tribal wars. Production of
necessary goods suffered as a result of the insecurity associated with
periodic destruction of crops and improvements associated with armed
conflict.
Those who molded United States foreign policy faced enormous
challenges in their dealings with the governments of societies caught
in various stages of transition and upheaval. One faction believed the
U.S. had to structure an interventionist policy that nurtured
democracy in places where democracy had never existed and where there
was no popular support or understanding for the give and take of the
democratic process. They were supported in this endeavor by
intellectuals such as Robert M. Hutchins, who was convinced that only
by keeping the great ideas of intellectual history in the forefront of
global change did humanity stand a chance of finding peaceful
solutions to its problems. This was a uniquely American
attitude, linked with the evangelical belief in the essential goodness
of the principles upon which the Democracy was founded (while
recognizing that even the home of Paine and Jefferson had strayed from
those imperfectly implemented principles). In an effort to resurrect
broad interest in the principles of the founders, Hutchins launched a
major new undertaking. He and Mortimer Adler emerged in 1961 as the
primary editors of a new Encyclopaedia Britannica annual publication,
The Great Ideas Today. Two long essays, responding to the
question, "Is democracy the best form of government for the newly
formed nations?," appeared at the beginning of the first volume.
William O. Douglas (who, ironically, had supported Diem's bid for
power in South Vietnam) was invited to make the case for democracy,
and he took a positive, long-term view. "Self-government
within systems that make room for all minorities and for all the
diversities among people is destined to be the achievement of all
mankind,"[88] he asserted in his opening statement. There was
clear evidence that democracy could be successfully introduced even
into societies where traditional rule had been autocratic. One example
acknowledged by Douglas was that of Mohammed Mossadegh, who had
introduced reforms in Iran that appropriated rent from landlords for
the benefit of the local villages. These decisions were made by
elected village councils. In this modest experiment - designed to help
people to control their day-to-day lives -- Douglas recognized that
creating an opportunity for even illiterate people to participate in
the management of their local village represented a material gain for
the democratic spirit. They might not have the capacity to make
informed decisions on complex technical problems where specific
expertise was required; however, along with universal suffrage, "service
on juries, participation in municipal affairs, membership in voluntary
groups, and [a] myriad of activities ... add up to the political
education of a free people."[89] At bottom, he argued, was
the human right of people to choose their form of government and those
who were to have key roles therein. In his essay, Douglas examined the
nature of governments emerging out of the demise of Old World
imperialism and colonialism. One of the most difficult transitional
hurdles to overcome, he observed, was the acceptance of the two-party
system and the presence of a "loyal opposition" existing on
a continuous basis:
Leaders of nations that are young in the ways of
democracy often resent criticism. Criticism is considered a personal
affront. Unlimited criticism carried so far as to label the
opposition a "party of treason" leads to a breakdown of
democratic processes in any country. Tolerance of criticism and
debate -- the maintenance of a loyal opposition -- is one first and
hard lesson the newly emerging nations must learn.[90]
To elaborate an opposing view, Hutchins and Adler called upon the
British journalist Peregrine Worsthorne, Assistant Editor of the
London Sunday Telegraph. Worsthorne wrote from a Marxist
perspective the history of how human societies develop, asserting: "It
is not until society advances to a certain stage of technical
expertise which enables individuals to produce far more than they need
to consume, that the temptations of government really begin to operate."[91]
Where did this leave the historian faced with evidence that
warrior-chieftains and the priests appropriated wealth for their own
use even at the cost of denying subsistence to others in their
societies? For societies that had existed under primitive forms of
tribal democracy, in the second half of the twentieth century they
faced the challenge of developing and enforcing rules of law
sufficiently sophisticated to respond to the pressures of extractive
development. Under Old World colonialism, only a very small elite
managed to acquire the education and training required for the
responsibilities of governing a developing nation-state. The stage was
thereby set for arbitrary rule by leaders who professed nationalism
but practiced self-indulgence and monopolistic privilege. The
fundamental problem in these societies, Worsthorne argued, was the
absence of a truly viable and self-sufficient commercial sector, out
of which "in the classical democracies, the habits and
attitudes of democracy and parliamentary government took root."[92]
One important truth Worsthorne gets to, is that the experience of
democracy is cumulatively acquired and cannot be effectively
implemented by edict. "In Asia and Africa," he
concludes, "[i]t is the governments who, while still enjoying
the instinctive support of primitive peoples, have embraced democracy
from the start, while the great majority of those over whom they
govern are quite ignorant of their democratic rights. Democracy, in
short, has begun as a method of government, before establishing itself
as a method of limiting government."[93] His fear is that by
virtue of the experience of life under government democratic in form
but not in substance the people will come to reject the true virtue of
democratic government; namely, the promise of establishing the means
to protect individual liberty.
Hutchins, Adler and others on the editorial team, added their own
thinking to the problem of how to secure individual liberty under the
system of nation-states. "Colonial government," they
wrote, "is by definition dictatorship, and if colonialism is
preparation for anything but continued colonialism, it is necessarily
preparation for the one-party state which is developing in nearly all
of the new nations of Africa."[94] They looked to the UN as
the eventual arena where transnational values would come to dominate
relations between peoples and governments. The terrible legacy of
colonialism was, they acknowledged, an unavoidable struggle in which
the universal principles based on moral law had to find their way into
the dialogue taking place in each society over what form of government
ought to be established and what socio-political arrangements and
institutions were best under specific circumstances. The lure of
communism, tribalism and ethnic nationalism (each with its own
elements of state religion incorporated) denied transnationals an
opportunity to persuasively compete in the marketplace for ideas.
Hutchins was doing his part to change that balance.
Four years earlier, representatives from forty African and Asian
nations (and of societies still subjected to external domination) met
in Cairo, Egypt, to discuss their plight and find solidarity with one
another. They condemned continued U.S. support for Old World
imperialist and colonial policies. That same year, Arab nationalists
took power in Iraq and threatened to do so in Jordan and Lebanon.
Thailand was brought under military dictatorship by General Sarit
Thanarat; in the process, although communist insurgents were purged,
moderate dissidents were also silenced. Another general, Ibrahim
Abboud, gained control of the Sudan and dissolved the nation's
parliamentary form of government. The pace of upheaval seemed to be
accelerating on a daily basis. Then, early in 1959, Fidel Castro
deposed the Cuban dictator Batista and established a new government
with himself as premier. In Laos, the Pathet Lao guerrilla force
attacked government forces in the north, in response to which the
United States government pledged financial assistance and arms. The
Chinese Communists put down a Tibetan revolt and threatened war with
India over disputed frontier territory. After more than 100,000
demonstrators marched on the government buildings in Seoul, South
Korea, staging a pro-democracy protest, Syngman Rhee resigned the
presidency (escaping under U.S. protection). The Turks fell victim to
military dictatorship, while an independent Republic of the Congo was
formally created. Within weeks, however, civil war erupted in the
Congo, further evidence that Old World colonialism had done nothing to
reduce the underlying tensions of tribal rivalries.
Onto this global stage in 1960 arrived the junior U.S. Senator from
Massachusetts, now a candidate for the Office of President of the
United States. The importance of his ascendancy into the arena of
global politics has been debated endlessly ever since.
The Education of John Fitzgerald Kennedy
John F. Kennedy followed his older brother Joe to England in 1933 for
a year of study at the London School of Economics under Harold Laski.
Professor Laski was a graduate of Oxford and during the 1920s lectured
at Harvard University. His book, The American Presidency, published in
1940, was highly regarded as a primer on the executive branch of
government in the United States. We continue to struggle with many of
the contradictions he identifies. Perhaps most importantly is this:
The big problem that is raised by the American method of
nominating presidential candidates is whether it puts a premium
against the opportunity of first-rate men to receive consideration.
The answer to that argument is, first, that many first-rate
men have become president by reason of the system; and second, that
the reasons which stopped others would have been powerful reasons
against their elevation in any representative democracy.[95]
We might ask ourselves whether 'people of color' and women continue
to face an uphill struggle for recognition because of ongoing
prejudice or because of the manner in which U.S. political parties are
organized. Laski suggested to Americans that we consider eliminating
the Electoral College and elect the President by direct national vote
and that the President have a line item veto over the budget. Speaking
more generally, he reminded Americans of the source of the nation's
strength and warned them that much had already changed:
First, the United States is essentially a continent; the
making of unity out of its various sections was bound, therefore,
under any circumstances, to be a difficult adventure. Second,
because it was, until the nineties of the [nineteenth] century, a
civilization in which expansion was always internal and not
external, the creation of safeguards against discontent was a
relatively easy matter. Opportunity, at least in comparison to
Europe, was boundless; there was abundance of land, there was no
residuary feudalism, almost any taxes produced a surplus in the
treasury. Few members of the working class expected to remain there;
most of them enjoyed conditions far higher than anything the
European peasant or industrial worker has ever known. The triumphs
of the business man were, on any showing, immense; in three
generations he had built a civilization out of a wilderness. Up to
the Civil War, there might have been doubts and hesitations about
the future of American civilization; there were none after the issue
of secession had been decided. From the presidency of Grant onward,
the United States seemed, to most, to have made a permanent bargain
with fate. The less positive the action of government, the greater
seemed to be the tempo of its development. Parties, therefore,
adjusted themselves to an atmosphere in which weak government seemed
the very condition of prosperity; and, since the weaker the
government the greater was the leeway given to the power of the
propertied interests, the more jealously the latter scrutinized any
movement toward regulation.
For something over a century they had every reason to believe that
they were right. The system, on occasion, creaked and trembled; but,
upon balance, within that period it resulted in a triumphant
progress it is impossible not to admire. It was only after a
century, when the epoch of abnormal expansion had begun to draw to
its close, that analysis could suggest how real was the resemblance
between the ends they had secured and the ends they had sought to
avoid. For, having distributed authority, they found that, to cope
with discontent, they had to bring it together again in order to
prevent paralysis.
The relation of the great interests to
Congress has not been so unlike the domination of the
eighteenth-century Parliaments to the interests of the great
landowners.[96]
After the outbreak of the Second World War, Laski hoped to shed light
on the causes of discontent that permitted fascists to grab power. He
saw the United States coming to increasingly resemble the Old World,
burdened by "a leisured class with many of the habits, and
much of the outlook, of the functionless aristocracy of Britain and
France, above all with the same deep concern lest its economic
privileges be invaded."[97] John F. Kennedy was, in fact,
perceived as coming from this new leisured class, and his religion was
Roman Catholic besides. Kennedy's exposure to Harold Laski's lectures
was short-lived, forced to return to the United States after only one
month because of serious health problems. He tried again at Princeton
to resume his academic studies but was forced to leave school, again
for medical reasons. After recuperating in Arizona, he returned in the
summer of 1936 in time to return to school, this time at Harvard
University. He was by all accounts a mediocre student, generally,
while displaying a more serious interest in the subject of
international law and the philosophies of Plato, Aristotle, Hobbes,
Locke and Rousseau.
On the eve of the Second World War, Joseph P. Kennedy became Franklin
Roosevelt's ambassador to England. The elder Kennedy was a loyal New
Deal Democrat, but he was also an isolationist who gave Roosevelt a
rather rough time. In Britain, Kennedy was described by one liberal
and anti-appeasement member of Parliament, Josiah Wedgwood, as "a
rich man, untrained in diplomacy, unlearned in history and politics,
who is a great publicity seeker and who is apparently ambitious to be
the first Catholic President of the United States."[98] The
Kennedy sons accompanied their father to Europe, one result of which
was that Jack returned to Harvard for his junior year with a much
greater sense of purpose. In February of 1939, he began a seven-month
personal assessment of Eurasia that exposed him to all of the Old
World intrigues -- from Paris, to Russia to the Holy Land and Germany.
Throughout this period he provided his father with detailed analyses
of what he saw and heard. He later wrote his senior thesis on the
course of events, policy decisions and internal pressures that
culminated in Chamberlain's capitulation to Hitler at Munich. By this
time he had managed to meet and spend some time with Harold Laski in
London, from whom he apparently gained additional insights into the
making of British foreign policy. His own thinking was beginning to
diverge from that of his father, and he acknowledged Winston Churchill
as having understood full well the necessity for readiness in a world
filled with ruthless dictatorships.
Despite Jack's break with his father's brand of orthodoxy, the elder
Kennedy used his influence to have Jack's senior paper published in
book form under the title Why England Slept. Harold Laski, who
did not see the final manuscript, expressed regret that such an
obviously immature work was to be published, its only merit (in his
opinion) being its authorship by the son of the U.S. ambassador to
England. Herbert Parmet, on the other hand, identifies the enormous
differences in style, tone and organization that distinguished the
book from Jack's college paper:
[P]robably the most significant single difference
relates to the problem of the international crisis and democracy.
The thesis emphasized Kennedy's long-standing deliberations over the
limitations of democracy vis-a-vis totalitarianism, doubts that had
been especially reflected in his thinking while touring the
Continent, when he had been impressed with the efficiency and order
of fascism and speculated that democracy might be an unaffordable
luxury. The finished book has a far different tone. It includes
lyrical endorsements of democracy and views its preservation as the
reason for rearming, rather than seeing it as an impediment to
national security.[99]
Whether or not Jack Kennedy was fully responsible for the changes
made to the text is relatively unimportant. He received good advice
from people more politically astute than he could have become in so
few years. What is important, is that the book launched him on his
public career. After his discharge from the U.S. Navy and recovery
from his wartime injuries, he began to give consideration to the
postwar environment. At this point in his political development, he
believed peace could only be preserved by an international agreement
to control armaments. An arms race, moreover, would drain the United
States of resources needed to modernize the nation and employ
returning veterans.
Jack in this crucial period benefited significantly by his family's
connections. He was able to gain a good deal of experience and
exposure to world affairs in a manner that prepared him for the
political arena and debate with those decades senior to him in age and
public service. William Randolph Hearst hired him to report on the
organizational conference of the United Nations and then the elections
in Britain. By the following year, as he campaigned for his first
elected office, his thinking began to once again change with
circumstances; as a first-term Congressman, his committee assignment
placed him in the first round of investigations into communist
infiltration of the country's labor unions. This was to become the
time when labor was purged of its more radical elements, and Jack
Kennedy did what he could to nurture the mainstreaming of labor
leaders into the Democratic party. Thus, although Kennedy held strong
anti-communist beliefs, his voting record while in the House of
Representatives was overwhelmingly pro-labor. Early on he made a
determined effort to argue against the Taft-Hartley legislation
because of the diminution of legal protections the bill would impose
on labor unions.
When rising housing prices exacerbated an already tense situation in
and around the cities, Kennedy advocated providing incentives to
private developers and lending institutions to channel funds into new
rental housing units subject to rent controls. Where the market failed
to respond to demand, Kennedy was more than willing to use federal
powers to intervene. He did not understand the theoretical aspects of
political economy all that well, but he was learning how to stay in
office by serving his constituency and making a national name for
himself one issue at a time.
When dealing in theory, when lecturing about the nature
of government, he fell back to the classical liberal doctrines held
by his father that had come to seem conservative in the years since
they were first formulated. Along with his Whiggish belief in the
rule of the elite, he had the liberal's concern for the maximization
of freedom for the individual. When considering social issues, he
seemed to embrace the utilitarianism of Jeremy Bentham. At other
times, when thinking about "free enterprise," he seemed to
echo the words of Adam Smith. And behind it all were the ideas of
John Stuart Mill, who had noted that the "struggle between
liberty and authority is the most conspicuous feature in the
portions of history with which we are earliest familiar. ..."[100]
He was emerging from obscurity to take his place as one of the
important architects of an increasingly-interventionist liberalism.
All along the way he had the interesting advantage of exposure
to a number of individuals who embraced many of the public policy
choices out of which liberalism was taking shape. For example,
Jack's father recruited James Landis (dean of the Harvard law school)
to join the Kennedy family advisory group. Out of constant debate
within his circle of accomplished advisers, Jack's own political
philosophy emerged, hardened by the process.
Driven by aspirations to national political office, Jack would be
forced as a Catholic in a predominantly Protestant United States to
deal with the extremely controversial constitutional questions related
to the influence of religious orthodoxy on public policy. By
extension, his Catholicism placed him squarely in the debate over all
questions of the rights of minorities under the law. One such issue
was the public funding of schools. In the United States, school
districts raised taxes from all property owners to finance the public
school systems. The property owner's obligation to pay had (and still
has) no connection with either the number of the property owner's
children attending the schools or with household income. Thus, parents
of children attending private or parochial schools -- even those of
quite modest means -- paid to support two school systems. Only the
assessed value of whatever real estate one owned mattered. In the
early 1950s, the U.S. Congress was considering the use of Federal
funding to improve the quality of education, and one of the issues
faced by Kennedy was whether any of this money ought to be channeled
into the parochial school systems. Firmly grounded in liberalism,
Kennedy never ventured beyond the centrist policy choices under
consideration. He never questioned - publicly, at any rate -- the
appropriateness of agents of the State assuming the responsibility for
establishing schools, of creating an education hierarchy, of defining
curricula, of certifying and hiring teachers -- and requiring that
anyone who owns real estate in a given education jurisdiction be taxed
to support the system according to some formula related to the market
value of the real estate owned. As noted above, under this type of
funding system, there is an assumption that all persons who own real
estate of similar value have a similar capacity to support the
schools. No direct consideration is taken for the taxpayer's housing
debt, income level or number of children attending the schools.
Kennedy did not question whether these laws were consistent with just
principles. By the 1960s, the system was accepted as part of the
American System. Most Americans, if asked, would probably have
responded that they have never critically thought much about the
virtues of publicly-funded, government-organized education -- and even
less about the fairness of the manner by which the revenues are raised
to pay the expenses of these schools. Communities attracted and held
new arrivals in part because of their reputation for a high level of
public services, and good schools were certainly important to
the community. A community willing to tax itself to build modern
schools and hire experienced teachers benefited all residents, and
particularly homeowners, whose land value increased in response to
rising demand for housing. A libertarian asks two questions. First, is
the publicly-funded and administered system of schools in reality a
threat to individual liberty; and, second, even if citizens agree to
tax themselves to provide for the education of the young, is it not
more consistent with liberty to provide parents with vouchers and
allow them to use this funding to send their children to whatever
schools they choose? In the Protestant-dominated United States of the
1950s, however, the majority of citizens were unmoved and unconcerned
by these questions. Jack Kennedy's emergence as a national leader
opened one particular set of church-state issues. Yet, even he was
reluctant to dwell on the socio-political implications of his own
challenge to the traditions of the American System.
Already, Kennedy was instinctively an Establishment Cold Warrior --
joining with the anti-communist hard core in blaming Rooseveltian
naivete for the loss of Eastern Europe and Trumanesque bumbling for
the collapse of Nationalist China. He rightly opposed and feared the
liberty-destroying power of communism, but he also unthinkingly joined
with other interventionist crusaders who judged despotism solely on
the basis of short-term interests of the American System. He
was sufficiently independent in his views to argue in 1951(after
returning from a tour of the European continent) that the United
States should demand from other NATO members a fixed proportionate
contribution to support the defense effort. Equally important to the
times, he also condemned what remained of Old World colonialism.
First-hand experience gradually convinced him that the most potent
force in Africa, the Middle East and Asia was nationalism and not
communism. The question for the United States was how to link the
desire of people for sovereignty to a respect for democratic processes
and institutions. For Jack Kennedy, the opportunity to have something
influential to say on such matters meant capturing a seat in the U.S.
Senate.
By the time he announced his candidacy for the Senate, running
against Republican Henry Cabot Lodge, Jr., Kennedy was also softening
his views on the extent to which communists had and were influencing
government policy in the United States. Joseph McCarthy was a family
friend whose willingness to make unsubstantiated charges against
people bothered Kennedy -- but not enough for him to speak out against
McCarthy's tactics. At the same time, Kennedy lived amidst an
intellectual community whose members held freedom of thought and
expression as a supreme constitutional right. As the newly-elected
Senator from Massachusetts, he began to create his own "brain
trust," a group that included Harvard University economics
professor Seymour Harris and a young attorney, Theodore Sorensen, who
was already convinced that the Federal government needed -- and was
legitimately empowered -- to play a far more interventionist role in
the protection of civil liberties.
The Kennedy team took on as its first challenge development of an
economic revitalization plan for New England. What they produced was
something quite more, a program of national industrial development.
Seymour Harris sold Kennedy on the need to protect New England's
surviving textile mills with tariffs against low cost foreign
producers and on the feasibility of making the St. Lawrence into a
fully-functioning international seaway. Kennedy realized that
promoting regionalism (i.e., using government largesse to create
advantage to one part of the nation over others) might win votes for
him in his home state, but would do very little in creating a full
employment economy or enhance his reputation as a national leader. No
state could put up barriers against trade and expect to survive as an
export economy; other states (and other countries) would retaliate
with their own trade restrictions as had occurred in the early 1930s.
The answer, the Kennedy team agreed, was coordinated regional
development.
At the same time as he broadened his views on domestic matters,
Kennedy was also moving quickly to establish his own reputation as a
national spokesperson on foreign policy questions.
As Kennedy looked closer at the nature of colonialism and the rise of
ethnic nationalism, particularly in the Middle East and Asia, he
reached conclusions very different from those of John Foster Dulles
and others in the Eisenhower camp. He was most critical of the
Eisenhower administration's continued support of the French in
Indochina, where little was being spent on efforts to improve living
conditions for the population or to achieve redistribution of control
over land. Kennedy sought out the perspective of Edward Gullion, who
had represented the U.S. Department of State in Saigon under Truman.
He agreed with Gullion that the U.S. had seriously blundered by not
championing the Indochinese cause for complete independence from the
French. Ho Chi Minh might be a communist, but he was also the leader
of the nationalist movement committed to throwing off external
domination; and, United States assistance had been going to the French
rather than the Vietnamese people. Despite the risks, however, Kennedy
eventually joined with those U.S. leaders who feared that the loss of
Indochina to the communists would destabilize all of Southeast Asia.
He argued against a negotiated division of Indochina into separate
states because (unlike the situation in Korea) there was no indigenous
support for the leaders associated with the colonial regime. In April,
1954, as the French position deteriorated, Kennedy demonstrated in
open session of the U.S. Senate just how much he had learned, arguing
"that no amount of American military assistance in Indochina
can conquer an enemy which is everywhere and at the same time nowhere,
'an enemy of the people' which has the sympathy and covert support of
the people."[101] On this point, he was consistently joined
in the press by Walter Lippmann, who feared that what was being lost
in the dialogue was a willingness on the part of politicians fearful
of losing power to investigate and address difficult issues. In The
Public Philosophy, published in 1955, Lippmann attempted to arouse
the thoughtful from their drift into conformity:
Strategic and diplomatic decisions call for a kind of
knowledge -- not to speak of an experience and a seasoned judgment
-- which cannot be had by glancing at newspapers, listening to
snatches of radio comment, watching politicians perform on
television, hearing occasional lectures, and reading a few books. It
would not be enough to make a man competent to decide whether to
amputate a leg, and it is not enough to qualify him to choose war or
peace, to arm or not to arm, to intervene or to withdraw, to fight
on or to negotiate.
Usually, moreover, when the decision is critical and urgent, the
public will not be told the whole truth. What can be told to the
great public it will not hear in the complicated and qualified
concreteness that is needed for a practical decision. When distant
and unfamiliar and complex things are communicated to great masses
of people, the truth suffers a considerable and often a radical
distortion. The complex is made over into the simple, the
hypothetical into the dogmatic, and the relative into an absolute.
...[102]
Observing what he believed was a "massive popular
counter-revolution against liberal democracy,"[103] Lippmann
joined Robert Hutchins in warning that the principles of just
socio-political arrangements and institutions were not being taught.
He could have easily added that few of those who might do the teaching
actually understood what those principles were.
The revolutionary mood of the twentieth century had become Jacobin
and Marxist, with adherents who believed the good could only be
obtained by sweeping away all that had existed, all that had
sanctioned past oppressions. They would then rely on the inherent
goodness and wisdom of the people to create the just society (after
exterminating any and all opposition by whatever force was required to
do so). These attitudes and feelings were 180 degrees apart from the
world view shared by most citizens and leaders in the United States,
where neither transnationals nor the Remnant were advocating
more than incremental change.
What Lippmann, Hutchins and others came to accept was that the
Democracy had been unprepared for the avalanche of immigration,
the cultural diversity and the demand for continuous improvements in
living standards that stressed socio-political institutions relatively
unseasoned by time and refinement. The generation of Jefferson and
Paine had codified, but only in a compromised form, the moral sense
philosophy nurtured by reason and experience. The distance between the
ideal and the real appeared immediately because there was no means by
which communities could replicate in the form of citizen education the
wholesale adoption of universal values. There came a point in time,
although Lippmann does not describe the conditions, when the safety
valve of the frontier disappeared and the monopolistic qualities of
agrarian and industrial landlordism began to stamp out the social
fabric born of equality of opportunity. The consequences, he
concluded, were everywhere to be seen:
As long as it worked, there was an obvious practical
advantage in treating the struggle for the ultimate allegiance of
men as not within the sphere of the public interest. It was a way of
not having to open the Pandora's box of theological, moral and
ideological issues which divide the Western society. But in this
century, when the hard decisions have had to be made, this rule of
prudence has ceased to work. The expedient worked only as long as
the general mass of the people were not seriously dissatisfied with
things as they are. It was an expedient that looked towards reforms
and improvements. But it assumed a society which was secure,
progressive, expanding, and unchallenged. That is why it was only in
the fine Victorian weather, before the storm clouds of the great
wars began to gather, that the liberal democratic policy of public
agnosticism and practical neutrality in ultimate issues was
possible.[104]
Lippmann should have added that what the leaders of the social
democracies -- and, in particular, those in the United States -- were
doing their best to institute was stability by means of a massive
program of government spending on physical infrastructure,
supplemented by rising spending on social welfare programs. In some
instances this was also accompanied by a willingness to tinker with
varying degrees of nationalization. None of this had escaped the
attention of a Jack Kennedy determined to gain experience and
expertise in the shortest amount of time possible.
Rising in stature as an outspoken critic of the conventional wisdom
of the moment, Kennedy had the enormous advantage over all but a
handful of Americans by having seen first-hand conditions in much of
the Old World. Moreover, his family and college connections offered a
ready supply of internationalists to question and put his ideas to. By
the mid-1950s, he was in a position to counter any apologists for
state socialism sufficiently bold as to suggest Stalinism had been an
aberration. He was becoming a sophisticated spokesperson of the
restless, but patriotic generation of Americans who became adults
during the Second World War and were eager to have more of their own
generation assume positions of influence and power from the old guard.
The more they heard of Jack Kennedy the more they identified with him
and with his call to public service, which he set forth in the early
pages of Profiles In Courage:
Today the challenge of political courage looms larger
than ever before. For our everyday life is becoming so saturated
with the tremendous power of mass communications that any unpopular
or unorthodox course arouses a storm of protests such as John Quincy
Adams -- under attack in 1807 -- could never have envisioned. Our
political life is becoming so expensive, so mechanized and so
dominated by professional politicians and public relations men that
the idealist who dreams of independent statesmanship is rudely
awakened by the necessities of election and accomplishment. And our
public life is becoming so increasingly centered upon that seemingly
unending war to which we have given the curious epithet "cold"
that we tend to encourage rigid ideological unity and orthodox
patterns of thought.
And thus, in the days ahead, only the very courageous will be able
to take the hard and unpopular decisions necessary for our survival
in the struggle with a powerful enemy -- an enemy with leaders who
need give little thought to the popularity of their course, who need
pay little tribute to the public opinion they themselves manipulate,
and who may force, without fear of retaliation at the polls, their
citizens to sacrifice present laughter for future glory. And only
the very courageous will be able to keep alive the spirit of
individualism and dissent which gave birth to this nation, nourished
it as an infant and carried it through its severest tests upon the
attainment of its maturity.[105]
Courage meant, in one instance, opposing farm price supports that
benefited corporate agribusiness at the expense of consumers and
small, family farmers. On another front, Kennedy ignored the analysis
of Harold Laski and argued successfully against reform or elimination
of the Electoral College system. As the commencement speaker at
Harvard University in 1956 he praised the intellectual and scholarly
nature of the nation's early political leaders and called for renewal
of enlightened, learned leadership. At the same time, he was becoming
increasingly influenced by the plight of the underprivileged and
receptive to the application of government remedies (although such
remedies remained conventional in design, directed at mitigating
rather than solving problems). Thus, he supported government-funded
health care for senior citizens, minimum wage standards, a stronger
role for workers in the operation of business and greater protection
of the public domain from private exploitation. Consistent with the
agenda of liberalism, Kennedy also advocated strengthening the
public school system. Worthy of mention is that in these last few
years of stature-building, his team of advisers was frequently joined
by economist John Kenneth Galbraith.
Kennedy took the lead in urging on the United States a clear moral
position against continued French colonial rule in Algeria, causing
the Eisenhower administration no small degree of discomfort.
Remarkably, a considerable degree of sympathy for Algerian
independence existed among the French themselves and within the
world's community of transnationals. By their standard, Kennedy was
demonstrating real courage in the face of the combined energy of
powerful defenders of the status quo. Yet, Herbert Parmet tells us
that Ted Sorenen felt Kennedy's positions were determined more by what
was politically expedient than by any adherence to principles linked
to fundamental human rights. This certainly seemed to be the case
based on his timid position on questions of equal protection under law
for African-Americans and other minorities. Georgists also wondered
whether Mr. Kennedy could bring himself to challenge the entrenched
privileges enjoyed by the landed. Roosevelt brain-truster Raymond
Moley took time out in 1960, for instance, to give the Presidential
candidate some advice on how to deal with demands by city officials
for federal highway funds:
The issue comes down to the simple point that, with some
exceptions, cities which are rich enough and busy enough to have
traffic problems have the resources to bear a considerable part of
the burden of street improvement.
While they are screaming for federal aid, the Holy Grail of relief
is right in their midst, to be captured if the authorities and the
people who elect those authorities have the courage to make use of
it. ...
When federal money goes into what is called "urban renewal,"
land values are enhanced, and the major profits go to speculators.
In a recent article in Newsweek about Joseph P. Kennedy ... it is
stated on good authority that the father of the candidate "made
$100 million in New York real estate alone."
Thus Congress gives and landowners receive. That sort of thing is
why cities pretend to be unable to remedy traffic conditions and
eliminate slums and the mayors run to Washington for help.[106]
When Richard Nixon debated John F. Kennedy on September 26, 1960, Mr.
Kennedy briefly skirted around the idea that the collection of
property taxes was closely related to the quality of education
provided in a community. Galbraith (who had spent the better part of
three years bringing Adlai Stevenson up-to-speed on economic policy
choices) writes that the young Senator occasionally called on him to
discuss economic policy but offers no insights into Kennedy's grasp of
fundamentals. Needless to say, few with the Georgist community (and
about as few within the Remnant as a whole) were impressed by
Kennedy's proposed solutions to economic problems.
More and more, as his health permitted, Kennedy was called upon by
Democratic Party stalwarts to hammer away at the shortcomings of the
Eisenhower administration and the Republicans generally. Under
Sorensen's direction, Galbraith, Arthur Schlesinger, Jr., Seymour
Harris, Paul Samuelson, Walt Rostow, Daniel Ellsberg, Henry Kissinger
and several other professors were brought together as an Academic
Advisory Committee with whom Kennedy began to meet every so often.
While they participants added depth to the discussion of specific
national and international issues, they exercised no discernable
influence over Kennedy's thinking. By this time he was quite confident
and comfortable with his own powers of reasoning.
Historian Allan Nevins and civil rights lawyer Harris Wofford, Jr.
soon began compiling Kennedy's foreign policy speeches into a book
first published in 1960 under the title, The Strategy Of Peace.
Here was Kennedy's world view unfolding over the course of five or six
years; and here one found a key point of departure from the cynical
adoption of anti-communist interventionism as justification for the
worst manifestations of the American System:
If the title deeds of history applied, it is we, the
American people, who should be marching at the head of this
world-wide revolution, counseling it, helping it to come to a
healthy fruition. For whenever a local patriot emerges in Asia, the
Middle East, Africa, or Latin America to give form and focus to the
forces of ferment, he most often quotes the great watchwords we once
proclaimed to the world: the watchwords of personal and national
liberty, of the natural equality of all souls, of the dignity of
labor, of economic development broadly shared. Yet we have allowed
the Communists to evict us from our rightful estate at the head of
this worldwide revolution. We have been made to appear as the
defenders of the status quo, while the Communists have
portrayed themselves as the vanguard force, pointing the way to a
better, brighter, and braver order of life.[107]
As a candidate for the office of President of the United States, Jack
Kennedy offered the promise of leadership independent from the owners
of laissez-faire interventionism. "John F. Kennedy proved,"
Richard Hofstadter wrote shortly after the victory over Richard Nixon,
"what perhaps should not have had to be proved again -- that
the reading of books, even the writing of books, is hardly a fatal
impediment for a presidential aspirant who combines a reputation for
mind with the other necessary qualities."[108] More
accurately, perhaps, was that Kennedy cultivated and relied upon the
aura of intellect in a way none of his predecessors had -- almost
going back to Adams, Jefferson and Madison. In numerous ways, he
articulated the central beliefs of their socio-political philosophy,
even if he did not fully comprehend the depths of agrarian and
industrial landlordism into which the nation had fallen. Galbraith
later wrote of Kennedy that "no leader ever learned more
quickly from experience."[109] Walter Lippmann, after
observing Kennedy's maturation in the Senate, was also hopeful the new
President could lead the nation (and the social democracies) out of
the quagmire of global confrontations and into a new era of security
and prosperity.
Elected to office by the narrowest of margins, Kennedy was hardly in
control of his own destiny let alone that of the nation. Despite his
respect for the young President, Lippmann was not all that sure
Kennedy could pull off a rapprochement with the communist world or
bring equality of opportunity to the United States:
As of now, there are many more people who like John
Kennedy, and his appointments, and his style of operating in office,
than there are people who understand and believe in what he is
committed to doing. He will have to close this gap; he will have to
persuade the large majority who like him that they must also believe
in him. ...
... He is committed to positive programs that require new laws and
new appropriations and perhaps new taxes. His predecessor was
primarily interested in undoing rather than in doing. High personal
popularity with a passive and negative program makes for an easy
life. But personal popularity is not enough to carry with it an
active and innovating program.
The President will have to find ways of communicating his own
convictions to a working majority of the people. ...There is a
missing element in his press conferences, his speeches, and his
public appearances, and for lack of it he receives much approval
without creating sufficient conviction.
That missing element is, I think, the willingness to take the time
and to take the trouble to explain, to expound, to describe, in a
word, to teach. ...He must also be a popular teacher. The greatest
leaders are also great teachers.
The instinct to teach, to make himself understood because he has
explained himself, has not yet shown itself in the President. I say
not yet because I have no doubt that this instinct to teach is in
him. It is in every man who has deep convictions and a passion to
realize them.[110]
A month after the election, Kennedy visited Lippmann to ask his
advice on who to choose for the job of Secretary of State. After
listening to Kennedy cover the problems connected with nominating
Arkansas Senator J.W. Fulbright (viewed by civil rights activists as a
segregationist and racist), Lippmann suggested McGeorge Bundy, dean of
the Faculty of Arts and Sciences of Harvard University. In the end,
Kennedy chose Dean Rusk (who had served as Assistant Secretary for Far
Eastern Affairs under Dean Acheson and was in 1960 president of the
Rockefeller Foundation). Bundy became special assistant for national
security affairs. Galbraith helped to recruit Walter Heller as
Chairman of the Council of Economic Advisers, then departed for India
as Kennedy's new Ambassador. Heller added James Tobin of Yale and
Kermit Gordon of Williams College to the Council; all three were
dedicated advocates of Hansen-Keynesian demand management fiscal and
monetary policies. Another economist, David E. Bell of Harvard, became
Kennedy's budget director. Douglas Dillon was kept on as Secretary of
the Treasury from Eisenhower's cabinet. And, Robert MacNamara left
Ford Motor Corp. to become Secretary of Defense.
When Kennedy began the first year of his Presidency, official
unemployment in the United States was stated to be 8 percent. By
almost everyone's definition, the nation had fallen into recession.
The value of imports greatly exceeded exports, creating a
balance-of-payments deficit. All things being equal, the outflow of
currency into the hands of foreigners ought to have had a neutral or
even deflationary effect on prices. Common sense suggests that with
fewer dollars in the hands of domestic consumers this would alter the
ratio between the demand for goods and services and the quantity of
dollars to go around. However, because national governments had
historically equated the amount of gold bullion in reserve with
national wealth, foreign governments took the opportunity of so many
dollars coming into European central banks to build up their own gold
stocks - returning the surplus dollars to the U.S. Between 1958 and
1961, foreign governments exchanged their U.S. dollars for $6.3
billion worth of gold at the fixed price of $35 per ounce.
Eisenhower's commitment to reign in Federal spending had been very
strong, and he used the revenue from gold sales to help balance the
budget. Domestic employment languished in the face of continued rising
imports and modest investment by industry in capital goods.
Walter Heller proposed to Kennedy a tax cut to stimulate private
spending, and Arthur Goldberg urged spending on public-works projects.
Kennedy, however, was not yet ready to sacrifice Eisenhower's hard won
effort to achieve a balanced budget as the primary approach to
reducing unemployment. Instead, he proposed investment tax credits.
Neither Kennedy nor his economic advisers had apparently joined with
Harvard economist Arthur Smithies, whose 1960 paper[111] argued that
attempting to balance the budget on an annual basis was both
inefficient and counterproductive to the long-range character of many
government programs. Unfortunately, neither had they given any thought
to Harry Gunnison Brown's extensive analyses of the relationship
between business cycles and tax policy.
Economists were still not all that confident that demand management
tools could flatten the business cycle. Government interventions had
achieved mixed results, and individuals in the United States
controlled something close to $1 trillion in liquid assets (currency,
stocks, bonds, mortgages, bank deposits and other claims on physical
wealth). Just since 1953 the dollar value of these assets had
increased by more than $400 billion. Stocks alone accounted for more
than a third of the total. This did not mean, however, that businesses
had received a massive infusion of financial reserves with which to
build state-of-the-art plant and equipment, expand into new markets
and hire new employees. Companies and individuals holding shares of
stock experienced paper gains, but only those companies who sold stock
during this period of rising prices became more solidly capitalized.
Some would wisely use the cash to retire debt and in that way
strengthen their balance sheets (a strategy that in the 1980s would
expose companies to purchase by speculators who recognized the
potential to take in enormous profits by acquiring companies and
selling off land held for decades on the corporate books at cost and
currently worth tens or hundreds of times the book value). Overall,
however, business investment was far below that necessary to bring
down unemployment to a manageable level. In the face of a continued
stagnating economy, Walter Heller called for either greater
government spending or tax cuts. In addition to the investment tax
credit, Kennedy supported significant reductions in tariffs in an
effort to stimulate foreign trade. At the 1961 annual conference of
Henry George Schools, held in Hartford, Connecticut, E.C. Harwood
(director and founder of the American Institute for Economic Research
at Great Barrington, Massachusetts) assessed the quality of advice
Kennedy was receiving:
Heller ... participated with other Keynesians in
recommending to European nations features that are repeated in their
advice to the United States today. This includes more spending and
less concern about inflation. West Germany chose to disregard that
advice, to do the opposite in fact; and the results are evident for
all to see: a "miracle" of economic recovery, sustained
prosperity, and economic growth at a rate not approached in the
United States since our nation applied similar policies in the
decade and a half after resuming the gold standard in 1879.
Some economists in Washington appear to be Socialists determined to
create a "welfare state" managed by themselves (or as they
advise) instead of the constitutional republic originally created as
the United States. ...
The fact that many in government positions appear to be Fabian
Socialists and that most of Mr. Kennedy's economic advisers were
trained at Harvard are disquieting, when one remembers that the
principal Communists exposed in government agencies were composed
largely of graduates of the same university, as also were Alger Hiss
and Harry Dexter White.
Many Harvard students became indoctrinated with the belief that the
capitalist system was dying and that it would be superseded by the "wave
of the future," a form of government intervention and "planning."
...[112]
I suspect that Harwood's broadside against the teaching being done at
Harvard University left some of his listeners feeling rather
uncomfortable. We need not revisit the complex nature of the actions
of either Alger Hiss or Harry Dexter White. Where Harwood was
unquestionably correct in his concerns that massive borrowing and
ongoing deficits would eventually jeopardize what was left of
individual liberty and equality of opportunity for U.S. citizens. The
beneficiaries of entrenched privilege were determined to prevent any
erosion of their personal fortunes even as government's appetite for
wealth consumption expanded. They were determined to make sure that if
the welfare state was on the horizon, the cost would be borne by
actual producers whose incomes offered a ready source of taxation.
One of Kennedy's more interesting appointments was that of Senator
Paul Douglas to head a task force on providing assistance to the
nation's poorest citizens. Douglas helped to revive the depression-era
food stamp program and worked to bring industry into regions where
unemployment was consistently high. Douglas, trained in economics at
Columbia and Harvard Universities, was also friendly to reform of the
real estate tax in accordance with Georgist proposals. Unfortunately,
as he later recalled, he believed "the issue involved local
and state governments, rather than national,"[113] and so
remained silent on the subject while in the U.S. Senate. He added this
curious remark to his memoirs:
When I pass before the Great Judgment seat, I hope Saint
Peter may forgive my silence as a senator on the increase in land
values and accept my later efforts as at least partial
atonement.[114]
What Douglas meant, I believe, is that he made no effort to convince
Kennedy that a relationship existed between poverty and the private
appropriation of land rent, and so let close a very real window of
opportunity. From the wilderness, however, others less concerned
with the possible stigma of advancing Henry George's analysis and
policy proposals continued with their efforts to reach public
officials, academics and activisits. Shortly before his death at age
73 in August 1961, economist (and Georgist) Glenn E. Hoover delivered
a stinging attack against the assertions of Kennedy's "New
Frontier" policy agenda. He reiterated the relation to just
principles by which "reformers have demanded that the
socially created value of land be taken by society,"[115]
then went on to express his concern over the "decline in the
self-reliance of the individual"[116] so intimately attached
to the adoption of welfare state programs. Ironically, one of liberalism's
new architects and now the U.S. Secretary of State, Dean Rusk, had
taught alongside Hoover at Mills College in Oakland, California.
Harry Gunnison Brown also continued with his warnings against the
adoption of Hansen-Keynesian demand management policies. In 1955,
Lucas Brothers published the third edition of his Basic Principles
of Economics, a statement that at least some students of economics
were still learning something of classical political economy, and of
the importance attached to distinguishing nature from what was
produced from nature (i.e., the difference between the source of
wealth and wealth) where property law and public policy (especially
taxation) were concerned. His calls for rational tax policy and his
challenges to Keynesian interventionism continued to appear regularly
in the American Journal of Economics and Sociology.
Unfortunately, fewer and fewer of his colleagues were listening. Even
those who essentially agreed with him were unwilling to jeopardize
their careers and professional standing to boldly sail against the
wind. In one of his articles reprinted in the Henry George News,[117]
Brown reminded the converted that Keynes had conveniently ignored the
influence of tax policy on the individual's decisions to hoard, invest
or sell assets. His challenges were lost in the sea of interventionist
writings pouring out of universities and think tanks.
Even before John F. Kennedy was elected to the U.S. Presidency, E.C.
Harwood was already deeply concerned over the expanding acceptance of
the Hansen-Keynesian approach to achieving full employment and
sustaining economic growth. He pulled together the editorial staff of
the American Institute for Economic Research to prepare a penetrating
analysis of conventional wisdom on economic matters. Interestingly, as
this group of unrepentant monetary reformers traced the development of
economic policy during the twentieth century they applauded creation
of the Federal Reserve System as a step in the direction of a sound
national banking structure. They recalled how the Federal government
had, predictably, resorted to massive borrowing during the First World
War, which prevented the Federal Reserve Banks from limiting monetary
expansion. Apologists for deficit spending argued the public would not
stand for the level of direct taxation required to pay for the war. In
the atmosphere of wartime production, the result, of course, was
widespread price increases during the war and immediately thereafter,
followed (in the wake of Europe's return to peacetime production) by
reduced demand for surplus agricultural and other goods, falling
prices, rising unemployment and bank failures. In response, the
Federal Reserve Banks adopted a strategy of prolonged monetary
expansion during the remainder of the 1920s, a direct consequence of
which was runaway land and stock market speculation that eventually
resulted in a deeper and more profound collapse. The Second World War
was similarly financed with borrowings, creating a $70 billion
national debt that - without taxing away unearned income and windfall
profits -- could not be easily retired by taxation without
short-circuiting the transition of production to consumer goods. An
expansionary monetary strategy accommodated rising prices and also
allowed repayment of the national debt with dollars dramatically
reduced in purchasing power. One might argue, therefore, that the
postwar inflation was redistributive -- from those who were able to
put aside income for investment purposes in U.S. government
securities, in favor of taxpayers whose earned incomes were being
taxed to cover the interest payments on the debt.
Throughout most of the 1950s, the Federal government had managed to
balance the trade-off between inflation and unemployment with some
finesse. Structural problems were effectively hidden by a general
prosperity kept going by broadly-held savings. For those who owned
homes, land, businesses, shares of stocks and bonds, inflation brought
paper gains in their net worth. A growing number of people received
shares of stock as part of their pension plans. When inflation and
rising incomes combined, the burden of long-term home mortgage debt
was softened. Economists recorded that real income had grown by almost
30 percent since 1947. Thus, for more and more U.S. households, their
financial future seemed reasonably secure. These circumstances were
less important to Harwood and his associates than the accompanying
expansion of government's intervention in the market system:
By no means the least of inflation's effects has been
the subsidizing of that proficient spendthrift, the Federal
Government, with increasing taxes seemingly almost painlessly
extracted from continually increasing personal incomes and business
profits. The huge sums so easily obtained have fostered national
delusions of economic grandeur. Grandiose plans for aiding other
nations and silly schemes for remedying our own internal problems
such as those of agriculture have been fostered by politicians
seeking votes and by exuberantly confident bureaucrats who have, it
must be conceded, at least the ability to spend money rapidly if not
wisely. In fact, so lavish was the giving and "lending" to
other nations that ... we managed in a single decade to give
foreigners demand claims on nearly all of the Nation's basic gold
reserves.[118]
The Harwood team stated the historical case against the "controlled
economy" on the basis of lost efficiency and declining economic
growth. The British experience was one strong indicator of how poorly
an economy performed under the weight of heavy bureaucratic
intervention or direct management by government. Improving economic
performance could come only one of two ways: allowing individual
liberty to operate in the realm of wealth production and exchange; or,
creating a totalitarian regime under which liberty was fully
extinguished.
To those who might point to Sweden as the success story of democratic
socialism, Harwood's team simply compared the percentage increase in
industrial production in West Germany (79 percent) against that of
Sweden (15 percent) for the period 1950-1955. There were other
differences, of course, besides the degree to which government was
involved in directing the economy; yet, how could this tremendous
difference in output be ignored? Spending by the U.S. government
during the 1930s had not, they reminded readers, provided the
underpinning of a general economic recovery. Before the orders for war
goods started rolling in, some ten million Americans remained
unemployed. As for those who now either clung to neo-classical
economic theory or jumped on the Keynesian bandwagon, the Harwood team
sought to bring them back to earth:
The science of economics is relatively immature. Much
that is published on the subject, including supposed remedies for
recessions, has no more scientific standing than the notions of the
itinerant medicine men who sold health elixirs to a gullible public
a few decades ago.[119]
How, they wondered, could anyone listen to Paul Samuelson's assertion
that the United States or any nation would benefit by a steady
increase in prices; that is, a steady erosion in purchasing power.
Rather, the objective of public policy ought to be full employment
without inflation, achieved by "[r]estoration of free markets"
where everyone is "free to buy and sell at prices agreed upon
themselves without government intervention, subsidies, or controls."[120]
After also calling for the return of a gold-backed currency, they
boldly pulled alongside Harry Gunnison Brown and other Georgists in
condemning the privileges granted to the landed:
Holders of special privileges, especially those related
to monopolies of natural resources (including land), under existing
customs and laws acquire, at the expense of the producers, an
expanding portion of the wealth currently produced. This situation
results in increasing the number of underprivileged members at the
base of society from whom communism derives its voting strength (but
not, of course, its intellectual "front"), and it diverts
from producers some of the means that could be used to increase
production. Because the situation in this respect is more acute in
various other countries, for example Italy, many observers see the
problem there more clearly. Nevertheless, this problem is evident
here in the United States and seems destined to become far more
acute as the temporarily stimulating effects of prolonged inflation
diminish.[121]
The reforms advanced under Harwood's direction were designed to reign
in the ability of government to spend beyond its willingness to impose
taxation. Neither hoarding, speculation, privilege (nor production)
would be subsidized by some citizens to the benefit of others. And, as
inflation was eliminated from the economy, prices would stabilize then
gradually fall. For those who earned their livings -- from labor or
investment in capital goods -- their purchasing power would rise, and
their standard of living improve. The process would require a decade
to complete, the end result being the elimination of "long-existing
maladjustments that have thwarted our efforts to progress toward the
ultimate goals of a freely competitive (and therefore perfectly
cooperative) society with equality of opportunity for all."[122]
Harwood expressed his deep disdain for Hansen-Keynesian economic
policies in his review of the fifth edition of Paul Samuelson's
introductory text on the subject, which was published in 1961.
Samuelson had retreated from his earlier position that an annual 5
percent rate of increase in prices would be a desirable objective of
economic policy makers. By 1961 he urged that price increases be kept
to below 2 percent. The strength of Harwood's attack was to show that
during the last quarter of the nineteenth century -- the period of the
most rapid growth for the U.S. economy -- there had been a 40 percent
decline in commodity prices. In a 1959 article similarly countering
the Hansen-Samuelson stabilization proposals, economist Jules Backman
also reminded readers of the fallacies inherent in the neo-Keynesian
strategies:
History does not support the assumption that economic
growth must be accompanied by rising prices. Economic growth has
occurred in many periods of stable or declining prices. ...On the
other hand, from 1955 to 1957, when prices crept upward almost 3 per
cent a year, national output rose less than 2 per cent
annually.[124]
Backman recommended a more appropriate balance between the objectives
of full employment and price stability. Achieving this balance would,
he asserted, require that the power of unions be reduced by limiting
their ability to strike and by setting limits on the size of an
individual union. Harry Gunnison Brown had already explained why these
types of measures would not work. Most of his colleagues -- even those
most critical of Keynesian intervention -- totally ignored the
consequences of taxation on the economy. On the one hand there was the
over-taxation of physical assets and income flows generated by labor
and investment in capital goods. On the other hand was the
under-taxation of unearned income flows from land holdings (and other
forms of economic license).
The attention of economists, generally, was focused on the technical
aspects of how to effectively manipulate and control growth or
contraction of the supply of money and credit. Inflation, they
reasoned, was best controlled by reducing the demand for money, which,
in turn, was best achieved by pushing up the cost of borrowing. Higher
earnings on savings or investment in government securities
would divert disposable income from higher income consumers.
Institutional investors would move some financial reserves from shares
of stocks as well. The end result would be a lessening of demand pull
on prices, perhaps even a fairly general fall in prices. Some
economists warned that one could not always predict this outcome in
response to changes in monetary policy. In response, Lawrence S.
Ritter wrote in 1961 that Hansen and other "orthodox
Keynesians" had advanced a simplistic view of the monetary
system and individual responses to real or expected changes in
comparable returns on various forms of investment. Yet Ritter, too,
failed to identify land as a material component in the
equation. If holding gold, the world's traditional storehouse of
value, was illegal in most countries, the individual investor more
than ever needed to play the land market as a close (and sometimes
superior) alternative. What Ritter should have looked at was the
relation between the effects of bank loans made available for land
acquisition and the demand pull such lending had on the price of land.
Unfortunately, Ritter was too caught up in the technical issues to
think clearly about a factor of production he and most of his
professional colleagues declared did not exist:
[I]f monetary policy is to be effective -- i.e., if
changes in the money supply are to produce changes in aggregate
spending, and thus in income -- then velocity must either remain
more or less stable or else move in the same direction as the money
supply.
If the phrase "money matters" is to have any operational
meaning, it must imply the existence of such conditions.[125]
Not long after John F. Kennedy was inaugurated as President of the
United States, a report on the monetary system was published by the
Commission on Money and Credit. The work of this commission had taken
four years and strongly recommended greater coordination of economic
policy within the Executive branch of government. Their assessment of
past practices indicated that stabilization could be achieved only by
the timely management of both fiscal and monetary policy tools, but
they offered no solutions of a structural nature (a point soon made by
economist G.L. Bach of Stanford University). If the policy objective
of government was, in fact, full employment without inflation, then
the commission had contributed very little to the discussion.
Other than E.C. Harwood and his team at A.I.E.R., one of the most
original monetary theorists of the postwar era was an obscure writer
named Edwin C. Riegel, who in the 1940s founded the Valun Institute
for Monetary Research. Riegel had spent most of his adult life
crusading as a consumer advocate. Then, in the midst of the depression
era, he began to focus his energies on economic policy and theory. In
1935, after obtaining from Irving Fisher a list world's top monetary
economists, Riegel organized a symposium that included Fisher and,
among others, Harry Gunnison Brown. The transcript, published in book
form under the title, The Meaning of Money, revealed enormous
disagreement over fundamental principles and assertions. From his own
analysis of the U.S. monetary system, Riegel concluded that only by
privatization of the monetary system could the powers of competitive
markets truly be unleashed. He put his ideas into book form, which he
titled Private Enterprise Money. Published in 1944, this book
circulated broadly among others concerned with government's renewed
habits of deficit spending and the self-creation of credit. In 1949 he
published another of his own essays, The New Approach to Freedom,
which restated and further clarified his case. "Man's
ignorance of the laws of money has blinded him to the very touchstone
of freedom," he wrote, "without which the state
cannot be curbed or his own capacity for progress and prosperity
facilitated."[126] One of his most poignant insights into the
very nature of money relates to the distinction between commodities
(including precious metals) pledged to back paper currency and coinage
produced with specific metallic content and circulated directly:
Money ... has not value, and this is not any less true
of currency. Money merely permits value in the abstract, dissociated
from any specific commodity, to be exchanged for an equivalent value
in any commodity at any time or place, at the behest of the holder.
While metallic coins are useful as currency for small transactions
or making change, the fact that they may have intrinsic value does
not, therefore, make them superior to paper as money. Indeed, the
reverse is true. For to the extent of their intrinsic value, they
are not money at all, but instruments of whole barter. They are only
monetary (split-barter) instruments for the balance of their face
sum. A commodity can never act as money, for the very purpose of
money is to obviate the necessity of transfer of value from the
buyer to the seller and, thusly, to escape the limitation of whole
barter and gain the freedom and facility of split barter.[127]
What government does, Riegel explains, is practice a form of
legalized counterfeiting. The State declares for itself the power to
issue paper currency, which it requires private individuals and
entities to accept in payment of obligations, but "offers
nothing on the market with which to redeem them."[128] One
consequence of this usurpation of power in the initial stage is the
gradual withdrawal of certificates of deposit backed either by
precious metals or other commodities (i.e., sound money) by those in
possession, who pass off on those in a weaker competitive position the
new paper currency. While nominally denominated the same as sound
money, the exchange value of unbacked paper currency is based partly
on confidence in government and partly on the coercive police power of
the State. If the law requires, for example, that all taxes be paid to
the government only in legal tender, and that only legal tender will
be paid to government employees or vendors doing business with the
government, only those who engage in the illegal, underground economy
materially escape from the direct effects of this arrangement. World
federalists were urged by Riegel to take note that so long as
sovereign governments, or a global confederation government, retained
control over the monetary system, there was little to be gained by
consolidation of many corrupt systems into one giant system operating
against just principles.
From his own small corner of the wilderness, Riegel carried on a
determined dialogue with many members of the Remnant as well as the
mainstream Establishment. Spencer Heath MacCallum, who spent a
decade organizing and editing Riegel's papers, included some of this
correspondence at the end of Riegel's major (but until 1978
unpublished) work, Flight From Inflation: The Monetary Alternative.
Interestingly, Riegel viewed the debate over specie versus fiat money
as a side issue, to be resolved by preferences demonstrated under
competitive conditions; his primary argument was that money had to be
nonpolitical. In 1949 he wrote to Mildred Loomis (an activist working
under the direction of the Decentralist philosopher Ralph Borsodi)
declining her invitation to work with her to incorporate monetary
reform into a more holistic program for societal change. In letters to
John Chamberlain and Ludwig von Mises written in 1952, Riegel warned
that without freeing the monetary system from government control all
else would in the end fail to free the individual from the coercive
power of the State. In another letter that year, he criticizes Frank
Chodorov for clinging to the false virtues of the old gold standard --
what Riegel viewed as a continuation of paternalism -- and not
recognizing the need for wholesale privatization. He would not have
been surprised to learn that the coming decades would bring little
change, despite what in hindsight is an extraordinary period of
irresponsibility on the part of one government after another. The
global citizenry remains insufficiently organized against the legal
tender onslaught; however, the arrival of the electronic, cashless
economy may soon shift the balance of power in favor of a privatized
monetary system. We are, perhaps, on the verge of a new era in which
Gresham's Law is made to work in reverse; that is, in which good money
drives out bad and in which governments are forced by live by private
sector monetary rules rather than the reverse. The debate over whether
this change is desirable or dangerous continues.
Riegel was one of the very few analysts of the period to forecast
problems for the U.S. economy as a result of sizeable fluctuations in
the purchasing power of U.S. currency. Ralph Borsodi also contributed
a powerful (and broadly read) criticism of the postwar economic
structure emerging out of the Bretton Wood Conference. Borsodi later
wrote that despite extensive sales of his book,[129] "nobody
in power in Washington and nobody in the prevailing Keynesian
establishment has paid any attention to my call for the establishment
of a stable dollar."[130] Economists advising politicians in
the Eisenhower and Kennedy administrations were hardly going to
advance programs for reform that would diminish their ability to
manipulate the economic system to achieve political objectives. That
did not deter others outside the political arena, such as Yale
economics professor Robert Triffin, from vigorously attacking policy
decisions he thought counterproductive or destructive.
Investment by Western European producers in modern industrial plant
had finally reached the point where they were more than competitive
with U.S. producers. By 1958, for example, U.S. manufacturers were
importing large quantities of finished steel from Europe. At the same
time, U.S. prices had been rising against those of the Europeans. From
the perspective of mainstream U.S. policy makers, this presented an
unattractive reversal of fortunes, where the value of imports
significantly exceeded that of exports. The currency market was
responding by driving down the exchange value of the U.S. dollar. In
an effort to maintain parity, European central banks kept buying
surplus dollars from those who received them. The French, in
particular, then began using these dollars to purchase large
quantities of gold from the U.S. government. Triffin observed that
higher interest rates in Europe, volatile gold prices and shifting
exchange rates between currencies were pulling currency reserves out
of U.S. banks and away from investment in U.S. government securities
and into the European economies. He was ready with a warning:
While we must, of course, continue to watch the course
of our current over-all balance between foreign earnings and foreign
expenditures, the most urgent threat to the dollar today lies in the
volatility of the short-term investments funds which can move nearly
overnight from one currency into another or into gold. A full
understanding of this danger and of the measures that can be taken
to ward it off, requires a thorough re-examination, not only of our
own balance-of-payments problem, but of the working of the
international monetary system itself since the collapse of the
nineteenth-century gold standard nearly a half century ago.[131]
Triffin observed that underneath this volatile currency exchange
market there was a complex web of cross-investment that tied the
global economy together. A growing list of companies were already
operating multi-nationally, with revenues obtained in many countries
and in many currencies. Investors with large financial reserves sought
out the highest returns on shares of stocks and bonds in markets all
around the world. He saw the U.S. monetary problem differently, as a
mismatch between "lending long -- and even giving funds away
-- while borrowing short and losing gold."[132] The almost
automatic domestic consequences included the disappearance of profit
margins, reduced production, a steady rise in unemployment and
increased demands on government to provide a social welfare safety
net.
Under the existing international economic structure, there was really
no long-term solution to the problem. And, even Triffin did not fully
understand the underlying causes of the business cycle and its
movement from one country to another - or one region to another region
within the same country. He argued for the adoption of one system of
international money and credit as roughly equal to the much less
practical return to global use of gold in coinage form. How could
rational people believe that digging gold from the earth in order to
bury it in heavily-guarded vaults was a productive use of labor and
capital, he wondered? But, if currency in circulation was not in the
form of certificates of deposit, then how could the issuance of such
currency be justified? Political leaders anxious to be freed from the
constraints of a commodity-backed currency and having to limit
spending to the revenue taxation would yield or what private currency
holders were willing to lend to government managed a justification.
They argued that national interests dictated the continued restriction
against the private hoarding of gold and the need to protect that
nation's gold supply by ending the convertibility by foreign central
banks of currency holdings into gold. Without the threat of
convertibility, governments could safely spend far beyond an economy's
means. This new trend prompted Henry Hazlitt (co-editor of The
Freeman) to write of gold:
The gold standard is not important as an isolated gadget
but only as an integral part of a whole economic system. Just as "managed"
paper money goes with a statist and collectivist philosophy, with
government "planning," with a coercive economy in which
the citizen is always at the mercy of bureaucratic caprice, so the
gold standard is an integral part of a free-enterprise economy under
which governments respect private property, economize in spending,
balance their budgets, keep their promises, and refuse to connive in
overexpansion of money or credit. Until our government is prepared
to return to this system in its entirety and has given evidence of
this intention by its deeds, it is pointless to try to force it to
go on a real gold basis. For it would only be off again in a few
months. And, as in the past, the gold standard itself, rather than
the abuses that destroyed it, would get the popular blame.[133]
Yet, even Hazlitt believed that the primary cause of inflation was "an
increase in the supply of money and credit."[134] He and many
others somehow missed making the connection between almost
continuously increasing land prices and the concentration of unearned
incomes generated from land sold or offered under lease which were, to
a great extent, either speculatively invested in the stock market
(and/or additional land) or deposited with the banks, whose lending
officers turned around and provided loans to land speculators and real
estate developers. Credit fueled the speculative flames of real
estate, commodities markets and stock markets until prices reached
levels where no one would take the next level of risk. On the way up,
prices are paid for land based on assumptions that values will
continue upward faster than the rise in other prices. Business tenants
are charged higher fees for space in office buildings, shopping malls
and warehouses. In turn, to the extent competition will permit they
increase prices on the goods they transport, store and sell. The
general work force, faced with a rising cost of living, negotiates for
wage increases. Rising land costs combine with rising labor and
materials costs to make housing more difficult to afford. When foreign
competition prevents domestic producers from passing on added costs of
production to consumers, cost cutting becomes not merely a matter of
efficiency but of survival. Workers are released and lose income in an
atmosphere of increased competition for a dwindling number of job
opportunities. Some of those who cannot find new employment attempt to
sell their homes and relocate; with demand for housing now down, many
cannot find buyers willing to pay a price sufficient for them to
satisfy mortgage debt. A chain of mortgage defaults begins (closely
matched by defaults on credit card debt, automobile loans and other
credit) that jeopardize the health of banks and other institutional
investors, who have taken on the enormous risk of loans made on the
basis of highly speculative real estate valuations. The less diverse
the regional economy, the greater the risk of deep and prolonged
recession. These relationships, which seem so easy to identify and
follow, were not in fact recognized by the overwhelming majority of
economists writing in the 1950s and after. Thus, for example, when
economic historian W.W. Rostow[135] attempted to explain in 1959 the
cause of business cycles, he made absolutely no mention of land market
anomalies or land speculation as essential ingredients in the
equation.
Despite the general ignorance among economists and policy analysts
that land markets operated very differently from markets for labor,
for capital goods or for credit, the patient effort by a handful of
knowledgeable economists and others to educate the influential on
these issues kept apace. And, in fact, Georgists were heartened when,
in 1959, Perry I. Prentice, editor of the U.S. periodical House &
Home, organized a round table conference on the connection between
inflation, land markets and public policy. Economists Ernest M. Fisher
(Columbia University) and Mason Gaffney (University of Missouri) were
joined by housing industry economists and finance experts to tackle
the problem of rapidly rising land prices. In August of 1960, House
& Home devoted eighty-five pages to publication of the
conference transcript. Research documented the doubling and
re-doubling of land prices all across the United States during the
postwar decade and a half. Prentice added a dire warning:
Many of America's biggest panics and depressions were
touched off by over-speculation in land and a bust in land prices
that carried hundreds of banks and other lending institutions down
with it. ...
A land bust in the Sixties could be even more serious if nothing is
done quickly to check the inflation, because this land boom is
blowing up to such monstrous size. Paper prices for land now total
close to half a trillion dollars -- nearly twice the national debt,
more than six times the federal tax revenue, nearly twice today's
price of all listed stocks, more than twice the resources of our
commercial banks.
If this bubble can be deflated quickly and now, little harm will be
done. The speculators will lose their unearned paper profits, but
that is about all.[136]
Rapid deflation of land prices was something the banks could not live
with. Certainly, their lobbyists would never support deliberate public
policy decisions designed to bring this about. The only
politically-palatable strategy was to work for stability and a very
gradual decline in land prices. In Washington, D.C., however, the
focus was on the short term. As unemployment continued to increase in
the United States through 1960 and 1961, leading economists debated
the causes and what ought to be done. Walter Heller and other
Hansen-Keynesian interventionists called for increased federal
spending and tax cuts to stimulate the economy. Countering the
credit-fueled pressure on land prices, the U.S. was experiencing the
consequences of Eisenhower's drive for a balanced budget, out of which
had come large cuts in military spending. At the same time, a
prolonged strike by steelworkers also served to open the door to
importation of European steel. Continued concern over inflation by
Federal Reserve chairman William McChesney Martin resulted in tight
money policies. Treasury Secretary Robert B. Anderson urged Eisenhower
to initiate a more orthodox Keynesian approach to fiscal policy --
running a surplus during economic expansion so that reserves would be
available to mitigate recessionary pressures. Within the span of just
fifteen months, the Eisenhower administration withdrew more than $20
billion in spending from the U.S. economy. In response to all these
dynamics, interest rates on corporate bonds and government securities
rose rapidly. Homebuilding and the automotive business -- two
industries heavily dependent on affordable credit -- experienced
dwindling sales throughout 1960.
Conventional wisdom suggested to policy makers in the United States
that only an expansion of exports -- given Eisenhower's determination
to maintain a balanced budget -- could pull the U.S. out of recession
without igniting inflationary pressures. By maintaining a fixed price
for gold at $35 an ounce, the U.S. government unwittingly turned
European central bankers into profiteers. A good deal of this gold
stock ended up in London's open market, where private investors from
all around the world acquired gold as a hedge against the declining
purchasing power of domestic currencies.
Jack Kennedy's own acceptance of conventional economic policies was
translated into a firm commitment to maintain fixed exchange rates and
a controlled market for gold. George Ball, appointed by Kennedy to
chair a task force on monetary policy that brought together Robert
Triffin and Paul Samuelson (among others), recalled that the new
President was constantly pressured by his father to do whatever was
necessary to stem the flow of gold stocks. In response, Kennedy
established a Balance of Payments Committee under the direction of the
New York Federal Reserve Bank's Robert Roosa, who "devised a
series of so-called 'Roosa Bonds' and developed an extensive network
of currency swaps and bilateral arrangements"[137] to
stabilize the dollar. Other measures adopted by the Kennedy
administration included continued reductions in military expenditures
outside the U.S. and conditions on foreign loans and grants requiring
purchases of goods from U.S. producers. Pressure on the U.S. dollar
could also be reduced if European countries relaxed their own monetary
constraints, so that U.S. investors in European businesses were able
to borrow European currencies rather than have to first borrow U.S.
dollars for deposit with the European banks. Ball urged Kennedy to
press for multilateral agreements with the major political and trading
partners of the U.S., agreements that recognized the interdependence
of each country's economy as well as the threat to political stability
associated with volatility of each country's currency. In the end,
Kennedy opted for measures far less controversial (and less
satisfactory to his own Treasury Secretary, Douglas Dillon).
|