American Economic History

American Economic History, Economic View Of American History

Three great periods in the history of economic thought in the United States are clearly marked.
(1) In the early days of the republic, a protectionist optimistic tendency was dominant, and the influence of a new environ­ment appeared in a frequent opposition to the teachings of Ricardo and Malthus. Henry Carey was the most prominent and original thinker of the time. In politics the so-called "American System" was a practical expression of the dominant idea.

All the time, however, English economics formed the basis for such small teaching as there was. But Americans had little interest in Political Economy.

(2) In the second period, which embraced the generation following Civil War times, there came a rush of great economic problems, — notably the tariff and monetary matters, — a con­siderable growth of interest in economics, and with these, a dominance of the English Classical theories. Francis Wayland's Elements of Political Economy (1837), dating from the earlier period, was much used; and the writings of Amasa Walker, John Bascom, and A. L. Perry were products of this second period.

Moreover, an American translation of J. B. Say's Traite d'economie politique (1803) appeared in 1821, and went through many editions. This work was widely used as a text before the Civil War, and even down to the eighties. It exerted a deep influence upon American economic thought.

This period may be said to reach a climax and a transition with General Francis A. Walker, son of Amasa. His work extended well into the period which followed, and he marks the beginning of a new period as well as the close of the old.

Walker's brilliant attack upon the wages-fund doctrine has already been noted, as well as his influence upon English thought. He is perhaps equally well known for his separation of the entrepreneur function, thus emphasizing it and dividing the "profits" of Smith and Ricardo into interest and entrepreneur's profits. In this, he was no doubt guided by the great develop­ment of business organization and management in America — a fact which must have been patent to him as director of the Federal censuses of 1870 and 1880. As a part of his treatment of the entrepreneur came Walker's famous theory of profits. He reasoned that profits as distinguished from interest and wages is the share of entrepreneurial ability, — an ability which is possessed by entrepreneurs in varying degrees and which in its highest forms is especially scarce. Profits, like rent, is a differential return for the superior natural advantages. There is a class of no-profit entrepreneurs, he held, just as there is no-rent land, and in so far as this is true, profits do not enter into the determination of price. The price will just cover the cost of the product of the marginal or no-profits entrepreneur, including his wages. Walker argued that profits would increase with progress in civilization.

With the exception of General Walker, the American econo­mists of these earlier days were astonishingly narrow and abso­lute in their doctrines. It was believed that almost any one could teach political economy, no special training being neces­sary. Amasa Walker, even, could write: "Although desirable that the instructor should be familiar with the subject himself, it is by no means indispensable." A well-arranged textbook, together with some effort on the part of the teacher and attention on the part of the pupil, would insure results.

As a result, though there was a growing interest in economic problems, the study of economics was generally regarded as dull and fruitless, if not with positive aversion. Activity was chiefly eonfined to the more practical and particular topics, and most of the best work appeared in periodicals. Cliffe Leslie sums up the situation as follows: —

"Speaking generally, however, the men best qualified to stand in the front rank of American Economists are not the authors of sys­tems or general theories, or text-books of principles, but writers on special subjects — David Wells, William M. Grosvenor, Albert S. Bolles, Francis A. Walker, Edward Atkinson, William G. Sumner, C. F. Dunbar, and Simon Newcomb. Only since the Civil War has America begun seriously to apply its mind to economic questions and the number of powerful intellects it has brought to bear on them is a remarkable phenomenon in the history of philosophy. Many of the best economic essays the last decade has produced will be found in the pages of American periodicals. ... In the trans­lation of Roscher and Blanqui, work has been done by America which England ought not to have left it to do. Two considerable contributions to economic history were made last year in the 'Indus­trial History of the United States,' and the 'Financial History of the United States, 1774-1789,' by Mr. Bolles. In the perfection of its economic statistics America leaves England behind." It was in this second period that one finds the first important academic recognition of economics. Professor Perry in 1865 held the title of Professor of Political Economy at Williams College; and in 1871 Professor Dunbar took a chair of Political Economy at Harvard, where Professor Bowen had been serving as Professor of Natural Religion, Moral Philosophy, and Civil Polity (!). Sumner and Walker soon took up work at Yale. Toward the end of the second period, about 1875, pressing monetary and financial problems, largely occasioned by the Civil War, aroused considerable interest in economics.

(3) About the year 1885, however, the beginning of a new era in American economic thought appeared. Among the more general grounds for the change, were great industrial develop­ments such as the rise of railway and corporation problems, accompanied by strikes and labor agitation. The very narrow­ness and dogmatism of the current economics invited reaction. More particularly, there was the ferment of Henry George's propaganda, and the stimulus of Walker's bold generalizations. George's Progress and Poverty, with its plea for a single tax on land, appeared in 1879, and aroused such interest and provoked such debate that we of a later generation still hear its echoes, while hardly realizing its intensity. Finally, there came two thought forces from abroad: the widening ripples from the German Historical School, reinforced by Ingram's address on The Present Position and Prospects of Political Economy (1878), reached America in the early eighties; shortly thereafter the doctrines of the Austrian School became effective there. At about the same time, as will appear in a moment, Professor Clark was developing similar ideas.

It was in the fall of 1885 that the American Economic Associa­tion, so potent in the development of economic thought, was founded, one avowed object of its founders being to replace the abstract speculative economics of the day with a body of thought based upon historical and statistical investigation. The time was ripe for such an association. Indeed, it came hard upon the heels of an unsuccessful project, the "Society for the Study of National Economy." This projected society, whose principles were formulated by E. J. James and S. N. Patten, had proposed to stand for an increase in the func­tions of the state, emphasizing labor legislation, railway regu­lation, and the conservation of natural resources; and, as illus­trating the new spirit, the following statement of one of its "ends" is of interest. It was proposed: "To combat the wide­spread view that our economic problems will solve themselves and that our laws and institutions which at present favor indi­vidual instead of collective action, can promote the best utiliza­tion of our national resources and secure to each individual the highest development of all his faculties." The program proposed was too detailed to secure the adherence of enough economists for the organization of the society.

Those most active in originating the American Economic Association were Professors Ely, H. B. Adams, E. J. James, and Seligman, although some of the older economists coop­erated and Francis A. Walker was made the first president. The objects of the Association were, on the whole, similar to those of the preceding society, being CI) the encouragement of economic research, (2) the publication of economic mono­graphs, (3) the encouragement of perfect freedom in economic discussion, and (4) the establishment of a bureau of information to aid members in their studies. Its statement of principles differed in the direction of less radicalism on the score of govern­mental interference, and less emphasis of historical and statis­tical methods. These principles were the result of a conserva­tive modification of a draft prepared by Professor R. T. Ely. They ran as follows: —

"1. We regard the State as an agency whose positive assistance is one of the indispensable conditions of human progress.
"2. We believe that political economy as a science is still in an early stage of its development. While we appreciate the work of former economists, we look not so much to speculation as to the historical and statistical study of actual conditions of economic life for the satisfactory accomplishment of that development.
"3. We hold that the conflict of labor and capital has brought into prominence a vast number of social problems, whose solution requires the united efforts, each in its own sphere, of the church, of the state, and of science.
"4. In the study of the industrial and commercial policy of gov­ernments we take no partisan attitude. We believe in a progressive development of economic conditions, which must be met by a corre­sponding development of legislative policy."

It is to be observed that this statement of principles was not regarded as a creed. It was apparently never signed. Yet even so, it was the object of criticism, and was in 1888 unanimously abolished because all felt that it had done its work. Its function was to serve as a rallying point for those economists who were the progressives of the time, thus insuring a certain likeminded-ness in membership and leadership, desirable under such circumstances.
Indeed, ample evidence exists that the above principles were hailed by not a few with no small enthusiasm. As already noted, the period was one of transition in social thought and in eco­nomic phenomena. In the face of such great questions as the growing labor problem, railway discrimination, and monetary difficulties, all accentuated by the crises of 1873 and 1884, the old policy of laisser faire was proving inadequate, and the wave of nationalism which came with the Civil War no doubt made the decline of that policy easier. At the same time the narrow abstractions of the economics then taught grew more and more irksome.

This is the point at which reference should be made to Ger­man influence. The men who founded the Association had studied in Germany, and had been deeply affected by the breadth and catholicity of economic studies there. In addition to those mentioned in connection with the origin of the Associa­tion, John B. Clark and Henry C. Adams were among the early active members who had studied in Germany. All these men felt the lack of freedom in American economic thought. More concretely, the idea of relativity was grasped, and at the same time the economic significance of ethical and political forces was realized. Thus, while the American Economic Association was of domestic origin and stood for American ideas, it is to be gratefully acknowledged that certain good elements in the German thought of that time were instrumental in hastening its birth and shaping its development. No doubt, too, the Verein fur Socialpolitik served to some extent as a model.

The Association at once became the center of new thought forces, gathering them together and giving them strength through the mutual support and interchange of ideas which it encouraged. It also served to stimulate further development. Its early monographs set forth ideas which later developed into well-rounded theories expounded in books, — e.g., Clark's Capital and Its Earning in Volume III. That a considerable part of these monographs illustrates the historical idea is natural. Nor is the practical influence of the Association to be overlooked. It has been a real force, through its membership and the reports of its committees, for improving the Federal census, and the regulation of monetary matters, the "trusts," and the railways. As further evidence of contemporaneous development in the world of economic thought, it is only necessary to recall that in 1886 the Political Science Quarterly (Columbia) and the Quarterly Journal of Economics (Harvard) were established, followed in 1890 by the Annals of the American Academy of Political and Social Science (Pennsylvania) and the Journal of Political Economy (Chicago), and by the Yale Review (Yale) in 1892. Clark's Philosophy of Wealth appeared in 1885, Laugh-lin's Elements of Political Economy in 1887, and Ely's Introduc­tion to Political Economy in 1889.

At about this time, General Walker spoke of an intense interest in industrial conditions and in economics. And he was inclined to complain of a spirit of radicalism, a contempt for authority, and a dissatisfaction with the existing order. From then on down to the present day, an eager, restless inquiry, and an extension of general and technical instruction along economic lines, have prevailed in the United States, and are the subject of frequent comment by foreign economists.