Usa Economic History 1870-1946

USA Economic History

Economic Thought in The United States; 1870-1946

American economic thought has already been touched upon, and Franklin, Hamilton, Raymond, and Carey have been more or less fully discussed. It did not seem advisable, however, to interrupt the discussion of the general stream of thought by treating local forces and characteristics. The object of the fol­lowing chapter is to set forth some of the more peculiar features of American economic theory and its development, bringing out, as it were, the local color.

The Background; Economic History Of USA

Almost from the beginning the peculiar environmental conditions met with in America have given a characteristic set of tendencies to American economics.

In the first place, the point of view is generally optimistic. The country is young, and its resources are "boundless." It is far removed from the pessimism of a "stationary state," and has been, indeed, in the "advancing state" of the old Classical economists. In accordance with this general tendency, from early times to Professor Patten, there has been a correlated tendency to deny the validity of the Classical law of diminishing returns, and yet another to attack the Malthusian doctrine of population. Both doctrines, as commonly understood, seemed to run counter to the facts in this new land.

Moreover, the progressive state of the country, with its attend­ant speculation and fluctuation in prices, may be taken partly to explain the fact that an assumed general equalization of wages and of profits is rarely made an important premise in the reason­ing of American economists. The existence of wide differences in local rates of wages and profits within their nation's vast area would work toward the same result.

Again, the fact that farms have been "carved out" of the wilderness before our very eyes has doubtless suggested the question, Is land not capital? Is it not "produced"? Further­more, the abundance of land has, in connection with a demo­cratic people, begotten a system of land ownership which has made the distinction between land and capital less obvious than it was in the home of Classical economists. Its ownership has been more mobile; its tenure and value more closely related by competition and the market. Accordingly, Carey held views at variance with those of the Classical economists on this point, and recently a number of American economists have shown a strong leaning in a similar direction.

Part and parcel of the same tendency, is the further fact that Americans have been forward in applying the differential idea to labor and capital as well as land.

The scarcity of labor and capital which has existed well down to the present time has also found its expression in certain theoretical peculiarities, in addition to furthering the one just noted. For one thing, the necessity for and importance of enter­prise, or the management factor, have been accentuated. Inven­tion, too, has been stimulated, and its importance emphasized.

This has fostered a point of view in which change and progress are regarded as normal.

But most interesting of all is the suggestion that the wide­spread acceptance of the marginal-productivity theory of dis­tribution may be an offspring of a national psychology engen­dered by these conditions. Where labor, for example, is scarce and relatively independent, the wages-fund doctrine would hardly be suggested, while it would be easy to conceive of a relationship between productivity and income. Some of the assumptions in Professor Clark's theorizing have been actual­ities in America. There has been a great deal of free, no-rent land, upon which the settler put his labor. If it could be got, hired labor was paid all that it was "worth," and the subsistence wage has been far less common in America than in Europe. Labor was the factor which had to be economized, rather than land, and its productivity was scrutinized. The result was a productivity theory of wages; and the application of the differ­ential idea, or perhaps an idea unconsciously caught from one of the numerous early writers who suggested the use of the marginal concept in determining value, completed the scheme. But often in the earlier days, capital was the scarcest of all, when like results might be expected in the theory of interest.

Nor is it unlikely that the readiness with which certain Amer­ican theorists take to the idea of capital as a mobile fund, criticiz­ing the idea of capital as the aggregate of capital goods, has been furthered by the prevalence of corporations and speculation and the relative mobility of investment, taken together with the preceding conditions.

Finally, America's relative isolation made her a stanch pro­tectionist country. Located far from the old centers of arts and industry, and at a time when the products of manufacture were of great importance, the "American system," according to which ocean freight charges were to be saved and home markets developed, was a natural consequence. America, directly, and to some extent indirectly through List, has been the center of the modern protectionist idea.

In addition to these environmental factors, it is to be remem­bered that America was settled very largely by idealistic indi­viduals who either clashed with their native social environments or believed that they could better their conditions by moving. A process of selection thus probably tended to establish a population containing a high percentage of idealists who were at the same time individualists of a sort. This may explain the prominence of a "volitional" psychology, which emphasizes the will as against either naturalism or calculation of pleasures and pains.

Of course these "tendencies" do not find equal expression in all American economists, and there have always been some who have upheld the Classical doctrines; but the most characteristic ones will always be found to illustrate the reality of them sufficiently well.

This background will afford some preparation for a brief survey of a few of the recent economic thinkers and their thought.