Review of the Book:

A Preface to Economics
by Broadus Mitchell

Benjamin W. Burger

[Reprinted from Land and Freedom, November-December 1936]

Broadus Mitchell has been long and favorably known to followers of Henry George. In 1931 he wrote a sympathetic and interesting account of the Great Leader in the Dictionary of American Biography (Volume 7).

At the Convention of the Henry George Foundation held in Baltimore in October, 1931, he created favorable comment by his discussion of "Henry George, The Teacher of Political Economy" (LAND AND FREEDOM, November- December, 1931, page 173).

In the same year, also, he was among the petitioners who warned President Hoover of the serious consequences we might expect from the Hawley-Smoot Tariff Act.

Last year Professor Mitchell did not hesitate to make a forlorn race for governor of Maryland under the Socialist banner.

I mention these facts only to show that Professor Mitchell may fairly be called liberal in the best sense of that term. Since 1927 he has been Associate Professor of Political Economy at The Johns Hopkins University, itself a liberal institution. He is conspicuous among the half-dozen professors in our colleges and universities who have given sympathetic ear to the Georgeian philosophy and approached it with an open mind. He has sincerely sought to understand it and, as this reviewer can testify, has presented it fairly to his students.

It is clear that he does not believe that the scholar may not take sides. He has convictions on controversial questions of the day, and admits them. As Heywood Broun has written, "Spirited writing only comes out of commitments, enthusiasms, and even prejudices." To make commitments, to take sides, distinguishes Professor Mitchell from most teachers of economics. That he does not see eye to eye with us is beside the point.

He hazards the opinion (page 56, of A Preface to Economics) "that the cue to world developments of today and tomorrow is found in the teaching of Marx."

In his Baltimore address, to which I have already referred, he confessed that he was only "in imperfect sympathy" with us.

"Mine is a position, right or wrong, with which you are familiar in others. Henry George, the man, the spirit, the intellectual force, I honor as much as you can. The positive proposal to recover economic rent for the community I accept as joyfully as you do. But that this one social act, unaccompanied and unfollowed by others, will set us economically free, I do not believe.

We Socialists are anxious about many things."

His book A Preface to Economics, published four years ago, is unique. I mean exactly that. I can recall no other work which covers the subject as does this book.

"Let us sit down and examine this subject of economics," Professor Mitchell seems to say.

"It is the very stuff of life, juicy and inviting. I have tried to keep it so, in spite of summary treatment. The manner of the book is informal, is sometimes flippant, and oftener descends to pretty poor 'wise-cracking'. Your indulgence is asked in the effort, however misconceived, to prevent you from going to sleep." (Foreword.)

In keeping with his views expressed at the Baltimore Conference

"That nothing so lights up dry economic analysis as biographies of the persons who thought about the same things to good purpose."

Professor Mitchell pauses at intervals, to sketch the lives of Adam Smith, Karl Marx, Henry George, Thomas Malthus, David Ricardo, John Stuart Mill, and many others.

Having mentioned some points of approval, I must now refer to others of disagreement. I shall quote passages from this book and briefly show how they deviate from sound economic philosophy, as we conceive it. No one could write a work on political economy, 574 pages in length, without challenging Georgeian philosophy. But then no Georgeist could write a book of half that number of pages without causing other Georgeists to rise in protest.

ONE. Concerning the social sciences, which include, of course, political economy, Professor Mitchell writes:

"Here all is in state of flux. Nothing is certain but change. No principle is immutable, eternal." (Page 3.).

We disagree. Political economy is a science, a science as exact as astronomy, mathematics, or biology. Its laws are fixed and unyielding; otherwise, it would not be a science. The basic law of economics, that men always seek to satisfy their wants with the least possible exertion, is but a re-statement of the law of physics that force follows the line of least resistance. In science, nothing is in flux. To say otherwise, would be a contradiction of terms.

True, until we discover scientific laws, everything seems to be in flux. Gravitation was a fact long before Newton. Natural laws exist, whether or not we discover them. The confusion inheres, not in laws, but in man's gropings to find laws. He discovers some phenomena and presumes to formulate principles. Later he discovers other phenomena which make it necessary to modify his earlier "laws." Here there is "confusion, uncertainty; everything seems to be in flux." As our knowledge grows and we attain fuller understanding, we gradually discover laws.

The law that men seek to satisfy their wants with the least possible exertion, like the law of supply and demand, the law of rent, and the other laws of political economy is as immutable and impersonal as the law of gravitation. Given a certain set of conditions, the laws of political economy will act and react on those conditions always and ever in the same way. This is the test of law. The laws of political economy meet this test, and, therefore, confirm its right to be classed among the sciences.

In short, has not Professor Mitchell confused the uncertainty preceding the discovery of the laws of political economy, with the science itself?

Two. Professor Mitchell's division of political economy into four heads production, consumption, exchange and distribution (page 6) is without scientific basis. Political economy deals with the production and distribution of wealth. Distribution and exchange are but parts of production. The object of production is consumption. The method whereby production is translated into consumption is exchange.

"Distribution is in fact a continuation of production the latter part of the same process of which production is the first part. For the desire which prompts to exertion in production is the desire for satisfaction, and distribution is the process by which what is brought into being by production is carried to the point where it yields satisfaction to desire which point is the end and aim of production." (The Science of Political Economy, by Henry George page 426 et seq.)

Production and distribution are in fact not separate things, but two mentally distinguishable parts of one thing the exertion of human labor in the satisfaction of human desire. Though materially distinguishable, they are as closely related as the two arms of the siphon. And as it is the outflow of water at the longer end of the siphon that is the cause of the inflow of water at the shorter end, so it is that distribution is really the cause of production, not production the cause of distribution. In the ordinary course, things are not distributed because they have been produced, but are produced in order that they may be distributed. Thus interference with the distribution of wealth is interference with the production of wealth, and shows its effect in lessened production." (The Science of Political Economy, by Henry George page 438 et seq.)

THREE. Likewise we must take exception to Professor Mitchell's statement (page 8) that there are four factors in production land, labor, capital and enterprise.

"Enterprise was brought forward two generations ago particularly by an American, Francis A. Walker, as a result of economic progress and differentiation in this country. Enterprise is the function which unites the other factors in production, it is the catalytic agent which brings the others together and makes them undergo a transformation. Earlier economists had confused enterprise with capital or labor, generally with the former. But when American industry and commerce developed on a grand scale, it was seen that land, labor, and capital were all really passive, and that production was in need of the services of an inventive, directing intelligence. Nature offered resources, labor in masses was ready to take orders, commercial banks and investment houses afforded capital. Production required in addition the function of imagination and experience to combine the factors of land, labor, and capital wisely to give a desired result. (Page 10.)

"The reasons for including enterprise as a fourth factor in production are not as strong as they were several decades ago. The enterpriser is essentially a figure in individualistic, competitive business. Whatever renders the outcome of business activity more predictable, whatever concentrates economic control, reduces the number of enterprisers and diminishes the importance of the enterprising function. Business mergers, trade associations, the use of economic statistics, government interference and regulation are all tendencies in this direction.

Under the head of production we shall study the ways in which the factors work together to make wealth. The principles controlling the reward which each factor receives will be studied under the head of distribution. Thus, as has been said, land receives rent, labor is paid wages, capital demands interest, and enterprise leads to profits." (Page 11.)

Professor Mitchell has injected into the divisions of wealth the mechanism whereby one of those divisions operates. Strictly speaking labor applied to land produces all wealth. Enterprise is only a higher form of labor. A, on the farm, with brawn, grows potatoes. B, in the city, with brain, plans their marketing. With- out A's labor (seeding, hoeing, weeding and harvesting) we could have no potatoes. Likewise without B's intelligence in arranging for their transportation, packing, financing and distribution to the ultimate consumer, there would be no potatoes so far as the consumer is concerned. Both farmer and brain-worker are essential if the potatoes are to reach the consumer for whom, primarily, they are intended.

I have quoted Professor Mitchell on enterprise in extenso because, it seems to me, that this is the first fork in the road where he deviates from sound principle.

FOUR. Like all Socialists, Professor Mitchell opposes "the profit motive" and "production for profit." (Page 498.)

"The competitive system substituted the motive of production for private profit for that of production for public use or benefit." (Page 40.)

"There have been, of course, many criticisms of the competitive, profit-making system which relies upon chance, sows to the wind and hopes against hope that we shall not reap the hurricane." (Page 486.)

"We do not make and distribute and exchange things because they are useful, but because we hope these activities will be profitable in the money sense." (Page 503.)

"We need to produce in agreement with a rational scheme, making things directly for use and not for profit." (Page 516.)

Political Economy recognizes no such terms as "profits" and "production for profit." They have no scientific basis and are meaningless to one accustomed to precision in speech.

When wealth is produced it must be distributed through three channels, and only three channels. As labor, in primitive society produced all wealth, labor alone was entitled thereto. This was its natural wage.

Since capital (stored-up labor) in modern society, helps labor to produce more wealth than labor otherwise could produce, capital, obviously, is entitled to share with labor in the increased production resulting from its use. This share we call interest. Socialists loosely refer to it as profit, but, as already stated, political economy designates it as interest and only interest.

(Not infrequently the use of capital is attended with risk; as where there is uncertainty that the borrower will return the capital as and when agreed. In that event, the lender exacts a premium for the risk he is taking. This additional charge, clearly, is insurance, not interest.)

Interest is the price paid for the use of capital. It is as much justified as the wages paid to labor. When labor shall work without wages, capital will work without interest.

Professor Mitchell and Socialists to the contrary, notwithstanding, production for profit is not incompatible with the public interest. (Page 484.) Competition among capitalists for users of capital (supply and demand) prevents capital from receiving too great a return for its use. If, during extraordinary times capital should receive, for even a little while, a return out of keeping with the return of capital generally, other capitalists enter the field and interest quickly drops, for the law of supply and demand works twenty-four hours a day, 365)4 days a year.

Witness the condition of capital during the great depression. Commercial loans have been almost at a standstill. Prime commercial paper has commanded a rate scarcely more than 2 per cent. A short twelve months ago banks were lending money on call at the record low rate of one-quarter of one per cent.

Were lenders willingly making such loans, or had they been forced so to do by vast accumulations of capital desperately seeking employment? Just as labor has suffered unemployment, so has capital been in the doldrums. This disproves the Socialist's contention that capital thrives at the expense of labor. It is in harmony with the Georgeian position that capital and labor are not antagonistic to each other but that landlordism is the enemy of both.

Land monopoly, however, closely entwines itself around capital. This is not only unnecessary but injurious to the effective functioning of capital. If capitalism is to preserve itself from Communism and Fascism it must promptly and completely disentangle itself from monopoly. The issue is clear, Georgeism or state slavery.

In criticism of the profit system Professor Mitchell cites the case of

"A merchant (who) ordered a stock of canned goods which he was prepared to retail at 10 cents a can. He had hardly got them arranged on his shelves when he found that he could get 12 or 15 cents each. These were the halcyon days for trade." (Page 475.)

Would not the converse also happen? Would not merchants offer other products at 10 cents with no customers; so that they would be compelled finally to offer them for 2 cents or 3 cents? These abnormal situations have a way of averaging up. If bricklayers during the World War find themselves receiving $20.00 daily they also find themselves at the end of a war with no jobs whatsoever.

These abnormal situations are not inherent in the capitalist system but arise out of extraordinary, unforseen circumstances, and are just as likely to be disadvantageous as advantageous. Over a period of years they iron themselves out.

FIVE. "But when all is said and done, the principle which Malthus announced (that population if unchecked in some way will outgrow the means of subsistence) has always been and always will be sound. It represents a fact with which all human contrivance must reckon." (Pages 18-19.)

Does Professor Mitchell really subscribe to the Malthusian doctrine? Can he point to a single spot on this earth with its 2,000,000,000 inhabitants where people are starving because of the niggardliness of nature? To be sure, there are places which seem inordinately crowded, but that is quite a different thing from saying that the earth cannot support them. Is not the problem one of distribution of wealth, and only to a limited degree, better distribution of population?

The Island of Java, for example (probably the most .densely populated spot on the earth), contains 816 people to the square mile or a total population of 41,700,000.

This in an area no larger than the state of Alabama which has a population of less than 3,000,000. All around Java are islands comparatively unpopulated. Nearby Sumatra, Borneo, Celebes and New Guinea, with a combined area ten times as large as Java, have a population density of less than 28 people to the square mile.

"Java is like an overcrowded ship surrounded by empty boats." (Fortune Magazine, December, 1934. (Page 79.)

Six. Professor Mitchell apparently believes that machinery causes unemployment. He writes: (page 222)

"Machinery . . . has gone further, and reduced the demand for workers generally."

And at page 294:

"America is right now (1932) suffering conspicuously from 'technological unemployment', or the supplanting of human labor by mechanical devices."

Most economists today are agreed that in the long run, machinery docs not displace labor but increases the demand for labor. The very object of machinery is to make production more efficient; to produce more wealth at less cost per unit. If it failed to do this, it simply would not justify its existence. If I recall correctly, a would-be patentee is required to show in what respects his invention is superior to machines already in use.

When wealth is produced more efficiently, which is the same as to say when it has become cheaper, it comes into wider use. The sale of cotton, for example, when it cost more than $1.00 a pound, as it used to, was greatly restricted. The introduction of the cotton gin increased its use ten thousand-fold. The introduction of the automobile, while it has decreased the demand for horses, certainly has created millions of new jobs for automobile mechanics, dealers in gasoline, and the like, and has brought into existence tens of thousands of road-houses and miles of greatly widened highways.

If Professor Mitchell were correct, how does he explain the increase in factory workers from 41,000 per million in 1849 to 76,000 per million in 1929, and their increase in wages from an average of $237.00 annually in 1849 to $1314.00 in 1929? (See letter of Gus W. Dyer, Professor of Economics, Vanderbilt University, to President Roosevelt, dated July 13, 1936.) During this period of eighty years thousands of inventions displaced labor, yet factory workers increased over 50 per cent and their wages increased 500 per cent.

SEVEN. Professor Mitchell writes (page 488):

"The advertiser under a profit-making system does not care, on the whole, whether his product is good, or good for you, so long as he can make you want it enough to buy it."

This comment would be more in keeping with the facts had Professor Mitchell qualified it by showing that true capitalism, like Christianity, never really has been tried. A moment's thought shows that in a normal capitalistic state the interest of the buyer and the seller are not in conflict ; on the contrary, they are in harmony. A buyer will purchase only what he needs; a seller will offer only what is beneficial to the buyer. The seller will receive wages (erroneously called "profits") for the services or commodities delivered to the buyer; the latter will be benefited by their acquisition. Should the seller attempt to overreach himself, the buyer will cease to patronize him, and seek elsewhere in the competitive market to satisfy his needs. Each party to the transaction must benefit; otherwise he will not participate. An exchange of services like an exchange of goods, must be mutually advantageous, otherwise it will not be repeated.

Today, both buyer and seller, hard pressed by monopoly, find the struggle to live exhausting. They are forced to resort to shady practices. Our criminal records, bankruptcies, strikes, lockouts, and wars, reveal only too painfully that something is wrong with our economic system. No system can function properly if its workings are constantly interfered with by extraneous forces. Competition, which is the essence of capitalism, is weighted with monopoly, and can no more manifest its virtues than a marathon runner dragging 50 pounds of iron around his legs can show his true speed.

EIGHT. Professor Mitchell poses four interesting problems in rent. (Page 285.)

The first reads:

"Off the coast of the 'Eastern Shore' of Virginia, in the Atlantic Ocean, is an island called Chincoteague. It is said that wages on the island are much higher than on the mainland. Can you assign a cause connected with rent?"

Professor Mitchell answers as follows:

"The waters surrounding the island contain a lot of fish. Since these waters are public property, nothing need be paid for the privilege of fishing in them; that is, any man with rowboat and line may pull up hard- heads, trout, and rock and no owner of the fishing grounds meets him at the wharf to exact from him part of his catch. So no man with any inclination for fishing will work for less on the island than he can make on the water; in fishing he pays no rent, and his earnings at that occupation are relatively high."

Professor Mitchell fails to state how the land constistituting the island is held. He does not state whether "owners" claim to own the island or whether the Georgian philosophy is in force. In the former case, we submit that if the landlords be too lazy to meet the fishermen at the wharf to seize their fish, in exchange for rent receipts, they nevertheless will require the fishermen to hand over their fish (or their money equivalent) on the first day of the following month as rent for the privilege of living on what they call "their" (landlord's) island.

Unless the fishermen lived on that island, or some nearby island, they could not reach the fishing grounds. The very fact that the island is close to fishing grounds reflects itself in the increased value of the island. In other words, the "owners" of the island charge as rent for nearness to opportunity to earn a livelihood, "all the traffic will bear."

Professor Mitchell is in error, then, in implying that the fishermen are relieved from the payment of rent because they go elsewhere to earn their livelihood. He fails to perceive the universality of rent; that even if one occupied only land and refrained from working it, one must, nevertheless, pay a landlord, as rent, all one possesses except only a bare subsistence. The alternative is to get off the earth.

NINE. "The apparent prosperity came to an end in the panic of 1819, which struck both Europe and America. This was the collapse which regularly, sooner or later, follows war." (Page 240.)

Really, how can war, which means the destruction of wealth, lead to economic collapse which means failure to produce wealth? Assuming that in a natural economic order we had war (a most violent assumption) would it not be followed by great activity (prosperity) to make up the losses occasioned by war?

TEN. "Between the capitalist who furnished the means of working and the laborers who fed the raw material to the machines, there was a great gulf fixed. Machinery (the emblem of the capitalist) had deprived the workers of their old independence and assigned them to grinding taskwork, while their masters seemingly drew an income simply by virtue of ownership." (Pages 411-412.)

Is not Professor Mitchell unfortunate in writing that the capitalist furnished the means of working? Is he not thinking of natural resources?

Also, how long has machinery "deprived the workers of their old independence?" Can workers who depend on landlords for a place to work, as Henry J. Foley has so aptly expressed it, ever enjoy independence?

In a word, are not the faults which Professor Mitchell ascribes to the capitalist system really due to land monopoly? Karl Marx, whom Professor Mitchell admires, seemed to think so.

In "Das Kapital," quite innocently, he admitted that labor could not be exploited until it had first been dispossessed from the land.

ELEVEN. In a beautiful metaphor, worthy of a poet, Professor Mitchell indicates the role that price plays in political economy.

"Our economic system may be compared to the span of a steel bridge, where every part hangs upon every other part, receiving thrusts and imparting thrusts. And the joints and rivets and couplings, which expand and contract, hold fast or give way, are forged of the delicate metal which we call price." (Page 504.)

This sound statement is vitiated elsewhere, as, for example, at page 336 where Professor Mitchell writes:

"Wages of women are lower than those of men mainly because their choice of occupations is limited, and because they are weaker bargainers than men."

And at page 118:

"In actual economic life, prices are increasingly con- trolled. The chief control of price is by monopoly."

Will Professor Mitchell refer us to a single commodity or service which is monopolized? Even public utilities (which possess the characteristics of a limited monopoly) find that customers will not avail themselves of the service if their rates are too high. Price in the last analysis is determined by the relation of supply to demand.

"The end is easily foretold,
When every blessed thing you hold
Is made of silver, or of gold,
You long for simple pewter.
When you have nothing else to wear
But cloth of gold and satins rare,
For cloth of gold you cease to care
Up goes the price of shoddy."

(Act II "The Gondoliers" by Gilbert and Sullivan.)

True, supply has attempted, and still attempts to fix price, but it must always fail because it does not reckon with the second factor in the equation, namely, demand. Even the price of a public service as Professor Mitchell himself shows (page 120), is influenced by demand. The United States Post Office Department is as near a monopoly as can be conceived since it is a criminal offense offer to carry mail for private profit. When, a few years ago, it attempted to raise postage rates from two to three cents it quickly experienced lessened demand for its services. Public utilities, for example, found it cheaper to deliver bills by messenger; patrons generally began to economize. In the case of mail-order houses, for example, the increase of 1 cent a letter meant a tremendous increase in postage.
Every attempt to fix price from the time of the Egyptians down to the Roosevelt Administration; every scheme to "regulate" or "stabilize" prices of bread and coffee, to fix "minimum" wages; to establish "just" prices for wheat and pigs and cotton by destroying so-called "surpluses" has ended in dismal failure. Men have yet to learn the hard lesson that they cannot successfully interfere with natural law.

TWELVE. Professor Mitchell ranges himself alongside those who believe in planning.

"A planned economy, forecasting demand and supply with far greater accuracy than is possible in a scheme which makes profit the criterion of production, would be able to make steadily for stock, keep the requisite number of men and machines employed, and feed them to consumption as goods were needed. (Page 490.)

We have individual greediness which knows no known cautionary restraint. There is no forethought. Instead we suffer the penalties of industrial collapse. There is no plan. All is left to chance, which results as often unluckily as luckily. (Page 516.)

Concert of action according to deliberate plan must be substituted for the present anarchy in production. . . . Remedies are doubtless helpful, . . . but they do not touch the cause, which lies in the fact of competition under acquisitive sanctions." (Page 517.)

Planned economy is incompatible with democracy, inevitably demands increased power to make and influence its plans. It was no accident that Congress delegated to President Roosevelt its functions; that was necessary under the system he sponsored. Planning implies that one man or a set of men in Washington are better qualified to direct the production of wealth than millions of adult Americans scattered over 48 states.

What special qualifications for producing goods and services do politicians and office-holders possess? It has been well said that nature endowed no man, or group of men, with sufficient wisdom to manage the economy of a large nation as well as it can be managed by the individuals themselves. Assuming, however, that she did endow Mussolini, Hitler, and Stalin, with omniscience, what assurance is there that she would breed equally wise successors?

State capitalism can never match private capitalism because of the inefficiency inherent in the centralization of power and decision. State capitalism smothers individualism, without which there can be no spiritual and little cultural progress. A free people need no government planning. They plan for themselves; they are better qualified to determine what services need to be performed and what wants need to be supplied.

The supreme intelligence already has "planned" for us. All we need do, is to discover the natural laws governing the production and distribution of wealth and make our laws conform thereto. The natural law of distribution is that the producer shall be paid all that he produces; man-made law violates this by permitting a non-producer (land owner) to absorb a portion of wealth which the land "owner" has had no part in producing. This is the basic injustice which we must correct.

THIRTEEN. "The socialist wants, in the end, the maxi- mum of individual development and the freest individual expression. But he feels that this is to be attained only through a preliminary sinking of the individual in the collectivist undertaking." (Page 558.)

The socialist's claim that he believes in freedom is specious, so long as he advocates state ownership and control of the means of production and distribution. Such a programme implies a wider, and constantly wider, extension of governmental interference in the production of wealth. It is inevitable that where the State constantly seeks to extend its power over more and more of the area which the world has come to recognize as private business (the production and distribution of wealth), it must do so at the expense of those now engaged in the same field. This explains such cases of tyranny as N. R. A., under which a Jersey City tailor was sentenced to thirty days' imprisonment and fined $100.00 for offering to press a suit of clothes for 35 cents instead of 40 cents; such examples of legislation as the law which forbids competition with the Post Office Department and the law which forbids officials of airplane companies dealing with the government receiving greater salaries annually than $17,500, regardless of their services.

The fundamental instinct of humanity is individual freedom. We are individuals of infinite varieties, personalities, capabilities, inclinations and needs. Each of us possesses the itch for personal self-realization and self- dominion. This itch to weave our own patterns in life and to be entities, not cogs, gives rise to the competitive spirit which Socialism, Communism, and Fascism denounce but which, under natural law, is essential to the maintenance of social harmony.

Autocracies have generally tried to thwart individualism and the competitive spirit and prevent it from functioning freely and naturally. They point to the mess we are in as confirmation of their belief that the competitive system has failed. In truth, of course, it has never fairly been tried.

Our instinct to carve our own destinies according to our own patterns is deep-seated. There is no substitute for our desire to work out our own salvation. Expression is life; repression, death. Expression attained through mastery is the prime essential of life. It can never be attained by Socialistic, Communistic, or Fascist methods. Freedom for all can flower only in the garden of equality of opportunity wherein we distinguish between public and private property and respect the sanctity of each, a distinction which no country in the world has yet recognized. We regret that Professor Mitchell has not made more clear these fundamental distinctions. We trust he will, in a future book, take note of them. Then will he be acclaimed the author of a truly great work on the "Queen of the Sciences."