The Supreme Tragedy
of American Economic Education

Noah D. Alper

[From a pamphlet published by the Public Revenue Education
Council, St. Louis, Missouri, 1952]

Careful classification and identification of the factors or elements, and in the development of principles is the first requirement of a science. If XYZ-1200 is a symbol of one thing, the symbol XYZ-1201 is the symbol of another; and scientists universally respect the difference and act accordingly. But does such a scientific attitude dominate the teaching and use of the fundamental factors and principles of Economics today?

If you were asked to classify these items scientifically - a), prairie land; b). man; and c). automobile - would you place all in one class, one of the three in one class and two in another, or each one is a separate class? (Please answer in your own mind before proceeding).

Economics is the science that deals with wealth - its nature, its production and distribution. Wealth, the basic thing produced and distributed, is a vital term in economic science and, when defined so as to cover what are truly different classes of things, it can be dangerous to man and to his free institutions. Our object here is to inquire into the definitions of wealth generally used by economists rather than to define the term. Our present effort will be limited to a few examples of well known economists and authors of textbooks.

In a book, Understanding Our Free Economy[1], written by Dr. Fred Rogers Fairchild, Knox Professor Emeritus of Economics, Yale University, with Thomas J. Shelly as collaborator, we find this definition: "Wealth consists of all useful material things owned by human beings." Each of the items mentioned above - prairie land, man, and automobile - is useful, is material, and can be owned. Therefore, in accordance with Dr. Fairchild's definition, they are basically the same thing and so all are wealth.

To show that men can be wealth, Dr. Fairchild says: "But are human beings owned? The slave is; there is no doubt that he is wealth. …The Science of Economics therefore considers that free human beings are not owned, and so are not wealth." But can an impersonal Science of Economics have an opinion of this nature? Obviously, it cannot; it is Dr. Fairchild himself, who says a slave is wealth. If there is a scientific basis for a Science of Economics then he has made a most grievous educational error in his definition of wealth, and in his conclusion that such diverse things as prairie land, man (labor), and automobiles (products of man) are so alike that all can be, scientifically, termed wealth.

Another example of a lack of science in definition is found in "Economics[2], a textbook written by Bruce Winton Knight and Lawrence Gregory Hines, of Dartmouth College. In this book we find the following remarks on Capital, wealth used for production for exchange or for income. "Economists are agreed in treating labor as a factor of production distinct from capital. …In a slave economy laborers would be regarded as capital by their owners, just as horses and mules are considered capital in our society. From the point of view of a society of free men, however,_where_laborers are of the society itself and not merely means of somebody else's satisfactions, laborers are not capital. On the question of whether "land" or so-called "natural resources" constitute capital, there is some difference of opinion . ... This book, however, follows the more general practice of treating land as part of the total capital." (Emphasis ours).

The authors consider a man, when a slave, to be like a horse or mule - and so as property or, wealth or capital. They ignore the nature of man and his function as Labor in economic science - his function being a producer of wealth. They ignore this vital fact in their effort to distort economic science so as to make it conform to traditional concepts and customs of property; that, although socially and politically a slave, man, so far as economic science is or can be concerned, is in the category of the factor, Labor. A slave (man-labor) can produce things (wealth and services) exactly as can men now recognized by economic science as being free. No horse or mule has ever created or produced wealth except through man's use of them. When a horse or mule is used by man as an aid to production they are used in the same sense and in the same way as a tractor, lathe, or as any other material or tool properly called wealth or capital.

In considering the factors of economics professors Knight and Hines say: "In economic classifications, however, agents of production are typically resolved into a few underlying "factors" of production on which all concrete agents are based. Thus, there are "labor," "capital" (including "land") and "entrepreneurship." It should, of course, be realized that "entrepreneurship" (management) is only a job classification; it is no more a factor of production than the job classification janitor, albeit of a higher category. In economic science, entrepreneurs are Labor, and must be so classified if science is to be respected. Can man, as an economist, by mere decree alone, inflate a job classification into a science factor? (The fact that they have logically accommodated certain information and theory to make management into a factor is not sufficient.)

While economists may, if they wish, concern themselves with such things as a "point of view," "laws and customs," and assorted "differences of opinion," they do so not as economists but as men also involved in other categories of studies and human experience. As economists, they should have a scientific objectivity which confines them to "cause-effect-predictability" patterns of thinking and inquiry. Economic science, as such, is no more involved with man's color, creed, condition of servitude, ideological considerations, prejudices or wishes, than are the sciences of physics. Chemistry, biology and the like. How, within the framework or scientific discrimination, can things as different as man -- even when politically and socially enslaved to deny him free opportunity to produce and to rob him of his production - and land- an element whose existence is natural and prior to man - and products - artificial creations of man - be classified in one and the same category as either wealth or capital?

If, to meet the exacting requirements of science, we consider land (including natural resources), Labor (man), and Products (Capital or consumer wealth) as belonging properly in different science categories, we must consider that the shares of production allocated to these factors are also in different categories or classifications. Many economists seem to think that economic words can be made to mean anything we wish so long as we agree to accept the meaning given the words. Of course, if such an arrangement is followed, it may sound logical to say that Land, Labor, Capital (or consumer wealth) can all be Wealth, Capital, or, for that matter, a cat or a dog. Unfortunately for such misconceptions or unscientific assumptions a "cause-effect-predictability" pattern is involved in economic science which pays no attention to such scholastic nonsense.

Hard facts, such as these, remain: Land is our standing and working room area and the "mother" source of matter which is used in making products (wealth or capital); and man, even when a slave, is the producer and not the thing produced. When subjected to a tax on their value and under given conditions, the market price of land goes down while the market price of products goes up; whereas, if they were of the same science nature the prices of both would tend to go up or down together when taxed on their value. Under some taxes man is encouraged to speculate in and to hold valuable land out of use, while under other taxes he is encouraged not to seek to possess land which he cannot or will not develop well. When economists miss or ignore such facts as these, or present them in such a confused or disjointed and spread-out way as not to be considered, let alone understood by students, should men who have a sense of appreciation for science and scientific methods in other fields be surprised at the failure of so many economic scientists to better serve Man, Free Enterprise or the Nation?

The following is found as a footnote in the book, "Economic Analysis and Public Policy"[3], by Mary Jean Bowman of the University of California, and George Leland Bach, of Carnegie Institution of Technology.

"Economic rent is simply a different way of looking at all income shares. All "economic rents" are included under the headings of labor, profit, or interest incomes. Roughly, economic rent is simply the return received from property or a service that cannot be duplicated. Thus profits of exclusive position are a type of "rent" The difference between the income a worker receives in his most advantageous employment and what he could get in alternatives is a form of "rent." The difference between the returns to poor and to good land is sometimes termed the "economic rent" on the good land. The economic rent concept is thus to be distinguished from "rental income" in the statistics of income; such incomes commonly include some "economic rent," but the two are not the same... Since economic rent is included as an aspect of three other types of income, it is not considered in detail here."

If these forms of income are different why this unscientific attempt to consider them as one and the same thing? If "economic rent" is different from other "rents" how does it help education or help student understanding to ignore such vital details?

One of our greatest problems, if Free Enterprise is ever to capture the respect and favor of mankind, is to achieve not only additional production per unit of labor, mental and physical, but also a just distribution of wealth as well. The more just the basic and original distribution of wealth the less likely are people to accept unfortunate political and socialistic schemes for its "redistribution" via a paternalistic government using a "taxing across the board" tax scheme.

RENT, called "Economic Rent," is generally recognized as the return to land having natural or man-made advantages over the poorest land in use, identified as marginal or "no rent" land. It is one of the most vital terms of the Science of Economics. The "old fashioned" economists, who thought more of the distinctions between things that are different and of the meanings of the words they used, sought to keep this word from confusing people by conveying images to them of meanings associated with the word rent as used in daily living - such as renting a car, a tool, or a suit, etc. That is why the term "Economic Rent" was originated and generally accepted.

RENT-of-land (Economic Rent) is directly associated with the Law of Rent, one of the most basic and significant laws of the Science of Economics so far as the potential good of mankind, of the Free Enterprise economy and fair play is concerned. This Law is often referred to as Ricardo's Law of Rent. It is through understanding this Law that we are able to make a clean identification and separation of incomes of Wages and Interest, from RENT-of-land. A detailed understanding of RENT-of-land and the Law of Rent is of the greatest importance in matters of public and private revenue, especially in determining which source of possible public revenue, RENT-of-land or the Rewards of human effort, we should use or use first so as to insure the greatest possible production and the utmost justice in distribution. However, when we "collectivize" the different economic science factors and the shares of distribution allocated by competition to these factors by tricks of definition, we are assured a confused citizenry.

A scientific inquiry into economic education today will show why, even if Johnny can read fairly well in college, he still will come out a mighty confused citizen so far as scientific knowledge of public and private revenue is concerned. Also, when we use "collectivist" type of definitions we lower ourselves to the kind of logic used by Marxist economists. Since Marxism, whether Communist or Socialist types, is a scheme, Marxists have no need for more precise or economic science definitions. The Marxist equivalent of the collectivist definitions of most of our American economists is the fabulous expression, the "Implements of Production." This type of definition also suits far too many Americans who would encourage and defend as private income that which arises, not from true capital or management (in production), but from privilege as rank (as to class favoritism) as any recorded in the history of Rome, England or the United States. By the use of such hash-like definitions defenders of Free Enterprise or Capitalism must operate on a "love me, love my dog" basis - on a basis of defense of the "weeds" as well as the "vegetables" in our economic garden. However such definitions may serve Socialism or other forms of collectivism, they cannot meet the need of Free Enterprise with its basic control through natural laws and by competition.

Since the power of scientific discrimination exists in economic science as certainly as it does in other science fields, we can achieve one class of results, or another - good or bad, as certainly as engineers can design engines for power, speed, or for dual purposes by the use of the science of physics and related sciences. The great social and moral question is, of course, which economic and social conditions we wish to produce for our people and our nation? Do we want steadily increasing and naturally stabilized prosperity, or constant repetition of the "boom and bust" type of experiences of the past 100 years? Do we want high or low prices (or wages), slum and semi-slum or well improved housing, a trend towards Socialism or Freedom, or towards war or peace, etc.?

Isn't it possible that the many serious and seemingly isolated social, economic and political problems we witness are the result of a type of economic education seriously defective in basic and discriminating science? Might not the confusion and the unfortunate and needless bad results we experience be largely due to a failure 'to establish in economic education a true "cause-effect-predictability" pattern, and so make such education useful rather than harmful to man? We believe that the sad attempts to use forms of "logic" that smack of Marxists ideology as a substitute for true science factors and principles (natural laws), and to make the economics studied in colleges and universities conform to laws and customs rather than making our laws and customs conform to natural economic principles, is the root cause of our widening and deepening troubles today.

Economic science is the "key-log" science by which great and happy accomplishments can be ours if we approach it as truth seekers and with the reverence due truth. Economic science is the science grossly ignored in this day of Space and Sputniks, of power conflicts between nations of different ideologies, between men called Labor (Organized), and men termed capital-owners and management; yet it is the science which has in it the potential to condition our economic and social environment for a more noble use of all other sciences, some of which we now fear in one way or another. Economic science is the one which, by revealing to us how to eliminate the basic wrongs now endured and defended by a few who profit from a capitalization of these wrongs, and by cultivating and encouraging the proven good in our system, will help us evolve our Free Enterprise system to a point where we will be freed of the endless symptoms of evil of economic and social nature we now treat in vain by Socialistic type laws which only tend to compound our real evils.

NOTES

[1] D. Van Nostrand Co. (1952) -pp 16-19.

[2] Alfred A. Knopf (1952) - pp 19-24-25.

[3] Prentice-Hall. Inc. (1949) - p. 541.