Francis A. Walker

Vernon Louis Parrington

[Excerpted from Main Currents in American Thought, Vol.3,
published by Harcourt, Brace and Company, 1927, pp.111-117]

The social conscience of [Henry C.] Carey was colored with an optimism that was the spontaneous expression of a generation that set no limits to the beneficent development of American industrialism. No storm-clouds had yet gathered on the horizon; no hostile systems challenged the sufficiency of capitalism. But a change was at hand. By the end of the seventies the complacency of the Gilded Age was disturbed by the rise of pestilent heresies in the shape of new economic dogmas. The surplus-value theory of Marx and the unearned-increment theory of Henry George were spreading widely through America, to the unsettlement of susceptible minds; and the Knights of Labor were preparing to launch a general attack against the whole system of capitalistic exploitation. Carey had sufficed the wants of his simpler day, but there was need of a new champion to wield the sword of pure Ricardian doctrine against these later heresies.

Francis A. Walker, son of the economist Amasa Walker, Brigadier General in the Civil War, Professor at Sheffield Scientific School and later President of the Massachusetts Institute of Technology, was to be the self-appointed champion of industrialism, the official economist of the Gilded Age, and forerunner of a long line of academic purveyors of economic dogma. As the author of a college textbook that superseded Francis Wayland's naive Elements of Political Economy -- a work that had served innumerable college generations as a quarry of economic doctrine he elaborated a complete system of economics with a geniality that went far to popularize the "dismal science" with vast numbers of undergraduates; and as an authoritative apologist for entrepreneur profits he rendered a service to capitalism that quite erased his little Ricardian peccadillo of free-trade prejudice. There runs through his solid pages the confident optimism of his generation -- an optimism that discovers in the heresies of socialism and singletax the only storm-clouds on the fair American horizons. He saw no reason to question the ultimate good of industrialism, or to fear any deep-seated clash between labor and capital. He carried water easily on both shoulders, for he was so fortunate as to have worked out to his complete satisfaction, a magic economic formula that should return both to master and workman their just shares of the total production. In the light of his exegesis there could be no Marxian struggle of the classes. The captain of industry must no longer be regarded with sour aspect as a parasite upon labor, hut as a fellow worker, the creator of those profits which are not subtracted for his benefit from the portion of labor. From Ricardo to Marx the economists had been barking up the wrong tree in their analysis of the rewards of the entrepreneur.

The classical school of the Gilded Age was in like position with the eighteenth-century Calvinists; they must either abandon their dogmas or reinterpret them to meet current needs. Walker was too good a Ricardian to abandon them, so he proposed to reinterpret them. The urgent problems to which he addressed himself were the sources of profits and of wages; and the examination of those problems led him to his theory of the function of the entrepreneur and to a rejection of the classical wage-fund theory. He refused to discard his suit of Ricardian clothes as Carey had done. They could never go out of style, he believed, so long as honest thinking was respected. He accepted most of the Ricardian dogmas without question. "Capital," he asserted soberly, "arises solely from saving. It stands always for self-denial and abstinence," and interest is the "reward of abstinence." But one important dogma, the classical wage-fund theory, he insisted on stripping away. He was too genial an optimist to rest content with the bleak conception that the margin of subsistence circumscribes the rewards of labor, and too enlightened an apologist of industrialism to assert that profits are the leavings of wages." He could not hope to erect a theory suitable to the Gilded Age on such skimpy hypotheses, and he scourged them from the temple of economic law. Wages, to be sure, are the leavings after rent, interest, and profits have been deducted from the total production; but vast and dangerous misconceptions have arisen in regard to the portions that accrue to these several partners, and in particular mischievous perversions touching the share of profits. This was the crux of the problem of distribution and until the nature of profits should be determined the question of wages would remain to befuddle weak heads.

The heart of Walker's doctrine, therefore, is his theory of profits. He proposed to show that according to the true law of profits this flexible increment is never a moiety wrested from labor, but an additional earning of management that justly accrues to him who creates it. The doctrine from which he deduced his theory of the entrepreneur was the Ricardian theory of rent. On this point Walker was the most loyal of Ricardians, and he violently attacked Carey for repudiating the classical dogma. In a word "Ricardo's doctrine can no more be impugned than the sun in the heaven," he asserted, "and those who mouth at it simply show that they do not know what it was Ricardo taught." [Land and its Rent, p.108] What was needed was to understand its wide implications rather than to seek to destroy it to trace in all its reaches the doctrine of fertility and discover how in other spheres than land the difference between fertile and unfertile measures the return upon economic endeavor. For the great doctrine of fertility, Walker pointed out, following Mill, is capable of expansion to cover wider fields than rent; it applies equally to management and labor; it broadens out into a comprehensive principle that exactly measures the most bitterly disputed of the several increments, the increment of profits.

This theory of fertility, introduced into the law of distribution, is Walker's most interesting contribution to economic speculation. By it he supplemented the trinity of land, capital, and labor -- or in terms of distribution, of rent, interest, and wages -- with a new entity -- management and the earnings of management. The argument is highly ingenious. Assuming a no-profits employer at the lowest scale of the entrepreneur system, by analogy from the Ricardian no-rent grade of land, he asserted that similarly "profits are measured upwards from the level of the no-profits class of employers," and hence "it appears that the gains of the employer are not taken from the earnings of the laboring class, but measure the difference in production between the commonplace or bad, and the able, and shrewd, and strong management of business." [Political Economy, pp.242, 348] Profits, then, are an added increment of management, secured by foresight and business skill, the fruit of managerial fertility; and since they flow solely from the entrepreneur they belong to him alone and no portion may be justly claimed for rent, interest, or wages. The complete theory he states thus:

Under free and full competition, the successful employers of labour would earn a remuneration which would be exactly measured, in the case of each man, by the amount of wealth which he could produce, with a given application of labour and capital, over and above what would be produced by employers of the lowest industrial, or no-profits, grade, making use of the same amounts of labour and capital, just as rent measures the surplus of the produce of the better lands over and above what would be produced by the same application of labour and capital to the least productive lands which contribute to the supply of the market, lands which themselves bear no rent. [Quarterly Journal of Economics, april, 1887. Quoted in Gide and Rist, A History of Economic Doctrine, p.551]

It is a persuasive argument of which Walker was vastly proud. The germ of it later historians of economic thought have traced to Senior and John Stuart Mill, who had suggested the idea of "differential rent," or "rent of ability," which is the reward of "all peculiar advantages of extraordinary qualities of body and mind." [Ibid., p.549[ From whatever source it issued, the usefulness of such doctrine in the days of an expanding industrialism, and the ends it might serve in counteracting proletarian philosophies, are too evident to need comment. The Marxian dogma of surplus value-that profits are stealings from wages -- was certainly calculated to breed dissatisfaction in weak proletarian heads. Marx was a good Ricardian in his major postulates and the Ricardians had failed to analyze adequately the true sources of profits; because of such failure the classical school had underestimated the social beneficence of the capitalistic system. Chained to the iron law of wages the school had been forced to envisage a bleak future with labor kept always at the margin of subsistence. From this pessimism Walker proposed to rid economic theory, by showing that entrepreneur profits augment the wage fund and hence that the entrepreneur is the benefactor rather than the exploiter of labor. With his business skill the captain of industry, like the inventor of a new machine, lays open new sources of wealth for all, and if he gains much for himself he gives more to society; for every improvement in business methods accrues in the end to society as a whole, for the new technique soon becomes a common possession.

The validity of Walker's theory of profits does not concern us here; it is a matter for economists to determine. To one who is under the spell of no doctrinaire system the theory seems somewhat too neat with its assumption of "free arid full competition "; [For a critical examination see Gide and Rist, A History of Economic Doctrine, pp.551-558] and in its conscious purpose to glorify the captain of industry it is freighted rather too heavily with the spirit of the Gilded Age. It not only throws the door wide to exploitation but it invites everybody to the feast. Yet the work of the apologist was only half done. Having established to his satisfaction the law of profits, Walker was prepared to take equally high ground in determining the increment that falls to labor. To glorify profits and at the same time defend the pessimism of the wage-fund theory, would have been foolish tactics in presence of the Marxian surplus-value theory; proletarian discontent must be dealt with and Walker was prepared to deal with it. Having ascertained exactly the several increments due to rent, interest, and profits -- which in his system are rigidly determined by economic law -- he confidently assigned all the residual increment to wages. Labor not only gets all it earns, he argued, but far more, since what does not fall to the just shares of the other partners falls to it -- that is the "whole remaining body of wealth." If it be recalled that the total social fund of inventions, machinery, trade processes, systems of transportation, business methods, are alike in the service of all employers -- the no-profit entrepreneur equally with the high-profit -- it follows that the individual employer can derive from such social wealth no modicum of profit above and beyond what his individual fertility has produced. Where then can the income from such social fund flow except to wages? "Every invention in mechanics, every discovery in the chemical art, no matter by whom made, inures directly and immediately" to the benefit of labor. [Political Economy, pp.251-258] This, to be sure, on the hypothesis of "full and free competition," which may be interfered with by various means but which in the long run prevails. How else shall one explain the constant rise in the wage-scale that has marked the Industrial Revolution and that has gone hand in hand with vast profits to the entrepreneur class?

It was a robust optimism that could lay down the theory that labor is "the residual claimant to the product of industry." Although Walker prided himself on his discovery, it seems to have made slight impression on later economic thought. Like too many members of the classical school the apologist of the Gilded Age failed to keep his feet on the plebeian earth; and his conclusions suggest how great mischief a priori reasoning may work in the speculations of academic gentlemen. A moderate dash of realism might have lessened his buoyant optimism; but Walker was too warm an admirer of capitalism, too eager to assert the beneficence of industrialism, to inquire curiously into the everyday facts of current exploitation. As a realistic statistician he was far inferior to Carey. But why demand a plodding realism of the economist when all America was romantic? If the economic theory of General Walker was a pleasant blend of Ricardo and Colonel Sellers, would it not hit the taste of the age to a nicety? Its sturdy optimism was a soothing antidote to the Jeremiads of the Marxians and the shrill demands of the single-taxers. The Gold Coast of America looked to its official economists for a confutation of all economic heresies, and who was so well equipped for that business as a doughty Colonel Sellers armed with a sharp Ricardian sword?

In this brisk work Walker engaged with gusto. In his onslaught upon Marx and Henry George he was untroubled by doubt. He first demolished the structure of their theory and then impugned their honesty. His condemnation of single-tax is bold and sweeping. There is a bitter asperity in his denunciation of the economic heresies of Progress and Poverty, and he dismisses the proposal to tax unearned increment with the comment, "Every honest man will resent such a proposition as an insult." [Land and its Rent, Preface, p.vi.] His discussion of the economics of the question is only casual and he hastens back to the safe haven of Ricardian doctrine.[Ibid., pp.181-182] In his commentary on the Knights of Labor he is somewhat vindictive for a well-bred gentleman. He charges the syndicalistic attack on the profits system to immigrant foreigners, asserts that the law of profit fertility is an insuperable obstacle to any proletarian control of industry, and finally damns it as un-American. The honest, native American "knows that for himself and his children the way is open clear to the top"; his "spirit is that of civility, reciprocity and fair play"; and he concludes:

Had it heen left to our native population alone, not one of those violent and reckless attacks upon production and transportation, which have, within the past two or three years, shocked the whole industrial system and have come near to produce a general crisis of trade, would ever have taken place.[Political Economy, p.394]

Yet in spite of his genial optimism he discovered specks on the fair picture of society. To the Ricardian logic the stupidity of men is a constant irritant; if only men were rational the path of progress would be so much easier! After economic law has been demonstrated with the finality of a Euclidian theorem, it is disconcerting to see how the multitude will not be reasoned with, but persist in following after the last false prophet who cries in the marketplace. The clamor raised by single-tax was especially annoying. "That such an argument," he remarked a bit testily, "should for a moment have imposed upon anybody, is enough to give one a new conception of the intellectual capabilities of mankind."[Ibid., p.433.] Fortunate it is for society, he concludes, that while man proposes, economic law disposes. False prophets will have their little day, but from their secure watch-tower the Ricardians calmly look out upon a world of which they alone hold the key.