American Experiment

by James Macgregor Burns

  The answer would have been no. In the absence of that kind of nourishment, Presidents attempted a series of “practical” experiments in economic policy, many of them vague reflections of half-understood conventional economic theories.

  If the Republicans had been willing to live up to their campaign oratory their path would have been well marked after they recaptured the presidency in 1968. They needed only to slash spending, balance the budget, turn key federal functions over to private enterprise, cut back heavily on regulation—in short, “get government off our backs.” Philosophically, this path had been well marked not only by Herbert Spencer and William Graham Sumner in the previous century but by countless laissez-faire enthusiasts in the twentieth. The most notable of these following World War II was Friedrich August von Hayek, born in Vienna in 1899, a professor of economics at the London School of Economics and at the University of Chicago.

  In 1944 Hayek had published The Road to Serfdom, which for a book on economics won wide attention and sales, especially in the United States. The book seemed to have special appeal in embattled Western nations whose peoples were tiring of wartime rationing, price controls, travel restrictions, endless regulations. Its message was simple: extensive governmental intervention into the economy, whether through welfare programs or nationalization or economic planning, would lead to totalitarianism, which would crush all freedoms. The next three decades proved this analysis dead wrong. All the major Western democracies had indulged intensively in peacetime intervention, with mixed economic results but with few infringements on fundamental individual rights such as freedom of speech, religion, press, assembly. On the contrary, some contended, promoting economic and social security through public programs more often protected and enlarged individual freedom.

  Doctrinaire laissez-faire had become so discredited as public policy during the depression years that neither Nixon nor Ford—nor Eisenhower earlier—offered more than oratory and a few crusts of policy to the free-marketeers. This enabled the laissez-faire theorists to keep their doctrine intact by arguing that it had never really been tried.

  During the depressed 1930s Keynesianism had succeeded laissez-faire as the dominant intellectual influence in Western economics. FDR had followed Keynesian policies without understanding the theory behind them, and to the extent he put federal money into public works and other spending projects he lifted the nation out of stagnation. It took World War II, however, to show what “war Keynesianism” could do to bring about a full recovery. Despite predictions of a catastrophic postwar depression, continued federal spending on welfare and war sustained a strong economy through the 1950s and 1960s. Truman and even Eisenhower were “closet Keynesians,” and Kennedy by 1962 was willing to embrace the doctrine publicly. Johnson carried Keynesian spending to its practical political limit and with great success until the disastrous delay in the tax boost and other mishaps disrupted his experiment in financing both guns and butter.

  It fell to Richard Nixon not only to admit but to assert proudly, “Now I am a Keynesian.” While this pronouncement hardly struck Western ears with the impact of Kennedy’s “I am a Berliner,” it was testament to Nixon’s occasional willingness to think and act boldly as well as his desire to be seen as a modern man not mired in nineteenth-century economic orthodoxy. It also fell to Nixon to embrace the still controversial doctrine at the very time when it was becoming less relevant to the specific economic problems facing the nation. The longer-run risks of Keynesianism had not escaped its more thoughtful advocates. Alvin Hansen, Keynes’s leading American disciple, in calling for a bold program of public investment in 1938, had warned against overemphasis on such a program, failure to achieve “a balance in the cost-price-income structure,” and choking off private investment. The hard-nosed Keynesians advising Kennedy and Johnson—Paul Samuelson, Walter Heller, Kermit Gordon, James Tobin, Arthur Okun, and others—knew that depression-style Keynesianism was not enough.

  They knew, that is, Keynesianism’s great flaw—its inability to deal with the raging inflations that swept Western economies during the 1970s. By the early 1980s, as the Keynesian economist Robert Lekachman granted, it was clear that the doctrine “underestimated both the inflationary potential of full employment and the impact on public expectations of continuous inflation without serious interruption for so long a period. Keynes exaggerated the competitiveness of the private sector and, in some moods, the efficacy of fiscal and monetary remedies.” Non-Keynesians attacked other Keynesian assumptions—that the economy had a built-in tendency to operate with output below its potential while unemployment remained high, that enough jobs could be provided through fiscal actions of government to expand demand, that governments could estimate accurately how much spending and deficit creation would be enough to achieve employment goals.

  As the Keynesians fell into some disrepute during the inflationary seventies, a new doctrine galloped to the rescue from Stage Right. It was in fact an old idea—the dominant economic doctrine of the 1920s—dressed up in mod fashion for the post-Keynesian era. This was monetarism. Associated in the United States mainly with the noted University of Chicago economist Milton Friedman, monetarism preached that regulating the supply and, if possible, the velocity of money was the way to stabilize the economy and especially to control inflation. It was a beguiling doctrine, largely because it depended mainly on a single lever of economic control, and also because the government, through the Federal Reserve Board and the Treasury Department, had far swifter and more decisive influence over the volume of money than over any other component of the economy. During the 1970s the monetarists, said Alan S. Blinder, “swept through the universities, conquered Wall Street, infiltrated the Congress, and eventually gained the upper hand at the Federal Reserve.”

  Since Keynesians were viewed as liberals ideologically, and monetarists as conservatives, Carter’s choice of Paul Volcker as head of the Federal Reserve Board in 1979 was seen as a decisive presidential shift to the right. Volcker promptly made clear that the Board would pursue monetarist policies. There followed a classic example of Herbert Spencer’s case of the murder of a beautiful theory by a brutal gang of facts. The money supply and especially money velocity fell quickly, interest rates mounted, and a short, sharp recession followed. Within three years the Fed had to abandon its monetarist experiment. The economy quickly improved, but it was far too late to save the Carter presidency.

  The University of Chicago economists, popularly called the Chicago School despite their numerous internal differences, were countervailed at Harvard by a one-man school that displayed equal intellectual vigor and versatility. This school was called John Kenneth Galbraith. Canadian by birth, he had emerged from an Ontario farming community rent by social and political discord and managed to study and teach during the 1930s at a series of intellectually disputatious universities, including Berkeley, Harvard, and Cambridge. During World War II he helped run the Price Division of the Office of Price Administration, served as an editor on Henry Luce’s Fortune, and directed the United States Strategic Bombing Survey. After writing a scholarly book on the theory of price control, which to his considerable indignation went almost unread, he resolved never again to “place myself at the mercy of the technical economists who had the enormous power to ignore what I had written.” He struck out for a broader readership, and he reached it in 1952 with his American Capitalism.

  Equipped with a gadfly’s wit, a plenitude of self-esteem, and a six-foot-eight frame, Galbraith sometimes looked like a towering farmer beating off a swarm of bees. And stinging bees there were aplenty, as critics reacted to the economist’s pokes at the pieties of the day. When his lucid work on American capitalism, recognizing its modernity and productivity, argued that consolidation was a healthy force in an economy held in balance by the “countervailing power” of corporations, unions, and other forces, he was assailed from the left for ignoring the plight of the consumer and minimizing the need for vigorous antitrust enforcement. When in The
Affluent Society (1958) Galbraith urged that the nation’s enormous productive forces be shifted toward education, housing, mass transit, and other sectors that responded to people’s true needs rather than artificially contrived ones, he heard from the right about his improper imposition of his own values on consumer choices and from the left about his call for a national sales tax. When in The New Industrial State (1967) he described the technicians who ran the top 500 corporations as the nation’s de facto economic planners—and planning as much for their own status and self-esteem as for profit—he was variously assailed for overestimating the technological efficiency of the big corporation, for equating corporate or sectoral industrial planning with overall national economic planning, and again for minimizing the need for antitrust enforcement.

  As the years passed and the dust settled a bit, critics had to acknowledge that, whatever the balance of Galbraith’s economic truths and errors, he had brilliantly succeeded in his original determination to reach outside the profession for popular attention and, in gaining it, to force economists publicly to question conventional wisdom. Galbraith, for his part, showed a willingness, unusual for academics, to admit error and correct it. Thus in the second edition of The New Industrial State he conceded that a critic had properly taxed him with a failure to make clear the great difference between planning that is within the framework of and responsive to the market and planning that “replaces the market.” His theory of countervailing power came to be seen as partly a reflection of the “equilibrium bias” that dominated social science thinking in the postwar years. If some of the topics he dealt with appeared to some far removed from the everyday concerns of working-class and poor people, few could doubt the abiding concern with social reform and human betterment that lay behind the merciless dissections and the mordant wit.

  Into the midst of the skirmishes among rival “bourgeois” economists, intellectual cannonballs were lofted from the far left. Marxist and neo-Marxist thought in America continued to be vigorous and contentious during the heyday of the monetarists and their counterattackers. Economists of such standing in the profession as Paul Baran, Paul Sweezy, and Samuel Bowles, and publications like the Review of Radical Political Economy and Sweezy’s Monthly Review, compelled American social scientists— though rarely American political leaders—to confront radical economic and political alternatives.

  Marxism in the late twentieth century still to an extraordinary degree lived off the power and creativity of the master’s teachings of over a century before. There was the same emphasis on the mode of production as the driving rod of economic and social change, on the class system as the foundation of political power, on the contradictions implicit in the process of capitalist accumulation, on the inevitable conflict between a compact ruling class of capitalists and a working class divided and repressed but steadily gaining in proletarian consciousness, on the coming “doom” or “twilight” or “fall” of capitalism. Criticism of Marxism had a fixed quality too: its exaggeration of the causal role of economic forces; its simplistic view of class that ignored the rich findings of sociologists and political scientists about the nuances and subtleties of class attitudes and relationships; its overemphasis on the potential solidarity of the working class; its underestimation of the resilience and resourcefulness of the capitalist “rulers.”

  The intellectual burden of the past that weighed most heavily on the Marxists was the haziness about alternative economic and political strategies. Just as Marx himself had been brilliant and prophetic in his analysis of capitalism but vague—perhaps deliberately so—about the process of revolutionary change that would finish it off, so the American Marxists of the 1970s and 1980s failed to match their penetrating critiques of modern capitalism with explicit analyses of possible political strategies and social transformations. To be sure, Marxists had scored one intellectual breakthrough. After decades of being mesmerized by the temptations of “nationalizing” industries and services and big administrative entities with undiscriminating zeal, they had learned the lesson that Adolf Berle had taught capitalists a half century before—technical ownership did not necessarily mean actual control. In nation after nation indiscriminate nationalization had not only failed economically but, alienating the voters, had hurt socialist regimes politically.

  The failure of nationalization as a cure-all, however, left Marxists and other socialists without a weapon of change they had long depended on. Instead they were offering cloudy proposals for “democratic planning.” In fact, central economic planning was perhaps the most theoretically neglected and politically underestimated doctrine available to American liberals and radicals. But the Marxists gave little intellectual aid. This was partly because they were still intoxicated by dreams of some kind of public “ownership” rather than analytically challenged by the gritty but vital processes of effective public control. Even more, it was because they faced a dilemma. On the one hand, they saw the need for central planning and coordination of monetary, budgetary, resource, environmental, and other controls. On the other hand, they feared Stalinist tendencies toward despotic and rigid centralization—tendencies they truly hated. Instead they called for “democratic” planning, which often meant worker participation in management decisions, grass-roots control of economic decision making, delegation of policy making to state, community, and even neighborhood entities. How to find the proper mix of central economic direction and local, rank-and-file democracy evaded the theoretical grasp of the Marxists, as well as of conservative, libertarian, and liberal thinkers.

  Still, that grasp was firm compared to the left’s intellectual grip on the question of how to achieve power. The radicals had no revolutionary plan, no street tactics, no political party strategy relevant to the peculiar American conditions of hazy ideologies, amorphous political parties, and fragmented government. Noting the leftist view that monopoly capitalism faced a continuing and intensifying state of economic crisis, Benjamin Ward wrote that “clearly there is an important immediate goal: building a movement capable of acting should a crisis opportunity emerge in the near future.” But the American left had not even begun to build the kind of political movement that had reshaped politics in European democracies. More than a century after Marx, more than half a century after Lenin, it lacked an intellectual leadership that could be compared to the master political economist in London, or a political leadership comparable to the brilliant strategist of Zurich and Petrograd. This would have been of some satisfaction to the American establishments, had they been aware of it.

  While these debates among economists dragged on, so did acute poverty in the United States. If the economic controversy was conducted over the heads of the poor, the poor continued to go about their ways regardless of the economists, the sociologists, and the policy-makers. Some kind of war was being conducted on behalf of the poor, but like peasants and townspeople hearing the confusing roar of battle over a distant darkling plain, many of the poor could hardly understand the marches and countermarches of the warriors against poverty.

  It was not even clear when that war had been declared—perhaps when Kennedy witnessed firsthand the poverty of West Virginia during his presidential primary campaign there, or perhaps when he praised the Social Security Act later that year for undertaking a “war on poverty,” or perhaps when he repeatedly referred to poverty in his inaugural address and said, “If a free society cannot help the many who are poor, it cannot save the few who are rich.” The ambivalence of those inaugural words was reflected in Kennedy’s Administration. He and his brother Robert initiated numerous policies and projects for youth employment and remedial education, aid to depressed areas, accelerated public works, manpower development and training, and extension of aid to families with dependent children. But many of the programs were weakened by Congress, severely underfunded, and represented no significant redistribution of income from the rich to the poor.

  Even meager programs carrying the Kennedy imprimatur, moreover, ran into vehement op
position. In the summer of 1961the city manager of Newburgh in the Hudson Valley ordered drastic restrictions in welfare policy, including the withholding of benefits to unwed mothers if they had another illegitimate child. “It is not moral,” he said, “to appropriate public funds to finance crime, illegitimacy, disease, and other social evils.” Ever since the Leopold-Loeb case, he added, “criminal lawyers and all the mushy rabble of do-gooders and bleeding hearts … have marched under the Freudian flag toward the omnipotent state of Karl Marx.”

  Lyndon Johnson declared his war against poverty within a few weeks of taking office. In a few more weeks the Administration was pressing through Congress the Economic Opportunity Act, a program for a coordinated attack on the many causes of poverty—joblessness, illiteracy, poor education, meager public services. Congress authorized almost a billion dollars for an Office of Economic Opportunity, which would conduct separate programs—Job Corps, work-training, work-study, the Neighborhood Youth Corps, Volunteers in Service to America. OEO head Sargent Shriver charged into the poverty battle with energy and enthusiasm rivaling Harry Hopkins’s in New Deal days. But, oversold and underfunded, the program soon ran into opposition from radical leaders like community organizer Saul Alinsky who expected too much and from conservatives like Barry Goldwater who feared too much. As controversy arose about both the poverty programs and the Vietnam War, LBJ’s war against poverty flagged.

  Like the Thirty Years’ War of the early seventeenth century, the wars against poverty began amid great huzzahs, picked up momentum, faltered, started up all over again—and took decades. Just as some LBJ warriors against poverty concluded that JFK’s efforts had been inadequate, so Richard Nixon resolved that he would do something about the “welfare mess” once and for all. Amid much fanfare he proposed a Family Assistance Plan to guarantee all families with children a minimum of $500 per adult and $300 per child every year. FAP would build a work incentive into the program by allowing a poor family to keep the first $60 per month of earned income without any reduction in government aid. The plan would help meet the needs especially of children under eighteen and of the poor in the South, where welfare payments were lower than in the West and North. A year later, urging its passage, Nixon called FAP the “most important piece of domestic legislation of the past 35 years, one of the dozen or half dozen such bills in the Nation’s history.”