The Spirit of '46
NOVEMBER 01, 1976 by EDWARD P. COLESON
Dr. Coleson is Professor of Social Science at Spring Arbor College in Michigan.
No, this isn’t a misprint, a Bicentennial article that got the wrong label. There have been other spirits besides the "Spirit of ’76"; the familiar German word "Zeitgeist" bears witness to this fact. Let us consider two greatly differing eras which were tied to ’46-1846 and 1946.
In 1846 the free enterprise principles enunciated by Adam Smith in The Wealth of Nations, published in 1776, were finally, and with a mighty flourish, being put into practice in Victorian England. In 1946 the "Welfare State" became official in America, the "Land of the Free and the Home of the Brave." Both events fit the spirit of their age too, as we shall soon discover.
It is hard to imagine a greater contrast than the thinking and political activities of 1846 as against those of 1946. Both developments were characteristic of their time, and both were the result of a long historical process. In 1846, with the "Repeal of the Corn Laws" and the subsequent change to free trade in the next few years, the freedom philosophy worked itself out to the consummation foreshadowed in The Wealth of Nations. With the passage of the Employment Act of 1946, Congress committed the federal government to the "continuing policy and responsibility" of maintaining "maximum employment, production and purchasing power," fulfilling an ancient socialist dream. In 1846 the "invisible hand" was in charge; in 1946 Big Brother had taken over.
One of the most misunderstood aspects of history is what Lord Keynes called "the gradual encroachment of ideas."’ In 1846 the "academic scribbler of a few years back," to quote Keynes again, was Adam Smith. "Ideas have consequences," as the late Richard Weaver warned us a few years ago, but they are time bombs; it takes many years for the results to become apparent. Probably, in this case, free enterprise would have been tried much sooner if it had not been for the French Revolution which merged into the Napoleonic Wars. We tend to forget that Europe was at war from the Fall of the Bastille in 1789 to Waterloo in 1815, more than a quarter century of strife which even became global—not continuous warfare but too close to it. Then followed a tragic postwar depression. No doubt, this long series of misfortunes delayed a number of reforms, including the coming of free enterprise and free trade.
Fallacies and Famine
We fail to understand the background of nineteenth century British laissez-faire economics. Generations of Socialist propagandists have told us that a few greedy capitalists ganged up on the rest of us with the coming of the Industrial Revolution and reduced us to misery and want. Actually, the history of mankind has been punctuated with many famines and they were perhaps as frequent in the West as among "the teeming millions of Asia" more recently. It is hard for us to comprehend such poverty. In the England of two centuries ago a bushel of wheat cost a common laborer five days’ pay,2 and the situation was going to get worse before it got better. During the difficult days of the Napoleonic Wars the price of grain would more than double.3 Just keeping food on the table was a major undertaking for ordinary folks.
Now part of this was inevitable, given the primitive state of the technology of the time. But it is interesting to note what Parliament did in this time of national emergency: they met, studied the question with care, and voted to raise the duty on foreign grain still higher. Even faced with disaster, they still clung to the old mercantilist notion that keeping things scarce and expensive is economic wisdom. Needless to say, the tariffs on imported foodstuffs, known to the English as the Corn Laws, took on the stigma one might expect in a hungry nation. But since the landlords ran the country, nothing much was done about the problem for a long time.
Now the Corn Laws were not the only interference with the market which led to widespread suffering in those days of war and depression before and after 1800. Another tragic intervention by government was no doubt made with much better intentions, if with no better results. After all, the Corn Laws sound like selfish legislation foisted off on a helpless public by a powerful pressure group. But this other intervention was an attempt to play Good Samaritan. This disastrous blunder was another Poor Law, the Speenhamland system inaugurated in 1795 under the stress of the Reign of Terror in France, just across the Channel. Sensible Englishmen of the ruling class felt that they needed to placate the poor lest they rise in wrath and set up the guillotine in London just as their neighbors had done in Paris. This new British strategy in the war on poverty was a wage supplement plan geared to provide a minimum standard of subsistence for everyone, no matter how poor. For instance, if a worker could make half a living, the government would make up the difference; if he earned nothing he was supported by welfare, as we would say.
In the beginning, as Karl Polanyi tells us, "No measure was ever more universally popular."4 The results were exactly what one would have expected. If a laborer got his living whether he worked or not, why work? Polanyi, though a socialist who might be expected to approve Poor Laws, is severely critical of this one: "In the long run the result was ghastly." Self-respecting laborers were literally driven on welfare by the logic of the system, and were pauperized thereby. It was a calamity for rich and poor alike—a national disaster. Yet, neither Corn Laws nor Poor Laws were "Acts of God"; both were man-made, the consequence of bad economics driving out the good, an example of Gresham’s Law operating in the realm of ideas. It would not be worth mentioning these ancient blunders if we were not making essentially the same mistakes today.
Unscrambling the Omelet
Although a multitude of people believe today that welfare has become an impossible burden and that government intervention in the economy is strangling business and has become a luxury we can no longer afford, few believe we can do anything about it. They meekly concede that these are arrangements we simply have to learn to live with. Yet, Englishmen in the early decades of the last century corrected tragic blunders much like our own.
In 1820, with the war and postwar depression behind them, London merchants and manufacturers petitioned Parliament urging that restrictions on trade be repealed. The same year a similar group from Edinburgh protested also. A committee of the House of Commons investigated the situation and reported "that no less than 1100 restrictive laws were in force, regulating trade in various ways…." The committee urged their repeal. "The doctrines of Adam Smith were at last beginning to be carried out."5
Actually, of course, Pitt had started to do this back before the French Revolution but the Napoleonic Wars spoiled everything and made a new attempt necessary a generation later. It would take still another generation to achieve this purpose. The repeal of the Speenhamland Poor Law came in the meantime. Eventually, the British also dramatically reduced income taxes as well as duties on imports. They had accomplished what we do not even consider possible. Let us briefly examine how they performed these miracles.
The first of the victories was the Poor Law Reform of 1834. This was certainly a reaction to welfare abuses of nearly four decades, and it may be fair to allow that the pendulum swung too far the opposite direction, as critics from then until now have insisted. According to Polanyi, "Never perhaps in all modern history has a more ruthless act of social reform been perpetrated…." G.D.H. Cole and Raymond Postgate,6 distinguished Fabian Socialists, think that "after a brief interval of acute misery" agricultural laborers were actually better off, but that in the industrial areas it was an unmitigated disaster, particularly because its introduction coincided with another depression.
Herbert Spencer tells quite a different story. He describes how his uncle, charged with the task of enforcing the New Poor Law in his parish, found that "Those who had hitherto loitered at the corners of the streets, or at the doors of the beer-shops, had something else to do, and one after another they obtained employment… "7 The poor rates (welfare costs) for that area dropped from seven hundred pounds a year to a mere two hundred "while the condition of the parish was greatly improved." It is well to remember that poor relief was not abolished but was made available only to those who simply could not support themselves, which was quite a contrast to the previous period of very lax standards.
A Lesson for America
Since an unresolved welfare problem —"bread and circuses"—contributed much to the decline and fall of the Roman Empire, the British experience, even if marred with some needless suffering, should be of interest. We in the United States are getting to the point where we will have to do something. Whether we decide to abolish our outmoded welfare system or it collapses under its own weight, we will need to find alternatives to public assistance. Our minimum wage laws, excessive wage rates, and the exclusive admission policies of nearly every trade and profession so limit the labor market that there are not the job openings there could and should be. In the name of humanity and fair play, both the "haves" and "have nots" in our society will need to make adjustments to resolve our present problem. It is true that a lot of loafers will have to relearn "the work ethic," and those who are affluent must learn to keep open the door of opportunity for other people. We need a revival of simple honesty, of personal responsibility, of consideration for others and of a sense of fair play. A proper social concern need not lead to socialism.
The next great British breakthrough for freedom was the Repeal of the Corn Laws in 1846. Just as England was beginning to adjust to the opportunities and responsibilities involved in the new labor situation (demand and supply in the market place rather than a pauperizing paternalism), an enthusiastic group of free traders organized the Anti-Corn Law League. Since I have long been interested in this theme and have covered several aspects of the subject in previous articles in the Freeman,8 I shall briefly summarize the accomplishments of the League. After a spirited campaign which seemed to have reached the entire English population, the Corn Laws were repealed in 1846 during the administration of Prime Minister Robert Peel. This was only the beginning. Having disposed of the hated grain tariffs, the "bread tax" as it was called, they then went on to abolish the remaining import duties. Quoting Cole and Postgate again, "By 1860 Gladstone had completed Peel’s work and Free Trade was … in full operation."9
Economy in Government
Now William E. Gladstone was also a distinguished statesman in his own right. If Gladstone was Mr. Conservative, as has often been observed, he was also the embodiment of economy-in-government. Under his leadership the administration found ways to reduce expenditures and also cut taxes. This was in addition to the less obvious, but no less real, saving to the average Englishman because of the abolition of import duties. With growing prosperity and a declining government budget, Gladstone even managed to reduce the income tax from five percent to two percent over a five-year period.¹º Queen Victoria’s government was well on the way to becoming the "simple, frugal affair" that Thomas Jefferson once said a government should be. And one should not forget that England was then a great nation, not a pioneer settlement on the frontier. Evidently genuine tax reductions are a possibility, not a Utopian dream.
One final remark should be made about Victorian statesmen before we move on to the modern period. Whether we are speaking of Sir Edwin Chadwick who engineered the New Poor Law that put multitudes off the dole after 1834, or that devout Quaker John Bright who derived from his Bible the principles of economics that led to the Repeal of the Corn Laws in 1846, or that penny-pinching Chancellor of the Exchequer and later Prime Minister William E. Gladstone who regarded his political career as a Christian calling, we find in them and so many others of that era the same moral earnestness. In an age when many people took their Bibles very seriously this ethical approach to public policy was convincing.
This may seem quaint to a generation of pragmatists in today’s world, mostly concerned with pleasure and profit. The Victorian practice of operating on principle and their habit of viewing issues in terms of right and wrong, led to a directness and simplicity which is not characteristic of our age of relativism. We tend rather to institute some expensive and complicated arrangement that is intended to please everybody but can accomplish nothing. The contrast between Victorian politics and our present variety is startling, as we shall now discover.
The Economic Consequences of Socialism
If free enterprise, free trade, limited government and gold were in vogue back in 1846, they were hardly in fashion in 1946, here or elsewhere. Sir Winston Churchill’s conservative administration, which had come to power in England’s darkest hour early in World War II, was replaced by the Labor Party’s socialist government in 1945, even before the guns stopped booming in the Far East.
In America there was a deep concern that peace would mean a return to widespread unemployment and poverty which had plagued us from the Crash of ’29 until war had brought a prosperity of sorts. During the Depression we had become accustomed to massive government interventions in the economy and what seemed like large budgets for what one might call welfare schemes for everyone, from big business to the poor on relief. Many ordinary Americans back then were afraid the government would go bankrupt. Even Mr. Roosevelt had campaigned for the presidency on an economy platform in 1932, accusing President Hoover of reckless extravagance in the early years of the Depression. When war came, budgets beyond our wildest dreams brought victory, jobs for everyone and a boom we could not have imagined a decade earlier. Why not let the government continue to keep us all prosperous? If we didn’t go as far as the British, at least we were not returning to traditional laissez-faire economics.
The consequences of our post-war urge for security and continuing prosperity was what Paul Samuelson called the "momentous Employment Act of 1946,"¹¹ approved by both parties and dedicated to the task of preventing another tragedy like the Great Depression, then still a recent and traumatic memory. The law provided that the President should have a Council of Economic Advisers who should watch business trends and keep the President and Congress informed, so that future disasters could be avoided. If we fell into a recession, as economic slowdowns were now called, the government would simply stimulate business by easy money and increased spending. This, of course, was just another chapter of the New Deal, reinforced by the "Keynesian Revolution" which followed the publication of The General Theory in 1936.
For years, it seems, ordinary folks had a great deal of faith in the system whether they understood it or not, and felt that at last the government was capable of keeping us all prosperous. As the saying went, "Depressions have been abolished by popular vote." That faith, it now appears, has been shattered by the recent severe recession, by widespread unemployment, by national budgets that are out of control and inflation which threatens to get out of control. One of the serious aspects of this loss of confidence in the Keynesian system, the welfare state, is a lack of general agreement as to where we go from here. At least, the Prodigal Son, who had "wasted his substance" and then woke up in the pig pen, knew his way home.12
Where Do We Go From Here?
Fortunately, the solution to our problems is not that difficult, once we clear our minds and recover our sanity. When Lenin tried to install the Marxist system in Russia after the October Revolution of 1917, the collapse was complete and millions starved. (Stalin later bludgeoned the Soviet Union into the communist mold, but the attempt cost even greater casualties.) By contrast, when Ludwig Erhard abolished rationing and controls in Germany on that historic Sunday in June back in 1948, the "German Economic Miracle" rather spontaneously followed. That war-torn nation was in a state in ’48 that would make our Great Depression look like prosperity, but freedom proved to be the key to recovery. One is reminded of Adam Smith’s classic remark, published in 1776:
All systems either of preference or of restraint, therefore, being thus com
It is true that Germany had to suffer total defeat in a total war before she discovered this secret, but the English found freedom and prosperity in 1846 by using their heads and consulting their consciences. May we be able to rediscover our heritage without going through the dark valley the Germans did. If we would become once again the nation that our Fathers intended us to be in. 1776, we need to remember the words of America’s great English friend, Edmund Burke, during our days of Revolution:
Men are qualified for civil liberty in exact proportion to their disposition to put moral chains upon their own appetites … society cannot exist unless a controlling power upon will and appetite be placed somewhere, and the less of it there is within, the more there is without. It is ordained in the eternal constitution of things that men of intemperate minds cannot be free. Their passions forge their fetters.
1 John Maynard Keynes, The General Theory of Employment, Interest and Money, p. 383.
2 John Chamberlain, The Roots of Capitalism, p. 123.
3 Robert L. Heilbroner, The Worldly Philosophers, p. 79.
4 Karl Polanyi, The Great Transformation, pp. 77-85.
5 Vernon A. Mund, Open Markets, pp. 91-92.
6 G.D.H. Cole and Raymond Postgate, The British Common People, p. 278.
7 Herbert Spencer, The Man Versus the State, pp. 84-85.
8 The Freeman, November, 1971 "Economics and Ethics," pp. 646-660; June 1972 "When Men Appeal from Tyranny to God," pp. 323335; October, 1973 "Capitalism and Morality," pp. 625-633.
9 Cole and Postgate, op. cit., p. 336.
¹º Walter L. Arnstein, Britain, Yesterday and Today, p. 114.
11 Paul A. Samuelson, Economics, second edition, p. 418.
12 Luke 15: 11-32.pletely taken away, the obvious and simple system of natural liberty establishes itself of its own accord… .13
13 Adam Smith, The Wealth of Nations (Modern Library Edition), p. 651.
Life is infinitely less important than freedom … Those who are not willing to sacrifice their lives for their liberty have never been worth saving.