IN LIGHT OF MODERN ECONOMIC KNOWLEDGE

 CONSIDERATION OF MANCHESTERIAN PRINCIPLES

NEED FOR MODIFICATION OF UNRESTRICTED FREEDOM

IN COMMERCE.

 To a large attendance of Economics Class (No. 1) of the "Workers' Educational Association Mr. Herbert Heaton. M.A., M.Com., delivered the tenth lecture of the course last night. The lecturer said :—

Before proceeding farther with our study of modern economic movements, it is necessary to survey the chief economic and social doctrines which have dominated men's minds during the last hundred years. To a certain extent individuals and governments act under the guidance of some theory. The conduct of men and the policies of statesmen usually have behind them a philosophy of life and statecraft. Often that philosophy is implicit, vague, and inconsistent; nay, more, it is frequently shelved when some strong claim of self-interest, some popular passion, or some urgent public evil calls for action in a completely opposite direction. The Anglo-Saxon race in particular makes principle its servant rather than its master, and although professing a certain faith, will act in direct contradiction to the fundamental tenets of that faith. For instance, during the first 50 years of last century the prevailing British philosophy was individualism; the State must not interfere with economic conditions. And yet, in view of the crying evils of factory employment, successive governments were compelled to disregard their political creed, and place restrictions on the work of women and young persons. In 1846 England abolished the corn laws, and deprived agriculture of any State support; that was individualism. Two years before women and children had been forbidden to work in coal mines; in 1850 they were forbidden to work in factories for more than 10 hours a day; that was the very reverse of individualism. Similarly in the United States the theory was laid down after the civil war that negroes should enjoy the same political rights as whites. But in practice this would have meant negro rule in some States, and therefore various devices were invented by which the blacks were virtually disfranchised. In war time nations subscribe to certain principles; but the sheer pressure of circumstances frequently compels them to put their principles into their pockets. Politics, in short, tend to be opportunist, meeting difficulties as they arise; but nevertheless, the voice of the philosopher makes itself heard at times; political parties adopt a certain point of view, dictated possibly by the interests of the leading personalities, and so, speaking broadly, we may say that the legislation of an epoch is based on some underlying principle.

—Liberty versus Authority.—

The two great alternative philosophies are those which centre on liberty and authority. The former seeks the wellbeing of mankind by allowing the individual the greatest possible amount of freedom. Legislation is to clear away obstacles rather than impose restraints. Interference, prohibitions, regulations, all are to be reduced to a minimum, and men left free to create their own conditions. The advocates of non-intervention declare that men know what is good for them far better than does the State; they maintain that State regulation checks enterprise, and hinders rather than helps progress. Therefore let governments keep their hands off economic and social life, and all will be well. Such an attitude assumes that the individual is capable of seeing and securing his best advantage; it presupposes a harmony between men in society; it estimates at a very low mark the intelligence of the statesman. It thinks of man and the State as antagonists, with the State a possible oppressor.

Opposed to this theory is that which demands for the State large powers of control. Those who urge this doctrine admit that a man may see the line of greatest advantage for himself, but his actions may be to the detriment of the State. They point out that many, by reason of some disability, are unable to act as they would wish, and may be trampled down by the strong. Individualism is a splendid doctrine for the strong and wealthy, but cold comfort for the weak and poor. Further, they declare that the State must think in terms of the State, and act in such a way as to foster development along the lines which are best for society as a whole. This in practice means the prohibition of certain activities which are harmful to the life, morals, or strength of the community (liquor control, public health); the protection of the weak, and the curbing of the unscrupulous strong (factory and land legislation, Plimsoll line, old-age pensions, &c.); the undertaking of works which are essential to national character and progress (education, roads, &c.); and the encouragement of industrial and agricultural development in a direction calculated to produce national strength and economic independence (tariffs, bounties, &c.). The theory may go so far as to demand that the State shall enter the field of production, and become the owner of the means whereby wealth is produced, distributed, and exchanged. Such a doctrine thinks of man and the State working in harmony; but it has no illusions as to the perfection of human character, and while acting as a guide, the State must also check man's evil, anti-social impulses, and foster his best interests as a member of society.

These two rival philosophies have alternately dominated men's minds during the ages. At times the latter has been uppermost, and been responsible for the erection of a substantial edifice of government authority. This in time has become oppressive, for the State often fails to see that conditions are changing, and insists on regulating to the point of excess. Hence, on the eve of a new era, authority tends to hinder the adoption of new ideas or devices: more progressive men therefore take up the opposite creed, denounce the State as an oppressor, and seek to overthrow its power. Hence comes a reaction, precipitated generally by some big revolution in politics or industry, and the elaborate structure of State control is destroyed. Liberty becomes king, and legislation removes barriers instead of erecting them. But in course of time liberty proves itself as oppressive as did its predecessor; injustices spring up, the weak are trodden underfoot, while the strong reap an abundant harvest. Therefore the cry arises for more State control, for regulation, for protection of the poor. Once more the State awakes to a sense of new responsibilities, and begins to build up a system of social and economic legislation. This continues for a period, until men realise once more that the new order is far from perfect, having created almost as many problems as it solved. Thus arises a feeling of revolt against the State omnipotence, and again there is a trend towards liberty. And so the world goes on, alternating between these two extremes.

Many illustrations might be given to support the above general statement. For instance, the Australian trade union movement during the seventies and eighties refused to touch politics, preferring to rely on purely industrial methods, i.e., the strike, and collective bargaining on a voluntary basis. But before 1890 there were many who urged the entry into the political area, and the apparent failure of strikes in 1890-3 brought a reaction in favor of political work and government regulation of wages. After 20 years of such policy, there is in many quarters a growing sense of dissatisfaction with the elaborateness and expense of the wage-fixing machine, and the results of its working, and this may lead eventually to a reversion to more direct methods of settling industrial disputes. But the best instance is provided in the changes in British Government policy between 1760 and to-day. At the former date economic life was highly regulated on every hand. A mass of legislation had been accumulated to control a certain economic order—that described in the first lecture. But voices were already being raised in criticism and when the industrial revolution came along, creating a completely new industrial system, the old laws were useless and obstructive. Hence, under the stress of new methods and vigorous criticism, the laws of over two centuries were consigned to the scrapheap, and for a time liberty prevailed. But liberty brought forth tares as well as wheat; in fact, the proportion of tares was so excessive that when men began to examine the crop they recognised the need for a radical change in government policy. Once more the State began its big work. Factory and wages laws, protective tariffs, public health provisions, education, taxation of wealth, &c., all came in time, and some States, under the influence of the new Socialist writers, set out on the path of government ownership.. But here again, 50 years of vigorous State policy have resulted in discontent. The new heaven fails to come to earth, and just before the war there was a visible reaction against the State's power, with a growing belief in the need for direct popular action. As a recent writer has said, "A certain tendency to discredit the state is now abroad," and we have not yet heard the last of this tendency, of which Syndicalism is the most prominent feature.

The last hundred years therefore provide us with a liberal period, an era of growing State control, and an incipient reaction against the State. The dividing line between the first and second epochs can be fixed roughly about 1848. In this lecture we shall study the teachings of the chief prophets of the Individualist period; next lecture will deal with, the reaction, and the counter-reaction.

—The Rise of Individualism.—

The last half of the eighteenth century witnessed a big literary glorification of "Liberty." In the political arena, despotisms and bad government were attacked with great vigor, and the "rights of the individual" placed in opposition to those of the State. Tom Paine and Godwin declared that government was an unnecessary evil, and was responsible for the unhappiness, poverty, and misfortunes of men. As a remedy, they preached the abolition of governments, meaning thereby despotisms, and the inauguration of the co-operative commonwealth on a voluntary basis—in short, an enlightened anarchy. Rousseau, the greatest political influence of all, began his famous work, "The Social Contract," with the assertion that man was originally free, but was now everywhere in chains; those chains had been rivetted on him by the despotic governments of the world, who had deprived him of all the "rights" which were formerly his. This idea of the rights of man had a great influence on the French Revolution, and one of the first declarations of the revolutionaries ran as follows:—"The end of every political association is the conservation of the natural rights of man. These rights are liberty, property, security and resistance to oppression. Liberty consists in the power to do anything that does not injure others." Throughout all such writings ran the theme that liberty was a natural thing, an inalienable birthright, had, however, been filched from man by the many laws and oppressions of despotisms. Therefore government was a usurpation, which must be destroyed, or at least taught to know its place. In Eden, Arcadia, and Utopia, there would be no government.

It was during this era of revolt against governments that political economy was born, and consequently the early economists took up the cry of liberty. In France, where industry and commerce were strangled by over-regulation, a group of economists, called the Physiocrats, pleaded for economic freedom. Their line of argument was very interesting, and was adopted by nearly all the later writers. They declared that there are natural laws for society just as there are natural laws in the physical world. Gravitation is a law of nature; the planets are guided in their courses by natural forces; chemistry, botany, anatomy, and all other physical sciences have their laws laid down for them by Nature, Providence, God—whichever name you care to use. In the same way there are laws provided by Nature to guide and control human society and economic activity. If this is so, then all attempts at regulation by the State are unnecessary, harmful, and even impious Therefore the State should recognise these laws, conform to them, and clear its statute book of anything which interferes with Nature's decrees. In short, the policy of statesmen should be laissez faire—let alone, don't touch, be quiet. Nature will regulate life, and men may rest assured that her control will be for the ultimate benefit of mankind.

—Adam Smith.—

The first great British economist, Adam Smith, grew up among such ideas, and his famous book, "The Wealth of Nations,” is in many respects a plea for economic liberty. The elaborate network of State control spread over the whole economic life of the nation was to him a trap, holding men to the ground when they might be soaring to better things. He therefore urged that the net be cut away at once, and men restored to a state of natural liberty. But what would be men's motive in conduct when that day came? Smith answered, 'Self-interest, the desire for individual advancement, selfishness." A low motive certainly, but an unalterable law of Nature, which would bring all things right in the end. For Smith believed that the Invisible Hand which had cast men in a naturally selfish mould continued to guide their activity in such a way as to produce the greatest benefit to society. Witness the following extracts from his book:—"Every individual is continually exerting himself to find out the most advantageous employment for whatever capital he may command. It is his own advantage indeed, and not that of society, which he has in view; but the study of his own advantage naturally, or rather necessarily, leads him to prefer that employment which is most advantageous to society. . . . The individual neither intends to promote the public interest, nor knows how much he is promoting it by directing industry in such a manner that its product may be of the greatest value, but intends only his own gain, and he is in this, as in many other cases, led by all invisible hand to promote an end which was no part of his intention."

This being so, then free competition, the rule of self-interest, and absolute liberty to all men to do as they think best, become part of the Divine scheme of human happiness: there is no need for the State to interfere, since natural forces alone will bring to all far greater prosperity than can ever result from the decrees of statesmen. Individualism becomes a religious creed, and State control of the actions of capital or labor is rank heresy.

—The Pessimists.—

Smith wrote before the inventions and discoveries had ushered in the new regime: he could therefore afford to be optimistic as to the fruits of laissez-faire: but those who took up the theory became almost incorrigible pessimists. This was due to the fact that they lived in the decades when the worst effects of the industrial revolution were being realised. The rapid growth of population seemed, in the eyes of Malthus, to presage a day when the world would be overcrowded, and the soil incapable of supplying the bare requirements of food. This increasing inadequacy of the food supply promised deeper and deeper misery for the poor, and the only remedy which could be suggested was that wages should be left to find their own level, under the stress of fierce competition amongst laborers. Low wages would prevent wage-earners from marrying young or having large families, and thus a strong restraint would be put on the growth of population.

—The Iron Law of Wages.—

The most ruthless exponent of individualism as applied to wages was Ricardo, a man of powerful intellect, but highly abstract in his methods of thought. He was a thorough-going individualist, and his theory led him to some dismal conclusions. Wages, he said, tend to fall to the natural minimum; that minimum is the "price which is necessary to enable the laborers, one with another, to subsist and perpetuate their race, without either increase or diminution." Above this level, wages may go, provided there is a scarcity of labor; but, as the tendency is for the working-class population to grow rapidly, especially when high wages prevail, keen competition will come in, and keep the rate low. Further, Ricardo barred the closed door against higher wages by his famous "Wages Fund Theory." This theory was that at any given time there was only a certain fixed amount available for wages; this fund could only be raised by reducing the fund for rent and profits—a highly improbable event. Therefore, if, by trade union activity or legislation, one class of workmen obtained higher wages, there would be so much less left for other classes. These were the clauses of Ricardo's "Iron Law of Wages," and in all things the Government must not interfere, no matter how hard the lot of the poor, "Like all other contracts, wages must be left to the free and fair competition of the market, and never controlled by the interference of the legislature." It was all very gloomy, but since it was based on the natural laws of private property, liberty, supply and demand, and free competition, it was justified, inevitable, and unalterable.

Ricardo's opposition to State intervention in wages agreements was shared by most men of his day, and later. In 1808 a Parliamentary committee declared that a legal minimum wage was "wholly inadmissable in principle, incapable of being reduced to practice by any means that can possibly be revised, and if practicable would, be productive of the most fatal consequences." Many years later, Fawcett, Professor of Political Economy at Cambridge, declared that "we might as well think of regulating the tides" as of determining wages by Act of Parliament. More conscientious individualists sought justification for low wages in ethical considerations. A writer in the 18th century declared that "Upon the whole we may fairly aver that a reduction of wages in the woollen manufactures would be a national blessing and advantage, and no real injury to the poor. By this means we might keep our trade, uphold our rents, and reform the people into the bargain." But whatever the question at issue, the prevailing plea was for non-intervention. Bentham said that the general watchword of the Government should be "Be quiet"; and "John Stuart Mill declared, in the forties, that "Laissez-faire should be the general practice; every departure from it, unless required by some great good, is a certain evil."

—Herbert Spencer.—

Up to about 1870 individualism was the dominating social and political philosophy. Then, as its principles were challenged, and its practices denounced, a champion arose to pen what was virtually its swan song. In Herbert Spencer's "Man versus the State," individualism became almost rabid. Spencer came to his task armed with a vast scientific knowledge. The current phrases of evolutionary theory were familiar to him, and he used them as weapons with which to slay those who urged stronger social control. His points were two—(1) Competition is the law of progress, in man as in plants and animals. The survival of the fittest, the weakest to the wall, the devil take the hindmost: these are the essentials to progress. Let the least fit, the weakest, be stamped out; then we shall get a finer breed in the next generation. As with foxes, pole-cats, fishes, and birds, so let it be with men. (2) It follows from the first contention that the state should not interfere with the free play of competition, or the process of weeding-out. Therefore, let the State's functions be confined to maintaining national defence and enforcing contracts. But beyond the army, navy, courts of justice, and police, the Government must not stray. State education is a "tyrannical system, tamely submitted to by people who fancy themselves free." It is a "sentimental weakness to ask the State to interfere" in the interests of any suffering class; poor laws, old age pensions, and the whole range of social and philanthropical legislation do "good that evil may come." Libraries, art galleries, even sanitary supervision, all are condemned. Government control brings in its train '"regulative apparatus," and the domineering official, while Socialism "would stop the progress to a higher state, and bring back a lower state." If people wish to enjoy social benefits, let those interested act on their own initiative; but do not squander the taxpayers' money in providing facilities which few desire or require. In short, let us have freedom instead of bondage, and if any man objects to the policy of the State, let him have the right to refrain from paying taxes, sacrificing in return the protection which the State affords. Spencer was thorough, it nothing else; his State fits Carlyle's phrase, "Anarchy plus a policeman."

—Individualism in Practice.—

The theory outlined above was commonly accepted, especially about the middle of last century. It became the doctrine of the Liberal party in Britain, and suited the interests of the big manufacturers and merchants who supported that party. It was responsible for the repealing of the industrial laws inherited from earlier centuries, and gave an intellectual stimulus to the freetrade movement. It explained partly the opposition to factory legislation, and could be twisted to favor the prohibition of trade unionism. Its advocates were perfectly sincere in their belief that individualism would produce a strong, healthy people. They wished to emancipate society from bad laws, and free mankind from the chains which fettered its moral and economic development. They separated the political, from the economic, and were generally strong believers in representative government, democracy, and education; but they maintained that the politician could not understand economic affairs, and any attempt by him to to regulate business would be ignorantly conceived, unjust, and disastrous. Finally, men of the Bright and Cobden type were convinced that laissez-faire would become a universal creed: when men were left free to work as they thought best, they would recognise that their best interests were tied up with those of men in other lands, and so permanent peace would come because all men realised that they were brothers. Then, from about 1848 onwards, individualism was attacked on every side, and eventually collapsed. Why, we shall see in the next lecture.

—Books Recommended.—

Adam Smith—"Wealth of Nations."

Ricardo—"Principles of Political Economy.'

Spencer—"Man Versus the State."

Brown, W. Jethro—"Underlying Principles of Modern legislation."

Dicey, A. V.—"Law and Opinion in the 19th Century."'

Hirst (edit.)—"The Manchester School."

Mackay (edit.)—"A Plea for Liberty."

Toynbee—"Industrial Revolution," chaps 7, 10-12.

Daily Herald (Adelaide, SA : 1910 - 1924), Wednesday 25 July 1917, page 8