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Economics is a theoretical science
that analyzes the economic consequences of all modes of human action. It
examines goods prices, wage rates, and interest rates and inquires into the
principles of production, distribution and consumption. It searches for the
most direct means for the attainment of ends chosen. It neither justifies
nor condemns the motives of any economic action; it is
"value-free." Politics is the art of government including its
policies, goals and affairs, its methods and tactics, and its partisan or
factional ambitions and actions. It appeals to various motives and
intentions and is guided by preferences many of which are moral choices
made by individuals in their relationship with others. Politics has also
been defined as "who gets what, when, how." In the words of
President John F. Kennedy, "political action is the highest
responsibility of a citizen."
The connection between economics and
politics is clearly visible. Economic production sustains human life which,
for most people, is the most important concern in life. The prestige of
democratic government, its rise and fall, usually depend on its economic
performance. Economic policies must please the greatest number of people who
decide democratic elections and reelections. But
voters, as well as the representatives they elect, may also be guided by
economic notions and doctrines that are popular rather than fitting and
exact. Public opinion may be swayed by appeals to emotion and preconception
rather than reason and common sense. Political writers and speakers may
dwell on controversy and conflict rather than on theoretical correctness;
periodicals, newspapers, broadcasts on radio, television, and other forms
of communication may follow suit. Articulate politicians usually add their
explanations and interpretations. They may prefer to be popular rather than
correct.
The supply of economic goods is
naturally limited, which obviously creates a conflict of interest. But
human cooperation and division of labor greatly
increase productivity and the supply of goods, which removes the natural
conflict. Large-scale production by scores of workers reduces the unit
costs of production and lowers goods prices. It makes for harmony of interests
of all members of society. Similarly, implements of production increase
productivity. Simple labor produces little unless
it is aided by the employment of tools and machines. They are provided by
savers and entrepreneurs who are no less indispensable than the workers who
are using the tools and operating the machines. Surely, it may be more
popular to ascribe all productivity to the laborers,
but it is incorrect to ignore the contributions made by the providers of
tools and the directors of production.
The most influential political writer
of the 19th century undoubtedly was Karl Marx whose writings
popularized doctrines of societal conflict and class warfare. His Communist
Manifesto [1848] and Das Kapital
[1867] became the foundation of international socialism. He did not create
the conflict ideology, but it owes its fame mainly to his writings and
those of his followers. It permeates public thought and policy even today,
some 150 years after he first expounded it. Although Marx did not favor labor legislation,
countless laws and regulations now seek to protect employees from the
avarice of their employers. Every administration, whether Democratic or
Republican, seeks to improve their protection and add new healthcare and
retirement benefits. Most political debates about economic matters dwell on
notions of conflict; just listen to loud debates on the floor of Congress,
and you may wonder how the speakers manage to live together in peace.
The value of an economic good,
according to Marx, is determined by the amount of labor
required for its manufacture. Any price higher than the cost of labor, that is, any surplus value represents a profit
of the capitalists. It is gross exploitation of the laborer!
To call a halt to such injustice, Marx believed, all instruments of
production should be concentrated in the hands of the state. Government
should either own them outright or at least control them. Socialistic
governments all over the globe now own them,
social-democratic administrations usually regulate them.
Economists summarily deny that labor is the yardstick of all value and that
"surplus value" is gross exploitation of a workingman. The
ultimate determinant of value is the value judgment of consumers; their
buying or not buying determines the formation of the market price of all
economic goods, including that of labor. Wage
rates themselves are the resultant of the value judgments of the buyers of labor. It does not matter whether employers and
capitalists are softhearted or hardhearted,
they are subject to the commands of the consumers most of whom are earners
of wages and salaries. Employers must pay the market wage. If they should
dare to offer lower rates, they may lose their workers. If they are forced
to pay higher rates, their customers may force them to discharge the labor. Employers as well as employees are guided by
market wages which offer employment to all willing workers.
The Marxian doctrine of class conflict
found ready acceptance in many European countries. By the time of Marx's
death (1883) his teaching had spread throughout Europe
and given rise to a political mass movement. In Germany it caused the
government to react with the introduction of the Social Security System
(1884), beginning with compulsory accident insurance followed by sickness insurance
and old-age pensions. Taxpayers were to subsidize all. It led the workers
to believe that Marx was right and that the government sought to ameliorate
the exploitation.
In the United States Karl Marx
undoubtedly paved the way for several schools of conflict-thought that
interpreted American conditions. Institutional Economics was essentially an
American movement in academic thought which for a time (1933-1937) had
great influence on U.S. Government policies. The central figure was Thorstein Veblen whose books The
Theory of the Leisure Class [1899], The Theory of Business
Enterprise [1904], The Engineers and the Price System [1921],
and Absentee Ownership and Business Enterprise in Recent Times
[1923], dwelled on the conflict between those who produce economic goods,
that is, workers, foremen, and managers, and those who own the firms. Businessmen
seek pecuniary gain which may not be beneficial to society. They may
indulge in "conspicuous consumption," "conspicuous
leisure," and "conspicuous waste." They may enjoy monopoly
powers - competition does not restrain them.
Other critics of the enterprise system
made monopolistic and imperfect competition their focal points. There was
the English economist Alfred Marshall who exerted great influence on
economic thought in all English-speaking countries. His Principles of
Economics [1890] was for many years the standard textbook at American
colleges and universities. Other English economists followed suit. In The
Economics of Imperfect Competition [1933] Joan Violet Robinson
was especially outspoken in her criticism of social and economic injustices
against developing nations. In the same year Edward Chamberlin
published The Theory of Monopolistic Competition which suggested
that most economic situations are composites of both, monopoly and
competition. The emphasis on monopolistic tendencies and imperfection in
competition and the charges of waste and exploitation obviously lend
support to demands for government control.
Since Veblen, the most vocal American
critic of the market order, has been John
Kenneth Galbraith. Building on Veblen's analysis of conspicuous
consumption, Galbraith in The Affluent Society [1958] argued that
there are economic and social imbalances. Competition has been superceded by countervailing powers. The growth of
large corporations has led to the growth of powerful labor
unions. Moreover, we now produce and consume large quantities of high
quality consumer goods but are content with quantities of inferior public
goods. American society enjoys conspicuous private consumption but silently
suffers decaying public facilities.
During the Great Depression the
conflict doctrine was bolstered and buttressed by Keynesian thought
which holds that the unhampered market order breeds mass unemployment and
that maintenance of full employment is the proper and feasible objective of
government. The grievous defects of capitalism, according to John
Maynard Keynes, "are its failure to provide for full employment
and wealth and incomes." [The General Theory, 1936, p. 372.]
Keynes apparently maintained his faith in the capitalist economy; he called
on government to stimulate it, not eliminate it. Most politicians and
officials undoubtedly embrace this train of thought and joyfully engage in
deficit spending. In fact, Keynesian economics stands as the most
influential economic formulation of the 20th century, appealing to both
politicians and academicians. It has ushered in an age of inflation the end
of which is not yet in sight.
Political popularity now builds on
Keynesian thought and policy. It allows governments to manipulate their
policies in such a way that economic conditions are especially favorable before election day. They may create
"political business cycles" by accelerating their deficit
spending and credit expansion well in advance of an election. A feverish
boom may clinch the reelection. Afterwards they
will have to cope with the undesirable consequences of the tactic, such as
soaring goods prices and declining real wages. They may even reduce the
deficits and refrain from further credit expansion - until a new election
comes in sight.
The doctrine of societal conflict has
invited formation of "interest groups" that seek to handle the
protection of their members. Eager to promote their economic interests, the
groups may influence the political parties and even general public opinion.
Their major target and area of concentration usually is the U.S. Congress. Promising
financial support for friendly members of Congress or assuring votes by
interest-group members at the next election, they hope to persuade
legislators, especially committee chairmen, to sponsor and endorse favorable legislation. Much pressure is exerted also on
government officials who manage independent regulatory agencies, e.g. the
Federal Communications Commission, the Securities Exchange Commission, and
the Interstate Commerce Commission. Their executives are very vulnerable to
the influence of the people they regulate.
There are a great many categories of
interest groups that seek to mold public opinion:
some are patriotic, others racial, occupational, and professional. Some use
the public communication media and embark upon open mailing campaigns;
others may seek to hide their influence from the public at large. Well-known
pressure groups use both approaches. There are The National Association
of Manufacturers, the American Legion, the American Farm
Bureau Federation, the American Federation of Labor
(AFL), the Congress of Industrial Organizations (CIO), and many
others.
There is always some basic principle
that keeps an interest group together. That principle is the promotion of
its special interests, to sustain the privileges it acquired in the past,
to win new favors, and to shield it against other
groups bent on depriving them of the favors and
on snatching their income and wealth. Politicians seek to lead the groups
by placating and flattering their constituents and promising ever more
benefits in the future.
Politics is the activity of common
men. When they succeed they become important leaders in the eyes of their
followers. But most of them merely echo public opinion which was molded and fashioned by eminent authors, such as those
mentioned above. Politicians may recount the teaching of their college
professors of political science and economics, or relate to the lessons and
stories told by famous authors and commentators. Public opinion and public
policy are shaped by authors and teachers of thought. They created and
disseminated the conflict doctrine that is guiding our politicians and
government officials. They are ultimately responsible for the economic war
in which the triumphs of some groups are the defeats of others.
Since economic conflict begins in the
minds of men, it is in the minds of men that peace must be restored. Authors
and teachers must again analyze the economic consequences of human action
and enlighten the public about the basic harmony of interest in a free
economy. Unfortunately, there are only a few who are teaching harmony and
pointing toward peace. They can barely be heard in the clatter of the
conflict doctrine.
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