From New International, Vol.4 No.9, September 1938, pp.282-285.
Transcribed & marked up by Einde O’ Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).
Business and Modern Society
edited by Malcolm P. McNair and Howard T. Lewis
411 pp. Cambridge, Mass. Harvard University Press. $5.
Industrial Price Policies and Economic Progress
by Edwin G. Nourse and Horace B. Drury
314 pp. Washington, D.C. The Brookings Institution. $2.50.
Save America First
by Jerome Frank
432 pp. New York. Harper & Brothers. $3.75.
These volumes are the latest brochures of those quacks who guarantee to extract from capitalism its “evils” without causing the slightest pain to the patient. Jerome Frank, once of AAA and now of SEC, compounds a shotgun mixture: semantics plus “folklore of capitalism” plus economic isolation plus increasing doses of the New Deal. Brookings presents its famous nostrum, the “Brookings Thesis”: bigger production and lower prices. The Harvard scholars make no general recommendation, but seem to think all will be well if the Federal budget is balanced, accounting practices are revised, and more attention paid by business men to “the human factor”. Naturally, these doctors don’t always agree. But it is remarkable how often they do. Thus Frank, on the left wing of the New Deal, agrees with Professor Slichter of Harvard and with the conservative Brookings Institution on the big-value-at-low-prices panacea. (Frank and Slichter add government spending as a shot in the arm.) All three books present business men as free agents, acting with almost complete liberty of individual choice. All three see the capitalist system as affected as much by psychological as by economic factors. Hence all three are addressed to business men, who are urged to make certain reforms in the system – in order to make bigger profits. This approach is to be expected. Most Americans with access to pen and printing press still believe it is possible to “save” capitalism, and to do it without recourse to anything as unpleasant as fascism. What the considerable body of Americans without access to print think about all this is another, and more difficult, question, the answer to which will be found in none of these weighty volumes.
The fourteen members of the faculty of the Harvard Business School who contribute the essays in Business and Modern Society speak with the authority of high priests in the innermost temple of Mammon. The pretentious title is hardly justified: most of the articles are on a purely technical level, with only a side-bow to “society”. But the point is that such a title was thought desirable, that even side-bows are made. A few years ago these discussions of currency problems and cost accounting would have been served up without any sociological dressing. The depression has at least made business men – and their economists – aware that they function in a social mileu.
The opening paper, Material Progress and Social Discontent, supplies the ideological thread on which the other essays are loosely strung. Its author is the Dean of the business school, Wallace B. Donham, who is also “George Fisher Baker Professor of Business Economics”. As an intellectual performance, it is on the level of a high school valedictory address. But as an indication of the new strategy of the class Dean Donham speaks to and for, it is of the greatest interest. He strikes the note at once:
“Nothing is clearer than that men cannot live by bread alone, still less by gold. There is no necessary or even probable correlation between material wealth and contentment ... Happiness for most of us is to be found only in a state of mind.”
Why does Donham utter these particular platitudes at this particular time? He suggests the answer when he writes:
“The year 1929 may be taken as marking conveniently the end of a century of logics and of scientific revolutions dominated by systematic thinking.”
In 1929 American capitalism began to break down decisively. Since that year, it has become increasingly obvious that it can provide only unemployment and subhuman living standards for an ever-larger proportion of the nation’s citizens. It is, of course, impossible for Donham to admit this. Although even in 1929, 42 per cent of American families had incomes below the “health and decency” minimum of $1,500 a year, Donham insists:
“Free income above necessities is in America widespread ...”
But, since he cannot deny there is increasing social unrest, he is driven to the extraordinary conclusion that despite material well-being, “envy, fear, unhappiness, and class hatreds grip vast numbers of people”. This paradox he can only explain by vague references to “human nature”, a mysterious and perverse force. This belittling of material factors in favor of “psychology” runs all through the volume, which presents the ludicrous spectacle of a group of economists laboriously demonstrating the fallibility and irrelevance of the science they profess. “Economic devices,” states Donham, “will not solve our social problems.” The nine-year collapse of American capitalism is rationalized away as a moral, a spiritual, a psychological, an anything-but-economic crisis.
Donham’s advice to his bourgeois clients is to rely less on material concessions in the future, and more on propaganda. So far, this is no more than a defensive manoeuvre, expressing itself chiefly in advertising campaigns to “sell” business to the public. So far, Donham and his clients really believe their own rationalization: capitalism could still produce plenty for everybody – if only the spiritual crisis can be resolved!
“The material opportunities offered by the new frontiers of science and industry are not in question,” writes Donham. “These are unlimited ... The doubts are on the social side ... Can we rebuild social morale in time?”
Donham is still vague as to how “social morale” may best be rebuilt. But as the frontiers he counts on turn out one after another to be illusions – first it was radio that was to “save” capitalism ... then air transport ... then electrical refrigeration ... and most recently, air conditioning – it is not difficult to predict a more positive content to the Dean’s speculations. “The ways of God will always pass human understanding,” we read – and, a few lines down the page:
“There is some reason to believe that the long hours and hard living which are the present lot of German workmen are in themselves a source of strength to Nazi Germany, because they have restored self-respect and comfort to great numbers who had lost these essentials.”
(The restoration of “self respect” via long hours and the “comfort” that grows out of “hard living” are mysteries that had better be left to Him whose ways pass all human understanding.) Later on, he becomes more specific:
“A high material standard of living is itself a disorganizing factor ... In the problems encountered in establishing effective social morale, there is a clear distinction to be drawn between a well-integrated community, made up largely of people with narrow margins, and the modern industrial community, typical of America, where a large proportion of the people have the freedom of choice offered, for example, by the automobile.”
That is, the bourgeoisie can more easily maintain its rule (“establish effective social morale”) if the masses have not been “spoiled” by too great material concessions. And what is desirable in any case becomes a downright necessity in a declining capitalist order which is unable to make such concessions. This is generally known as “fascism”.
Donham and his clients are by no means ready to put it, even to themselves, as bluntly as that. They still boast of the high standard of living American capitalism has given the workers, they still preach the desirability of automobiles and radios for the masses. But there is an evident contradiction between such boasting and the contention that “happiness” and “social morale” don’t depend on material goods. In Donham’s essay, the bourgeois ideology of the past and of the future appear side by side, for the moment unconscious of their mutual exclusiveness. As American capitalism decays, this cultural lag will be overcome, and the contradiction will be resolved by sloughing off the antiquated ideology of materialism. Rationalism will yield to mysticism, scientific logic to spiritual values. The American standard of living will be soft-pedaled, and the “disorganizing” effects of materialistic plenty will be emphasized. This essay is an attempt to prepare the ground for such a manoeuvre. It indicates that the American business class is beginning to learn what the European bourgeoisie were forced to discover years ago: that the last line of capitalist defense is to shift the battle to non-materialistic terrain.
This note reappears in the other contributions to Business and Modern Society. An article on Business Cycle Theories, by one of the editors, declares that the “driving force” behind the wild fluctuations of capitalist production is “furnished by mass psychology” ... In an article entitled The Effect of Direct Charges to Surplus on the Measurement of Income we read:
“The whole spirit of the business community is influenced by income figures, usually without any ... realization that they are largely an expression of judgment.”
Thus even accounting practice, the basic capitalist logic, is viewed with corrosive scepticism ... Sumner H. Slichter, the leader of the “left-wing” group in the business school, advocates certain accounting changes because they “would help to stabilize the emotions, and, therefore, the expenditures of business managers”. Not content with that, he goes on to suggest that consumption, and hence profits, depend on “the willingness of individuals to spend”. In hard times, “business enterprises and their owners are probably less disposed than wage earners to spend their incomes promptly,” he writes – as though the superior “willingness” of wage earners to spend were not due entirely to the simple fact that they must eat! ... Logics and Emotions in Marketing analyzes the chain store-vs.-independent struggle as a clash of logic (chains) with emotion (independents). The retailers’ fight for economic survival is actually characterized as “emotional social opposition”, and the unionization drive of chain store employees is called “another stream of emotional antagonism”. A strange and wonderful world is this which the faculty of the Harvard Business School inhabit, quite unlike the humdrum atmosphere of wages and money-making most of us know ... An article with the innocuous title, Modern Price Regulation, turns out to be a plea for what is euphemistically called “national capitalism”.
“The fundamental trouble with capitalism in its older forms is that the rank and file of people cannot measure up to its requirements.” (They are, it seems, “abominable managers” and also “incapable”.)
Hence the business men must extend their control over the State and bring about “a new expression of social justice”.
Four years ago the Brookings Institution, which is to bourgeois economics what the French Academy is to bourgeois art, published two exhaustive studies of American capitalism. The first, America’s Capacity to Produce, established one basic, and, considering the impeccable respectability of its source, startling fact: that in the boom year 1929, the American industrial plant was operating at less than 80% of capacity. The second, America’s Capacity to Consume, established a complementary fact: that in 1929 only 20% of America’s families had incomes of over $3,000 a year, while 60% had less than $2,000 and 40% less than $1,500. Shocked by its own discoveries, the Institution set out to find a remedy – a respectable one, that is. This was announced in 1935 in a volume entitled Income and Economic Progress. Popularized by Fortune as “The Brookings Thesis”, this is probably the most generally accepted solution for American capitalism’s current difficulties. All right-thinking, forward-looking citizens, from the left wing of the New Deal to the “economic royalist”, E.T. Weir (who helped finance the Brookings studies) agree on the Brookings Thesis as The Way Out. It is a simple enough formula: Given, an economy in which profits depend on sales and sales depend on mass purchasing power; and Given, huge and costly industrial plants with a high ratio of fixed capital, which make a great deal of money when operated above the “break-even” point (between 40% and 50% of capacity in steel, for example), and lose even larger amounts when operated below that point; Then, it is more profitable to sell more goods at lower prices than to sell less goods at higher prices. Twentieth century capitalism, in a word, must abandon the old “scarcity economics” and reorganize itself as an economy of abundance. That this “thesis” should be taken so seriously today is curious considering that it is little more than a restatement of the once-famous “New Era” theory developed by Waddill Catchings and W.T. Foster in the golden twenties. According to Messrs. Foster and Catchings, Coolidgean prosperity was to last forever, because of the increasingly wider distribution of purchasing power made possible by modern mass production. The investment banking house of Goldman, Sachs, which was unfortunate enough to number Mr. Catchings among its partners, all by itself furnished ample disproof of this theory in the 1929-32 collapse. The fatal flaw in the theory is that it assumes the indefinite existence of an economic frontier which will absorb profitably the ever greater profits realized by this ever greater production. How this frontier can be maintained so long as the masses fail to receive back in purchasing power at least as much as they produce as workers – an impossibility by definition under a profit system – this is a problem which neither Fortune, nor the New Deal, nor the Economic Royalists, nor the wise men of Brookings have yet been able to solve. 
Industrial Price Policies and Economic Progress is an attempt at a detailed exposition of the Brookings Thesis. The preceding volumes, the authors explain in their Introduction, were studies of how the economic system actually works – “no attempt was made to draw up a plan for some new kind of economic world”. Here at last, then, is How To Do It. But something seems to have happened between the inception of the book and its execution. Nourse and Drury may have started out to make a blueprint of “some new kind of economic world”, but what they have actually produced is a justification of the kind of economic world we have had for the last twenty years. They are at great pains to show, in a series of deodorized case histories, that since the War, the great monopolistic industries – excepting steel, whose price policies are too rank for even Brookings to whitewash – have reduced prices and increased production just as the Brookings Thesis requires. The question then naturally arises: if the Thesis is The Way Out, and if big business has been applying it since 1918, why did the hoops burst in 1929? In order to justify the ways of corporations to man, Nourse and Drury demolish the strongest argument in favor of their theory: that it has never been tried. To make it still more confusing, they have had to falsify the record in order to accomplish this. For it is a fact, despite all their special pleading, that their theory never has been adequately tried.
Their manoeuvre, however, is not as insane as it sounds. It is perhaps no coincidence that their book presents a lengthy and detailed defense of the price policies of two monopolistic groups which are currently under indictment on Federal antitrust charges: the oil companies and the Mellon aluminum trust. The Senate monopoly investigation, furthermore, is expected to concentrate on the price policies of big business. It would seem that the wise men of Brookings have chosen to sabotage their own theory in an effort to protect their patrons against Governmental action. They have made the supreme academic sacrifice. Business is business. 
Jerome Frank’s Save America First is a showcase of ideas currently fashionable in liberal circles. There is a little of Thurman Arnold’s anthropological whimsy, a lot of semantics (the book was originally to be called, The Dictatorship of the Vocabulary), and much New Deal philosophizing. Such a book, naturally, has greatly fluttered the liberal dovecotes. “One of those exciting books that can shape the thinking of an epoch,” declares John Chamberlain. “The most exciting volume of our day!” echoes Morris Ernst, while Stuart Chase contributes: “Exciting reading ! It is the kind of book this age needs.” Save America First, one gathers, is exciting. So is a pack of firecrackers in action. But neither is very coherent, and neither gets anywhere in particular.
In nothing is Save America First a more typical product of contemporary American liberalism than in its extreme disorganization. Frank is a dilettante of ideas, toying with a number of bright-colored concepts without relating them and without getting below their surface. Insofar as he has a main theme, it is that America is a country big enough and rich enough and democratic enough to create and support within its borders a self-contained capitalist economy of abundance. (The reviewers have failed to mention the interesting similarity of this idea to the “America Self Contained” propaganda which Samuel Crowther has been putting out for years on behalf of the reactionary Chemical Foundation group.) He admits that living standards are still low and that the vast internal market is still largely potential, but he thinks all this may be remedied and the “profit system”, as he delicately calls capitalism, may be “saved” if
That American capitalism is in any position today to get along without foreign markets would seem to be branded an illusion by the imperialistic Big Navy and Good Neighbor policies of that very New Deal which Frank so much admires. (He says not a word about these policies in his book.) But granting the point for the sake of argument, how is the new order to be brought to pass? Frank has nothing more concrete to offer than “a new spirit of cooperation” which
“... must be worked out in the form of concrete administrative devices ... by which the several industries meet, and confer, and work with one another and the government on their price and production schedules ... When that is done, a spirit of coöperativeness will be the inevitable result. That spirit is indispensable if our civilization is to remain civilized.”
This is “the old crap” of NRA all over again, and the sort of cooperation business will once more expect – and get – is the kind the lamb gives to the tiger when it doesn’t struggle too violently.
Frank admits – how can he not? – that something went wrong with the NRA experiment. But this time, he says hopefully, business must be educated really to coöperate. Since he does not recognize any necessary class conflict along economic lines, he can conceive of no reason for what he politely terms “the powerful minority” opposing the interests of The People except either ignorance or sheer perversity. Rejecting perversity as a general explanation, he concludes that capitalism has turned out badly so far because capitalists have never been informed as to their own best interests. His book is an attempt to educate them. Ignoring historical factors, he naively trusts to the power of pure reason to change the world.
“We should invite the younger business rulers ... to throw off the shackles of thought habits which dominate many of their elders.”
One is reminded of the Utopian socialist, Robert Owen, who wasted so many years trying to persuade dukes and stockbrokers they would be better off in his cooperative commonwealth. But Owen at least had the excuse that he lived before Marx.
“Our business rulers,” writes Frank, “for their own sake, must frankly face and help to solve the problems posed by the nature of our profit system as it is now constituted.”
That their European colleagues frankly faced and solved similar problems with fascism – this is irrelevant. “America,” writes Frank, “is not Europe.” A statement that is semantically meaningless.
“For America, fascism is a lunatic program ... Business rulers will write themselves down absurdly stupid if they do not cooperate in finding better contrivances.”
But from the business man’s viewpoint, fascism is by no means a “lunatic program”, and if Frank wants to call industrialists like Ford and Weir “absurdly stupid” because they are using semi-fascist strong-arm squads and “citizens’ committees” to smash unionism, he must explain how they come to be also the chief exponents of that “Brookings Thesis” he advocates. The same applies to those “evils” of capitalism he would eliminate by educating the bosses: they are “evils” only from the viewpoint of society as a whole; from the bosses’ viewpoint, they are virtues. But, rejecting the class struggle, Frank can admit no such contradiction. “We are sacrificing ourselves to superstitions as absurd as witchcraft,” he writes. But if unreformed capitalism were so palpably “stupid” and “absurd” from the viewpoint of the rulers as well as of the ruled, it would have ceased to exist many years ago. The Frank-Chase-Arnold approach is a frivolous underestimation of the problem.
Frank talks a lot about the necessity for cracking big words open and seeing what is inside them. Such words he calls “wousins”. But there is one very small word he uses constantly which he should crack open some day for closer inspection: the word, “we” – as in “We must not let the Old Guard use verbal sleight of hand on us .... We must challenge their right ...” Who is this “we”, precisely? It seems to stand vaguely for “society” or “the American people”. But this is the most outrageous “wousin” of them all: there is no such entity as “the American people” or “society in general”. There are social classes, occupational and regional groups, employers and employees, etc. But it would endanger Frank’s whole conception to think concretely in terms of just what economic interests any given “we” represents.
As an ardent New Dealer, Frank is as anxious as any Republican to conceal the economic disintegration of American capitalism. His book contains no statistical data, no analysis of social and economic forces in concrete terms. It does not even broach the crucial question: is American capitalism still growing or is it entering on a permanent decline? Instead, Frank gives us – psychology. The Dean of the Harvard Business School calls the depression “an emotional sickness”, and Frank writes: “A depression in America is a mental, not an economic, phenomenon.” Hoover talked about “restoring confidence”; Roosevelt said, “We have nothing to fear but fear itself”; and Frank writes, “To stop the progress of the sickening cycle that leads to fascism and civil war, it is necessary that false fears be promptly eradicated.” The motor force in capitalism he sees as – vanity:
“Some of our business statesmen will never acquiesce in reform because to do so would involve a tacit admission that their predepression ways of running our economy were faulty. They feel that any such admission reflects on their judgment.”
In conservative thinking, this psychological approach to economic problems leads straight to fascism. In liberals like Frank, it paralyzes what powers of resistance they have.
Although he affects to dismiss Marxism as an exploded theory of no significance to “different” America, Frank nonetheless devotes considerable space to attacking it. His main criticisms are three:
The first point seems to me to have the most merit, but Frank pushes it to such extremes as to suggest he thinks of Marxism as a variety of religious mysticism. I can see little in his second point: such exaggerations are inescapable in any original theoretical thinking. (Frank also critcises Freud for “over-emphasizing” the role of sex.) It is laboring the obvious to point them out, and it is the height of unimaginative Philistinism to “reject” Marxism or Freudism on such grounds. As for (3), if Frank objects to Marx studying capitalism in the land of its classic development, he must also reject a great many medical discoveries made through experiments on guinea pigs: America is not Europe, and guinea pigs are not human beings. I suggest that these “reasons” for rejecting Marxism might more properly be called rationalizations, and that Frank’s aversion to Marxism can be referred to nothing more complicated than the fact that Marxism threatens the present economic order, to which the liberal, for all his grumblings, is fundamentally loyal. In a period of crisis such as the present, this basic loyalty comes unmistakably to the surface. Save America First would have been a much bolder and more “radical” book had it been written ten years ago.
To Marxist “fatalism”, Frank opposes the Accident Theory of History. “The central fact in human history,” he writes, “is its unpredictability.” Although he seems unconscious of the fact, the main reason he finds history so unpredictable is that he locates its motive power not in geography, not in economics, not even in Hegelian “ideas”, but in the actions of Great Men. If Sir Robert Peel, he argues, for personal reasons “we will never know”, had not deserted the Tories and led the fight to repeal the Corn Laws, “England’s significant move into free trade would not have been made”. As though the rising English bourgeosie would not have put through its basic program, Peel or no Peel! This childish parlor game of “If Napoleon had won at Waterloo ...”, which reduces history to a meaningless series of accidents, Frank seriously counterposes to the materialistic interpretation of history.
Why this great concern to demonstrate the accidental pattern of history? Why this anxiety to emphasize the fallibility of Marx and other social theorists? Why this insistence that history and economics are “arts” rather than “sciences”? It is possible that Frank has an uneasy consciousness that his panacea will not stand theoretical analysis, that the overwhelming weight of historical experience is against him. Hence he cries, with Henry Ford: “History is bunk!” And indeed, as conceived by such philistines, history is bunk.
1. This it to say nothing of such comparatively minor problems aa how to carry mechanization and rationalization much farther without causing a disastrous increase in technological unemployment. It is also worth noting that the best known exponents of the Brookings Thesis in industry have been able to exploit certain peculiar and limited economic “frontiers”. Thus Ford was lucky enough to get in on the ground floor of the one remaining major frontier of twentieth century capitalism: the automobile. Now that this is closing, Ford is suffering just like any unenlightened industrialist.
2. It is only fair to note that at least one section of this book is excellent: Appendix E, which is a reprint of an article on steel price policy published two years ago in Fortune. Of course, I may be prejudiced. I wrote it.
Last updated: 27.12.2005