Henry A. Wallace, Seminar in Economics

Selected Works of Henry A. Wallace

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Seminar in Economics

Henry A. Wallace

Transcript from a seminar lecture given at the Iowa State College at Aims, October, 1935.
From Henry A. Wallace, Democracy Reborn (New York, 1944), edited by Russell Lord, p. 96.

From the memorandum here before me I see that I am supposed to talk on some fundamental economic concepts. Inasmuch as I have not had time to clarify my own mind sufficiently on these concepts, I think I shall steal upon them in a rather roundabout way, and perhaps it will be just as interesting for you.
It is always interesting to inquire, I think, how we got the way we are. It is interesting to inquire just how economists get that way. And perhaps I might illuminate the subject in as painless a way as possible if, by way of introduction, I would go aver a few of my experiences with economics.
My first introduction to economics came by way of Professor B. H. Hibbard. I remember being asked in 1910, at the close of my college course, who had influenced me most, and I said Professor Hibbard. Later, of course, we came to disagree violently about the McNary-Haugen Bill and some other things; but I still think that Professor Hibbard is a very good teacher.
My first vivid impression with regard to economics came with the high hog prices in 1910. One of the animal-husbandry men suggested that there be held a seminar with regard to the high hog prices, and several seminars were held. I remember that Professor Hibbard suggested that the increased production of gold probably had something to do with the price level in the world, and that the high world price level in turn influenced hog prices. The animal-husbandry men told of a shortage of hogs due to cholera.
Another thing that happened in 1910 was that I attended the Graduate School at Ames, and met Professor W. J. Spillman and Professor George Warren of Cornell. These two young men were full of an almost Messianic complex about the farm-management approach. Previously we had been taught by what might be termed the Aristotelian method. You were to look into your own mind for a notion as to what was good farm management, and correct it by your boyhood memories. But Spillman and Warren thought that one should go out on the farm and get firsthand knowledge. They spoke with a great deal of vigor. Interestingly enough, Dr. Spillman is the philosophic father—insofar as it may be said to have a philosophic father—of the Agricultural Adjustment Act, and Warren is quite strongly opposed to it.
I found myself an a farm paper a year or two later writing about how splendid it was to raise hogs and what fine returns they brought to farmers. When I first wrote I had not noticed that hogs were down to six dollars a hundredweight. When the low prices came to my attention, I determined to discover just what it was that made hog prices.
I got to studying corn prices, and corn supply as well: I didn't know any method of discovering just how to measure the contribution of five or six different causative factors relative to one particular dependent factor.
I didn't know much about calculus. Eventually I ran across Henry L. Moore's Economic Cycles, Their Laws and Cause. I took that over to a professor of mathematics and he showed me how Professor Moore had derived his curves. So I adopted as my motto the phrase found on the flyleaf of Thompson's volume an calculus, "What one fool can do, another can." So I learned how to calculate correlation coefficients and came to have a very great respect for quantitative methods of economic analysis. For a time I thought all economists dealt too much with economic theory. Professor Pearson of Cornell happened to be out in Illinois, and we got close together in 1919. He had the same opinions as I about the superiority of facts over abstract reasoning. I think we egged each other on, and we compiled and analyzed a great quantity of statistics.
A little later I became very impatient with the school at Ames because it did not have a sufficiently strong statistical course. Professor Sarle and I spent some Saturdays going up to Ames, trying to enlighten their darkness. I am not at all sure but what it was the blind leading the blind. The only time I ever taught school was for ten Saturdays at Ames. My only students were the graduate students and professors. I was called a very bad teacher because I assumed too much knowledge on the part of the professors. At that time I really was thoroughly sold on the correlation method of analysis and assumed that everyone else should be.
I am mentioning these things merely because—well, probably for the same reason that Saint Paul used to tell the Jews how good a Jew he had been at one time. I merely want to say that I once believed in statistics. I do not know but what it is just as well far one to go through the experience. In like manner it is no doubt a good thing for every college student to become a Socialist at one time or another. It is possibly a good thing for every economist to become a statistician. But I hope that he does not impute to statistics mystical values.
On the other hand, I do not know how one can endure working with statistics without believing them to have mystical value. I really do not know just what ought to be done about it. Perhaps those of you who naturally have a taste for figures will work with statistics, and the others will give them the go-by and will be just as well off.
When I felt the shadow of the World War coming on, I started attending meetings of the American Economic Association, the annual meetings held at Christmas time, and became quite fascinated. A certain learned gentleman would rise to his feet and engage in discussion. I thought it was something very delightful indeed. I imputed mystical values to that too, to which the discussion was not entitled. It was all very strange to me at that time.
One more thing. In 1913 I ran across Veblen's theory of the leisure class. I met him in 1918 and discovered that he too had been through a phase of the sort that I have described for myself, and that in 1891 he had prepared a study on wheat prices. I looked it up and found out for sure he had; but on reading Veblen's books I became convinced that the analyses of both the statisticians and the classical economists were rather beside the point. I still think Veblen one of the most stimulating of the economists, provided you can penetrate the protective coloration of his style. It is like Harding's style, which someone described as resembling an elephant wallowing in molasses, a very heavy, turgid style indeed. I think Isador Lubin over at the Labor Department said that Veblen's style was for purposes of protective coloration, so that he would not get fired too often. Yet at the heart, Veblen's message seems to me to be decidedly worthwhile, and an excellent antidote if one tends to take the classical analysts too seriously.
It seems to me that the classical economists reason too nearly in a vacuum. They seem to assume no direction coming from any source. Veblen assumes that there are certain forces moving darkly in the background of the market place. And I think anyone who spends any time in Washington, in times like these at least, is sure that there are certain forces in the background of the market place.
Suppose I sum up my attitude concerning economics as it exists by saying that, in my opinion, economics is for the most part just pure machinery. Now, that is not doing economists a justice. It is doing them an injustice. I have found again and again that mast of the economists I have known in Washington are truly extraordinary individuals, with a practical and developed sense of balance between classes which enables them to work out the practical solution of a given problem in a truly remarkable fashion. They would not be able to discern as accurately the justice of a particular situation if they had not been trained so carefully; first, by the careful logic of classical analysis, and, second, by the punishment of continual reference to detailed figures which are necessary in statistical analysis.
Those two approaches which supplement each other admirably, provided they are applied by a man with ordinarily well-balanced brain, bring to pass an individual who is powerfully equipped to be of extraordinary service in Washington. Compared with some of the men in the Department, I have at times found myself a neophyte indeed, being pushed in a particular direction by pressure given me by men supplied with certain statistical data, and saved just in time by one or the other of these economists, concerning whom I am on the point of indicating shortcomings. Before I do that, however, I wish to express to these economists an unusual and deep sense of gratitude, and I am sure that administrative officials in the Department generally and in the Triple-A particularly will agree with me.
It seems to me that economics of necessity must serve some deeper end in human life; and as we endeavor along this line, we will discover that the economic mechanism with which we are now equipped is a mechanism that is rather imperfect with respect to serving the true ends of human life. The economic mechanism which we now have has of necessity been built up out of ideas which we, in the United States especially, have had and that the capitalist economy has had during the past fifty years—or we might say 300 years, for that matter.
Going back 300 years, we can trace it in some measure to the Protestant Reformation which let loose forces of individualism in a way which was rather new in this world. The religious world was the focus of important decisions back in the 1300's and 1400's, and when the point was made that you did not need to go through the priestly hierarchy but were able to go to God direct—when that attitude began to influence millions of people, then individualistic forces were let loose which were very quickly appropriated by the incipient capitalistic enterprises and capitalism was launched "in a big way." That was reinforced promptly by the discovery of America; and the very heart and soul of that approach was exemplified in American surroundings because the very soul of Protestantism could express itself best under pioneer conditions. There is the discipline of daily life, of rising at a certain time. Seven-eights of the people still rise at a certain hour; and half of them still get up at the same time on Sunday because they have the habit, though the Protestant tradition seems to be fading into the background as regards Sunday rising. But the Protestant discipline, the regimentation of the individual life according to the individual's soul, the discipline of saving, of thrift and frugality, resulted in the accumulation of capital supplies; and then of course you come along to the early part of the nineteenth century and have the Darwinian doctrine of evolution and Herbert Spencer's doctrine of the survival of the fittest, which was slightly different. And then in the economic world you have the whole laissez-faire doctrine, the Manchester school; and you have all these ideas being developed by various professors and filtered down to the graduates, and continually being worshiped by businessmen; and many of the economic graduates of the colleges becoming the hired men of big business and getting thereby the best salaries—some of them preparing monthly economic letters; and then individual Protestants, now seeking to enrich themselves as rapidly as possible through the stock market, reading these letters with avidity and finding on every occasion their disappointments hooked up with governmental action.
We found then, as in the decade of the twenties, something completely just in the whole setup of classical economics as promulgated by the high priests of that decade. Now that faith is in a considerable measure destroyed. I say "considerable measure," but it is still held by a great many economists, maybe half. Perhaps most economists still hold to it, also businessmen. If you want to work for the New York bankers, continue to perfect yourself in the doctrine of the decade of the twenties. Make yourselves high-priced valuable commodities. I am not altogether sure that these gentlemen who lurk darkly in the background of the market place in the long run will count so much after all. As a matter of fact, I am not really so sure they counted so much in the decade of the twenties.
This is not to say that the law of supply and demand is untrue. Of course it is very definitely true. I am one of the strongest worshipers of the law of supply and demand that there is anywhere. It works like the law of gravitation. But like the law of gravitation its action can be delayed by certain forces.
I think we are coming—by fits and starts of course—to a time when there is to be infinitely more co-operation than we had in the past, when the law of the jungle does not prevail to the same extent as it did in 1929. I think the New Deal faintly foreshadows certain ultimates in that direction.
As to what the economic laws are for a co-operative commonwealth as distinct from a competitive commonwealth, none of us knows so very well. In the competitive commonwealth where you have prices freely moving, in response to supply and demand, day after day in the market place, you could in the old days, by studying the price array, make yourself into a pretty fair price analyst and price prognosticator, unless something unusual came in to upset the situation.
Therefore in the old days training of this sort was peculiarly useful; but if we are going to come into a co-operative situation, the function of planning plays a more important part. You begin to think more in terms of synthesis.
M. L. Wilson, the Assistant Secretary, in March of this year, [1935], started the Land Grant College people to making a physical survey, in each of the forty-eight states, as to how they would have their acreages in the different crops changed from the standpoint of bringing to pass the greatest conservation of soil fertility and also the best farm management, leaving out altogether the question of price.
The work was started last spring. In August and September we held four regional conferences to assemble the data, first by regions and then by the country as a whole. In our various contacts, with the college people, we learned that they found it easy to think in terms of analysis but they did not function at all well in terms of synthesis. They had no practice. There has been little opportunity for planners in this country. There is, generally speaking, no such thing as planning economists.
In the physical world we find planners. People have had experience in city planning. But even where planning is accepted, there the, synthetic approach is very rarely to be found. In economics it is scarcely to be found at all.
If it were to be found, how could you account for that most extraordinary tragedy of the United States moving so slowly after the World War to act as a creditor nation must act. A few men saw in 1920 what it meant for us to be a creditor nation, but most of the economists placed no emphasis on this all-important fact. I wish I knew the inside working of the State Department, to know whether or not the State Department saw the perils of our change from a debtor to a creditor nation. Did the State Department bring to the attention of the presidents of that day the necessity of adjusting our tariff schedules to the fact that we were a creditor nation?
You would feel that economists would have had a sense of duty that would have made them hammer away at the fact until the situation had been taken care of. But economists are not synthesists. Their greatest joy comes in getting into a cat-and-dog fight. At the economic meetings a certain learned gentleman gives a paper and the next gentleman makes it a point of honor to disagree. There is no constructive solution. They seem to feel that it is a kind of chess game. That may be all right as far as the rank and file of economists are concerned, but it does seem that economists associated with the government should be all the time thinking of what is the constructive outcome for the nation. And I would trust that before this series of meetings is over, you would have some kind of committee which would submit for you something in the nature of a constructive plan—one hypothesis that the Liberty League would approve of; another hypothesis that would delight the hearts of economists; another hypothesis for the New Dealers; another for the Jeffersonian Democrats; and so on. They would have some things in common.
Now I would say in conclusion this: that I am convinced that behind economics, behind the economic machinery, there are certain truths in the field of philosophy-and behind philosophy, in the field of religion—which have to do with the direction of the activities of man; and that these are more important at this stage of the game than economics itself. Unfortunately, because of their nature, it is impossible to evolve a body of facts which can be subjected to critical analysis in this particular field. We are such children in the field of philosophy and religion and so uneasy when in it! But it is in this field that ultimate directions lie. Without unity of purpose about ultimate directions, the economic machinery cannot be properly oriented. That would be the subject for a further talk. While I could have arrived at this point earlier, my own mind is in such a nebulous state about it that I rather deliberately left it until this moment.
To talk in terms of philosophy and religion might make many of you rather impatient. The religious field at certain times has been of real concern and interest, but it is not now of genuine interest to one person in a thousand. Under many circumstances we hate to use the word "religion" because it has been so misused. By "religion" I do not refer necessarily to the church. Businessmen have a religion, something they give their whole hearts to. It seems to me there must be again a profound interest in the very largest significances, to which must be referred the economic machinery. I have not thought through that situation carefully, but I just feel that economics by itself, without orientation, is mere machinery. By using economic machinery skillfully you can go in this direction and in that, but when it comes to determining directions, you get into the field of philosophy and religion. Unfortunately, the most intelligent young men felt that they were satisfying their ego best by getting away from these fields into the world of business. Because very little prestige is given to philosophy and religion, there has not been a sufficiently critical analysis of these fields. Most of us are neophytes in these lines. I know I am. I feel, however, that in some manner we must have a much more powerful sense of direction.

Introduction | Essay | Documents | Resources

Selected Works of Henry A. Wallace

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