Henry A. Wallace, We Must Save Free Enterprise

Selected Works of Henry A. Wallace

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We Must Save Free Enterprise

Henry A. Wallace

An article published in the Saturday Evening Post, October 23, 1943.
From Henry A. Wallace, Democracy Reborn (New York, 1944), edited by Russell Lord, p. 249.

Conversion of industry to all-out war was the dominant necessity in December of 1941. In the peace to come, reconversion to all-out production of peacetime goods will be our crying need. The way in which we handle the reconversion will determine whether we go the route of government control, monopoly control or free private enterprise. Granting that there is a place for a certain amount of governmental control and even supervised monopoly, I propose in this article to back the thesis that for full employment we must encourage the little man with a big idea.
The little man, bursting with initiative, has certain fears concerning war, peace, government, monopoly, debt and taxes. He looks at the war debt and sees it moving at a daily rate of $200,000,000 toward a total of $200,000,000,000 in 1944. Somebody will have to pay for this, and he fears the taxation will be so heavy that he dare not take a risk.
He fears that the large government plants may be taken over by monopoly groups or operated by the government itself. In the reconversion of his plants to peacetime pursuits, he fears the dead hand of priority and the allocation of materials. This problem is particularly perplexing, for his future economic well-being may depend upon the formula which will distribute materials essential to his operations during the transitional period of scarcity which will accompany demobilization.
The small businessman especially fears that, in the stampede for raw. materials, he will be elbowed and choked out of the market as he was elbowed and choked out of the major branches of war production. Let it not be forgotten that the Smaller War Plants Corporation came into the picture two years too late, and that a broad section of American small business died, unnecessarily. The small businessman has witnessed and felt the impact of war more keenly than any other section of the American economy.
It must be our resolve that small business shall not be the No. 1 economic casualty of this war.
The national debt, however, need not be an enervating mortgage on our future. In thinking about the national debt, we must rid ourselves of the customary preconceptions. Even though the Federal debt is rising to $200,000,000,000, the burden of annual interest will be light or heavy, depending on how well we maintain all-out production. It can be simply shown that, if our national income is kept going at a rate only 90 per cent of the present level, it will require only 7 per cent of our annual income to pay interest on both public and private debt. Such a percentage would be no greater than that devoted to the same purpose in 1929. The real problem, therefore, is to maintain full employment and balanced production on the necessary scale. If we succeed, it will be possible to carry this national debt without additional and unnecessary taxation.
The President has already indicated a program for the demobilization of the armed forces and outlined the machinery for an orderly transition. The time has come now when we should think in equally clear terms about demobilizing our war production.
In the critical period of demobilization, there are certain positive policies which may be invoked and certain basic evils which should be avoided: It will probably be necessary to have some public-works projects to provide employment in this period. Primarily, the task of re-employment is the responsibility of businessmen. It is a responsibility which they can meet only if enterprise is free to develop and extend the new lines of industry as well as the presently existing enormous plant capacity.
To aid business in carrying out this responsibility, the existing plants constructed by the government for the war effort should not fall into disuse. Neither should they become part of the philosophy of planned scarcity which is implicit in monopoly control. So far as practical, they should be turned over to private business and become part of our free private-enterprise system. Why not, for instance, lend-lease these plants to those American businessmen who are free of monopoly association and willing to engage in full production? Such men are entitled to encouragement and should be given every incentive to produce.
Among these incentives should be a reorganized tax program to expand production and create new industry. We must avoid the pitfalls of a tax program which gives incentive to speculation in securities rather than investment in productive enterprises and plant expansion. Our whole tax structure, including individual income, capital gains and corporate taxes, will need revamping to stimulate maximum production and employment.
We must reorganize the flow of credit in our economy so that the little businessman is not subject to the will of the private-monopoly groups who control credit. He must not be crushed by a system of private taxation. It should be made possible for the average businessman to obtain credit on fair and just terms.
Free private business must accept the responsibilities inherent in free private enterprise. It must give full employment and it must spur the full utilization of our productive resources. The alternative to the acceptance and the fulfillment by business of its responsibilities in a free private-enterprise economy is the increasing use of governmental agencies to assume this task. Government will have to do so if free private enterprise fails.
Capitalism throughout the world, and even in our own country, has often been the object of derision. Not its inherent faults but its misuse has been the underlying reason for this attitude. Considered in its essentials, however, capitalism can be the most efficient system of organizing production and distribution on principles of freedom and equal opportunity yet devised by man. It should not, as many radical reformers have suggested, be uprooted. It should be modernized and made to work. Indeed, it must be made to work if we are to maintain the foundations of those things which we believe to be the essentials of American society. The chief trouble with capitalism has been the perversion of its instruments and their misdirection by small, powerful, privileged groups for purposes they were never intended to achieve.
In recent years, numerous attacks have been made upon capitalism without distinguishing between capitalist institutions and their abuses. Among the principal economic devices of capitalism most frequently assailed are the corporation and the patent system. Too often, attempts to remedy evils which have sprung up in corporate practices or to correct improper uses of patents have been translated into attacks on patents and corporations in general. If criticism is to be constructive, it must recognize that there are other ways to cure a headache than by decapitation.
Like all institutions brought into being to serve men's needs, both the corporation and the patent system carried with them the possibilities of abuse by a privileged few. The multiplication of corporations which resulted from charter mongering by states led to practices which made it possible for the corporation to be used as a means of cheating the public. Corporation laws which promoted the concentration of economic power in the hands of small closed groups became barriers to free enterprise. The development of huge, unwieldy and cumbersome interests, unwilling to take risks, and fearful of competition from the smaller, more flexible, more resourceful businessmen, resulted in the stifling of new investment and a slowing down of the whole productive process.
Similarly, abuses crept into the patent system. Gigantic vested interests, posing as independent inventors and little businessmen, accumulated patent structures which not only blanketed whole areas of industry, but, in effect, channeled research and development as bulwarks for their own dominating position. Little inventors were crushed. Small businessmen could not compete with these vast aggregations of patents and capital. Small businessmen and inventors attempting to develop new processes and products found little protection in the patent when pitted against the power assembled in overgrown combinations.
This concentration of power has become one of the most serious conditions businessmen have ever faced. Cartels—industrial combinations which are not only national but international in scope—have acquired a degree and range of arbitrary power which threatens the very existence of small business and stifles the creative energy of our people. This is a far cry from the original goal set for patents by our Constitution: "To promote the progress of science and useful arts."
Among the steps which are worth considering toward correcting the abuses of the past is the enactment of a Federal incorporation law. Such a law would replace an evil which has become identified with the state of Delaware.
The patent system must be made to square with its original purpose as propounded by the Founding Fathers. It must give incentive and protection to the small and creative, and not be used as a weapon of oppression by large aggregates of wealth.
The age of enterprise, the era of adventure which began with the discovery of the New World, is yet young. The annals of progress have not been closed. In the truest meaning of the term, the United States today faces its greatest hour of opportunity and its greatest challenge to the aims and purposes which moved the founders of our nation to build in freedom an enduring society.
Because geographical frontiers are fast disappearing; it does not follow that the age of enterprise is over.
The exploration of our world by science, the mastery of natural forces and the creation of new material wealth offer unending possibilities to the daring imagination and the zest for activity which have so long guided the outlook of America.
We know that the world stands at the beginning of a new era in human development. We know also that all beginnings are difficult. If we have the courage and the will to grasp the abundant means which are now at hand, there is every assurance that we shall be able to approach something of the supreme objectives for which this war is fought. In simple terms, it is said that we fight for freedom. Yet the economic content of this freedom hinges upon the full employment of our natural wealth and the full employment of our manpower, for purposes of peace no less than for purposes of war.
The dominant objectives before American industry today are the maintenance of a volume of production which the war has shown can be achieved, and the development of new avenues of activity for capital and labor alike. We must, in other words, find the way to create an expanding economy. We must protect the individual from oppression by the state or by vast aggregations of wealth. We must give to the businessman an incentive for production and the promise of profit for work well done.
In this task there are many things that government can do to stimulate free enterprise by positive action while safeguarding our heritage of natural resources. The conservation of our forests, our farm lands and our finite mineral reserves is properly within the sphere of government. At the same time there are many ways in which government can and should make possible the development of new industries by business. For example, in the development of power projects such as the TVA, a foundation is created on which free private enterprise can build. These are tasks which are public responsibilities. By serving the general welfare in this manner, government is not denying free private enterprise. Rather it is providing a stronger and surer support for economic progress and an. expanding economy.

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Selected Works of Henry A. Wallace

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