The intellectual contours of the American Revolution suggest that the United States was born in a broad outburst of anti-authoritarianism that transcended any temporary disaffection from George III, the British monarch. This anti-authoritarianism is plainly reflected in the texts of contemporary documents: the scores of revolutionary pamphlets calling upon Americans to throw off the British yoke, the Declaration of Independence, the Constitution, the Federalist Papers, and the Bill of Rights. All of these late-eighteenth-century documents express the deep-seated aversion to absolute authority, the hostility to centralized power in which the Union was born. Even though the Constitution seemed to many revolutionaries to imply an unduly centralized government, it still vested ultimate sovereignty in «the people» and divided governmental power among three branches, each possessing the power to check the other two. In still another balancing act, the federal government as a whole both checked and was checked by state governments. As Charles Evans Hughes once remarked, the Founding Fathers had designed «the most successful contrivance the world has ever known for preventing things from being done.»
Given these institutional limitations on authority, can it be said that the government of the United States historically followed a policy of laissez-faire? Perhaps, but only as measured against Soviet-style command economies or the statist developmental policies of Napoleonic France, Bismarckian Germany, or Meiji Japan. Compared with liberal regimes such as that of Victorian Britain, the American government violated laissez-faire as often as it practiced it.
Broadly speaking, both federal and state governments were active in the economic sphere during the first half of the nineteenth century, passive in the second half, and then active again throughout the twentieth century. In the first half of the nineteenth century, state governments chartered numerous banks and expended public funds liberally for internal improvements such as canals, turnpikes, and railways. Meanwhile, the federal government promoted agricultural exports, protected domestic industry through tariffs, subsidized commerce through a generous postal rate structure, and encouraged the building of railways. Equally important, and often overlooked in analyses of government-business relations, the national government pursued an energetic and relentless policy of land acquisition and development. During the nineteenth century, more individual Americans made their fortunes from the exploitation of newly annexed lands than from any other source. «Manifest destiny» was an operative economic policy as well as a slogan of nationalism and empire, as the geographical extent of the United States was multiplied severalfold by the addition of the Old Northwest, the Louisiana Purchase, the Florida Cession, the Mexican Cession, the Gadsden Purchase, the Oregon Territory, and the acquisition of Texas, Alaska, and Hawaii.
In less visible ways, the legal order of the United States was shaped so as to lubricate the operations of private enterprise. Decade by decade, the states relaxed requirements for the privilege of incorporation, far in advance of parallel developments in Europe. In bankruptcy law, incentives were fashioned so as to favor debtors more than creditors, a reversal of common European practice. Similarly, contract law became highly refined in America, facilitating commerce among the disparate populations of strangers who came to American shores and pushed ever westward. Meanwhile, taxation remained light, a circumstance made possible by ample revenues from the sale of public lands and from customs duties on goods imported from Europe. All of this added up to a situation uncommonly hospitable to what the legal historian Willard Hurst has called «the release of energy.» Policymakers had systematically designed a fertile setting for private entrepreneurship – a greenhouse for business. So long as individual companies stayed small, no real conflict between the welfare of the American people and that of its business units became serious. Unfortunately, that happy situation endured only until the 1880s.
Big business (trusts) appeared in the United States during that decade, a good deal earlier than in most other countries. Once established, it grew faster and to a larger size than it did elsewhere. One reason was the absence of any countervailing force in America. A new country made up entirely of immigrants (except for the Native Americans), the United States had no established church, no standing army, no hereditary aristocracy, no mandarin class, no feudal tradition. Because of the nation’s individualistic ideology, almost no government ownership of business enterprise existed, in contrast to substantial public undertakings even in other market economies, let alone socialist ones. The exceptions to this rule became famous largely because they were exceptions: the Erie Canal in the nineteenth century, the Panama Canal Company and the Tennessee Valley Authority in the twentieth. Throughout American history, including the present time, the total tax bite of all governmental units has typically been less than in comparable industrial countries such as Britain, France, and Germany. Until the twentieth century, the absolute size of the national government remained minuscule, and even today it is relatively smaller than those of other countries. In 1871, at the dawn of the age of big business, the federal government employed only fifty-one thousand civilians, of whom thirty-seven thousand were postal workers. The remaining fourteen thousand constituted the entire national government of a country with a population of 41 million. This amounted to one federal worker per twenty-nine hundred inhabitants in contrast to about one per hundred in the late twentieth century.
Of all major market economies, the rise of big business preceded that of big government only in the United States. And when big business came, no countervailing force resisted its initial impact. Thus, the manifold problems it raised provoked a powerful public response that immediately moved into the realm of politics. In the closing years of the nineteenth century, the United States became the only major industrial power to enact legislation explicitly designed to curb the power of large corporations. Congress passed the Interstate Commerce Act in 1887, the Sherman Antitrust Act in 1890, and the Federal Trade Commission and Clayton acts in 1914. The United States was the only country to attempt such a thoroughgoing regulation of railroads as that embodied in the Hepburn Act of 1906, which gave new teeth to the Interstate Commerce Act of 1887. In other nations, railroads were either publicly owned or smaller than the gigantic American companies, several of which employed more than 100,000 persons. Although many other countries eventually adopted antimonopoly laws, the Sherman Antitrust Act remains the most stringent in the world.
American regulatory practice during the twentieth century was shaped by three outbursts of legislation: during the Progressive Era (1901–1914), the New Deal (1933–1938), and the later period of focused concern for safety, social justice, and environmental protection (1964–1971). Although several exceptions might be noted, this legislation and the agencies it created generally were designed to restrain the power of business. An appropriate symbol is the giant statuary outside the Federal Trade Commission building in Washington, which depicts powerful, unruly horses being held in check by the hand of a man. American agencies with direct authority over business practices, such as the Securities and Exchange Commission, remain far stronger than their foreign counterparts.
In the United States, then, regulatory behavior in the twentieth century was typically restrictive. In other countries it was more often promotional. In some ways this represents a reversal of nineteenth-century practice, when the United States was the most hospitable of all countries to the conduct of business enterprise. The more precise point is that during the twentieth century, the promotional activities of the American government differed in kind from those elsewhere. In other countries, such measures focused on industrial planning, sectoral growth, and targeted key industries. Seen most clearly in the post-World War II activities of Japan’s Ministry of International Trade and Industry, industrial planning had many counterparts elsewhere: in French indicative planning of the 1950s and 1960s, in the corporatist interlocks of German banks, labor unions, and large firms, even in the experiments under Labour governments in Britain. None of these practices, all of which fall under the general rubric of «industrial policy,» took firm root in America, with the sole exception of what pejoratively has been called «Pentagon capitalism.»
In America, nearly all promotional management of the macroeconomy was a post-New Deal phenomenon and was Keynesian in outlook. It looked not to individual firms, industries, or sectors but to aggregates of the major national income accounts: consumption, investment, and government spending. It operated primarily on the demand side through management of fiscal policy. Its general aim was to counteract violent swings of the business cycle such as those that brought severe depressions in the 1890s and 1930s. The ideas that motivated it were complex, involving such Keynesian arcana as equations designed to compute the «autonomous spending multiplier» as a tool for setting tax policy. At the height of its influence in the 1960s, some Keynesians spoke confidently of fine-tuning the entire national economy. Subsequent events, including the Vietnam War, the combined high inflation and high unemployment of the 1970s, and the soaring fiscal and trade deficits of the 1980s, brought an embarrassed silence on the subject of fine-tuning.
Yet the fact remained that in the decades after World War II, the American state explicitly accepted the principle of a mixed economy and with it governmental responsibility for national economic well-being. This became evident starting with the Employment Act of 1946, an avowedly Keynesian measure, and it continued through all postwar presidencies – even that of Ronald Reagan, who, though no Keynesian, oversaw the most drastic (and hazardous) changes in fiscal policy since World War II. This overt acceptance of responsibility for economic performance epitomized the revolution in thinking about the connections among ideas, policies, and outcomes in the relationship between government and the economy.
Thomas K. McCraw
EXERCISES
Exercise 1. Answer the following questions:
1. Why there was no serious conflict between the welfare of the American people and that of its business units until 1880s? 2. Was the percentage of federal workers in the U.S. in the 19
th
th
Exercise 2. Translate into English.
1. Даже в 19 веке уровень жизни в США, в целом, был выше, чем в Европе или Азии, по крайней мере для белых. 2. В 20 веке такой показатель, как валовый национальный продукт на душу населения, почти всегда сохранялся выше, чем в любой другой стране; редкое исключение составляли лишь малые высокоразвитые государства такие, как Швейцария и Дания, а также богатые нефтью государства такие, как Кувейт. 3. По всем другим показателям уровня жизни США превосходили и Германию, и Швейцарию. 4. В заключительные годы 19 века США стали единственной крупнейшей промышленно развитой державой, принявшей законодательство, явно расчитанное на свертывание могущества крупных корпораций. 5. Ни одна из этих стратегий не укоренилась в США.
Exercise 3. Subjects for discussion:
1. Can the Government influence in any way a nation’s economy?
2. Is Government’s interference in the country’s economy good or bad for the economy?
Text 3. Economic growth
By «economic growth» economists mean, in the first place, annual increases in the nation’s total output of goods and services – its national product. Gross national product (gnp) does not take into account the wastage of the machinery and other capital goods used in production. Net national product (nnp) makes allowances for capital replacements. Although nnp includes final consumer goods and services, it counts only net additions to capital goods. It is therefore a better measure of real growth than gnp. The reason only final consumer goods are included is that care must be taken to avoid double counting; the output of bread is included, but the output of wheat used to produce the bread is not.
The monetary equivalent of national product – national income – can be measured in various ways. One is to measure it as the «value added» by economic activity in agriculture, manufacturing, mining, and so on. (Value added is calculated by summing output at producers’ prices and deducting the cost of the fuel and raw materials used to produce the output.) Another way is to measure it as the aggregate value of the final products of the economy. Still another is to total the incomes accruing to persons supplying different productive factors (such as wages and salaries, profits, rents). Each of these approaches yields the same total, provided a consistent scheme of valuation is used. The component detail of each, however, illuminates different facets of the process of production, distribution, and consumption of the nation’s output, and each serves a different use.
Changes in national income may be measured either in current prices – the prices that prevailed during the year in which the economic activity took place – or in constant prices – the prices of a given year, for example, those of 1929, which then serve as a base. In a study of financial developments or market trends the former is often preferable. But if the purpose is to analyze change in consumer levels of living or national productivity, the latter is more appropriate. For purposes of studying economic growth, therefore, it is constant price measurement that is desirable.
There are two additional requirements for the measurement of economic growth if the purpose is to calculate change in material welfare. A nation’s rate of growth must be divided by the size of its population in order to find the rate per capita; if an increased number of people is required to produce an increase in the amount of goods and services produced, no one is better off than before. On the other hand, high levels of both population and output growth, even without corresponding growth in per capita output, bespeak an economy’s ability to sustain large increases in population, and this is of interest to students of the sources of national influence and power. A final point: the increase in output should not be a temporary one, such as might follow a year of unusually good harvests. Nor should it merely represent an upward movement in the business cycle. Economic growth is sustained growth, secular in duration rather than cyclical.
In the output data of various countries scholars have found growth cycles (often called «long swings») of varying lengths, some of them 10 years long, others 60 years, and still others even 100 years. In the data of American history the most common long swing, named the «Kuznets cycle» after its discoverer, the Nobel Prize-winning economist Simon Kuznets, ranges between 10 and 20 years. A swing is a change in the rate of growth. During a long swing there occurs an expansion phase, followed by a period of continued growth at a retarded rate, culminating in depression. In the 124-year period between 1814 and 1938, nine long swings have been found, averaging 14 years in duration. In the expansion phase of these swings gnp grew at an average rate of about 6 percent, followed by retardation averaging 2 percent. During the depression phase, the rate of growth was extremely low or, ceasing altogether, negative.