23. Arm Chair Economics

23. Arm Chair Economics At the tum of the century, in 1899, a timid, retiring college professor at the University of Chicago, named Thorstein Veblen, wrote an extraordinary little book called The Theory of the Leisure Class.1 The "Reign of Gilt" of the 1890's was just tapering off, a period in which the womenfolk of newly rich men drove a hard pace in showing off their money. This generation of women is still caricatured in Jiggs' wife, Maggie, and their daughter. They practiced "conspicuous consump tion" and "conspicuous leisure" as they had not been practiced in America since the tobacco planters of the James peninsula moved their daughters into Williams burgh to get them married. The two phrases are Veblen's, his unique contribution to the American lan guage. Veblen was bitter about it. A later publisher's blurb called his book "The most embarrassing book that an intelligent person can read," and said that it revealed "the hollowness of our canons of taste, education, dress, and culture, and the emptiness of those habits of life and thought which we like to regard as our strength."

Veblen did not know anything about American busi ness except what he had read. He had never been in it. But he didn't like it, any more than he seems to have liked expensively dressed women or college governing 180 ARM CHAIR ECONOMICS 181 boards, with whom he didn't always get along. And in a brilliant, wordy, polysyllabic, pseudo-objective style he managed to tie together almost inextricably in the minds of his readers the leisure class and the American businessworld. This was no mean achievement in this country; though it would have been as plain as day in Europe. He did it by the extraordinary feat of inventing from scratch almost a complete idiom, built round such words as "pecuniary," "predatory," and "parasitic." And these he draped about the neck of American business, where they still stick. The book did not go too well at first. He wrote sev eral others and then in 1919 he published in the Dial a series of articles, which were later reprinted as The En gineers and the Price System. 2 By now his attack on businessand the profit system had crystallized. His style now sounded somewhat less like an ethnologist studying Hottentots and more like a cross between George Ade and Ring Lardner in the latter's most sardonic moments.

Vehlen took to capitalizing the phrases "Vested Inter ests" and "Guardians of the Vested Interests," as opposed to "Production Engineers" and "Production Economists." He advocated a Soviet of Technicians, and thus more than anybody else wove the spell for "technocracy." His thesis was that the growth of American industry was being rapidly disordered by the "captains of indus try" who are "unremittingly engaged in a routine of acquisition, in which they habitually reach their ends by a shrewd restriction of output." He called this "sabo tage," but hastened to explain that he didn't mean it wasn't respectable, of course. In this series of essays, America was to be saved from the "Guardians of the Vested Interests" (alias the "captains of finance" or 182 ARM CHAIR ECONOMICS "captains of industry") by the "Production Engineers" and "Production Economists." "Engineers and the Price System" was not as pert as "Leisure Class." Hardly anybody but intellectuals bought it. The "captains of industry" knew no more about Veblen than Veblen knew about them. Time passed. Came the "New Era." And then came the depression. And now, the stone which the builders re jected, became the head of the corner. It is doubtful if any writer had anywhere near as much influence as Veblen on the economic idiom and strange concepts of business which developed in Washington in the 1930's.

Compared to Veblen, Karl Marx wasn't even in the run ning. Business executives, who started to read "Das Kapital" to find out from where the blizzard started, never knew what hit them. Veblen's idiom began to crop up in reports of the Se curities and Exchange Commission, written by Supreme Court Justice William O. Douglas, then head of the SEC's protective committee study. But it was not so much Veblen's high-sounding language that mattered. It was his ideas. Here were the germs of the ideas of such odious things as "administered prices," "monopolistic competition," and "oligopoly." Compare these ideas, for ip.stance, with Veblen's re mark in "Engineers and the Price System" that the exist ing business system, "having begun as an industrial com munity . . . centered about a.n·open market . . . has matured into a community of Vested Interests whose vested right it is to keep up prices by a short supply in a closed market." Is that not, with slight embellishment.

the "virulent gro,vth of monopoly power"? Veblen never would have used the word "virulent"; he would take a page to get round such outspokenness; but he ARM CHAIR ECONOMICS 183 made the feeling show through. He wrote as though under a censorship. His followers didn't. Veblen's ideas spread through Washington like a fashion-or else the intellectuals who had read them came to Washington and became its economic oracles. Beginning in 1934, they began to develop the idea that business was getting more and more concentrated in fewer and fewer han~s and that this was not only an evil in itself but that it restricted competition. In 1938, the Temporary National Economic Commit tee became a loudspeaker for the broadcasting of such new terms as "concerted action," "common course of action," "dominant position," "economic power,'~ "monopolistic competition," and "oligopoly." The Antitrust Division lawyers, led by Thurman Arnold, were quick to capitalize the new lingo. In their briefs they began to use "dominant position" as a synonym for "monopoly," and "concerted action" and "common course of action" for "conspiracy" and "collusion."

After a while they got the judges using such phrases, though only in the course of their opinions, but not as a premise on which they based their decisions. But this gave more weight to the arguments of the Antitrust lawyers and finally, starting with the Alcoa case, the courts began talking "economics" in lieu of law: in other words, this brand of "economics" began to become the law. Thus, the ideas about business of a timid but brilliant professor who didn't know anything about it, but did know how to cast a spell, are now becoming the law of the land. Unhappily, the chief reason is ignorance, or what the public opinion pollsters call a "vacuum of in formation." These ideas seem to have been developed largely by people who don't know anything about busi184 ARM CHAIR ECONOMICS ness except from reading books about it by other people who don't know anything about it. A single instance must suffice. The foremost critic of the oil industry today-or at least the most feared by the industry-is Professor Eugene V. Rostow. He wrote a book recently at Yale on the oil industry, as part of a series of "Studies in National Policy" being made by members of Yale's Departments of Economics and of Political Science and its School of Law.3 Funds for the project were furnished by the Carnegie Corporation and the Ganson Goodyear Depew Memorial Fund. The author is Professor of Law and a member of the Graduate Faculty of Economics at Yale University.

The study, according to the jacket "considers in detail proposals for reorganizing the oil industry under the antitrust laws in the interest of achieving the social, economic, and political advantages of more competition." Oil men promptly began to peruse this "study," and were appalled by the errors. A subcommittee of the Oil Industry Information Committee assembled a thick folio of "errata" in the book. Typical. comments were the following: Rostow: The strong, separate regional Standard Oil com panies, all integrated, and almost entirely non-competi tive, ... Cormnittee Comment: (1) The Standard Oil Company (Kentucky) and the Standard Oil Company of Kansas are not integrated units today. (2) Contrary to the above statement . . . there are at least two of the original Stand ard Oil companies competing in every state of the union, there is an average of almost 4 ~ of the original companies in each state, and in some states there are as many as 6 of the original companies in direct competition.

Rostow: . . . the measure of refining capacity is . . . an arbitrary one, being the amount which could be produced if ARM CHAIR ECONOMICS 185 all the refineries worked a one shift day, six days a week. Committee: Refineries of necessity must operate 24 hours a day, seven days a week except for planned shutdowns. One oil man, reviewing the book in the Yale Law Journal, called it ". . . unencumbered by the funda mental facts . . . so many erroneous statements it would require a book ... to recite them ... fantastic! ..." 4 Lowell Mason, the incorrigible minority on the Fed eral Trade Commission, recently said "When I hear bureaucrats talking about conscious parallelism of action, when I hear them say we must save commercial busi ness . . . bunk has at last reached its saturation point." 5 24. The Folklore of Trust-Busting This book has been written in the New Hampshire woods. One evening the author took a walk, by the pale of the moon and without flashlight, down an old familiar road. It was a pleasant road that he had walked down many a time in the sunlight. But in the darkness, the trees and fence posts looked like hobgoblins wait ing to reach out for him. An old apple tree off which he had picked many a juicy apple looked like a savage and dangerous enemy.