Main currents in American thought An interpretation of American literature from the beginnings to 1920
such doctrine, in the eyes of all “sound-money men,” was distinctly
pernicious. He was giving aid and comfort to the apostles of inflation
and repudiation, and he suffered many a sharp attack. But that would
not deter a warrior grown gray in battle, and in the very last year
of his life he fell upon the bullion theory with the ardor of a young
man. He would not suffer the bankers to go unrebuked in their mad
attack on the prosperity of the country; he would not be silent while a
policy of contraction, that so early as 1866 had reduced the per capita
circulation to $12.50--according to his statistics--was still in full
swing after the disastrous lesson of 1873. He had much in common with
Peter Cooper, who in 1876 took up the battle against Wall Street for a
“democratic” monetary system. The blood of the two old men, both born
in the last decade of the eighteenth century, had not grown cold or
sluggish with long years, but responded ardently to the great cause of
democracy that had inspired their youth. That Carey’s national system
was a house divided against itself--that industry and finance were
engaged in a mortal combat for supremacy--he probably never quite
realized. He was concerned that America should be free to create and
enjoy the wealth that lay in the potentialities of the continent, and
to that end he would have money serve industry, and not industry money.
2 • Francis A. Walker
The social conscience of Carey was colored with an optimism that was
the spontaneous expression of a generation that set no limits to the
beneficent development of American industrialism. No storm-clouds
had yet gathered on the horizon; no hostile systems challenged the
sufficiency of capitalism. But a change was at hand. By the end of
the seventies the complacency of the Gilded Age was disturbed by the
rise of pestilent heresies in the shape of new economic dogmas. The
surplus-value theory of Marx and the unearned-increment theory of Henry
George were spreading widely through America, to the unsettlement of
susceptible minds; and the Knights of Labor were preparing to launch a
general attack against the whole system of capitalistic exploitation.
Carey had sufficed the wants of his simpler day, but there was need of
a new champion to wield the sword of pure Ricardian doctrine against
these later heresies.
Francis A. Walker, son of the economist Amasa Walker, Brigadier General
in the Civil War, Professor at Sheffield Scientific School and later
President of the Massachusetts Institute of Technology, was to be the
self-appointed champion of industrialism, the official economist of
the Gilded Age, and forerunner of a long line of academic purveyors of
economic dogma. As the author of a college textbook that superseded
Francis Wayland’s naïve _Elements of Political Economy_--a work that
had served innumerable college generations as a quarry of economic
doctrine--he elaborated a complete system of economics with a geniality
that went far to popularize the “dismal science” with vast numbers of
undergraduates; and as an authoritative apologist for entrepreneur
profits he rendered a service to capitalism that quite erased his
little Ricardian peccadillo of free-trade prejudice. There runs
through his solid pages the confident optimism of his generation--an
optimism that discovers in the heresies of socialism and single-tax
the only storm-clouds on the fair American horizons. He saw no
reason to question the ultimate good of industrialism, or to fear any
deep-seated clash between labor and capital. He carried water easily
on both shoulders, for he was so fortunate as to have worked out to
his complete satisfaction, a magic economic formula that should return
both to master and workman their just shares of the total production.
In the light of his exegesis there could be no Marxian struggle of the
classes. The captain of industry must no longer be regarded with sour
aspect as a parasite upon labor, but as a fellow worker, the creator of
those profits which are not subtracted for his benefit from the portion
of labor. From Ricardo to Marx the economists had been barking up the
wrong tree in their analysis of the rewards of the entrepreneur.
The classical school of the Gilded Age was in like position with the
eighteenth-century Calvinists; they must either abandon their dogmas
or reinterpret them to meet current needs. Walker was too good a
Ricardian to abandon them, so he proposed to reinterpret them. The
urgent problems to which he addressed himself were the sources of
profits and of wages; and the examination of those problems led him
to his theory of the function of the entrepreneur and to a rejection
of the classical wage-fund theory. He refused to discard his suit of
Ricardian clothes as Carey had done. They could never go out of style,
he believed, so long as honest thinking was respected. He accepted
most of the Ricardian dogmas without question. “Capital,” he asserted
soberly, “arises solely from saving. It stands always for self-denial
and abstinence,” and interest is the “reward of abstinence.” But
one important dogma, the classical wage-fund theory, he insisted on
stripping away. He was too genial an optimist to rest content with
the bleak conception that the margin of subsistence circumscribes the
rewards of labor, and too enlightened an apologist of industrialism
to assert that “profits are the leavings of wages.” He could not
hope to erect a theory suitable to the Gilded Age on such skimpy
hypotheses, and he scourged them from the temple of economic law.
Wages, to be sure, are the leavings after rent, interest, and profits
have been deducted from the total production; but vast and dangerous
misconceptions have arisen in regard to the portions that accrue to
these several partners, and in particular mischievous perversions
touching the share of profits. This was the crux of the problem of
distribution and until the nature of profits should be determined the
question of wages would remain to befuddle weak heads.
The heart of Walker’s doctrine, therefore, is his theory of profits.
He proposed to show that according to the true law of profits this
flexible increment is never a moiety wrested from labor, but an
additional earning of management that justly accrues to him who creates
it. The doctrine from which he deduced his theory of the entrepreneur
was the Ricardian theory of rent. On this point Walker was the most
loyal of Ricardians, and he violently attacked Carey for repudiating
the classical dogma. In a word “Ricardo’s doctrine can no more be
impugned than the sun in the heaven,” he asserted, “and those who
mouth at it simply show that they do not know what it was Ricardo
taught.”[595] What was needed was to understand its wide implications
rather than to seek to destroy it--to trace in all its reaches the
doctrine of fertility and discover how in other spheres than land the
difference between fertile and unfertile measures the return upon
economic endeavor. For the great doctrine of fertility, Walker pointed
out, following Mill, is capable of expansion to cover wider fields
than rent; it applies equally to management and labor; it broadens out
into a comprehensive principle that exactly measures the most bitterly
disputed of the several increments, the increment of profits.
This theory of fertility, introduced into the law of distribution,
is Walker’s most interesting contribution to economic speculation.
By it he supplemented the trinity of land, capital, and labor--or
in terms of distribution, of rent, interest, and wages--with a new
entity--management and the earnings of management. The argument is
highly ingenious. Assuming a no-profits employer at the lowest scale of
the entrepreneur system, by analogy from the Ricardian no-rent grade
of land, he asserted that similarly “profits are measured upwards from
the level of the no-profits class of employers,” and hence “it appears
that the gains of the employer are not taken from the earnings of the
laboring class, but measure the difference in production between the
commonplace or bad, and the able, and shrewd, and strong management of
business.”[596] Profits, then, are an added increment of management,
secured by foresight and business skill, the fruit of managerial
fertility; and since they flow solely from the entrepreneur they belong
to him alone and no portion may be justly claimed for rent, interest,
or wages. The complete theory he states thus:
Under free and full competition, the successful employers of labour
would earn a remuneration which would be exactly measured, in the
case of each man, by the amount of wealth which he could produce,
with a given application of labour and capital, over and above
what would be produced by employers of the lowest industrial,
or no-profits, grade, making use of the same amounts of labour
and capital, just as rent measures the surplus of the produce of
the better lands over and above what would be produced by the
same application of labour and capital to the least productive
lands which contribute to the supply of the market, lands which
themselves bear no rent.[597]
It is a persuasive argument of which Walker was vastly proud. The germ
of it later historians of economic thought have traced to Senior and
John Stuart Mill, who had suggested the idea of “differential rent,” or
“rent of ability,” which is the reward of “all peculiar advantages of
extraordinary qualities of body and mind.”[598] From whatever source
it issued, the usefulness of such doctrine in the days of an expanding
industrialism, and the ends it might serve in counteracting proletarian
philosophies, are too evident to need comment. The Marxian dogma of
surplus value--that profits are stealings from wages--was certainly
calculated to breed dissatisfaction in weak proletarian heads. Marx was
a good Ricardian in his major postulates and the Ricardians had failed
to analyze adequately the true sources of profits; because of such
failure the classical school had underestimated the social beneficence
of the capitalistic system. Chained to the iron law of wages the school
had been forced to envisage a bleak future with labor kept always at
the margin of subsistence. From this pessimism Walker proposed to rid
economic theory, by showing that entrepreneur profits augment the wage
fund and hence that the entrepreneur is the benefactor rather than the
exploiter of labor. With his business skill the captain of industry,
like the inventor of a new machine, lays open new sources of wealth for
all, and if he gains much for himself he gives more to society; for
every improvement in business methods accrues in the end to society as
a whole, for the new technique soon becomes a common possession.
The validity of Walker’s theory of profits does not concern us here; it
is a matter for economists to determine. To one who is under the spell
of no doctrinaire system the theory seems somewhat too neat with its
assumption of “free and full competition”;[599] and in its conscious
purpose to glorify the captain of industry it is freighted rather
too heavily with the spirit of the Gilded Age. It not only throws
the door wide to exploitation but it invites everybody to the feast.
Yet the work of the apologist was only half done. Having established
to his satisfaction the law of profits, Walker was prepared to take
equally high ground in determining the increment that falls to labor.
To glorify profits and at the same time defend the pessimism of the
wage-fund theory, would have been foolish tactics in presence of the
Marxian surplus-value theory; proletarian discontent must be dealt with
and Walker was prepared to deal with it. Having ascertained exactly
the several increments due to rent, interest, and profits--which in