Free Enterprise and Socialism
Samuelson was still working out his ideas in the three years he was developing the book. This is shown by the way he rearranged the chapters and by new material he brought in. Some changes were the result of criticism by colleagues, such as changing “The Economics of Full Employment” to “The Composition and Pricing of National Output.” However, it is remarkable how many of the chapters he wrote in the summer of 1945 remained essentially unchanged by the printed version.
Given the controversy that had erupted in 1946 and his admission, on the book's fiftieth anniversary, that he wrote Economics as if a lawyer were looking over his shoulder, it is important to consider how he presented the choice between capitalism and socialism.In the 1946 draft, Samuelson had explained that, though the choice between different economic systems was an important problem, it was not something about which economic science could say anything. He had written:
It is not our task, especially at this stage, to evaluate the advantages and disadvantages of different economic systems. No board of scientists could weigh this subject and come out with a scientific answer—because it is not simply a scientific question. But the study
e. Beadle wrote, “In some instances, however, this effort to enliven the presentation has been pushed to the point of being rather flippant; for example, ‘Presidents of railroads, who usually come up from the ranks and have a rather humdrum job.' (V-6. Underscoring supplied)” (W. J. Beadle, July 15, 1947, Letter to Ralph E. Freeman, PASP 87 [MIT Archives]). Some academic reviewers of the book made similar remarks. Looking back at the book, four editions later, Samuelson confessed to having written in a deliberately colloquial style, and that although some teachers were offended, it had probably been commercially advantageous (P.
A. Samuelson, May 16, 1961, Letter to Ralph P. Agnew, PASP 87 [Economics (1945-2008, Folder 2]).of economics can provide part of the material necessary in answering the question.[68]
In the book, he removed the reference to choosing between economic systems and wrote simply that the study of economics could provide part of the material necessary to answer the questions of “What?,” “How?,” and “For whom?” that faced any society. Lower down the page, he deleted a reference to competing systems.
When we come to the third question of the desirable distribution of wealth and income between individuals, we leave the field of science altogether. De gustibus non est disputandum: there is no disputing (scientifically!) tastes; and the same goes for ethics. We must leave the definition of social ends to the philosopher, the theologian, the statesman, and to public opinion, confining ourselves to the more prosaic task of improving the workings of a given system with respect to continuously accepted goals rather than changing the system itself. Because of time limitations, we cannot treat the problem of changing the economic system with the thoroughness it deserves, and must be contented to point out a few considerations bearing on this important question.11,f
Though Samuelson would appear to have made a significant modification of the text, this is mitigated by the fact that both paragraphs are about what economic science is not about. The effect of the changes is to focus attention on what economics can do, a change that could be justified on pedagogic grounds, quite apart from avoiding an issue on which he had been attacked.
The question of alternative economic systems was postponed to the final chapter, “Social Movements and Economic Welfare,” where Samuelson was able to provide a much more nuanced discussion. His starting point was the crisis that had afflicted capitalism in the 1930s and the variety of responses to it—“[a] bouquet of isms”—fascism, communism, socialism.
After a brief but thoughtful historical sketch of socialist movements in the United States and Europe, he spent three pages on the history of fascism and Marxian communism in Russia. His accounts may have been brief, but they were serious explanations of what these movements were and how they had evolved. He distinguished sharply between communism and socialism, noting that the socialist governments of Sweden and Britain represented “a middle way.” He explained that in Britain, owners of nationalized industries had been compensated and that “[a]nyone who opposes the Labor party's government—and most English newspapers do—is free to express his opinion and organize politically. Even communists are granted full civil rights and liberties as of 1948.”12 He made it clear that the advocacy of “peaceful and democratic evolution” was “often more than a tactical move; rather a deep philosophical tenet of faith.” This was clearly a sympathetic account of British socialism that stood in sharp contrast with Soviet communism, under which phases such as “industrial democracy” were used to denote positions very different from those how they were in the West.A point that his conservative critics would not have liked was his equally sharp distinction between political freedom and economic control. After commenting on fascist and communist suppression of civil liberties, he continued,
On the other hand, socialist Britain (1948) has more civil liberties than did the United States in the 1920 era of rugged individualism, when Attorney General Palmer imprisoned and released hundreds of people alleged to be “reds.”
It is one thing to tell a corporation what it may charge for electric power and quite another thing to tell a man what he can say, what he can believe, how he must worship. It will not do to confuse the two.13
Samuelson made it clear that regulation of industry was consistent with a free society.
Beadle had criticized Samuelson for implying that people on the federal payroll were “more infallible” than ones employed privately.14 Samuelson modified the offending text as follows (words appearing in italics were struck out and replaced with those in square brackets):
But sometimes [some of] the mistakes which a flock of independent competitors make—for example in all overbuilding as in 1929, or in continually entering the already overcrowded grocery store business— could have been avoided by advanced centralized planning [would be lessened in an economy characterized by planning.
(Of course fallible bureaucrats might perpetrate a series of planning errors of their own, and new problems of individual liberty would be introduced)].15Samuelson softened the claims for what central planning could achieve but only slightly, and he made it clear that he did intend the paragraph to bear the interpretation Beadle placed on it—that planners could sometimes do better than business people. He conceded Beadle's point about the imperfections of planning, but made it clear that he thought this obvious. However, though he was more nuanced in his claims for what planning could achieve, the message of the section in which it occurred was not changed. It remained a forthright critique of business people and their ambiguous attitude toward competition, approving of it when it was in their own interests and characterizing it as “chiseling,” “unfair,” or “ruinous” when it was to their disadvantage. Competition was used to eliminate rivals and create monopoly, and workers complained about competition when it threatened to depress wages.g
This discussion of the limitations of free enterprise set the scene for an explanation of the role of government as doing things that private business could not do. This section was not weakened at all. Indeed, it was strengthened, for in addition to the provision of collective services and setting the framework within which private enterprise functioned, he added a third function: using monetary and fiscal policy “to enable private enterprise to maintain a steady level of high employment and rising productivity.”[69] This might be coercive, but it was necessary because, as Samuelson made clear in what was effectively the book's conclusion (chapter 26), a laissez-faire system did not produce a social optimum. It did not generate an optimal distribution of income and there was great waste owing to unemployment and the business cycle. In addition, drawing on the theory of monopolistic competition that students would have learned in the intervening chapters, Samuelson wrote of the “evils” of monopoly: restricting output for fear of spoiling the market, wasteful advertising, needless product differentiation, and an inefficient division of production among too many companies. The word evil was used three times in a short paragraph.[70]