Paper No. I-A

ROCKEFELLER BROTHERS FUND, INC.

SPECIAL STUDIES PROJECT

"IDEAL WORLD"

OBJECTIVES OF FOREIGN POLICY

by

A. A. Berle, Jr.

Foreign policy is traditionally intended to forward the national interests of the country. Yet, as Nation-States become increasingly inadequate as self-contained units of economics or defense, interdependence partly regional, partly world-wide, becomes apparent. "National interest" increasingly demands answer to the question: what manner of world do American policy-makers seek to achieve? Some conception of that kind appears essential to set up valid criteria for general policies, for strategy in large situations and for tactics realizing that strategy.

1.

The conception must be of a world functioning in a condition of public order.

This has never existed in history. The Roman world (by no means the whole earth) within its own ambit attained such a system in some periods. The Victorian Age approximated it from about 1871 to about 1910 (there were minor interruptions).

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"Order" is tolerable only if further defined. The public order of a well-run slave system or army barracks under world dictatorship, for example plainly would not satisfy the United States, though it appears to be the conception maintained by Communist regimes in Moscow and Peking, and was attempted by Nazi Germany. Clearly more is needed than mere "order": a guiding principle governing it is essential.

2.

In my conception, a world order, like public order within Nation-States or any grouping of them, exists primarily for the benefit of human beings as individuals.

"Benefit" means providing that condition of affairs in which all individuals have maximum opportunity for attainment of their maximum self-development. This is because, so far as we know, human beings are the only instruments desirous of seeking, and capable of apprehending (in whatever microscopic degree) universal or cosmic order; and possibly capable of endeavoring to increase their harmony with it. Most of humanity throughout recorded history states this in religious terms, though in most times and notably in our own, rationalists come to the same conclusion in non-Theist terms. Only tiny fragments of humanity have ever attempted wholly to discard some such synthesis; indeed it is difficult to conceive of a significant life, or social order, or foreign policy, or indeed anything else save upon hypotheses of some form of cosmic order, in which every human

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is himself significant and plays a part, however tiny.

Acceptable world order, and any various divisions and sub-divisions of it, thus ought to be designed to increase rather than decrease capacities and opportunities for individual human beings to realize themselves. By its existence, it frees human beings from one of the greatest oppressions and denigrations of all -- that of anarchy. But limitations imposed by order (like the limitations imposed by well-run traffic regulations) are chiefly needed to prevent nations and human beings from doing certain things which would interfere with other human beings; the result should be a greater degree of potentiality for everyone.

Different social groups -- ethnic, national, social and so forth -- have different ways of seeking to permit realization of the maximum potential of individuals within their respective areas of social organization. Recognizing protecting, perhaps stimulating, the highest practical autonomy within each social group is a major consideration in any tolerable order system. The end condition of tolerable order would and should be a high degree of accepted and desired diversity between peoples, nations and groups. We know (without knowing why) that diversity incalculably contributes to enrichment of civilization. It is almost certainly not accident that the singularly fecund civilization of West Europe emerged from an area in which amazing diversity of language, custom, habit and folkways, was brought within a more or less tolerable scheme of continental order, even though that order periodically broke down.

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A tolerable system of world order therefore must effect accommodation between a tenacious and almost universally-held desire of nations and groups to be different from other groups in many respects, and the no less tenaciously held desire of many of these nations and groups, and so forth, to dominate others. In the main, world public order (like public order within Nation-States) breaks down when one or another group seeks in some vital respects to impose its will on other groups which resist. A system of world order is therefore needed chiefly to bring about that condition of affairs in which (a) the greatest degree of individualism consistent with general welfare can be maintained within each State; and (b) the greatest degree of national individuality can be maintained within a grouping of States, regional or world-wide.

3.

World order is presently obtainable (indeed in existence) in certain extremely limited areas of human activity.

The range within which it is presently obtainable is that range of affairs in which most of the human race is unwilling to accept the consequences of non-order. This is why the division of radio wave lengths has persisted substantially intact since 1928; why the World Health Organization steadily extends its area of effectiveness; why International Civil Aviation rules and the general principles of postal organization are maintained in time of peace; why regulation of conditions causing atomic fall-out is likely to occur within a relatively short time and its rules are likely to be observed either in peace or war.

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World government (in amoeboid phase) in these areas of activity is not a dream but a present reality. Yet the range of activities in which world government will impose itself by sheer weight of circumstances apparently is growing with growth of technical development and pressure of increasing economic interdependence.

For example. We are presently grappling in the Middle East with a situation in which the monopoly by one nation of a world waterway, and the overpowering position of three or four other Nation-States in production or transmission of oil resources force much of the world to recognize that either (a) these resources must either come under some form of world government or (b) tiny Nation-State organizations of humanity will hold at hazard the lives of hundreds of millions outside their borders. Probably it is still technically possible at present for the rest of the world to work out a more or less tolerable life by sacrificing these resources. But in the course of the next half-century, it may well become increasingly difficult, if not impossible, to make adjustments of that kind. Mere growth of population and demand for higher standards of living will set up increasing demands. Needed economic resources which are not freely available on all parts of the earth's surface could (in absence of some form of order) become powerful weapons with which to oppress or endanger the civilization or even the lives of other peoples.

I conclude that as technical progress grows, as population increases, and as the possibility of a higher standard of living excites human desires

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there will be increasing categories of activity in which, in peace or war, some sort of world order must exist -- as a limited form of world order in radio channels continued even during World War II. Recognizing the new categories, and building institutions to deal with them, thus becomes an essential of American policy.

4.

Aside from these limited categories, world order presently does not exist and appears presently unobtainable. This is not to suggest that it will never be obtainable; still less that attainment of some world order should not be a primary long-range objective of American policy. It suggests merely that while we are waiting we work toward such order as is attainable even though it cannot now be world-wide.

Presently this means regional organizations of nations within which order can be attained. A number of such regional organizations are already apparent; others may be in process of formation. The oldest in existence is the Organization of American States. The next oldest is the British Commonwealth of Nations. Third (if it can be brought into peaceful harmony with world order as it presently is not) is the Communist group of countries though the philosophical contradictions of that group are so great as to lead us to believe that, like nineteenth century empires, it cannot survive in its present form. Indeed, that its struggles for survival may present the makings of world war.

A fourth such group, unquestionably, is the Western European Union.

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This is in existence now as an intellectual unit. It was never achieved as a
political unit.

Other regional groups may be appearing. For example, the Arab
regional group (it has not yet indicated any great interest in becoming a factor
of order in the world but with a powerful constructive lead might be converted
into that). Still other groups may perhaps be in process of formation in the
Middle and Far East.

All of these groups have as their real core one or more factors of
common backgrounds -- linguistic, religious, philosophical or historical.
Few, if any, are built solely on the accidental coincidence of economic or
military needs, though in most of them some factor of such a coincidence
exists.

Interestingly enough, no group based *purely* on mutual defense has
ever maintained itself at all, save through short periods of time, and then
only under the influence of outside threat. Nor has any group long maintained
itself solely because of coincident economic interest. To the contrary, the
two greatest groups -- Organization of American States and the British
Commonwealth of Nations -- have maintained themselves in spite of the
fact that economic interests frequently not only did not converge, but in some
phases were probably opposed. The analysis of purely military alliances
made by Dr. Kissinger is unanswerable: saving rare instances, military
interests at certain points always tend to diverge, and this tendency seems
likely to become almost irresistible under conditions of modern atomic

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warfare. Nuclei of continuing regional organizations are apparently basically
philosophical in nature; groups of Nation-States stay together because of a
substantial factor of common agreement on spiritual, philosophical and
esthetic ideals of life.

This suggests that immediately one great phase of policy is that of
creating pre-conditions of order within regions, through steady interchange of
culture, with, incidentally, a steadily growing understanding and tolerance
of diversity. It also suggests that we are at a point where increasing
effective intellectual interchange between regions becomes of major importance.

Reason for hope lies in the fact that (without any question) there is
today greater common divisor of world-wide understanding in one great field --
technique -- and possibly in a second field -- economics -- than has ever
existed before. Scientific premises and knowledge are common currency
everywhere. Economic tools, though still rudimentary, are (surprisingly)
accepted almost on a world-wide basis. Russian economists talk the same
language as American economists; their difference lies not in their economic
analysis but in their assumptions regarding human beings.

5.

At present it is to regional combinations that we must look primarily
to prevent war up to the time when world-wide acceptance of world order by
nations can be achieved.

Maintenance of peace (unless and until there is a world community of

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nations sufficiently organized to keep order) thus depends on combinations of nations capable (a) of offering each other the best defense possible, and (b) of setting up maximum deterrent to breach of world order.

On the purely military side, we are simply groping. Military possibilities have been expanding enormously since atomic fission was developed. They will expand still further as the guided missile phase of weapons is attained. Geography necessary for defense of any nation, including the United States, at the moment requires that it operate in concert with a conglories of other nations capable of giving it "defense in depth." Obviously nations on the periphery of any such combination cannot have that defense. With full development of guided missiles it may come about that even depth does not contribute to defense; we have yet to face that problem.

It would appear immediately that an intermediate step might be evolution of demilitarized strips or areas of territory disengaging (more or less) the peripheral areas. Interest in creating such strips may perhaps have reached a point at which the two principally opposed groups of nations now might accept, in such areas, a world order; and they might entrust it to a world institution, say the United Nations, granting to the United Nations authority and resources for that purpose. Possibly we are seeing the dawn of that conception in the minuscule operation carried on by the United Nations in the Suez area now. All public order within Nation-States began by emergence of limited areas in which order was enforced by the Nation-State upon local groups or individuals. A criterion like "world order" could be of

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great help in reaching policy decisions in time of crisis -- for instance, the
present Suez crisis.

In sum, as possible pre-condition to a world in which peace can be
kept, two lines of action are opening. Both look towards our distant
objective.

The first is maintenance of groups of nations capable, when acting
together, of providing each other with a degree of defense, and of deterring
any other group from commencing war.

The second is the possibility of "disengagement" -- creation of
areas in which the United Nations or an equivalent world body can take juris-
diction and use sufficient force to prevent incursions from either side on
a scale less than major war.

6.

On the economic level, somewhat similar groups are increasingly
necessary and should be encouraged as a step towards a general economic
world order.

Geography of these groups will overlap but will probably be different
from the defense groups. Economic geography sufficient to give any region
a tolerable economic base does not depend entirely on physical proximity
and frequently defies it altogether -- as in the crucial case of oil now.

Economic groupings for commercial purposes have occurred without
benefit of government action -- for example, the Achnacarry oil cartel of

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1928. Had Nation-States accomplished this result we should have hailed it as enlightened policy. Regional economic arrangements might well be envisaged as groups of arrangements like the Achnacarry agreement, co-ordinated and super-imposed one on the other.

One may take off into more distant but still possible innovation.
Groups of nations having more or less complementary economics might elect to have a single market (a sort of Monnet Plan) including most of their output.
Or they might, in the farther future, make arrangements by which each Nation-State within them produces everything it can; each Nation-State reserves that part of production it needs, and puts the balance into a regional pool to be divided among the regional claimants who did not produce enough, leaving any undistributed balance to be disposed of to other regions. Substantially this actually occurred during World War II. It is true that in World War II the United States footed the bill. But this was because the United States was, substantially, the only great producing unit; in peacetime, there would be inflow as well as outflow.

Any such picture would almost automatically entail financial machinery to match; possibly a union of Federal Reserve Banks in the Nation-States coordinating their respective policies, providing convertibility and, within limits, some stabilization of exchange.

In distant future, we shall be looking towards a gradual fusing of regional groups. If the productive capacity of nations increases in the next half-century as rapidly as it has in the last, dreams which now seem wild would become practicable.

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7.

As Professor Georgio Santilla has noted in his recent study of the
Renaissance, "Age of Adventure," any Utopia based on "order" tends to
assume a static quality. Yet if anything is clear, men are not static, nor
are races or nations, and especially not now. If, as suggested at the
outset, we seek to protect diversity as one means of liberating individuals,
we can be certain that there will arise men and movements daring in thought,
intense in emotion, and entirely non-conformist in both. Today a world
which (surprisingly) has more elements of order in it than are commonly present
in history in some respects resembles the Renaissance far more than it
resembles either the Antonine or the Victorian Ages. In that plunging quality,
we find progress, exhilaration, danger and new perspectives. There is no
process of policy, international or otherwise, which has ever effectively
bound the minds and actions of groups of men who believe they have a new
hope or a new vision. Nor should policy attempt to do this.

It can and must maintain and build mechanisms which will prevent
such groups from attacking or slaughtering those who disagree. It should
provide opportunities for them to develop what genius they have, and channel
it toward one or another relevant phase of human affairs. It should be possible
to encourage and give opportunity for expression, artistic, cultural, scientific,
technical; and for social experimentation. It should be possible to permit
sympathetic consideration for new forms of social development and corres-
ponding cultural expression as they appear, while denying such movements

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the right of imperialist expansion. Without abandoning order, it should be
possible to protect poetic as well as rationalist evolution of affairs. The
role of "cultural exchange," rather weakly represented at present by UNESCO,
could be made enormously dynamic; and this could offer expression and
recognition providing, to some extent, a safety valve. Just as order is
sought to prevent military operations from blowing the world to pieces, an
economic order is sought to prevent great parts of the world from suffering
misery, a kind of recognized cultural disorder, a variety of international
academic freedom, is essential if the requisite "order" does not attempt to
clamp limitations on human thought and action.

This is merely to say that the concomitant of world order is world
cultural freedom, which implies freedom of expression. A world in any
enduring order must mean a world whose order provides a degree of physical
safety and economic subsistence, but only to the end that a greater liberty
of mind, spirit and communication can be achieved.

Comments by Adolf A. Berle, Jr.

at the December 18, 1956 meeting of Subpanel I

The importance of Dr. Fainsod's analysis is, of course, great. He suggests the probability that present forces in the Soviet Union will continue more or less as they are running now; that the Soviet structure will change through evolution rather than revolution; that no present change is imminent, and that American policy should be such that the Soviet Union will undergo increasing strain in maintaining military and economic structures to effectuate its Messianic or world-conquest operations.

I am not sure that we can necessarily forecast such a period of continued evolution; as Dr. Fainsod himself pointed out, forecasts are always dangerous. (After World War I the accepted forecast was the Soviet Union would evolve into a moderate, agricultural, socialist Power. Actually, Stalin converted it into something quite different. At the close of World War II, the accepted forecast was that the Soviet Union would be too exhausted to indulge in major foreign operations. The event proved quite the contrary.)

Actually, Russian history, both Imperial and Communist, is full of palace revolutions. These, though they commonly have not changed the social base (on this I agree with Dr. Fainsod) have frequently produced violent changes in intensity both in Russian domestic and foreign operations. I suggest that the possibility if not the probability of such palace revolutions and ensuing change is present here. Also, great revolutions not infrequently lead at some point into a military phase. If, for example, the Russian Army were to take over,

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though its aims might be less idealist, the problem of dealing with a Soviet
military dictatorship might be no less severe than that of dealing with a
Messianic Communist dictatorship.

Finally, I suggest that any changes even though evolutionary (though
especially if they take the form of revolutions, palace or otherwise) are not
likely to be predictable in result, or capable of being canalized.

We need not, and do not have to, assume that recent changes in
Russian policies have yet created an "irreversible trend" toward moderation
and liberty in the country. But, when a Russian changes his intellectual
premises, his instinct usually leads him to push the logic of his new premises
to extremes not usual in our thinking. Extreme policies can result from this.

This, as well as reading history, leads me to believe that when changes
occur in the Soviet Union, the resulting tide of events is likely to be
uncontrollable, and uncontrolled, leading to unforeseeable results.

All this suggests that the United States should maintain its armament
and maintain its economic policy of assistance to underdeveloped areas. But
this should be done, not primarily as an answer to the policies of the Soviet
Union, or to exert pressure on it, but primarily in furtherance of our own
national and international objectives. For example, it may be a very good idea
to assist "Titoist" countries in their respective frame -- but this ought to be done
not as a "cold war", but because we see some objective in these countries worth
attaining. Again, without lowering our guard, when Russian developments seem

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to move in a direction of which we approve, we ought to welcome them rather
than reject them as merely fraudulent. Russian intention may well be to
deceive; but we should welcome the words, and ask evidence that they are
being implemented.

Broadly speaking, instead of endeavoring primarily to stimulate changes
in the Soviet Union, we should be endeavoring to encourage the forces giving
effect to the values which, we think, will make for a world at peace. Changes
in the Soviet Union may well be a by-product of American pursuit of her own
philosophical aims; but the realization of American aims, not the negation of
Soviet aims, should be the guiding principle governing American strategy and
tactics.

Both the United States and the Soviet Union depend on two elements:
(1) Their power -- military and economic; and (2) Their influence over the
minds and eventually over the political action of other peoples by reason of
persuasive moral leadership.

This second element is the co-efficient of power for both countries.
The outcome of a contest between them, political, economic or military (if it
comes to that) will ultimately be determined by the capacity of the latter element
to influence action by other peoples, thus increasing (or decreasing) the
respective capacity of the rivals.

Both leaderships interact on each other; we will, presumably, learn
from the Communists; they may learn from us. But the essential reliance must
be on the integrity and strength of our own purposes and leadership, and

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MR. BERLE: Mr. Chairman, if I take the panel suggestion it would be
that you eliminate Chapter I, that you begin with Chapter II and run on through,
that you isolate the various elements that you otherwise might group in the
now eliminated Chapter I and make them as integral elements. That strikes
me as an entirely possible way of going at it except that I wonder whether you
would not wish to reserve space after you get through with those four chapters
for a summing up. It is interesting to note that in this committee, we are, I
think for the first time in an economic discussion (though certainly not for the
first time in a political discussion) isolating certain moral and philosophical
elements as being dominant in economics -- that subject will come up later
in the afternoon. But I wonder whether the present matter might not be accorded
if we do proceed first by translating political, social, economic and inter-
national traditions into both the present problem and its apparent moral domi-
nants. Later we can raise the question whether, as a summing up of Part I
we may not wish to indicate the tremendous impulse given by certain philosoph-
ical conceptions which are normally unstated but are apparently constant as
a source of American vitality.

DR. McKEON: I think it is highly probable, in fact, that making this
approach, we would be able to put in a limited space and with somewhat
more clarity than can usually be achieved, to state something that at least
Subpanel VII could agree upon as being moral and philosophic grounds of this
entire institutionalized structure that we have been describing.

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MR. BERLE: Certainly dominant elements in it. My own feeling is dictated partly by consideration for the staff here. It is obvious that they have to get to work on some kind of an agreed outline; you can't leave it indefinite. All of us have so much experience with outlines that we are quite willing to agree that the finished product will depart from any outlines in a number of different ways. But if we can give the staff a clear line, we have done what they ask today, and we can reserve in our own minds a place for the eventual affirmation in the form which is of most use.

I have wondered myself if a better word than "heritage" which has been pretty much kicked around recently, might not be found. I shall have a few words to say on that about Chapter IV later. I am agreeable to the use of the word "tradition" though there is a question whether we have a "tradition" for tomorrow in a situation which is so rapidly evolving.

MR. ROCKEFELLER: Why don't you speak on Chapter IV now, which might give a very interesting interpretation of what Dr. McKeon is saying, as you see it, in the way of treating that material under that heading?

MR. BERLE: I would like to state for the record that my statement was not worked out in collusion with any member of Subpanel VII in spite of the fact that in a different context, I believe it falls closely in line with the Panel VII statement made this morning. I think this ought to be stated.

It is the genius, or perhaps the tragic fate, of this committee to ask the right questions which are also questions which should have been answered

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long before, but for which there appears to be no accepted answer. I studied
myself, and just casually in conversation asked Dr. Burns whether any serious
attempt had been made to isolate those elements which have made the American
economic system rather different from, and certainly more dynamic than, other
economic systems theoretically constructed on more or less the same base.
I've been able to find none, and Mr. Burns, infinitely more familiar with the
literature in this field, tells me he knows of none.

Faced with that, I have made a pitiful first attempt to try to see what
was going on here that made of our American economy something rather differ-
ent from other economies.

The achievements of the American economic system need not be detailed
here; we are all familiar with them. First, its productivity is unique. Second,
in recent years, (actually in the last 25 or 30 years) it achieved the revolution
in distribution about which Mr. Burns just spoke.

At all events, the net result is that for the first time in history in the
case of any large power serving a large block of population, we do have first
an enormously productive system -- a system producing far and away beyond
any known system heretofore, as far as we are aware. Second, we have a
degree of distribution which, while it cannot be said to have abolished want,
has gone much farther towards this than in any system covering any comparable
block of population anywhere. The only comparable results you can find are
in very small countries like Denmark and Sweden, which I cannot believe would
be fair comparisons. We can start there.

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Any student of this system, I think, would be willing to say, and most of them do, that the American so-called "capitalistic system" cannot be said to be the same as other capitalist systems throughout the world. It has elements in it which apparently have given it additional characteristics -- especially we like to think those of vigor and vitality. This raises the problem of what elements were added to or subtracted from, let us say, the traditional capitalism which emerged in Western Europe, and in parts of the Far East such as China and Japan. I here make a very rough shot at it, I would not like to claim more than an attempt to make a sophisticated hypothesis. Analyzed, the American differences appear not to be primarily economic elements; they are rather philosophical, or if you like, moral elements. It seems to me that Chapter IV fairly belongs, therefore, in a part of the book dealing with moral and philosophical problems.

If we examine the American system as it emerges, say at the time of the 1800s, it looks and in many respects is, very much like the English system. Even there it obviously had certain added liberty of action in it, largely occasioned by a sparse population, but still not materially different from the economic system you would find in other places. Then, it begins to take a different form. I summarize conclusions without going over the long recapitulation. I do note that when the American Revolution had taken place, there was a new political machinery, and there was a new political concept about how it should be used. Specifically, there was this theory of general participation in political action. The result was that America was able to bring to bear on its economic system certain moral concepts, largely through political

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action; either formal or informal.

Let us take first certain elements that appear to have been subtracted
from the American political system.

The first and most important subtraction was the feudal family concept
of property. It did not go out all at once. Elsewhere, a feudal family concept
survives, not merely land systems but also in the corporate system. Not
so here. Even today, a marked difference between the American corporation
and the European corporation is the fact that behind the European corporation
there is commonly a family group which moulds the entire function of the
enterprise along the lines of their assumed family interest. Frequently in
Europe enterprises are not permitted to grow larger because they would get
beyond the scope of manageable family enterprises. Often there is a handling
of management so that it shall provide a hereditary or quasi-hereditary oli-
garchy with continuous position. Elements of that kind over the ensuing century
and a half were in great measure eliminated in America, first in the land system,
and later in the corporate system.

The second subtraction, I think, was the elimination of rigid lines
between classes. The class system did not end in Europe in the 19th century,
and to some extent, to a very appreciable extent, has not ended yet. Though
its legal sanction may have disappeared, the social fact has remained. It
has remained in Europe imbedded in the minds of men as the way things ought
to be. On the other hand, in America we had a general assumption that a
class system was the way things ought not to be.

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I suppose this phenomenon comes within Father Murray's suggestion that a general distribution of participation was an essential element in the "good society", was a moral imperative in American life. We thus had to liquefy the class system. We didn't always live up to the ideal, but the rigid lines, at least, were eliminated and men could move from class to class.

Third, and this has, I think, occurred literally in my lifetime, came real elimination, not merely of barriers in passing from class to class, but also the rapidly growing elimination of the class system itself. I think we are getting to be, as Potofsky said, a single-class country, actually, a middle-class country. We have not fully achieved that yet, but we're getting there. This proceeds from, or at any rate goes along with, the steadily widening distribution of income and economic benefit.

Now, those three elements obviously subtracted a tremendous limitative force and I think, gave unique impulse to the American dynamic. I wish I could undertake to say that as a matter of scholarship, this had been proved. The essential questions have been asked only recently. But I suspect that in certain respects at least I could document the thesis.

Positive elements were also added.

The first addition, I think, again is a form of one of the moral imperatives expressed this morning. There was a general, though commonly unexpressed conviction that an economic or business enterprise was "legitimate", or justified only if it accomplished something useful, that is to say, fulfilled a human want. It is true that we have had tremendous speculative fortunes from time to time; they have been recurrent phenomena. But the speculator

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has not been esteemed, he has not been sanctified, he has not been a part of
the accepted fabric. Accollade and status and prestige and esteem do not
normally go with speculative success. But they were accorded to the enter-
prise and its managers which fulfilled some kind of a want.

The second added element lay also in the field of "moral imperative",
an imperative that the forces of economic achievement shall be generally dis-
tributed. Whether it is part of the Protestant ethic or something else, I don't
know, because I recall that a Jewish kingdom a thousand or so years before
Christ required that all property be divided up every 50 years. In America,
the imperative derives from a strong feeling that the benefits of economic
achievement have to be made, and must be made, generally available to the
whole community. This is not equalitarianism. It is an insistence that there
shall be enough to go around, and a system that sees that it gets around.

Its more recent phase though results in a consensus of feeling that,
wherever you find an area of want anywhere in America, the misery is not
merely a call on the benevolent and kindly feelings of individuals, but also
that there is something in the economy that is structurally wrong and ought
to be cured. This is the latest and present phase of this added moral element.
We now think of a group of poor men in misery not merely as men who need
to be treated to a square meal, but as a challenge to go to work to find out
why that misery happens in the American system. We haven't completed that
job yet; but this is now the American approach. It is a persistent one. You
find it beginning as far back as Jefferson and in various phases, continuing

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to a very high degree of intensity now.

A third added American element goes along with that and probably is companion to it. This is the feeling that wherever men are at a disadvantage in dealing with the system, they should be able to organize themselves so that they can meet it on more or less even terms. This came relatively late.

The labor movement represented by Jacob Potofsky at this table, of course is the great illustrative phenomenon of this principle. The idea that this came by spontaneous moral recognition of course violates history. Labor organization, like other organizations for economic defenses, involved a fight in the beginning, and all the way. But it is interesting to note that aside from the early stages, the principle had the steady support of the American public, even though it involved a change in the legal system to give it effect. I think that from the time when the issue was first raised in tentative form by Andrew Jackson in the election of 1828 on, you discover that there has been a steady driving support in what we call the American "consensus," that is, the American public opinion, which finally made it possible for labor to organize, for cooperatives to be formed, and so forth.

The fourth and last addition I submit with some hesitation. I think America is always preoccupied with the danger involved in power. Therefore, in the American economic system America has developed a strong consensus of feeling that there must be a variety of compulsory separation of power; that is, that economic power should not become dominant in or unduly mixed with the political; that the power of an organized enterprise (this would include labor unions as well as big corporations) should be generally limited to the functions

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which they are expected to perform. Thus, a labor union is quite able, perhaps, to represent its men in respect to wages and working conditions. But if it undertakes to instruct or require them to adopt a particular religion, or to regulate their personal habits, there is an immediate reaction of American public opinion that at this point the organization has become somehow immoral and is making an immoral use of its power. Equally, an American corporation is widely accepted in its decisions on manufacture, merchandising, price, and so forth. But if it undertakes to tell its workmen or its customers how to vote, there is exactly the same reaction of protest. So that in this American system, we did what never is done in most countries abroad -- we exacted through this consensus of opinion a separation of the job which the particular enterprise or group was expected to perform, from other functions in the community.

This is in a way analagous to the constitutional separation of the executive from the legislative, and the legislative from the judicial power. As it turns out, the result seems to add an element of strength in the economy. The contrast is with great parts of the world, (notably parts of the East and importantly, parts of Europe), where it is impossible to conceive that any great economic position should be separated from political power. What are you in business for? There is an automatic assumption deeply imbedded in much of the European folkway, particularly the Roman tradition that the economic and political power automatically mix. During great periods of history, indeed, organizations for trade purposes were allowed to exist only under a permit from the political power, so that the political power could either use such

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organization for its own ends, or at least so handle them that they could not
become dangerous to it. This issue is not unknown in the United States. The
trick of mixing economic and political power has been tried. I do feel warranted
however in stating that the American "consensus" has regularly reacted against
that mixture.

I have here deduced what seem to me to be four additions to American
economic organization and three eliminations, though these three may be really
only two if you analyze them. I have stated merely an end result. I have omit-
ted a lot of intervening material, some of which is statistical. If my reasoning
is sound, it is accurate to say that the central problem is essentially a problem
of power.

We are now meeting that problem in a context in which I think it is
fair to say the road is uncharted.

I do not know whether we can use the words "American tradition,"
except in this moral sense, as valid in terms of the economic organization that
we are running into in the next phase. Professor Burns is equipped to deal
with that more competently than I because he is a professional economist. I
myself do not see that there is any norm that you can regard as a "heritage"
which would apply to the action of the concentrates, let us say, of not more
than five large companies controlling more than 50 to 60 per cent of an industry,
in industries which themselves are essential to most other industries. Behav-
ior of oligopolies is a matter which they have to pound out without, as far as
I am able to see, any ability to draw on past American experience. So we are

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moving into some situations here in which we are slowly manufacturing new applications.

I have to add that our own theory at the Columbia Law School is that there is a moral consensus so strong that in certain aspects we teach that there is what he have chosen to call a body of "inchoate law". This is a set of principles which can be applied in a number of outstanding situations. The young lawyer is told in such cases that while there may be no statute law, no court case, no decision in point, nevertheless if the principle is violated, he must advise his client to expect political action almost at once. This may take the form either of a court decision against him on some theory or other; or of legislation which will deal with the field, or possibly, merely a public outcry so great that the concern will be required to change its position.

This is an application of a moral or philosophic principle, so persistent that you can predict its recurrent appearance.

We say, for instance, that a large corporation has to fulfill certain duties by itself or together with associate companies, when it is in a position of power. (There is a difference between the great corporate structures and the garment industry with which Mr. Potofsky is familiar which is in the main a small-unit industry and which, in that respect, is atypical).

We are speaking here of the kind of situation you find in copper where three companies have 80% of the product; in aluminum, in steel, all industries connected by a few companies with large majority of the output. Many industries are in that condition. We say, in substance, that corporations in such situations are obliged to observe a number of rules.

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First, their function is to produce in accordance with demand, and that is their first duty. If they fail to do that, they are in trouble. The steel industry, for example, was in trouble in 1947 when it had failed to estimate the effective demand, and production lagged.

The second; great corporations must make the product available at what we like to call an acceptable price. This is not a "public utility" price. This is a price that the community accepts as not being an abuse of the power of a concentrated group, especially when there is a strong single unit in it which can set the price by the "follow-the-leader" process. In these situations the price becomes virtually an "administered price," and that is the chief American method of price structure now. Third, we say that concentrated economic power has to take care of its labor force more or less continuously. This last, a rather old conception newly coming into new application, simply means that in handling its affairs, corporations have to plan for continuous employment. In other words, they have to abandon the theory that labor is something you pick up when you need it and throw back on the community when you don't need it. The kind of private economy we are developing has to make provision for that.

Fourth, we begin to discern a requirement that concentrated industry must continue to advance the art or technique in its chosen field or fields. No corporation is now able to paralyze, or refuse to use, or in any way stifle legitimate technical extensions. Technical advance must keep right on going.

If you go back over this incomplete analysis, you will see that the American system, with eliminations required by this American consensus, and

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with additions dictated by it, won certain great freedoms.

It was freed from any doctrinaire approach. The American economic system has at one time or another used all kinds of doctrines. Like Barnacle Bill the Sailor, it loved them all and married none. It can, with complete philosophical detachment, be socialist when it is dealing with some kinds of enterprise; be extremely individualist when it is dealing with others; construct a mixed system when that seems to be necessary; and in some industries at the moment it is a pure melange.

The American consensus, apparently, had very little interest in the issue of "socialism" as against "private initiative". It had very little interest in any doctrinaire theory that industrial property had to be private. It was completely capable of using any approach that got the job done. It was primarily pragmatic. While there is a smoldering, and sometimes not-so-smoldering controversy as to whether the TVA is socialist or not, no one in the South really cares. What the South wants is the electricity, and this is the way they can get it. So, this is the way they're going to get it. It might well be that in any other area of operation they might not feel this way at all.

Toll roads, which now become the gradual replacements of great parts of the railway systems, have been built by the state on a toll basis. Nobody has arisen to say, "Why isn't this private enterprise?" Nobody really cares.

What they want are the roads. Equally, in great other matters of where the statist approach would produce an inefficient result, or may involve danger, you get a different result. There is no interest in nationalizing the American Telephone and Telegraph Company, although it is a huge monopoly with

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enormous potential power which it happens never to have abused, because it
has done an amazingly good job.

I therefore submit that freedom from doctrinaire approach probably
amounts to a freedom from a whole range of limitations.

A notable contribution of the American system was, I think, that our
theory of political participation, and our attempt to work out political democ-
racy for this end, made it possible to use that to impose ethical ideas of the
American consensus whenever the conflict between these ideas and the prag-
matic folks became acute. The history of the American economic system is
its constant correction by a series of political interventions dictated by their
ethical ideas.

It is difficult, around this table, to mention some of that history with-
out coming close to a few friends and personalities. We recall, of course,
the first great intervention -- the Jacksonian intervention against the credit
system worked out by the Federalists. They had made an attempt to get a
monopoly system to work out a system of bank credit. The Jacksonian inter-
vention was based on the feeling that the Bank of United States monopoly
violated the American consensus. The ensuing result wasn't so good. Over
a long period, we finally worked out a planned credit economy, carried out
through relatively small units, coordinated by the Federal Reserve Board into
the banking system which we have today.

Perhaps the second great intervention was the subsidization of the
great transcontinental railways. That was an old mixture of socialism, and

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private initiative, and it had all kinds of strange, and not infrequently corrupt undertones or overtones. But the people wanted the railroads and sorted their theories out later.

The third intervention was a doctrinaire approach -- this was the Grange movement. It began by being doctrinaire European socialism. The Grange is now one of the great conservative organizations of this country. But if you have ever been initiated into it -- I have -- and you have read the oath, or whatever it is that you're expected to sing, you will find that it is taken straight out of French Socialism -- it couldn't be more socialist. You affirm your belief that the public should own the major instruments of production. Every member of the Granger has said that. Then he comes to Washington and protests "creeping socialism"; maybe, because it doesn't creep in his direction.

Political intervention based on the idea of the American intervention wherever there appears to be a need unmet, or where there appears to be an abusive power, emerges as a constant element in American economic history. The United States government, for instance, intervened with the strangest combination of socialist banking and individual speculative economy in the field of housing. The result is the FHA today. I think Mrs. Rosenberg would agree that this is straight statist banking but on the basis of it individual speculators were expected to go to work, and have, and did. There will remain the inevitable accounting, to see whether the resulting price of housing was an acceptable price. Probably we shall have that later, if not sooner.