How Free Is the Free Enterprise System? Clyde Mitchell, Chair, Dept. of Agricultural Economics, University of Nebraska 5-18-1951

Excerpt:

Some farmers seem to have a guilty feeling about asking for planning, assistance, or any other sort of governmental or cooperative action to maintain farm income. I believe there is nothi8ng uneconomic, unnatural, or unholy about such requests from our farm people. In fact real competition is almost absent on the American economic scene except in agricultural industry. Farmers are becoming more aware that prices of non-farm things do not behave according to the rules of competition.

***** The economics that is taught in most schools is the so-called classical laissez-faire type of economics in which all control and direction of our economy is assumed to come about through action of free and pure and competition. For this laissez-faire idea to be realistic there must indeed be free and pure and perfect competition, not just in a few pars of our economy but throughout our economy. ****

Is capital really mobile in our economy? Is it not true that capital once invested in productive enterprise in this country becomes, from that moment, “frozen” and cannot be readily removed to other enterprises. The theory of classical economics demands that capital be genuinely mobile.

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Now let us consider a few of the many legal and institutional reasons why we do not have free and pure and perfect competition, and why we have such great rigidities in our price system. There are patents, trademarks, protective tariffs, fixed long-term interest rates, fixed rental contracts, fixed wage contracts, and many others. There is the Miller- Tydings Act (the so-called “fair trade act”) which specifies that a manufacturer can set the price which retailers must charge for his products.

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We know we do not have the control-less system of the classical economists. Must we have a completely controlled economy of the fascist type? I think not. I believe the correct alternative lies at a idle point and a middle point which is in complete agreement with the American tradition. I believe we want a system where such industries as do follow the rules of competition will be controlled by competition. Such industries as cannot follow the rules of competition and are by nature imperfectly competitive will have to be controlled by the people. **** When people talk about the absence of controls in the economy of the last century, good economic historians today are doubting either their motives or their knowledge. We are learning more and more that the economy of the last century was not uncontrolled, but the controls were of a private and selfish and usually a hidden nature. Some people ask me if there are not far more controls in our economy now than we had in the last century. My answer is that the economy is no more controlled now than it was in the last century, but the controls which private interests exercised in the last century are being recognized as such. The public is asserting its right to exercise the controls itself. **** The ones who exercised control of our economic system in the last century were generally the richer and more vocal segments of our society, the industrial overlords. When control of imperfectly competitive activity is shifted from those people to the mass of our people, there is always a tremendous howl, an outburst of protest from the people from whom control is shifted, because those interests of course have always controlled our press and our other media of information. Because of the noise made by these howlers, some people are fooled into believing that we are putting more and more controls on our economy when in reality we are merely shifting controls which have practically always been on our economy but have been unrecognized by the citizens of this nation. It is quite probable that the net amount of control on our society is less now that it was in the last century. **** When the public decides to take over the control of imperfectly competitive industry from the hands of private and selfish controllers, the question always arises: what sort of control shall we have? In the past this question has too often been settled by setting up a government bureau or regulatory commission. I say “too often” because the same kind of control over monopolistic and semi-monopolistic and imperfectly competitive segments of our economy could be exercised more cheaply and more efficiently by the people themselves, in the form of cooperative endeavor. **** I am saying that cooperation is the great mid-point between the extremes. **** The real reason for our fear of monopoly has never been because of its size, it has always been because of the monopoly price which monopolies can charge. A cooperative organization which runs a monopolistic or semi-monopolistic industry cannot be guilty of this crime, because all savings, over cost of production, are by contract returned to the participating consumers or producers.

(Note by A. Allan Schmid: Mitchell’s entry point is monopoly pricing rather than the Marxist concern with the capture of “economic surplus.”)