ne century ago this year, the Wharton lished work in which Patten foresaw such Maynard Keynes, the psychology of the School dismissed the most esteemed phenomena as the rise of economic fed- 18th century with the insight and challenge O and innovative theoretical economist eralism, the success of feminism, chang- of Freudian psychoanalysis, and the poli- who had ever passed through its doors. es in consumption habits and a general tics of Lincoln’s America and Bismarck’s Simon Patten, who was appointed rise in the standard of living, realign- Germany with the politics of the New Deal Wharton’s first professor of economics in ments of industrial and social control, and later periods.” Writing the year after 1888 and directed the school during its and future programs of taxation. John Patten’s 1922 death, Tugwell noted the fre- formative years from 1896 to 1912, was a Bates Clark, a pioneer of the marginalist quent prediction by his survivors that public intellectual whose breadth and revolution in economics (whose name Patten’s “reputation will grow with the originality left many of his contemporaries graces one of the field’s most prestigious years.” Sixty years later, in his definitive grasping for words to describe his insights, awards), once remarked that Patten 1982 history of the Wharton School, Steven which sometimes verged on the oracular. “anticipated all the later developments A. Sass judged him “perhaps the greatest Johannes Conrad, the eminent German in economics.” Patten is also credited mind in the history of the institution.” political economist under whom Patten with coining the term “social work,” and studied, was known to have said that he became a thought leader in debates learned more from Patten than he had about the roles of philanthropy and civic “ever learned from any one man.” Patten’s action in elevating the poor. student Rexford Tugwell W1915 Gr1922 “His thought,” biographer Daniel Fox Hon’71, who helped shape the New Deal summarized in 1967, “connected the world as a member of Franklin D. Roosevelt’s of John Stuart Mill with the age of John original “Brain Trust,” called him a “bril- liant mind” whose “prophetic power” was demonstrated by a sprawling body of pub- Simon Patten, who led the Wharton School during the Progressive Era, was a pioneer of the economics of abundance, theorist of the second industrial revolution, and intellectual godfather of the New Deal. His descent into obscurity poses provocative questions about how the field has evolved.

By Trey Popp PROPHET OF PROSPERITY

48 THE PENNSYLVANIA GAZETTE Nov|Dec 2017 ILLUSTRATION BY DOUGLAS JONES Nov|Dec 2017 THE PENNSYLVANIA GAZETTE 49 Yet Patten today has fallen into almost Exceeding six feet in height by his 14th total obscurity. birthday, Patten seems to have been des- His books, long out of print, molder in tined to stand apart wherever he went. remote storage at Penn Libraries’ offsite Tugwell described him as “overgrown facility. His name is absent from encyclo- and awkward, with enormous hands and pedias of economics. The analysis of feet which he was never certain how to political economy and industrial eco- dispose of”: a country boy in the city, yet nomics that distinguished both Patten one who felt “alien among his people” in and Wharton during his tenure has van- rural Illinois. ished not only from the classrooms of “Patten carried a high pressure, long Huntsman Hall, but from Anglo-American unreleased, of idealistic steam,” Tugwell economics writ large. And according to reflected. “He longed to reconstruct the Richard Gelles, the former dean of the SIMON PATTEN world, to liberate the oppressed, to carry School of Social Policy and Practice: “As the truth to the unenlightened—in short, best as I can determine, most social work- hay. William, like Simon’s mother Betty, to expend the unlimited intensities of his ers today have no idea that a Wharton exemplified the American homesteader energy in the service of his fellow-men.” professor developed the term social work.” ideal. They were god-fearing Presbyterians Such ambitions were incompatible with It is not much of a stretch to presume who struck out westward and transformed a life spent behind the plow. Yet the very that Gelles’s observation applies equally what was widely (though erroneously) con- notion that the world could be reconstruct- to the vast majority of present-day sidered poor land into a cradle of abun- ed was deeply enmeshed with Simon’s Wharton students and alumni. And dance. William became a church elder and upbringing on the farm. Patten “knew therein lies a suggestion of what is so served in the state legislature, where he what it was to swing the scythe,” Tugwell fascinating about Simon Patten, and why voted for Abraham Lincoln in the momen- noted, but he came of age amid the dizzy- he is worthy of rediscovery—especially tous Lincoln-Douglas 1958 senatorial race. ing spread of mechanical mowers, reapers, right now, when the United States is Stephen Douglas’s narrow victory in threshing machines, and other powerful wrestling over the benefits and draw- that contest derived partly from what multipliers of agricultural productivity. backs of free trade, protectionism, and might be called the original “October sur- “Working beside his father,” observed monopoly power more contentiously prise,” when he received an eleventh-hour Simon’s biographer Daniel Fox, “he had than in perhaps any era since Patten’s endorsement from John Crittendon, a learned that poor land could be made pro- own. For Patten’s disappearance cannot former Kentucky governor, senator, and ductive by hard work and the application be explained purely as a function of his US attorney general who had joined the of scientific techniques, that these tech- accomplishments and failures as an American “Know Nothing” Party. The elec- niques enabled poor land to increase in economist. It is also a consequence of toral outcome was a last gasp for a fragile fertility more rapidly than rich land, [and] how the field itself has evolved over the political alliance between slavery accom- that fertility was a function of the variety past century—to a present that finds this modators, free-traders, and anti-immi- of crops produced on a piece of land.” nation and many others mired in dis- grant nativists. Two years later Lincoln This knowledge, Patten would soon dis- agreement about the legacy and future defeated Douglas to win the presidency, cover, ran contrary to some of the central promise of laissez-faire, globalization, on a Republican Party platform that premises of classical economic theory—and and other aspects of orthodox economic opposed the expansion of slavery, advo- therefore posed a challenge to the free- thought in our age of extremes. cated freedom of immigration and full trade orthodoxy that flowed from it. citizenship rights for immigrants, PRODIGY OF THE PRAIRIE demanded a free homestead policy, and THE GERMANOPHILE called for protective tariffs in the service Simon Patten was born in 1852 and reared of industrial development and “secur[ing] AND THE QUAKER on the northern Illinois prairie. His to the working men liberal wages.” In 1876, after a year and a half at North- father, William, had acquired a parcel That ethos, fused with a staunch com- western University, Patten joined one of there under the Preemption Act of 1841, mitment to what would come to be called the first waves of collegiate Americans to which permitted squatters to buy federal the Protestant Ethic, shaped Simon seek a variety of intellectual enrichment land at a discount. He transformed it into Patten’s passage into adulthood—which abroad that had proved elusive at home. a farm where shorthorn cattle, hogs, and came late enough for him to elude the At the University of Halle in Germany he horses grazed amid fields of oats, corn, and carnage of the Civil War. encountered Johannes Conrad, an influ-

50 THE PENNSYLVANIA GAZETTE Nov|Dec 2017 Joseph Wharton demanded that the “fungus” of free trade economics be stamped out in ential professor of political economy who the classrooms of his new school. challenged the dominant British school of classical economics and had begun to chart an alternative. Whereas David “established himself in the image of a Ricardo and Thomas Malthus held up the German professor,” introducing the first concepts of diminishing returns and pop- research seminar in the University’s his- ulation growth as natural laws that con- tory, titled the “Seminary for Political demned men to lives of scarcity and hard- and Economic Science.” Soon a dispro- ship, Conrad marshalled economic data portionate number of faculty had the to demonstrate that the long-term trend University of Halle on their résumés. was in the other direction. Phenomena After returning to Illinois Patten wrote like birth control, crop diversification, a volume titled The Premises of Political technological advances, and the growth Economy, which won him a faculty of world markets promised to propel appointment in 1888, as a professor of mankind into an age of abundance. But political economy. only—as Patten would go on to argue—if It did not take long for Patten to prove developing countries, and especially the his value to Wharton as “the only leading United States, unshackled themselves academic economist to defend the doctrine JOSEPH WHARTON from British economic orthodoxy. of protection,” as Sass recounted. Patten’s Back across the Atlantic, another man next major work, The Economic Basis of was thinking along the same lines. Joseph trators with explicitly civic-minded val- Protection (1890), “gave the policy perhaps Wharton was a savvy Quaker who had ues. Whether they chose to “serve the its most sophisticated and interesting parlayed his early training in chemistry community … in offices of trust” or man- theoretical defense” to date and “immedi- into an industrial empire stretching from age private enterprises according to ately established Patten as the nation’s fertilizer and zinc oxide works to Bethle- “sound financial morality,” they would leading academic champion of the tariff.” hem Steel. He believed that the develop- focus on solving “the social problems ment of American industry required jet- incident to our civilization.” THE GREAT BRAIN OF tisoning the free-trade theories that had Aside from those generalities, the indus- lately taken root in England—and that trialist had a specific pedagogical demand: PROTECTIONISM justified American dependence on British that the “fungus” of free trade economics Patten’s case for protectionism was, in manufacturing on the basis of Ricardian be stamped out in the classrooms of the reality, subsidiary to the two great objec- notions about economic efficiency and new school. “No apologetic or merely tives that shaped his life. The first was his comparative advantage. defensive style of instruction must be toler- fixation on eliminating impediments to “The prestige universities like Harvard ated upon this point,” he admonished the an age of abundance. Yet the teetotaling and Yale were all pro-trade,” says eco- trustees in 1881, “but the right and duty of Presbyterian grappled just as vigorously nomic historian Michael Hudson, a national self-protection must be firmly with anxiety about what such an age research professor of economics at the asserted and demonstrated.” might bring: “He refused to discard the University of Missouri-Kansas City. “They “Essentially,” says Hudson, “the Wharton nagging fear,” as Fox put it, “that unre- were affiliated with the trading interests. School was the think tank for American strained abundance might turn potential And there really wasn’t any manufactur- industrialization. … [Its founder] was say- paradise into actual hell.” ing industry, apart from Pennsylvania, to ing: Look, if we’re going to industrialize, Throughout history, the hell best known push its own interests.” we need a whole theory of how to get a to man was patrolled by scarcity, insecu- So Wharton, perceiving what he trade policy and a government infrastruc- rity, and the constant mortal threat posed dubbed an “intellectual hiatus in the ture policy to support industry.” by nature’s capriciousness. “All civiliza- business life of the nation,” endowed an Where could faculty be found to devel- tions before the 19th century,” Patten entirely new kind of college at the op and teach such a corpus? Among the declared, “like the primitive societies of University of Pennsylvania. The Wharton bright Americans who had trained in the Western world to-day and the back- School of Finance and Economy would Germany. One of the first and most con- ward despotisms of the East, were realms train a rising elite in “business manage- sequential hires was Edmund James, of pain and deficit.” With the dawn of the ment and civil government.” He envi- who had studied at Halle alongside Steam Age, however, came the potential sioned a new class of virtuous adminis- Patten and quickly, according to Sass, for economies based on pleasure and

Nov|Dec 2017 THE PENNSYLVANIA GAZETTE 51 plenty. In fact, the age of surplus was an industrialized nation and a largely British were just beginning to preach already dawning—but people had not yet agricultural one was especially pernicious, free-trade theory in earnest. They abol- awakened to this momentous fact. for it condemned the latter to specialize ished the famous Corn Laws in 1846, Patten was “almost alone,” Fox noted, “in in an area of comparative advantage it exposing their inefficient domestic farm- his effort to replace the assumption of scar- might do better to outgrow. ers to competition from overseas. Yet city with an assumption of potential abun- “Cuba would be more prosperous if she over the previous 150 years England had dance.” Malthusian pessimism so perme- were less fertile for sugar, for then strong-armed its way to prosperity by ated economic thought that the discipline Spanish misrule would not be possible,” violating every rule of free trade.” had become known as “the dismal science.” Patten declared, articulating what a cen- What distinguished Patten’s argument For Ricardo, the way to make the best tury later would be dubbed the resource was the “economic vocabulary” he had of mankind’s bad situation was to follow curse. “Coffee hasn’t made Brazil or Java learned in Germany, says Hudson, who the dictates of “comparative advantage,” rich. If a blight upon the grape-vine wrote a book about American protection- perhaps the most seminal of his many should force the people of Portugal to use ists between 1815 and 1914. “He was able contributions to the field. Its thrust was their land for a [wider] variety of uses, to take the protectionist technology that a country should focus resources only the loss of relative advantage in grape impulses and political impulses and on those economic activities where it had cultivation would be a national gain.” explain them in economic terminology,” the biggest competitive advantage over Patten viewed comparative advantage Hudson says. “He always emphasized agri- others. Ricardo argued that even profit- as a formula for destructive monocrop culture as well as industry … And he out- able industries should be jettisoned in agriculture, because land could only lined the logic of protectionism, which favor of still-more-profitable ones, reason- achieve its maximal value when devoted was the exact same logic that America ing that the outsized gains of the latter to whatever single crop it produced most used to build up its industry and to would provide a maximal fund with which efficiently. International trade further nar- become the richest country in the world.” to purchase products of the former. It rowed the spectrum of cash crops to those Patten’s case championed labor as well therefore followed that unfettered inter- most amenable to long-distance shipping. as industry. “The prominent injury of national trade always benefited all parties. Ricardo rooted his theory of rent on the free-trade,” he wrote, “arises from its ten- In his classic example, Ricardo contend- assumption that soil had “original and dency to force the labor of each nation ed that Portugal should import cloth from indestructible powers.” Patten, having into a few industries.” Constrained from England even if Portuguese producers internalized the necessity of crop rotation entering a broader range of occupations, could produce it with less labor—because and diversity to sustain fertility, knew bet- workers were not only at the mercy of Portuguese wine could be produced with ter. In the United States, cotton planta- monopoly employers, but prevented from less labor still. Portugal would thereby tions had exhausted soil fertility through developing the “latent qualities” that “obtain more cloth from England, than broad swathes of the American South— would be drawn out by diversification. she could produce by diverting a portion whose enduring status as an industrial The specialization inherent in compara- of her capital from the cultivation of vines laggard and a bastion of extreme inequal- tive-advantage trade might drive down to the manufacture of cloth.” ity was no coincidence. the cost of production, but that cheap- Patten rejected this as a recipe for stul- A developing economy that yoked its for- ness carried a high price. Countries that tification, monopolism, and agricultural tunes to unfettered trade was thus likely to failed to develop diverse industries lost ruin. Like the Germans, Patten rejected hamstring its own development. Patten was out on new skills and technologies that the universality of the alleged “natural by no means the first to make this case. could make existing enterprises even laws” of economics, arguing that historical Alexander Hamilton had articulated it a more productive. Consumers might have contingencies and institutional charac- century before. And in fact, the dominance to pay higher prices, for a time, to sup- teristics caused different economies to of British classical free-trade theory served port fledgling industries protected from function in different ways. Comparative to obscure history’s best example of protec- competition. But the maturation of those advantage might work among techno- tionist growth: England itself. industries would pay dividends to a pro- logically static economies, but it under- The German economist “Friedrich List gressively larger number of citizens— mined economic dynamism. In a dynam- had railed on about exactly this point in laborers and capitalists alike. ic economy—such as America’s—progress the 1840s,” observed James Fallows in a “A nation which relies solely on a few came in different sectors at different 1993 Atlantic article about that pioneer industries,” Patten concluded, “can sell times, and bursts of productivity in one of protectionist national economics (and cheaply, but its laborers have so little pro- field might beget improvements in anoth- his pertinence to the “industrial mira- ductive power that they cannot buy much er only after a delay. Free trade between cles” of Japan and South Korea). “The even of what is cheap. Free-trade may

52 THE PENNSYLVANIA GAZETTE Nov|Dec 2017 “The new morality does not consist of saving, but in expanding consumption,” Patten declared, reduce the price of some commodities, but decades before Keynes and Galbraith. it reduces productive power so much more rapidly that the people suffer from it.” This and other strains of protectionist a result an increase of foreign trade” in before the advent of modern medicine.) logic prevailed in 19th-century America. articles not subject to tariffs. “The effect But Patten’s program did not stop at The tariffs instituted in 1861 became the of the increased prosperity coming from the dinner table. He celebrated virtually basis of a protectionist period that lasted the tariff will cause each nation to any product (excluding alcohol) that until 1913, with one major reversion demand so great a variety of articles that could tempt people to spend—and there- between the world wars. The 1890 many of them cannot be found at home.” fore motivate them to work and earn. McKinley Tariff, signed into law the year From canned tomatoes to the “cheap of Patten’s Economic Basis of Protection, CIVIC SHOPPING magician of vaudeville,” every purchase raised the average duty on imports to had its role in the feedback loop of indus- nearly 50 percent. Similar bills were AND SOCIAL JUSTICE trial advancement—right down to the enacted in 1897 and 1909. Increasing the variety of consumer “tawdry, unmeaning, and useless objects” The high duties on steel were a rich demand was a central preoccupation for that crowded a working-man’s home. bounty for Joseph Wharton during the Patten. As a champion of consumer sov- The prophet of abundance called for expansion of American railroads. In his ereignty decades before that term was nothing less than a “new morality.” In a definitive 1909 survey of 19th-century coined, he assigned a critical economic series of public lectures that became his tariff policy, Harvard free-trade econo- role to the buying power of ordinary men most popular publishing success, The New mist F.W. Taussig demonstrated that and women. Their spending habits, he Basis of Civilization, Patten lamented that duties nearly doubling the price of contended, could unlock the floodgates “the principle of sacrifice continues to be British steel rails enabled American of abundance. The trick was nudging exalted by moralists at the very time” when steelmakers to “obtain exceedingly high those habits in the direction of ever- the “primeval” conditions that necessitated prices” for their own. These costs were expanding diversity. sacrifice were receding amid “the appear- borne by railroads, and ultimately their Partly, he framed this as another way ance of a land of unmeasured resources customers. Yet Taussig allowed that the to limit the depredations of monocrop- with a hoard of mobilized wealth.” “enormous profits” were funneled “very ping and monopoly. Men who ate the “The economic revolution is here,” he largely into establishments for making same staple foods every meal, he rea- declared, summoning the free-flowing more steel,” creating the virtuous cycle soned, intensified the market power of evangelical fervor of a modern-day TED of capital reinvestment and productivity those who supplied them. Adopting alter- talk, “but the intellectual revolution that improvements advocated by Patten. By natives—fish, spinach, and bananas will rouse men to its stupendous mean- 1897, these drove the cost of American instead of constant meat and wheat— ing has not done its work. steel below that of English. In ensuing would lower the overall demand for any “The new morality does not consist of decades, US steelmakers became export- single one of them, thereby increasing saving, but in expanding consumption; ers to England, and a major supplier to everyone’s purchasing power. not in draining men of their energy, but the Allies during World War I. The emergence of nutritional science, in storing up a surplus in the weak and “Protectionists do not desire to destroy and its consensus on the health benefits young; not in the process of hardening, foreign trade,” Patten insisted. The prob- of a diverse diet, reinforced Patten’s line but in extending the period of recreation lem was that free-traders put the cart of reasoning. (In a stunning glimpse of and leisure; not in the thought of the before the horse. “Foreign trade is the the future that must have struck his late future, but in the utilization and expan- effect, not the cause, of national prosper- 19th-century peers as preposterous, sion of the present.” ity, and protection increases foreign Patten actually contended that “overnutri- One can imagine the scene at Philadel- trade by increasing national prosperity. tion” would supplant hunger as the big- phia’s Spring Garden Unitarian Church in “As the people become more prosper- gest threat to human health. He predicted 1913, where Patten declared: “I tell my stu- ous their wants become more varied; that this scourge would ultimately be cor- dents to spend all that they have and bor- and, through the greater variety in their rected by a process of Darwinian winnow- row more and spend that. It is foolish for wants, they will seek not only in their ing. That it would instead manifest as a persons to scrimp and save. It is argued own country but also in foreign countries vast complex of dialysis machines, chron- that they are endeavoring to put something for those commodities which will satisfy ic heart disease management, and obesity- aside for a rainy day for old age. But it is their new wants,” he added. “Whatever related medical care costing an estimated not the individual’s place to do this. It is broadens consumption, therefore, has as $147 billion per year was unimaginable the community’s.” He urged working

Nov|Dec 2017 THE PENNSYLVANIA GAZETTE 53 women to splurge on “clothing that takes defective social organization permitting PROGRESS AND PARASITES nearly all of her earnings to buy.” wealth and want to exist side by side. Patten departed in other ways from the This sacrilege won derisive catcalls from Greed flowers in an aristocracy and in British classicists. Notably, he viewed his audience, who were not yet ready to regions under autocratic control. In a competition between firms as a destroy- embrace a philosophy John Maynard democracy its force is weakened, and its er rather than an enforcer of value. Cit- Keynes would later articulate in his 1931 power would be broken if a state of com- ing data indicating that retail prices were remark that “whenever you save five shil- fort were attained by all.” rising even as wholesale prices fell, he lings, you put a man out of work for a day.” He criticized charity work for attacking blamed the cut and thrust of the market- Yet Patten’s students appear to have lis- the symptoms rather than the causes of place. Its costs—advertising, inflated tened, or at any rate he had tapped into poverty, and called for a new program of retail rents for prime locations, redun- their emerging mindset. “At Penn [in the “social work” to replace it. A patchwork dant middlemen whose “useless duplica- 1920s], the average young woman added of private philanthropies—especially those tion of stock, wagons and drivers” led to to her collection annually 7 dresses, 5 that chalked up poverty to an individual’s the wasteful spectacle of “a dozen milk sweaters, 3 skirts, 3 hats, 4 pair of shoes, 3 moral failings or inability to adjust to soci- wagons driv[ing] by each door every purses, 25 items of hosiery and 12 pieces of ety—would merely “alleviate suffering morning”—ultimately came out of con- lingerie,” reports Frank Trentmann in his which might have been prevented” with sumers’ pockets, he argued. (He showed magisterial Empire of Things: How We coordinated state action. “The need of the less concern for the growing ranks of Became a World of Consumers, From the poor is not for advice but for a better envi- people who drew their own daily bread 15th Century to the 21st. “That was a lot of ronment” fostered via legislation provid- from such work.) clothes at a time when two dress shirts and ing for regular employment, a minimum It will come as no surprise that Joseph three ties were considered a ‘fair’ standard wage, efficient schools, the prohibition of Wharton also decried “excess competi- for an adult man, with one skirt and nine child labor, and public health. tion,” and that he had colluded with other plain cotton stockings for his wife.” His ideas, which might today earn him industrialists to fix prices and control Patten was a paradoxical spokesman for the epithet social justice warrior, repre- access to technologies. Here, however, consumerist indulgence. Tugwell sent one side of an enduring debate with- Patten was something other than a shill describes him as leading a “monk’s exis- in the discipline. “We must go beyond the for his school’s patron. Because one thing tence” devoted entirely to the life of the tests of personality and family” upon he shared with the British economists was mind. But he persuaded himself that which self-appointed Samaritans condi- their abhorrence of economic rent. indulgence would eventually lead to tioned the bestowal of “betterment and Rent, in economic parlance, is some- restraint, as people’s appetites graduated relief,” he argued, urging a “transference thing different than the monthly cost of from the tawdry to the refined. “The of interest from the history and lives of an apartment. It can be thought of as any worker steadily and cheerfully chooses the poor to their environment, their food, payment exceeding what is required to the deprivations of this week in order to and their work.” (Patten’s emphasis on obtain the products of human exertion secure the gratifications of a coming hol- environmental conditions was accompa- (i.e. labor, or capital goods such as build- iday. From this motive the virtue, absti- nied by a rejection of hereditary deter- ings and machinery). Rent often derives nence, at length emerges.” Occasional minism; he was one of the few Progressive from a positional advantage. Imagine, crises of faith dogged him—and the pros- intellectuals to reject eugenics as a tool for example, two retail storefronts that pects for triumphant abstinence remain for resolving social problems.) are identical in all respects but one: the unclear in the age of Pawn Stars and the And it was a “primary task of education” first faces Manhattan’s Union Square $1,300 Bugaboo baby stroller. But he to arouse the “working poor” to partake of subway station, and the second is in the insistently declared, “We lack … keen the same “parks, theatres, ‘Coney Islands,’ South Bronx. The difference in their lease present interests, not solemn warnings of [and] department stores” as their better-off rates—in this case deriving substantially future woes; courage to live joyous lives, citizens. For as a member of society, the from the former’s proximity to a major not remorse, sacrifice, and renunciation. “poverty man” was entitled to enjoy its public transit hub and municipal park— The morality of restraint comes later than economic surplus too. “He is the pioneer is an example of economic rent. The the morality of activity; for men need who opens a country, and like Moses, dies regulatory landscape can be as important restraint only after poverty disappears.” without entering in,” Patten preached. “He as the geographical one. Turing He championed consumerism but is the woodsman, the miner, the quarry- Pharmaceuticals CEO Martin Shkreli attacked wealth inequality for its worst man, the dealer in raw materials, and bare- became a poster boy for (entirely legal) excesses. “Greed,” he maintained, “is not handed wrestler with nature … the maker rent-seeking when he raised the US price a personal trait, but is the outcome of a of permanent improvements.” of a 62-year-old lifesaving drug from

54 THE PENNSYLVANIA GAZETTE Nov|Dec 2017 “In the history of American attacks on poverty, Patten, as a theoretician, stands halfway

$13.50 to $750 per pill, which sold for between Andrew Carnegie and Saul Alinsky.” less than a dollar in the United Kingdom. Rent-extraction is a common feature of monopoly power. Monopoly broadband Annenberg Professor of History. But it versal public goods: a “well-organized providers, for instance, charge New was self-evident to them that “markets are system of public education, public parks, Yorkers and San Franciscans roughly not just individually, atomistically nego- cheap, yet elevating places of amuse- double what Londoners and Parisians tiating what a price will be on the basis of ment, good public roads in the country, pay a broader range of competing firms. supply and demand … They were watch- and an efficient system of drainage and For the British economists, rent was ing corporate institutions beginning not sanitation in the cities.” inextricable from the system of entail. to react to markets, but create markets, Such expenditures would raise indus- This feudal legacy of the Norman con- shape markets, control markets.” He adds, trial productivity and the general stan- quest stipulated that land (which was “And there are all sorts of rentier classes dard of living in the same stroke. “The originally granted by the monarch) could that can take advantage of whatever con- test of a good tax is that it creates more only be passed from a grantee to his trols they have on supply.” wealth than it destroys,” he posited in heirs—which meant that neither had the “The whole fight of classical econom- The Theory of Dynamic Economics. “If right to sell it. Adam Smith criticized ics,” Hudson says, “was a fight by the the courts, post office, parks, gas and entail for preventing enterprising free industrial forces against landlords, the water works, street, river and harbor men from acquiring property, thereby remnants of feudalism. In America, improvements, and other public works “obstruct[ing] improvement, and thereby Patten said: Well, we have not only the do not increase the prosperity of society hurt[ing] in the long-run the real interest landlords getting a free-lunch rent, but they should not be conducted by the of the landlord.” Ricardo argued that [other] monopolists are getting this rent, State.” Patten argued that not only were much of the value created by capital and and also the banks are getting this rent. such public investments prudent, they labor was effectively sponged up by land- And if we want to avoid this kind of rent, amounted to an additional factor of pro- lords, who profited not from productive then we’re going to have to either tax it duction, along with capital, labor, and economic activity but by dint of their legal away, as Henry George said, or national- land. They “improve the health and intel- title to land, from which they derived ize the land and utilities and the rail- ligence of all classes of producers and unearned income. Of the three economic roads, and the government will provide thus enable them to produce more classes—representing his three factors of natural monopolies.” cheaply, and to compete more success- production—Ricardo considered capital- Patten was not a utopian. “Unlike Karl fully in other markets.” ists and workers superior to landlords, Marx,” Fox noted, “he refused to credit The shrewd path Patten charted— whom he regarded as parasites. the creation of surplus value to a single eschewing both class politics and full- The best-known opponent of the rentier factor of production”—i.e. labor. He blown state socialism—led Fox to class among American economists was believed capitalists deserved the profits remark: “In the history of American Henry George, who believed the economic they earned, and “agreed with the mar- attacks on poverty, Patten, as a theoreti- value derived from land should accrue ginalists that value was created by the cian, stands halfway between Andrew equally to all members of society, and demands of consumers rather than by Carnegie and Saul Alinsky.” hence proposed a land-value tax to trans- the amount of labor embodied in goods. The problem was that as time wore on, form that wealth into a public resource. Yet To him the surplus was what a society the vested interests at Wharton—and in Patten thought this insufficient. For one retained after the costs of production, America—became less and less tolerant of thing, land ownership in America, where including labor and a return on capital, any departure from the likes of Carnegie. the Free Soil movement had triumphed, were paid.” The state shouldn’t burden was more egalitarian than in England (at capitalists and laborers with taxes, Patten WHARTON PROFS VS. least at the smallholding level). And that argued. It should focus on the surplus, served to amplify the power of other rent- taxing the portion siphoned off by rent- THE GILDED-AGE TYCOONS iers, from railroads to coal barons. iers to “bring a greater equality among Patten presided over explosive growth at Patten and his Wharton contemporaries the members of society.” Wharton. When he arrived in 1888, the lived during the dramatic rise of the cor- This was not, however, to be a matter school had 40 students and a faculty of poration as a commercial force. “They of direct redistribution—the stern five. After two decades of his administra- were certainly aware of the meaning of Presbyterian had a modern conservative’s tive and academic leadership, 40 faculty supply and demand,” says economic his- abhorrence of handouts. He instead members taught some 625 students. In torian Walter Licht, the Walter H. wanted the government to provide uni- 1899, Wharton announced a two-year

Nov|Dec 2017 THE PENNSYLVANIA GAZETTE 55 course in social work, which Sass calls “in all probability the first formal univer- consumers had only ushered in an era of sity program in the United States.” Patten abundance for a small, wealthy minority. pioneered the PhD program in econom- These disappointments were com- ics, building an academic reputation that pounded by the calamity of the First soon began attracting top-drawer doc- World War. The war “shattered Patten’s toral candidates on a national scale. hope that men would gradually and Popularly known as “Patten’s men,” these peacefully adjust to the age of abundance,” graduate students in turn established Fox observed. “Prosperity seemed to pro- Wharton as a locus of Progressive Era voke national ambition and a desire for civic activism, mounting investigations conquest rather than lead to altruism and to expose rate-gouging at utility compa- restrained emotion.” Germany’s role in the nies, industrial child labor, and munici- conflict also augured professional trouble. pal privatization boondoggles. Drawing EDGAR FAHS SMITH Patten was a pacifist who despised that upon Joseph Wharton’s explicitly public- country’s militarism as much as he spirited morality, Patten urged econo- his cherished professor as lacking the admired its culture and dynamism, but mists to be “on the firing line of civiliza- “social sense of the kind that leaders such distinctions were easily smeared in tion,” and his students responded. must have. He did not draw groups of wartime America. The school’s trustees recoiled. Sass de- men to him; he drew individuals.” Yet “all Patten did not lose his conviction that scribed an emblematic episode around the his life,” Tugwell added, “men who would a broad-based abundance economy could turn of the century, when Philadelphia’s be called important came to him for wis- be realized, but came to believe that only establishment maneuvered to privatize dom and he found in himself an inex- an activist government could bring it the city’s mismanaged municipal gas haustible store.” about. He called for price controls, an works against the recommendation of Patten’s students, some of whom cred- immediate 50 percent increase in wages, Leo S. Rowe W1890, a Wharton professor ited him with an impact far outlasting an 8-hour day and 40-hour week, equal of municipal government who had un- their college years, included The New pay for men and women, regulation of dertaken a comprehensive analysis. Republic co-founder Walter Weyl W1892 working conditions, and social insurance. Using “less than honorable means,” as Gr1897; William Draper Lewis L1891 He advocated a “national board of indus- Sass put it, the city’s business interests Gr1891, an advisor to Theodore Roosevelt trial control … with powers similar to the rammed through City Council a lucrative (and the first full-time dean of Penn Law); Interstate Commerce Commission.” As 30-year lease to a company whose stock Frances Perkins, the first woman Cabinet Fox observed, much of this foreshadowed soon ended up in their portfolios. When, member, under Franklin Roosevelt, and the National Recovery Administration in 1905, the company and its political al- longest-serving US Secretary of Labor in and other elements of the New Deal. lies attempted to sweeten the terms of history; and social work pioneer Edward Such advocacy was beginning to wear their rent-extracting deal further, a “po- Devine Gr1893, a longtime leader of the out its welcome at the University, which, litical bloodbath ensued.” New York Charity Organization society “in pursuit of new benefactions,” in Sass’s The city Republican machine, with the (for which Patten recommended him) who telling, “added as trustees men whose police in its corner, tried to oust its own is believed to have been the first to use the affairs lay in the direct line of fire of mayor, John Weaver, who had come out term “case work.” Wharton’s progressive reformers.” A new against the deal. “The Penn student body, Crisis was coming for their beloved provost, Edgar Fahs Smith, set a new many of whose parents supported [the professor. tone. This “intimate of the city’s notori- company] and the Republicans, valiantly The turn of the 20th century saw an ous Republican machine” was said to rushed to the aid of the mayor,” Sass unprecedented concentration of corporate have asked three Wharton professors: recounted. On the next election day they power, and with it, abuse. The theorist “Gentlemen, what business have aca- “formed mobile squads with flags and who had tried to elevate citizen-consum- demic people to be meddling in political cameras to guard the polling places. With er solidarity above class politics must have questions? Suppose, for illustration, that beefy Penn wrestlers and football players regarded the stubbornly persistent spec- I, as a chemist, should discover that some prominently displayed, these squads faced tacle of eight-year-old mine laborers and big slaughtering company was putting down the city police, who were intent on police violence against industrial workers formalin in its sausage; now surely that coercing the voters to back the machine.” with despair. The fact was that protection- would be none of my business.” Patten’s influence on such events was ism alone had not mitigated monopoly Events came to a head with the case of mainly intellectual. Tugwell diagnosed power, and the behavior of individual professor Scott Nearing C1906 Gr1909, a

56 THE PENNSYLVANIA GAZETTE Nov|Dec 2017 “The Wharton School hired Patten to essentially provide the theory that made America rich before. child-labor activist and Patten ally whose And this kind of theory cannot get a hearing radical extension of his mentor’s eco- in polite academic circles today.” nomic thinking toward state socialism ruffled 10 feathers too many. Smith fired Nearing in 1915, setting off “the worst moral and public-relations crisis of the vigor—and effectiveness—as imperial considered unearned income was there- University’s history” [“An Affair to Britain had done the previous century.) by redefined as earned income—meaning Remember,” Mar|Apr 2002]. Nearing Whatever the causes of this prosperity, there was really no rentier class at all. became a patron saint of academic free by 1958, as Fox notes, John Kenneth In the 1920s, Wharton appointed a new speech and tenure protection. But Galbraith’s bestselling The Affluent dean who reflected this shift. Emory Patten’s days were numbered. When he Society was refocusing “public attention Johnson, a railroad economist, signaled reached the age of retirement in 1917, the on the concepts and rhetoric pioneered that concerns about the “distribution of trustees broke with custom and declined by Simon Patten.” wealth” that had stirred Patten’s generation to extend his tenure—even as they of faculty would be put aside in favor of extended that of one of his colleagues. ELEGY FOR AN EXILED THEORIST pedagogy aimed at “facilitating the produc- Faculty protested his ouster to no avail. tion of wealth.” In the mid-20th century, “For Patten it must have been the scene But the pioneer, buried beneath the Illi- neoliberal economists like Friedrich Hayek of a great tragedy,” Sass wrote. “His nois sod, was well on the way to obscu- and Milton Friedman further deempha- Wharton School lay crushed by … the rity. His contributions to academic eco- sized the social and institutional forces that exploiters of child labor and the masters nomics had been eclipsed, notably by his had been important to Patten’s generation of monopoly … The great task that Patten contemporary John Bates Clark. Clark is (and many of their British forebears). had assigned for contemporary American said to have quipped that Patten antici- “Hayek and Friedman in some ways civilization—to integrate the German pated all the later developments in eco- reinvent Adam Smith as this pure and principle of organization with the Anglo- nomics—but worked none of them simple guru of the beneficent workings Saxon tradition of democracy—lay through. This is perhaps a harsh assess- of the marketplace,” Licht says, remark- defeated not only at Penn but in the great ment of someone who published more ing that “you could read Adam Smith’s slaughterhouse of World War I.” than 20 books and 150 articles—though volumes and find a completely different He passed the final five years of his life Patten’s failure to synthesize all his ideas kind of Adam Smith.” The idea of “natu- in loneliness and shabby accommoda- into a single volume, along with his short- ral,” self-governing markets, combined tions. He died without witnessing the comings as a writer, is undoubtedly one with the development of computer mod- impact some of his ideas and students reason his reputation has faded. But eling, has transformed economics into had on the New Deal, which ushered in harsher still was the way Clark worked an increasingly abstract and mathemat- a heyday of anti-monopoly fervor, labor out the economic problems Patten had ical discipline from which social and support and protection, and massive grappled with. institutional factors are remote. public works construction. The US’s com- If Patten identified four factors of pro- The state of the discipline has been a mitment to the latter—a constant lode- duction where Ricardo had focused on boon to rent-seekers, particularly in star in Patten’s program for economic three, Clark reduced these to two: labor countries and cities that have trans- dynamism and competitiveness—culmi- and capital, collapsing the classical dis- formed public infrastructure and ser- nated in the Interstate Highway System tinction between the produced means of vices into private monopolies. The begun under Dwight Eisenhower. production and land. Thus landlords and dynamic that drove Philadelphia’s gas Patten’s triumph, if it can be called one, other rentiers were reclassified as capi- controversy a century ago is evident was that these developments coincided talists, just ones who invested in land today in realms ranging from Chicago’s with what modern political scientists call and raw assets rather than machinery, parking meters (leased for 75 years to a the “Great Compression,” which featured and thereby earned “the increments of Morgan Stanley consortium), to private massive economic expansion alongside value attaching to land.” (Clark had a security contractors in Iraq, to water sys- a dramatic shrinkage of the gap between blank-slate view of land ownership. tems in towns like Coatesville, Pennsyl- rich and poor Americans. (It also coin- Though his analysis explicitly excluded vania, where rates roughly tripled after cided with trade liberalization. Newly “land obtained by force or fraud,” he the municipal asset became a private dominant in the wake of World War II’s waved away the appropriation of Native monopoly. Congressional Budget Office European devastation, the United States Americans’ land as an “injustice” without data indicate that federal spending adopted free trade with much the same a remedy.) What had previously been directed to private contractors nearly

Nov|Dec 2017 THE PENNSYLVANIA GAZETTE 57 doubled between 2000 and 2012, to $500 course we need to protect industry. How lectual property rights] and monopoly billion, accounting for 14 percent of the are we going to do it? You have the power. Who receives those rents is a matter federal budget (and nearly half of discre- impulse without the theory. The Wharton of policy, and changes in the IPR regime tionary spending). State and local gov- School hired Patten to essentially provide have led to greater rents without having any ernments are estimated to bring that the theory that made America rich before. effects on the pace of innovation.” outsourced total to about $1 trillion. And this kind of theory cannot get a hear- Together with the remarks of three “What Patten said was that infrastructure ing in polite academic circles today.” other Nobel laureates on the panel— is a capital investment,” Hudson says. “The Laying aside the particular merits and whose concerns ranged from campaign- aim is not to make a profit. The productiv- shortcomings of Patten’s intellectual cor- finance rules to the possible revival of ity of infrastructure is to be measured by pus, there is a growing chorus urging the 1930s-style corporatism—such comments how it lowers the cost of doing business expansion of Anglo-American economic suggest a growing interest in political and the cost of living for the population at discourse. It is evident in ambitious aca- economy among the field’s leaders. large … so that industrial employers are demic tomes like Thomas Piketty’s Capital “We’ve always had inequality,” Licht not going to have to pay workers enough in the 21st Century and popular books says. “But now it’s extreme beyond any- to pay for privatized basic services. And if like James Kwak’s Economism: Bad thing that we’ve ever had in American you privatize these basic services, then Economics and the Rise of Inequality. It history. That has forced people to think you’re going to have to pay labor a much showed in the 2016 presidential cam- that there’s something else besides mar- higher wage, and you’re going to price paign, which re-injected trade protec- kets at work here … How can a small per- American labor out of the market.” tionism into the national political con- centage claim a great percentage of the Hudson contends that this is what hap- versation. And it is apparent in rising wealth creation? Markets should be driv- pened in Margaret Thatcher’s England— fears about rent-extraction and monop- ing down their hold on wealth, and they’re and increasingly in America, which is pur- oly power, which may be on the verge of not … So people are looking for some kind suing “the Thatcherite model of very heavy shaking up policy debates in ways that of different explanation.” costs for housing, heavy costs for education, Patten might have found familiar. So a fitting end to this consideration of heavy costs for bank credit,” and heavy costs “A lot of inequality in the US,” said Simon Patten—who was brought to for healthcare. He calls it a “toll booth econ- Nobel laureate economist Angus Deaton Wharton to expand the country’s eco- omy,” where burgeoning opportunities for earlier this year, “comes from rent seek- nomic discourse—is his student Rex rent-extraction “divert spending away ing. It comes from firms and industry Tugwell’s elegiac description of the man from tangible capital investment and real seeking special protection or special as what he, above all else, was: a teacher. output,” exacerbating wealth inequality favors from the government.” He contends “If education is the process of immers- and hollowing out the middle class. that rent-seeking has become so pervasive ing students in intellectual quandaries Germany and some Scandinavian that taxation alone is no match for it. “I and then helping them out, he was a very nations stand out as counterexamples, don’t think that rent-seeking, which is successful teacher indeed,” Tugwell with robust subsidization of infrastruc- incredibly profitable, is very sensitive to recalled. “Invariably … he first raised the ture, education (including tuition-free taxes,” he said in a panel discussion at the difficulties into consciousness, turning college), and healthcare. annual Allied Social Sciences Associations them over and over, then swooped down But Patten has not been forgotten meeting in Chicago. “People should deal upon them as though he would crush out everywhere. “Who reads Patten now? The with rent-seeking by stopping rent-seek- of them the very juice of truth in his great Chinese,” Hudson says, noting the trans- ing, not by taxing the rich.” bony hands. When he finished there was lation of his book about Patten and other Joseph Stiglitz, another Nobel laureate on no difficulty: simply a light shining lumi- 19th-century protectionists by Renmin the panel, countered that taxes have a role nously upon the place where it had been. University Press. “China is following the in reducing inequality, but he concurred on “Often there were objections to his American protectionist model of the 19th the importance of reining in rent-extraction. solutions,” Tugwell wrote. “Sometimes century most efficiently—and they’re “In all areas of economics, the rules of the others were presented. Always the hours quite conscious of that.” He argues that game are critical—that is emphasized by the passed like moments and the discussions Wharton’s first economics professor mer- fact that similar economies exhibit mark- ran on and on overflowing into pitched its consideration in some of the debates edly different patterns of distribution, mar- verbal battles in corridors and on pave- now playing out in America as well. ket income, and after-tax-and-transfers ments long after he had gone his way, “There’s an intuition in most people that income,” he said. “This is especially so in an silent, bent, plodding, up Locust Street yes, of course we need infrastructure innovation economy, because innovation in West Philadelphia.” spending. How are we going to do it? Of gives rise to rents—both from IPR [intel-

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