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AAU Centennial Meeting Washington, D.C. Monday, April 17, 2000
Remarks By
Robert W. Fogel Symposium: The Role of Research Universities in Innovation, Social Mobility, and Quality of Life in the 20th Century It is a great honor to be invited to speak to the members of the Association of American Universities. We have a welfare state in the United States because during the nineteenth and twentieth centuries, technological change created deep social and cultural crises. Adjusting the culture to a rapidly changing social and economic structure became a severe problem. The influence of academic economists in government was promoted by the three great national crises of the twentieth century: the two world wars and the Great Depression of the 1930s. Between 1870 and World War I, technological change promoted industrial concentration, unleashed bloody labor conflicts, undermined many small businesses, and produced increasingly disruptive business cycles that culminated in the Great Depression of the 1930s. In the two decades preceding the war, Congress established a series of influential investigating commissions in which academic economists played an important role. Among these were the Industrial Commission of 1898-1902, which investigated railroad pricing policy, industrial concentration, and the impact of immigration on labor markets. The National Monetary Commission of 1908-1912 resulted in the establishment of the Federal Reserve System. The recommendations of the U.S. Immigration Commission of 1909-1915 led to the immigration law of 1922, which ended the era of unrestricted immigration and placed quotas on immigration from southern and eastern Europe. From World War I on, academic economists were not only advisors and interpreters of evidence; they also became involved in making and executing economic policy. World War I involved about forty economists, who played very important roles in the government agencies that mobilized the nation for war. Although the American involvement in that war lasted only nineteen months, the mobilization resulted in an unprecedented degree of intervention in the economy. Not only was war purchasing highly centralized, but also there was an unprecedented degree of regulation of the civilian economy both in industry and in agriculture. The positive role played by economists during the war led several executive departments to establish permanent staffs of economists in the 1920s, especially in the Department of Agriculture. (Agriculture was in deep crisis well before the Great Depression.) As late as 1930, no more than a hundred economists worked in the federal government. By 1938, just eight years later, the figure had escalated to more than five thousand, as Franklin Roosevelt established new agencies aimed at overcoming the Depression. The existence of the welfare state is to a large extent due to the rise of the Social Gospel movement, a highly zealous, evangelical movement whose heyday occurred between 1880 and 1920. That movement resembled the one that we today call the Religious Right. Its political content was not right wing, however, but left wing. The Social Gospelers took the American creed of egalitarianism, which up until the 1880s had been based on the principle of equal opportunity, and substituted for it the principle of equality of condition. The Social Gospel movement was rooted in the universities. One of its central figures was the Reverend John Bascom, who served as the fifth president of the University of Wisconsin in the mid-1880s. Bascom argued that the rise of big business had made the contest between labor and capital highly unequal and that it was therefore necessary for the government to intervene on the side of labor. He vigorously and skillfully advocated that the government should become the vehicle for the redistribution of income. Bascom's influence at Wisconsin was extended in 1891 by the arrival of Richard T. Ely, the founder of the American Economic Association and the most prominent economist of the period. He was also one of the most ardent promoters of the social gospel. Ely built a relatively big economics faculty by the standards of the time. Keep in mind that in 1900 there were only seventy economists in the first twenty-two universities that eventually joined AAU. Wisconsin alone employed about 10 percent of those academic economists. They were all dedicated to Social Gospel principles. Three events made it possible for Ely to pursue his vision of academics as partners with politicians in the creation of a welfare state. The first was the election of Robert M. LaFollette, a disciple of Bascom, as governor of Wisconsin in 1900. The second was the accession of Charles Van Hise, another disciple of Bascom and a classmate of LaFollette, as university president in 1903. The third was the appointment of the very influential John R. Commons, a student of Ely's, as professor of economics at Johns Hopkins in 1904. Like Ely, Commons was a zealous Social Gospeler. When LaFollette needed advice on the implementation of his legislative agenda, he turned to Commons. Commons drafted legislation for a civil service bill for the establishment of a commission to regulate the railroads and for bills regulating public utilities, workmen's compensation, and apprenticeship, all of which were passed. Many other university economists were also involved, either in consulting with the state government or serving on its regulatory commissions. Beyond the economists, faculty members from fields such as geology, bacteriology, agronomy, and engineering were drawn to serve on state commissions. In 1908, about one-sixth of the university faculty had appointments on government commissions. That is what you call a strong partnership. Wisconsin became the model for the partnership between academics and politicians in the construction of a welfare state. That partnership was duplicated in many other states and eventually at the federal level. One of the most important tools in the creation of the welfare state was the development of the national income and product accounts, which measure the annual product of the nation. National income accounts were the "deliverers" of the welfare state, because during World War II they emerged as a critical planning tool in the mobilization of the economy and in figuring out how to finance the war. It was the plan worked out by the national-income specialists (principally Robert Nathan and Simon Kuznets) on the War Production Board (called the Defense Mobilization Board before the war) that became the blueprint for mobilizing the economy's war capacity and maintaining a high level of civilian consumption and saving during the war. Paul Samuelson, in an article published in the New Republic in 1944, called World War II an "economists' war." To the extent that the outcome of the war depended on the overwhelming superiority in the production of war materials without undermining the civilian economy, that characterization is appropriate. This assessment does not mean that personnel with other professional skills could not have provided adequate leadership. The businessmen, lawyers, and politicians who interacted with economists were generally impressed by their performance. According to John Kenneth Galbraith, it was said around Washington that Nathan and Kuznets were the equal of several divisions. The fact is that it was economists who proposed armament objectives that were higher, but still within the national capacity; who proposed methods of financing the war that kept inflation at moderate levels and made the distribution of income more equal; and who managed the civilian economy so well that except for durables and gasoline, civilian consumption actually increased during the war. As it became clear that victory was at hand, thoughts turned to the maintenance of prosperity after the peace. Fortune magazine's lead story in January 1944 proposed using national-income accounting to promote peacetime prosperity. The methods that were developed to meet wartime imperatives, wrote the editors, could as usefully be applied to the problems of peace. Congress agreed that the brilliantly conceived wartime tools should be put at the disposal of the government in peacetime. The symbolic action that marked government's assumption of the duty to guarantee maximum employment, production, and purchasing power during peacetime was the passage of the Employment Act of 1946. The vital place of economists in guiding the economy to prosperity was acknowledged by the establishment of a council of economic advisors to the president. Most academic economists during the late nineteenth century and the first part of the twentieth century, even those who contributed to the rise of the welfare state, were strongly opposed to that outcome. Yet even as they cautioned against the danger of government interference in the economy, their discussions of the merits and demerits of alternative ways of correcting defects and prevailing policies in institutions, their suggestions for improving economic intelligence, and their participation in congressional and other investigating commissions all contributed to a gradual expansion of the federal role. Moreover, during the three great national crises of the twentieth century, moved by patriotic sentiments, economists helped to design and operate federal programs that in one degree or another carried over into normal times. Although these orthodox economists were not the architects of the welfare state-that role fell to the Social Gospelers-they were among its bricklayers.
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