The organization of public

Governments may even utilize the forms as well as the methods of corporate organization. During the World enterprise War the governments of all the principal Powers engaged during the World War in business operations of many kinds on an unprecedented scale. The economic functions of government were enormously expanded. Collectivism became the order of the day. In the United States the Federal Government, compelled to improvise suitable organizations for the performance of its economic functions, adopted the ordinary corporate form for several of its emergency activities. The Shipping Board organized the Emergency Fleet Corporation to carry on its shipbuilding activities. The Department of Labor organized the Housing Corporation to execute its house-building program. The Food Administration organized the Grain Corporation and the Sugar Equalization Board, Incorporated, to control the grain trade and stabilize the trade in sugar. The Treasury Department organized the War Finance Corporation in order to finance the private enterprises which needed additional capital for war-time developments. The War Trade Board incorporated its Russian Bureau, in order to handle more efficiently its business operations in Russia and Siberia. The railroads and telegraphs and telephones, which were taken over during the war in order to establish a more effective unified control of operations and secure economies not possible under competitive conditions, were actually operated by the regular corporate officials under government direction. After the war the principal advocates of government ownership and operation of the railroads as a permanent peace-time policy proposed a modified form of corporate organization for the national railroad system.

It is not necessary to discuss here the various proposals which have been advanced in recent times for the organization of the public services. It is enough to say that govern

provement

mental

manage

ments not only can appropriate for themselves the lessons The imof the experience of private businessmen in the organiza- of governtion of industry, but also can adopt devices for adjusting methods the services rendered to the needs of the community, as of business the Germans and Swiss have demonstrated in the manage- ment ment of their railroads and other public utilities, that are hardly practicable for private business corporations.1 It is evident that Adam Smith, if he were alive to-day, would not only have to modify his views with respect to the usefulness of the business corporation as a form of industrial organization, but would also probably change his mind to some extent concerning the economic functions of governments themselves. The individualism of the most enlightened thinkers of the eighteenth century manifestly does not fit the facts of the twentieth.

decline

Indeed, the individualistic theory of the economic func- The tions of government has been shaken to its foundations. of individThere is no more convincing evidence of the change of ualism opinion in this regard than the history of the doctrine of the harmony of economic interests. Adam Smith and the early nineteenth-century individualists set great store by the "invisible hand" which leads men, who with singleminded purpose are absorbed in the pursuit of their private interests, to promote the interests of society as a whole more effectually than when they really intend to promote them. John Stuart Mill, the most truly liberal-minded of the nineteenth-century individualists, attempted to establish his system of political economy on the basis of this doctrine of the natural harmony of economic interests. That he found this enterprise difficult is evident from his celebrated chapter on the future condition of the working classes in the Principles of Political Economy. Eventually, as he candidly confessed in his "Autobiography," he gave

1 See A. N. Holcombe, Public Ownership of Telephones on the Continent of Europe, chapters 3 and 24.

2 Principles of Political Economy, Book IV, chapter 7.

The development of economic policy in Great Britain

The old Toryism

up the endeavor and frankly avowed his conviction that a just distribution of wealth and income could not be secured without abandoning the assumption of a natural harmony of economic interests among all the productive members of a state. His loss of confidence in the utilitarian individualism foreshadowed the tendency of the coming age. Yet the old notion of an insuperable conflict between individual "liberty" and government "interference" still continues in the twentieth century to dominate the minds of many economists.1

4

Professor Dicey, in his Lectures on the Relations between Law and Opinion in England during the Nineteenth Century, has traced the development of British opinion concerning the economic functions of the state. At the beginning of the century the dominant opinion was that which he describes as the Old Toryism. Its characteristic feature was legislation in the interest primarily of the land-owning and commercial classes which then controlled the government of the United Kingdom. There was little ownership and operation of business enterprises directly by the government, but a great deal of regulation of private industry and trade, partly by means of ordinary police regulations, partly also by the grant of bounties and exclusive privileges of various kinds, and partly by tax-exemptions and other special discriminations in taxation. Though these measures inured immediately and directly to the advantage of the special interests which were able to obtain them, they were justified by these "interests" on the ground that they would also increase the wealth of the state as a whole. Political economists watched the balance of foreign trade with a jealous.

1 See, for example, Professor F. S. Nicholson's discussion of the economic functions of government in the fifth book of his Principles of Political Economy, published in 1901.

eye, believing nothing a more favorable sign of the general welfare than the growth of a nation's stock of money. This was the policy which Adam Smith attacked in his famous treatise, The Wealth of Nations, in which the less obvious and more dubious effects of what he called the commercial or mercantile system were clearly exposed.

Liberalism

During the course of the century the Old Toryism grad- The old ually gave way to a new body of opinion concerning the economic functions of government which may now best be described as the old Liberalism or Individualism. The period of its predominance was characterized by the general adoption of measures more favorable to the interests. of the manufacturing and industrial classes. Their advent to power was demonstrated most clearly by the reform of the House of Commons in 1832, of the ancient poor law in 1834, and of municipal government in 1835, and by the repeal of the corn laws in 1846. The latter measure definitely subordinated the interests of agriculture to those of the factory industries. It marked the passing of the old landed aristocracy and the complete triumph of modern capitalism. The navigation acts were revised. The old colonial policy, which favored those colonies that could supply the domestic consumer with commodities not produced at home, gave way to the new, which regarded colonies chiefly as markets for the domestic producer. The development of Great Britain as the workshop of the world, and of London as its financial center, was followed by an unprecedented growth of population and of total wealth. The English farmer trembled, but businessmen rejoiced to have found the laissez-faire or non-interference principle a justification for a policy which seemed at the same time to serve their special interests and to promote the general welfare.

In the latter part of the nineteenth century the law was

The new Collectivism

influenced more and more by that kind of opinion which Dicey terms Collectivism. Wage earners had discovered that often they were not on terms of economic equality with employers, and that an unqualified freedom of contract served their interests badly. They looked to the government, therefore, to establish more attractive conditions of employment than they could privately extort from reluctant employers. They hoped the government might do this to some extent by itself providing the employment through national and, more frequently, municipal ownership and operation of public utilities. To a much greater extent, they looked for protection to the exercise of the police power. They demanded factory acts, to protect the health and safety of workers in industry, and other restraints upon the freedom of contract to protect the consumers of factory-made goods. They relied on arbitration laws and minimum wage laws to regulate rates of wages. Employers' liability and workmen's compensation laws would secure them against the results of industrial accidents. Old-age pensions and other schemes of social insurance would equalize the burden of proletarian hazards. For similar reasons they demanded that the government establish labor exchanges, and promote vocational training. Such collectivistic measures, though advocated primarily in the interests of the wage earners, were justified by their advocates, like the individualistic measures of the preceding period, on the ground that they would promote the general welfare. Businessmen might argue that the substitution of public for private enterprise would bring about the growth of bureaucracy, with all the attendant evils against which Mill and the utilitarian individualists had warned them. Taxpayers might shudder at the prospect of governmental extravagance and inefficiency. But wage earners were encouraged by collectivistic writers, especially the Webbs and the other