Review of

Social Goals and Economic Institutions
by Frank D. Graham

Michael J. Bernstein

[ A review of the book, Social Goals and Economic Institutions, by Frank D. Graham, published by Princeton University Press. Reprinted from The Freeman, September-October, 1942]


For many years political practice and economic theory, as if in mutual reaction, moved in opposite directions. Economists in the classical tradition retired from the areas of social conflict. Effective political influence manifested itself through the medium of pressure groups, each rationalizing its particular demands in the form of an unorthodox and usually erroneous economic theory. And the economists, despite their increasing mastery of the tools of analysis, found themselves, in the main, unprepared to answer the questions which the realities of power politics, nationalism, war, and depression insisted upon raising. Despite the severe blows thus dealt to the prestige of what had unquestionably become the most exact of the social sciences, the truth of its basic principles remains as unaffected as did the validity of Galileo's doctrines after recantation.

Prof. Graham is one of that small group of theorists who have not been driven, panic-stricken, to abandon these fundamentals. Rather does he represent the new tendency to recombine politics, ethics and economics, into what our ancestors more narrowly called political economy. He is aware of the forces and obstacles that prevent the smooth functioning of the social order, impediments which were so optimistically conjured away in the refined, purified, and to that extent unrealistic, analyses of the orthodox schools. Prof. Graham knows that the desire for the possession of money (liquidity preference) is opposed to the desire for goods and services, and can result, as it has, in disastrous consequences. He realizes that monetary control and management is essential in a world so motivated, a world based overwhelmingly on a credit currency. And in this book he offers what seems a most feasible plan for a commodity-reserve currency.

The attack on monopoly, almost abandoned until recently revived, finds our author arrayed with those who wish to maintain the freedom of the market as an essential adjunct in preserving individual freedom. But Prof. Graham is no Spencerian doctrinaire. He asserts the necessity for government intervention to police the markets; to keep them honest, fair and equitable; to reshuffle institutional arrangements to meet the problems created by the growth of corporate enterprise and of what is currently referred to as monopolistic competition. Prof. Graham is keenly aware that freedom in society is not attained automatically merely through government non-intervention. He realizes that freedom does not exist in a state of nature where force is the rule, but only in a civilized community under law, where individual rights can compel the protection as well as the sanctions of the state. And he knows and asserts that the possession of these rights creates a concurrent obligation to defend civilization and the community against threatened destruction.

This is a wise and tolerant book, written, strangely enough, by an expert. With it, most people of good-will who see the dangers of the centralized authoritarian state, can agree.

As a Georgeist, this reviewer would like to point out one significant blind spot in Prof. Graham's approach. First, he writes, "Since access to natural resources, or some equivalent thereof, can be denied to no man without depriving him not only of the power to contract, but also of any means of sustaining an independent life, it is essential that such access be free. Justice, of course, requires that this access be not only free, but equal." Yet, later in his book, he contradicts this assertion with an array of the hoary and fallacious arguments so ably refuted by Henry George and many who followed him, and concludes with the utterly invalid assertion that, "A discriminatory tax treatment of property in natural resources, as such, has, therefore, no ethical justification." He forgets what Walter Lippmann has so strikingly remembered in connection with the claim that property in land does not basically differ from property in other things. Lippmann, in "The Good Society," says:

"Men may pretend to believe in such a theory of property. In practice it is unworkable. The dispossessed and the disinherited will haunt them and terrorize them. The desperate insecurity of all private property in the modern world is due to the fact that the propertied classes, in resisting a modification of their rights, have aroused the revolutionary impulse to abolish all their rights. . . . The true principle is to be ready to liquidate these rights of possession which enable some men by excluding all other men from access to land and to the resources of nature, to exact a tribute based not on their own labor, but on mere legal possession."