Markets and Morals

This is the third in a series of archival excerpts in honor of the magazine’s 150th anniversary. This installment is introduced by Joseph Stiglitz, a professor of economics at Columbia University and a winner of the Nobel Prize in economics.

In the years since The Atlantic’s founding, the national and global economies have changed dramatically. A predominantly agrarian society has given way to an industrial society, which in turn has given way to a globally networked information society. Through all these dramatic transformations, written commentary in magazines like The Atlantic has provided context, insight, and occasional pointed criticism, to help ordinary people make sense of the shifting economic climates affecting them.

In some instances—as in the case of Henry Demarest Lloyd’s compelling written attack on the infamous Standard Oil monopoly—the urgent eloquence of a critical essay has mobilized citizens to amend the rules governing the prevailing economic system. In other cases, economic thinkers have availed themselves of the essay form to buoy readers during times of financial crisis, or to provoke them to demand more from capitalism than mere fulfillment of their material needs. Still others have sought to alert readers to major social and economic changes being wrought by new technological advances, or to celebrate the heady (and lucrative) possibilities available to the savvy entrepreneur in a free market.

Taken together, the five articles excerpted here exemplify the ways in which large-minded thinkers can illuminate the complexities of the sometimes mysterious-seeming economic world—dispelling harmful myths, opening readers’ eyes to insidious abuses or unrecognized potentials, and equipping ordinary citizens with tools not merely for weathering the prevailing economic system but for engaging with it in a positive and strategic manner.

As recently as four years ago, America again went into recession, and globalization has caused increasing anxiety among workers about competition from cheap labor abroad. The system has delivered enormous benefits for those at the top, but incomes at the bottom have stagnated, or even declined. Given such realities, it is more important than ever for people to be armed with economic knowledge.

Though economic science has advanced and the language we use to discuss it has changed, the issues raised in the following pages are as salient today as they were when the articles were written. They articulate the struggle to create an economy that not only functions well and efficiently but is in service to the highest human ideals.


Monopoly on the March
March 1881
by Henry Demarest Lloyd

This was one of the earliest pieces of progressive muckraking to be published in a national, well-respected magazine—and the first exposé of the Standard Oil Trust to be taken seriously. The issue in which the article appeared sold out seven printings, and it helped bring antitrust legislation to the forefront of national debate, auguring the passage of the Interstate Commerce Act of 1887 and the Sherman Antitrust Act of 1890.

Kerosene has become, by its cheapness, the people’s light the world over … Very few of the forty millions of people in the United States who burn kerosene know that its production, manufacture, and export, its price at home and abroad, have been controlled for years by a single corporation—the Standard Oil Company. This company began in a partnership, in the early years of the civil war, between Samuel Andrews and John Rockefeller in Cleveland. Rockefeller had been a bookkeeper in some interior town in Ohio, and had afterwards made a few thousand dollars by keeping a flour store in Cleveland. Andrews had been a day laborer in refineries, and so poor that his wife took in sewing. He found a way of refining by which more kerosene could be got out of a barrel of petroleum than by any other method, and set up for himself a ten-barrel still in Cleveland, by which he cleared $500 in six months. Andrews’ still and Rockefeller’s savings have grown into the Standard Oil Company. It has a capital, nominally $3,500,000, but really much more, on which it divides among its stockholders every year millions of dollars of profits …

The Standard produces only one fiftieth or sixtieth of our petroleum, but dictates the price of all, and refines nine tenths. Circulars are issued at intervals by which the price of oil is fixed for all the cities of the country, except New York, where a little competition survives … This corporation has driven into bankruptcy, or out of business, or into union with itself, all the petroleum refineries of the country except five in New York, and a few of little consequence in Western Pennsylvania …

The time has come to face the fact that the forces of capital and industry have outgrown the forces of our government. The corporation and the trades-union have forgotten that they are the creatures of the state. Our strong men are engaged in a headlong fight for fortune, power, precedence, success. Americans as they are, they ride over the people like Juggernaut to gain their ends. The moralists have preached to them since the world began, and have failed. The common people, the nation, must take them in hand. The people can be successful only when they are right. When monopolies succeed, the people fail; when a rich criminal escapes justice, the people are punished; when a legislature is bribed, the people are cheated … The nation is the engine of the people. They must use it for their industrial life, as they used it in 1861 for their political life. The States have failed. The United States must succeed, or the people will perish.
Volume 47, No. 281, pp. 317–334

The Resilience of Capitalism
May 1932
John Maynard Keynes

In the midst of the Great Depression, British economist John Maynard Keynes considered the prospects for capitalism’s survival.

Can we prevent an almost complete collapse of the financial structure of modern capitalism? With no financial leadership left in the world and profound intellectual error as to causes and cures prevailing in the responsible seats of power, one begins to wonder and to doubt …

We are now in the phase where the risk of carrying assets with borrowed money is so great that there is a competitive panic to get liquid. And each individual who succeeds in getting more liquid forces down the price of assets in the process of getting liquid, with the result that the margins of other individuals are impaired and their courage undermined …

The competitive struggle for liquidity has now extended beyond individuals and institutions to nations and to governments, each of which endeavors to make its internal balance sheet more liquid by restricting imports and stimulating exports by every possible means, the success of each one in this direction meaning the defeat of someone else …

We have here an extreme example of the disharmony of general and particular interest. Each nation, in an effort to improve its relative position, takes measures injurious to the absolute prosperity of its neighbors; and, since its example is not confined to itself, it suffers more from similar action by its neighbors than it gains by such action itself … An individual may be forced by his private circumstances to curtail his normal expenditure, and no one can blame him. But let no one suppose that he is performing a public duty in behaving in such a way. The modern capitalist is a fair-weather sailor. As soon as a storm rises, he abandons the duties of navigation and even sinks the boats which might carry him to safety by his haste to push his neighbor off and himself in …

Well, I have painted the prospect in the blackest colors. What is there to be said on the other side? What elements of hope can we discern in the surrounding gloom? And what useful action does it still lie in our power to take?

The outstanding ground for cheerfulness lies, I think, in this—that the system has shown already its capacity to stand an almost inconceivable strain. If anyone had prophesied to us a year or two ago the actual state of affairs which exists to-day, could we have believed that the world could continue to maintain even that degree of normality which we actually have? This remarkable capacity of the system to take punishment is the best reason for hoping that we still have time to rally the constructive forces of the world.
Volume 149, No. 5, pp. 521–526

Liberty, Happiness... and the Economy
June 1967
by John Kenneth Galbraith

At a time when Cold War tensions had rendered Americans suspicious of anything that smacked even vaguely of socialism, Harvard economist John Kenneth Galbraith made a case for the value of a certain degree of centralized market oversight: “It is through the state that the society must assert the superior claims of aesthetic over economic goals and particularly of environment over cost.”

In the latter part of the last century and the early decades of this, no subject was more discussed than the future of capitalism. Economists, men of unspecific wisdom, political philosophers, knowledgeable ecclesiastics, and George Bernard Shaw all contributed their personal revelation. All agreed that the economic system was in a state of development and in time would transform itself into something hopefully better but certainly different …

The next step will be a general recognition of the convergent tendencies of modern industrial systems, even though differently billed as socialism or capitalism. And we must also assume that this is a good thing. In time it will dispose of the notion of inevitable conflict based on irreconcilable difference …

The two questions most asked about an economic system are whether it serves man’s physical needs and whether it is consistent with his liberty and general happiness. There is little doubt as to the ability of the modern industrial system to supply man with goods …

The prospect for liberty is far more interesting. It has always been imagined, especially by conservatives, that to associate all, or a large part, of economic activity with the state is to endanger freedom …

But the problem is not the freedom of the businessman. It can be laid down as a general rule that those who speak most of liberty least use what they have. The businessman who praises it most is a disciplined organization man. The retired general who now lectures on the threat of Communist regimentation was invariably a martinet who relished an existence in accordance with military regulations. The Secretary of State who speaks most feelingly of the free world most admires the fine conformity of his own thought.

The greater danger is in the subordination of belief to the needs of the modern industrial system. As this persuades us on the goods we buy, and as it persuades us on the public policies that are necessary for its planning, so it also accommodates us to its goals and values. These are that technology is always good; that economic growth is always good; that firms must always expand; that consumption of goods is the principal source of happiness; that idleness is wicked; and that nothing should interfere with the priority we accord to technology, growth, and increased consumption.

If we continue to believe that the goals of the modern industrial system and the public policies that serve these goals are coordinate with all of life, then all of our lives will be in the service of these goals. What is consistent with these ends we shall have or be allowed; all else will be off limits. Our wants will be managed in accordance with the needs of the industrial system; the state in civilian and military policy will be heavily influenced by industrial need; education will be adapted to similar need; the discipline required by the industrial system will be the conventional morality of the community. All other goals will be made to seem precious, unimportant, or antisocial. We will be the mentally indentured servants of the industrial system. This will be the benign servitude of the household retainer who is taught to love her master and mistress and believe that their interests are her own. But it is not exactly freedom.

If, on the other hand, the industrial system is seen to be only a part, and as we grow wealthier, a diminishing part, of life, there is much less occasion for concern. Aesthetic goals will have pride of place; those who serve them will not be subject to the goals of the industrial system; the industrial system itself will be subordinate to the claims of larger dimensions of life. Intellectual preparation will be for its own sake and not merely for the better service to the industrial system. Men will not be entrapped by the belief that apart from the production of goods and income by progressively more advanced technical methods there is nothing much in life …

The need is to subordinate economic to aesthetic goals—to sacrifice efficiency, including the efficiency of organization, to beauty. Nor must there be any nonsense about beauty paying in the long run. It need not pay …

It is through the state that the society must assert the superior claims of aesthetic over economic goals and particularly of environment over cost. It is to the state that we must look for freedom of individual choice as to toil; for a balance between liberal education and the technical training that primarily serves the industrial system; and it is for the state to reject images of international politics that underwrite technology but at the price of unacceptable danger. If the state is to serve these ends, the scientific and educational estate and the larger intellectual community must be aware of their power and their opportunity and they must use them. There is no one else.
Volume 219, No. 6, pp. 61–67

The Age of Social Transformation
November 1994
by Peter F. Drucker

As the twentieth century drew to a close, management expert Peter F. Drucker hailed the advent of the knowledge worker.

This century of ours may well have been the cruelest and most violent in history, with its world and civil wars, its mass tortures, ethnic cleansings, genocides, and holocausts. But all these killings, all these horrors inflicted on the human race by this century’s murderous “charismatics,” hindsight clearly shows, were just that: senseless killings, senseless horrors, “sound and fury, signifying nothing” …

It is the social transformations, like ocean currents deep below the hurricane-tormented surface of the sea, that have had the lasting, indeed the permanent, effect. They, rather than all the violence of the political surface, have transformed not only the society but also the economy, the community, and the polity we live in. The age of social transformation will not come to an end with the year 2000—it will not even have peaked by then …

The newly emerging dominant group is “knowledge workers.” The very term was unknown forty years ago. (I coined it in a 1959 book, Landmarks of Tomorrow.) By the end of this century knowledge workers will make up a third or more of the work force in the United States—as large a proportion as manufacturing workers ever made up, except in wartime. The majority of them will be paid at least as well as, or better than, manufacturing workers ever were. And the new jobs offer much greater opportunities.

But—and this is a big but—the great majority of the new jobs require qualifications the industrial worker does not possess and is poorly equipped to acquire. They require a good deal of formal education and the ability to acquire and to apply theoretical and analytical knowledge. They require a different approach to work and a different mind-set. Above all, they require a habit of continuous learning. Displaced industrial workers thus cannot simply move into knowledge work or services the way displaced farmers and domestic workers moved into industrial work. At the very least they have to change their basic attitudes, values, and beliefs …

The shift to knowledge-based work poses enormous social challenges. Despite the factory, industrial society was still essentially a traditional society in its basic social relationships of production. But the emerging society, the one based on knowledge and knowledge workers, is not. It is the first society in which ordinary people—and that means most people—do not earn their daily bread by the sweat of their brow. It is the first society in which “honest work” does not mean a callused hand. It is also the first society in which not everybody does the same work, as was the case when the huge majority were farmers or, as seemed likely only forty or thirty years ago, were going to be machine operators.

This is far more than a social change. It is a change in the human condition.
Volume 274, No. 5, pp. 53–80

Building Wealth
June 1999
By Lester C. Thurow

In 1999, MIT economist Lester C. Thurow explained how great fortunes are made.

The rich see opportunities to work and invest in situations where great disequilibriums—imbalances or openings in the economy created by new circumstances—exist. Something, usually a new technology, has opened up opportunities to jump to new products with very different capabilities or to new processes with much higher levels of productivity. This was as true for John D. Rockefeller as it is for Bill Gates. For both of them lifetime savings constituted a small fraction of total wealth. Carefully saving money and investing in normal equilibrium situations can make one comfortable in old age but never really wealthy …

Real wealth is the ability to produce more with less—to generate a flow of goods and services without having to sacrifice something else of equal value. It is not created by taking time away from other activities and devoting it to money-making …

Entrepreneurs see sociological opportunities to change human habits. Starbucks persuaded Americans to replace their fifty-cent cup of coffee bought at a local restaurant with a $2.50 cup of coffee bought at a coffee bar …

Entrepreneurship … is a fundamental human characteristic but, despite its creative and destructive powers, an extremely fragile one. Among most peoples in most times and most places entrepreneurs do not exist. The economic possibilities exist, but they are not seen, the energy to realize them is lacking, or the risks they involve seem too great …

When societies aren’t organized so that the old vested interests can be brushed aside, entrepreneurs cannot emerge. Social systems have to be built in which entrepreneurs have the freedom to destroy the old. Yet destroying the old can too easily be seen as a step into chaos. Societies that aren’t ready to break with the past aren’t willing to let entrepreneurs come into existence …

Great persistence is needed to bring a truly new idea into the market. Steam toys have been unearthed in the archaeological exploration of ancient Greece, and the ancient Egyptians had steam-powered temple doors—yet the steam engine did not emerge as a source of power for economic production until the eighteenth century. The right sociology had to be in place for revolutionary new products to emerge …

Successful societies create and manage a tension between order and chaos without letting either of them get out of hand. New ideas are easily frustrated if societies are not receptive to the chaos that comes from change, yet societies have to maintain an appropriate degree of order to take advantage of creative breakthroughs.

At the individual level these same forces show up as a tension between tradition and rebellion. Einstein dropped out of high school at the age of fifteen; renounced his citizenship a year later; lived on the margins socially, economically, and morally; and called himself a gypsy and was viewed as a bohemian. His life was in some sense a search for order in disorder, both scientifically and socially. Great creativity requires hard facts, wild imagination, and nonlogical jumps forward that are then proved to be right by working backward to known principles. Only the rebellious can do it.
Volume 283, No. 6, pp. 57–69

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