Yale Professor William Graham Sumner Prescribes Laissez-Faire for Depression Woes

With depression looming as a continual threat to the U.S. economy in the late 19th century, Americans debated how the government should respond to hard times—a question still unanswered today. Manufacturers—then as now—usually took the position that government should not interfere with the workings of the “free market.” Manufacturers found support for their laissez-faire positions in the speeches and writings of the leading academic experts of the day. On August 22, 1878, Yale faculty member William Graham Sumner testified before a select committee of the U.S. House of Representatives charged with investigating the Causes of the General Depression in Labor and Business. Sumner preached a strict “hands-off” approach to ameliorating the widespread economic dislocations then plaguing the country.

Mr. SUMNER appeared before the committee by invitation.

The CHAIRMAN: Please to state your occupation.

Mr. SUMNER: I am professor of political and social science in Yale College.

The CHAIRMAN: How long have you held that position?

Mr. SUMNER: I have been in that chair for six years.

The CHAIRMAN: Of course, you have made the relations of capital and labor a study in the performance of your regular duties?

Mr. SUMNER: Yes, sir; that is my professional duty.

The CHAIRMAN: Have you given any special attention to the condition of labor and of business generally at the present time in the United States?

Mr. SUMNER: That is within the range of my professional studies. I have studied it and given all the attention I could to it, and I have availed myself of all the means that I know of for forming ideas about it. I should like to say that the means of forming ideas about it on the part of professional economists are very meager and unsatisfactory. It is exceedingly difficult for any person, however well trained he may be, to embrace this whole subject of the causes of the present depression in the United States; and he would be a very bold man indeed who should claim that he had sounded the whole question. I am certainly not in that position before this committee. I should think that that question ought to be carefully considered in two different points of view. There has been very great industrial reaction over the whole world during the last five or six years, and the United States have, of course, participated in the general state of industry and commerce over the whole world. They have had their share of it. There have been other local and peculiar circumstances in the United States which should be considered by themselves as combining with and intensifying here the effects produced by general causes the world over. Now, I do not know any one in the world who has undertaken to study the whole question of the present commercial crisis over the world in all its bearings, or who has ventured to publish his opinion as to what the cause of this general depression may be, because I am sure that any professional economist would regard that as a subject of enormous magnitude, and would be very timid about any of his conclusions in regard to it. I do not care to enter into that. . . .

Mr. RlCE: What is the effect of machinery on those laborers whom for the time being it turns out of employment?

Mr. SUMNER: Of course, a loss of income and a loss of comfort. There are plenty of people in the United States to-day whose fathers were displaced from their labor in some of the old countries by the introduction of machinery, and who suffered very great poverty, and who were forced to emigrate to this country by the pressure of necessity, poverty, and famine. When they came to this country they entered on a new soil and a new system of industry, and their children to-day may look back on the temporary distress through which their parents went as a great family blessing.

Mr. RICE: But the fathers had to suffer from it?

Mr. SUMNER: They had to suffer from it.

Mr. RICE: Is there any way to help it?

Mr. SUMNER: Not at all. There is no way on this earth to help it. The only way is to meet it bravely, go ahead, make the best of circumstances: and if you cannot go on in the way you were going, try another way, and still another, until you work yourself out as an individual.

The CHAIRMAN: Your idea is that the introduction of machinery has improved the condition of a great many people, although individuals have had hard times in the transition?

Mr. SUMNER: Individuals and classes have had to go through it. What is the reason anybody ever came to America originally? A few came because they had some religious ideas which they wanted to carry out, but they were an insignificant part of the migration to America. The people who came to America came because they were uncomfortable in the old countries, because there was distress and pressure upon them, because they were mostly at the bottom and worst off, and the chance for them was to get to a new soil where it would be easier to get a living and to struggle forward. That is what they all came to this country for. They never abandoned their old homes because they liked to do so. They disliked it very much.

Mr. RICE: Then the pressure of necessity is one of the prime elements in the progress and civilization of mankind?

Mr. SUMNER: Yes; we have been forced to progress, and that is the reason why we have made it. . . .

The CHAIRMAN: You said just now that we had a sparse population on a very productive soil, and therefore that if there is distress here there must be some artificial causes for it. Do you admit that there is what you call distress among the laboring classes of this country?

Mr. SUMNER: No, sir; I do not admit any such thing. I cannot get any evidence of it. There is only one single fact before the public, so far as I know (and I have been looking for facts), with reference to the number of unemployed persons, and that is the report of Mr. Wright, of Massachusetts, in which he puts down the number of unemployed persons in that State as 28,000, men and women (21,000 men). Whatever may be said in the way of using figures one way or the other, I do not know practically of any evidence that is before the people of the United States to-day except that statement. That statement was carefully made by a trained man who understands his business in that line, and who took all the care he could to collect the data which are given to us. Now the State of Massachusetts is perhaps quite as badly off as any State in the Union, perhaps worse off. When you go into the agricultural communities you find that they are not in any such condition at all. If there is any State worse off than Massachusetts it is Pennsylvania, on account of the coal and iron depression, and I should not wonder if they were worse off there. But there is another thing. A vast number of these people have, of course, family connections, and those people who are supposed to be unemployed are not in a condition bordering either upon starvation or crime. They do not take to the road as tramps, they do not beg, and they do not steal; that is, they do not beg publicly. The chief centers of distress, I should think, from any observation, were the large cities. In all the large cities there are vast numbers of persons who have no regular and steady means of support, who live by irregular occupations and in nondescript ways. These people do not like to leave the cities; they will not leave the cities. In times of slack industry and commerce, of course they find it harder to get a living than at other times; and I suppose that there are in all our cities great numbers of these persons. Furthermore, I should say that this kind of distress where it exists is a great deal deeper and more widespread among clerks, salesmen, bookkeepers, office men, and all that range of occupations than among any other class . . . .

Mr. SUMNER: That brings right on another point which I want to speak about. Up to the time that the crisis of 1873 came, the general opinion of all persons acquainted with business here at that time would be this: that nobody wanted to pay and wind up; nobody wanted to liquidate; everybody wanted to renew his obligations, to extend his operations, because he expected a rise in the market still further. Everybody’s confidence in the market was such that he did not want to pay his debt. He thought he was sure to be able to pay his interest on it, and he wanted to make every transaction, as far as possible, the basis for another transaction, so as to extend his operations and get profit on his larger capital. When the crisis of 1873 came, it just shook that confidence, and everybody turned around and began to ask himself whether his inventory figures were good or not—whether the figures at which he had rated his property were correct. He knew that he had debts, and then he had to ask himself whether he was solvent, if he did not pay his debts very soon. He found that prices began to fall, and he found that it was all in vain for him to inventory his property at so much, and then his debts at so much, and his margin at so much. By and by the question was, whether his margin was not wiped out. Everybody, I think, set to work immediately, with the natural good sense of every individual, to discharge his obligations and to reduce his debts, and to pay up and bring his affairs into close order again just as fast and steadily as he could; and the establish and solidify the credit transactions which had been opened up to that time. A great many people found themselves insolvent, and have failed and have gone out of the account. But the natural good sense of every man simply showed him what he ought to do. Every individual had to reduce his expenditures, to economize as much as he could, and to turn in his capital as rapidly as he could to the liquidation of his obligations. In other words, the people of the United States have been, within the last five years, accumulating capital with great rapidity, in order to turn it in to pay their debts. But they have been saving money. Every man has reduced his expenditures, and has contracted his obligations in that way. That, of course, is one great reason for the slackness in trade. When people are not buying goods, if they can possibly help it, of course, trade is dull. That runs through everything. It runs through manufactures and everything else. When people are all avoiding expenses as much as possible, a dullness of trade is produced.

The CHAIRMAN: And all that leads necessarily to a slack demand for labor?

Mr. SUMNER: Of course.

The CHAIRMAN: And the laborer suffers?

Mr. SUMNER: Certainly.

The CHAIRMAN: I do not know whether you are ready to take up the question of remedies. Do you think that there is any remedy that may be applied by legislation or otherwise to relieve labor from the consequences of this speculative era?

Mr. SUMNER: And every one must do the best he can.

The CHAIRMAN: Can legislation do anything toward relieving this accumulation of labor by transferring it to some other place where labor is in request or can be utilized?

Mr. SUMNER: Legislation might do a great deal of mischief, but nothing else. There is one other point which I would like to bring on in this connection because it bears on that point. I have not said as much as I want to yet about the protective tariff.

The CHAIRMAN: Do you want to go on with it at this point?

Mr. SUMNER: Yes. Of course we have had to put up with very heavy taxation since the war. That could not be helped, and taxation is nothing but a burden. We have got to carry it and to make the best of it. It is one of the inevitable hardships of life. But, then, there is the entirely different question of paying in taxes for protection; that is, taxes that are paid by the people, not for the government, but for the protection of manufacturers. In the first place, any taxes of that kind (and we have had frightful ones laid on in this country, unexampled ones) that are laid on for that purpose are a dead burden to the people, coming out of the war with all their other difficulties upon them. In the second place, if you protect anybody, you have got to undertake to decide what things ought to be done in this country. As you [to Mr. Rice] suggested a while ago, some people think it necessary that we should work iron in this country, whether it is profitable or not; that is to say whether it is as profitable as something else that could be done or not (for that is the real question). Now, if the legislature makes up its mind that there are some things that ought to be done here, and sets to work to lay protective duties, in order to force those things to be done, there will be some other consequences which we must take into account. One of them will be, right away, that you will force the industry of the country into disproportionate development.

We have heard a good deal within a few years past about over-production. I do not know what in the world over-production can mean. You cannot give any intelligible definition of it. The only thing that is possible in that direction is not over-production in any sense at all, but disproportionate production. To illustrate that: If you want to build houses, you have got to have wood and brick and lime and nails, &c. (the component materials), to go into the building. If you have wood and nails and lime enough to build 1,000 houses, and you have brick enough to build 2,000 houses, you have a disproportionate production; and the bricks for 1,000 houses have got to lie idle until you can bring up the production of lumber and nails and plaster to the limit of 2,000 houses, in order to fill out the necessary composition with the bricks, and to use them up. That disproportionate production is the only kind of over-production that I know anything about. Now, when you lay on a protective tariff for the purpose of developing certain industries, one great trouble is, that you bring about that disproportionate production. Is such a disproportionate production possible in a natural state of things? Not at all. The law of supply and demand makes it utterly impossible. You cannot produce brick for 2,000 houses when the other materials are only sufficient for 1,000 houses, because the bricks would immediately begin to be reduced in their market price. You would have your warning. But, when you have this protective system in force, the first thing you know is that you have brought out a disproportionate production of commodities in those particular lines.

The next result that you must look out for is that you will draw your population to the particular localities which you have artificially decided on by law. You have invited the population and encouraged them, as it is called, to come to places, and to occupy themselves in occupations into which they would not have gone naturally if things had been left to take their own course. For instance, you can produce a congestion of population in the iron districts (they have got it now in Pennsylvania, and perhaps would like to get rid of it) by deciding that you want to force iron production whether the circumstances of the country call for it or not; but because it is a good thing to have, you gather your population together there where they would not have gone had they been left to distribute themselves just where the greatest profit called them . . . .

Mr. SUMNER: . . . I suppose that the only other question which you want to ask me is the one which you did ask; that is, about the remedies. Of course, I have not any remedy to offer for such a state of things as this. The only answer I can give to a question like that would be the application of simple sound doctrine and sound principles to the case in point. I do not know of anything that the government can do that is at all specific to assist labor—to assist non-capitalists. The only things that the government can do are general things, such as are in the province of a government. The general things that a government can do to assist the non-capitalist in the accumulation of capital (for that is what he wants) are two things. The first thing is to give him the greatest possible measure of liberty in the directing of his own energies for his own development, and the second is to give him the greatest possible security in the possession and use of the products of his own industry. I do not see anything more than that that a government can do in the premises. . . .

The CHAIRMAN: The grievance complained of is that, in the operations of society, certain persons, who are just as deserving as others, find it impossible to get any employment at all. They say that society owes them a living; that, if they cannot get work at private hands, the public should intervene for the time being and provide some place where their labor could be employed, and where they could get a livelihood. They claim that they are just as industrious and meritorious as other citizens; and the proposition is for government to intervene and provide them with employment. What have you got to say tothat? Can that be done?

Mr. SUMNER: Sir. The moment that government provided work for one, it would have to provide work for all, and there would be no end whatever possible. Society does not owe any man a living. In all the cases that I have ever known of young men who claimed that society owed them a living, it has turned out that society paid them—in the State prison. I do not see any other result. Society does not owe any man a living. The fact that a man is here is no demand upon other people that they shall keep him alive and sustain him. He has got to fight the battle with nature as every other man has; and if he fights it with the same energy and enterprise and skill and industry as any other man, I cannot imagine his failing—that is, misfortune apart.

Source: U.S. Congress, House, Investigation by a Select Committee of the House of Representatives relative to the Causes of the General Depression in Labor and Business etc, 45th Cong.3d. Session, Mis. Doc. No. 29 (Washington D.C.: Government Printing Office, 1879).