THE I.P.A. HEVIEIllINSTITUTE OF PUBLIC AFFAIRS — VICTORIA289 FLINDERS LANE, MELBOURNE : : CENTRAL 1249

A non-profit organisation, supported entirely by voluntary contributions. The Instituteaims at educating the public in the true facts of our economic system in order to bring abouta wider understanding of the merits of the free enterprise system.

Vol. VI JULY-SEPTEMBER, 1952 No. '4

CONTENTSPage

Editorial—Business Confidence 97The Full Employment Prob-

100

A Philosopher on Individu-alism 109

Profits and the National Wel-fare 113

What is the Meaning of FreeEnterprise? ... ... 119

Contributed ArticleEnough for All Men's Needs

by Eugene Holman ... .... 123

COUNCIL OF THE INSTITUTEG. J. COLES, C.B.E. (Chairman).Sir W. MASSY-GREENE, K.C.M.G.Sir LESLIE McCONNAN, K.B.C. A. M. DERHAM, C.B.E., M.C.

R. HARPER.HARRY HEY.W. A. INCE.F. E. LAMPE, M.B.E.C. N. McKAY.W. I. POTTER.HERBERT TAYLOR.Hon. A. G. WARNER, M.L.C.

EDITORIAL COMMITTEEF. E. LAMPE, M.B.E.HERBERT TAYLOR.C. D. KEMP, B.Com. (Director of the

Institute).G. R. MOUNTAIN, M.A.H. N. WARREN, B.Com., A.C.I.S.(Secretary).

Business Confidence

OVER the last few months the business outlookhas become puzzling and uncertain. The

suddenness of the change from the post-war yearsof inflationary, demand and easy earnings to atougher period of tight finances has given rise todoubts and in some instances to pessimism. Pes-simism is highly contagious. It may at first infectonly a small segment of the community. But onceit gets under way it can be as devastating as abushfire in dry timber.

Economists have long been well aware of thevital part played by the hopes and expectationsof business about the future. Some indeed haveassigned to business psychology the major rolein their analysis of the 'causes of fluctuations ineconomic activity and in the cycle of prosperityand depression. Lord Keynes wrote chaptersabout it. Certainly the psychological atmosphere,the mental state or mood prevailing in boardrooms, managerial offices and clubs, and amongthe spending public, can have a profound effecton business activity and thus on the level of em-ployment.

It is no exaggeration to say that the communitycan think itself into a recession far greater thanthat warranted by the underlying economic con-

Page 97

Business Confidence (continued)

ditions. If, at the first appearance of dark clouds on thehorizon, everyone starts to rush for cover, to pull down theshutters, to play for safety first, what might have been nomore than a strong cleansing rain, can, by a perverse Fate, beturned into a deluge.

This does not mean that business should turn its back onthe hard facts of life, that it should indulge in foolhardy reck-lessness. But, having carefully weighed up the new situation,it should always bear in mind that its particular function inthe economic process is to take risks, to 'venture boldly, andto be enterprising. It is its willingness to perform this func-tion of risk-taking that marks it out from most governmententerprises and that constitutes its special title to the supportof the community.

Many businesses, it is true, are contending with greatdifficulties at the moment. But, insofar as some of these diffi-culties are temporary, they should not be permitted to influ-ence unduly the businessman's estimate of the future. Wher-ever possible free enterprise should show its faith in the futureby keeping its plans of expansion intact. Businessmen shouldbe guided not only by their accountants' estimates of profitand loss, but by their own intuition and by their responsibili-ties to the nation. When times are blackest the leader musttry to diffuse confidence and optimism. When confrontedwith a challenge he must be bold and intrepid. The coldlogic of mathematics has its place in business decisions; butthe future is something that cannot be adequately interpretedby the rigidities of the profit and loss account.

It should always be remembered that the businessman isnot the helpless slave of an economic environment entirely ex-ternal to himself, over which he has no control and to whichhe has no course but to automatically respond. For by hisown decisions he himself determines in large measure the na-ture of that environment. The state of economic conditionstwelve months or two years hence will be shaped by the de-cisions that are taken by businessmen today, just as the stateof economic conditions today is partly the result of businessdecisions made a year or two previously. The businessmanmay not be entirely the master of his own fate; but he is very

Page 98

much more than the slave of circumstance. This truthshould never be forgotten.

If he plans for the future with reasonable optimism inthe belief that things will be better, his hopes are likely to behappily realised. If, on the other hand, he retires into himselfin a mood of resignation and hopelessness, his worst fears willalmost certainly prove to be well founded.

IN any case the forward perspective for Australia is not with-out its good features. If there is darkness in the sky,

there is also light. Against the burdens of high costs and thedifficulties imposed by the adverse external position, must beplaced the boost to spending that will be given by reducedtaxation_ and by the still exceptionally large capital projectsof government, the gains in productive efficiency of recentmonths, and the rapidly growing capacity for the productionof basic products, many of which, too, are still cheap by worldstandards. Moreover, from the longer view, no one candoubt that Australia is set for an era of extraordinary growthand development. The greatest years are ahead.

It was the most renowned of modern economists, Keynes,who wrote: "If animal spirits are dimmed and spontaneousoptimism falters, leaving us to depend on nothing but a mathe-

fmatical expectation, enterprise will fade and die—thoughears of loss may have a basis no more reasonable than profits

had before."

Page 99

THE FULL EMPLOYMENT PROBLEM

THE employment situation over the last few months hasgiven rise to growing concern. Reported large-scale re-

trenchments in public projects because of shortage of financehave been followed by announcements of pay-roll reductions'in a number of private industries.

The facts of the situation are not easy to unearth. Theonly thing certain is that so far the overall unemploymentposition is of comparatively small dimensions. This does notrule out the possibility that in some sections of industry andin certain trades the scale of unemployment has assumed moreor less serious proportions.

Official statistics show that in the eight months fromNovember, 1951 to July, 1952, the numbers employed inprivate business had fallen by 95,000. This was partly offsetby an increase in government employment of 21,000, so thatthe net position shown by the statistics is that approximately74,000* less people were employed in July this year than inNovember last year. Even this is not so serious as it seemssince most of the dismissals in private industry comprise wo-men, a large proportion of whom would be married. Ofthe net decline of 95,000 in private employment, women.account for approximately 53,000. The following table setsout the broad position over the whole range of. employment.

DECLINE IN EMPLOYMENTNovember, 1951 to July, 1952

Males Females TotalManufacturing incl. Gov't. . . . 21,600 37,100 58,700Retail Trade 6,000 10,600 16,500Wholesale Trade 6,400 2,300 8,700Hotels and RestaurantsPrivate Building

2,3003,000

4,400 6,7003,000

All Other incl. Gov't. . . . • .. 2,700 1,600 4,300

42,000 55,900 97,900

Deduct increases in Government employ-ment and a few private industries, e.g.

18,100 6,100 24,200

23,900 49,800 73,700

NOTE: This analysis excludes employment in rural industry, domestic serviceand the defence forces, in all of which employment has probablyincreased.

* This general estimate does not take into account the number of new applicantsfor employment (arising from migration, juniors leaving school and so on),coming on to the labour market, over the eight months in question. Thefigure must be around 60,000, although retirements would offset it to someextent.

Page 100

In the field of government employment the main in-creases took place in rail and air transport, the post office andother departments, and in public works which alone, surpris-ingly, show a rise in employment of 500. Defence forces alsoincreased by 19,600.

The industries hardest hit in manufacturing are textilesand clothing, boots and shoes, plastics, food preserving, someelectrical goods, sporting equipment and products subject toheavy sales tax, light engineering, motor bodies, rubber andpaper. There have also been reductions in employment inretail trade and in private building. On the other handemployment in basic industries has increased. For instance,the iron and steel industry has increased its labour strengthby roughly 1,000 in the last six months.

FOR the great part of the time since the end of the war,and particularly over the last two or three years, the

economy has been in a state of over-full employment withconsiderably more jobs offering than people available to fillthem. The employment recession of the past few monthshas altered a situation to which we had become accustomedthrough long acquaintance, and' the continued existence ofwhich we had begun to take almost for granted. But judgedby any pre-war standards, and indeed by the meaning attri-buted to full employment by many economists, the level ofemployment at the time of writing is still remarkably high.If we no longer have over-full employment, we .cannot be farshort of full employment. While there are pockets of un-employment of more or. less significant dimensions, taking theeconomy as a whole the general volume of employment isstill satisfactory. The real anxiety lies not so much in thepresent level of unemployment—which is not serious—butin the fear that the unemployment situation might rapidlyworsen and get out of control. This is a possibility that can-not be altogether ruled out and that should be faced up tofrankly.

One thing seems fairly certain—that we are not likelyto see again, for some time at least, the highly inflated boomconditions of the last few years with a large excess of jobsover job-seekers. The end came with the dive in wool prices

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THE FULL EMPLOYMENT PROBLEM (continued)

from the economic stratosphere. This was quickly followedby a very substantial falling away of the flow of private capi-tal from abroad seeking investment in Australia.. The wildlyoptimistic expectations of both governments and private busi-ness, based on the indefinite continuance of the boom, werethus disappointed. The reaction, naturally enough, has been •one of disillusionment and some considerable irritation whichhas at times verged on childish petulance.

NOT AS SIMPLE AS WE THOUGHT

We were almost assuming that the full employment pro-blem had been solved for good and all. But the problem isnow beginning to look not nearly so simple as many seem tohave imagined.

The belief that full employment is a relatively straight-forward easy matter seems to have become widespread sinceLord Keynes. Experience since the war has served to streng-then the grip of this belief.Before the war unemploy-ment generally ranged be-tween 5 and 10%. And inthe great depression it roseto nearly 30%. Full employ-ment was the rare exception.

Keynes' theories and pro-posals were based on pre-warexperience and particularly—so far as his advocacy ofheavy government spendingwas concerned — on thespecial circumstances of Eng-land itself.* He attacked theproblem of chronic under-employment which he ana-lysed as basically due to in-sufficiency of effective de- JOHN MAYNARD KEYNES

1st Baron of Tilton, 1883-1946

* This led a great American economist, Joseph Schumpeter, to write in anessay on Keynes: ".... practical Keynesianism is a seedling which cannot betransplanted into foreign soil; it dies there and becomes poisonous before it dies.But .... left in English soil, this seedling is a • healthy thing and promisesboth fruit and shade. Let me say once and for all: all this applies to everybit of advice that Keynes ever offered." An exaggerated judgment perhaps,but one worth bearing in mind.

Page 102

mand. The remedy lay in measures of policy to stimulateand maintain demand at a level which would be sufficient toprovide for full employment of all resources, including la-bour. Many of the followers of Keynes—and they includethe majority of modern economists—seem to assume that allthat is necessary in order to achieve full employment is tomaintain demand through the manipulation of monetary andfiscal measures. These ideas have been given practical expres-sion in the expansionist financial policies of the post-warperiod of easy money and credit conditions, low interest rates,and heavy governmental expenditure.

IT is true that Keynes advocated all these things. But, as we have seen, Keynes was concerned essentially with the

chronic under-employment of the pre-war years. The Key-nesians, whose influence on economic policy since the warhas been paramount, applied the master's philosophy to theentirely different circumstances ruling during the post-warperiod. These were circumstances not of under-employmentand depression, but of buoyant economic conditions broughtabout by war-caused scarcities and a huge pent-up demandmade effective by the plentiful spending power accumulatedduring the war years. Even had there been no Keynes, it isprobable that full employment would have been the normalcondition of the years that followed the war.

The application of the Keynesian philosophy thus hadthe effect of throwing petrol on to what was already a healthyeconomic blaze. An artificial inflation was heaped on a na-tural inflation. The natural post-war boom 'conditions wereexcited and intensified by policies which were really applic-able to times of depressed economic activity. Keynes himselfis reported to have said in 1930: "Twenty years from nowGovernment ,departments all over the world will be talkingabout my doctrines, and by that time they will be quite obso-lete and dangerous."

FAILURE TO CONTROL THE BOOM

What has all this to , do with the present position in Aus-tralia? Just this—that . a large part of our present economicdifficulties, including the tightening employment situation, isattributable to our failure to damp down the fires of the boom

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THE FULL EMPLOYMENT PROBLEM (continued)

years, from the general over-confidence to which the boomgave rise, and from lack of economic foresight. We know nowthat Australia would have been in a much sounder andhealthier position today had the boom been put on a tighterrein. Our present discontents are in great measure due tothe let-down from the economic high spirits of the boomyears, a reaction which was sooner or later inevitable. Theforces making for the recession which we are now experienc-ing were in fact set in motion by the boom itself. The greatclassical economists used to insist that in economics, as inphysics, every excess generates its opposite reaction. Nowa-days we seem to have forgotten this truth. The policies thatwere pursued in the boom years look, in retrospect, to be sadlymistaken. The responsibility for these policies cannot rightlybe laid at any single door. All authorities were infected withthe Keynesian virus—Government advisers, politicians of bothparties, industrial tribunals, the trade unions and many sec-tions of private business.

Most of us have exhibited a sublime and rather naiveconfidence in the doctrines of Keynes. After Keynes hadspoken, the full employment problem, we thought, was asgood as solved. All that remained to be done was to faith-fully apply the ideas of the master. Economic stability andfull employment would follow as naturally and easily as ,night follows day.

The work of , Keynes did, of course, mark a great ad-vance. It did reveal some of the points where we were goingastray. It demonstrated that compensatory government ex-penditure could play an important role under certain coo.-ditions; also that governments could exercise a vital influenceon the level of economic activity through the instrument ofthe budget. The employment White Papers of the variousEnglish-speaking governments issued directly after the warreveal this confidence in Keynesian doctrine, on which theywere in large part founded.

But two very significant limitations to Keynes were eitheroverlooked or, at least, not given their proper measure ofimportance. Both of these limitations are especially relevantto the Australian position at the moment.

Page 104 .

THE FIRST LIMITATION

The first is that the Keynes' theories in their formal as-pect were evolved largely on the assumption of a self-con-tained economic mechanism—that is, one in which the eco-nomy of a particular country is regarded as closed-off fromthe rest of the world. The effects of international trade on theeconomy of a single country were thus excluded from thereckoning.* But this assumption, unfortunately, has little orno relation to the facts of the Australian economy of whichinternational trade forms a significant part and in whichfluctuations in export income exert a potent—almost domi-nant—influence on the state of internal economic conditions.In fact, the Australian economy is tragically vulnerable tothe price the world is prepared to pay for one product—wool.This has been brought home to us with stunning force overthe last twelve months.

Full employment, on the Keynesian analysis, depends onthe maintenance of effective demand. But what happenswhere there is a collapse in spending power caused by a fallin export income? It is not at all clear—as has been suggestedin some quarters—that this can be satisfactorily offset, andthe total of effective demand maintained, through attemptsto bolster spending by an expansionist internal monetarypolicy. There is, for instance, the problem of the adversetrade balance which follows from the drop in export income.An internal inflationary policy, because it increases buyingpower, including spending on imports and on products other-wise exportable, must be expected to aggravate this problem—unless, of course, harsh import restrictions are imposed, ashas been done in the present crisis of the trade balance.

But how far can import restrictions be pushed withoutleading to unemployment?—since so many industries andpublic projects in Australia depend on imported supplies ofraw materials, parts and capital equipment. Also, quantityimport prohibitions have unhappy effects on standards ofliving and on the rate of industrial development.

The classic method of meeting an adverse external posi-tion was that of internal deflation—the exact opposite of the* Keynes of course was very well aware of the importance of international

trade in the employment problem, and he was indeed the oustanding advocateof the need for international financial institutions to minimise the effectsof international fluctuations.

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THE FULL EMPLOYMENT PROBLEM (continued)

Keynesian ideas. This led to a reduction in costs, a fall inmoney wage rates, and some unemployment. The reductionin costs tended to correct the trade deficit by discouragingimports and encouraging exports and also, eventually, theunemployment position through the restoration of businessconfidence. This policy was admittedly serious and unsatis-factory in its short-term effects; but can we be sure that wehave yet found an effective alternative, especially in caseswhere the decline in export income is of large proportions?

THE SECOND LIMITATION

The second limitation of the Keynes' analysis is that itwas concerned specifically with the problem of general unem-ployment—that is unemployment spread inore or less evenlythroughout the entire economy—and with the problem ofgeneral under-demand. But there is also the problem arisingfrom particular unemployment in certain industries, occupa-tions or localities caused by a falling away in demand forparticular commodities or services. This can clearly be amost significant aspect of the whole problem. Indeed it isvery largely the one we are facing in Australia at the moment.

It raises, too, important questions about the true mean-ing of "full employment," on which there is a great deal ofconfusion. "Full employment" cannot possibly mean a situa-tion in which there is always a job suited to each man's capa-bilities, experience, or special technical qualifications. Nor canit mean that there will always be ample jobs available closeto the present place of living of the labour supply. It can-not mean, for instance, that if there are 100,000 carpentersin a community, there will always be 100,000 jobs for car-penters. Or that a person now employed in the paper tradecan expect that that trade will always be able to provide em-ployment for him; or that in a particular district there willalways be sufficient jobs for the people who live there. Atbest, full employment can only mean that in the economyas a whole there are sufficient jobs of one kind or another for

' the total of available workers. •

Clearly this can. act rather harshly on the people con-cerned who should, however, constitute no more than a smallminority of the total working population. But it is surely

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better that there should be jobs of some kind available thanno jobs at all. No economic system yet devised, or that canbe conceived, could overcome this problem of the need forchanges of occupation, industry or place of work. The mostthat economic policy can hope to do is to minimise the extentof these changes; it cannot eliminate them.

It was a Labour Prime Minister, a man to whom fullemployment was a fetish, the late Mr. J. B. Chifley, whostated these truths in blunt terms.

"No guarantee can be given to anybody that they can stay put in aparticular industry, but there will be work for all. It is realised thatthere will have to be transfers of workers, and in many cases transfersof whole communities to other forms of work.

"The most any Government can do is to see that there is work foreverybody.

"I am quite certain that everybody will not be able to stay at home,because there will have to be transfers of labour if there is going to beexpansion."

NOTWITHSTANDING the optimism of the Keynesians,the provision of full employment is anything but simple.

In fact it is the most complex problem of a free society. Weare certainly nearer to its solution since Keynes. But thereis much still that we don't understand.

Full employment demands, too, not merely a right eco-nomic diagnosis; but, even more important, a most ingeniousand efficient administration of the treatment prescribed bythe doctor.

The economic body is a complex and delicate mechanism:If it is abused or if it is subjected to treatment based on super-ficial diagnosis or on lack of understanding, it will respondjust as badly as the human body under similar circumstances.

When a man indulges to excess in alcohol or tobacco orlate nights, he pays the consequences, in a lowering of gene-ral bodily health and an increased susceptibility to disease.The body economic, similarly, cannot be maltreated withoutimpairing its capacity to function effectively. Whenthe economic mechanism has been thus abused, it is hardlylikely to be restored to good health by two tablespoonfuls

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THE FULL EMPLOYMENT PROBLEM (continued)

of the patent medicine (of Treasury Bills) in a glass of water.Oh, that it were only as simple!

The greatest danger of all arises from political interfer-ence with economic processes, the application of policies basedon political motives rather than on economic needs. In poli-tics, short-range considerations are usually paramount; thesoothing drug is preferred to the surgical operation or thelong-range deep therapy treatment; or, to change the meta-phor, a hectic night-out of enjoyment for the community,regardless of the hangover in the morning. But in economicsthe longer perspective must be kept constantly within view.Economic problems respond only to conscientious diagnosisand to faithful and steady observance of the measures in-dicated by such diagnosis. •

These truths are forgotten in the chase of the politicianafter political popularity, and in the pressure of different sec-tions of the community . for temporary financial or politicaladvantages. The ultimate economic consequences of thesethings can be highly unpleasant—as the present economicpredicament of Australia bears witness—and possibly disas-trous. When a real crisis occurs, there is no escape fromplacing economics above politics. But must we always waitfor a crisis?

There is need for economic policy to be constantly underthe review and guidance of a body divorced from politicalconsiderations or the influence of pressure groups. As Mr.Churchill said years ago, the modern nation is interestedprimarily in economics not in politics. It is abundantly clearthat the present-day machinery of democratic governmentand administration is unfitted for the proper and efficientsolution of economic problems. The establishment in Aus-tralia of a Council of Economic Advisers, similarly constitutedto the body of this name in the United States, would assistin bringing the government machine more into line with in-escapable modern requirements.* If that were done, the pros-pects of economic stability and continued high employmentwould be, if not assured, at least considerably brighter.* See article "A C.E.A. for Australia" in May/June "Review."

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Philoioph,er on in,clivictu,afiJm,

WE are publishing in 'this "Review" an extract from "The HumanSituation" by Macneile Dixon. Macneile Dixon, in his lifetime, was

regarded as among the greatest of British philosophers, and his book,"The Human Situation," is thought by many of the best-qualified criticsto be one of the outstanding intellectual achievements of the century.

The extract republished here is worth careful reading, not alone forthe masterly conceptions of the author and their relevance to present-daypolitical tendencies, but also for the rare pleasure to be obtained from therichness, beauty and force of the prose.

In the pressure to find expedients to meet the political and economicissues of the moment, we tend, perhaps, to overlook the importance offundamental beliefs and principles. Yet at the root of all political policiesworthy of the name must lie a philosophy of life. At times it is necessaryto withdraw from the every-day hurly-burly to think afresh our basicphilosophies, and thus to establish the standards by which to test thesolutions we propose for the problems that beset us.

THE doctrine of the perfectibility ofthe world is old. It is not, how-

ever, Christian doctrine, rather, asSchopenhauer perceived, it is radicallyirreligious. Men cannot get along with-out religion. If one is abandoned anotheris adopted. And all our humanitarianism,all our philanthropy and welfare work areefforts to fill the great spiritual void leftby the decay of faith, drab substitutes forthe older creed. The spirit of man cravesa friendly God, and you give him eco-nomics. He asks for immortality, and yousay, 'Be content, here is beer and bacon.'

Since there is nothing beyond the pre-sent to be hoped for, let us make the onlylives men will ever know less pitiablywretched. As the tide of religion has re-ceded, the tide of this creed, the onlyalternative, it seems, has correspondinglyrisen. Miracles, once the province of theChurch, will now be performed by theState, which will provide a heaven onearth, here and now. I am not to beunderstood as decrying humanity, kind-ness, philanthropy. These are no newthings. They were not discovered yester-

day. It is the gospel that is new. Thesethings have always existed, and will con-tinue to exist. There was plenty of kind-ness in the world, before it was set abovethe Olympian gods, above truth, andfreedom and justice, before emotionalismwas placed upon the throne of Zeus andtook the wheel of the universe. In thenew Garden of Eden, when we enter it,there will be good roads and water supply,unlimited picture houses, unstinted softdrinks, excellent sanitation, and humaneslaughtering, the best of schools and wire-less installations for everyone; free con-certs and lectures for all. There will beno far horizons and invincible hopes. Weshall cease to think of birth and death,of the infinite, of God, and the sublimesecrets of the universe.

AM not much in love with these six-1 penny Utopias. Men have otherthoughts than these—thoughts thatwander through eternity, and projectsunattainable in time. How childish tothink that the world's griefs are all ofeconomic origin. Our world planners

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-A Phito5opher on inclivilualiim (continued)

have great designs for the filling of emptystomachs. Let them ponder the more in-tricate problem—the filling of emptyhearts.

The troubles of the world have by thebrilliant diagnosticians, like Robespierreor Marx, been assigned to a great varietyof causes. Landor thought the best initialstep towards the amelioration of its suf-ferings would be 'to strange the last kingwith the entrails of the last priest', orvice-versa. The giant or dragon to beslain is differently pictured in differentgenerations. In one age monarchs aredeclared the public enemy, in another thearistocrats, in another the bourgeois class,or the capitalists, the bankers or the Jews.The millennium is not yet, however, insight.

And under whose leadership are we toadvance towards it? There is never anylack of seedy reformers, 'the Projectorsand Schematists', for whom Swift hadsuch contempt, who suppose themselvesentrusted with a divine mission for thebetterment of the human lot, 'sky-blueidealists', as Carlyle called them, kindhearts and muddy understandings, 'potato'philosophers, who see their way to pro-vide beef and beer, or preferably beef with-out beer, for everyone from East to West;the grass-green enthusiasts, who in theirmind's eye see men over all the earthsitting for ever at their cottage doors,festooned with ivy and honeysuckle; whoare persuaded that if wars should cease,gambling be put down and love-makingrendered respectable, if men in their moreenergetic moments were given a ball toplay with, a harmless woolly ball, Godwould be better pleased.

The oyster-women locked their fish upAnd trudged away to cry 'no Bishop.'

Even morals become a nightmare whenwe reflect upon its self-appointed repre-sentatives. What sort of world would itbe in which Wesleyanism or Anglicanismruled the scene? in which throughout itsbreadth and length not a soul ever kicked

over the social traces, in which there wereno idlers, or spendthrifts, or jesters orSir Fopling Flutters? Does anyone in hissenses really wish for an undilutedrespectability throughout eternity? Aperfectly ordered world is not, though itmay be to yours, to everyone's mind. Somewould prefer a disorderly as vastly moreinteresting, and a risky life as betterworth living and infinitely more attractive.Must we look forward to wholly con-ventional lives, all alike, on the model ofa colony of ants, in standardised build-ings, with hot water provided, lifts andelectric light, where all men think thesame thoughts and pursue similar ends?If this be what is promised us, then indeedthe life of all our blood

Is touched corruptibly, and the purebrain,

Which some suppose the soul's fraildwelling-house,

Doth by the idle comments that it makesForetell the ending of mortality.

SCIENCE has worked wonders in our time, and may be confidently ex-

pected to work still greater wonders. TheUtopian architects, as might have beenanticipated, have turned to her genius forassistance and encouragement. If sciencebe permitted to take matters in hand nobounds can be set, Professor Haldane as-sures us, to human progress. Diseaseswill, of course, be banished. Men, he pre-dicts, 'will be able to think like Newton,to write like Racine, to paint like the VanEycks, to compose like Bach. They will beas incapable of hatred as St. Francis.'Man's life will probably be measured bythousands of years, 'and every moment 'ofhis life will be lived with the passion ofa lover or discoverer.' One can see it willall be very wonderful. Professor Hal-dane is a man of science, the grand man-ner of the prophets sits well upon him,and I have no kind of claim to challengehis forecast of what science can perform.It may be that the Professor Haldanes ofthe future will be able to manufacture

Page HO

any kind of men to order, cynics or saints,chess-players or engineers, poets epic orlyrical, or any brand of humorist, .philo-sopher, Adonis, or Admirable Crichton tosuit the requirements of society.

And what more could you want? Well,shall we say, for one thing, justice, asmall matter which this programme doesnot include? Would you in possession ofthis heaven upon earth be content to forgetthe past sufferings of human kind? Woulda happy lot for men and women to be someday born obliterate or compensate for allthat the previous generations have en-dured? Do not these humanitarianschemes overlook, with a singular in-humanity, the millions who have perishedwithout even a glimpse of the glories tocome? They are of no account. Yetwhat have the new-corners done to deservethe felicity denied their predecessors, andwill they be of any greater account whentheir day, too, has come?

Oh dreadful thought, if all our siresand we

Are but foundations of a race to be,—Stones which one thrusts in earth, and

builds thereonA white delight, a Parian Parthenon,And_ thither, long thereafter, youth and

maidSeek with glad brows the alabaster

shade,Not caring that those mighty columns

restEach on the ruin of a human breast,—That to the shrine the victor's chariot

rollsAcross the anguish of ten thousand

souls!

THE thoughts of our well-meaning re-formers appear to be directed to one

end only, the cessation of strife, and theconsequent cessation of effort, for whichthere will no longer be any need. Buthow false it is to suppose that humanbeings desire unending ease, unthreaten-ed safety, that their summum bonum iscushioned comfort, a folding of the handsto sleep. That way madness lies. Whatthen is left to occupy their interest andattention? They desire rather difficulties,

such is their nature, difficulties to elicittheir powers, to keep them alert andwakeful. They wish to be alive. In theabsence of resistance to desires, desiresdecay, and an intolerable, an appallingtedium invades the soul.

Whose lives do we read with interestand admiration? The lives of men lappedin comfort from the cradle to the grave?Or of those who in the face of odds haveaccomplished their ends, good or bad?When the soul of man rises to its fullstature, with what disdain does it regardthe sweetmeats and the confectionery. Intheir anxiety for human welfare, in theircollectivist schemes, the sentimentalistshave overlooked the individual man. Theysubmerge him in the sea of their universalbenevolence. 'But who desires to live inthe pauperdom of their charity? Everyman desires to be his own architect, andthe creator of his own design, the senti-mentalist himself among the rest. Andthe last and greatest insult you can offerto the human race is to regard it as aherd of cattle to be driven to your select-ed pasture. You deprive the individualof his last rag of self-respect, the mostprecious of his possessions, himself. Ifyou treat him as a thing, an inanimateobject, which can be pushed hither andthither, if you treat him as one of a droveof oxen, you take away his birth-right,and for his loss nothing can compensatehim, not all the soothing syrups andhoneys of the world.

To its eternal honour Christianity hasstood steadfastly for the sanctity of theindividual. To imprison the human spiritis the unpardonable sin, the attempt tomake men automata, to force them intothe same mould. No means, will ever befound to induce human beings finally tosurrender themselves, either body or soul,to a dictated felicity, to satisfactions cho-sen for them, whatever vulgar Caesarsrule the world. And upon this rock allforms of regimentation, of standardisedexistence will eventually shipwreck.

Page III

laitomplzer on infividualiim (continued)

FVERY type of compulsion is hateful,. always has been, arid always will be

hateful, as long as men are men. Wasthis freedom about which the poets haveraved since the world began, for whichmen have died in millions, worth thebones of a single soldier? Have you everasked yourself why men have fought forliberty? Not for amusement. Freedomthey must have, whether they know ornot what to do with it, freedom to choosecause or party, order or disorder, thegood or the bad, to steer each his ownvessel to the port of his desire. Takeaway his choice, and you make of him,for all your benevolent intentions, achattel or a slave. There is a rebel inevery man ; men will revolt and demandagain their freedom. As Dostoievsky ex-pressed it, when everything is smooth andordered and perfect, 'in the midst of thisuniversal reason there will appear all ofa sudden and unexpectedly some common-faced, or rather cynical and sneeringgentleman, who with his arms akimbowill say to' us, "Now then, you fellows,what about smashing all this reason tobits, sending their logarithms to the devil,and living according to our own sillywill?"' And he will have followers in theirthousands. Men desire the strangest and,

in their neighbours' eyes, the most incom-prehensible, the most irrational, the mostpreposterous things.

The astonishing thing about the humanbeing is not so much his intellect andbodily structure, profoundly mysteriousas they are. The astonishing and leastcomprehensible thing about him is hisrange of vision ; his gaze into the infinitedistance ; his lonely passion for ideas andideals, far removed from his materialsurroundings and animal activities, andin no way suggested by them, yet forwhich, such is his affection, he is willingto endure toils and privations, to sacri-fice pleasures, to disdain griefs and frus-trations, for which, rating them in valueabove his own life, he will stand till hedies, the profound conviction he entertainsthat if nothing be worth dying for noth-ing is worth living for.

The inner truth is that every man ishimself a creator, by birth and nature, anartist, an architect and fashioner ofworlds. If this be madness—and if theuniverse be the machine some think it, avery ecstasy of madness it most mani-festly is—none the less it is the lunacyin which consists the romance of life, inwhich lies our chief glory and our onlyhope.

We are indebted to Edward Arnold & Co. of London, publishers of "The HumanSituation," for permission to reprint the extract above.

Page 112

Profitsand the National

Welfare

THE tighter money market has come as an unpleasant shockafter the long period of plenty. Both governments and

private industry have been compelled to cut down importantprogrammes of development because current savings are nothigh enough to sustain them. Loan raisings fall far short ofgovernment works expenditures, and even long-establishedcompanies are experiencing difficulty in obtaining adequatefinance for new activities.

The immediate cause of the scarcity of capital is the40% drop in savings which occurred in 1951/52.* The fallin savings is in turn due to the sharp down-turn in exportincome, the falling away in internal business activity,and to the inroads of heavy taxes and rising prices on the in-comes of the investing public. But, basically, the problemis more deep-rooted. Familiar springs for the refreshmentand expansion of industry have been drying up for sometime, choked at the source by high taxation on investors andcompanies. This trend was concealed until recently becauseof the great accumulation of funds by private and institu-tional investors over the war and early post-war years, theabnormal level of wool prices, and the large inflow of capitalfrom abroad. For instance, Ife assurance companies whichpoured millions into private and public projects in the yearsfollowing the war are now short of money to invest. Freeenterprise may be passing into a new and difficult era markedby a chronic shortage of risk capital.

Since private business is responsible for the employmentof about 80% of the national labour force it is surely com-monsense to ask ourselves how industry can be encouragedand enabled to give the optimum in efficient service to the* Undistributed profits and personal savings. As a considerable part of personal

savings is used to finance the purchase of motor cars and dwellings and to• repay advances previously used for these purposes, the volume of savings

available for other investment purposes probably dropped by much morethan 40%.

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Profits and the National Welfare (continued)

community. One plainly essential condition is that in oneway or another industry must be able to obtain adequate capi-td for expansion and for the improvement of its methods andprocesses.

While the great part of industry is privately con-trolled, this can only be achieved via the medium of pro-fits. Unfortunately -the whole approach to profits in thiscountry tends to be determined by emotion based on falsepremises rather than by a realistic assessment of economicneeds. To many people the idea of more profit is synonymouswith exploitation and inequality of incomes. This popularview overlooks the fact that steep taxation on companies andhigh income earners severely rations the amount of incomefrom profit which eventually reaches the pockets of investors.Excessive incomes from dividends are easily netted in thehands of the ultimate recipients. But a real change in publicopinion will only come about through a wider understandingof the central role of profits in the economic mechanism instimulating investment. After a large slice of profit has beentaken in taxes (at present 9/- in the on the greater partof the incomes of public companies), the balance must bedelicately apportioned between dividends and reserves. Divi-dends must be high enough to encourage fresh capital; butnot so high at a given level of profit as to jeopardise the futurestability and progress of the company. Something has to bekept aside for contingencies and for expansion. Unless pro-fits amply cover requirements for dividends and reserves, newinvestment must inevitably be retarded and the communitywill suffer.

THE provision of new industrial plant and the carrying outof research into new methods of production are thus

linked closely to the level of profits. Now that the volumeof private savings in the higher income brackets is so muchsmaller than it used to be, the small and medium investormust be encouraged to lend their money in greater amounts.Profits must therefore be high enough to enable a return byway of dividend which is 'well above the level of interest ongovernment bonds and mortgages. Otherwise the small saveris not likely to be interested in incurring the extra risk ofinvestment in company shares.

Page 114

But an even more imperative reason for increasing thegeneral level of profits is that better profits will enable com-panies to become more independent of the vagaries of theinvestment market. So long as the volume of personal say-ings is meagre and precarious, highly important venturesmust be postponed until better times. With ample reservesfrom ploughed-back profits, companies would be preparedto carry out new building projects when activity was slackand costs lower. As it is now, companies are forced to ex-pand mainly when it is easiest to obtain capital from thepublic. This is generally at the height of a boom -and theinflationary scramble for scarce men and materials is thusintensified.

THE LEVEL OF PROFITS HERE AND OVERSEAS

To obtain the true earning rate of any company it isestablished practice in financial and accountancy circlesthroughout the English-speaking world to relate profits tofunds employed, namely Shareholders' Funds. Shareholders'Funds represent the book value of• assets after deducting allliabilities, in other words the net worth of the business. Suchstatistics are compiled in aggregate from published companyreports by the Securities and Exchange Commission and theNational. City Bank of New York for the United States, by"The Economist" for the United Kingdom,* and by the Com-monwealth Bank for Australia. These statistics indicate thatprofits in Australia, after providing for taxation, are well be-low American and British standards in many cases, despite themuch higher level of taxes in the United Kingdom. Because ofthe high level of company earnings in America, companiesare able to finance the great part of their capital improve-ments and expansion out of reinvested profits. Americanconcerns are able on average to retain two-thirds of net pro-fits (after tax) and still leave shareholders well satisfied withtheir dividends. On the other hand most Australian publiccompanies are forced to pay out much more in dividendsthan they devote to reserves, in order to maintain yields ontheir shares and to retain the interest of investors in futureissues. In the case of some leading companies the distributionreaches as high as 80% of earnings after taxation.• Only available since the passing of the new United Kingdom Companies

Act, 1948.

• Page 115

Profits and the National Welfare (continued)

The following table is indicative of the trend of profits,after taxation, in manufacturing in U.S.A. and Australia.

• PROFITS IN MANUFACTURINGReturn on Shareholders'

Funds (After Tax)U.S.A. Australia

1939 8.5 8.51946 12.1 6.31947 17.0 7.81948 18.9 8.11949 13.8 7.71950 17.1 8.21951 .... .... 14.4 8.2

Source: Commonwealth Bank Statistical Bulletin, National City Bank of NewYork Monthly Letter.

It will be observed that while the rate of return on share-holders' funds in manufacturing was the same in both U.S.A.and Australia in 1939, the post-war trend 'of profits is widelydivergent. American profits reached a peak well over twice1939 and are still appreciably higher, despite stiff tax increasesin 1951 to help finance the immense rearmament programme.

The higher rate of profit in U.S. manufacturing com-panies flows from a variety of causes. But in the last analy-sis it boils down to an enlightened public attitude towardsprofits. Organised political pressure for any severe limitingof profits is almost non-existent. Indeed, trade union leadersin U.S.A., readily acquiesce in the making of high profitswhich are promptly reinvested for the betterment of theworking conditions of their members. American labour isnot alone in this bold commonsense attitude. Swedish tradeunions in 1947 also insisted that their labour-controlledgovernment provide adequate fiscal concessions for the mak-ing and ploughing back of profits in Swedish industry. Theyreasoned that this would mean more jobs and eventuallyhigher real wages.

One of the most disconcerting aspects of the Australianposition is the low earning rates of the oldest and soundestcompanies which must provide employment for a high pro-portion of the labour force and which produce most of ourbasic goods and services. The following table shows the averagerate of net return (after tax) in 1951, in U.K. & U.S.A., invarious fields of manufacturing, and the comparative figuresfor Australian leaders in the same lines of activity.

Page 116

Industry

% Return on Shareholders' Fundsafter Provision for Taxation

Australian Company Aust. . U.K. U.S.A.(All cos.) (All cos.)

Iron and Steel Broken Hill Pty. 6.4 7.7 12.3Glass Aust. Cons. Inds. 6.4' 8.4* 15.3Cement Aust. Cement 5.9 8.2* 14.1Paper Assoc. Pulp and Paper

Mills 5.3 11.3 16.1Rubber Dunlop Rubber 10.0 8.5* 16.1Textiles Felt and Textiles 7.4 7.0 8.3Electrical Amalgamated Wireless 7.8 8.1 16.2Tobacco British Tobacco 7.8 12.5 9.8Brewing Carlton and United

Breweries 4.5 6.1 11.8Sugar Colonial Sugar Refining 3.6 8.9* 12.1Food Preserving Henry Jones 9.4 7.4 11.6* Based on results of leader in the field.

Sources: Melbourne Stock Exchange Record. Records and Statistics Supplementto the Economist, Economist Intelligence Unit, National City Bank of'New York, Mont/1i), Letter.

Notes:1. Shareholders' funds are as at January 1st for U.S.A. In the case of

Australia and United Kingdom, they are average funds used over theyear.

2. Profits in the U.S. textiles and tobacco industries were abnormally lowin 1951, whilst earnings in the U.K. paper and tobacco industries were

much higher than usual.

Sufficient data is not available to show earnings compari-sons for particular industries before making provision fortaxation. However, the following table covering all manu-facturing is indicative:-

% Profits on Shareholders' Fundsin 1951

Before Tax After TaxAustralia 15.4 8.2United Kingdom 22.1 7.8United States 27.7 12.2

Notes:1. The Australian figures after tax were compiled by the Commonwealth

Bank, from published company balance sheets. The figures before taxare based on an analysis made by the Institute covering the companiesincluded in the Commonwealth Bank sample which disclose their taxa-tion payments or provisions and whose results are republished by theSydney Stock Exchange Statistical Bureau.

2. The data for United Kingdom was extracted by the "Economist" frompublished company reports and reclassified by the Institute to accordwith the Australian and American definitions of shareholders' funds ornet worth. The main reasons for the large discrepancy in results beforeand after taxation in United Kingdom are as follows:-(a) Company taxes are much higher:(b) British companies possibly make much larger appropriations from net

profit (after tax) to provide for obsolescence and replacement ofassets, Including stocks, than appears to be the case in. U.S.A. andAustralia. This has the effect of. reducing disclosed profits belowtaxable profits.

3. The American statistics were compiled by the Securities and ExchangeCommission. They cover a larger 'range than the National City Bank ofNew York study and the results after tax are slightly lower.

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Profits and the National Welfare (continued)

Profits before taxes in United Kingdom and U.S.A. aver-age 20% to 30% on shareholders' funds. By contrast in Aus-tralia they are only about 15 %. Judged by overseas levelstherefore, company profits in Australia are far from high,but rather appear to be inadequate to sustain the pace ofdevelopment overseas and hence maintain competitive stan-dards and jobs for Australian workers.

Latest balance sheets suggest that the flush of inflationaryprofits is over and that stiffer times are ahead for most com-panies in Australia. Present government attitudes on pricecontrol and company taxation and other aspects of publicplanning may have to be revised in the light of the changesin company finances since before -the war. To disallow anadequate margin of profit is merely to obstruct and slow upthe whole rate of technical advancement and of national eco-nomic progress. Not the employer or the investor, but thewage-earner and the consumer, stand to lose most from finan-cial policies based on a vague hostility to business profits.This is plain economic truth, not special pleading.

Pagc 118

What is the Meaning of

Free Enterprise ?

A FEW months ago the Editor of a lead-ing British business journal* addressed

an open letter to the President of theFederation of British Industries. In thisletter he posed a question : "How manymen," he said, "in British industry, how-ever exalted their position, could definewhat they mean by PRIVATE ENTER-PRISE or FREE ENTERPRISE. . . .?"The Editor went on to say: "We believethat the absence of any clear idea aboutthe nature of the private enterprise sys-tem among business men is a mortal dan-ger to the system itself."

This letter brought forth a flood of re-plies from British businessmen—somecommendatory, others critical. Some saidthat no good purpose would be served bytrying to describe the meaning and natureof private enterprise in more or less exactterms. But the majority seemed to thinkthat something of value—possibly of sub-stantial value—would emerge. The headof one of the world's leading public rela-tions firms made a strong point: "Thereare hosts of people," he wrote, "to whomprivate enterprise has only the vaguestsignificance."

This is almost certainly true.

WE seem to have reached a stage wherea re-definition of free enterprise in

modern terms is urgently needed. Forone thing political divisions in bothBritain and Australia have become ratherblurred. Thus we find "free enterprise"governments imposing measures of astrongly socialistic character; while wehave socialist parties opposing thesemeasures with ideas which would be ap-plauded by many supporters of privateenterprise.•scope.

Page H9

Quite apart from the vague notionspossessed by many people about thephrase "free enterprise", there is a realdanger that .to the supporters of free en-terprise itself the phrase might becomeno more than a meaningless politicalslogan or catchcry. Are Australian busi-nessmen in a similar case to their counter-parts in England? Would the majorityfind it hard to explain in precise termswhat is meant by "private enterprise"?Quite possibly !

For other reasons a clear statement ofthe meaning of private enterprise wouldseem to be singularly appropriate justat the moment. It is generally true tosay that the great bulk of economic andsocial legislation of the last two. decades—in Australia no less than Britain—hasbeen directed toward the objective ofsharing up more equally the community'sproduction of wealth. This tendency wasgiven a special impetus by the war whenplans of post-war reconstruction centredmainly on giving effect to the social ideasmost clearly and comprehensively ex-pounded by Lord Beveridge. But thismovement, because of hard practicalreasons, has just about exhausted itself.Attempts to take the levelling processfurther are now just not practicable with-out wholly submerging the driving im-pulses of risk, enterprise and personal ef-fort and initiative on which a communitydepends if it is to remain progressive andproductive. If the central economic prob-lem of the last two decades has been toremove the curse of economic insecuritythrough the policy of "fair shares", theeconomic problem of the next two decadesis likely to be that of greatly expandingthe production of wealth. And the specialclaim to fame of free enterprise is that,

What is the Meaning of Free Enterprise ? (continued)

whatever its defects, it can assure afaster rate of material progress than anyalternative that has so far been offeredus. The classic socialist criticisms ofprivate enterprise, on the whole, have notbeen on the score of production, but onthe score of instability and that privateenterprise does not of itself distributewhat it produces in an equitable fashion.

WELL, then, what kind of economic sys-tem have we in Australia at the

moment? Is it, in real substance and inspirit, a system of true free enterprise?Or is it a system of free enterprise onlyin external appearances ? Is the struc-ture one of private enterprise only inbroad architectural outline whilst the de-tails of construction are foreign to andinconsistent with the main design? Doesthe real red blood of personal enterpriseflow strongly in this young Continent to-day, or is it suffering from a kind of per-nicious economic anaemia or, perhaps, apremature hardening of the economicarteries ? Has our economic organisa-tion become soft? These are questionsworth looking into.

How, then, does the present position inAustralia conform with our notions ofwhat constitutes a system of true freeenterprise ? Certainly the great part ofthe productive assets of the communityare still privately owned. Certainly thegreat part of employment (around 80%)is still provided by private businesses.Are these not the major tests? Do notthese facts conclusively prove that Aus-tralia is still predominantly a free enter-prise country?

At a hasty glance, the building seemssound enough. But if we look a littlecloser, cracks and flaws begin to appear.We notice, first of all, that the strong in-centives which free enterprise is supposedto offer have been considerably watereddown by taxation which becomes ex-tremely heavy at a comparatively low

point on the income gradation. It canbe said at once that the opportunities foramassing a reasonable store of wealth,still less a fortune, no longer exist exceptfor the slick operator or for those alreadypossessing great capital resources. Theaspiring young are no longer allowed theirdreams. We may have been successfulin achieving one of the main objectives ofLord Keynes, "the euthanasia of therentier", but we have also gone a long waytoward bringing about the "euthanasia ofthe enterpriser"—something which LordKeynes would have regarded with horror.

IT is very much to be doubted whetherthis state of affairs provides a sound

basis for developing a young Continentcrying out for growth and adventurousenterprise. Recently, an article in oneof our metropolitan dailies lamented thefact that there no longer seems to be ris-ing from the ranks of the young, men ofsuch stamp and calibre as Sidney Kidman(on the land), H. V. McKay (in manufac-turing) and Sidney Myer (in retail trade),whose work meant so much to Australia inthe earlier decades of this century. Per-haps this is hardly surprising. Perhaps weno longer provide the environment inwhich such men can exist and flourish.Might as well expect the hardy Englishoak to thrive in the Arctic wastes or theSahara Desert.

And in addition to the fact that theState takes so great a share of the wealthacquired by the personal effort of the in-dividual, it also takes a major part (onaverage nearly one-half) of the earningsof the industrial company. If we dis-count the effects of post-war shortagesand of the boom years of abnormal woolprices, it would probably be agreed thatit is not easy in these days for the smallcompany or the young company to growbig. For bigness is largely made possibleby the re-investment of business profit,.the familiar process of "ploughing back"earnings. Moreover, it is much easier

Page 120

for the older, well-established companiesto acquire from the money market capitalresources for large-scale expansion thanthe relatively unknown smaller company.(And even the larger companies are atthe moment severely limited in this re-gard.) Perhaps many a potential Sidney'Myer or H. V. McKay is born to blush un-seen. Heavy taxation on the scale we.are practising not merely removes the in-centive to accomplish great things, it re-moves the means of accomplishment.

Nor is the private enterpriser entirelyfree to try out his ideas, to experiment, tofollow his intuition in the Australia of to-day. He is told what he must not do.He is not encouraged to do. He lives inan environment of restriction. Since thewar he has been hedged about bygovernment controls which reach prac-tically into every nook and cranny of theeconomy—state control of his prices,state control of the marketing of his pro-duct, controls over lending, over the rais-ing of new capital, over his material sup-plies, controls on imports, on building,controls here, controls there. Some daysome enterprising individual, with thetime and resources, will make a catalogueof government controls over business inthe Australia of today. It will make aninteresting story, and one that will as-tonish and shock.

WHAT other flaws are there in the edi-fice of business enterprise? There

is, for instance, the cost structure. Thecosts of producing in Australia have be-come so great that it is virtually impos-sible for a great part of private industryto compete with overseas industries.Costs have risen so high that they couldnecessitate "the continuance of import re-strictions in some form so long as theyremain at levels so far out of line with theworld position. Also businesses are dis-couraged from undertaking big capital ex-pansions which can only be carried

through at excessively high costs. Doesthis cost structure provide an encourag-ing foundation for business enterprise inthis country? Clearly not!

These three alone—the deadening bur-den of high taxation, the restrictions onbusiness freedom, which, in essence,amount to restrictions on the free execu-tion of business ideas, the high cost struc-ture—provide formidable obstacles to freeenterprise. It is, then, at first sight, al-most a miracle that there is as muchbusiness activity as there is !

Part of the reason is that Australia hasjust passed through one of the biggestand longest-sustained booms in its his-tory. Not even the wildest optimistscould have envisaged the day when theprice of wool would exceed 200 pence perlb. In addition, private capital fromabroad, encouraged by high wool prices,has been coming into this country for in-vestment at an altogether abnormal rate.Migration and development and the gen-eral condition of post-war shortages haveall contributed to an economic climateexceptionally favourable to business ex-pansion.

In addition, since 'the war, the business-man has been assisted over the obstaclesin his path by governments concerned atall costs to maintain full employment. Insome respects he may have been slightlypampered. The state has not onlyassumed the responsibility for givingeconomic security to the man in thestreet, it is rapidly getting into a positionwhere it is assuming responsibility fortrying to provide security for the busi-nessman. If the environment for busi-ness enterprise in Australia has not beenexactly invigorating, at least it has notbeen altogether uncomfortable.

WHATEVER the economic system wehave tried to describe can be called,

it is not true free enterprise. It is, in-

Page 121

What is the Meaning of Free Enterprise ? (continued)

deed, little more than a pale, unconvincingimitation.

We come back to where we started.What, then, is free enterprise? In whatdoes its essence consist?*

THE essence of free enterprise lies inthe incentive it provides for individual

achievement through the rewards offeredin return for great effort and risk. Youwill only get the best from a communityso long as each individual can be sure thatthe additional effort he puts into his job,the particular skill that he possesses,. hisspecial abilities and knowledge, and theenterprise and risks which he takes, willbe fairly and suitably rewarded. It meansa system in which every man has the op-portunity to make the most of himself.But it means also a system in which, oncethe minimum needs are assured, everyman must be prepared to stand on his owntwo feet, to suffer the consequences of hismistakes or shortcomings, to take the badwith the good. It is a profit economy butit is also a loss economy. It is a systemimpossible without freedom. And be-cause it cannot function without freedom,it imposes great responsibilities on the in-dividual to see that he acts in a way thatis consistent with the freedom he isgranted. It aims at private gain ; but not

•A brief article cannot pretend to give a full andsatisfying explanation of the "free enterprise" sys-tem. We have merely tried to focus attention on afew of the essential components.

exclusively. It must also concern itselfvery earnestly and intimately with thepublic good. .

The widest spread of individual oppor-tunity; the incentive of rewards propor-tioned to contribution; the prospect ofgain in return for efficient service; thepenalty of loss for inefficiency; the free-dom to plan and to execute, to act onone's own judgment; a high and continu-ing sense of responsibility for the nationalwelfare and all that that implies; theseare the indispensable ingredients of trueprivate enterprise. The institutionalforms of private property and contractflow from these, and though essential, arenevertheless incidental.

A GREATLY respected British journal,"The Economist", discussing in 1944

the problems of reconstruction after thewar, said:—

"The profit motive, the willingness of mento take risks, is of course, indispensable ina democratic economy; it provides the mostpowerful of all stimulants to industrial andcommercial effort and economic progress.It may even be said that our capacity tosolve the industrial, commercial and socialproblems of the postwar world will dependupon the renascence of individual enter-prise and courage."

Where the British countries have fallenshort of solving their post-war problems,may this not be due to their failure tofully revive the spirit of enterprise andcourage?

Page 122

BORN at San Angelo, Texas, in 1895, Eugene Holman graduated as M.A. at theUniversity of Texas in 1917 and entered the oil industry. For some years he

was engaged mainly on geological investigations. In 1942, he was appointed aVice-President of the Standard Oil Company (New Jersey), which, in terms oftotal assets, is the largest industrial corporation in U.S.A. today. At the age of49, he became President.

Eugene Holman is a "working" director and is, by his own definition, a "pro-fessional manager." He combines knowledge, judgment and an unusual ability totake the long view, and he has, too, a disarming common touch.

Mr. Holman subscribes to the view stated in an organisation manual issued byhis Company: "To maintain a business climate favourable to reasonable profit making,management must impose upon itself a proper concern with many social responsi-bilities. ; No business exists in economic isolation. It is part of the economic andsocial environment of its time. Its policies and actions affect many segments of thatenvironment — and in turn are affected by them."

At our invitation this article was specially prepared by Mr. Holman for pub-lication in "Review."

11-4 nough for All Men's NeedsBy EUGENE HOLMAN

President, Standard Oil Company (New Jersey)

THE peoples of the world are using up raw materials at arate never equalled before. The expanding economy of

the post-war years plus the present unhappy need for re-armament has resulted in the new high rate at which we aretaking minerals from the earth. -Perhaps it is no wonder,'therefore, that some people fear we are in danger of exhaust-ing our natural resources. But I am convinced that thisfear is groundless. In fact, I believe that, under certain cir-cumstances, the natural resources of the world may be con-sidered inexhaustible. For the record of the past indicatesthat natural resources will always be available for our use aslong as men have the freedom to acquire knowledge and theincentive to put their creative talents to work.

In prehistoric times, men used simple tools, such as axesand picks, made from stones that were readily available onthe earth's surface. , With these tools they were able to createsocieties, and within these societies they gathered knowledgeof the natural world. As their knowledge accumulated, theyused their tools to obtain some of the softer metals, especiallycopper and tin. They fashioned more and better tools. Intime, they moved on to the Bronze age, and thence to the

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Enough for All Men's Needs (continued)

threshold of the modern world, the age of Iron. Each stepwas characterised by an accumulation of knowledge and bythe use of the minerals which that knowledge made available.When humanity stepped from the age of iron to the age ofsteel, it had already stored up a vast amount of informationand analysis concerning the natural world. There was alsoa formidable array of important tools—levers, pulleys, wedges,hooks and gears. The age of steel was born with a far richer.heritage of human knowledge and natural resources thanany other previous age.

The steplike pattern of development from age to ageis marked by two outstanding features. First, it proceededat a geometric rate. Each successive age was shorter thanthe age before it. The stone age lasted tens of thousands ofyears. The steel age, in spite of its astonishing achievements,is not yet a hundred years old. And, second, each upwardstep was dependent upon the knowledge accumulated in theage before.

THE point is that in every age it was the use of all availablematerials that supported societies in which men could

gather knowledge. Increased knowledge, in turn, has in-variably led to an increase in the number and kinds of rawmaterials men have had to work with.

Thus we see that true conservation has never meant thehoarding of raw materials. On the contrary, the very useof raw materials stimulates the search for more sources andnew kinds of materials. Conservation, therefore, is intelli-gent, efficient use. Not profligate waste, of course, but nothoarding either.

The picture becomes clearer as we look at present daydevelopments. As far as natural resources are concerned, thetwentieth century has, in an almost literal sense, inherited theearth. There are new metals and new sources of energy inthe offing. There are new uses of familiar materials, andfaster, more efficient ways of discovering new sources offamiliar materials. And there are materials, produced by thesynthesis of organic compounds, that have made their appear-ance for the first time.

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In my own industry—oil—I have seen how constantlyincreasing knowledge, stimulated by growing use of petroleumproducts, has helped expand the sources of crude oil. When.I was in the field as a geologist I often heard people predictthat the world's supply of, petroleum was rapidly runningout. Back in the 'twenties, one man solemnly proclaimedthat he had figured the last oil well in the United States wouldgo dry in exactly ten years. I don't know where that prophet istoday but I hope he is better informed. The proved reservesof oil deposits in the United States are now at an all-time high,despite the fact that since 1941, the consumption of pet-roleum, for war and peace, has been enormous. The sameis true of proved reserves all over the world.

This expansion of oil reserves was made possible largelybecause the oil industry produced and used the oil at its dis-posal, and thereby developed the means, financial and techni-cal, to find more oil. One new device that is helping findnew oil fields today, for instance, is the airborne magneto-meter. Improved drilling methods now permit deeper stratato be reached, and today's geologists have means of deter-mining oil structures more accurately.

In addition, oil men are learning how to get more oilout of reservoirs already located. Repressuring, waterflood-ing, and other techniques of secondary recovery are addinggreatly to the quantities of oil available for consumers' use.

IN many different parts of the world new sources of oil have been discovered in recent years. The great fields

in Alberta, Canada, began to produce crude oil in commer-cial quantities only two years ago. In several fields in theUnited- States, where oil exploration has been going on foryears, discovery wells have come in within recent months.New sources of oil have also been opened up in recent yearsin central Sumatra, southern Iraq, and western Venezuela.Meanwhile, in other parts of the world, including Australiaand Papua in the southwest Pacific region, geologists aremaking surveys and drillers are at work in the everlastingsearch for new oil deposits.

Moreover, should the supply of oil some day begin todwindle, we know that we will be able to derive liquid hydro-carbons from oil shales, tar sands, coal and other sources.

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Enough for All Men's Needs (continued)

Besides the mineral energy derived from coal and oil,we may soon enjoy the benefits of two great additional sourcesof energy. Recent developments in atomic research givepromise that atomic energy may be available for constructivepurposes, and scientists are giving serious attention to thelikelihood of harnessing the vast energy of the sun. In fact,at present in the United States some houses are successfullyutilizing solar energy in heating systems. Whatever theirapplication, atomic energy and solar energy will play an im-portant role when and if their use becomes economically feas-ible. The over-all effect will be to increase still more thetotal amount of energy available to humanity.

There, in outline, is the picture of our energy resources.It is plain that we are in no danger of exhausting them. In-deed, I am convinced that we can regard them as practicallylimitless.

LET us look now at metallic mineral resources to see if theconcept of inexhaustability stands up as well for them

as it does for energy resources. There are forty-five metallicelements and some 8,000 alloys of those metals now in com-mercial use. Iron and aluminium are the two metals mostused today, and they occur in great abundance on the earth.Current explorations for new iron deposits range from thejungle of South America to the mountains of Labrador.

In connection with the search for new deposits of metalsand the part human ingenuity plays in extending naturalresources, a good example is the famous Broken Hill Proprie-tary Company, Limited, in New South Wales. I understandthat the company was originally in the business of miningsilver, lead and zinc. It wasn't until the problem of diminish-ing deposits arose that the Company turned to the businessof mining iron ore and the production of steel. It was a wisedecision. Today, the world knows Broken Hill, as oneof the most modern steel mills in the world, and a producerof high quality steel at very low prices. As a company spokes-man has aptly put it, "for over half a century the mine wasto link the age of silver with the age of iron and steel."

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AUSTRALIA'S rich deposits of high grade iron ore are,of course, in no immediate danger of depletion, but if

the danger arises, it is quite likely that new sources will beuncovered as they were in the, great Mesabi range in theUnited States. Not long ago it was feared that the Mesabirange was running out' of its deposits of 50 per cent. iron ore.Today, companies are making large investments in Mesabi,in order to refine an ore called taconite, which treated by anew process produces 60 per cent. iron ore. The Mesabirange contains a taconite strip several miles broad and 100miles long.

The search for more deposits of iron ore is an adventur-ous story of modern industry in many parts of the world.In Labrador, engineers are laying down tracks for a 338-milerailroad line through snow-covered mountains and bleakwastelands to haul iron ore from the Ungava area; on Labra-dor's northern tip, to a port on the Gulf of St._ Lawrence.At Steep Rock Lake, Ontario, seven million tons of lake bedare being removed to get at the iron deposits underneath.In Venezuela, a railroad is being cut through the jungle to ariver, where barges will carry iron ore out to the coast.

A new mineral resource that man's knowledge is justabout to bring into usefulness is titanium, which although itis the fifth most abundant metal on earth, was hitherto im-possible to process for commercial purposes. It is,said that anew, inexpensive process is being worked out. Titaniumshould be ideal for modern high-speed aircraft, because itis lighter than steel, stronger than aluminium, and highly heatresistant.

Two other rigid materials are supplementing metals andwe shall probably see their use expanded before very long.The first is glass, in use for centuries, but now taking on newimportance in building materials, fabrics, and other uses. Theother is plastics, which are used for everything, from child-rens' toys to automobiles. One of the impressive things aboutplastics is that they can be made from corncobs, oat hulls, andother formerly useless waste materials. Both glass and plasticsare doing much to extend our supply of metals.

So we see that the story of metal resources closely par-allels the story of energy. Research and ingenuity are alsomaking our supplies of needed metals inexhaustible.

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Enough for All Men's Needs (continued)

picture of sufficiency for our material needs is brightindeed, but the concept of unlimited resources does not

mean that progress is easy. Human effort and thought mustbe applied to natural resources before they have any value atall. In some parts of the world, rich in potential resources,people still live in poverty because they have not yet learnedhow to make use of them.

Often the progress that comes with use of natural re-sources is impeded by political and social conditions. Inmany parts of the world today these conditions hamper orparalyze the normal healthy growth of free science and in-dustry. Extreme nationalism, government controls and mono-polies, currency restrictions, abnormal tariffs, the denial ofjust rewards for effort, or threats of expropriation, wars andrevolutions have caused valuable raw materials to remain use-less in the earth, where no one benefits by them.

Where men are free to create their own goals and achievethem in their own way human progress, I am convinced,has no limits. The one great resource, without which all thenatural resources in the world would be nothing, is the freecreative spirit of the human individual. Therein lies thetrue secret of inexhaustible material resources.

Contributed articles by noted authorities in Australia and

overseas dealing with matters of public interest are published

from time to time in the I.P.A. Review. This Institute is not

necessarily in full agreement with the views expressed in these

articles. They are published in order to stimulate free dis-

cussion and inquiry.

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