Pillars of the State

Editor’s Note: I recently noticed a thoroughly researched blog post from Stuart Hayashi detailing an important part of the history of American higher education that I had never heard before. This is particularly relevant to the present because the Wharton School has produced several very influential alumni, including Warren Buffett—and Donald Trump. As you will see, this may explain the current president’s views on trade. With Stuart’s permission, I reprint his post below.—RWT

We have heard the horror stories about left-wing propaganda being disseminated through universities, where now there are “safe spaces” and where student try to shout down guest speakers with whom they disagree. We know about the shabby manner in which Ayaan Hirsi Ali and Christina Hoff Sommers and the Ayn Rand Institute’s Elan Journo have been treated. According to a 2005 study by Daniel B. Klein and Charlotta Stern, the most consistently left-wing university discipline is sociology, where Democrats outnumber Republicans thirty to one. The most right-wing discipline is economics, where Democrats outnumber Republicans only three to one.

Given all this, you might wonder how this trend of political indoctrination began. Can you guess which university department in the United States was the one that galvanized this trend of professors trying to push their students’ political opinions leftward? Was it in a humanities department? Was it in the liberal arts? Was it at a law school? No. It was at a business school—in fact, the first-ever business school, the Wharton School at the University of Pennsylvania. Moreover, this was largely a direct consequence of what the Wharton School’s founder, Joseph Wharton, had explicitly intended, even if, had he lived on to 1919, he might have conceded that the faculty had grown too zealous in denouncing commerce and industrialists per se.

This is probably a surprise to people who are not Objectivists, or to Objectivists who have not attended business school. As someone who studied business on both the undergraduate and graduate level, I can tell you about the contents of most of business school. The programs convey something along these lines:

Back in the Gilded Age, when the robber barons ran roughshod over everyone, people held onto their antiquated notion that a for-profit business is rightfully controlled by its stockholders. Today, we have a more enlightened view: the for-profit business should actually do the bidding of its stake-holders. And who are the stakeholders? Everyone in society except the stock-holders!

Then the instructor takes out a web chart identifying the separate stakeholding constituencies. The stakeholders include “labor unions,” “consumer activists” (such as Ralph Nader and Michael Moore), and “the environment.”

When a student myself I was under the impression—perhaps it was wishful thinking on my part—that when industrialists established the first business schools, their main intention really was to teach students the skill of making a profit peaceably. I imagined that what must have happened was that, around the late 1960s or so, hippie-dippie Marxians infiltrated all of academia, and that is the reason why business schools are paradoxically so anti-capitalist today. But no. That business schools would proselytize the need for government control to suppress laissez faire was actually the explicit intention of the industrialists who started them. Had these industrialists been able to come back and hear what was being espoused, they might well declare that in their left-wing preaching too many instructors have come to abuse their pedagogical authority. Still, what is presently being espoused is merely the logical extension of the statist doctrines that these industrialists themselves had injected into the curricula.

Education on how to become a successful businessperson is something that began long before the establishment of business schools. Throughout the Nineteenth Century, there were two avenues whereby someone could acquire knowledge of how to operate a commercial concern.

The first avenue was the one taken by the very man who started the first business school, Joseph Wharton. That would be apprenticeship. If human learning is primarily inductive, then it makes sense that one mostly “learns by doing.” The conventional avenue was the one Wharton took—he apprenticed at the accounting firm, then called a “counting house,” of Waln and Leaming.

The second avenue was what were called for-profit “commercial colleges,” which were distinct from today’s business schools. As Caitlin Rosenthal explains in the Newsday:

In the late 19th century, the variety and availability of for-profit education skyrocketed…. Commercial colleges offered practical instruction in bookkeeping, penmanship, stenography and surveying. They operated mock bank offices and stock exchanges, teaching clerks to prepare the many notes and financial instruments that greased the wheels of the growing economy. Future steel magnate and philanthropist Andrew Carnegie attended night school at a commercial college to learn bookkeeping. John D. Rockefeller studied accounting, penmanship and banking at Folsom’s Commercial College in Cleveland, which survives today as Chancellor University.

I think that sounds quite good. As bookkeeping and accounting are the languages of business, it is logical that an institution focused on teaching students the art of commerce would focus on these two skills. But, according to Caitlin Rosenthal, a recurring complaint was that commercial colleges were not uniform in quality, and the best ones were vastly superior to the worst. As far as I am concerned, that is to be expected. It is just human nature that not every party will perform as skillfully as others. Once you learn you are not getting the best service from one party, you stop purchasing that party’s services and seek out a better one.

Still, iron industrialist Joseph Wharton had other reasons for objecting to commercial colleges. He complained that commercial colleges were insufficient because they only instructed a man on the basics of profit-making, and there had to be more to doing business than that. Wharton had wanted to establish a school that would help businesspeople obtain the same sort of professional prestige as doctors and lawyers. He surmised that for businesspeople to ascend to that vaunted status, they must also become masters of civic engagement. For that reason, elaborates Wharton School research associate Steven A. Sass, Wharton “quite justifiably, complained” that the for-profit commercial colleges “trained men to become clerks, not business leaders.”

As is too frequent for people, especially businesspeople, Joseph Wharton assumed that if there was some nonviolent problem plaguing society, then the one solution would be for the state to intrude and initiate the use of force to alter people’s peaceful behavior. For that reason, as was common, Wharton concluded that being civically engaged is nearly synonymous with demanding more governmental intrusions into people’s private and peaceful affairs. Going along with many other Pennsylvanian industrialists in this period, Wharton was staunchly protectionist, and he was distressed by the idea that so many people outside of Philadelphia were not. The economics professors of Boston, for instance, were much more sympathetic toward free trade, and Joseph Wharton wanted to rectify that. One of the first items on the agenda, then, was for Wharton to specify that because a true business leader prioritizes the well-being of the nation of the whole above his own petty cost-cutting, the students of his business school be inundated with appeals regarding America’s need for tariffs.

He thus wrote a letter to the trustees of the University of Pennsylvania, explaining that he would be willing to provide a substantial endowment on the condition that it start a new school in his name, one for the teaching of finance and political economy and which made it a point to impart his understanding of civics to the pupils.

In the matter of commercial education there was formerly a system of instruction practiced in the counting-houses of the old-time merchants which may fairly be compared to the system of apprenticeship to trades. Comparatively few examples of this sort of instruction remain, nor is their deficiency made good by the so-called Commercial Colleges, for however valuable may be the knowledge which they impart it does not suffice to fit a young man for the struggle of commercial life, for wise management of a private estate, or for efficient public service….

Evidently a great boon would be bestowed upon the nation if its young men of inherited intellect, means, and refinement could be more generally led so to manage their property as, while husbanding it to benefit the community or could be drawn into careers of unselfish legislation and administration.

As the possession of any power is usually accompanied by taste for its exercise, it is reasonable to expect that adequate education in the principle underlying successful business management and civil government would greatly aid in producing a class of men likely to become pillars of the State, whether in private or in public life. . . .

These considerations, joined to the belief that one of the existing great Universities, rather than as an institution of lower rank or a new independent establishment, should lead in the attempt to supply this important deficiency in our present system of education, have led to the suggestion of the project herewith submitted for the establishment of a School of Finance and Economy as a Department of the University which you now control, and which seems well suited to undertake a task so accordant with its general aims….

To commemorate a family name which has been honorably borne in this community since the foundation of the city, I desire that the School shall be called “The Wharton School of Finance and Economy.” [Emphases added.]

Elsewhere Wharton mentioned that economics professors who described the benefits of free trade were a “fungus…which healthy political organisms can hardly afford to tolerate.” On that basis, writes Steven Sass, Wharton made sure that within his own educational institution “he dealt firmly with this piece of college foolery.”

Around this same time was the emergence of what came to be called the German Historical School. As chancellor of the unified Germany, Otto von Bismarck established a managed economy where the state organized members of various industries into cartels. Bismarck also established the first Social Security system and remarked that he was not bothered that anyone might think that this made him a socialist. Such German intellectuals as Georg Hegel, Johann Gottlieb Fichte, Johann Gottfried Herder, Friedrich List, and Francis Lieber all became influential arguing that the wellbeing of the social collective must supersede any rights of the individual in the individual’s peaceful pursuit of profit and self-interest. Many American intellectuals, such as John Dewey, visited Germany at this time and were impressed. Some of them attended the University of Halle and were taught by Johannes Conrad. Upon returning to Wisconsin and Pennsylvania, these American intellectuals decided to adapt the German system to the US political system. These American intellectuals are called the German Historical School by today’s historians; they were also the founders of America’s political Progressive movement, voicing agreement with the Grangers and the Populists who came before them and joining their public campaign against railroad builders and other “robber barons.”

This trend of the university being employed as a vehicle for anti-capitalist crusading preceded the Russian Revolution by more than a decade; all this was going on before the professors became enamored with Marxism. Indeed, it was not that they fell in love with Marxism and then started the anti-capitalist indoctrination. Rather, they had already received anti-capitalist indoctrination, and that is what made it easier for them to embrace Marxism when they came upon it later. As the anti-capitalist indoctrination preceded the popularity of Marxist-Leninism and was largely inspired by Nineteenth-Century Germany, the trend that continues today of left-wing indoctrination on campus is less Marxian than it is Bismarxian.

Joseph Wharton just loved the phenomenon of American intellectuals adopting the statist philosophy coming out of Halle—these sorts of American instructors were exactly what he sought. He wanted the business leaders of tomorrow to be imbued with the same sort of civic spirit as Germany’s statists. Their conspicuous protectionism especially didn’t hurt them in his eyes. Hence, among the Wharton school’s first hires was Robert Ellis Thompson to teach political economy. According to Steven Sass of Wharton, Robert Ellis Thompson promulgated an early version of “Third Worldism” and Dependency Theory—he said that free trade is evil because it allows rich countries like the USA to exploit the poor countries and keep them poor. As Steven Sass summarizes:

In his second line of attack on free international trade, Thompson sounded much like a modern “third-world” critic of the market economy. He argued that such commerce generated an ugly tributary system rather than an ongoing exchange among equals. According to his reading of economic history, trade accelerated the division of the world into what we today call “core” and “periphery” areas, with all the wealth, power, and skilled industry, all the extensive division of labor, concentrated in the core…. These shattered [poor] nations of the periphery, Thompson concluded, could now obtain industrial products only from the core, in exchange for huge amounts of toil and raw materials.

Quoting Robert Ellis Thompson himself, “The rich nation becomes richer, for a time at least, richer by the exchange; the poor nation permanently poorer.”

The Wharton School became even more politically radical upon hiring Edmund James and Simon Patten, respectively its first director and Wharton’s eventual economics chairman, both of whom had been Professor Johannes Conrad’s students in Germany. Patten considered civic engagement to be so much of a greater priority than moneymaking that, starting in 1899, he had this business school teach courses on Social Work. Indeed, Simon Patten, Edmund James, and the Wharton School of Business itself were major contributors in establishing Social Work as an academic discipline.

Together with Richard T. Ely, with whom they had taken classes from Johannes Conrad in Germany, Simon Patten and Edmund James founded the American Economic Association. At first it might seem that the AEA was organized for the purpose of helping objective scholars and scientists share objective data with one another. But to quote from a document that Simon Patten and Edmund James wrote together, the AEA’s real mission was to “combat the widespread view that our economic problems will solve themselves and that our laws and institutions, which at present favor individual instead of collective action, can promote a better utilization of our material resources.” Here, they brazenly acknowledge that they are trying to use an association within academia to advance what is really their ideological opinion. They were especially intent on trying to discredit the writers Herbert Spencer and William Graham Sumner, the latter of whom was a professor of sociology at Yale University, on account of Spencer and Sumner holding reputations for defending the constitutional liberal republican Night Watchman model of government.

All the while this was going on, Joseph Wharton affirmed his approval, especially due to Patten’s adamant protectionism. Writes Steven Sass, “Patten’s defense of the tariff gratified the school’s founder [Joseph Wharton].”

Scott Nearing was a student of Patten’s at Wharton, and then became an instructor himself. As explained by Thomas C. Leonard in his 2016 book Illiberal Reformers (and in a paper he makes available online here about how the “social Darwinism” label has historically been a package deal that Richard Hofstadter used to conflate free-marketers with eugenicists), Ely and Patten and Nearing were all politically Progressive eugenicists who favored statutory increases in the minimum wage, and they stated explicitly that they wanted this wage increase imposed for eugenicist purposes. They presumed that Southern and Eastern Europeans were genetically and racially inferior to the WASPs making up the majority of the USA’s population, and the problem was that these southern and eastern Europeans insisted on migrating to the USA to seek employment. This, said Patten and Nearing and Ely, resulted in these immigrants marrying each other and having kids on US soil or, even worse, marrying native-born WASPs and having mixed-race children. Either way, the conclusion was that the immigrants were polluting America’s gene pool. These immigrants made up for the lack of skill by agreeing to work for low pay. They would then learn on the job and gain skills, and then move on to compete against native-born WASPs in higher-paying trades. Ely and Patten and Nearing pointed out what they considered to be the minimum wage’s virtue: that if it was high enough, it would price these immigrants out of the market, obstructing them from finding any occupation.

The Wharton School is not embarrassed that its purpose has always been civic indoctrination. The history I am currently presenting comes mostly from The Pragmatic Imagination: A History of the Wharton School, 1881–1981 by Steven Sass. The book itself was published by the University of Pennsylvania—the Wharton School’s home—and, as I mentioned earlier, the author was a Wharton research associate when this was written and published.

Eventually, while teaching at the nation’s first university business school, Scott Nearing proclaimed, “private enterprise capitalism has created a distribution system that was unethical and anti-social.”

It was not until around 1919, years following Joseph Wharton’s death, when the school’s businessman trustees admitted that Simon Patten and Scott Nearing had gone too far, and that a business school’s main purpose should be to teach students, you know, how to make money. In his history of Wharton, Steven Sass writes disapprovingly of how the trustees got rid of Nearing and replaced Patten with a new dean, Emory R. Johnson. Then, according to a disappointed Sass, dean Johnson had the nerve to decide that the business school should place less emphasis on political science and Social Work and more emphasis on…business. The Wharton School would not go on disappointing Steven Sass forever, though. Once Joseph Willits assumed the role of dean, he brought in Professors Rexford Tugwell and Simon Kuznets and Lawrence Klein. Tugwell would go on to be a member of President Franklin D. Roosevelt’s Brain Trust. As for Kuznets and Klein, they were instrumental in persuading important people in the US government to adopt Keynesian economics; Klein was a pioneer when it came to arguing in mathematical form for Keynesianism.

Throughout the country, other universities would open their own business schools, modeling themselves after Wharton. Not surprisingly, the template of Progressive political activism was copied in those business schools as well. As most of these universities were tax-funded, it became more and more difficult for the for-profit commercial colleges to compete. Hence, despite their proliferation throughout the Nineteenth Century, being able to help the likes of Andrew Carnegie and John D. Rockefeller, Sr., they went into decline. Thanks to the efforts of John Sperling and Carl Barney, for-profit universities have made something of a resurgence in the early Twenty-First Century. It probably won’t surprise you that while attending business school, I heard many business professors speak condescendingly of the entire idea of for-profit colleges. It is fitting that, much as with the founder of the Wharton School, they don’t much appreciate competition.

Stuart K. Hayashi blogs at Stu-Topia.

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