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July 1, 2012
David Warsh, Proprietor


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Making History Happen

Driving through Pittsburgh last week, I was interested to see that the United States Steel tower had been “rebranded” with a giant “UPMC” sign atop its 64 floors.

UPMC is the largest employer in western Pennsylvania, a combination medical center and insurance plan closely affiliated with the University of Pittsburgh, which in turn is the fifth largest recipient of National Institutes of Health funding.

US Steel, the colossus that J.P. Morgan formed in 1901 by merging Carnegie Steel Co. with two other steel manufacturers, still occupies more than ten floors in the building, or about the same amount of space as UPMC. (It spun out Marathon Oil in 2001, and reclaimed its old name, after several years as USX Corp.) It remains the largest US integrated producer of steel, tenth largest in the world.

But what had been an emblem of indomitable American industrial prowess when I worked in the city forty years ago is today a symbol of a more complex reality.

I was reminded of Jonathan Hughes’ book, The Vital Few: The Entrepreneur and American Economic Progress, which first appeared in 1965.  It has proven to be a more durable landmark than the name of the tower.

Hughes, trained as an economic historian at Oxford (he was a Rhodes Scholar), taught first at Purdue, then, for many years, atNorthwesternUniversity. He died, at 64, in 1992.

He began his book in the 1950s, at a time when he feared that a shared sense of economic history was in danger of being lost to economic theorists.  They were preoccupied with building abstract models of a timeless world, he later wrote, in which resources shifted back and forth in response to changes in relative prices, in accordance with “production functions.” In his world, he wrote, people made history acting on acute perceptions of changing opportunities.

So Hughes fashioned detailed portraits of eight entrepreneurs (a word all but unknown at the time) and carefully located them amid economic historians’ controversies at the time he was writing – William Penn (the Quaker founder of Pennsylvania) and Brigham Young (Hughes was a Mormon); Eli Whitney (machine tools and mass production) and Thomas Edison (electricity); Andrew Carnegie (steel) and Henry Ford (automobiles); E.H. Harriman (railroads) and Pierpont Morgan (banking).

All were innovators, not inventors (in the sense in which Joseph Schumpeter had defined the terms), not merely visionaries but effective agents of change, “shrewdly judging the moment when existing technological advances, changes in taste, technique and so forth could find profitable expression in the open market.” As the presence of Penn and Young makes clear, Hughes had no simple idea of the wellsprings of economic change.

Indeed, when editors of Oxford University Press asked in the early 1980s for a new edition of The Vital Few, Hughes responded by adding two more biographies, this time of “bureaucratic entrepreneurs.” Hughes was deeply curious about the growth of government since the New Deal.

One was Marriner Eccles, the wealthy Utah banker who, as chairman of the Federal Reserve System under Franklin Roosevelt, anticipated the discoveries of John Maynard Keynes and defended them, broke the power of the New York banks, and became architect of the modern Fed (its headquarters building inWashington,D.C., is named for him).

The other was Mary Switzer, a career civil servant who in 1950 became director of the Office of Vocational Rehabilitation and who subsequently designed “virtually all [the] do-good functions” of what is today the Department of Health and Human Services.

Last week, President Barack Obama and Chief Justice of the United States John Roberts began what, in effect, would make a fine new chapter for the book.

Universal health care goes back to Bismarck, of course, as does much else in the realm of social policy. In the US it became a priority of President Harry Truman and the Democratic Party in the years after World War II. The issue was effectively tabled by the Republicans during the Eisenhower presidency – a strategy of delay that lasted until the 1980s, when health care insurance costs began to grow explosively.

Legislation in its present form – as an insurance mandate – was broached in 1989 by Stuart Butler, who in the early 1970s had been health care cost containment adviser to President Nixon. It first appeared on the legislative calendar in the early ’90s as the Chaffee Bill, named for John Chaffee, the centrist Republic senator from Rhode Island who sponsored it as an alternative to the health care reorganization proposed by President Bill Clinton.

Its enactment was first achieved in 2006 by Mitt Romney, at a time when the then-governor of Massachusetts was seeking to burnish his credentials as a possible presidential candidate. Starting in 2008, the idea migrated, via one of its principal architects, economist Jonathan Gruber, of the Massachusetts Institute of Technology, from Democratic presidential candidate John Edwards to Hillary Clinton to Obama.

As  president, Obama decided to make health care reorganization his top priority, urged on by former Senate majority leader Tom Daschle, expecting, as Ezra Klein wrote in The New Yorker last month, that the individual mandate approach would win at least some conservative support.

And in the end it did precisely that. Chief Justice Roberts may have left the meeting of the Court that was conducted in March, at the conclusion of the three days of oral arguments, having declared to his fellow justices his intention to vote to overturn the act.  Only later, perhaps, did he decide to switch sides – a change of heart certain to be endlessly explored, but a dispositive one.

Many major battles lie ahead. Federal spending on both Medicare and Medicaid must be constrained. The ultimate showdown will require turning the Independent Payment Advisory Board – the so-called “death panel” whose responsibilities include setting standards for medical care – into something resembling the decentralized organization that regulates banking in theUS.

Whatever it is eventually called, the Federal Health Board will resemble the Federal Reserve in many respects, as Tom Daschle wrote in 2008 and again in 2010.  Jonathan Hughes is no longer here to incorporate the story in The Vital Few, but I expect that he would recognize it for what it is – an astute perception by a handful of bold policymakers of opportunities for American progress in the twenty-first century.   

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3 Comments

  1. Noah Meyerson wrote:

    You write that “entrepreneur” was “all but unknown” in 1965. But the Google n-gram viewer shows near-linear growth in the word’s usage in books over the 20th, from almost zero around 1900, so that by 1965 it was at about 2/3rds of its current level.

    Monday, July 2, 2012 at 1:34 pm | Permalink

  2. admin wrote:

    Very interesting, Not Hughes’ experience of the literature of the of 50s and 60s, nor mine of the 70s and 80s. But certainly a provocative fact.

    Monday, July 2, 2012 at 1:40 pm | Permalink

  3. Rodrigo wrote:

    The OED lists the first use of entrepreneur in the sense of “c.Polit. Econ. One who undertakes an enterprise; one who owns and manages a business; a person who takes the risk of profit or loss.” in the mid XIX century. Here is a quote from Richard T. Ely’s Introduction to Political Economy (1891) “We have..been obliged to resort to the French language for a word to designate the person who organizes and directs the productive factors, and we call such a one an entrepreneur.”

    Thursday, July 5, 2012 at 3:45 pm | Permalink

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