Nature of capitalism , cU ei , V C <34 1 KJccVove. Gi~' ' = ft£>U 3^^ THE SOCIAL QUESTIO N—I V Nature of Capitalism By Dom Virgil Michel, O.S.B., Ph.D. St. John*s Abbey, Collegeville, Minn . 1936 Wanderer Printing Co* St. Paul* Minn. ’Vfl'.f All Rights Reserved Imprimi potest : f* Alcuin Deutsch, O.S.B., Abbot Nihil obstat: Alexius Hoffmann, O.S.B., Cens. Dep. Imprimatur .* 4* Joseph F. Busch, Bishop of St. Cloud May 16, 1935 THE SOCIAL QUESTION Series Four Nature of Capitalism By Dom Virgil Michel, O.S.B., Ph.D. St. John's Abbey, Collegeville, Minn . OUR SUNDAY VISITOR LIBRARY HUNTINGTON, INDIANA 1936 Wanderer Printing Company—St. Paul, Minnesota CONTENTS PAGE L Historical Kinds 5 2. Freedom from Restrictions 10 3. Capitalism Today 15 4. Great Changes Wrought 20 5. Effects on Individual Life 24 6. Social Effects 28 7. Concept of Ownership 32 8. Corporation Ownership 37 9. Concentration of Power 42 Deaticfifted L Historical Kinds The term capital , from which capitalism gets its name, has various meanings. It was first used in the domain of commerce and then meant an interest-bearing sum of money. As used in ac- counting today it means “the amount of prop- erty owned by an individual or corporation at a specified time, as distinct from the income re- ceived during a given period/' But its most gen- eral meaning today is the one it has in the gen- eral field of economics. In that sense the word capital refers to all economic goods that are used in the production of other goods over against goods that are used for personal needs or enjoyment. In this latter sense, which is by far the more usual one today, it would be mere repetition or tautology to speak of productive capital, unless a person wished to distinguish between capital that is actually producing an income and other capital that is intended to produce income but actually does not happen to be doing so by reason of the failure of one or several of the conditions under which capital can actually produce economic values. In the loose talk that is necessarily floating about very abundantly in times of depression like ours, the term capitalism is often identified with the present system of industrial manufac- 5 ture, that is, with the system of economic life that has been developing with increasing pace from the beginnings of the industrial revolution down to our own day, or at least to the year 1929. Capitalism is then identified with large- scale industry, or with the hiring of labor as a commodity on the market, or some other char- acteristic factor that is considered peculiar to our own day. The proper term to use for our present sys- tem of economic manufacture is not capitalism but rather industrialism, or better still, techno- logical industrialism over against the older home-factory type of industry. But this state- ment does not mean to imply that we cannot use the term capitalism for our present economic system. For our whole life of today is not only colored but wholly permeated and dominated by what can only be rightly termed by that name. All this may sound very confusing at first blush. But the confusion will disappear when we remember that while our present industrial- ism is little more than a century old, the capi- talism of our times has had a continued though changing existence that goes back to the twelfth or thirteenth century, and has had its predeces- sors in ancient Rome and Greece and God only knows where else. In comparison with capital- ism, modern industrialism is but a very recent development of homo oeconomicus . '‘Both capitalism and wage employment are much older than industrialism in the sense in which the term is used in this article/' writes 6 G. D. H. Cole, "‘and there were many factories before there was a factory system based on me- chanical power. But industrialism can be said to have begun when machinery driven by a cen- tral supply of mechanical power became the typical method of manufacturing production. For from that point industry replaced commerce as the directing force of economic life, and the scale of production and the forms of business organization came to be determined by the growth and character of mechanical power' ’ (“Industrialism” in the Encyclopedia of the So- cial Sciences,) Insofar as capitalism is a dominant charac- teristic of the entire period of modern history, with the latter part of the Middle Ages in- cluded, it might be defined as a system that in- vests money for the sake of gain or profit. His- torically there are three kinds of capitalism: commercial, industrial, and financial; and the order in which they are here mentioned is the order of their appearance as well as the order of the successive dominance of each new type over its predecessor. 1) Commercial Capitalism, In the days of Thomas Aquinas (the thirteenth century) this •type of capitalism was in full swing. To it vari- ous towns on the Mediterranean or the Adriatic owed their importance; and it received consider- able impetus from the Crusades. Thomas Aqui- nas condemned the taking of interest on any loan of money that was to be used for purposes of consumption. But he enunciated and ap- 7 proved the primary principle of commercial cap- italism: “He who loans out money transfers the own- ership of the money to him who borrows. Hence he who has borrowed the money holds it at his own risk, and is obliged to restore it fully. Whence the one loaning out the money may not demand more. But he who commits his money to a merchant or a craftsman after the manner of an association, does not transfer the ownership of his money to the other; it re- mains his. Whence it is at this man's risk that the merchant negotiates with the money or the craftsman works. Hence the man may lawfully demand part of the gain accruing from it as from something belonging to him." What commercial capitalism meant historical- ly is evidenced from the shipping activities of the fifteenth and sixteenth centuries and after, when America was discovered, southern Africa rounded, and the whole world encircled by in- trepid navigators. Another development at this time, especially in England, can be called Agrarian Capitalism, in which large owners of the best farming land closed the land to their tenants and entered upon commercial sheep-grazing for greater profits out of the sale of wool. 2) Industrial Capitalism . This arose with the industrial revolution and the advances of technology. While it gave increased impetus to world commerce, the latter became but an ex- 8 tension of industrialism and was considerably under its dominating influence. 3) Financial Capitalism . This is a contem- porary phenomenon that developed fully only in the twentieth century. The captain of indus- try is replaced by the money baron, and indus- try has by force of circumstance come under the dominance of those who control our money. Later articles will be touching upon some of the aspects here sketched in brief. 9 2. Freedom from Restrictions It would be wrong to claim that modern capitalism arose out of a reaction against the fos- silized restrictions of the guild-system, as has been done. The truth of the matter is rather that modern capitalism is just as old as the guilds, whose last vestiges disappeared in the eighteenth century. In fact the medieval guilds arose rather in conjunction with the commercial capitalism of the day. Trade in the eleventh century was chiefly built up on foreign commerce; however, it took only a small distance at that time to make one place “foreign” to another. The local traders soon formed associations or guilds, and by the twelfth century these merchant guilds began to acquire a monopoly in commercial trading. In- dividual unorganized merchants could not com- pete with the guild merchants, who prevented them from access to the foreign markets. Grad- ually the merchant guilds also began to exert in- fluence on governments in their own favor. Craft guilds appeared about 1100 and by the thirteenth century were organized everywhere. They established regulations regarding the ma- terial or qualities of the objects to be made and sold by the craftsmen, and regarding weights and measures, just prices, wages and hours, and 10 qualifications of the craftsmen. Members of the craft guilds began to assume the exclusive right to exercise the respective crafts and to receive more and more protection for themselves and their trades from governments. The local craft guilds enforced a boycott on foreign competitors as well as on non-members. They first gained recognition and protection from governments, gradually attained autono- my from local political authority, and by the middle of the fourteenth century had acquired great political power in many towns. While there was considerable individual freedom with- in the limits set by the guilds, the whole situa- tion was quite different from that of the in- dustrial liberty of a later day. “From an economic point of view the guild system was clearly anti-capitalistic. With no place for individual initiative or the entrepre- neurial spirit, it was incompatible with the cap- italist idea of profit making. It made it impos- sible for the artisan to reinvest his savings or his profits in business, since its volume was pre- scribed by the guild regulations" (Henri Pi- renne) . But as the guild system grew, even the handi- craft guilds were in some ways dependent on foreign commerce, both for raw materials and for marketing of their goods. As a result, on the one hand, domination over the guilds by the large merchants grew, and, on the other hand, guilds that tried to retain their independence made ever minuter regulations regarding their 11 membership and their activities. They even ap- pointed supervisors who look much like the walking delegates of our labor unions. Fraud was thus prevented to a great degree, but per- sonal initiative was also annihilated, and the guilds became increasingly the exclusive privi- lege of the few. By the sixteenth century their economic importance had been reduced more and more by the progress of capitalist industry and enterprise. In the meantime the power of the capitalists had grown by leaps and bounds. The example of the great Fugger family illustrates this strike ingly. The elder Fugger, a master weaver in Suabia, south Germany, moved to Augsburg in 1380 and became a merchant. He prospered, and his grandson Jacob (1459-1525) shows the full results thereof. His activities were far-reach- ing and successful, yet he was constantly urged by the one purpose of making profit as long as he could. He perfected the vast organization of the Fuggers, which was truly international, saw that it remained in the hands of only male members of the family, and combined admir- ably the activities of international merchant, banker, and industrial enterpreneur. He had loaned vast sums to governments, so that in a sense rulers were his subjects. When he died in 1525, his firm was the wealthiest in existence. In the sixteenth and seventeenth centuries high state officials became partners in capitalistic enterprises, and governmental power was used to further their economic advantage. Here we 12 already have the principle of government pro- tection of the rights of vested interests—a prin- ciple later openly declared by the laissez-faire theory. Some commercial companies, like the English East India Company, were in fact gov- ernments of their own, with territories, armies and fortifications under their direct authority. The legalized piracy of English and Spanish freebooters in the reign of Elizabeth completes the picture. Murder and theft in the interests of commerce were no longer deemed sinful. Capitalism thereby attained full freedom from the restrictions that characterized the guild system, from government control and regula- tion, and finally from ethical considerations. The ground was well prepared for the doctrine of laissez-faire , according to which the gen- eral public good was best attained if each indi- vidual was most bent on looking out for him- self, and in which the government had no fur- ther duty than to protect the individuals in the pursuit of their own best economic advantage. The freedom from these various restrictions opened the way to the positive liberties of indi- vidual initiative and competition, to complete freedom of contract and bargaining power for all human individuals. But there was still the restriction set by competition between success- ful rivals, with which much economic expense was connected. For a long time, this competition continued to the benefit of the consumer. How- ever, the natural restriction to gain and profit set by such competition was overcome gradually 13 as the period of financial capitalism advanced, under which the control of capital and of mar- kets was made almost complete by combines and by mutual understandings, and the competitive economic rivalries, so injurious to the ultimate goal of business because often very expensive, were reduced to a minimum. The restriction set by competition thus yielded more and more to the unrestricted power of monopoly. 14 3. Capitalism Today There is much confusion evident today in regard to the nature of capitalism almost every time a group of persons begins to discuss its pros and cons. Generally such a discussion em- phasizes the so-called evils of capitalism, and the group often divides into those who consider capitalism so abominable that nothing but its abolition will satisfy them, and those who ac- knowledge some evils in present-day capitalism but maintain that these evils do not arise out of the nature of the thing but rather out of the perverseness of some men who are engaged in capitalistic enterprise. Usually the discussions get nowhere for the reason that the term around which the discussion centers has not been de- fined satisfactorily in advance. To do that, however, is not so easy. Web- ster's International defines capitalism in its eco- nomic sense as a "system in which capital or capitalists play the principal part; the concen- tration of capital ; the power or influence of cap- ital, as when in the hands of a few." Obviously these definitions are not adequate for debate. What is the "principal part" that is played by capital or capitalists? How does the "concen- tration of capital" operate? Or "the power of influence of capital ... in the hands of a few"? There is need of a more detailed explanation of 15 what is meant by capitalism before the notion can be used as a working basis for discussion as to its merits in our life. For such an explanation recourse must be had to something more than dictionaries; at the very least, to encyclopedias, or books and arti- cles that make it their point to explain the na- ture of capitalism. In these there is a fairly unan- imous opinion as to what goes to make up capi- talism. Capitalism is by no means merely a system of private property, nor merely a system of mam- monism as practiced by a few unethical individ- uals. It is specifically an economic system that rests on the priority of production over con- sumption for the purpose of rationalized profit in a free market and free money system. It uses the large-scale machine production of today as its method of manufacture and is characterized by the almost total separation of the means of production from the labor-energy used in con- nection with the machinery, and it stands pro- fessedly for fullest freedom of contract and bar- gain on the part of all human agents connected with the productive enterprise. Far from being merely a system of material activity, it includes an intellectual or spiritual attitude, a philosophy of life and a scale of values. The following para- graphs will elaborate on this concept of cap- italism. Most important in any definition of capital- ism is the spirit that acknowledgedly pervades 16 it. This spirit, it has been properly said, is dom- inated by three ideas: acquisition, competition, and rationalization. The avowed purpose of capitalism is the ac- quisition of wealth, which in our own day, means chiefly the accumulation of money. The dominant objective of all capitalistic enterprise is profit, and ever increasing profit. This aim is quite different from that of gaining a livelihood, which was the dominant motive in pre-capital- istic systems, particularly in the handicraft econ- omy of feudal times. In the latter all thought and action were centered about human beings and their needs, in particular the right of all to a decent livelihood. In capitalism all these con- siderations are subordinated to the aim of in- definite profit for those who survive in the com- petition. The system is based on the idea of freedom of all parties concerned, and of a universal competition between them, in which the best men will win out. Each industrial enterprise is in itself a small arena of competitive factors in which the different groups attain success one over the other by superior abilities or powers of survival. The machinery bought for the erection of a plant, the materials needed, the labor hired —all are sought on the open market where com- petition is the rule and where all contracts, whether of purchase of materials or of hiring of labor, are the result of the bargaining action of free individuals pitted one against the other. 17 Theoretically, production thus occurs only through the willing cooperation, regulated by free contract, of all groups, especially of the two major groups of capital and labor, one of which is in possession of all the tools and ma- terials necessary for production, while the other is in possession of the necessary human energies, both brain and brawn. Practically, however, the willing cooperation becomes a bitter struggle by each group to attain its own maximum interests, with the scales weighted heavily in favor of those who own or control the materials and machinery. In a similar way the capitalistic ideal of individual ownership by all men re- mains in the sphere of theoretical possibilities, while practically the entire system moves ever more towards ownership and control by the few. The idea of rationalization is entirely domi- nated by the motive of profit. Everything con- nected with capitalistic enterprise is rationally calculated in detail as to its being a contributory factor to profits and earnings. Whatever does not fit in with the objective of increased profits is excluded, whatever works towards such in- crease is fitted into the system. “The economic nature of capitalism is his- torically bound up with the development of technology/' it has been well said. Capitalism has enjoyed its high esteem in our civilization because of the enormous increase in production that was made possible by the technological ad- vances of methods and machinery that have 18 marked our times since the beginning of the in- dustrial revolution. Capitalism depends not only on a high degree of productivity for success, but also on constant improvement and perfection. Unless the productive curve goes constantly up- wards, it is in danger of losing out if not of collapsing altogether. Why this is so, will be touched upon in a later article. 4. Great Changes Wrought In the present series I am not concerned with what is such a fashionable pastime today: criti- cism of capitalism. That is being reserved for the next series on the social question. No evalua- tion of capitalism can be justifiably attempted before one has made a complete survey of what capitalism stands for and has accomplished. This is an almost impossible task within the limits of a few short articles. It is moreover more than difficult because of the impossibility of separating out from our life of today those elements that are due to capitalism as such from those that are due to general scientific and tech- nical progress, or are due to the general develop- ments of industrialism. These various aspects of our civilization are linked into an organic whole, together with the phenomenon of democracy, to form what might be called the capitalistic-in- dustrial civilization of the past century. It is this “thing” I shall be referring to as “capitalism” in the next few articles; and I shall refer to it as it developed in our own country, since we acknowledgedly represent modern cap- italism at its best or in its truest nature. Even here, however, its achievement has also depended on a factor that now no longer exists, our re- ceding frontier of unoccupied land and resources. 20 This factor was somewhat paralleled for the rest of the capitalistic countries by the so-called Backward nations of Africa and Asia, which for European countries took the place of our undeveloped frontier. The dominant force in capitalistic develop- ment has undoubtedly been the incentive given to its leading men by the profit motive. This does not mean that profit was sought for its own sake only, but very often rather for the sake of that which was made possible by wealth: increased power and wider control. The attitude of production for profit is any- thing but static or fossilizing in its effects. It is highly inspirational and dynamic. Profit cannot all be used by those who make the profit for satisfying their human needs, much of it is left over for further investment. Consequently the capitalistic system has grown up with the ideal of constantly greater expansion of business and greater profits, with further investment of these, and so on. The impetus thus given to economic life has been so much part of our mentality un- til recent years that it was hard to imagine the kind of life led before the fuller development of capitalism had arrived. Whether the dynamic nature of capitalism was instrumental in the vast advances made in technology, the harnessing of mechanical power unto the service of machinery, or whether the technical progress made the dynamic develop- ments of modern capitalism possible, it would be hard to decide. The two went hand in hand 21 and are two outstanding characteristics of capi- talism. Invention of new mechanical devices and perfection of older ones progressed with their use in industry, and industry grew and ex- panded with their application. It is this combination that gave us our vast industrial machinery with its productive possi- bilities exceeding the fondest dreams of the men of an earlier age. It has given us all the develop- ment that has gone with the use of coal-steam power and later with hydro-electric power. To it we owe all our means of rapid transportation by land, water and air, and the means of al- most instantaneous communication by tele- phone, telegraph, and wireless. It has made the world a single vast market, and has, so to say, placed all the world at the feet of all men both in regard to news and happenings and in regard to the products of nature and of man, raw as well as finished materials. Such world-wide expansion and large-scale production necessarily meant great advances in systematization and organization. These have resulted in a high degree of efficiency, unknown to other times, which despite its many scorning critics today has untold possibilities for good. One effect of this is the extreme division of la- bor and functions in our modern plants; which allows a man to become a productive factor with almost no previous experience. Another phenomenon is that of concentration in its various forms. There has been progressive merging of smaller business with the larger cor- 22 porations, increasing combines, chain stores, and the like; concentration of industrial energies as well as of financial capital. Another form of concentration has been the enormous growth of cities, the rapid transfer, of the bulk of popu- lation from the countryside to the city. In the financial realm the growth and expan- sion of industry has given great impetus to the credit system of business transactions. This credit system has in turn been very influential towards increasing industrial and commercial activities. The entire system of financial credit connected with our banking system and the rela- tive ease with which individual and corporation could avail themselves of its advantages was also something unheard of on such a vast scale in days gone by. - The individual, moreover, used the credit system in purchasing for consumption and for family use. Not the least development and char- acteristic of our day is the system of instalment buying. With this we must close our enumera- tion without having by any means exhausted the characteristic changes wrought by modern capitalism. In two further articles we shall men- tion some of the general effects of these in in- dividual and social life. 23 5 . Effects on Individual Life In an exposition of the effects of capitalism on individual life over against its effects on so- cial life, no strict line of demarcation can be traced. Whatever affects the life of the individ- ual must have its repercussion sooner or later on the social weal, and what effects the social life of a community must necessarily have its effects on the individuals making up that com- munity. Hence the general scope of this article and that of the next will necessarily overlap. The distinction between the two will be one of emphasis rather than anything else. Especially in times of depression like the pres- ent, we are prone to forget what the develop- ments of our capitalistic civilization have meant for the individual. But any picture of capitalism would be false if it were to be drawn from conditions that have historically been abnormal rather than the rule. There is no disputing the fact that the stand- ard of living of the average man, both in city and in country, was improved greatly in the last century over that of earlier periods in human history. Millions of persons in our day are in possession of ordinary implements of domestic life that were undreamed of luxuries before. The sewing machine, washing machine, bath- room accommodations, the radio, kitchen ranges. 24 heating plants, electricity, then farm machinery, the automobile, the telephone, are but a very few of the modern devices that have entered into the average home, so that the total absence of all of these has become, not an exception merely, but almost unheard of. While new devices do create new needs in- stead of satisfying all wants, the possibilities of an enrichment of life and a lifting of the in- dividual out of much of former drudgery are only in their infancy. No matter what turn our form of civilization may take, the immense in- crease in the comforts of life that the future may bring to man will always have had their origin in the capitalistic industrialism of which we are speaking, and in which we are still living. Machine manufacture of books together with the exigencies of modern life has made the litera- cy of the ordinary man almost a necessity. It has well been said that "Charlemagne might be illiterate but the humblest factory manager can- not enjoy that luxury" and the statement must be extended to those beneath the factory man- ager. Literacy, whether resulting actually for weal or for woe, is in itself an undoubtable blessing, and only the progress of the past cen- tury has brought it within the reach of every man. One of the many results of the new pos- sibilities opened by technology has been the wholesale multiplication of public libraries, both through public funds and through private endowments. 25 Modern industrialism has given many op- portunities to individuals to improve their posi- tion in life. Before its arrival the fixity of social strata had begun to disappear. Industrialism fur- nished the opportunity for the liberated in- dividual to rise in accordance with his abilities and his zeal. Not only did the multiplication of machinery greatly increase the productivity of human labor; it also gave the average unskilled laborer an opportunity he never before enjoyed. The skilled laborer of the past was indeed to a great extent displaced or deposed from his for- mer privileged position, but machinery has also given rise to a new class of skilled workmen. Then it has been in the spirit of modern in- dustry to employ talent wherever it could be found, and a lowly social origin was no hind- rance to recognition and reward of ability. Moreover with industrial capitalism the pos- sibility arose for the first time of small invest- ments of savings by the common people. The rise and multiplication of corporations made it possible for the small saver to invest bit by bit in stocks and bonds, or to purchase government bonds, instead of having to store away his sav- ings in some corner and leave them lie there idle, since the only use to which they could formerly be put also meant their being used up. Similarly the way was opened to provision for the future by the vast increase of insurance policies of all kinds, insurance to forestall accidents, sickness, or death, or to provide a legacy for children at their maturity, etc., etc. 26 The standardization of products, also, was not without its advantages. Mass production not only put many new articles into the hands of millions, but also established the practice of fixed prices, of buying and selling at the same price for all, regardless of person or rank. It definitely put an end to the haggling and bid- ding that still* is the ordinary way of making a sale in great sections of the Orient. Another lasting benefit to mankind that has resulted from the technical and scientific prog- ress of our day is the improvement in medical care and treatment. The untold medical advan- tages and benefits of our day have moreover been spread far and wide by the erection of public and private hospitals, by research centers like the Carnegie Institute and the Mayo Foun- dation. There is no part of the world in which • people have not received the benefits and bless- ings of this research and progress, which would not have been possible without the material and scientific progress that characterized the cap' italistic civilization of our day. I am only too well aware that for many the term capitalism today is like a red rag to a Spanish bull. And our depression has brought it about, that for every advantage one can men- tion as resulting from it, people are ready with a hundred answers of "Yes, but . . or "On the other hand." Just for that reason it is neces- sary for us not to forget that side of the picture which by reason of present conditions is likely to be either ignored or minimized. 27 6. Social Effects Not everything that may be considered an advantage from the individual's standpoint, is also a benefit to the social weal. For the latter must take into account not only one or a few individuals but all that make up the community in question. In the same way not everything that may be considered a disadvantage from the individualistic point of view is really detri- mental to the social weal. The social good must include the satisfac- tion of the basic needs and wants of all the in- dividuals, yet it must always strike a golden mean between the unlimited advantages of some individuals and the harm of others, at least such harm as arises out of a lack of supplying the fundamental needs of human nature in their regard. Especially in the matter of judging of the social effects of anything, regard must be had to what is happening to the average num- ber of individuals after the basic needs of alt have been supplied. Among the outstanding social effects of pres- ent-day civilization are the undreamed of facili- ties for intercommunication between men: the means of rapid transportation, covering huge distances in relatively short periods of time, and the almost instantaneous flashing of news from one end of the world to the other. Although 28 these facilities may be abused by men of power and of no scruple, they are in themselves of peculiar social advantage. In fact they form, for many a man of today, the outstanding argument that our boasted platform of rugged individual- ism is no longer workable. Certainly the jungle law of “each man for himself and may the strongest win,” is made impossible by its necessary self-destruction in a society that is willy-nilly knit together all over the world into a single large economic family. Men may not like the new situation, but it is in full harmony with the Christian viewpoint, and it can be changed only by scrapping the material progress made in the means of modern transportation and communication. To these means must be added the fact that capitalism has taught us high ability in exact methods of planning and equipment, with ap- plication of all the exactness of mathematics and science, and first-class power of organizing and planning for long-time activities, which when used for social purposes should be productive of untold good. There arc also shadows in regard to the social effects of modern civilization, shadows even of darkest hue. Their occurrence has often called forth the bitterest attacks upon our “entire sys- tem.” No one can deny their existence, although the question remains whether these shadows were a necessary accompaniment of that system. It seems to have been inevitable, in our in- dustrial capitalism as it developed historically, 29 that the separation of the workman from h*s tools and his workshop and the separation of his work from his home should develop to the utmost. Labor thus becomes merely a commodi- ty on the market to be sold or left to stagnate like any other marketable goods. This condition has undoubtedly redounded to the benefit of the employing class and to the exploitation of the laboring class. In fact, it has given rise to an ever greater distinction of classes ending in the extremes of the capitalist and the proletariat. As a result of this condition, together with the concentration necessary to large-scale pro- duction, we have had a vast migration of men from farm to city in the past generations, the heaping up of human beings in congested cities with all the evils, moral as well as physical, of the slum. In a similar way the small shopkeeper has been increasingly displaced by the ever expand- ing larger corporations. The small owners in ever greater numbers have joined the indepen- dent craftsmen of an earlier day to swell the ranks of those who hire out their abilities for wages or salaries. At least while adjustments are being made from one condition to the other, a good deal of human misery is often entailed and seems inevitable. The laborer’s condition of dependency upon others for making a living is aggravated by the periodical disemployment that seems to be a part of our system. Karl Marx had pointed out long ago that in the capitalistic scheme there 30 must be chronic periods of disemployment, which he attributed to the constant displacement of human labor by improved machinery. Besides this technical disemployment there seems to be another that is economic in origin and which gives us our cyclic depressions with an ever-increasing unemployment on a large scale. This, too, critics point out is a necessary effect of our present system of capitalistic indus- trialism. It lies in the dynamic nature of capi- talism, they say, to overshoot its mark. Since pioduction is for profit, concentration and ex- pansion and monopoly continue, until a stage is arrived where profit can no longer increase. Size then becomes inefficient and unwieldy. The period of rising profits and of price inflation having broken down gives place to deflation, to closing down of plants and laying off of wage- earners as well as of salaried men. Once the ball starts rolling down hill it gathers momen- tum and the depression cycle is upon us, maybe until death do us part. Any mention today of the advantages or dis- advantages of capitalism is highly controversial. Do the "injustices" of it lie in the very nature of capitalism or industrialism? Could we have all the undoubted advantages of it without its accompanying evils? Or does the separation of the former from the latter mean the extinction cf capitalism? That is a question of critique, into which we may venture in another series. For the present we shall continue in further articles to examine the nature of capitalism in more detail. 31 7. Concepts of Ownership One of the many changes that took place with the historical development of capitalism concerns the notion of ownership and the posi- tion property holds in the social scheme of life. It may not be an exaggeration at all to call this the most far-reaching change of all in its con- sequences, and to consider the privileged position of property in our life as the most fundamental aspect of our civilization and its basic structure. In the Middle Ages, it will be remembered, ownership was trusteeship. Properties were held as possessions entrusted to the owners by God, to be administered in accordance with the pur- poses of God. Hence the manner in which the duty of wealth, especially of superfluous wealth, was at all times stressed both by the Fathers of the Church and by their successors in the Mid- dle Ages, in particular by Thomas Aquinas. That some change in these ideas had to take place in a civilization that was successively giv- ing up its belief in Christ and then in God goes without saying. Again, the conception of ownership in the Middle Ages was connected up with human la- bor or personal expenditure of energies, in spite of the fact that ownership of properties was to a great extent a matter of inherited status in life. The basic argument of Aquinas, for instance, for 32 private possessions over against common owner- ship by all was, that private ownership alone provided an adequate incentive for man to put forth his best efforts. Private ownership was thus justified because it alone furnished an ade- quate safeguard against personal idleness and social indifference. It is interesting to note that the title to own- ership based on human labor has been neglected or minimized to an astounding extent in modern textbooks of ethics, even among many writers who avowedly follow the traditions of Chris- tian thought and consider the Christian thinkers of the Middle Ages as their direct forerunners. How did this change take place? The answer is given in one word, individual- ism—the growing individualism of the modern period of human history, in which it has been the dominant keynote for several centuries. It is this same individualism that was such a power- ful factor in the development of industrial capi- talism, as of practically every “ism” of our times until the swing of the pendulum in the other direction became noticeable in terms of Social- ism and Communism. As the structure of medieval society gradually broke down there disappeared with it the in- herited status of fixed strata of social life and the relatively fixed division of occupations. The outstanding characteristics of these fixed strata had been their respective duties and privileges. In the rising new order, more prominence was 33 accorded to those whose power lay in their wealth, above all the merchant capitalists. The privilege of inherited status was beginning to yield to the privilege of material wealth. John Locke (1632-1704) was a prominent sponsor of the fundamental human rights of life, liberty, and property. His basic defense of prop- erty was still labor, the fact that an owner had put his own labor into the things he called his own. David Hume (1711-1776), the philo- sophical successor of Locke in some ways, said that property existed "to bestow stability of pos- sessions and to insure the peaceable enjoyment of what one may acquire by his fortune and pos- sessions." In this statement we should note the reference of property, not to the stability of social welfare as such, but rather to the enjoyment and per- manent possession of one's own fortune. Here we have a clear statement of the privilege of ownership in terms of individualism, and the purpose of ownership as that of individual en- joyment of what is possessed. No wonder that with the increase of individualism property be- gan more and more to captivate men's minds and hearts. "Nothing," said the English jurist, William Blackstone (1723-1780) "so generally strikes the imagination, and engages the affec- tions of mankind, as the right of property." In mentioning these instances and comment- ing on the trend of events, the article on "Prop- erty" in the Encyclopedia of the Social Sciences 34 says: '‘Property was made the cause of prosper- ity, the advance of culture and the progress of mankind/' Still Adam Smith (1723-1790), the founder of the classical school of economics, with which laissez-faire is inseparably connected, continued to hold that "the property which every man has in his own labor" is "the original foundation of all other property." Yet, other property there was, and as it in- creased the imperceptible change reached its cul- mination. With the final supersession of handi- craft industry by the factory system, ownership was divorced from labor, and the supremacy of absentee ownership was ushered in. Property now existed in its own right, and governments existed for the sake of protecting property. "Any government is good if it respects private proper- ty and the liberties bound up with it." In the growth of our own country the Dec- laration of Independence, which emphasized personal human rights, was in a sense super- seded by the Constitution of 1789. It is interest- ing to note that the latter was framed by the capitalists of the time, i.e., the merchants and large land owners over against the small land owners and the non-owning workers. They thought principally of regulating commerce, coining money, and governmental protection of property against foreign and domestic attack. And it was only in the Bill of Rights appended to the Constitution upon pressure that further personal rights such as freedom of religion, speech, assembly, press, etc., were added. 35 There is no doubt that de facto the supreme right in our civilization is the right of property, or private ownership; and that the supremacy of the right of ownership is the outstanding feature of industrial capitalism, so much so that all privilege is made dependent on it. The trend of development in capitalism during the past century or two is definitely correlated with the rising supremacy or absoluteness of the right of property. 36 8. Corporation Ownership ONE of the outstanding characteristics of modern capitalism is the immense growth and importance of corporations in our economic life In the manner in which this growth has deveh oped, it is one of the chief forms of concentra- tion pointed out in a previous article of this se- ries, A corporation can be defined as any group of individuals transacting business under a com- mon name, i.e., owning property, distributing profits among the members, etc. The existence of a corporation is independent of the life of the individuals making it up, since new members can always join and old ones drop out without changing the nature of the corporation. The debts of the corporation generally do not create any indebtedness in the individuals as such. A number of the American colonies started as associations or as governmental corporations which gradually changed into political entities. There were about fifteen to eighteen business corporations in existence before the adoption of the Constitution in 1789. It was the growing industrial revolution that gave great impetus to the development of cor- porations insofar as the expansion of economic activities demanded ever larger units of opera- tion. The growth has been especially rapid since 37 the Civil War, At first there were many legal hindrances to it, but these were abolished or side- tracked as the demand for the larger corporation form of business organization made itself felt more and more. One of the chief developments of corporation life as it exists today is the formation and prom- inence of holding companies. A holding com- pany may be defined as "any company having share capital which owns securities of one or more other companies." In conjunction with the turn of events that shall be dealt with in the next article, the pivotal point in holding com- panies has switched from ownership of one com- pany by another to control. For a long time there were no general laws in any of our States permitting the owning of stocks of any one corporation by another. Spe- cific exceptions, however, existed by special le- gal permit, even while the general prohibition lasted. But in the late eighties a sudden relaxing of law set in, and the example set by some States was soon followed by others. By 1929 there were thirty-nine States in the Union that au- thorized the formation and existence of holding companies. "Thus in a period of forty years the holding company, which has been regarded as undesirable and contrary to public policy except under unusual conditions, was made by most States an acceptable and legal practice" (Bon- bright and Means, article "Holding Companies" in the Encyclopedia of the Social Sciences) . 38 The holding company has rightly been called the most successful device invented in the field of economics for combining the property of several corporations under one center of control and management. It is especially through this means that many corporations, which were at first en- tirely independent of each other economically, have been formed into one unit or ‘ 'combine/ ' When a holding company owns a portion of stock in another corporation, its control over that corporation is usually out of proportion to the amount of stock it owns, since it will al- ways vote as a solid bloc while the other stock- holders, some of them usually widely scattered and out of touch with one another, will not have the same agreement and common action. Control and ownership of a holding company is greatly increased by so-called pyramiding of holding companies. That is, holding company A owns a bare majority of stock in company B —just enough stock to give it controlling own- ership over B. Company B in turn owns just such a minimum controlling stock in company C, and company C similarly in company D. By this pyramiding, company D is entirely under the control of Company A, although the latter may own but a smallest share of stock in com- pany D. “A pyramid involving three holding compa- nies will allow, say, a one-million dollar invest- ment in a top holding company to control a billion-dollar operating company. The invest- ment necessary for control may be made even 39 smaller by issuing non-voting common stock or stock with limited voting power' ' (Bonbright and Means) . The holding company as a means of indus- trial organization is but a recent phenomenon of the development of industrial capitalism. It has all the power for good or for evil that is in- herent in all concentration. The experience of a generation or two has already indicated some of the uses that can be made of concentrated power, though the many possibilities inherent in the holding company device are still in the domain of mental speculation. Many persons are not aware of the extent to which the development of corporations has meant the concentration and combination of vast properties under a single legal personality. For instance, the American Telephone and Tele- graph Company is said “to control more wealth than is contained within the borders of twenty- one of the States in the country" (Berle 8 Means, The Modern Corporation and Private Property ) . Again, it is said of the two hundred largest non-banking corporations that “their combined assets amounted to eighty-one billions of dollars, or, as we shall see, nearly half of all corporate wealth of the United States" accord- ing to statistics of Jan. 1, 1930 (Ibid.). There is another side of this development that has been stressed and greatly publicized; name- ly, the fact that with the growth of corporations there has also been an increasing ownership of 40 stock by more and more of the rank and file of the people. This movement has been heralded as a great boon because it means increasing de- mocracy of ownership. But with this constant dispersing of ownership of stock, the final de- velopment of capitalism has also grown apace: the increasing separation of control from own- ership, or the increasing concentration of eco- nomic power in the hands of a few. Of this we shall treat in our next and last article of the present series. 41 9 . Concentration of Power The last development of our day in capital- ism is that of the concentration of all economic power into ever fewer and fewer persons. This development goes hand in hand with the almost imperceptible change that constitutes the transi- tion from industrial to financial capitalism. We have seen how with the advent of the industrial revolution the notion of absentee own- ership gained prominence. But the absentee own- er for a long time retained all the power of final management and control that went with own- ership in general, just as he received the major profits of the industrial enterprise. Now when popular investment in stocks began to take place, which was a way of scattering ownership far and wide among the people, the power of con- trol and management should ordinarily also have scattered in the same way. Such a scatter- ing of controlling power, however, might have been very detrimental to the proper functioning of a highly organized enterprise. This outcome was forestalled by a change that gradually took place which can only be called the separation of central control from general ownership. “As early as 1865/' says a writer, "we find the germ of the modern conception of corporate power—the belief that the rights of the partici- 42 pants as well as the technical conduct of the business must be subject to managerial discre- tion/' This ''germ of the modern conception of corporate power/' the subjection of ownership rights to managerial control, has developed into a full-grown tree that has spread its branches from the Atlantic to the Pacific. Even where the power of control is still nominally in the hands of share owners, the actual wielding of this power is in the hands of a small minority, in fact of a select few. "In other words," say Berle and Means, "ownership continually be- comes more dispersed; the power formerly joined to it becomes increasingly concentrated; and the corporate system is thereby securely established. This system bids fair to be as all-embracing as was the feudal system in its time" ( The Mod- ern- Corporation and Private Property . New York, 1933). "It is evident," writes Pope Pius XI in Quad- ragesimo Anno , "that in our days not alone is wealth accumulated, but immense power and despotic economic domination is concentrated in the hands of a few, and that those few are fre- quently not the owners, but only the trustees and directors of invested funds, who administer them at their good pleasure. This power be- comes particularly irresistible when exercised by those who, because they hold and control mon- ey, are able also to govern credit and determine its allotment, for that reason supplying so to speak the lifeblood to the entire economic body, and grasping, as it were, in their hands the very 43 soul of production, so that no one dare breathe against their will.” One of the chief means that brought about such great concentration of control is the pyra- miding of holding companies described in the previous article. Another potent means of this same effect is the interlocking directorate, which has become increasingly widespread with the growth of our ever more complex corporation system. An interlocking directorate is established when one or more members of a board of direc- tors, managers, or trustees of one corporation hold the same position in another corporation or in many others. Once started, interlocking directorates grew by leaps and bounds. They increased to such an extent that in 1929, e.g., "the partners and directors in one investment banking house, two trust companies, and three national banks, all in New York City, held over 2,400 directorships in corporations with com- bined assets of $74,000,000,000, which is equal to twenty per cent of the assets of all American corporations” (Means, article "Interlocking Di- rectorate,” Encyclopedia of the Social Sciences). It was the establishing of such relations be- tween industrial corporations and large banks that put industry under the control of our finan- cial barons, and helped to produce the giant mergers that characterize our financial capital- ism of today. Under the circumstances it was still abstractly possible for those in control to manage a cor- 44 poration for the best interests of all stockhold- ers, but a director interested in many and varied corporations could hardly feel for each one the same personal interest that the shareholders had in their own corporation. The resulting divi- sion of interest between those who owned and those who controlled was greatly helped by le- galized devices that put ever more controlling power into the hands of directors. Thus, e.g., the control of managers or direc- tors is today often almost absolute over all stock. They have power to change or amend the cor- porate charter, the original scope of the enter- prise, the contributions exacted from sharehold- ers, or the relative risks between participants. They can disfranchise existing stock, at least in effect and indirectly by issuance of new stock of double voting power. They may not sell poor stock to their own corporation, but they may use their inside knowledge of the trend of events to sell their own stock or buy more shares for their own profit, regardless of the interests of the general shareholders. In the eyes of the law they have a trust to fulfil to the corporation and they are legally amenable for any default in this trust. But their trust extends only to the corporation as such and not to its stockholders who may be left out in the cold at any time by various devices with- out legal redress. "The usual security holder in America," write Berle and Means, "is thus slowly being 45 reduced by these devices and interpretations to a point where he becomes a petitioner for the wages of capital . . . the corporate system has done to capital what the factory system did to labor. As the factory system separated control from labor, so the corporate system has sepa- rated control from ownership/' No wonder that it has been said time and again that the concentration of power in modern financial capitalism knows only one parallel or rather one outstripping rival—the economic ab- solutism of Soviet Russia. No wonder, again, that this rival has sometimes been dubbed State capitalism. Of the Middle Ages it has been said that the Church was dominant over all life with her spiritual power, and that political power later overcame the dominance of the Church. Today economic power is dominant in our civilization perhaps as no power has been dominant in any other civilization. That is the final outcome of the development of historical capitalism for us of today. 46 By the same Author: ST. THOMAS AND TODAY Comments on the Economic Views of Aquinas. 15c postpaid Pamphlets on THE SOCIAL QUESTION: I. Human Rights, 15c postpaid. II. Ownership, 15c postpaid. III. 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