■■r\.-t

THE LIBRARY

THE UNIVERSITY

OF CALIFORNIA

LOS ANGELES

Library

Graduate School of Business Administration

University of California

Los Angeles 24, California

ORGANIZING FOR
WORK

BY
H. L. GANTT

NEW YORK
HARCOURT, BRACE AND HOWE

1919

HARCOURT, BRACE AND HOWE, Inc.

BOOK MANUFACTURERS
RAHWAY Ne'.W JERSEY

Library

PEEFACE

The two greatest forces in any community are
the economic force and the political force backed
by military power. To develop the greatest
amount of strength for the benefit of the com-
munity, they must work together, hence must
be under one direction.

Germany had already accomplished this union
before entering the war by having her political
system practically take over the industrial, and
the Allies rapidly followed suit after the war
began.

We also found soon after entering the war
that our political system alone was not ade-
quate to the task before it, and supplemented
it by a food administrator, a coal administrator,
a war labor board, a war industries board, a
shipping board, and others, which were intended
to be industrial, and as far as possible removed
from political influences. There is no question
that they handled their problems much more
effectively than was possible under strictly
political control.

The Soviet system is an attempt to make the
iU

925868

iv PREFACE

business and industrial system serve the com-
munity as a whole, and in doing so to take over
the functions of and entirely supplant the po-
litical system. Whether it can be made to work
or not remains to be seen. Up to date it has
failed, possibly because the control has fallen
into the hands of people of such extreme radical
tendencies that they would probably wreck any
system.

The attempt which extreme radicals all over
the world are making to get control of both
the political and business systems on the theory
that they would make the industrial and busi-
ness system serve the community, is a real
danger so long as our present system does not
accomplish that end; and this danger is real
irrespective of the fact that they have as yet
nowhere proved their case.

Is it possible to make our present system
accomplish this end? If so, there is no excuse
for such a change as they advocate, for the
great industrial and business system on which
our modern civilization depends is essentially
sound at bottom, having grown up because of
the service it rendered. Not until it realized
the enormous power it had acquired through
making itself indispensable to the community
did it go astray by making the community serve
it. It then ceased to render service demo-

PREFACE V

cratically, but demanded autocratically that its
will be done. *^It made tools and weapons of
cities, states, and empires." Then came the
great catastrophe.

In order to resume our advance toward the
development of an unconquerable democratic
civilization, we must purge our economic sys-
tem of all autocratic practices of w^hatever kind,
and return to the democratic principle of ren-
dering service, which was the basis of its won-
derful growth.

Unless witJiin a short time we can accomplish
this result, there is apparently nothing to pre-
vent our following Europe into the economic
confusion and welter which seem to threaten
the very existence of its civilization.

CONTENTS

PAGE

I The Parting of the Ways .... 3

II The Engineer as the Industrial Leader . 16

III Efficiency and Idleness .... 23

IV Production and Costs 28

y Value of an Industrial Property De-
pends on its Productive Capacity . 41

VI An Extension of the Credit System to

make It Democratic .... 52

VII Economics of Democracy .... 60

VIII Democracy in Production ... 74

IX Democracy iu the Shop .... 84

X Democracy in IVIanagemeut ... 92

XI '* The Religion of Democracy " . . 98

THE PARTING OF THE WAYS

Modern civilization is dependent for its ex-
istence absolutely upon the proper functioning
of the industrial and business system. If the
industrial and business system fails to function
properly in any important particular, such, for
instance, as transportation, or the mining of
coal, the large cities will in a short time run
short of food, and industry throughout the
country will be brought to a standstill for lack
of power.

It is thus clearly seen that the maintenance
of our modern civilization is dependent abso-
lutely upon the service it gets from the in-
dustrial and business system.
. This system as developed throughout the
world had its origin in the service it could and
did render the community in which it originated.
With the rise of a better technology it was
found that larger industrial aggregations could
render better and more effective service than
the original smaller ones, hence the smaller
ones gradually disappeared leaving the field to
those that could give the better service.

4 ORGANIZING FOR WORK

Such was tlie normal and natural growth of
business and industry which obtained its profits
because of its superior service. Toward the
latter part of the nineteenth century it was
discovered that a relatively small number of
factories, or industrial units, had replaced the
numerous mechanics with their little shops, such
as the village shoemaker and the village wheel-
wright, who made shoes and wagons for the
community, and that the community at large
was dependent upon the relatively smaller
number of larger establishments in each in-
dustry.

Under these conditions it was but natural
that a new class of business man should arise
who realized that if all the plants in any in-
dustry were combined under one control, the
community would have to accept such service
as it was willing to offer, and pay the price
which it demanded. In other words, it was
clearly realized that if such combinations could
be made to cover a large enough field, they
would no longer need to serve the community
but could force the community to do their bid-
ding. The Sherman Anti-Trust Law was the
first attempt to curb this tendency. It was,
however, successful only to a very limited ex-
lent, for the idea that the profits of a business
were justified only on account of the service

THE PARTING OF THE WAYS 5

it rendered was rapidly giving way to one in
wliich profits took the first place and service
the second. This idea has grown so rapidly
and has become so firmly imbedded in the mind
of the business man of today, that it is incon-
ceivable to many leaders of big business that it
is possible to operate a business system on the
fines along which our present system grew up;
namely, that its first aim should be to render
ser\dce.

It is this conflict of ideals which is the source
of the confusion into which the world now seems
to be driving headlong. The community needs
service first, regardless of who gets the profits,
because its life depends upon the service it
gets. The business man says profits are more
important to him than the service he renders;
that the wheels of business shall not turn,
whether the community needs the service or
not, unless he can have his measure of profit.
He has forgotten that his business system had
its foundation in service, and as far as the
community is concerned has no reason for ex-
istence except the service it can render. A
clash between these two ideals will ultimately
bring a deadlock between the business system
and the community. The ^^laissez faire"
process in which we all seem to have so much
faith, does not promise any other result, for

6 ORGANIZING FOR WORK

there is no doubt that industrial and social
unrest is distinctly on the increase throughout
the country.

I say, therefore, we have come to the Parting
of the Wai/s, for we must not drift on indefi-
nitely toward an economic catastrophe such as
Europe exhibits to us. We probably have
abundant time to revise our methods and stave
off such a catastrophe if those in control of
industry will recognize the seriousness of the
situation and promptly present a positive pro-
gram which definitely recognizes the responsi-
bility of the industrial and business system to
render such service as the community needs.
The extreme radicals have always had a clear
vision of the desirability of accomplishing this
end, but they have always fallen short in the
production of a mechanism that would enable
them to materialize their vision.

American workmen will prefer to follow a
definite mechanism, which they comprehend,
rather than to take the chance of accomplish-
ing the same end by the methods advocated by
extremists. In Russia and throughout eastern
Europe, the community through the Soviet form
of government is attempting to take over the
business system in its effort to secure the
service it needs. Their methods seem to us
crude, and to violate our ideas of justice; but

THE PARTING OF THE WAYS 7

in Russia they replaced a business system which
was rotten beyond anything we can imagine.
It would not require a very perfect system to
be better than what they had, for the dealings
of our manufacturers with the Russian business
agents during the war indicated that graft was
almost the controlling factor in all deals. The
Soviet government is not necessarily Bolshe-
vistic nor Socialistic, nor is it political in the
ordinary sense, but industrial. It is the first
attempt to found a government on industrial-
ism. Whether it will be ultimately successful
or not, remains to be seen. While the move-
ment is going through its initial stages, how-
ever, it is unquestionably working great hard-
ships, which are enormously aggravated by the
fact that it has fallen under the control of the
extreme radicals. Would it not be better for
our business men to return to the ideals upon
which their system was founded and upon which
it grew to such strength; namely, that reward
should be dependent solely upon the service
rendered, rather than to risk any such attempt
on the part of the workmen in this country, even
if we could keep it clear of extreme radicals,
which is not likely? We all realize that any
reward or profit that business arbitrarily takes,
over and above that to which it is justly entitled
for service rendered, is just as much the exer-

8 ORGANIZING FOR WORK

else of autocratic power and a menace to the in-
dustrial peace of the world, as the autocratic
military poiver of the Kaiser ivas a menace to
international peace. This applies to Bolshe-
vists as ivell as to Bankers.

I am not suggesting anything new, when I
say reward must be based on service rendered,
but am simply proposing that we go back to
the first principles, which still exist in many
rural communities where the newer idea of
big business has not yet penetrated. Unques-
tionably many leading business men recognize
this general principle and successfully operate
their business accordingly. Many others would
like to go back to it, if they saw how such a
move could be accomplished.

Under stress of war, when it was clearly seen
that a business and "industrial system run
primarily for profits could not produce the war
gear needed, we promptly adopted a method of
finance which was new to us. The Federal Gov-
ernment took over the financing of such corpora-
tions as were needed to furnish the munitions
of war. The financing power did not expect
any profit from these organizations, but at-
tempted to run them in such a manner as to
deliver the greatest possible amount of goods.

The best known of these is the Emergency
Fleet Corporation. It is not surprising that

THE PARTING OF THE WAYS 9

such a large corporation developed in such
great haste should have been inefficient in its
operating methods, but there are reasons to
believe that it will, in the long run, prove to
have handled its business better than similar
undertakings that were handled directly-
through the Washington bureaus. It gave us
a concrete example of how to build a Public
Service corporation, the fundamental fact con-
cerning which is that it must be financed hy
public money. That it has not been more suc-
cessful is due, not to the methods of its financ-
ing, but to the method of its operation. The
sole object of the Fleet Corporation was to
produce ships, but there has never been among
the higher officers of the Corporation a single
person, who, during the past twenty years, has
made a record in production. They have all
without exception been men of the ''business*'
type of mind who have made their success
through financiering, buying, selling, etc. If
the higher officers of the Fleet Corporation had
been men who understood modem production
methods, and had in the past been successful in
getting results through their use, it is probable
that the Corporation would have been highly
successful, and would have given us a good
example of how to build an effective Public
Service corporation.

10 ORGANIZING FOR WORK

Mr. William B. Colver, Chairman of the Fed-
eral Trade Commission, in the summer of 1917,
explained how we might have a Public Service
corporation for the distribution of coal. In
such a corporation as Mr. Colver outlined, there
would be good pay for all who rendered good
service, but no "profit.^' Of course, all those
who are now making profits over and above the
proper reward for service rendered in the dis-
tribution of coal, opposed Mr. Colver 's plan,
which was that a corporation, financed by the
Federal Government, should buy at the mouth
of each mine such coal as it needed, at a fair
price based on the cost of operating that mine ;
that this corporation should distribute to the
community the coal at an average price, in-
cluding the cost of distribution. We see no
reason why such a corporation should not have
solved the coal problem, and furnished us with
an example of how to solve other similar
problems. We need such information badly,
for we are rapidly coming to a point where we
realize that disagreements between employer
and employee as to hoiv the profits shall he
shared can no longer he allowed to work hard-
ship to the community.

The chaotic condition into which Europe is
rapidly drifting by the failure of the present
industrial and financial system, emphasizes the

THE PARTING OF THE WAYS 11"

fact that in a civilization like ours the problems
of peace may be quite as serious as the prob-
lems of war, and the emergencies created by
them therefore justify the same kind of action
on the part of the government as was justified
by war.

Before proper action can be taken in this
matter it must be clearly recognized that today
economic conditions have far more power for
good or for evil than political theories. This is
becoming so evident in Europe that it is im-
possible to fail much longer to recognize it here.
The revolutions which have occurred in Europe
and the agitation which seems about to create
other revolutions, are far more economic than
political, and hence can be offset only by eco-
nomic methods.

The Labor Unions of Great Britain, and the
Soviet System of Russia, both aim, by different
methods, to render service to the community,
but whether they will do it effectively or not is
uncertain, for they are revolutionary, and a
revolution is a dangerous experiment, the result
of which cannot be foreseen. The desired result
can be obtained without a revolution and by
methods with which we are already familiar,
if we will only establish real public service
corporations to handle problems which are of
most importance to the community, and realize

12 ORGANIZING FOR WORK

that capital like labor is entitled only to the
reward it earns.

Inasmuch as the profits in any corporation
go to those who finance that corporation, the
only guarantee that a corporation is a real
public service corporation is that it is financed
by public money. If it is so financed all the
profits go to the community, and if service is
more important than profits, it is always pos-
sible to get a maximum service by eliminating
profits.

This is the basis of the Emergency Fleet
Oorporation, and numerous other war corpora-
tions, which rendered such public service as
it was impossible to get from any private corpo-
rations. Eealizing that on the return of peace
many private corporations feel that they have
no longer such social responsibilities as they
cheerfully accepted during the war, it would
seem that real public service corporations would
be of the greatest possible advantage in the
industrial and business reorganization that is
before us.

We have in this country a little time to think,
because economic conditions here are not as
acute as they are in Europe, and because of the
greater prosperity of our country. But we
must recognize the fact that our great compli-
cated system of modern civilization, whose very

THE PARTING OF THE WAYS 13

life depends upon the proper functioning of the
business and industrial system, cannot be sup-
ported very much longer unless the business
and industrial system devotes its energies as a
primary object to rendering the service neces-
sary to support it. We have no hesitation in
saying that the workmen cannot continue to get
high wages unless they do a big day^s work. Is
it not an equally self-evident fact that the busi-
ness man cannot continue to get big rewards
unless he renders a corresponding amount of
service? Apparently the similarity of these
two propositions has not clearly da^\^led upon
the man with the financial type of mind, for the
reason, perhaps, that he has never compared
them.

Such a change would produce hardships only
for those who are getting the rewards they are
not earning. It would greatly benefit those who
are actually doing the work.

In order that we may get a clear conception
of what such a condition would mean, let us
imagine two nations as nearly identical as we
can picture them, one of which had a business
system which was based upon and supported
by the service it rendered to the community.
Let us imagine that the other nation, having the
same degree of civilization, had a business
system run primarily to give profits to those

14 ORGANIZING FOR WORK

who controlled that system, which rendered
service when such service increased its profits,
but failed to render service when such service
did not make for profits. To make the com-
parison more exact, let us further imagine a
large portion of the most capable men of the
latter community engaged continually in a pull
and haul, one against the other, to secure the
largest possible profits. Then let us ask our-
selves in what relative state of economic de-
velopment these two nations would find them-
selves at the end of ten years? It is not neces-
sary to answer this question.

I say again, then, we have come to the Parting
of the Ways, for a nation whose business system
is based on service will in a short time show
such advancement over one whose business sys-
tem is operated primarily with the object of
securing the greatest possible profits for the
investing class, that the latter nation will not
be long in the running.

America holds a unique place in the world
and by its traditions is the logical nation to con-
tinue to develop its business system on the
line of service. What is happening in Europe
should hasten our decision to take this step, for
the business system of this country is identical
with the business system of Europe, which, if
we are to believe the reports, is so endangered

THE PARTING OF THE WAYS 15

by the crude efforts of the So\^et to make busi-
ness serve the community.

The lesson is this: the hicsiness system must
accept its social responsihilify and devote itself
primarily to service, or the community ivill ulti-
mately make the attempt to take it over in
order to operate it in its own interest.

The spectacle of the attempt to accomplish
this result in ea^ern Europe is certainly not so
attractive as to make us desire to try the same
experiment here. Hence, we should act, and
act quickly, on the former proposition.

THE ENGINEER AS THE INDUSTRIAL
LEADER

The principles explained in the preceding
chapter may seem to be sufficiently clear and
simple to appeal to almost any enlightened
person, and give him the desire to carry them
out. The desire to put them in operation, how-
ever, is not enough. He must have at least
some inkling of the methods by which their
application can be made. He must understand
the forces with which he will have to contend
in introducing the newer methods; the argu-
ments that will be brought up against them, and
the obstacles that will be put in his way by
those who are perfectly well satisfied to go on
as they are, in spite of the fact that a change is
seen to be absolutely necessary in the long run.
In the following chapters we shall try to give
a picture of how business and industry are con-
ducted, and some explanation of the forces con-
trolling each. Most of our business and in-
dustrial troubles arise from the fact that the
controlling factors are not apparent to the
public in general and can be disclosed only by a

INDUSTRIAL ENGINEER 17

thorough and exhaustive study of what is taking
place.

Following this general exposition of the sub-
ject, we shall show a system of progress charts
which bear the same relation to the statistical
reports which are so common that a mo\dng
picture film bears to a photograph. This chart
system has been in use only a few years, but
it is so simple that it is readily understood by
the workman and employer, and so comprehen-
sive that one intelligent workman made the
remark, ''If we chart everything we are doing
that way, anybody can run the shop.'' While
we are hardly prepared to agree with this
opinion, we are entirely satisfied that if the
facts about a business can be presented in a
compact and comprehensive manner, it will be
found possible to run any business much more
effectively than has been the custom in the past.

We wish to emphasize the practicality of our
methods, because we have been accused of
preaching altruism in business, which our
critics say will not work. We know altruism
\vill not work and absolutely repudiate the idea
that our methods are altruistic; as a matter of
fact, we believe we should get full reward for
service rendered. Moreover, we believe that
if everybody got full reward for service ren-
dered there would not be so many ''profits''

18 ORGANIZING FOR WORK

for the employer and employee to quarrel over,
so often to the detriment of the public.

With this introduction, we shall try to make
clear what has been happening in the industrial
and business world, and draw our conclusions
as we go along.

When the war broke out, many of our leading
business men who had accumulated wealth
through the accepted business methods, which
had to do primarily with buying, selling, financ-
ing, etc., went to Washington and offered their
services at a dollar a year. They did this with
the best intentions, believing that the business
methods which had brought them success in the
past were the ones needed in time of war. They
soon found that the government had taken over
all financial operations ; that there was no sell-
ing to be done, and that the problem quickly
reduced itself to one of production, in which
many of them had had no experience. There
were, of course, many marked exceptions, for
some grasped the problem at once and did
wonderful work. As a general rule, however,
this was not the case, for- it takes a very capable
man to grasp quickly the essentials of a big
problem that is entirely new to him. Hence, as
a rule, they adhered strictly to the methods they
had been accustomed to, and called to assist
them great numbers of accountants and stat-

INDUSTRIAL ENGINEER 19

isticians (all static), both groups thoroughly
convinced that record-keeping was the main aim
of business ; and while the army was calling for
ships and shells, trucks and tanks, these men
busied themselves \\ith figures, piling up statis-
tics, apparently quite satisfied that they were
doing their part. In many cases these statis-
ticians did not differentiate between that w^hich
is interesting and that which is important. In
but few cases did they realize that from the
standpoint of production, yesterday's record is
valuable only as a guide for tomorrow. They
did not understand that it is only the man who
knows what to do and how to do it that can
direct the accumulation of the facts he needs
for his guidance. In too many cases, such men
had been left behind to run the factories, while
their superiors, who had had no experience in
production, undertook for the government
the most important job of production we
have ever had, depending almost entirely
upon accountants and statisticians for guid-
ance. The results of their labors are now
history, a knowledge of w^hich will soon be the
common property of all. In spite of this handi-
cap, we did much good work.

There is no question that both our army and
navy have made good to a degree which none
of our allies anticipated, but it is also true that

20 ORGANIZING FOR WORK

if we had not had economic assistance from our
allies, the results they hav,e obtained would have
been impossible. As a matter of fact, it is well
known that our industrial system has not
measured up as we had expected. To substanti-
ate this w^e have only to mention airplanes,
ships, field guns, and shells. The reason for its
falling short is undoubtedly that the men direct-
ing it had been trained in a business system
operated for profits, and did not understand one
operated solely for production. This is no criti-
cism of the men as individuals; they simply
did not know the job, and, what is w^orse, they
did not know they did not know it.

Inasmuch as our economic strength in the
future will be based on production, we must
modify our system as rapidly as possible, with
the end in view of putting producers in charge.
To do this, opinions must give place to facts,
and words to deeds, and the engineer, who is
a man of few opinions and many facts, few
words and many deeds, should be accorded the
leadership which is his proper place in our
economic system.

It must be remembered, however, that the en-
gineer has two distinct functions. One is to
design and build his machinery; the second is
to operate it. In the past he has given more
attention to the former function than to the

INDUSTRIAL ENGINEER 21

latter. At first this was but a natural and
necessar^^ condition, for the various engineer-
ing structures were comparatively few and were
operated in a measure simply and independ-
ently. Now, however, with the multiplicity of
machines of all kinds, the operation of one is
many times intimately dependent upon the
operation of another, even in one factory. In
addition to this the operation of one factory is
always dependent upon the successful operation
of a number of others. Because this inter-
operation is necessary to render service or pro-
duce results, the complexity of the operating
problem has greatly increased, for the operation
of a large number of factories in harmony
presents much the same problem as the har-
monious operation of the machines in one fac-
tory. It is only, however, where the factories
have been combined under one management that
any direct attempt at this kind of control has
been made. To be sure, the relation between
the demand for and supply of the product, sup-
plemented by a desire to get the greatest pos-
sible profit, has resulted in a sort of control,
which has usually been based more on opinion
than facts, and generally exercised to secure the
greatest possible profits rather than to render
the greatest service.
Emphasizing again the self-evident fact that

22 ORGANIZING FOR WORK

great reward can only be continuously got by
corresponding service, and that the maximum
service can be rendered only when actions are
based on knowledge, we realize that the logical
director for such work is the engineer, who not
only has a basic knowledge of the work, but
whose training and experience lead him to rely
only upon facts. So far, however, there is not
in general use any mechanism which will en-
able the engineer to visualize at once the large
number of facts that must be comprehended in
order that he may handle effectively the mana-
gerial problems that our modern industrial sys-
tem is constantly presenting. It is one object
of this book to lay before the public the progress
we have made in visualizing the problems and
the available information needed for their
solution.

EFFICIENCY AND IDLENESS

What we accomplished in our preparation for
war and in getting men to the front surprised
ourselves, and apparently satisfied our allies.
It was accomplished by the splendid energy and
tremendous resources of the American people,
but nobody pretends that we showed any high
degree of efficiency in doing the work. Our
expenses were enormous, and we have recon-
ciled ourselves to their magnitude by saying
over and over again that nothing counted ex-
cept winning the war, which in the last analysis
is true ; but it is also true that excessive expense
not only did not help us to win the war, but
rather hindered us in accomplishing this result.
Our fumbling in war preparation seems to
indicate that the great campaign for efficiency,
which has been waged so assiduously in this
country for the past twenty years, has not ac-
complished for us all we had led ourselves to
believe. That we have increased individual ef-
ficiency and profit-making efficiency, and per-
haps other kinds of efficiency, is not to be denied.
That we have attained a high degree of national

24 ORGANIZING FOR WORK

efficiency or a high degree of efficiency in the
production of goods, is nowhere indicated. It
took the shock of a great war to arouse us to
the realization that our great prosperity was
due to something other than our productive ef-
ficiency.

Yet surely the long campaign for efficiency
has been honestly and seriously waged. Why,
then, have our results been so meager? The
answer is simple enough and plain. The aim
of our efficiency has not been to produce goods,
but to harvest dollars. If we could harvest
more dollars by producing fewer goods, we
produced the fewer goods. If it happened that
we could harvest more dollars by producing
more goods, we made an attempt to produce
more goods: but the production of goods was
always secondary to the securing of dollars.

In the great emergency created by the war,
our need was not for dollars but for goods, and
people who had been trained for the seeking
of dollars were in most cases not at all fitted
for the producing of goods. Those who had
been most successful in acquiring dollars were,
however, the ones best known as business men,
and when it was thought we needed a business
administration, such people, with the best in-
tentions in the world, offered their services to
the Federal Government, many at a great sacri-

EFFICIENCY AND IDLENESS 25

fice of their own interests. They found, how-
ever, that for w^ar w^e needed goods, and that
dollars w^ere only the means to that end. Then
they found that unless people knew how to
produce the goods, dollars w^re ineffective.

Another phase of the efficiency movement w^ith
which we are all so familiar, w^as the attempt
to increase the efficiency of the w^orker, and to
ignore entirely the idler, because the system of
cost-keeping generally in vogue made that seem
the most profitable thing to do. The case was
worse than this, for not only did the system
ignore the idler, but it eliminated the inefficient,
absolutely ignoring the fact that both the in-
efficient and the idle w^ere going to continue to
live and be supported, directly or indirectly, by
the w^orkers.

The war waked us up to the fact that the
world was running short of the necessities of
life, and that the product of even the most
inefficient was some help. The scheme for the
selection of the efficient, of w^hich much had
been made, w^as now found to need supplement-
irig by one for forcing the idler to work and
training the inefficient.

The great difficulty of installing such a sys-
tem w-as that the cost-keeping methods in gen-
eral vogue indicated that training methods were
not profitable, for trainers were classed as non-

26 ORGANIZING FOR WORK

producers. In spite of this fact, however, the
war emergency forced us to adopt them, and
the results were beneficial. The inevitable de-
duction is that the cost-keeping methods in
general vogue are fundamentally wrong, and
that we shall continue to suffer from ineJBficiency
until they are corrected. The great error in
them is the fact that they absolutely ignore the
expense of idleness. As a matter of fact, it
costs almost as much to be idle as it does to
work. This is true whether we consider men
or machines, or, in other words, labor or capital.

This leads us at once to two natural ques-
tions :

What is our expense for idle labor?

What is our expense for idle capital?

Manufacturing concerns pretty generally
eliminate idle labor as completely as they can
(many times by discharging workmen who could
be profitably used if work were planned for
them).

They cannot get rid of idle capital so easily,
for it is tied up in machines that cannot be sold.
The only possible way to eliminate idle capital,
then, is to put it to work. The first step toward
putting it to work is to find out why it is idle.
As soon as this is done, means for putting it to
work begin to suggest themselves. Our cost-
keeping system, to meet the present and future

EFFICIENCY AND IDLENESS 27

emergency, must not content itself with charg-
ing to the product all expenses, but must charge
to the product only that expense that helped to
produce it, and must show the expenses that did
not produce anything, and their causes. If this
fundamental change is made in our cost-keeping
methods, our viewpoint on the subject of pro-
duction changes, with the result that we devote
our attention first to the elimination of idleness,
both of capital and labor.

IV
PRODUCTION AND COSTS

Manufacturers in general recognize the vital
importance of a knowledge of the cost of their
product, yet but few of them have a cost system
on which they are willing to rely under all con-
ditions.

Wliile it is possible to get quite accurately the
amount of material and labor used directly in
the production of an article, and several systems
have been devised which accomplish this result,
there does not yet seem to be in general use
any system of distributing that portion of the
expense known variously as indirect expense,
burden, or overhead, in such a manner as to
make us have any real confidence that it has
been done properly.

There are in common use several methods
of distributing this expense. One is to dis-
tribute to the product the total indirect ex-
pense, including interest, taxes, insurance, etc.,
according to the direct labor. Another is to
distribute a portion of this expense according
to direct labor, and a portion to machine hours.

PRODUCTION AND COSTS 29

Other methods distribute a certain amount of
this expense on the material used, etc. Most of
these methods contemplate the distribution of
all of the indirect expense of the manufacturing
plant, however much it may be, on the output
produced, no matter how small it is.

If the factory is running at its full, or normal,
capacity, this item of indirect expense per unit
of product is usually small. If the factory is
running at only a fraction of its capacity, say
one-half, and turning out only one-half of its
normal product, there is but little change in the
total amount of this indirect expense, all of
which must now be distributed over half as
much product as previously, each unit of
product thereby being obliged to bear ap-
proximately twice as much expense as pre-
viously.

When times are good, and there is plenty of
business, this method of accounting indicates
that our costs are low; but when times become
bad and business is slack, it indicates high costs
due to the increased proportion of burden each
unit has to bear. During good times, when there
is a demand for all the product we can make,
it is usually sold at a high price and the element
of cost is not such an important factor. Wlien
business is dull, however, we cannot get such
a high price for our product, and the question

30 ORGANIZING FOR WORK

of at how low a price we can afford to sell the
product is of vital importance. Our cost sys-
tems, as generally operated at present, show
under such conditions that our costs are high
and, if business is very bad, they usually show
us a cost far greater than the amount we can
get for the goods. In other words, our present
systems of cost accounting go to pieces when
they are most needed. This being the case,
many have felt for a long time that there was
something radically wrong with the present
theories on the subject.

As an illustration, I may cite a case which
recently came to my attention. A man found
that his cost on a certain article was thirty
cents. When he found that he could buy it for
twenty-six cents, he gave orders to stop manu-
facturing and to buy it, saying he did not under-
stand how his competitor could sell at that
price. He seemed to realize that there was a
flaw somewhere, but he could not locate it. I
asked him of what his expense consisted. His
reply was, labor ten cents, material eight cents,
and overhead twelve cents. I then asked if he
was running his factory at full capacity, and
got the reply that he was running it at less than
half its capacity, possibly at one-third. The
next question was : What would be the overhead
on this article if the factory were running full?

PRODUCTION AND COSTS 31

The reply was that it would be about five cents.
I suggested that in such a case the cost would
be only twenty-three cents. The possibility
that his competitor was running his factory
full suggested itself at once as an explana-
tion.

The next question that suggested itself was
how the twelve cents overhead, which was
charged to this article, would be paid if the
article was bought. The obvious answer was
that it would have to be distributed over the
product still being made, and w^ould thereby
increase its cost. In such a case it would prob-
ably be found that some other article w^as cost-
ing more than it could be bought for; and, if
the same policy were pursued, the second article
should be bought, which would cause the re-
maining product to bear a still higher expense
rate. If this policy were carried to its logical
conclusion, the manufacturer would be buying
everything before long, and be obliged to give
up manufacturing entirely.

The illustration w^hich I have cited is not an
isolated case, but is representative of the prob-
lems before a large class of manufacturers, who
believe that all of the expense, however large,
must be carried by the output produced, how-
ever small. This theory of expense distribu-
tion indicates a policy which in dull times would,

32 ORGANIZING FOR WORK

if followed logically, put many manufacturers
out of business. In 1897 the plant of which I
was superintendent was put out of business by
just this kind of logic. It never started up
again.

Fortunately for the country, American
people as a whole will finally discard theories
which conflict with common sense; and, when
their cost figures indicate an absurd conclusion,
most of them will repudiate the figures. A cost
system, however, which fails us when we need
it most, is of but little value and it is impera-
tive for us to devise a theory of costs that will
not fail us.

Most of the cost systems in use, and the
theories on which they are based, have been
devised by accountants for the benefit of finan-
ciers, whose aim has been to criticize the fac-
tory and to make it responsible for all the short-
comings of the business. In this they have suc-
ceeded admirably, largely because the methods
used are not so devised as to enable the superin-
tendent to present his side of the case.

One of the prime functions of cost-keeping
is to enable the superintendent to know whether
or not he is doing the work he is responsible
for as economically as possible, a function which
is ignored in the majority of cost systems now
in general use. Many accountants who make

PRODUCTION AND COSTS 33

an attempt to show it, are so long in getting
their figures in shape that they are practically
worthless for the purpose intended, the pos-
sibility of using them having passed.

In order to get a correct view of the subject
we must look at the matter from a different and
broader standpoint. The following illustration
may put the subject in its true light:

Let us suppose that a manufacturer owms
three identical plants, of an economical operat-
ing size, manufacturing the same article, — one
located in Albany, one in Buffalo, and one in
Chicago — and that they are all running at their
normal capacity and are managed equally well.
The amount of indirect expense per unit of
product would be substantially the same in each
of these factories, as would be the total cost.
Now suppose business suddenly falls off to one-
third of its pre\dous amount and the manu-
facturer shuts do^^^l the plants in Albany and
Buffalo, and continues to run the one in Chicago
exactly as it has been run before. The product
from the Chicago plant would have the same
cost that it pre\^ously had, but the expense of
carrying two idle factories might be so great
as to take all the profits out of the business ; in
other words, the profit made from the Chicago
plant might be offset entirely by the loss made
by the Albany and Buffalo plants.

34 ORGANIZING FOR WORK

If these plants, instead of being in different
cities, were located in the same city, a similar
condition might also exist in which the expense
of the two idle plants would be such a drain on
the business that they would offset the profit
made in the going plant.

Instead of considering these three factories
to be in different parts of one city, they might
be considered as being within the same yard,
which would not change the conditions. Finally,
we might consider that the walls between these
factories were taken down and that the three
factories were turned into one plant, the out-
put of which had been reduced to one-third of
its normal volume. In such case it would be
manifestly proper to charge to this product
only one-third of the indirect expense charged
when the factory was running full.

If the above argument is correct, we may
state the following general principle: The in-
direct EXPENSE CHAEGEABLE TO THE OUTPUT OF
A FACTORY SHOULD BEAR THE SAME RATIO TO THE
INDIRECT EXPENSE NECESSARY TO RUN THE FACTORY
AT NORMAL CAPACITY, AS THE OUTPUT IN QUESTION
BEARS TO THE NORMAL OUTPUT OF THE FAC-
TORY.

This theory of expense distribution, which
was forced upon us by the abrupt change in
conditions brought on by the war, explains

PRODUCTION AND COSTS 35

many things which were inexplicable under the
older theory, and gives the manufacturer uni-
form, or at least comparable, costs as long as
the methods of manufacture do not change.

Under this method of distributing expense
there will be a certain amount of undistributed
expense remaining whenever the factory runs
below its normal capacity. A careful considera-
tion of this item will show that it is not charge-
able to the product made, but is a business ex-
pense incurred on account of maintaining a cer-
tain portion of the factory idle, and chargeable
to profit and loss. Many manufacturers have
made money in a small plant, then built a large
plant and lost money for years afterward,
\\dthout quite understanding how it happened.
This method of figuring affords an explana-
tion and warns the manufacturer to do every-
thing possible to increase the efficiency of
the plant he has, rather than to increase its
size.

This theory explains why some of our large
combinations of manufacturing plants have not
been as successful as was anticipated, and why
the small plant is able to compete successfully
and make money, while the combinations are
only just holding their own.

The idea so prevalent a few years ago, that
in the industrial world money is the most power-

36 ORGANIZING FOR WORK

ful factor, and that if we only had enough
money, nothing else would matter very much,
is beginning to lose its force, for it is becom-
ing clear that the size of a business is not so
important as the policy by which it is directed.
If we base our policy on the idea that the cost
of an article can only legitimately include the
expense necessarily incurred either directly or
indirectly in producing it, w^e shall find that
our costs are much lower than we thought, and
that we can do many things which under the
old method of figuring appeared suicidal.

The view of costs so largely held, namely, that
the product of a factory, however small, must
bear the total expense, how^ever large, is re-
sponsible for much of the confusion about costs
and hence leads to unsound business poli-
cies.

If we accept the view that the article produced
shall bear only that portion of the indirect ex-
pense needed to produce it, our costs will not
only become lower, but relatively far more con-
stant, for the most variable factor in the cost
of an article under the usual system of account-
ing has been the '^overhead," which has varied
almost inversely as the amount of the product.
This item becomes substantially constant if the
*' overhead'' is figured on the normal capacity
of the plant.

PRODUCTION AND COSTS 37

Of course a method of cost-keeping does not
diminish the expense, but it may show where the
expense properly belongs, and give a more cor-
rect understanding of the business.

In our illustration of the three factories, the
cost in the Chicago factory remained constant,
but the expense of supporting the Buffalo and
Albany factories in idleness was a charge
against the business, and properly chargeable
to profit and loss. If we had loaded this ex-
pense on the product of the Chicago factory, the
cost of the product would probably have been
so great as to have prevented our selling it,
and the total loss would have been greater still.

When the factories are distinctly separate,
few people make such a mistake, but where a
single factory is three times as large as is
needed for the output, the error is frequently
made, with results that are just as misleading.

As a matter of fact it seems that the attempt
to make a product bear the expense of plant not
needed for its production is one of the most
serious defects in our industrial system today,
and farther reaching than the differences be-
tween employers and employees, for if it were
removed, most of the difficulties would vanish.

The problem that faces us is first to find just
what plant or part of a plant, is needed to pro-
duce a given output, and then to determine the

38 ORGANIZING FOR WORK

*^ overhead'' expense needed to operate that
plant or portion of that plant. This is primarily
the work of the manufacturer, or engineer, and
only secondarily that of the accountant, who
must, as far as costs are concerned, be the
servant of the superintendent.

In the past, in almost all cost systems the
amount of *' overhead" to be charged to the
product, when it did not include all the ** over-
head,'' was more or less a matter of judgment.
According to the theory now presented, it is
not a matter of judgment, but can be determined
with an accuracy depending upon the knowledge
the manufacturer has of the business. Follow-
ing this line of thought it should be possible for
a manufacturer to calculate just what plant and
equipment he ought to have, and what the staff
of officers and workmen should be to turn out a
given product. If this can be correctly done,
the exact cost of a product can be predicted.
Such a problem cannot be solved by a cost ac-
countant mthout shop knowledge, but is pri-
marily a problem for an engineer whose knowl-
edge of materials and processes is essential for
its solution.

In any attempt to solve a problem of this
type, one of the most important functions we
need a cost system to perform is to keep the
superintendent continually advised as to how

PRODUCTION AND COSTS 39

nearly he is realizing the ideal set, and to point
out where the shortcomings are.

Many of us are accustomed to this viewpoint
when w^e are treating operations singly, but
few have as yet made an attempt to consider
that this idea might be applied to a plant as a
whole, except w^hen the processes of manufac-
ture are simple and the products few in number.
When, however, the processes become numerous
or complicated, the necessity for such a che^
becomes more urgent, and the cost-keeper w^ho
performs this function becomes an integral part
of the manufacturing system, and acts for the
superintendent, as an inspector, who keeps him
advised at all times of the quality of his own
work.

This conception of the duties of a cost-keeper
does not at all interfere with his supplying the
financier w^th the information he needs, but
insures that the information shall be correct,
for the cost-keeper is continually making a com-
parison for the benefit of the superintendent,
of what has been done with what should have
been done. Costs are valuable only as com-
parisons, and comparisons are of little value
unless we have a standard, w^hich it is the func-
tion of the engineer to set.

Lack of reliable cost methods has, in the past,
been responsible for much of the uncertainty so

40 ORGANIZING FOR WORK

prevalent in our industrial policies; but with
a definite and reliable cost method, which en-
ables us to differentiate between what is lost
in manufacturing and what is lost in business,
it will usually become easy to define clearly the
proper business policy.

VALUE OF AN INDUSTRIAL PROPERTY
DEPENDS ON ITS PRODUC-
TIVE CAPACITY

In the summer of 1916 a professor of political
economy in one of our most conservative uni-
versities admitted to me that the economists
had been obliged to modify many of their views
since the outbreak of the European war. My
comment was, that the professors of political
economy were not the only people who had been
obliged to modify their economic and industrial
views.

The war taught everybody something. Mili-
tary methods have undergone radical changes,
but industrial methods are undergoing changes
which promise to be even more radical than the
military developments have been.

If there is any one thing which has been made
clear by the war it is, that the most important
asset which either a man or nation can have is
the ABILITY TO DO THINGS. Our industrial and
economic developments have in the past been
largely based on the theory that the most im-

42 ORGANIZING FOR WORK

portant quality a man can possess is his ability
to buy things ; but the war has distinctly sho^\^l
that this quality is secondary to the ability to
do things. The recognition of this fact is hav-
ing a most far-reaching effect, for it makes
clear that the real assets of a nation are
properly equipped industries and men trained
to operate them efficiently. The money which
has been spent on an industrial property,
whether it has been spent wisely or unwisely,
and the amount of money needed to reproduce
it are both secondary in importance to the
ability of that plant to accomplish the object
for which it was constructed, and hence cannot
be given the first place in determining the value
of the property.

Inasmuch as every industrial plant is built
to produce some article of commerce at a cost
which will enable it to compete with other pro-
ducers, the value of a plant as a producing unit
must depend upon its ability to accomplish the
object for which it was created.

To determine the value of an industrial
property, therefore, we must be able to know
with accuracy the cost at which it can produce
its product, and the amount it can produce. To
compare two factories on this basis, their cost
systems must be alike ; for, if there is a lack of
agreement as to methods of cost accounting,

VALUE OF INDUSTRIAL PROPERTY 43

there will necessarily be a lack of agreement as
to the estimated value of the properties. There
are many methods of cost accounting; but there
are only two leading theories as to what cost
consists of. They are:

First, that the cost of an article must include
all the expense incurred in producing it, whether
such expense actually contributed to the de-
sired end or not.

Second, that the cost of an article should in-
clude only those expenses actually needed for
its production, and any other expenses incurred
by the producers for any reason whatever must
be charged to some other account.

The first theory would charge the expense
of maintaining in idleness that portion of a
plant which was not in use to the cost of the
product made in that portion of the plant which
was in operation ; while the second theory would
demand that such an expense be a deduction
from profits, or at least be charged to some
other account. When plants are operated at
their full capacity, both theories give the same
cost. If, however, they are operated at less
than their full capacity, the expense of carrying
the idle machinery is, under the first theory, in-
cluded in the cost of the product, making the
cost greater; while under the second theory,
this expense of idle machinery is carried in a

44 ORGANIZING FOR WORK

separate account and should be deducted from
the profits, leaving the cost constant. It is
most interesting to note that, when costs are
figured on the second basis, great activity im-
mediately ensues to determine why machinery
is idle, and to see what can be done to put it
in operation. It is realized at once that this
machinery had better be operated, even if
no profits are obtained from its operation
and only the expense, or even part of the
expense, of owning and maintaining it is
earned.

Fig. 1 illustrates this subject most clearly,
and is an indication of the efficiency of the
management as contrasted with that of the
workmen, about which we hear so much. It is
interesting to note that charts of this nature,
which are being made monthly in several large
plants, have already had a very educational
influence on the managers of those plants. They
show" that idle machinery w^hich cannot be used
should be disposed of, and the money received,
and the space occupied, put to some useful
purpose.

A little consideration of the method of get-
ting the data on this chart will make its value
more apparent. It is a logical outgrowth of the
pre^aous chapter on Production and Costs, and
is based on the fact that simple ownership of a

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VALUE OF INDUSTRIAL PROPERTY 47

machine costs money, inasmuch as it takes away
from available assets. For instance, if we buy
a machine for $1,000 we lose the interest on that
$1,000, say at tive per cent per year, then we
have taxes on the machine at two per cent, and
insurance of one per cent. Further, the machine
probably depreciates at a rate of twenty per
cent per year, and we must pay $50 or more
per year for the rent of the space it occupies.
All these expenses, together $330, go on whether
we use the machine or not. Thus, the simple
fact of our having bought this machine and kept
it takes from our available assets approximately
o;ie dollar per day.

If now the cause for idleness is ascertained
each day we can find the expense of each cause
of idleness as sho^\^l on the chart. That part
which is due to lack of orders points out that
our selling policy is w^rong, or that the plant
is larger than it should be — in other words,
that somebody in building the plant has over-
estimated the demand. It is clear, however,
that no conclusion should be based on the figures
for one month, but on the results for a series
of months during which the problem has been
carefully studied. If a mistake has been made
in building too large a plant, an effort should
be made to determine the proper disposal, or
utilization, of the excess, in order that the ex-

48 ORGANIZING FOR WORK

pense of idleness may be taken care of, even if
no profit can be made.

The next column shows the expense due to a
lack of help, which means that we must in-
vestigate the labor policy.

The next column, showing the expense due to
lack of, or poor, material, is an indication of
the efficiency of the purchasing policy and store-
keeping system. The next column reflects the
repair and maintenance department.

If in any case the expense of idleness is
greater than can be attributed to all of these
causes together, it must go in the last column
as poor planning.

We can hardly claim that such a chart gives
"US a measure of the efficiency with which the
above functions are performed, but it certainly
does give us an indication of that efficiency. In
several cases, the first of such charts gotten
out resulted in the scrapping of machinery
wiiich had been idle for years. The space thus
saved was used for a purpose for which the
superintendent had felt he needed a new build-
ing. In another case it resulted in the renting
of temporarily idle machinery at a rate which
went far toward covering the expense of carry-
ing that machinery.

Under the first system of cost-keeping the
facts brought out by this method are not avail-

VALUE OF INDUSTRIAL PROPERTY 49

able and the increased cost that a reduced out-
put must bear is a great source of confusion
to the salesman. The newer system with its
constant cost shows that non-producing ma-
chinery is a handicap to the industry of a
company, just as workmen who do not serve
some useful purpose in a plant, or industry, are
a handicap to that plant or industry. Similarly,
plants or people, therefore, who do not serve
some useful purpose to a conmiunity are a
handicap to that community, for idle plants
represent idle capital, and idle people are not
producers but consumers only. The warring
nations recognized these facts, and put both
idle plants and idle people to work wherever
possible.

The statements so far made concern princi-
pally the operation of industrial plants and the
production of articles of commerce; but they
are none the less true concerning the construc-
tion of industrial plants. We may ask the same
question about construction that we ask about
operation; for instance, should the *^cost" of a
railroad include all the money spent by the
people engaged in building it, or should it in-
clude only such money as contributed to the
building of the road? As an illustration, is the
cost of a piece of road which was built and
then abandoned for a superior route before

50 ORGANIZING FOR WORK

being used a part of the cost of the railroad
built, or is it an expense due to improper judg-
ment on the part of the builders?

I am not discussing the question as to whether
the public should be called upon to pay interest
on the money uselessly spent through improper
judgment, but I do think that in all construc-
tion it should be possible to separate those ex-
penses which contributed to the desired result
from those which did not so contribute. A com-
parison of these amounts will give a measure
of the efficiency of the builders. On this knowl-
edge, proper action can ultimately be taken.

Still another factor enters into the value of
a ^ Agoing plant.'' We all have known cases
where the same plant operated under one
manager was a failure, and under another a
very decided success. The value of a going
plant, therefore, consists of two elements;
namely, the value of the physical real estate and
equipment, and the value of the organization
operating it. In considering the value of an
organization we should realize that it lies not
so much in the personality of the managers or
leaders (who may die or go elsewhere) as in
the permanent results of their training and
methods, which should go on with the business,
and are therefore an asset and not an accident.

We have the authority of no less a person

VALUE OP INDUSTRIAL PROPERTY 51

than Andrew Carnegie, for the statement that
his organizations were of more value to him
than his plants. Before we can determine ex-
actly the value of a going plant, therefore, we
must find some means of measuring the value of
the organization which operates it, for this is
an integral factor in the valuation of an in-
dustrial property, which is just as real as the
more tangible brick and mortar of which build-
ings are composed.

Our charts showing the expense of idleness
give us at least a rough indication of this
value, for they show the expense of inefficient
management.

AN EXTENSION OF THE CREDIT SYS-
TEM TO MAKE IT DEMOCRATIC

Looking backward over the great war, we have
the opportunity better to understand and evalu-
ate the different phenomena which were de-
veloped by it. Many incidents which seemed
natural and in a measure unimportant when
they took place, had a profound effect upon the
outcome of the war, and promise to affect still
more profoundly the period to follow.

Perhaps no one incident was more significant
and fraught with greater consequences to the
civilization of the w^orld than the transfer, soon
after we entered the war, of the credit center
from Wall Street to Washington. This trans-
fer took place without creating any stir, vnth-
out any special opposition, and with the general
approval of the community at large. We had
just got the Federal Reserve Banking System
into operation, and it had enormously increased
our power as a nation to dispense credit, yet
notwithstanding the most advantageous position
in which we had thus been placed, the expert

THE CREDIT SYSTEM 53

financiers of Wall Street submitted without
remonstrance to the transfer of the whole credit
center to Washington, w^here it was adminis-
tered by men who, compared with the "giants'*
of Wall Street, were mere amateurs.

^Yhy was it necessary for this transfer to be
made, and why did Wall Street consent to it?
Surely if it had been within the possibilities of
Wall Street to finance the war, a serious re-
monstrance at least would have been raised
to this transfer of the credit center. The New
York bankers not only did not remonstrate, but
in a most patriotic manner offered their ser\^ces
to help the comparatively inexperienced men in
Washington handle their great undertaking.

If it had been possible for Wall Street to
finance the war, it is inconceivable that the
bankers of New York should have allowed the
work to be taken over by other hands. Wliy,
then, was it possible for Washington to do w^hat
was impossible for Wall Street? The answer
to this question is not only very simple, but is
indicative of the flaw in our whole business
system. The financial methods of Wall Street
were designed to operate only when we con-
ducted "business as usual;" hence their
mechanism could give credit only to those who
had tangible securities. They had no mecha-
nism for extending credit to men who, although

54 ORGANIZING FOR WORK

they had few or no tangible assets, might have
tremendous productive capacity.

Because the war demanded that the nations
as a whole produce goods to the utmost, we
were obliged to invent a new kind of finance, in
which the production of goods would be the
first object. There was no tradition among the
bankers of this country for financing any propo-
sition except on the basis of tangible assets,
and for the sole purpose of making profits.
In many cases men who knew how to build
ships or to make guns did not have tangible
assets in sufficient quantity to satisfy the usual
banking system. It was therefore necessary for
the Federal Government to initiate a finance
which was new, at least in this country: namely,
that of extending credit to a man according to
his productive capacity. There was no estab-
lished mechanism for doing this, but it had to
be done, and we did it, in a rather haphazard
and ineffective manner. Nevertheless, the re-
sults have justified the venture, and the possi-
bilities of a new credit system of vastly greater
potentiality are opening themselves to us as
soon as the mechanism for its operation shall
have been developed.

A few of the great leaders of industry have
understood in a general way this kind of finance.
Among them may be mentioned Mr. Andrew

THE CREDIT SYSTEM 55

Carnegie, who said he valued his organization
more than his plants; and Mr. Henry Ford.
Mr. Carnegie, through an understanding of
this general principle, was able to dominate the
steel industry; and Mr. Ford, by the same
token, became the greatest automobile manu-
facturer in the world. The war has backed up
Mr. Carnegie and Mr. Ford by proving that pro-
ductive capacity is enormously more important
than wealth, but inasmuch as our credit sys-
tem has been based on '* tangible assets,'' and
not on productive capacity, there has been
developed as yet no generally accepted mecha-
nism for measuring the value of productive
capacity.

The cost and accounting systems in general
vogue take note only of what are called the
*'tan;^ible assets,'' which are necessarily static,
showmg only potentialities. They make but
little attempt to find out how these assets are
being used. The reason undoubtedly is that they
see such assets from a sales standpoint ; in other
words, our economic system is still patterned
after the one which was originally built up to
serve the needs of buying and selling. Pro-
ductive capacity, on the other hand, can be
measured only by taking account of what is
happening. When w^e begin to regard matters
from this standpoint, the so-called ** tangible

56 ORGANIZING FOR WORK

assets'^ are not nearly so important as the use
being made of them, or the amount of product
being turned out. In other words, the modern
accounting system which deals with production
must give us a picture of what is happening,
as well as of the mechanism which causes the
happenings. It must be based on charts which
show what progress is taking place, and which
bear the same relation to statistics as a moving
picture film does to a photograph.

The question naturally asked is : If the above
statements are correct, why have we not realized
their correctness before? It took a great war,
which required us to put forth all our strength,
to wake us up to their importance. They have
been increasing in importance for a number of
years, and our failure to recognize this fact
was one of the factors in producing the great
catastrophe through w^hich we have just passed.

For many years previous to the outbreak of
the great war, financiers told us there couldn't
be any war, because the bankers wouldn't stand
for it. They thought money controlled the
world. Books were written to prove that we
could have no more war. The idea of w^ar was
called ''the great illusion." Wlien this ''illu-
sion" was realized, they still maintained that
the war could last only a few months. Never-
theless it lasted over four years, to the great

THE CREDIT SYSTEM 57

confusion of our economists and theorists. We
all know now that it was supported, not by
finance, but by the grand scale production of
modern industry. It stopped, not for lack
of money, but for lack of means to live and
fight with. We see, then, without any pos-
sible shadow of doubt, that inasmuch as pro-
duction was the controlling factor in the
great war, it will hereafter be the controlling
factor in the world, and that nation which
first recognizes the fundamental fact that pro-
duction, and not money, must be the aim of our
economic system, will, other things being equal,
exert a predominating influence on the ci\'iliza-
tion, which is to be built up in the period of re-
construction upon which we are now entering.

Our immediate problem, then, is to develop a
credit system that will enable us to take ad-
vantage of all the productive forces in the com-
munity. Such a credit system must not only be
able to finance those who have ownership, but
also those who have productive capacity, which
is vastly more important. This is equivalent
to saying that our ivealth in men is more im-
portant than our tvealth in materials. So far
we have never used this force to more than a
small fraction of its capacity, simply for the
reason, as previously stated, that the origina-
tors of our financial system were traders and

r.8 ORGANIZING FOR WORK

not producers. Now, however, when the su-
preme importance of the producer has been
recognized, we must enlarge our credit system
in such a manner as to enable us to take full
advantage of his possibilities; in other words,
we must make it democratic.

To meet the exigencies of war the Federal
Government had no hesitation in inaugurating
such a finance, for the benefit of the community.
"While it was done in a new and crude manner,
we recognize that it was in the main successful.
We shall soon find that there are exigencies in
times of peace also that could be helped by a
similar financial method. Some nations are
going to see this, and realizing that the credit
system of the country must always be available
for the benefit of the community, take such ac-
tion as to accomplish that result, and thereby
force others to do the same. Through the War
Finance Corporation Act (amended) section
21, March 3, 1919, we have already taken such
action with regard to exports. During the war,
we financed necessary production with public
money; now in time of peace we finance an-
other essential activity with public money. This
is a most encouraging beginning. Can we not
make public money av^ailable for the financing
of all socially necessary activities whether of
war or peace?

THE CREDIT SYSTEM 59

In the past what a man could do was limited
by his financial and social condition; hence
many of our most capable men were severely
restricted in their activities. To be sure, a few
have been able to rise above their restrictions
— a railsplitter becomes the president of a great
republic, and a harness-maker the first presi-
dent of another. These examples, however,
only illustrate the possibilities that are unuti-
lized, because our credit system has not been
democratic.

VII
ECONOMICS OF DEMOCRACY

The prime function of a science is to enable
us to anticipate the future in the field with
which it has to deal. Judged by this standard,
economic science has in the past been practically
w^orthless; for it absolutely failed to warn us
of the greatest catastrophe that has ever be-
fallen the civilized world. Further, when the
catastrophe burst upon us, economists and
financiers persisted in belittling it by insisting
that the great war could last only a few months.
Are they any nearer the truth in their theories
of labor and capital, protection and free trade,
or taxation?

When they talk about preparedness, w^hat do
they mean? Do they mean that we must so
order our living as to prevent another such
catastrophe, or do they simply mean that ice
must aim to he strong ivhen the next catastrophe
comes?

The latest economic thought indicates clearly
that the fundamentals of both kinds of pre-
paredness are the same, and that preparation

ECONOMICS OF DEMOCRACT 61

for the former is the best basis on which to
establish preparation for the latter. True
preparedness, then, icould seem to consist in a
readjustment of oit\ economic conditions ivith
the object of averting another such catastrophe.

In considering this subject we must realize
that :

The Nation reflects its leaders.

The Army reflects its general.

The Factory reflects its manager.

In a successful industrial nation, the in-
dustrial leaders must ultimately become the
leaders of the nation. The condition of the in-
dustries will then become a true index of the
condition of the nation. If the industries are
not properly managed for the benefit of the
whole conmmnity, no amount of military pre-
paredness vdW avail in a real war. The military
preparations of Germany, vast as they were,
would have collapsed in six months had it not
been for the social and industrial conditions on
which they were based.

Army officers and others have told us most
emphatically what military preparedness is,
and how to get it. Innumerable papers have
been written on industrial preparedness, and
people in general are getting a pretty clear idea
of what we mean by the term. Moreover, many
are beginning to appreciate our lack in this

62 ORGANIZING FOR WORK

respect. Figs. 2, 3, 4, and 5 illustrate what this
means.

Admittedly these pictures are not typical of
our industries, but they do represent a condi-
tion which is all too common, and which must
be corrected if we are to be prepared either for
peace or for war.

Our record in the production of munitions,
especially of ammunition, is not one to be proud
of. Note what Mr. Bascom Little, President of
the Cleveland, Ohio, Chamber of Commerce, and
Chairman of the National Defense Conunittee
of the Chamber of Commerce of the United
States, said in the spring of 1916 :

**The work of Mr. Coffin's committee has seemed
to us very important, and so clearly related, in such
practical ways, to what the business organizations
of the country are trying to do to further national
defense, that those with which I am connected im-
mediately formed a union with the committee on
learning of its work.

''The thing that has stirred up the business men
of the Middle West during the past eighteen months
has been the lesson they have learned in the making
of war materials. It points a very vivid moral to
all our people. It all looked very easy when it
started a year and a half ago. The plant with which
I am associated in Cleveland got an order for 250,000
three-inch high explosive shells. It was a simple
enough looking job — just a question of machining.

Fig. 2. — Uxprepabed

Fig. 3. — Prepared

Two views of the same shop doing substantially the same work.
The lower picture was taken about a year after the upper from,
a slightly different viewpoint.

ECONOMICS OF DEMOCRACY 63

The forgings were shipped to us and we were to finish
and deliver. It began to dawn on us when the
forgings came that this whole order, that looked so
big to us, was less than one day's supply of shells
for France or England or Russia; and we felt that
in eight months by turning our plant, which is a
first-class machine shop, onto this job we could fill
the order. In a little while we got up against the
process of hardening. That — and mark what I say
— was fourteen months ago. To date we have shipped
and had accepted 130,000 shells, and those, about half
our order, are not complete. They still have to be
fitted by the fuse maker, then fitted in the brass
cartridge cases with the propelling charge, and some-
where, sometime, maybe, they will get on the battle-
field of Europe. Up to the present, none of them
has arrived there.

"Now this is the situation in a high-class efficient
American plant. This is what happened when it
turned to making munitions of war. The same thing
has occurred in so many Middle Western plants, that
their ouTiers have made up their minds that if they
are ever going to be called upon for service to their
o^vn country, they must know more about this busi-
ness. They feel that they are now liabilities to the
nation, and not assets in case of war. Proud as we
may he of our industrial perfection, it has not worked
here, and the country — particularly you in the East
— may as well know it."

The comment on this will be that it is three
years old, and that we have made great ad-

64 ORGANIZING FOR WORK

vances since then. In reply I can only say that
if we have made marked advances I have been
utterly unable to discover them.

The most casual investigation into the
reasons why so many of the munition manu-
facturers have not made good, reveals the fact
that their failure is due to lack of managerial
ability rather than to any other cause. With-
out efficiency in management, efficiency of the
workmen is useless, even if it is possible to get
it. "With an efficient management there is but
little difficulty in training the workmen to be
efficient. I have proved this so many times and
so clearly that there can be absolutely no doubt
about it. Our most serious trouble is incompe-
tency in high places. As long as that remains
uncorrected, no amount of efficiency in the work-
men Avill avail very much.

The pictures by which this chapter is illus-
trated do not show anything concerning the
efficiency of the individual workman, but they
are a sweeping condemnation of the inefficiency
of those responsible for the management, and
illustrate the fact, so well known to many of us,
that our industries are suffering from lack of
competent managers, — w^hich is another way
of saying that many of those who control our
industries hold their positions, not through their
abiUty to accomplish results, but for some other

Fig. 4. — Unprepaeed

Fig. 5. — Prepared

Two views of the same shop doing substantially the same work,
taken from the same point. The lower view was taken about a
year after the upper.

ECONOMICS OF DEMOCRACY 65

reason. In other words, industrial control is
too often based on favoritism or privilege,
rather than on ability. This hampers the
healthy^ normal development of industrialism,
which can reach its highest development only
when equal opportunity is secured to all, arid
when all reward is equitably proportioned to
service rendered. In other tvords, ivhen in-
dustry becomes democratic.
' We are, therefore, brought face to face ^vith
a form of preparedness which is even more
fundamental than the Industrial Preparedness
usually referred to, and I am indebted to Air.
W. N. Polakov for the name ''Social^repared-
ness,^' which means the democratization of in-
dustry and the establishment of such relations
among the citizens themselves, and between
the citizens and the government, as will
cause a hearty and spontaneous response on
the part of the citizens to the needs of the
countr}\

At the breaking out of the great war in
Europe, the thing which perhaps surprised us
most was the enthusiasm ^vith which the
German people entered into it. Hardly less
striking was the slowness with which the rank
and tile of Englishmen realized the problems
they were up against, and their responsibilities
concerning them.

66 ORGANIZING FOR WORK

A short consideration of what happened in
Germany in the last half of the nineteenth cen-
tury, or before the war, may throw some light on
this subject. Bismarck and Von Moltke, follow-
ing the lead of Frederick the Great, believed and
taught that the great industry of a country was
War. In other w^ords, that it was more profit-
able to take by violence from another than to
produce. The history of the world, until the
development of modern industrialism^ seemed
to bear out that theory. Bismarck argued that
to be strong from a military standpoint the
nation must have a large number of well
trained, intelligent, healthy men, and he set
about so ordering the industries of Germany
as to produce that result.

Military autocracy forced business and in-
dustry to see that men were properly trained
and that their health was safe-guarded. In
other words, because of the necessity of the
military state for such men, the state saw to it
that industry was so organized as to develop
high-grade men, with the result that a kind of
industrial democracy was developed under the
paternalistic guidance of an autocratic military
party.

Under such influences, the increase of educa-
tion and the development of men went on apace,
and were soon reflected in an industrial system

ECONOMICS OF DEMOCRACY 67

which bade fair to surpass any other in the
world.

In England, on the other hand, the business
system was controlled by an autocratic and
*' socially irresponsible finance,'* which, to a
large extent, disregarded the interest of the
workman and of the conununity. At the break-
ing out of the war, the superiority of the in-
dustries of Germany over the industries of
England was manifest, not only by the feeling
of the people, but by their loyalty to the Na-
tional Government, which had so cared for, or
disregarded, their individual welfare. This su-
periority became so rapidly apparent, that in
order to make any headway against Germany,
England was obliged to imitate the methods
which had been developed in Germany, and to
say that the industries (particularly the muni-
tion factories) ivhicli were needed for the salva-
tion of the country, must serve the coimtry and
not the individual. The increased efficiency
which England showed after the adoption of
this method was most marked, and in striking
contrast with the inefficiency displayed previ-
ously in similar work.

Confessedly our industries are not managed
in the interest of the community, but in that of
an autocratic finance. In Germany it was
proved beyond doubt that an industrial system,

68 ORGANIZING FOR WORK

forced by military autocracy to serve the com-
munity, is vastly stronger than an industrial
system which serves only a financial autoc-
racy.

The method by which Germany developed a
singleness of purpose and tremendous power
both for peace and for war — namely, autocratic
military authority — is hateful to us, but we
must not lose sight of the fact that such power
was developed and may be developed by some
other nation again in the future. If we would
be strong when we are again faced with a con-
tingency of developing a greater strength, or
submitting, we must first of all develop a single-
ness of purpose for the whole community.

England demonstrated the same thing; for
had England not rapidly increased her efficiency
in the production of munitions, it would have
been indeed a sad day for the British Empire.

In considering these facts, we should ask
ourselves if there is not some fundamental fact
which is accountable for the success of industry
under such control. The one thing which stands
out most prominently is the fact that, in the
attempt to make the industries serve the com-
munity, an attempt was made to abolish in-
dustrial privilege, and to give evert/ man an
opportunity to do what he could and to reward
him correspondingly.

ECONOMICS OF DEMOCRACY 69

As before stated, the industrial system of
Germany was developed largely as an adjunct
to its military system, which, to a degree at
least, forced the abolition of financial and in-
dustrial privilege, and thereby in a large
measure eliminated incompetency in liigh
places. What results may not be expected,
therefore, if we abolish privilege absolutely,
and devote all our efforts to the development
of an industrialism w^hich shall serve the com-
munity and thus '' develop the unconquerable
power of real democracy f "

The close of the war and the abolition of
political autocracy has brought us face to face
with the question of a choice between the eco-
nomic autocracy of the past, or an economic
democracy. To prove that this is not
mere idle speculation, note what one of our
leading financiers said on the subject during
the war:

*'The President of the New York Life Insurance
Company," says Mr. Charles Ferguson, "told the
State Chamber of Commerce, during the great war,
that under modern conditions the existence of even two
rival sovereignties on this little planet has become
absurd. This is true. We must therefore drive for-
ward, through incredible waste and slaughter, to the
settlement of the question of which of the rival
Powers is to build the New Rome, and establish a

70 ORGANIZING FOR WORK

military world-state on the Cassarean model — or else
we must now set our faces toward a real democracy.''

What is the basis of such a democracy?

The one thing in all the ci\dlized world, which,
like the Catholic Church of the middle ages,
crosses all frontiers and binds together all
peoples, is business. The Chinaman and the
American by means of an interpreter find a
common interest in business. Business is
therefore the one possible bond which may
bring universal peace. Economists and finan-
ciers fully realized this, and believed that an
autocratic finance could accomplish the re-
sult. That was their fatal error. The bene-
ficiaries of privilege invariably battle among
themselves, even if they are 'strong enough to
hold in subjection those that have no privileges,
and who have to bear the brunt of the fight.

This is true whether the beneficiaries be in-
dividuals or nations. Hence neither internal
strife nor external war can be eliminated as
long as some people have privileges over others.

If privilege be eliminated not only wall the
danger of war be minimized, but the causes of
domestic strife will be much reduced in number.
Then, and not until then, will the human race
be in a position to make a continuous and un-
interrupted advance.

ECONOMICS OF DEMOCRACY 71

The nation which first realizes this fact and
eliminates privilege from business, will have
a distinct lead on all others, and, other condi-
tions being equal, will rapidly rise to a dominat-
ing place in the w^orld. Such a nation will do
by means of the arts of peace, that which some
Germans seemed to think it was their mission
to do by means of war. The opportunity is
knocking at our door. Shall w^e turn it away?

The answer is that we must not turn it away.
In fact, we dare not, if we would escape the
economic convulsion that is now spreading over
Europe. Soon after the signing of the armis-
tice Mr. David R. Francis, formerly ambassa-
dor to Russia, said that the object of the Soviet
Government was to prevent the exploitation of
one man by another. According to Mr. Francis,
the cause of this convulsion is the attempt of
the social body to free itself of the exploitation
of one man by another. Then he added, '*Such
an aim is manifestly absurd." The convulsion
is made all the more severe because there are
people in every community that not only con-
sider this aim absurd, but use all their influence
to prevent the accomplishment of it.

If, at the end of a victorious w^ar for de-
mocracy, a prominent representative of the
victors is willing to proclaim publicly such a
sentiment, it is perfectly evident that we have

72 ORGANIZING FOR WORK

not 3'et soh^ed all of our problems. Wliether we
approve of the Soviet method of government or
not, even Mr. Francis must admit that their
aim, as expressed by him, is a worthy one. It
would be surprising if in the time which has
elapsed since the Russian revolution an entirely
satisfactory and permanent method should have
been developed to prevent the exploitation of
one man by another, but the fact that they have
not yet established such a government is hardly
a basis for the statement that the establishment
of such a government is absurd.

This statement by Mr. Francis brings clearly
to the front the question — Is our business sys-
tem of the future going to continue to be one
of exploitation of one man by another, or is it
possible to have a business system from which
such privilege has been eliminated?

In this connection it may be interesting to
note that, for the past fifteen years, I and a
small band of co-workers have been attempting
to develop a system of industrial management
which should not be dependent on the exploita-
tion of one man by another, but should aim to
give each as nearly as possible his just dues.
Strange as it may seem to those of the old
way of thinking, the more nearly successful we
have been in this attempt, the more prosperous
have the concerns adopting our methods be-

ECONOMICS OF DEMOCRACY 73

come. In \dew of this fact we beg to submit
that the proposition does not seem to us to be
absurd, even though we may not admit that
any of the solutions heretofore offered have
really accomplished the result. In a subsequent
chapter, however, we shall present the progress
which we have recently made in this direction.

VIII

DEMOCRACY IN PRODUCTION

(Progress Charts)

It is unquestionable that the strategy of
General Foch, who so promptly took advantage
of the error of the Germans in not flattening out
the French salient between Montdidier and
Chateau-Thierry, enabled him to establish his
offensive which, with the new spirit put into
his whole force by the splendid fresh troops of
the American army, would undoubtedly have
wrested victory from the Germans in the long
run, even if they had been able to stave off the
revolution at home and keep their economic sys-
tem in good shape. It is a fact, how^ever, that
a growing discontent due to the increasing hard-
ships which their economic system was unable
to relieve, and which threatened a revolution,
was unquestionably an important factor in
lowering the morale of the army and worked
strongly in our favor. Of course, a knowledge
of the real conditions at home was kept as much
as possible from the soldiers at the front, but

DEMOCRACY IN PRODUCTION 75

from what we have learned since the armistice
it must have been perfectly clear to those in
control some time before the armistice, that
their economic strength was exhausted, and
hence, the end had come.

It has even been suggested that the attempt
of the Germans to extend the salient at Chateau-
Thierry before they flattened out the salient
between Montdidier and that point, was taking
a /'gambler's chance," for they realized then
that they were near the end of their economic
resources and that they must have a quick vic-
tory or none.

Wliether this theory is true or not, the fact
remains that the threatened collapse of the
economic system was a controlling factor during
the last few months of the war. In other words,
war cannot be waged unless the economic sys-
tem is capable of supporting the population and
also furnishing the fighting equipment. To be
as strong as possible in war, therefore, we must
develop an economic system which will enable
us to exert all our strength for the common
good, which will therefore be free from auto-
cratic practices of either rich or poor, for such
practices take away from the community for the
benefit of a class.

It is pretty generally agreed that this philoso-
phy is correct in time of war, but both the rich

76 ORGANIZING FOR WORK

and the poor seem to think that we do not need
to be strong in time of peace, and that we may
with impunity go back to the pull and haul for
profits regardless of the results to the com-
munity. Such a condition does not produce
strength, but weakness; not harmony, but dis-
cord.

In the struggle that arises under the above
conditions, between an autocratic ownership and
an autocratic labor party, the economic laws
which produce strength are largely disregarded
and the whole industrial and business system
becomes infected with such a feebleness that it
is incapable of supporting our complicated sys-
tem of modern civilization. This is exactly
what is happening in eastern Europe, where
civilization is tottering due to the fact that the
industrial and business system by which it was
supported is no longer functioning properly.
The production portion seems to have abso-
lutely broken do\\Ti, hence there is a shortage
everywhere of the necessities of life. This
failure is undoubtedly due to a combination of
causes; but whatever the cause, the result is
the same, for the violation of economic laws,
whether through interest, ignorance, or indo-
lence, will ultimately, to use the language of a
distinguished economist, ^^blow the roof off our
qivilization just as surely as the violation of

DEMOCRACY IN PRODUCTION 77

the laws of chemistry wall produce an explosion
in the laboratory."

We must avoid the possibility of this explo-
sion at all hazards. If we would accomplish
this result we must begin at once not only to
make clear what the correct economic laws are,
but to take such steps in conformity with them
as will get the support of the community in
general, and lessen the danger of following
Europe into the chaos toward which she seems
heading.

Those who believed the war could last only a
few months based their opinion on the destruc-
tion of wealth it would cause. They had abso-
lutely no conception of the tremendous speed
with which this loss might be made good by the
productive force of modern industry. They did
not understand that the controlling factor in
the war would ultimately become productive
capacity.

When we entered the war, it was of course
necessary to raise money, and through the
persistent use of the slogan Money uill ivin the
ivar, our loans were promptly oversubscribed.
Although we were able to raise all the money we
needed, w^e had difficulty in transforming that
money quickly into fighting power, for we made
the fundamental error of considering that those
who knew how to raise money, also knew how

78 ORGANIZING FOR WORK

to transform it into food and clothing, weapons,
and ships. The sudden ending of the war pre-
vented us from realizing how great this error
was. Even a superficial review of what took
place during 1918, however, reveals the fact
that our efforts at production were sadly in-
effective. So true is this that some of those in
aoithority not only discouraged all efforts to
show comparison between their promises and
their performances in such a manner that the
public could understand, but they actually for-
bade such comparisons to be made.

There was, in Washington, at the beginning
of the war, however, one man who understood
the necessity for just this kind of record, which
should be kept from day to day and should show
our progress in the work we had to do. This
man was Brigadier General William Crozier,
Chief of Ordnance. Apparently alone among
those in authority at that time, he recognized
the important principle that authority and re-
sponsibility for performance must be centered
in the same individual, and organized his de-
partment on that basis. Before the breaking
out of the war a simple chart system, which
showed the comparison between promises and
performances, had been established in the
Frankford Arsenal. This system General
Crozier began to extend throughout the Ord-

DEMOCRACY IN PRODUCTION 79

nance Department as soon as we entered the
war, in order that he might at all times see
how each of his subordinates was performing
the work assigned to him. As the method was
new, progress was necessarily slow, but before
General Crozier was removed from his position
as Chief of Ordnance, in December, 1917, a
majority of the activities of the Ordnance De-
partment were sho\vn in chart form so clearly
that progress, or lack of progress, could be
seen at once. No other government department
had at that time so clear a picture of its prob-
lem and the progress being made in handling it.
The following incident will serve to show the
results that had been produced by this pol-
icy. Late in November, 1917, Dean Herman
Schneider of the University of Cincinnati, was
called to the Ordnance Department to assist on
the labor problem. Before deciding just how
he would attack his problem, he naturally in-
vestigated the activities of the department as
a whole, with the result that early in December,
1917, he wrote General C. B. Wheeler, under
whom he was working, a letter from which the
following is an extract:

**The numler of men needed for the Ordnance
Program should be ascertainable in the production
sections of the several divisions of the Ordnance De-

80 ORGANIZING FOR WORK

partment. Investigation so far (in three production
sections) discloses that, except in isolated cases, a
shortage of labor is not evident.

''Each production section has production and
progress chart systems. These seem to vary in minor
details only. Even without rigid standardization,
the charts give a picture of the progress of the whole
Ordnance Program including lags and the causes
therefor. Combined in one office and kept to date
they would show the requirements as to workers, as
well as to materials, transportation, accessory ma-
chinery, and all of the other factors which make or
break the program.

''With a plan of this sort the Ordnance Depart-
ment would be in a position to state at any time its
immediate and probable future needs in men, ma-
terials, transportation, and equipment.

"The other Departments of the War Department
(and of other departments engaged in obtaining wiar
material) can, through their Production Sections, do
what the Ordnance Department can do, namely, as-
semble in central offices their production and progress
charts through which they would know their immedi-
ate and probable future needs.

"Finally, these charts assembled in one clearing
office would give the data necessary in order to mahe
the wJiole program of war production move with fair
uniformity, without disastrous compe ition and with
justice to the workers.'^

This letter not only sets forth clearly what
General Crozier had accomplished, but it shows

DEMOCRACY IN PRODUCTION 81

still more clearly Dean Schneider's conception
of the problem which at that time lay immedi-
ately before us. General Crozier's successors
allowed the methods which had been developed
to lapse, and Dean Schneider's vision of the
industrial problem and ability to handle it were
relegated to second place.

The methods referred to by Dean Schneider
were afterward adopted in an elementary way
by the Shipping Board and by the Emergency
Fleet Corporation. Although they were never
used to any great extent by those in highest
authority, who apparently were much better
satisfied simply to report what they had done,
rather than to compare it too closely with what
they might have done, they were used to great
advantage by many who were responsible for
results in detail.

Fig. 6 is a sample of the charts referred to
above. This is an actual Ordnance Department
chart, entered up to the end of December, 1917,
the names of the items being replaced by let-
ters. It was used to illustrate the methods
employed and to instruct people in the
work.

The distance between the current date and
the end of the heavy or cumulative line indi-
cates whether the deliveries of any article are
ahead or behind the schedule and how much.

82 ORGANIZING FOR WORK

It is thus seen that the short lines indicate in-
stantly the articles which need attention.

As said before, when General Crozier was re-
moved from his office about the 1st of December,
1917, he had a majority of the items for which
he was responsible charted in this manner, and
was rapidly getting the same kind of knowledge
about the other items. Charts of this character
were on his desk at all times, and he made
constant use of them.

This chart is shown only as a sample and
represents a principle. Each item on such a
chart as the above may have been purchased
from a dozen different suppliers, in which case
the man responsible for procuring such articles
had the schedule and progress of each contract
charted in a manner similar to that on Chart 6.
Chart 7 is such a chart. The lines on Chart 6
represented a summary of all the lines on the
corresponding detail charts.

Similar charts were used during the war to
show the schedules and progress in building
ships, shipyards, and flying boats — and are now
being used for the same purpose in connection
with the manufacture of many kinds of ma-
chinery. The great advantage of this type of
chart, known as the straight line chart, is that
it enables us to make a large number of com-
parisons at once.

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Fjg. 6.— Progress C'habt (topi and Fio. 7.— Order Chart (bottom)
At the left of the upper chart is b list of articles lo be [trocured The amuuiita for which orders have been placed
shown in the column hiadcd "Amount ordered" The dati-s between ivliith deliveries are to be miide are shown by angles,
amount to be delivered each month is shown by a tigure at th<- left aide of the ajtace assigned to that month. The figure at
right of each time space shows the total amount to be delivered up to that date.

only half the amount due is received, this line goes only h
of lines indicates the amount delivered during that month
The hea%'y line shows cumulatively the amount deliver
line IB drawn to the scale of the piriods through which it
will represent the amount of time deliveries are behind or
which requii

iiount delivered up to the date of the last entry It will be noted that, if this
ugh which it passes, the distance from the end of the line to the ciirrinl tlatr
ime deliveries are behind or ahead of the schedule. It is thus seen that the short cumulative lines
.ention. as they represent items that are farthest behind schedule Z represents no di'liveries
chart is a avimmary of the individual orders and is represented on the upper chart by line A.

DEMOCRACY IN PRODUCTION 83

From the illustrations given the following
principles upon which this chart system is
founded are easily comprehended:

First : The fact that all acti\dties can be
measured by the amount of time needed to per-
form them.

Second : The space representing the time unit
on the chart can be made to represent the
amount of activity which should have taken
place in that time.

Bearing in mind these two principles, the
w^iole system is readily intelligible and affords
a means of charting all kinds of acti\'ities, the
common measure being time.

DEMOCRACY IN THE SHOP

(Man Records)

In the chapter on **An Extension of the Credit
System,'^ we referred only to financial credit.
The term credit, of course, has a much broader
meaning. For instance, when a man has proved
his knowledge on a certain subject, we ^'give
him credit'* for that knowledge; when he has
proved his ability to do things, we **give him
credit'' for that ability. In other words, we
have confidence that he will make good. The
credit which we give a man, or the confidence
which we place in him, is usually based on his
record. We placed confidence in General
Pershing because of his record. We gave him
credit for being able to handle the biggest job
we had, and our faith was not misplaced. If
we had an exact record of the doings of every
man, we should have a very comprehensive
guide for the placing of confidence and the ex-
tending of credit — even financial credit.

Inasmuch, however, as our record of indi-
viduals is exceedingly meager and our informa-

DEMOCRACY IN THE SHOP 85

tion concerning them is usually derived from
interested parties, we have very little sub-
stantial basis for placing confidence in or ex-
tending credit to people in general. It is there-
fore hardly to be expected that a business sys-
tem mil risk investment without a more sub-
stantial guarantee for the financial credit it
extends. It would seem, then, that if we really
wish to establish such a credit system as is
described in Chapter VI, we must keep such a
record of the activities of individuals as will
furnish the information needed to give a proper
guarantee.

All records, however, are comparative, and
the record of a man's performance is compara-
tively valueless unless we are able to compare
what he has done with what he should have
done. The possibilities in the modern industrial
system are so great that there is scarcely any
conception of them by people in general. In
fact, many accomplishments which have been
heralded as quite extraordinary, are shown on
careful examination to have been quite the re-
verse, when a comparison is made with the pos-
sibilities.

In the past if a man has accomplished a de-
sirable result, we have been pretty apt to let it
go on its face value, and have seldom inquired
into how it was done. We have no criticism of

86 ORGANIZING FOR WORK

this as a habit of the past, but the war has
brought an entirely different viewpoint into the
world, and shown others besides Americans how
inefficiently the world is conducting its civiliza-
tion. Other peoples have realized that the real
asset of a nation is its human power, and un-
doubtedly will soon begin to adopt means of
measuring this power to the end that they may
use it more effectively.

Some of us have made a start in this work
by keeping individual records of operatives,
showing as nearly as possible what they have
done in comparison with what they might have
done, with the reasons for their failing to ac-
complish the full amount. By systematically
attempting to remove the obstacles Avhich stood
in the way of complete accomplishment, we have
secured a remarkable degree of co-operation,
and developed in workmen possibilities which
had been unsuspected. Further, we have de-
veloped the fact that nearly all workers wel-
come any assistance which may be given them
by the foreman in removing the obstacles which
confront them, and teaching them to become
better workers. Chart No. 8 is an actual chart
of this type from a factory and covers a period
of two weeks. Each working day was ten hours,
except Saturday, which was ^ve. The charts
are ruled accordingly. If a worker did all that

DEMOCRACY IN THE SHOP 87

was expected of him in a day the thin line goes
clear across the space representing that day,
and if he did more or less, the number of such
thin lines or the length of the line indicate the
amount. The number of days' work he did in
a week is represented by the hea\y line. Wher-
ever a dotted line is shown, it indicates that
during that time the man worked on a job for
which we had no estimated time. The letters
are symbols indicating the cause of failure to
perform the full amount of work. A key to
these symbols follows Chart No. 8.

Inasmuch as, according to our idea of man-
agement, it is a foreman's function to remove
the obstacles confronting the workmen, and to
teach them how to do their work, an average
of the performance of the workmen is a very
fair measure of the efficiency of the foreman.
This is shown by the line at the top of the
chart. It may readily be seen that such a chart
system gives a very fair means of fixing the
compensation of workers and foremen, and a
series of such charts kept up week after week
will give us a measure of the amount of confi-
dence which we may place in the individual
foreman and workman, for if all obstacles are
removed by the foreman the workman's line is
a measure of his effectiveness.

Just as the line representing the average of

88 ORGANIZING FOR WORK

all the workers is a measure of the foreman, so
a line representing the average of all the fore-
men is in some degree at least a measure of the
superintendent.

The improvement which has been made by
workers under our teaching and record-keeping
systems involves more than is at first apparent.
For instance, it has clearly been proven that
poor workmen are much more apt to migrate
than good workmen. The natural conclusion
from this is that if we wish to make workmen
permanent, our first step must be to make better
workmen of them. Our experience proves this
conclusion to be correct.

Many of our large industrial concerns have
estimated that the cost of breaking in a new
employee is very high — running from about
$35.00 up. We have already satisfied ourselves
that if only a fraction of this amount is ex-
pended in training the inferior workman, we
can reduce migration very materially. In other
words, money spent in proper teaching and
training of workmen is a highly profitable in-
vestment for any industrial concern, provided
there is some means of measuring and recording
the result. So beneficial have our training
methods proved that we are inclined to believe
that the practice of stealing good workmen from

_Man_ RECORD CHART FOR DEPT. d/^te «eekEnd,n3.MqTCh^J_5gl9J?. ]

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I I The daily space represents thr a
I I do the work.
Estimated time for work done.

.pected to do. The reasons for his falling behind i

fallen hehind wh

DEMOCRACY IN THE SHOP 89

one^s competitor itill ultimately prove to he as
Mtipro fit able as stealing his property.

Before the rise of modern industry the world
was controlled largely by predatory nations who
held their own by exploiting and taking by force
of arms from their less powerful neighbors.
"With the rise of modern industrialism, produc-
tive capacity has been proven so much stronger
than military power that we believe the last
grand scale attempt to practice the latter
method of attaining wealth or power has been
made. In this great war it was clearly proven
that not what ive have but ivhat ive can do is
the more important. It clearly follows, then,
that the workers we have are not so important
as our ability to train others ; again illustrating
the fact that our productive capacity is more
important than our possessions.

That the methods which I have here so in-
adequately described are of broad applicability,
has been proven by the fact that they have re-
ceived enthusiastic support of the workmen
wherever they have been tried. As previously
said, it is undoubtedly true that the *' efficiency''
methods which have been so much in vogue for
the past twenty years in this country, have
failed to produce what was expected of them.
The reason seems to be that we have to a large
extent ignored the human factor and failed to

90 ORGANIZING FOR WORK

take advantage of the ability and desire of the
ordinary man to learn and to improve his posi-
tion. Moreover, these ** efficiency'' methods
have been applied in a manner that was highly
autocratic. This alone would be sufficient to
condemn them, even if they had been highly
effective, which they have not.

In this connection it has been clearly proven
that better results can be accomplished if the
man who instructs the workman also inspects
the work and not only shows the workman
where he is wrong, but how to correct his
errors, than if the inspection is left to a com-
paratively ignorant man, who is governed by
rules. The attempt to combine instruction and
inspection in one man has met with the highest
approval among the workmen, with the result
of better work and less loss. This method is
contrary to the usual practice, inasmuch as
instruction and inspection have been considered
two functions, the former requiring an expert
and the latter a much less capable, and hence
cheaper, man. We are satisfied that this
analysis is defective; the inspector who can
show the workman how to avoid his errors is
usually worth far more than the extra com-
pensation required to secure his services. It
may be impossible to measure the exact
material value of these methods individually,

DEMOCRACY IN THE SHOP 91

but the total effect is reflected in an improved
and increased product at a lower cost.

Inasmuch as there is no necessity for any
coercion in applying these methods when we
have an instructor who is capable of being a
leader, we rapidly attain a high degree of
democracy in the shop. On the other hand, if
the instructor chosen fails to measure up to the
standard of leadership, it is never long before
his shortcomings are exposed, for through the
medium of our charts available facts are easily
comprehended by all. By these methods we
automatically select as leader the man who
knows what to do and how to do it, and when
he has been found and installed, progress is
rapid and sure.

DEMOCEACY IN MANAGEMENT

(Machine Records)

Having demonstrated by experience that it is
possible to run a shop democratically and that
the idea of giving every man a fair show and
rewarding him accordingly is not really absurd,
we naturally ask how far upward into the
management we can carry this principle. The
world still believes that authority must be con-
ferred, and has a very faint conception of what
we mean by intrinsic authority, or the authority
that comes to a man who knows what to do and
how to do it, and who is not so much concerned
with being followed as on getting ahead.

The problem of the manager is much wider
than that of the superintendent or the foreman,
for he must see that there is work to be done,
materials to work with and men to do the work,
besides numerous other things which are not
within the sphere of the foreman.

The object of a shop being to produce goods,
the first problem which comes to him is to find

DEMOCRACY IN MANAGEMENT 93

out to what extent the shop is performing the
function for which it was built. In other words,
are the various producing machines operating
all the time and if not, why not I An oppor-
tunity for our chart comes in again, and the
reason why a machine did not work at all is
indicated by symbols. Chart No. 9 is one of
this type. The thin lines represent the number
of hours each day a machine was operated;
the heavy line represents the total number of
hours it operated during the week. The sym-
bols indicate the causes of idleness ; some were
due to lack of work; some to lack of material;
some to lack of men; some on account of re-
pairs, etc. If we have not work enough to keep
the shop busy, we must look for the cause by
asking: Is there work to be had? Is our price
low enough? Is our quality good enough? The
answer to the first two must be determined by
the manager in connection with the sales de-
partment. The third by the manager in connec-
tion w^th the shop superintendent. If our idle-
ness is due to lack of material, the question
must be taken up with the buyer and store-
keeper. If it is due to lack of help, the labor
policy and the wage system must be studied.
If the idleness is due to repairs on machinery,
the question is one for consideration by the
superintendent and the maintenance depart-

94 ORGANIZING FOR WORK

ment. In every case the responsibility for a
condition is traced directly to its source. More-
over, as it is entirely possible to determine the
expense incurred by idleness, such expense may
be allocated directly to the responsible parties.
Inasmuch as a real management system is
simply a mechanism for keeping all concerned
fully advised as to the needs of a shop, and for
showing continuously how these needs have
been supplied, the comparison between what
each man from the top to the bottom did and
what he should have done is easily made.
Under a system of management based on our
charts, it soon becomes evident to all, who is
performing his function properly and who is
not. A man who is not making a success, knows
about it as soon as anybody else, and has the
opportunity of doing better if he can. If he is
not making good, it is very seldom that he has
any desire to hold on to the job and advertise
his incompetency to his fellows. Moreover,
it takes but a short experience with these
methods to convince a man that his record will
discredit him very much if he uses opinions
instead of facts in determining his methods
and policies. We are thus able to apply the
same standards to those in authority that we
apply to the workmen. In other Avords we ask
of all — how well did he perform his task? A

MACHINE RECORD CHART_.„.__DEPT. D*TE«.End,ngtehllMarch.8llSl?.

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DEMOCRACY IN MANAGEMENT 95

short line on a chart points unfailingly to him
who needs most help.

The Machine Record charts just referred to
have to do with, what proportion of the plant
was operated. The Man Record charts indicate
the effectiveness with which the machines were
operated during the time they were operated.
For instance, if a machine were operated only
one-half the time, and with only one-half of its
effectiveness during that time, we should get
out of the machine only one-quarter of its pos-
sible use. A combination, therefore, of these
two sets of charts, which gives a measure of the
manager, is a basis of our faith in him, and a
measure of the financial credit that may be ex-
tended to him as a producer. A little con-
sideration will show that such a record is a far
safer basis for financial credit in many cases
than physical property, and affords a means
of financing ability or productive capacity as
well as ownership. It is not to be concluded
that this subject is being presented in its final
and complete form, but it is claimed that enough
has been established to enable us to make an
irdelligent start in the operation of the new
credit system, which the Federal Government
was obliged to adopt without any guide.

Further, it is safe to say that if such records
as the ones just described had been available

96 ORGANIZING FOR WORK

for the prominent business men of the country
at the breaking out of the war, we should have
been saved much time, and the expenditure
of many millions of dollars.

The fact that such a system is applicable to
the arts of peace as well as those of war; that
it will pay for itself over and over again while
it is being installed; and that it will enable
us to value men according to service they can
render, would seem to be sufficient reason why
we should lose no more time than is necessary
in taking steps to extend it throughout the
nation. The fact that it is not an efficiency
system as the term is generally understood,
nor a system of scientific management as that
term is understood, but simply one which en-
ables us to use all the knowledge available and
in a manner which is intelligible to the most
ordinary w^orkman as well as to the best edu-
cated executive, is responsible for the enthusi-
asm with which it has been received by the
workmen as well as the executive. It is de-
signed to enable all of us to use all the knowl-
edge we have to the best advantage, and does
not in the slightest interfere with, but rather
supplements and supports, the work of those
w^hose problem is to acquire additional knowl-
edge.

In the preceding chapters we have given our

DEMOCRACY IN MANAGEMENT 97

^T.ew of the economic situation; of the forces
that were affecting it, and whither it was tend-
ing. We have also shown our mechanism for
making effective use of all the knowledge avail-
able. We also see that with increase in the
amount and availability of knowledge the more
certain our course of action is outlined, and the
less we need to use opinion or judgment.

Moreover, our record charts invariably indi-
cate the capable men, and not only give us an
indication of how to choose our leaders, but a
continual measure of the effectiveness of their
leadership after they are chosen. We thus
eliminate, to a large extent at least, opinion or
judgment in the selection of leaders, and in so
far do away with autocratic methods from
whatever source.

XI
*^THE RELIGION OF DEMOCRACY"

For over a thousand years the history of the
world has been made by two great forces — the
church and the state — the church basing its
power on idealism and moral forces, the state
depending almost entirely upon military power.
At times these two forces have seemed for a
while to co-operate, and then to become antago-
nistic. Today they are absolutely distinct,
working in different fields, with but little ground
in common, and a rival claims the middle of the
stage, for during the last century there has
come into the world another force, which has
concerned itself but little with our religious
activities, and interested itself in our political
activities only in so far as it could make the
political forces serve its ends. I speak of the
modern business system, based on the tre-
mendously increased productive capacity of the
race due to the advance of the arts and sciences.
The rapid expansion of this new power has
thrown all our economic mechanism out of gear,
and because it failed to maintain a social pur-
pose, which is common to both of the other

''THE RELIGION OF DEMOCRACY" 99

forces, produces cross-currents and antago-
nisms in the community which are extremely
detrimental to society as a whole.

One hundred years ago, each family — cer-
tainly each community — produced nearly every-
thing needed for the simple life then led.

The village blacksmith and the local mill
served the community, which existed substan-
tially as a self-contained unit.

With the growth of the transportation sys-
tem and grand scale production many of the
functions of the local artizans were taken over
by the factory, just as the flour mills of
Minneapolis supplanted the local mills, which
went out of existence.

In the same manner other large centralized
industries by superior service drove out of ex-
istence small local industries. By reason of
improved machinery and a better technology
the centralized industries w^ere able to render
this superior service, at the same time securing
large profits for themselves. Unfortunately for
the country at large, those who later came into
control of these industries did not see that the
logical basis of their profits was service. When,
therefore, the community as a whole had
come to depend upon them exclusively, they
realized their opportunity for larger profits
still, and so changed their methods as to give

ew^'=V'2L

100 ORGANIZING FOR WORK

profits first place, oftentimes ignoring almost
entirely the subject of service. It is this change
of object in the business and industrial system,
which took place about the close of the nine-
teenth century, that is the source of much of
the woe that has recently come upon the world.
Unless the industrial and business system can
rapidly recover a sense of service and grant
it the first place, it is hard to see what the next
few years may bring forth.

The great war through which we have just
passed has done away with political autocracy,
apparently forever, but it has done nothing
whatever in this country to modify the auto-
cratic methods of the business system, which
is a law unto itself and which now accepts no
definite social responsibility. This force is
controlled by and operated in the interest of
ownership, with, in many cases, but little con-
sideration for the interests of those upon whose
labor it depends, or for that of the community.
We should not be surprised, therefore, that the
workman who is most directly affected by this
policy is demanding a larger part in the control
of industry, especially as the war has taught
him, in common with most of us, that the method
of operating an industry is more important to
the community than the particular o\vnership
of that industry. The result of this knowledge

*'THE RELIGION OF DEMOCRACY" 101

is that the workers throughout the world are
striving everywhere to seize the reins of power.
Unfortunately for the world at large, these
workers as a rule have no clearer conception of
the social responsibility than those already in
control. Moreover, having had no experience
in operating grand scale industry and business,
it is more than likely that their attempt to do
so will result disastrously to the community.
The industrial system as a whole is thus threat-
ened with a change of control which we can
scarcely contemplate w^tli equanimity. We
naturally ask if there is any possible relief from
the confusion with which we are threatened.
We think there is, but not by any of the methods
generally advocated by ^'intellectuals'' who are
not closely in touch with the moving forces.

One class believes that the answer comes in
government ownership and government control
of industries. The experience of the world so
far does not, however, give much encourage-
ment along these lines, for in some quarters
where public utilities have to a large extent
been run by the government, it is frankly ad-
mitted that the government is being run by the
business system, which leaves us just where we
were, unless we can get a social purpose into
that system, in which case the need for govern-
ment ownership would disappear. Is such a

102 ORGANIZING FOR WORK

thing possible? Unless it can be shown that a
business system which has a social purpose is
distinctly more beneficial to those who control
than one which has not a social purpose, I
frankly confess that there does not seem to be
any permanent answer in sight. On the other
hand, if it can be shown conclusively that a
business system operated by democratic
methods (and the test of such a system is that
it acts without coercion and offers each man
the full reward of his labor) is more beneficial
to those who lead than the present autocratic
system, we have a basis on which to build a
modern economic state, and one which we can
establish without a revolution, or even a serious
jar to our present industrial and business sys-
tem. In fact, so far as I have been able to
put into operation the methods I am advocating,
we have very materially reduced the friction
and inequalities of the present methods much
to the benefit of both employer and employee.

In 1908 I wrote a paper for the American
Society of Mechanical Engineers, on ^'training
workmen'' in which I used the following ex-
pression: ^'The general policy of the past has
been to drive; but the era of force must give
way to that of knowledge, and the policy of the
future will be to teach and to lead, to the ad-
vantage of all concerned.''

''THE RELIGION OF DEMOCRACY" 103

This sentiment met with much hearty sup-
port, but inasmuch as no mechanism had at
that time come into general use for operating
industry in that manner, the sentiment re-
mained for most people simply a fine sentiment.
At that time the organization of which I am the
head had already made some advance in the
technology of such a system of management,
and since that time we have continued to de-
velop our methods along the same lines, as
sho^\^l in the previous chapters of the book.

Throughout this little book we have at-
tempted to make clear that those who know
what to do and how to do it can most profitably
be employed in teaching and training others.
In other words, that they can earn their great-
est reward by rendering ser\'ice to their fellows
as well as to their employers. It has only been
recently that we have been able to get owners
and managers interested in this policy, for all
the cost systems of the past have recorded such
teachers as non-producers and hence an ex-
pense that should not be allowed. Xow, how-
ever, with a proper cost-keeping system sup-
plemented by a man-record chart system, we see
that they are really our most effective pro-
ducers.

We have attempted in this book to show an
example of the mechanism by which we have

104 ORGANIZING FOR WORK

put into operation our methods, and some of
the results that have been obtained by them, the
most important of which is that under such a
system no ^' blind guides'' can permanently
hold positions of authority, and that leadership
automatically gravitates to those who know
what to do and how to do it. Moreover, we have
yet to find a single place where these methods
are not applicable, and where they have not
produced better results than the old autocratic
system. Moreover, they produce harmony be-
tween employer and employee and are welcomed
by both. In other words, ive have proved in
many places that the doctrine of service which
has been preached in the churches as religion
is not only good economics and eminently prac-
tical, but because of the increased production
of goods obtained by it, promises to lead us
safely through the maze of confusion into which
we seem to be headed, and to give us that in-
dustrial democracy which alone can afford a
basis for industrial peace.

This doctrine has been preached in the
churches for nearly two thousand years, and
for a while it seemed as if the Catholic Church
of the middle ages w^ould make it the controlling
factor in the world ; but the breaking up of the
Church of the middle ages into sects, and the
advance of that intellectualism which placed

'*THE RELIGION OP DEMOCRACY" 105

more importance upon words and dogma than
upon deeds, gave a setback to the idea which
has lasted for centuries. Now, when a great
catastrophe has made us aware of the futility
of such methods, we are beginning to realize
that the present business system needs only
the simple methods of the Salvation Army to
restore it to health. It is absolutely sound at
the bottom.

The attempt to run the world by words and
phrases for the bcaneiit of those who had the
power to assemble those words and phrases in-
volved us in a great war, and the continued
application of these methods seems to be lead-
ing us into deeper and deeper economic con-
fusion. We are therefore compelled to recog-
nize that the methods of the past are no longer
possible, and that the methods of the future
must be simpler and more direct.

It should be perfectly e\'ident that mth the
increasing complexity of the modern business
system (on which modern civilization depends)
successful operation can be attained only by
following the lead of those who understand
practically the controlling forces, and are will-
ing to recognize their social responsibility in
operating them.

Any attempt to operate the modern business
system by people who do not understand the

106 ORGANIZING FOR WORK

driving forces is sure to reduce its effective-
ness, and any attempt to operate it in the in-
terest of a class is not much longer possible.

For instance, under present conditions the
attempt to drive the workman to do that which
he does not understand results in failure, even
if he is willing to be driven, which he no longer
is; for he has learned that real democracy is
something more than the privilege of express-
ing an opinion. We are thus forced into the
new economic condition, and, whether we like it
or not, will soon realize that only those u'Jio
know ivhat to do and lioiv to do it will have a suf-
ficient following to make their efforts worth
while. In other words, the conditions under
which the great industrial and business sys-
tem must operate to keep our complicated sys-
tem of modern civilization going successfully,
can be directed only by real leaders — men who
understand the operation of the moving forces,
and whose prime object is to render such service
as the community needs.

In order to secure such leaders they must
have full reward for the service they render.
This rules out the dollar-a-year man, whose
qualifications too often were not that he knew
how to do the job, but that he was patriotic and
could afford to give his services for nothing.
In spite of such a crude way of selecting men

''THE RELIGION OF DEMOCRACY" 107

to handle problems vital to the life of the
nation, many did good work during the war.

The laws of the United States, however, for-
bid a man to w^ork for the government for
nothing, and both those who served at a dollar
a year, and those who accepted that service,
\dolated the spirit of the law, which was aimed
to sustain the democratic practice of reward-
ing a man according to the service he rendered.
Any other practice is undemocratic.

In 1847, Mr. Lincoln wrote: **To secure to
each laborer the whole product of his labor, or
as nearly as possible, is a worthy object of any
good government. But then the question arises,
how can a government best effect this! * * *
Upon this the habits of our whole species fall
into three great classes — useful labor, useless
labor, and idleness. Of these, the first only is
meritorious, and to it all the products of labor
rightfully belong ; but the two latter, while they
exist-, are hea\y pensioners upon the first, rob-
bing it of a large portion of its just rights.
The only remedy for this is to, so far as pos-
sible, drive useless labor and idleness out of
existence.''

Attempts are always being made to eliminate
the idleness of workmen and useless labor by
the refusal of compensation. Unfortunately,
however, there has been no organized attempt

108 ORGANIZING FOR WORK

as yet to force capital to be useful by refusing
compensation to idle capital, or to that expended
uselessly. Capital which is expended in such
a manner as to be non-productive, and capital
which is not used, can receive interest only by
obtaining the same from capital which was pro-
ductive or from the efforts of workmen, in
either of which cases it gets a reward which
it did not earn, and which necessarily comes
from capital or labor which did earn it.

Reward according to service rendered is the
only foundation on which our industrial and
business system can permanently stand. It is
a violation of this principle which has been made
the occasion for socialism, communism, and
Bolshevism. All we need to defeat these
*4sms'' is to re-establish our industrial and
business system firmly on the principles advo-
cated by Abraham Lincoln in 1847, and we shall
establish an economic democracy that is
stronger than any autocracy.

Moreover, it conforms absolutely to the teach-
ings of all the churches, for Christ, who was the
first to understand tjie commanding power of
service, thus stands revealed as the first great
Economist, for economic democracy is simply
applied Christianity. This was also clearly
understood by the great leaders of the Church
of the middle ages, whose failure to establish it

''THE RELIGION OF DEMOCRACY" 109

as a general practice was largely due to the
rise of an intellectualism which disdained prac-
ticality.

Now, however, when a great catastrophe has
shown us the error of our ways, and convinced
us that the world is controlled by deeds rather
than words, we see the road to Universal Peace
only through the change of Christianity from a
weekly intellectual diversion to a daily practical
reality.

INDEX

Ability to Do Things, 41, 42,

64, 65, 84
Accountants, 18, 19, 32, 33,

38
Activities (Charting), 17, 74,

78, 79, 80, 81, 82, 83, 84,

85, 86, 87, 88, 91, 92, 93,

94, 95, 97
Allies, iii

America, 14, 23, 32
American Workmen, 6, 13, 44,

106
Authority, 92, 103
Autocracy, 8, 176

Bankers, 7, 8, 53, 54, 55, 56,

69
Bolshevism, 7, 8, 108
Business Men, 5, 8, 9, 24, 62
Business System, iv, 3, 5, 13,

15, 17, 24, 53, 67, 70, 72,

76, 81, 85, 90, 98, 99, 100,

101, 102, 105, 108

Capital, 12, 26, 108
Carnegie, Andrew, 55
Church, 70, 98, 104, 108
Civilization, 3, 11, 12, 86
Coal Administration, iii, 10
Cost Keeping, 25, 26, 28, 29,

30, 31, 32, 35, 37, 38, 39,

42, 43, 44, 48, 49, 55, 103

Cost of New Employees, 88,

89
Credit, 84
Credit System, 52, 53, 54, 55,

57, 58, 59, 84, 85, 95
Crozier (General), 78, 81

Democracy in Industry, 65,

74, 89 '

Democracy in" Management,

Democracy in Politics, v

Democracy in Production, 74

Democracy in the Shop, 84
Dollar-a-Year Service, 18, 20,

106, 107

Economic Conditions, 12, 41
Economics of Democracy, 60
Economic Force, iii
Economic System, v, 57, 60,

74, 75, 96, 97
Economists, 41, 60, 70
Efficiency and Idleness, 23,

24, 25, 33, 47, 48, 49, 64
Efficiency Campaign, 23, 25,

89
Efficiency Methods, 89, 90, 96

111

112

INDEX

Emergency Fleet Corporation,

8, 9, 12, 81
England, 67, 68
Europe, v, 6, 10, 11, 12, 14,

15, 71, 76, 77
Expense of Idleness, 26, 33,

44, 47, 48, 50, 51

13, 17, 20, 21, 22, 41, 42,

66, 68, 69, 76, 85, 108
Industrial Unrest, 4, 5, 6, 7,

16
Inspection, 90

Kaiser, 8

Federal Government, 8, 10, Labor, 26, 108

24, 54, 58, 95 Labor Unions, 11, 26
Federal Reserve Banking

System, 52 Machine Records, 45, 92, 93,

Federal Trade Commission, 94, 95

10 Managers, 50, 61, 64, 90, 92,

Financial Credit, 84, 85, 95 94

Financing, 8, 9, 52, 53, 54, Man Records, 84, 85, 86, 87,

55, 56, 58, 70, 84 88, 91, 94, 95

Food Administration, iii Manufacturers, 28, 29, 30, 31,

Ford, Henry, 55 32, 33, 34, 35, 37, 38, 39,

55, 86, 87

Germany, iii, 61, 65, 66, 67, Militarism, 7, 66

68, 69, 71, 74, 75 Military Autocracy, 66, 68

Government Financing, 8 Military Methods, 41, 65, 66,

Government Ownership, 101
Great Britain, 11

69, 74, 75, 98
Munitions, 62, 64

Harvesting Dollars, 24
Human Factor, 89, 90

Idleness, 23, 25, 26, 27, 34,

37, 43, 44, 45, 47, 48, 49,

92, 93
Industrial Engineer, 16, 20, Political Autocracy, 69, 100

21, 38, 39 Political System, iii, 41, 69,

Industrial Management, 72, 98

73 Preparedness, 60, 61, 62, 65,

Industrial System, iv, 3, 8, 69, 78

Opinions vs. Facts, 20
Ordnance Department, 78, 79,
80

Parting of the Ways, 3, 6, 14

Pershing (General), 84

INDEX

113

Privilege, 65, 68, 70, 71, 72
Production, 20, 28, 54, 56, 57,

63, 64, 76, 79, 80
Production and Costs, 28
Productive Capacity, 54, 55,

57, 62, 63, 64, 77, 95, 99,

100
Profits, 5, 7, 12, 14, 17, 33,

44, 54, 99, 100
Progress Charts, 17, 74, 78,

79, 80, 81, 82
Public Money, 50
Public Service Corporations,

9, 10, 12

Radicals, iv, 6
Religion, 98, 104, 108, 109
Religion of Democracy, 98
Russia, 6, 7, 11, 71, 72

99, 100, 103, 105, 106,
108

Schneider (Dean), 79, 80, 81
Sherman Anti-Trust Law, 4
Shipping Board, 81
Social Preparedness, 60, 65
Social Responsibility, 15,

100, 101, 102, 105

Soviet System, iii, 6, 7, 11,

15, 71, 72
Statisticians, 18, 19

Theories, 32, 43, 57
Training Workmen, 86, 87,

88, 89, 90, 91, 102, 103
Trusts and Combinations, 4

Value of Industrial Property,
41, 42

Service, iv, 3, 5, 8, 10, 12, 13,
14, 17, 18, 22, 67, 68, 96,

Wall Street, 52, 53
War Labor Board, iii

from which it was borrowed.

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LOS ANGELES Library
<Jraduate School of Business Administration
University of California
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